Q2 2024 Bio-Techne Corp Earnings Call

Good morning, and welcome to the Biotech Me earnings conference call for the second quarter of fiscal year 2024.

At this time, all participants have been placed in a listen only mode and the call will be opened for questions. Following management's prepared remarks during our Q&A session. Please limit yourself to one question and one follow up question I would now like to turn the call over to David Clair biotech needs Vice President and Investor Relations. Thank you you may begin.

David Clair: Good morning, and thank you for joining us on the call with me. This morning are Kim tell them biotech me as Chief Executive Officer, Chuck come at biotech its former Chief Executive Officer, and current senior adviser to the company and Jim Hippel Chief Financial Officer.

David Clair: Before we begin let me briefly cover our safe Harbor statement.

David Clair: The comments made during this conference call maybe considered forward looking statements.

David Clair: <unk> beliefs and expectations about the company's future results.

David Clair: The company's 10-K for fiscal year 2023 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward looking statements made during this call.

David Clair: The company does not undertake to update any forward looking statements because of any new information or future events or developments.

David Clair: The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section.

David Clair: During the call non-GAAP financial measures may be used to provide information pertinent to ongoing business performance tables reconciling. These measures to most comparable GAAP measures are available in the company's press release issued earlier. This morning on the biotech Corporation website at Www.

David Clair: Got bio dashed technique dot com.

David Clair: Separately, we will be participating in the Barclays and Keybanc healthcare conferences during the next three months.

David Clair: We look forward to connecting with many of you at these upcoming events I will now turn the call over to Chuck.

Chuck: Thanks, Dave and good morning, everyone. Thank you for joining us for our second quarter Conference call.

Chuck: As many of you know my official tenure as biotech as Chief Executive Officer ended yesterday.

Chuck: And Kim Kelsen maintains its leadership role.

Chuck: He's taking over a company that is incredibly well positioned and sell the highest growth life science and diagnostic markets.

Chuck: I heard Kimberly the diagnostics and genomics segment in 2019.

Chuck: And in November of 2023, he was appointed Chief operating officer sitting all operational responsibilities for the company.

Speaker Change: Prior to biotech me I worked with Jim for 40 years that Thermo Fisher scientific.

Speaker Change: I'm excited for the future of biotech team as it continues to flourish under Tim's leadership.

Speaker Change: When I joined back in 2013, we were a much smaller organization with approximately 300 million in revenue at the time the business was a leader in a sluggish <unk> 3 billion total addressable market.

Speaker Change: A girlfriend largely stalled out at the company.

Speaker Change: Its legacy business, the research reagents, immunoassay and diagnostic controls and calibrating whats referred to as our core accounted for almost $650 million of revenue in fiscal 2023, and 7% CAGR over that period.

Speaker Change: Through a combination of 19 acquisitions prioritize organic investments and execution from our top notch team, we leverage these core products and capabilities and grew.

Speaker Change: Business to over one $1 billion in fiscal 'twenty three.

Speaker Change: All expanding our Tam to an estimated 27 billion.

Speaker Change: Under the biotech thing umbrella, we now I've met this car with high growth market, leading franchises in proteomics analytical instrument.

Speaker Change: Cell and gene therapy.

Speaker Change: <unk> biology, and molecular diagnostics our team of over 3000 global employees has accomplished with big interesting growth, while maintaining one of the most attractive profitability profile you know our industry is.

Speaker Change: It's been a pleasure getting to know many of you on this call today and we didn't have the team over the last 11 years.

Speaker Change: I have never been more confident in our long term growth potential of this business and look forward to its continued evolution of that can you shouldn't.

Speaker Change: Now I'll turn the call over to Kim.

Thank you for your kind words, Chuck I'm. Please note that all of US here a biotech he wish you the very best going forward now.

Now to our Q2 results the biotech team continued to execute well in a dynamic and constrained market environment.

Kim Kelsen: Our industry has faced several headwinds for over a year now and the old and those also impacted our second quarter, which resulted in the organic revenue decline of about 2%.

The sources of these headwinds continue to be a very soft biotech funding environment destocking by our large OEM and pharma customers as well as a broad economic challenge in China Rich.

Kim Kelsen: It happens to be historically, our high growth geographies.

Kim Kelsen: Despite the negative impact from these headwinds the long term growth potential of our company remains intact.

Our strategic growth pillars suggests that protein simple branded portfolio of analytical tools for boating.

Kim Kelsen: Batesville biology franchise as well as our XO Dx liquid biopsy business.

Kim Kelsen: All delivered solid growth during the past quarter.

Kim Kelsen: In the years ahead, we will continue to bolster these high growth businesses with market, leading high quality content from our core portfolio of research reagents by the way a good portfolio with over 6000 protein and more than 400000 antibodies has been a solid growth business by itself by delivering.

Kim Kelsen: The average growth rate of about 7% over the past decade.

Kim Kelsen: We will continue to drive growth in this corporate folio will leverage our unique product catalog as well as our expertise to enable industry discoveries fortify our existing growth pillars, and ultimately improve global health care.

Kim Kelsen: During my transition period to become CEO I also spent time understanding the efficiencies of our global operational footprint.

Kim Kelsen: We evaluated the resource needs across all the businesses, we analyzed relatively strategic importance as well as profitability of various product categories across our overall portfolio.

Kim Kelsen: Operating margins show, but secondly is already a very efficient organization, but that said, we haven't been able to identify opportunities to increase efficiencies throughout the global biotech Mi operating model.

Kim Kelsen: In the face of the current environment, we will remain focused on driving our growth pillars, while executing on those aforementioned efficiency increase opportunities.

Kim Kelsen: Before I proceed with the specifics of the quarter I'd like to officially welcome Mat Mcmanus two biotech me as the president of diagnostics and genomics segment met might be familiar name to several of you as he was formerly executive Vice President and Chief operating officers presenter.

Mat Mcmanus: Prior to that role he was leading biotech needs molecular diagnostics business. Following our acquisition of for sure Jin, where he was the CEO.

Mat Mcmanus: We are excited to have Matt back at the biotech new family given its existing knowledge of the business strong cultural fit and breath of life Science leadership experience.

Mat Mcmanus: He is the ideal leader to take our diagnostics and genomics business to the next stage of growth.

Speaker Change: Rounds out.

Speaker Change: The biotech and the leadership team that has deep experience and a proven track record of driving growth through market cycles and I'm excited to lead this talented team going forward.

Speaker Change: Now, let's start with a discussion on our end markets and geographies Biopharma.

Speaker Change: From a growth declined low single digits in the quarter as we noted a law school trajectory for the global biotech sales stepped down at the end of our first quarter and into the early part of our second quarter.

Speaker Change: This trajectory continue throughout the remainder of the second quarter. The Biopharma customers remain very engaged with our sales force, but given the overall funding environment. They took a much more cautious stands on spending in front of the 'twenty 'twenty four budget cycles.

Speaker Change: Onto the academic market.

Speaker Change: On the academic side demand remains very consistent and healthy across the geographies.

Speaker Change: We drove upper single digit growth in the quarter and even though we saw a challenging biopharma market. The team has done an excellent job pursuing and converting opportunities in the academic market.

Speaker Change: From a geographic perspective, Europe grew mid single digits.

Speaker Change: Our strengthened Europe.

Speaker Change: <unk> leadership team continues the positive momentum, which we have experienced over the last four quarters.

Speaker Change: Team executed well, despite the aforementioned spending behavior from our farmer customers.

Speaker Change: North America, we experienced a flattish year over year performance.

Speaker Change: It's worth noting that this is the region, where we continue to experience the most significant impact from the soft biotech funding environment.

Speaker Change: Now moving onto China, you might recall that while exiting the first quarter of the fiscal year, China was highlighted as a geography, where we experienced deceleration in spend mostly impacted our portfolio within the protein Sciences segment.

Speaker Change: These headwinds led to a year over year decrease of over 20% in the geography for the quarter.

Speaker Change: The good news is that following a particularly challenging October and November the run rates stabilized as we close the calendar year and this trend has continued at the start of calendar 'twenty 'twenty four.

Speaker Change: While it's difficult to call the bottom based on two months of performance. We are encouraged with the current trends stabilize.

Speaker Change: Access to improve health care. It remains the top priority for the China government and we remain very bullish on the long term prospects for our product portfolio, serving researchers in this region.

Speaker Change: Now, let's discuss our growth pillars, starting with those within our protein Sciences segment.

Speaker Change: Our proteins simple branded portfolio of novel productivity, driven analytical tools had a challenging quarter when it comes to new instrument placement.

Speaker Change: This is related to the budget constraints across biopharma, even in China.

Speaker Change: However, there were a number of green shoots within that portfolio, namely to consumables used specifically on the protein simple platforms.

Speaker Change: For the fourth quarter in a row. These consumables have grown by at least 20%, which means that our customers are utilizing our instrument at record levels, even when budgets are constrained.

Speaker Change: Another green shoot has been our simple plex platform automated multiplex Elisa instrument rented hello.

Speaker Change: Well the platform experienced double digit growth in Q2 is becoming the go to place for them in the high volume accounts, such as heroes and cell therapy QC labs.

Speaker Change: These accounts before them large translational studies that increasingly rely on the high sensitivity and ease of use of the platform for their multiplexing Elisa.

Speaker Change: As a reminder, we recently received ISO 13, 45 certification of our willing toward Connecticut facility.

Speaker Change: With this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on this implementation that's one.

Speaker Change: This will open up a large potential end market for its fast highly sensitive and easy to use multiplexing.

Speaker Change: Assay instrument, we are encouraged by the number of discussions we are having the potential diagnostic partners and we're taking steps to further position <unk> as.

Speaker Change: As the platform of choice for high value diagnostic application.

Speaker Change: The third green shoots with Ara proteins simple growth pillar has been a biologics platform branded marine.

Speaker Change: Excluding China. This platform grew over 20% in Q2.

Speaker Change: We see significant traction with the recent launch of Mohit flex specifically in biological drug development and drug production.

Speaker Change: This makes it a lot of sense because in addition to bloating charge, both inside and identity capabilities. This next generation platform is also an easy to use replacement for the legacy mass spectrometry fractionation methods, including exchange chromatography.

Speaker Change: Following the <unk> flex launch in March of last year, we are seeing a growing number of publications, which is driving awareness and demand for this instrument.

Speaker Change: I'll shift now to our other major growth pillars within the protein Sciences segment.

Speaker Change: Cell and gene therapy.

Speaker Change: This business vertical includes a portfolio of puts you in like ages as well as scalable workflow solutions that enable our customers to accelerate progress towards the commercialization of their next generation cell and gene therapies.

Speaker Change: The customers for these solutions are mainly biotech companies and our Q2 results were therefore equally impacted but at the same funding constraints that I talked about earlier.

