Q4 2024 Bio-Techne Corp Earnings Call

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Operator: Welcome to the Bio-Techne Corp. At this time, all participants have been placed in a listen-only mode. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President of Investor Relations. Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer, and Jim Hippel, Chief Financial Officer, of Bio-Techne. Before we begin, let me briefly describe our saved harbors.

David Clair: During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President of Investor Relations.

David Clair: Some of the comments made during this conference call may be considered poor-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2023 identified 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. 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 FCC 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.

Speaker Change: Before we begin, let me briefly cover our Safe Harbor Statement.

Speaker Change: The company's 10-K for fiscal year 2023 identified 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.

Speaker Change: During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.

David Clair: Tables reconciling these measures to most comparable gap measures are available in the company's press release issued earlier this morning on the Investor Relations section of the Bio-Techne Corporation website at www.bio-techne.com. Additionally, in the coming weeks, we'll be participating in the Morgan Stanley, Wells Fargo, and Baird Counts. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Thank you, Dave. And good morning, everyone.

Speaker Change: Separately, in the coming weeks, we will be participating in the Morgan Stanley , Wells Fargo, and Baird conferences.

Kim Kelderman: Thank you for joining us for our fourth quarter conference call. I'm pleased to report that our fourth quarter results came in line with our initial expectations. Continued stabilization of our end markets, combined with excellent execution by the biotechnology team, led to 1% year-over-year organic revenue growth. This quarter wraps up our fiscal 2024, where our core portfolio of research and diagnostic reagents, together with the four growth protocols that leverage this content, delivered 1% growth in what has proven to be a challenging fiscal year.

Speaker Change: I'm pleased to report that our fourth quarter results came in in line with our initial expectations.

Speaker Change: Continued stabilization of our end markets, combined with excellent execution by the Bio-Techne team, led to a 1% year-over-year organic revenue growth.

Kim Kelderman: It's worth noting that these growth verticals have enabled Bio-Techne to consistently outperform our peer group during this unprecedented post-COVID pandemic period. During this period, we experienced a challenging funding environment for biotech and a significant R&D budget recalibration by large pharma and academia customers. Let me give you some examples of the business dynamics we've experienced throughout our fiscal year. First, Apotheomics and the local franchise, Branded Protein Center. This business provides productivity tools for laboratories commonly used to expand laboratory capacity. However, these products are also well-positioned for customers that are operating under constrained budgets and are looking to replace manual processes with simple and effective automation.

Speaker Change: It's worth noting that these growth verticals have enabled Biotechne to consistently outperform our peer group during this unprecedented post-COVID pandemic period.

Speaker Change: During this period, we experienced a challenging funding environment for biotech and a significant R&D budget recalibration by large pharma and academia customers.

Kim Kelderman: Here we saw mid-single-digit growth for the fiscal year led by SimplePlex and Simple Western Platforms, altered by double-digit growth for instrument-related consumables across all platforms. Our Cell and Gene Therapy vertical, which is led by our quality GMP protein products, also grew mid-single digits for the year and added more customers even while biotech funding had a mostly year-long. In our Spatial Biology vertical, we saw solid growth in fiscal year 24, despite the budget de-set by our Pharmacost. Our new spatial biology instrument, COMET, is seeing robust adoption and will bring accelerated growth to this protocol in the years ahead.

Speaker Change: This business provides productivity tools for laboratories commonly used to expand laboratory capacity. However, these products are also well positioned for customers that are operating under constrained budgets and are looking to replace manual processes with simple and effective automation.

Speaker Change: Our Cell and Gene Therapy Vertical, which is led by our quality GMP protein products, also grew mid-single digits for the year and added more customers even while Bio-Tech funding had a multi-year long.

Speaker Change: In our Spatial Biology vertical, we saw solid growth in FY24 despite the budget de-set by our pharma customers.