Speaker Change: However, short term funding constraints have not changed our conviction that cell and gene therapy is here to stay in fact, we believe that these technologies will play a significant role in treating and curing terrible diseases and therefore, we will continue to invest in the strategic growth pillar.

Speaker Change: During the quarter, we filed the first drug master file.

Speaker Change: Or D M F. Four in animal feed accelerates GMP expansion media.

Speaker Change: This filing joins a growing list of almost three filing that span our GMP product portfolio.

Speaker Change: These D&S enable our cell therapy customers to cross reference that filing when submitting to the FDA, making there I N D plus that's much easier.

Speaker Change: This way our products effectively can expect into our customers' workflow.

Speaker Change: We're also expanding our market leading GMP portfolio to include additional media formulations gene engineering capabilities and GMP antibodies.

Speaker Change: These activities will further solidify biotech nice market position is it heavily growing industry.

Speaker Change: In addition, we are finalizing the closed their own immune cell therapy manufacturing solution, which pairs, our GMP proteins and our GMP media with the Wilson Wolf G X.

Speaker Change: Overall, the protein Sciences segment experienced a 4% organic revenue decrease in the quarter.

Speaker Change: It has been impacted by the current biotech funding landscape.

Speaker Change: The order timing among a handful of large biopharma customers as well as the constraints macro environment in China.

Speaker Change: But as the green shoots that I discussed.

Speaker Change: [laughter] indicate this segment is positioned for accelerated growth and the macro funding challenges abate.

Speaker Change: Now, let's discuss the growth pillars within our diagnostics and genomics segment, starting with our spatial biology franchise.

Speaker Change: This division includes our ACD Brendan products as well as the lunar for branded space, you'll be LNG automated solution.

Speaker Change: Acd's RNA scope continues to play an important role in advancing gene therapy neuroscience and cancer research.

Speaker Change: Despite the challenging macro environment. This portfolio remains in high demand growing mid teens globally for the quarter.

Speaker Change: We're also excited about the traction we are experiencing with the recently acquired Luna for platform. As a reminder, we are currently commercializing the common instrument fully automated high throughput hyperflex platform that does not require use of conjugated antibody.

Speaker Change: Come at high value proposition is resonating with the translational research community, which is driving significant interest and rapid growth.

Speaker Change: Store base.

Speaker Change: In fact demand for the common instrument exceeded our manufacturing capacity, which created a backlog. During this quarter. We are currently scaling our kermit production capacity to meet the strong demand.

Speaker Change: A final note around our space will be able as your business is that we recently announced the upcoming lounge with fully automated special multi omics workflow with detection of RNA and protein markers on the same tissue section.

Speaker Change: Historic flow bears Acd's RNA scope technology, because lunar first fully automated commerce platform and we will be showcasing this complete solution at the upcoming H M. P. T next week in Orlando.

Speaker Change: Now, let's discuss our other growth pillar within VEGF molecular diagnostics business.

Speaker Change: Our extra Dx prostate test provides valuable information on whether a man with a gray zone PSA score should proceed with our invasive and potentially dangerous costly biopsy or not.

Speaker Change: With 30% volume growth in our second quarter the value of this test continues to resonate with both patients and physicians.

Speaker Change: Extra film based development pipeline includes single gene mutation test for monitoring various cancer markers as well as the colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous polyps.

Speaker Change: We look forward to sharing additional data on this exciting pipeline in the coming quarters.

Speaker Change: Overall, the diagnostics and genomics segment grew by 5% organically in the quarter, but it was muted by the Destocking and strict inventory management from our core diagnostics OEM customers.

Speaker Change: As these OEM customers returned to normalized buying patterns.

Speaker Change: From our special biology, and molecular diagnostic growth pillars will become more visible at the segment level.

Speaker Change: In summary, I'm extremely proud of the team's ability to navigate the transitory challenges that are impacting both biotech mi and the brother life Sciences tool industry.

Speaker Change: Our portfolio's quarterly agent.

Speaker Change: Police in proteomics analytical tools in cell and gene therapies and space, you'll be able to achieve and in molecular diagnostics are well positioned to improve the quality of life by capitalizing advances in science and medicine.

Speaker Change: Thank you very much and with that I'll turn it over to Jim Jim.

Jim Hippel: Thank you Ken I'll start with some additional detail on our Q2 financial performance and give some thoughts on our financial outlook.

Jim Hippel: Starting with the overall second quarter financial performance adjusted EPS was <unk> 40 cents compared to 47 cents in the prior year quarter.

Jim Hippel: Foreign exchange benefited EPS by Tuesday.

Jim Hippel: GAAP EPS for the quarter was 17 cents compared to 31 cents in the prior year.

Operator: Good morning, and welcome to the Biotechnology Earnings Conference call for the second quarter of fiscal year 2024. At this time, all participants have been placed in a listen-only mode, and the call will be open for questions following management's prepared remarks during our Q&A session. Please limit yourself to one question and one follow-up.

Jim Hippel: Q2 revenue was $272 6 million a decrease of 2% year over year on an organic basis and was flat on a reported basis.

Jim Hippel: Foreign exchange translation had a favorable 1% impact of all acquisitions also contributed 1% to reported growth.

Jim Hippel: Looking at our organic growth by region and end market in Q2.

North America declined slightly year over year.

Operator: I would now like to turn the call over to David Clare, Biotech Needs' Vice President of Investor Relations. Thank you. You may begin.

Jim Hippel: Europe increased mid single digits.

Jim Hippel: In China declined over 20% in the quarter.

David Clare: Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, Biotechnies' Chief Executive Officer; Chuck Kummeth, Biotechnies' former CEO and current Senior Advisor; and Jim Hippel, Chief Financial Officer. Before we begin, let me briefly cover our safe harbors.

Jim Hippel: As Kim mentioned soft biotech funding environment combined with overall conservatism from our Biopharma customers.

Jim Hippel: With a drag on our North American business and to a lesser extent also represented a headwind to our European performance relative to more recent quarters.

Jim Hippel: APAC outside of China decreased low single digits overall with government funding constraints and South Korea, partially offset by growth in Japan and India.

David Clare: Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10K for fiscal year 2023 identifies certain factors that could cause the company's actual results. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10K, as well as the company's other SEC filings, are available on the company's website within its investor relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.

Okay.

Jim Hippel: For China, the soft government funding environment continue to impact the region.

Jim Hippel: Following many months of decelerating run rates in China.

Jim Hippel: Spirit to stabilization in our run rate business in December.

Jim Hippel: Encouragingly the stabilization has continued as we began calendar 2024.

Jim Hippel: It's challenging to call the bottom in this dynamic geography, but we are optimistic that headwinds going forward will be less severe.

Jim Hippel: Well likely be awhile before we return to the kind of growth rates that we historically achieved in China.

Jim Hippel: We remain confident that China will still be the fastest growing major reason region in the world for life science tools over the long term.

Jim Hippel: By end market in Q2, excluding China Biopharma declined low single digits, while academia grew upper single digits.

David Clare: Tables reconciling these measures to most comparable GATT measures are available in the company's press release issued earlier this morning on the Biotech Incorporation website, at www.bio-technique.com. Additionally, we will be participating in the Barclays and KeyBank healthcare conferences during the next three months. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Chuck.

Jim Hippel: Even though revenue on the P&L total company adjusted gross margin was 69, 7% in the quarter compared to 71, 7% and the.

Jim Hippel: The prior year. The decrease was primarily driven by lower volume leverage and favorable product mix and the impact of the Luna for acquisition.

Jim Hippel: Adjusted SG&A in Q2 was 31, 2% of revenue compared to 27, 9% in the prior year, while R&D expense in Q2 with eight 4% of revenue compared to eight 3% in the prior year. The increase in SG&A was driven primarily by the wound before acquisition, partially offset by diligent cost management.

Charles Kummeth: Thanks Dave, and good morning everyone. Thank you for joining us for our second quarter conference call. As many of you know, my official tenure as Biotech's Chief Executive Officer ended yesterday, and Kim Kelderman is now in this leadership role. He's taking over a company that is incredibly well-positioned in several of the highest-grossed life science and diagnostic end markets. I heard Kim was the lead of the diagnostics and genomics segment in 2018. And in November of 2023, he was appointed Chief Operating Officer, assuming all operational responsibilities for the company.

Jim Hippel: Across the board.

Jim Hippel: The price increases implemented during fiscal year 'twenty three continue to offset the dollar impact of inflation and the operating income with pricing also largely offsetting the inflationary impact on our operating margin in Q2.

Charles Kummeth: Acquired by Biotechni, I worked with Kim for four years at Dental Tissue Science. I'm excited for the future of biotechnology as it continues to flourish under Kim's leadership. When I joined Biotech in 2013, we were a much smaller organization. With approximately $300 million in revenue at the time, the business was a leader in its legacy $3 billion total addressable market, but growth had largely stalled out at the...

Jim Hippel: Adjusted operating margin for Q2 was 31% a decrease of 540 basis points from the prior year period.

Jim Hippel: Excluding the Luna for acquisition, which closed at the beginning of Q1 adjusted operating margin was 300 basis points lower than the prior year due to the impact of unfavorable volume leverage and product mix.

Jim Hippel: Looking at our numbers below operating income net interest expense in Q2 was $3 4 million, increasing $1 2 million compared to the prior year period due to higher debt levels.

Jim Hippel: Our bank debt in the balance sheet at the end of Q2 stood at $447 million, an increase of 7 million compared to last quarter.

Jim Hippel: Other adjusted Nonoperating income was $3 1 million in the quarter, an increase of $3 1 million compared the prior year, primarily reflecting our 20% share of Wilson Wolf adjusted net income and the foreign exchange impacts related to our cash pooling arrangement.

Charles Kummeth: This legacy business of research reagents, immunoassays, and diagnostic controls and calibrators, which we refer to as our core, accounted for almost $650 million in revenue in fiscal 2023 and grew at a 7% rate over that period. Through a combination of 19 acquisitions, prioritized organic investment, and execution from our top-notch leadership team, we leveraged these core products and capabilities and grew the business to over $1.1 billion in fiscal 2023, all standing our company to an estimated 27 billion. Under the biotech umbrella, we now augment this core with high-growth, market-leading franchises and proteomic analytical instruments. Cell and Gene Therapy Spatial Biology and Molecular Diagnostics

Jim Hippel: Moving further down the P&L, our adjusted effective tax rate in Q1 was 22%.

Jim Hippel: Flat sequentially, but up 100 basis points compared to the prior year due to geographic mix.

Jim Hippel: Turning to cash flow and return of capital $83 1 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $14 9 million.

Jim Hippel: Also during Q2, when we return capital to shareholders by way of $12 5 million in dividend and completed $80 million buyback of one 4 million shares.

We finished the quarter with $160 1 million average diluted shares outstanding.

Jim Hippel: Our balance sheet finished Q2 in a strong position with $135 6 million in cash and our total leverage stood below one times EBITDA.

Jim Hippel: Going forward M&A remains a top priority for capital allocation.

Jim Hippel: Now I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.

Jim Hippel: Q2 reported sales were 197 7 million with reported revenue, increasing 3% compared to the prior year period.

Jim Hippel: Organic revenue decreased 4% with foreign exchange, having a 1% favorable impact.

Kim Kelderman: Our team of over 3000 global employees has accomplished this magnificent growth while maintaining one of the most attractive profitability profiles in our industry. It's been a pleasure getting to know many of you on this call today and leading this talented team over the last 11 years. I have never been more confident in the long-term growth potential of this business and look forward to its continued evolution under Kim's leadership. With that, I'll turn the call over to Kim.

Jim Hippel: As a reminder is a protein sciences segment that has the most exposure to the China geographic region as well as to the biotech end market.

Jim Hippel: Operating margin for the protein Sciences segment was 43% a decrease of 350 basis points compared the prior year quarter.

Unfavorable volume and product mix were partially offset by cost management initiatives.

Jim Hippel: Turning to the diagnostics and genomics segment Q2 reported sales were $75 4 million with reported growth increasing 11% compared to the same quarter last year.

Jim Hippel: Organic revenue growth was sudden it was 5% with acquisitions, having a 5% impact from foreign exchange had an unfavorable impact of 1%.

Kim Kelderman: Thank you for your kind words, Chuck, and please know that all of us here at Biotechnie wish you the very best going forward. Now to our Q2 results. The biotechny team continued to execute well in a dynamic and constrained market environment. Our industry has faced several headwinds for over a year now, and those also impacted our second quarter, which resulted in an organic revenue decline of about 2%.

Jim Hippel: As Ken previously mentioned organic growth was driven by our spatial biology, and molecular diagnostic growth pillars, partially muted by the Destocking in order timing of our core diagnostic reagent OEM customers.

Moving onto the diagnostics and genomics segment operating margin at 6% the segment's operating margin decreased compared to the prior year's 12, 2% due primarily to the impact of women for acquisition.

Jim Hippel: However, Q2 operating margin improved 530 basis points sequentially from Q1, due to improving volume leverage and favorable mix.

Jim Hippel: As we turn the page on Q2 and look ahead to the back half of our fiscal year. There are still reasons to remain cautious.

Kim Kelderman: The sources of these headwinds continue to be a very soft biotech funding environment, destocking by our large OEM and pharma customers, as well as a broad economic challenge in China, which happens to be historically a high-growth geography. Despite the negative impact from these headwinds, the long-term growth potential of our company remains intact, and our strategic co-spillers, such as the Protein Simple branded portfolio of analytical tools for protein, our Spatial Biology franchise, as well as our ExoDx liquid biopsy business, all delivered solid growth during the past quarter. In the years ahead, we will continue to bolster these high-growth businesses with market-leading, high-quality content from our core portfolio of research reagents. By the way, our core portfolio of over 6,000 proteins and more than 400,000 antibodies has been a solid growth business by itself, delivering an average growth rate of about 7% over the past decade. We will continue to drive growth in this core portfolio and leverage our unique product catalog as well as our expertise to enable industry discoveries, fortify our existing growth pillars, and ultimately improve global health. During my transition period to become CEO, I also spent time understanding the efficiencies of our global operational footprint. We evaluated resource needs across all the businesses.

Jim Hippel: But there are also some reason or green shoots as kidney problem for optimism in the near term.

Jim Hippel: On the macro front biotech funding has not dramatically started falling back nor has the Chinese economy and from a life Science research returned to its pre COVID-19 strength.

Jim Hippel: But inflation and interest rates appear to have stabilized and according to some analysts reports biotech funding has already been reduced to a level not seen since 2016.

Jim Hippel: Having recently been to China in Q2, Jim Chuck and I, all witnessed the local economy on a mood with crowded streets in restaurants and busy regional airports.

Jim Hippel: After several years of totally shut down the local economy is starting to bustle once again and likely generating tax revenue for the government.

Jim Hippel: That's for a biotech me our growth pillars are continuing to shine even difficult macro conditions.

Jim Hippel: We are closely monitoring sequential run rates.

Jim Hippel: Agents business to help determine where we are at in the bottoming process.

Jim Hippel: It's only the nucor, but thus far we are encouraged that the worst may be behind us.

Jim Hippel: This does not mean, we expect a quick acceleration of growth well.

Jim Hippel: But we do expect that the trend is decelerating growth has been pervasive throughout this macroeconomic cycle may have subsided.

Jim Hippel: Down cycles like we've experienced over the past 18 months or so and never fun.

Jim Hippel: But the resiliency of our growth pillars throughout this cycle has giving us even greater confidence that our company will grow at a double digit growth rate when markets normalize and the longer term.

Jim Hippel: As that market start to normalize and prepare for the inevitable returned to growth. We will continue to diligently manage our cost structure and invest in that business for the future.

Jim Hippel: As Ken mentioned in his opening comments, we continue to identify opportunities for efficiencies and by executing on these opportunities will protect and even grow our adjusting operating margins sequentially for the remainder of the fiscal year.

Speaker Change: That concludes my prepared comments and with that I'll turn the call back over to the operator to open the line for questions.

Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Kim Kelderman: We analyzed the relative strategic importance as well as profitability of various product categories across our overall portfolio. As our operating margins show, Biotechnie is already a very efficient organization. But with that said, we have been able to identify opportunities to increase efficiencies throughout the global Biotechnie operations. In the face of the current environment, we will remain focused on driving our growth pillars while executing on those aforementioned efficiency increase opportunities. Before I proceed with the specifics of the quarter, I'd like to officially welcome Matt McManus to Biotechni as the president of Diagnostics and Genomics. Matt might be a familiar name to several of you as he was formerly the Executive Vice President and Chief Operating Officer for Zenta.

Speaker Change: Our first questions come from the line of Puneet <unk> with Leerink partners. Please proceed with your question.

puneet: Yeah, Hi, guys. Thanks for taking the question and Chuck It was a really great working with you and.

puneet: Good luck ahead, and Kim and welcome aboard onboard again.

puneet: It's it's it's good to have you in the role leading the company and Matt I'm really glad to have you back and biotech me as well.

Speaker Change: So maybe let me I'm asking my question is really around the sort of the headwinds that have been consistent for the last few quarters.

Speaker Change: You have known them, we've seen that across the industry, China Biopharma I think the question really here is what changed in the quarter within your assumptions you were expecting a flat Hum. It you know flat result in this quarter you ended up down 2% so.

Speaker Change: Maybe just walk us through is there something in the portfolio is it specific to customer orders or is there something in the forecasting process, that's not working well, but you know yielded this result versus what you were expecting and then I have a follow up.

Speaker Change: Yeah. Thank you Bonnie and good morning, and thanks for your kind words towards our team a great question I of course have a have a opinion on on which of these headwinds are going to be most significant going forward.

Kim Kelderman: Prior to that role, he was leading Biotechnie's Molecular Diagnostics business following her acquisition of Asuragen, where he was the CEO. We are excited to have Matt back in the Biotechnie family; given his existing knowledge of the business, strong cultural fit, and breadth of life science leadership experience, he is the ideal leader to take our diagnostics and genomics business to the next stage of growth. Matt Ransout, a biotechnology leadership team that has deep experience and a proven track record of driving growth through market cycles, and I'm excited to lead this talented team going forward.

Speaker Change: But in the rear view mirror, we have we certainly have a good understanding of which ones are the M.

Speaker Change: Our most significant so I'll, let Jim talk about that.

Yeah got plenty to good morning, you know I was the one that are you know called that for cats. So to speak so I think I need to speak to it you know as we ended last quarter, we were pretty transparent on the call that in the last couple of weeks as we closed Q1 in the first few weeks as we opened in Q2 that we've seen a step.

Speaker Change: Down a deceleration in our biotech, especially but even though a bit in pharma.

Speaker Change: And and and so you know the reality is and we've talked about this in various conferences throughout that that trend had continued and the time of the call. A few weeks doesn't necessarily make a trend. So we took up our view on our growth rates decelerating from where they were in Q1, but obviously that trend ended up being longer in.

Kim Kelderman: Now let's start with a discussion on our end markets and geoglyphs. They'll drive our growth, but Biopharma, our growth declined low single digits in the quarter. As we noted in the last poll, the trajectory for global biotech sales stepped down at the end of our first quarter and into the early part of our second quarter. This trajectory continued throughout the remainder of that second quarter. The Biopharma customers remain very engaged with their sales. Given the overall funding environment, they took a much more cautious stance on spending in front of their 2024 budget cycle, to the academic market. On the academic side, demand remains very consistent and healthier across the geography.

Speaker Change: Deeper than we do we anticipate that's kind of how and why we ended up where we did.

Speaker Change: Now that being said as we look forward again, a more optimistic view coming out of last quarter and going into this quarter than we did in prior quarter in that.

Speaker Change: Run rates as we talked about it stabilized in China, and we're just seeing overall stabilization in our business as we enter this quarter relative to how we entered Q2, but you know I will.

Speaker Change: Right.

Speaker Change: Temper that a bit by by saying just like last quarter, you know a few weeks or even a month doesn't necessarily make a trend either but.

Speaker Change: We definitely see a bit of a momentum shift or at least stabilization from where we are at this point going into this quarter versus last quarter.

Speaker Change: Okay. That's helpful.

Speaker Change: Maybe on the guide Jen I just wanted to clarify that you expect this quarter to be a low point based on the comments you mentioned about China early signs and stabilization there and Biopharma you know remaining sort of a status quo maybe just.

Kim Kelderman: We drove upper single-digit growth in the quarter. And even though we saw a challenging biopharma market, the team did an excellent job pursuing and converting opportunities in the academic market. From a geographic perspective, Europe grew mid-single digit.

Speaker Change: Help us think about the next two quarters or for the full year just in terms of where you.

Kim Kelderman: Her strengthened European leadership team continues the positive momentum which we have experienced over the last four quarters. The team executed well despite the aforementioned spending behavior from a farmer cost perspective. In North America, we experienced a flattish year-over-year performance.

Speaker Change: You know models are you know if you could walk us through your assumptions on how youre thinking about the you know the growth rates here appreciate any context on that.

Speaker Change: Sure.

Speaker Change: Well I would say this I mean I talk about that is it's you know it's we have a sense that the deceleration is is slowing and and perhaps stopping and so what I mean by that is I think you've heard this from many of our peers already that kind of expect our Q3 to be somewhat similar to our Q2 in terms of organic growth.

Kim Kelderman: It's worth noting that this is the region where we continue to experience the most significant impact from the soft biotech funding environment. Now, moving on to China, you might recall that when we exited our first quarter of the fiscal year, China was highlighted as a geography where we experienced a deceleration in spend, mostly impacting our portfolio within the protein sciences. These headwinds led to a year-over-year decrease of over 20% in geography for the quarter.