Kim Kelderman: And last, the ongoing traction and market adoption of our XODX phosphate test, together with new product launches within our ShorGen franchise, drove double-digit growth in our molecular diagnostics growth strategy all year long. It is these four growth verticals that have carried us through the challenging post-COVID pandemic market slowdown, and we are confident that these same verticals will drive accelerated growth as our core market and our core portfolio of core reagents gradually recover back to long-term historical growth.

Speaker Change: And last, the ongoing traction and market adoption of our ExoDx phosphate test, together with new product launches within our SureGen franchise, drove double-digit growth in our molecular diagnostics growth protocol all year long.

Kim Kelderman: Over the last 48 years, we have amassed a core portfolio of research reagents and diagnostic tools, which include a catalogue of over 6,000 proteins and 400,000 antibodies. These products are critical components to many foundational workflows in virtually all life science academic and biopharma research laboratories globally. Not only do the reagents unlock the power of scientific discovery, they are also the synergistic force behind our core growth. The five-year CAGR for these growth protocols is over 20%, and they accounted for about 45% of biotechnical revenue in fiscal 2024, which is significantly higher than the 30% of revenue in fiscal 29. And that was only five years ago.

Speaker Change: Not only do the reagents unlock the power of scientific discovery, they are also the synergistic force behind our core growth verticals.

Kim Kelderman: Before we get into the details of the most recent quarter, I'd like to officially welcome Dr. Judith Klimowski to Bio-Techne's Board of Directors. Dr. Klimowski is currently the Executive Vice President and Chief Development Officer at GeneXus, which you bring significantly to the market. Scientific and International Experience to Bio-Techne's Board. Dr. Klimovsky's insight and guidance will be very beneficial as we continue to execute our strategy and expand globally. Welcome to our board, Judith.

Speaker Change: And that's only five years ago.

Speaker Change: Before we get into the details of the most recent quarter, I'd like to officially welcome Dr. Judith Klimowski to Biotechnies Board of Directors.

Speaker Change: Scientific and International Experience to Bio-Techne's Board. Dr. Klimowski's insight and guidance will be very beneficial as we continue to execute our strategy and expand globally. Welcome to our board, Judith.

Kim Kelderman: Now let's start with a discussion of our end markets and geographies, beginning with the biopharmaceutical end markets, where we saw continued stabilization from our biopharma customers. Overall, Biopharma declined low single digits in the quarter, but it was relatively consistent on the sequential. There is a broad awareness that biotech funding has been stronger for the first half of the calendar year, which is good news after a very challenging 2023. We anticipate that this recovery will bring incremental confidence to capital-dependent companies and that this will eventually drive increased demand for our portfolios and life science products in the coming quarters.

Speaker Change: Now let's start with a discussion of our end markets and geographies, beginning with the biopharma end market, where we saw continued stabilization from our biopharma customers.

Speaker Change: We anticipate that this recovery will bring incremental confidence to the capital-dependent companies and that this will eventually drive increased demand for our portfolios and lifetime products in the coming quarters.

Kim Kelderman: Academia decreased by a low single-digit in the quarter, reflecting a particularly challenging comparison with the same period last year, during which revenue increased by an upper single-digit. From a geographic perspective, North America and Europe both declined by low single-digits in the quarter, reflecting the aforementioned constraints in biopharma and academic endowments.

Speaker Change: From a geographic perspective, North America and Europe both declined low single digits in the quarter, reflecting the aforementioned constraints in biopharma and academic end markets.

Kim Kelderman: It is worth noting that Europe had particularly difficult comparables in that it had double-digit growth in the fourth quarter last year. For China, the stabilization trend that we have experienced over the past several quarters fortunately continued into Q4. As China progresses through a recovery process, we would expect our portfolio of research reagents to be the first to return to growth, followed by our instrument portfolio. This prognosis is strengthened by the fact that our team in China delivered their second consecutive quarter of double-digit growth for our core reagent portfolio.

Speaker Change: For China, the stabilization trend that we have experienced over the past several quarters fortunately continued into Q4.

Speaker Change: As China progresses through a recovery process, we would expect our portfolio of research reagents to be in the first to return to growth, followed by our instrument portfolio.