Speaker Change: Beyond that it's difficult to call. This whole the whole bottoming process had been difficult to call, but you know I pretty much agree with what's been set out there by with a larger companies who have even greater overall market access that yeah. It feels like the first half of calendar 'twenty four will be more difficult.

Speaker Change: The second half, but we'll obviously get into our planning process here in about three or four months and have more to talk about our fiscal year 'twenty five filing that but that's pretty much we put them. Our view is pretty much consistent with what you're hearing from our peer companies.

Thank you our next questions come from the line of Jacob Johnson with Stephens. Please proceed with your questions.

Kim Kelderman: The good news is that following a particularly challenging October and November, the run rate stabilized as we closed the calendar year. And this trend has continued at the start of calendar 2024. While it's difficult to call the bottom based on two months of performance, we are encouraged with the current trends stabilized. Access to improved health care remains a top priority for the Chinese government, and we remain very bullish on the long-term prospects of our product portfolio serving researchers in this region. Now let's discuss our growth pillars, starting with those within our protein science. A protein-simple branded portfolio of novel, productivity-driven analytical tools has a challenging quarter when it comes to new instrument placement.

Jacob Johnson: Hey, Thanks, Good morning, maybe just first to unpack the Biopharma commentary.

Jacob Johnson: The releases suggests there's kind of headwinds increase in December can you just talk to kind of what she saw that what caused that or what you think caused that made it that the evil CFO, Jim and then just as we look ahead.

Jacob Johnson: Kind of what are you seeing for that end market to start the year and have you seen any kind of change in customer behavior as the calendar is turned.

Speaker Change: I'll start off and the like can comment perhaps size until you've mentioned the evil CFO comment I think that's partly what was what it was you know what in a sense that I talked about in some prior conferences that.

Speaker Change: And talking to our customers. The interest is as high if not highest its ever been and our products, but are getting purchases through particularly logging like any any larger purchases through their internal purchasing departments that are finance departments was difficult and there was a sense of hold off until the next calendar year and county are Budd.

Speaker Change: Jets are set.

Speaker Change: So we'll see if that actually materializes this quarter, but there was definitely that Congress those conversations going on with our customers.

Speaker Change: But I think you know quantitatively there's been net number of reports put out there by analysts who follow very closely the biotech funding and they all basically say that biotech funding was down over 20%.

Kim Kelderman: This is related to the budget constraints across biopharma having in China. However, there were a number of green shoots within that portfolio, namely the consumables used specifically on the protein-simple platform. For the fourth quarter in a row, these consumables have grown by at least 20%, which means that our customers are utilizing our instruments at record levels, even when budgets are constrained. Another bright spot has been our SimplePlex platform, an automated, multiplexing ELISA instrument branded ELLA.

Speaker Change: In Q in the December quarter, and I think down sequentially like in the mid teens, even so it was definitely a drop off in biotech funding and and and we you know that's a decent chunk of our business.

Speaker Change: So I think that's I think that goes without saying that was that was a clear driver for what occurred within the quarter.

Speaker Change: Yeah, let me add to that.

Speaker Change: The biopharma market has been constrained by lower funding unusual than usual.

Speaker Change: If not mistaken, we probably hit the lowest point since 2016.

Speaker Change: However, our portfolio is well positioned right. So we have.

Speaker Change: In the core of the highest quality products that will.

Speaker Change:

Speaker Change: Could use and give you the best results. So you don't have to repeat your experiments, which of course is important in a constrained environment like this and secondly, our instrumentation portfolio is to optimize efficiency so to have.

Kim Kelderman: Overall, the platform experienced double-digit growth in Q2 as Ella is becoming the go-to platform in high-volume accounts such as CROs and cell therapy QC labs. These accounts perform large translational studies that increasingly rely on the high sensitivity and ease of use of the platform for their multiplexing needs. As a reminder, we recently received ISO 1345 certification for our Wallingford, Connecticut facility. With this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on this implementation. This will open up a large potential end market for this fast, highly sensitive, and easy-to-use multiplexing immunoassay. We are encouraged by the number of discussions we are having with potential diagnostic partners, and we are taking steps to further position ELLA as a platform of choice for high-value diagnostic applications. The third green shoot of the Neuroprotein Simple Growth Pillar has been our biologics platform, Brendan Murray. Excluding China, this platform grew over 20% in Q2. We see significant traction from the recent launch of Morisse Flax, specifically in biological drug development and drug production.

Speaker Change: To have fewer people in the laboratory to automate.

Speaker Change: Clunky processes that are that they'll give you the efficiencies you need and the.

Speaker Change: Reproducibility in your results that you need so overall our portfolio is it's tailored to two a constrained environment like this one and and I think therefore that are that we will we will come out strong.

Speaker Change: Once once funding normalized.

Speaker Change: I'll just reiterate what was that Kevin talked about it in his opening comments to reinforce that is that our consumables on our on our instrument platforms were up again this quarter, nearly 20% and they've been up 20% or more every quarter for the past four quarters and this and this has been a you know.

Speaker Change: Declining market over all of the past year. So I think that it's a clear sign of how our how our tools provide the productivity that our customers need in an environment like this.

Speaker Change: Not to mention the potential pent up demand for new instruments once funding and it becomes more prevalently.

Speaker Change: Got it thanks for all that.

My follow up I can you mentioned earlier this year and then on this call again, you know given the current environment you can look more internally at your footprint footprint and the efficiencies I think there was a restructuring charge in the quarter as well can you just elaborate on that statement and kind of how you know what efforts are you taking on.

Speaker Change: Now in and maybe for Jim how we should think about the impact of those on margins.

Speaker Change: Yeah. Thanks, Thanks Jacob.

As I think about the constrained environment.

Speaker Change: You're always going to make sure that you tailor your organization to be most efficient in such environment.

Kim Kelderman: This makes a lot of sense because in addition to protein charge, protein size, and identity capabilities, this next-generation platform is also an easy-to-use replacement for the legacy mass spectrometry fractionation methods, including ion exchange chromatography. Following Maurice Fleck's launch in March of last year, we are seeing a growing number of publications, which is driving awareness and demand for this. I'll shift now to our other major growth pillars within the protein sciences sector, Cell and Gene Therapy.

Speaker Change: Not only to protect the bottom line, but also to make sure that your most efficient coming out of such such constrained period. So yes. We have we have looked at level loading the the capacity of our employees over a certain businesses.

Speaker Change: In certain buckets of volumes and revenues are more down than others. So we of course want to make sure that we do the right things there from a from a.

Speaker Change: For my horsepower point of view.

Speaker Change: And then secondly, it's a good time to to look at which businesses are core and strategic to you and in our case, we found some some businesses, where there was either a a growth profile and or a bottom line profile that doesn't fit our long term financial sense.

Kim Kelderman: This business vertical includes a portfolio of proteomic reagents, as well as scalable workflow solutions that enable our customers to accelerate progress towards the commercialization of their next-generation cell and gene therapy. The customers for these solutions are mainly biotech companies, and our Q2 results were therefore equally impacted by the same funding constraints that I talked about earlier. However, short-term funding constraints have not changed our conviction that cell and gene therapy is here to stay. In fact, we believe that these technologies will play a significant role in treating and curing terrible diseases, and therefore, we will continue to invest in this strategic area. During the quarter, we filed the first drug master file, or DMF, for an animal-free accelerate GMP expansion.

Speaker Change: The Gs and expectations.

Speaker Change: And and or businesses that take.

Speaker Change: Disproportional amount of management attention and do.

Speaker Change: Do not have synergies with our current channels or products. So those are businesses that we are that we will evaluate and.

Speaker Change: Over time, we'll we'll divest.

Speaker Change: Got it.

Speaker Change: Taking the questions Oh, sorry go ahead, Jim sorry, No I was gonna stay with regards to the impact to margins. So you know what this does as you know some of the actions. We're taking gives us a much higher level of confidence that the margins. We reported this quarter will be the low point for the year and we will will progress sequentially going forward and I know you're going to ask me how much in.

Jim: Yeah, I think we're targeting to get back into the mid the mid 30% range by the end of the year for Q4.

Mccann: Got it thanks for that Jim Mccann and congrats to check on the retirement I'm not sure I said in my first day at retirement on an earnings call, but that's just me. Thanks again.

Jim: Hum.

Speaker Change: Thank you our next questions come from the line of Dan Arias with Stifel. Please proceed with your questions.

Daniel Anthony Arias: Hey, good morning, guys. Thanks for the questions Kim or Chuck can you just maybe talk a little bit about the antibodies business and the antibodies market just given that there are a decent number of moving parts in the mix when it comes to farmers spending the yadkin deal et cetera. It would just be great to get some color on.

Kim Kelderman: This filing joins a growing list of almost 30 filings that span our GMP product portfolio. These DMFs enable our cell therapy customers to cross-reference that filing when submitting to the FDA, making their IND process much easier. This way, our products are effectively getting specked into our customers' work. We're also expanding our market-leading GMP portfolio to include additional media formulations, gene engineering capabilities, and GMP antibodies. These activities will further solidify Biotechnies' market position in this rapidly growing industry. In addition, we are finalizing a closed sterile immune cell therapy manufacturing solution that pairs our GMP proteins and our GMP media with the Wilson-Wolffs GWAS.

Daniel Anthony Arias: What do you think is relevant when it comes to portfolio pricing share changes et cetera.

Speaker Change: Yeah, Dan. Thank you so much for your question.

Chuck: Our antibody business has done quite well I think it's been running at the low single digits, even in this environment.

Chuck:

Speaker Change: So what does that hat wins in Biopharma, we certainly have to make sure that some of our sales force.

Speaker Change: Our focus is on the academic markets and and make sure that they close deals over there and we get better in that space.

Speaker Change:

Speaker Change: Our quality of our antibodies as well do you know and we know that we are we can compete even at higher prices with our with I'm, sorry, other antibody companies and.

Speaker Change: We are we have a real really confident that we will be able to continue to do so.

Speaker Change: Of course, we have had some wins in addition from the from Destocking, where people want to would have fewer or less antibodies on the shelf. However, we feel confident that that.

Kim Kelderman: Overall, the protein sciences segment experienced a 4% organic revenue decrease in the quarter. It was impacted by the current biotech funding landscape, the order timing among a handful of large biopharma customers, as well as the constrained macro environment in China. But as the green shoots that I discussed already indicate, this segment is positioned for accelerated growth when the macro funding challenges abate. Now, let's discuss the growth pillars within our diagnostics and genomics segment, starting with our spatial biology. This division includes our ACD branded products as well as the Lunafor branded Spatial Biology Automated. ACD's RNA scope continues to play an important role in advancing gene therapy, neurosciences, and cancer research.

Speaker Change: Symptom is is now towards the end of of its phase so that we.

Speaker Change: We feel that headwind will abate.

Speaker Change: Yeah.

Speaker Change: Okay helpful.

Speaker Change: And then Jim I hate to ask about 2025 since the second half of this year, it's tough to call but.