Speaker Change: This prognosis is strengthened by the fact that our team in China delivered their second consecutive quarter of double-digit growth for our core reagent portfolio.

Kim Kelderman: This performance was paired with mid-single-digit growth in our biologics portfolio, which consists primarily of the Maurice family of instruments and associated consumables. Overall, China declined by high single digits in the fourth quarter, which was in line with our expectation, as last year's stimulus resulted in a comp of mid-teens growth for this geography in last year's Q2.

Speaker Change: Overall, China declined high single digits in the fourth quarter, which was in line with our expectations, as last year's stimulus resulted in a comp of mid-teens growth for this geography in last year's Q4.

Kim Kelderman: Well, the impact of the recently announced stimulus will likely not translate into revenue growth for the region until the second half of our fiscal year. However, we are encouraged by the overall stabilization in this region and the early return of growth to our reach. Let's discuss our growth pillars in more detail, starting with protein-simple implementation within the Protein Science segment, where overall organic growth was low single digits per quarter. However, as mentioned, robust utilization of these productivity tools drove double-digit consumable growth.

Speaker Change: Now let's discuss our growth pillars in more detail, starting with protein-simple implementation within the protein science segment, where overall organic growth was low single-digit per quarter.

Speaker Change: As mentioned, robust utilization of these productivity tools drove double-digit consumable growth.

Kim Kelderman: It's worth highlighting that our Q4 is the seventh consecutive quarter in which the consumables related to our instruments grew at least double digits, which indicates strong utilization of our global installed banks. Protein analysis instruments provide automation, decision making, reproducibility, and labor savings, which makes them increasingly ingrained in both academic and biopharma workflows.

Kim Kelderman: Our automated multiplexing immunoassay instrument, named ELLA, was a standout performer within the Protein Simple Portfolio, as both the instrument and the related consumables increased double digits in the quarter. And ELLA is quickly becoming the go-to platform for cell and gene therapy customers for viral titer and release, and is also seeing rapid adoption among CROs looking for high reproducibility paired with high sensitivity in an easy- Related to immunoassay technology, we recently announced an investment in Spear BIOS, an innovation leader in the development and manufacture of ultra-sensitive immunoassays capable of measuring protein markers at atomolar levels from sub-microliter sample volumes.

Kim Kelderman: Their BIOS assays run on qPCR equipment, which is routinely found in research and clinical facilities, therewith tapping into a very broad existing installed base. Their BIOS initial assay will focus on key biomarkers supporting population research in Alzheimer's. Within our Poetry in Simple franchise, we also recently announced the latest addition to our Simple Western platforms called Leo.

Speaker Change: Their bios assays run on qPCR equipment, which is routinely found in research and clinical facilities, therewith tapping into a very broad existing installed base.

SpearBio: Spear Bio's initial assay will focus on key biomarkers supporting population research in Alzheimer's disease.

SpearBio: Within our Poetry in Simple franchise, we also recently announced the latest addition to our Simple Western platforms called Leo.

Kim Kelderman: As a reminder, our Simple Western platforms automate the manual, laborious, cumbersome, time-consuming, and inconsistent Western blotting process that is commonly used to identify proteins in complex mixtures. LEO is the highest throughput automated Western blot system, enabling the simultaneous analysis of up to 100 samples in a single three-hour run. We are excited to introduce this next generation system, which is expected to begin shipping in the second half of our fiscal year 25.

SpearBio: Leo is a high throughput automated Western blot system, enabling the simultaneous analysis up to 100 samples in a single three-hour run. We are excited to introduce this next generation system, which is expected to begin shipping in the second half of our fiscal year 25.

Kim Kelderman: We remain the only fully automated Western blot technology provider on the market and see a long runway for future growth with this portfolio as our current market penetration is below 30%. Like our other insulin platforms, SimpleWebTerm continues to gain traction in cell and gene therapy applications as the system is increasingly used for absolute protein quantitation and relative potency. For example, Agilis Therapeutics recently reported positive top-line data from the second cohort of patients in a Phase 1b study related to the treatment of a kidney disease called ADP-Kidney. Stiglitz utilized a simple urine test form to develop high-performance biomarker assays to measure various proteins in urine as part of this study.

SpearBio: We remain the only fully automated Western blot technology provider on the market and see a long runway for the future growth of this portfolio as our current market penetration is below 100%.

SpearBio: Like our other insulin platforms, SimpleWebTerm continues to gain traction in cell and gene therapy applications as the system is increasingly used for absolute protein quantitation and relative potency assets.

Kim Kelderman: We look forward to working with Daigless and, of course, with all our other partners to further the advancement of cell and gene therapy. I'll now shift to the other growth pillars within our protein plant segment, our own 17-therapy business. This growth protocol includes a proteomic reagent and scalable workflow solutions that enable our customers to accelerate preclinical, clinical, and eventually commercialization of these next-generation therapeutics. As we've mentioned in the past, order timing from large customers can create quarter-to-quarter lumpiness in our GMP proteins business, and that was indeed the case in our Q4.

SpearBio: This growth protocol includes a proteomic reagent and scalable workflow solutions that enable our customers to accelerate pre-clinical, clinical, and eventually the commercialization of these next-generation therapeutics.

Speaker Change: As we've mentioned in the past, order timing from large customers can create quarter-to-quarter lumpiness in our GMP proteins business, and that was indeed the case in our Q4.

Kim Kelderman: As a sign of underlying strength, however, we are pleased to see continued growth in the number of customers utilizing our highly active GMP code. We will continue to actively seed the market to ensure we partner with our customers early in their development journey. Within our GMP research industry, we continue to drive significant growth in our GMP small molecules. These small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to regenerative medicine work.

Speaker Change: We will continue to actively seed the market to ensure we partner with our customers early in their development journey.

Kim Kelderman: We are making good progress with our new GMP facility in Bristol, UK, which is positioned as well to meet current and forecasted demand for those critical reagents. This small molecule business grew nearly 50% for the quarter and is quickly becoming a material contributor to our overall cell and gene therapy results. In total, our protein science assessment declined 3% organically for the quarter and declined 2% for the fiscal year.

Speaker Change: This small molecule business grew nearly 50% for the quarter and is quickly becoming a material contributor to our overall cell and gene therapy results.

Kim Kelderman: Remember that our Protein Science segment is where we have the most exposure to both China and the biopharma end market, and that this segment is positioned to see the most significant improvement as these end markets start to recover. Now let's discuss the growth pillars in our Diagnostics and Genomics section, where revenue grew by 9% in the quarter and 6% for the full fiscal year. Our Molecular Diagnostics Growth Pillar performed exceptionally well, as organic avenue growth topped 20%.

Speaker Change: Remember that our Protein Science segment is where we have the most exposure to both China and the biopharma end market, and that this segment is positioned to see the most significant improvement as these end markets start to recover.

Speaker Change: grew by 9% in the quarter and 6% for the full fiscal year.

Kim Kelderman: The value proposition of our XODX prostate test continues to resonate with both patients and physicians. This test provides critical information to men with a gray zone PSA score on whether to proceed or not to proceed with an invasive and potentially dangerous prostate biopsy.

Speaker Change: A test provides critical information to men with a gray zone PSA score on whether to proceed or not to proceed with an invasive and potentially dangerous prostate biopsy.

Kim Kelderman: During Q4, ExoDx pulsate volumes increased by almost 35%. We are seeing momentum across the various KPIs we track for our XODX prostate tests, including a 30% sequential increase in the number of physicians ordering 25 or more XODX prostate tests per quarter. Rounding out the molecular diagnostics business, the Asuragen brand delivered another strong quarter as the sensitivity and specificity of our proprietary assay chemistry drives global adoption of our carrier screening as well as our oncology, This led to mid-teens overall growth for the business, and we continue to advance innovative molecular diagnostic products through our pipeline, and are looking forward to the launch of our exosome-based ESR1 mutation kit for breast cancer monitoring, as well as the expanded carrier screening assay in the coming months.