Speaker Change: If I go back to the analyst day, and I think about the growth platforms that you guys highlighted.

Speaker Change: You know four or five of them had double digit market growth rates attached to them. So does it feel like Dick's.

Speaker Change: Six to 12 months from now your growth verticals are ramped up enough and the comps are favorable enough to wear a two digit growth number that's more typical of what you've done in the past comes back into the picture.

Speaker Change: Yeah, what I'd say is this Dan is that we have a high level of confidence given our relative performance of our growth pillar is even in this environment that once the market.

Speaker Change: It gets back to its long term for us to call. It mid single digit growth trajectory that we will be well into the double digit growth once our core it back up there and then of course the growth pillars on top of that.

So you know to asking how long it takes to get there. It's also asking how long it takes for the market overall market to normalize and I don't have a crystal ball on that but assuming that does normalize as we get into the end of calendar year 'twenty five and you know hopefully by then then the answer would be yes.

Kim Kelderman: Despite the challenging macro environment, this portfolio remains in high demand, growing mid-teens globally for the quarter. We're also excited about the traction we are experiencing with the recently acquired Lunafolk. As a reminder, we are currently commercializing the Comet instrument, a fully automated, high-throughput, hyperplex platform that does not require the use of conjugated primary amplifiers.

Okay I appreciate it.

Speaker Change: Thank you our next questions come from the line of Patrick Donnelly with Citi. Please proceed with your questions.

Speaker Change: Okay.

Hey, guys. Good morning, Thanks for taking the question and Chuck a lot second my Congrats there you know maybe Jim on the near term just to requeue piece, we're getting a good amount of questions. Just in terms of how to think about it yeah was it.

Patrick Bernard Donnelly: Flat is kind of why is that the right organic kind of year over year number to think about three can you just help us kind of frame up the near term it would be helpful. On the on the organic growth side.

Patrick Bernard Donnelly: Yeah, I mean, specifically I E. You know right now our base case is that the growth rate we experienced in Q3 will be similar to the growth rate we saw in Q2.

Kim Kelderman: Kummeth's high-value proposition is resonating with the translational research community, which is driving significant interest and rapid growth in our installed base. In fact, demand for the Comet instrument exceeded our manufacturing capacity, which created a backlog during this time. We are currently scaling our comet production capacity to meet this strong demand. The final note around our spatial biology business is that we recently announced the upcoming launch of a fully automated spatial multi-omics work, with detection of RNA and protein markers on the same tissue section. This workflow pairs ACD's RNA Scope technology with Lunaforce's fully-automated COMET platform, and we will be showcasing this complete solution at the upcoming AGPT next week in Orlando. Now, let's discuss our other growth pillar within DGS, molecular diagnosis.

Patrick Bernard Donnelly: So the deceleration of our growth rate that we've seen the deceleration of our growth rate that we've seen this past three or four quarters, we think is behind us.

Speaker Change: Yes understood. Okay, and then maybe in China, you know it sounds like obviously you know Jim we chatted you were over there.

Jim: Can you just talk about your expectations for the recovery in that region I know in the past you know whether it was government or whatever it may be you guys saw some real snapback quarter to quarter last time, we chatted it sounded like that was a little less like we maybe a little more of a stability into a gradual recovery, but maybe just talk to us.

Jim: How about what you saw over there and again the expectation over the next few quarters relative to some of the past cycles that you've seen.

Jim: Thank you Patrick I'm going to hand, this over to Kim I know, we feel exactly the same way about this but he was there actually more recently than even I was so go ahead Kim Yeah Patrick.

Kim Kelsen: Thanks for the question.

Kim Kelsen: Now what we feel is that obviously, China is an important country to us right at 10% of our revenues come from there we have been able to outgrow most our peers over the last half decade.

Kim Kelsen: But that also made it tough over the last couple of quarters, where China true truly came to a standstill.

Kim Kelsen: We feel that the the activity in China is stabilizing we.

Kim Kelsen: We do not see a clear light at the end of the funnel.

Kim Kelsen: Our comparable <unk> are going to be a little bit better in the coming quarters, but not for instruments right. So it's not that we are over over that hump.

Kim Kelsen: We do think though that China is going to be a fast growing market in the future. We do expect that China will have a kind of a bias towards China for China. Therefore, we are building a local GMP facility to serve the local market.

Kim Kelderman: Our xODx prostate test provides valuable information on whether a man with a gray zone PSA should proceed with an invasive and potentially dangerous prostate biopsy or not. With 30% volume growth in our second quarter, the value of this test continues to resonate with both patients and physicians. Our exosome-based development pipeline includes single gene mutation tests for monitoring various cancer markers, as well as a colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous polyps.

Kim Kelsen: And then at the end of the day, we feel that our products as the high quality and the automation aspects will.

Kim Kelsen: Will increase efficiency and and we'll we'll we'll find a.

Kim Kelsen: To find a real good spud in China, and I think that the current pull through of our of our consumables shows that the instruments are getting used.

Kim Kelsen: Yeah.

Kim Kelsen: Record pace at the moment.

Kim Kelsen: As I mentioned, we are long term believers in China, and we believe that China will will get back to a normalized funding in and use the funds to prioritize health care. So we're very optimistic over.

Kim Kelsen: Oh over overtime, but if you ask when when or what will trigger a a V shape recovery that that I won't be able to answer everything it will be a slower recovery than usually.

Kim Kelsen: Thank you. Our next question is coming from the line of Dan Leonard with UBS. Please proceed with your questions.

Kim Kelsen: Yeah.

Dan Leonard: Hi, Thank you.

Dan Leonard: I just want to make sure I understand the decline in the protein Sciences business. You commented on the antibody trends to Dan area. It's low single digit growth, but can you speak to the growth rate of core reagents in aggregate. So your antibody.

Kim Kelderman: We look forward to sharing additional data on this exciting pipeline in the coming quarter. Overall, the diagnostics and genomics segment grew by 5% organically in the quarter, but was muted by the destocking and strict inventory management from our core diagnostics OEM customers. As these OEM customers return to normalized buying patterns, the results from our spatial biology and molecular diagnostic growth pillars will become more visible in the segment. In summary, I'm extremely proud of the team's ability to navigate the transitory Challenges that are impacting both biotechny and the broader life sciences industry. A Portfolio of Quirky Agents. Our growth pillars in proteomic analytical tools, cell and gene therapies, space biology, and molecular diagnostics are well-positioned to improve the quality of life by catalyzing advances in science and medicine. Thank you very much. And with that, I'll turn it over to Jim. Jim.

Dan Leonard: Proteins, Elisa and how steep was the decline in instrument revenue.

Speaker Change: Yeah I'll jump on this one and then Kevin can comment further Dan. Thank you for the question.

Kevin: To give specifics, but that level of detail, but I would say is that in general our overall, our reagents, where we're down year over year, even though antibody antibodies were slightly up.

Kevin: And our instruments were down as well given the capital constraints in particular from our customers.

However, again as I mentioned again that the cartridges and consumables that are used specifically on those instruments are were up nearly 20%.

Kevin: Cell and gene therapy is a big user of our reagents and also a high concentration of our biotech customers and so that also impacted we think temporarily our reagent sales within the quarter.

Speaker Change: Understood and Jim possible, you can comment on the growth rates for the cell and gene therapy portfolio, specifically, either either just GMP proteins or more holistically as you measure all the touch points you have in that market.

Jim: Yeah, well it was down year over year, I'm not going into specifics how much it was down but I think an encouraging point is that the actual number of orders.

Jim: Invoices et cetera that we sold was still at all time record level selling what that tells US is that they the customers were being more conservative in their purchases in terms of quantities, but still very active in their in their research within the cell and gene therapy.

Jim Hippel: Thank you, Kim. I'll start with some additional detail on our Q2 financial performance, then give some thoughts on the financial outlook. Starting with the overall second quarter financial performance, Adjusted EPS was $0.40 compared to $0.47 in the prior year quarter, Foreign Exchange Benefit EPS by two. Gap EPS for the quarter was $0.17 compared to $0.31 in the prior year.

Jim: Okay.

Speaker Change: And if I can add some information there I think that.

Speaker Change:

Speaker Change: As Jim mentioned, the volume of orders was higher than usual, but we did have a couple of larger orders push out.

Speaker Change:

Speaker Change: The thing that we can do as a company is to make sure that we have a new product introductions and the team is set to to add five new GMP proteins to to be released in the coming quarters. So that we have a broader portfolio that said that serves more customers and and we will also increase share of wallet.

Jim Hippel: Q2 revenue was $272.6 million, a decrease of 2% year-over-year on an organic basis, and was flat on a reported basis, with foreign exchange translation at a favorable 1% impact, while acquisitions also contributed 1% to reported growth. Looking at our organic growth by region and end market in Q2, North America declined slightly year over year, while Europe increased mid-single digits, and China declined over 20% in the quarter.

Speaker Change: I appreciate that color. Thanks Kim.

Kim Kelsen: Thank you. Our next question is come from the line of Matt Larew with William Blair. Please proceed with your questions.

Matt Larew: Hi, Good morning, I, just wanted to go back to the buyer.

Matt Larew: My comments, because obviously you referenced sort of.

Matt Larew: Further deterioration in the quarter or what you had set up on the last call you know in the press release mentioned.

Matt Larew: Conservatism from a subset of our biotech customers. So I guess, if I just think about sources of the headwind being funding related versus being perhaps budget related at biopharma companies that may have commercialized, that's where again, we're just going through the budget process. What do you view as more of the gating factor and you're waiting for turnaround in <unk>.

Matt Larew: I mean or is it more just budget tend to get put in place and now that might be more constructive conversation.

Matt Larew: Yeah, I think for us given our given our weighting of customer base with the biotech funding was the biggest driver I think the conservatism from pharma with secondary and and hopefully much more transitory.

Jim Hippel: As Kim mentioned, the soft biotech funding environment combined with overall conservatism from our biopharma customers were both a drag on our North American business and, to a lesser extent, also a headwind to our European performance relative to more recent quarters. APAC, outside of China, decreased by low single digits overall, with government funding constraints in South Korea partially offset by growth in Japan and India. For China, the South government funding environment continues to impact the region, following many months of decelerating run rates in China. We experienced a stabilization in our run rate business in December. Encouragingly, the stabilization has continued as we begin calendar 2024. It is challenging to call the bottom in this dynamic geography, but we are optimistic that headwinds going forward will be less severe.

Speaker Change: So that's I think that's our view cannot yeah, no I would agree.

Speaker Change: Okay fair enough.

Speaker Change: And then obviously your restaurant M&A continuing to be a high priority and it looks like some deals are starting to get done.

Speaker Change: Just curious obviously, you've got the lunar for acquisition here recently.

Speaker Change: You know either from a size portfolio perspective, what are you seeing out there that's interesting in and are you starting to see valuations move more in line with public markets.