Speaker Change: During Q4, ExoDx post-save volumes increased by almost 35%.

Speaker Change: We are seeing momentum across the various KPIs we track for our xODx prostate tests, including a 30% sequential increase in the number of physicians ordering 25 or more xODx prostate tests per quarter.

Speaker Change: This led to mid-teens overall growth for the business, and we continue to advance innovative molecular diagnostic products through our pipeline and are looking forward to the launch of our exosome

Kim Kelderman: Now let's discuss our spatial biology growth failure, where once again, demand for a fully automated, high-throughput, hyperplexed spatial biology platform called Comet outpaced our manufacturing capacity in the quarter. The Cross-Organizational Manufacturing Team continues to implement production process improvements and is making good progress scaling capacity to meet current and forecasted commodities. During the quarter, we enabled RNA detection and visualization on Comet with the launch of RNA-scope HyPLEX capabilities for the instrument. Following this launch, Plummet is now capable of detecting and visualizing up to 24 proteins and 12 RNA targets simultaneously, creating a highly differentiated multiomic system for the rapidly growing field of spatial biology.

Speaker Change: The Cross-Organizational Manufacturing Team continues to implement production process improvements and is making good progress scaling capacity to meet current and forecasted comment amounts.

Speaker Change: During the quarter, we enabled RNA detection and visualization on Comet with the launch of RNA-scope HyPLEX capabilities for the instrument.

Kim Kelderman: These enhanced capabilities are in the hands of our initial set of key opinion leaders and will be rolling out across our installed base over the coming months. In summary, the team delivered another solid quarter and another solid fiscal year in this challenging funding environment. As our end markets equilibrate back to a non-pandemic environment, we are well positioned to reinvigorate growth across our portfolio of core research reactions and continue the momentum across our four growth verticals.

Speaker Change: As our end markets equilibrate back to a non-pandemic environment, we are well positioned to reinvigorate growth across our portfolio of core research and innovation, and continue the momentum across our four growth verticals.

Kim Kelderman: I'm extremely proud of the execution by the Bio-Techne team in these stabilizing, but still challenging, end markets. I'm also confident in our ability to deliver differentiated financial performance as our end markets progress through the recovery process. And with that, I'll turn the call over to Jim.

Speaker Change: I am extremely proud of the execution by the Bio-Techne team in these stabilizing but still challenging end markets.

Speaker Change: I'm also confident in our ability to deliver differentiated financial performance as our end markets progress through the recovery process.

Jim Hippel: Thanks, Kim. I'll start with some additional detail on our Q4 and Fiscal 2024 financial performance and then give some thoughts on the financial outlook for the year ahead. Starting with the overall fourth quarter financial performance, adjusted EPS was $0.49 compared to $0.55 in the prior year quarter, with foreign exchange having a material impact on EPS. Gap EPS for the quarter was $0.25 compared to $0.47 in the prior year.

Speaker Change: Gap EPS for the quarter was $0.25 compared to $0.47 in the prior year.

Jim Hippel: Q4 revenue was $306.1 million, an increase of 2% year-over-year on a reported basis and a 1% increase on an organic basis, while acquisitions contributed 1% to reported growth. The full fiscal year 2024 revenue approached $1.2 billion, and organic growth was comparable to what we saw in the fourth quarter. Looking at organic growth by region and market in Q4, North America and Europe decreased low single digits year over year, while China decreased high single digits.

Speaker Change: Q4 revenue was $306.1 million, an increase of 2% year-over-year on a reported basis, and a 1% increase on an organic basis.

Speaker Change: Acquisitions contribute 1% to reported growth.

Speaker Change: The full fiscal year 2024 revenue approached $1.2 billion and organic growth was comparable to what we saw in the fourth quarter.

Speaker Change: Looking at organic growth by region and market Q4, North America and Europe decreased low single digits yearly year, while China decreased high single digits.

Jim Hippel: APAC outside of China increased low double digits overall, with Japan and Australia both benefiting from growth in cell and gene therapy and regional expansion of our surgeon portfolio respectively, while lower government funding and macro constraints continue to impact South Korea. By end market in Q4, excluding China, both biopharma and academia declined low single digits in the quarter.