Speaker Change: Yeah no. Thanks for the question.

Speaker Change: To quickly jump onto the lunar for acquisition is obviously, we're very very happy with the acquisition yourself. The assets. The team is amazing integration is going well and of course, it will give us safe and does take a.

Speaker Change: Our position in the the lucrative from fast growing space, you'll be LNG market.

Speaker Change: As you know this this instrument to come it will give us fully automated capabilities and multi you'll make aspects, where we can look at proteins and RNA in the same slide and then combining that with the ACD portfolio and our antibodies here in and R&D systems.

Speaker Change: It's an unbelievable our value proposition.

Speaker Change: We would love to do more of those so we are always on the lookout.

Jim Hippel: It'll likely be a while before we return to the kind of growth rates that we historically achieved in China, but we remain confident that China will still be the fastest growing major region in the world for life science tools over the long term. Buy-in market In Q2, excluding China, biopharma declined low single digits, while academia grew higher single digits. Below revenue on the P&L, total company adjusted gross margin was 69.7% in the quarter compared to 71.7% in the prior year.

Speaker Change: We have interest in looking at filling out our southern gene therapy portfolios.

Speaker Change: We would like if there's opportunities to strengthen our core.

Speaker Change:

Speaker Change: You know we've talked about the four growth verticals and if we can bolt something on to make those even stronger and and get our positions more differentiated that'd be fantastic and any opportunity that pulls through our core reagents is really on our list and as you know we always maintain.

Speaker Change: A long list, but we will be.

Speaker Change: Disciplined in in picking opportunities that said that would meet or exceed our financial expectations over time, which is basically contributing to the financial expectations that we are all set to two biotech me overall and whether this would be a small or large.

Jim Hippel: The decrease was primarily driven by lower volume leverage, unfavorable product mix, and the impact of the Lunar 4 acquisition. Adjusted SG&A in Q2 was 31.2% of revenue, compared to 27.9% in the prior year, while R&D expense in Q2 was 8.4% of revenue, compared to 8.3% in the prior year. The increase in SG&A was driven primarily by the Loom-4 acquisition, partially offset by diligent cost management across the business. The price increases implemented during FY23 continue to offset the dollar impact of inflation on operating income, with price also largely offsetting the inflationary impact on our operating margin in Q2. The adjusted operating margin for Q2 was 30.1%, a decrease of 540 basis points from the prior year period.

Speaker Change: Archie or public or private company, we really don't select between that we are we are open to to any of the any target that fits the mold that I just described.

Speaker Change: Alright, thank you.

Speaker Change: Thank you. Our next question is coming from the line of Catherine Schulte with Baird. Please proceed with your questions.

Catherine Schulte: Hey, guys. Thanks for the questions and congrats Jack <unk> retirement, and maybe first in pharma and biotech I think you said down low single digits outside of China can you just talk a little about what you're seeing from emerging biotech versus kind of mid sized and large customers and you know how you see those two groups playing out going forward.

Catherine Schulte: Okay.

Catherine Schulte: Yeah, Hi, Catharine its Jim Thanks for the question, it's difficult to ascertain exactly small sometimes smaller and larger biotech says you know what major private companies and knowing how big they are isn't always easy to determine but I would just say in generally speaking the smaller biotech usually the more difficult. The funding situation is that being said you know.

Jim Hippel: Excluding the Lunar 4 acquisition, which closed at the beginning of Q1, adjusted operating margin was 300 basis points lower than the prior year due to the impact of unfavorable volume leverage and product mix. Looking at our numbers below operating income, net interest expense in Q2 was $3.4 million, increasing $1.2 million compared to the prior year period due to higher debt levels. Our bank debt on the balance sheet at the end of Q2 stood at $447 million, an increase of $7 million compared to last quarter.

Catherine Schulte: We haven't been at the J P Morgan Conference.

Catherine Schulte:

Catherine Schulte: Call it other green shoot, perhaps but the level of activity that we saw around D. C firms private equity firms in general.

Catherine Schulte: Sniffing around for all kinds of investment opportunities, whether it was in tools or whether within biotech et cetera, what somebody asked some of the highest levels that I've seen in many years there so.

Catherine Schulte: You know against encouraging that are perhaps.

Catherine Schulte: The drought in funding is has hit its low point and.

Catherine Schulte: You know who might come back this calendar year and that will obviously benefit our smaller biotech customers.

Speaker Change: Yeah, and if I can add to that I think that you know that.

Speaker Change: The smaller newer biopharma companies, obviously partner difference lifecycle. So they typically still have to build out our lapse and define their processes and validate their the way they measure things. So that's where we see you know our automation platforms of course being placed.

Jim Hippel: Other adjusted non-operating income was $3.1 million in the quarter, an increase of $3.1 million compared to the prior year, primarily reflecting our 20% share of Wilson-Wilts adjusted net income and the foreign exchange impact related to our cash pooling arrangement. Moving further down the P&L, our adjusted effective tax rate in Q1 was 22%, flat sequentially but up 100 basis points compared to the prior year due to geographic. Turning to cash flow and return of capital, $83.1 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $14.9 million. Also, during Q2, we returned capital to shareholders by way of a $12.5 million dividend and completed an $80 million buyback of 1.4 million shares. We finished the quarter with 160.1 million average diluted shares outstanding.

Speaker Change:

Speaker Change: And then the mid sized ones are often running and they might have repositioned a number of projects that will run in parallel, but certainly they typically already have our instrumentation, a little bit more consumable oriented because they they they are pulling through these consumables and then large pharma has gone through a phase where there are any.

Speaker Change: And that portfolio is just as well and there we see a mix right. So there was a capacity expansion by buying more instruments and there's of course, the pull through and consumables. So that's how I have a look at the influence for us the size.

Speaker Change: Okay.

Speaker Change: Okay got it and then you talked about these decelerating trends hopefully being behind you here in <unk>, where again it looking similar to the second quarter do you think we could see a return to positive organic growth in <unk> or is that more likely going to be a fiscal 'twenty five.

Speaker Change: Anything is possible Kathryn sure I mean.

Kathryn: It's is that within the world of possibilities, yes in fact up.

Kathryn: Now the tide is turning some momentum in China truly stabilizes I think there's a potential for it.

Speaker Change: I'm not you know I would not I would say.

Speaker Change: I admit it by saying that it would be a slight growth, probably but I think there's a potential for it.

Speaker Change: Seeing sequential improvement in our businesses. So that's encouraging.

Jim Hippel: Our balance sheet finished Q2 in a strong position with $135.6 million in cash, and our total leverage stood below one-time VDI, going forward and will remain the top priority for capital allocation. Now I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q2 reported sales were $197.7 million, with reported revenue decreasing by 3% compared to the prior year period. Organic revenue decreased 4%, with foreign exchange having a 1% stable input.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you. Our next question is come from the line of Alex Nowak with Craig Hallum. Please proceed with your questions.

Alex Nowak: Alright, good morning, everyone.

Wilson will progressing since you've made that investment there just curious where they deployed the cash the cash infusion and just how they're handling the part for the biotech funding environment.

Alex Nowak: Yeah. Thank you for the question so.

Alex Nowak: Wilson Wolf has as tremendous.

Alex Nowak: Uh huh.

Alex Nowak: Well, yes.

Alex Nowak: Behind them now in this last year overall, the year was hard because the some of the early stage.

Alex Nowak: Activities and clinical projects have been cancelled so overall, they're there they're down mid single digits, but the last quarter in Alaska has been much much better back in the black and we do see a pause in the pipeline we see that there are various clinical studies.

Jim Hippel: As a reminder, it is our protein sciences segment that has the most exposure to the China geographic region, as well as to the biotech end. Operating margin for the protein science assignment was 40.3 percent, a decrease of 350 basis points compared to the prior year quarter, as unfavorable volume and product mix were partially offset by cost management emissions. Turning to the Diagnostics and Genomics segment, Q2 reported sales were $75.4 million, with reported growth increasing 11% compared to the same quarter last year. Organic revenue growth was 5%, with acquisitions having a 5% impact, and foreign exchange having a stable impact of 1%. As Kim previously mentioned, organic growth was driven by our spatial biology and molecular diagnostic growth pillars, partially muted by the de-stocking and order timing of our core diagnostic reagent-only in-customer. Moving on to the Diagnostics and Genomics Segment Operating Margin, at 6%, the Segment Operating Margin decreased compared to the prior year's 12.2%, due primarily to the impact of the Bloom 4 Acquisition.

Alex Nowak: Rolling into next phases, and we even see in a a approval upcoming where to did you ask is is specced in so overall, we believe that that.

Alex Nowak: Wilson Wolf will be doing a doing great again, and we know that John Wilson has invested in a in.

Alex Nowak: In activities that bolster the adoption of <unk> and the Wilson Wolf.

Alex Nowak: Franchise.

Alex Nowak: As you know we have a very genius deal structure of Roundtables in both and at the latest it's the end of calendar year 2027 that Wilson Wolf it'll be fully part of the biotech any family.

Speaker Change: I'll just add to with regards to their financial performance you know they had tough calendar you're twenty-three like we all have but they actually did see significant sequential improvement in their December quarter and are expecting continued sequential improvement from there. So that's encouraging also.

Speaker Change: Given there they haven't even much wider.

Speaker Change: Wider visibility into the cell and gene therapy market than we do.

Speaker Change: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Kim colorant for any closing remarks.

Kim Colorant: Yeah. Thank you and thanks, everyone for joining the call of course, one last time. Thank you Chuck for your leadership over the last decade plus.

Kim Colorant: As you can hear I'm excited about the long term position and our prospects as a company we have a great strategy in place I'm also very proud of the biotech team for executing so well in this constrained environment and I'm, absolutely looking forward to to navigating these.

Jim Hippel: However, Q2 operating margin improved 530 basis points sequentially from Q1 due to improving volume leverage and favorable margins. As we turn the page on Q2 and look ahead to the back half of our fiscal year, there are still reasons to remain cautious. But there are also some reasons, or green shoots, as Kim called them, for optimism in the near future. On the macro front, biotech funding has not dramatically started flooding back, nor has the Chinese economy and funding of life science research returned to their pre-COVID strength. But inflation and interest rates appear to have stabilized, and according to some analysts' reports, biotech funding has already been reduced to a level not seen since 2006.

Kim Colorant: These constraints.

Kim Colorant: And I'm looking forward to speaking again at our next earnings release.

Speaker Change: Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: [music].

Jim Hippel: Having recently been to China in Q2, Kim, Chuck, and I all witnessed the local economy on the move with crowded streets and restaurants and busy regional airports. After several years of COVID shutdown, the local economy is starting to flourish once again and likely generating tax revenue for their government. As for biotechny, our growth pillars are continuing to shine, even in these difficult macro conditions. We are closely monitoring sequential run rates in our reagents business to help determine where we are at in the autonomy process. It's early in the new quarter, but thus far, we are encouraged that the worst may be behind us. However, this does not mean we expect a quick acceleration of growth. But we do expect that the trend of decelerating growth that has been pervasive throughout this macroeconomic cycle may have subsided. Down cycles like we've experienced over the past 18 months or so are never fun.

Speaker Change: Yes.

Speaker Change: [music].

Daniel Anthony Arias: Thanks for the questions. Kim or Chuck, can you just maybe talk a little bit about the antibody business and the antibody market? Given that there are a decent number of moving parts in the mix when it comes to pharma spending, the AFTAM deal, etc., it would just be great to get some color on what you think is relevant when it comes to the portfolio, pricing, share changes, etc. Yeah Dan, thank you so much for your question. Our antibody business has done quite well. I think it's been running at the lowest single digits, even in this environment.

Kim Kelderman: So with the big wins in biopharma, we certainly have to make sure that some of our sales force focuses on academic markets and makes sure that they close deals over there, and we get better in that space. The quality of our antibodies is world renowned, and we know that we can compete even at higher prices with other antibody companies. And we are really confident that we will be able to continue to do so. Of course, we have had some big wins in addition to de-stocking where people would have fewer or less antibodies on the shelf.

Kim Kelderman: However, we feel confident that this symptom is now towards the end of its phase, so we feel that headwind will ease. Okay, helpful. And then Jim, I hate to ask about 2025, since the second half of this year is tough to call.

Jim Hippel: But the resiliency of our growth pillars throughout this cycle has given us even greater confidence that our company will grow at a double-digit rate when markets normalize in the longer term. If our markets start to normalize and prepare for the inevitable return to growth, we will continue to diligently manage our cost structure and invest in this business for the future. As Kim mentioned in his opening comments, we continue to identify opportunities for efficiencies, and by executing on these opportunities, we'll protect and even grow our adjusting operating margins sequentially for the remainder of the fiscal year. That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the lines. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Daniel Anthony Arias: But if I go back to Analyst Day and think about the growth platforms that you guys highlighted, you know, four or five of them had double-digit market growth rates attached to them. So does it feel like... six to 12 months from now, your growth verticals are ramped up enough, and the comps are favorable enough to where a two-digit growth number that's more typical of what you've done in the past comes back into the picture? What I'd say, Dan, is that we have a high level of confidence given our relative performance of our growth pillars, even in this environment, that once the market gets back to its long-term four or six, let's call it mid-single-digit growth trajectory, we will be well in double-digit growth once our core is back up there, and then, of course, the growth pillar is on top of that. So asking how long it takes to get there is also asking how long it takes for the overall market to normalize, and I don't have a crystal ball on that, but assuming it does normalize as we get into the end of calendar year 25, and, hopefully, by then, then the answer would be yes. Okay, I appreciate it.

Jim Hippel: Thank you. Our next questions come from the line of Patrick Donnelly with Citi. Please proceed with your question. Hey, guys, good morning. Thanks for taking the question. And Chuck, I'll second my congrats there. You know, maybe, Jim, on your term, just to repeat, we're getting a good number of questions just in terms of how to think about it. You know, is it, flat?

Operator: You may press star 2 if you would like to remove your question from the line. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you please limit yourself to one question and one follow-up. One moment, please, while we poll for your question. Our first questions come from the line of Puneet Souda with Lyrinc Partners. Please proceed with your question. Hi guys.

Patrick Bernard Donnelly: Is that the right organic year-over-year number to think about 3G? If you could just help us kind of frame up the near term, it would be helpful for organic growth. Yeah, I mean specifically, right now, our base case is that the growth rate we experience in Q3 will be similar to the growth rate we saw in Q2. So the deceleration of our growth rate that we've seen, the deceleration of our growth rate that we've seen the past three or four quarters, we think is behind us. Yes, I understand. Okay. And then maybe in China, you know, it sounds like obviously, Jim, we chatted, and you were over there.

Puneet Souda: Thanks for taking the question. Chuck, it was really great working with you and good luck ahead. Kim, welcome on board again.

Puneet Souda: It's good to have you in the role of leading the company. Matt, I'm really glad to have you back at Biotechnica as well. Maybe let me ask my question really around the headwinds that have existed for the last few quarters. You have known them.

Patrick Bernard Donnelly: Maybe just talk about your expectations for the recovery in that region. You know, I know in the past, whether it was government or whatever it may be, you guys saw some real, you know, snapbacks quarter to quarter. Last time we chatted, it sounded like that was a little less likely, maybe a little more of a stability into a gradual recovery. But maybe just talk to us about what you saw over there.

Puneet Souda: We have seen that across industry, China, and biopharma. I think the question really here is what changed in the quarter within your assumptions. You were expecting a flat result this quarter, but you ended up down 2%.

Jim Hippel: And again, the expectations over the next few quarters relative to some of the past cycle. Thank you, Patrick. I'm going to hand this over to Kim. I know we feel exactly the same way about this, but he was there actually more recently than even I was.

Kim Kelderman: So go ahead, Kim. Yeah, Patrick. Well, thanks for the question. What we feel is that, obviously, China is an important country to us, right? 10% of our revenues come from there. We have been able to outgrow most of our peers over the last half decade. But that also made it tough over the last couple of quarters when China truly came to a standstill. However, we feel that activity in China is stabilizing. We do not see a clear light at the end of the funnel.

Puneet Souda: So, maybe just walk us through, is there something in the portfolio? Is it specific to customer orders, or is there something in the forecasting process that's not working well that yielded this result versus what you were expecting? I'm going to have a follow-up. Thank you, Puneet. Good morning, and thanks for your kind words towards our team. A great question.

Kim Kelderman: Our comparables are going to be a little bit better in the coming quarters, but not for instruments. So it's not that we are over that hump. We do think, though, that China is going to be a fast-growing market in the future. We do expect that China will have a kind of a bias towards China for China. Therefore, we are building a local GMP facility to serve the local market.

Kim Kelderman: I, of course, have an opinion on which of these headwinds are going to be most significant going forward. But, in the rear view mirror, we certainly have a good understanding of which ones are..., are most significant, so I'll let Jim talk about that. Yeah, Puneet, good morning.

Kim Kelderman: And then, at the end of the day, we feel that our products of high quality and the automation aspects will increase efficiency and will continue to find a real good spot in China. And I think that the current pull-through of our consumables shows that the instruments are getting used, yeah, at a record pace at the moment. As I mentioned, we are long-term believers in China, and we believe that China will get back to normalized funding and use the funds to prioritize healthcare. So we're very optimistic over time. But if you ask me when or what will trigger a V-shaped recovery, I won't be able to answer.

Jim Hippel: I was the one that called that forecast, so I need to speak to it. As we ended last quarter, we were pretty transparent on the call that in the last couple weeks as we closed Q1 and the first few weeks as we opened Q2, we've seen a step down in deceleration in our biotech especially, but even a bit in pharma. And so the reality is, and we've talked about this at various conferences throughout, that that trend has continued. And at the time of the call, a few weeks doesn't necessarily make a trend, so we took a view on our growth rates decelerating from where they were in Q1, but obviously, that trend ended up being longer and deeper than we anticipated. So that's kind of how and why we ended up where we did.

Kim Kelderman: We think it will be a slower recovery than usual. Thank you. Our next questions come from the line of Dan Leonard with UBS. Please proceed with your, Hi, thank you.

Dan Leonard: I just want to make sure I understand the decline in the protein sciences business. You commented on the antibody trends to Dan Arias, low single-digit growth, but can you speak to the growth rate of core reagents and aggregates, so your antibodies, proteins, ELISA, and how steep was the decline in instrument revenue? Yeah, I'll jump on this, and then Kim can comment further.

Jim Hippel: Dan, thanks for the question. And we're not gonna give specifics at that level of detail, but what I would say is that, in general or overall, our reagents were down year over year, even though antibodies were slightly up. And our instruments were down as well, given the capital constraints, in particular from our customers.

Jim Hippel: However, again, as I'll mention again, the cartridges and consumables that are used specifically on those instruments were up nearly 20%. Cell and gene therapy is a big user of our reagents and also a high concentration of our biotech customers. And so that also impacted, we think temporarily, our reagent sales within the quarter.

Jim Hippel: You know, that being said, as we look forward, and again, a more optimistic view coming out of last quarter and going into this quarter than we did the previous quarter in that run rates, as we talked about, have stabilized in China, and we're just seeing an overall stabilization in our business as we enter this quarter relative to how we entered Q2. But I'll, you know, I will... temper that a bit by saying, just like last quarter, a few weeks or even a month doesn't necessarily make a trend either. But we definitely see a bit of a momentum shift, or at least stabilization, from where we are at this point going into this quarter compared to last quarter. Okay, that's helpful.

Jim Hippel: Understood. And Jim, possibly you could comment on the growth rate for the cell and gene therapy portfolio specifically, either just GMP proteins or more holistically as you measure all the touch points you have in that market. Yeah. Well, it was down year-over-year.

Jim Hippel: I'm not going to get into specifics about how much it was down, but I think an encouraging point is that the actual number of orders, invoices, etc., that we sold was still at an all-time record level. So what that tells us is that customers were being more conservative in their purchases in terms of quantities but still very active in their research within cell and gene therapy. Okay, thank you.

Kim Kelderman: I can add some information there. As Jim mentioned, the volume of orders was higher than usual, but we did have a couple of larger orders pushed out. The thing that we can do as a company is make sure that we have new product introductions, and the team is set to add five new GMP proteins to be released in the coming quarters so that we have a broader portfolio that serves more customers and will also increase our share of wallets. Appreciate that color.

Puneet Souda: Maybe on the guide, Jim, I just wanted to clarify that you expect this quarter to be a low point based on the comments you mentioned about China, early signs and stabilization there, and biopharma, you know, remaining sort of a status quo. Maybe just help us think about the next two quarters or for the full year, just in terms of where the models are, you know, if you could walk us through your assumptions and how you're thinking about the, you know, growth rate here. I would appreciate any, you know, context on that.

Kim Kelderman: Thanks, Kim. Thank you. Our next questions come from the line of Matt LaRue with William Blair. Please proceed with your question. Good morning.

Matt LaRue: I just wanted to go back to the biopharma comments because, obviously, you referenced sort of a further deterioration in the quarter, which you had set up on the last call, but you know, in the press release mentioned conservatism from a subset of biotech customers. So I guess if I just think about sources of the headwind being funding-related versus being perhaps budget-related at biopharma companies that may have commercialized that, but again, we're just going through the budget process. What do you view as more of the gating factor?

Jim Hippel: Well, I would say this. I mean, I talk about that, you know; we have a sense that the deceleration is slowing and perhaps stopping. And so what I mean by that is, and I think you've heard this from many of our peers already, that they kind of expect our Q3 to be somewhat similar to our Q2 in terms of organic growth. Beyond that, you know, it's difficult to call; the whole bottoming process has been difficult to call. But, you know, I pretty much agree with what's being set out there by our larger companies who have even greater overall market access that, you know, it feels like the first half of calendar year 24 will be more difficult than the second half. But we'll obviously get into our planning process here in about three or four months and have more to talk about our fiscal year 25 following that. But that's, I pretty much, our view is pretty much consistent with what you're hearing from our peer companies. Thank you. Our next questions come from the line of Jacob Johnson with Stevens.

Matt LaRue: Are you waiting for a turnaround in funding, or is it more just that a budget had to get put in place, and now there might be more constructive conversation? Yeah, I think for us, given our weighting of the customer base, the biotech funding was the biggest driver. I think the conservatism from pharma was secondary and hopefully much more transitory. So that's, I think that's our view. Can I?

Kim Kelderman: No, I would agree. Okay, fair enough. And then obviously, you referenced M&A continuing to be a high priority, and it looks like some deals are starting to get done. You know, just curious, obviously, you had the Lunafor acquisition here recently. From a size portfolio perspective, what are you seeing out there that's interesting, and are you starting to see valuations move? more in line with public markets.

Kim Kelderman: Yeah, no, thanks for the question. To quickly jump onto the Luna 4 acquisition, obviously, we are very, very happy with the acquisition itself. The assets, the team are amazing.

Kim Kelderman: Integration is going well, and of course, it will give us a fantastic position in the lucrative and fast-growing spatial biology market. As you know, this instrument, the Comet, will give us fully automated capabilities.

Jacob Johnson: Please proceed with your question. Hey, thanks. Good morning.

Jacob Johnson: Maybe just first to unpack the biopharma commentary, you know, the release would suggest those kind of headwinds increased in December. Can you just talk about kind of what you saw then? What caused that, or what do you think caused that? Maybe the evil CFOs, Jim. And then just as we look ahead, kind of what are you seeing for that end market to start the year? Have you seen any kind of change in customer behaviors, or in their calendars? I'll start off and let Kim comment, perhaps, since you mentioned the evil CFO comment. I think that's partly what it was, in the sense that I talked about in some prior conferences that, when talking to our customers, the interest is as high, if not higher, it's ever been in our products. But getting purchases through, particularly any larger purchases through their internal purchasing departments or their finance departments, was difficult, and there was a sense of holding off until the next calendar year when the next calendar year budgets are set.

Kim Kelderman: And the multi-omics aspects, where we can look at proteins and RNA on the same slide, and then combine that with the ACD portfolio and our antibodies here in R&D systems, it's an unbelievable value proposition. We would love to do more of those, so we are always on the lookout. We have an interest in looking at filling out our gene therapy portfolios. We would like, if there are opportunities, to strengthen our core. You know, we've talked about the four growth verticals, and if we can bolt something on to make those even stronger and get our positions more differentiated, that'd be fantastic. And any opportunity that pulls through our core reagents is really on our list. And, as you know, we always maintain a long list, but we will be disciplined in picking opportunities that would meet or exceed our financial expectations over time, which is basically contributing to the financial expectations that we've all set for Biotechnie overall. And whether this would be a small or large, public or private company, we really don't select between those. We are open to any target that fits the mold that I just described.

Jim Hippel: And so we'll see if that actually materializes this quarter, but there were definitely those conversations going on with our customers. But quantitatively, there have been a number of reports put out there by analysts who follow very closely biotech funding, and they all basically say that biotech funding was down over 20% in the December quarter, and I think down sequentially, like in the mid-teens even. So there was definitely a drop off in biotech funding, and that's a decent chunk of our business. So I think, you know, that that's I think that it goes without saying that this was a clear driver for what occurred within the quarter.

Matt LaRue: All right. Thank you. Thank you. Our next questions come from the line of Katherine Schultz with Baird. Please proceed with your question. Hey guys, thanks for the questions and congratulations Chuck on the retirement.

Katherine Schultz: Maybe first in pharma and biotech, I think you said down low single digits outside of China. Can you just talk a little about what you're seeing from emerging biotech versus kind of mid-sized and large customers, and you know how you see those two groups playing out going forward? Yeah, Catherine, it's Jim.

Jim Hippel: Thanks for the question. It's difficult to ascertain exactly how many small, sometimes smaller, and larger biotechs there are. As you know, many of these are private companies, and knowing how big they are isn't always easy to determine.

Jim Hippel: But I would just say, generally speaking, the smaller the biotech company, usually the more difficult the funding situation is. That being said, you know, I haven't been to the JPMorgan conference, call it another green shoot perhaps, but the level of activity that we saw around VC firms, private equity firms, in general, out sniffing around for all kinds of investment opportunities, whether it was in tools or whether it was in biotech, et cetera, was some of the highest levels that I've seen in many years. So again, I am encouraging that perhaps the drought in funding has hit its lowest point, and I hope it might come back this calendar year, and that will obviously benefit our smaller biotech customers. Yeah, and if I can add to that, I think that, you know, the smaller and newer biopharmaceutical companies are obviously in a different life cycle. So they typically still have to build out their labs and define their processes, and validate the way they measure things.

Jim Hippel: Yeah, let me add to that. You know, obviously, the biopharmaceutical market has been constrained by lower funding than usual. If I'm not mistaken, we probably hit the lowest point since 2016.

Kim Kelderman: And however, our portfolio is, is well positioned, right? So we have, at the core, the highest quality products that will, Good afternoon everybody, have to have fewer people in the laboratory to automate clunky processes that will give you the efficiencies you need and the reproducibility in your results that you need.

Kim Kelderman: So that's where we see, you know, our automation platforms, of course, being placed. And then the midsize ones are off and running, and they might have repositioned a number of projects to run in parallel, but certainly they typically already have our instrumentation and are a little bit more consumable-oriented because they are pulling through these consumables. And then large pharma has gone through a phase where they repositioned their portfolios just as well, and there we see a mix, right? So there is a capacity expansion by buying more instruments, and there's, of course, a pull through in consumables. So that's how I look at the influence of size.

Kim Kelderman: So overall, our portfolio is tailored to a constrained environment like this one. And I think, therefore, that we will come out strong once funding normalizes. Now I'll just reiterate what Kim talked about in his opening comments to reinforce that, our consumables on our instrument platforms were up again this quarter by nearly 20%, and they've been up 20% or more every quarter for the past four quarters in this short period of time. I think it had been a You know, I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I

Katherine Schultz: Okay, got it. And then you talked about these decelerating trends, you know, hopefully being behind you here and 3Q organic growth looking similar to the second quarter. Do you think we could see a return to positive organic growth in 4Q or is that more likely going to be a fiscal 25 event? Anything's possible, Catherine. Sure. I mean, I mean, you know, it's that within the wiggle room of possibilities.

Jacob Johnson: So I think that's a clear sign of how our tools provide the productivity that our customers need in an environment like this. Not to mention the potential pent-up demand for new instruments once funding becomes more prevalent. Got it. Thanks for all that. My follow-up question, Kim, you mentioned earlier this year and then on this call again that, you know, given the current environment, you can look more internally at your footprint and efficiencies. I think there was a restructuring charge in the quarter as well.

Jim Hippel: Yes, in fact, you know, the tide is turning some momentum, and China truly stabilizes. I think there's a potential for it. I'm not, you know, I wouldn't, I would say, I'd mute it by saying it'd be slight growth, probably, but I think there's a potential for it.

Katherine Schultz: We're seeing sequential improvement in our businesses, so that's encouraging. Okay, great. Thank you. Thank you. Our next questions come from the line of Alex Nowak with Craig Hallam. Please proceed with your question. All right, good morning, everyone.

Kim Kelderman: Can you just elaborate on that statement and kind of how, you know, what efforts you are taking right now? And maybe for Jim, what we should think about the impact of those on. Yeah, thanks. Thanks, Jacob. As I think about the constraint environment, you always got to make sure that you tailor your organization to be most efficient in such environments, not only to protect the bottom line but also to make sure that you're most efficient coming out of such a constraint period.

Alex Nowak: How is Wolf & Wolf progressing since you made that investment there? Just curious where they deployed the cash, the cash infusion, and just how they're handling the biotech funding environment. Yeah, thank you for the question. Wilson Wolf has tremendous progress behind them now in this last year. Overall, the year was hard because some of the early stage activities and clinical projects have been canceled.

Kim Kelderman: So, overall, they're down mid-single digits. But the last quarter has been much, much better, back in the black. And we do see progress in the pipeline. We see that there are various clinical studies rolling into next phases, and we even see an approval upcoming where the G-REX is packed in.

Kim Kelderman: So, yes, we have looked at leveling the capacity of our employees over certain businesses. In certain pockets, volumes and revenues are lower than others, so we, of course, want to make sure that we do the right things there from a horsepower point of view. And then secondly, it's a good time to look at which businesses are core and strategic to you. And in our case, we found some businesses where there's either a growth profile and or a bottom line profile that doesn't fit our long-term financial strategies and expectations, and, and or businesses that take a disproportional amount of management attention and that do not have synergies with our current channels or products. So those are businesses that we will evaluate, and over time, we'll divest. Got it. Thanks for taking the questions. Oh, sorry. Go ahead, Jim.

Kim Kelderman: So, overall, we believe that Wilson-Wolf will be doing great again, and we know that John Wilson has invested in activities that bolster the adoption of our G-REX and the Wilson-Wolf franchise. As you know, we have a very clever deal structure around Wilson-Wolf. And at the latest, it's the end of calendar year 2027 that Wilson-Wolf will be fully part of the biotech family. I'll just add, too, with regard to their financial performance, you know, they had a tough calendar year 23 like we all have, but they actually did see significant sequential improvement in their December quarter and are expecting continued sequential improvement from there. So that's encouraging also, given they have even a much wider visibility into the cell and gene therapy market than we do.

Jim Hippel: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Kim Kelderman for any closing remarks.

Jim Hippel: Sorry. I was going to say, with regard to the impact on margins, so, you know, what this does is, some of the actions we're taking give us a much higher level of confidence that the margins we reported this quarter will be the low point for the year and will progress sequentially going forward. And I know you're going to ask me how much, and, you know, I think we're targeting to get back into the mid-30 percent range by the end of the year for Q4. Thanks for that, Jim and Kim, and congrats to Chuck on the retirement. I'm not sure I'd spend my first day of retirement with an Aries soul, but that's just me.

Kim Kelderman: And thanks, everyone, for joining the call. And, of course, one last time, thank you, Chuck, for your leadership over the last decade plus. As you can hear, I'm excited about our long-term position and our prospects as a company. We have a great strategy in place. I'm also very proud of the Biotechnie team for executing so well in this constrained environment. And I'm absolutely looking forward to navigating these constraints, and I'm looking forward to speaking again at our next earnings release. Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day!

Jacob Johnson: Thanks again. Hmm. Thank you. Our next questions come from the line of Dan Arias with Stiefel. Please proceed with your question. Good morning, guys.