Speaker Change: While lower government funding and macro constraints continue to impact South Korea.

Jim Hippel: As Kim previously mentioned, we continue to see sequential global stability in our biopharma and market, and academia face tougher year-over-year comps this quarter. Below revenue on the P&L, total company adjusted gross margin was 71.1% in the quarter, compared to 71.6% in the same quarter of the prior year, driven by the impact of the loom for acquisition and unfavorable product mix, partially offset by productivity initiatives. Adjusted SG&A in Q4 was 29.8% of revenue, compared to 26.8% in the prior year, while R&D expense in Q4 was 7.8% of revenue, consistent with the prior year. The increase in SG&A was driven primarily by the Loom for Acquisition as well as the quarterly timing of Annual Incentive Compensation accruals.

Jim Hippel: Adjusted operating margin for Q4 was 33.5%, a decrease of 360 basis points from the prior year period, but an increase of 50 basis points to quench it. Excluding the Loom-4 acquisition, which closed at the beginning of Q1, adjusted operating margin was 120 basis points lower than the prior year due to the impact of unfavorable volume leverage and product. Looking at our numbers below operating income, net interest expense in Q4 was $1.5 million, decreasing $1 million compared to the prior year period due to lower debt. Our bank debt on the balance sheet as of the end of Q4 stood at $319 million, a decrease of $70 million compared to last quarter.

Jim Hippel: Other adjusted non-operating income was $0.5 million in the quarter, an increase of $0.6 million compared to the prior year, primarily reflecting our 20% share of Wilson-Wolf adjusted net income, partially offset by the foreign exchange impact related to our cash pooling arrangement. Moving further down the P&L, our adjusted effective tax rate in Q4 was 22%, consistent throughout fiscal 24, but up 200 basis points compared to the prior year due to geographic mix.

Speaker Change: Moving further down the P&L, our adjusted effective tax rate in Q4 was 22%, consistent throughout fiscal 24, but up 200 basis points compared to the prior year due to geographic mix.

Jim Hippel: Turning to cash flow and return of capital, $75.5 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $18 million. Also, during Q4, we returned capital to shareholders by way of $12.6 million in dividends. We finished the quarter with 160.7 million average diluted shares outstanding.

Speaker Change: Turning to cash flow and return of capital, $75.5 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $18 million.

Speaker Change: Also during Q4, we returned capital to shareholders by way of $12.6 million in dividends.

Jim Hippel: The balance sheet finished Q4 in a strong position with $151.8 million in cash, and our total leverage ratio remains well below 1 times EBITDA. Going forward, M&A remains a top priority for capital allocation. Now let's discuss the performance of our reporting segments, starting with the Protein Sciences segment, where Q4 reported sales were $214 million, with reported revenue decreasing 4% compared to the prior year period. As discussed in last quarter's talk, following a strategic review of our portfolio, we have decided to invest in a CO Bovine Serum, or FBS, that will be an approximately $10 million annual revenue business with an operating margin profile and long-term growth rate With the exclusion of FBS, it unfavorably impacted reported segment revenue growth by 1%.

Jim Hippel: That's Organic Revenues for the Segment, decreased revenues. As a reminder, it is our Protein Sciences segment that has the most exposure to the China Geographic region, as well as the Bio-Tech N1. Operating Margin for the Protein Sciences Segment was 43%, a decrease of 170 base points compared to the prior year quarter, as unfavorable volume and product mix were partially offset by cost management and structural alignment emissions. Now turning to the Diagnostics and Genomics Summit, Q4 sales were $90.7 million, with reported growth increasing 15% compared to the same quarter last year.

Speaker Change: Now let's discuss the performance of our reporting segment, starting with the Protein Sciences segment.

Speaker Change: Q4 reported sales were $214 million, with reported revenue decreasing 4% compared to the prior year period.

Speaker Change: As discussed in last quarter's talk, upon a strategic review of our portfolio, we have decided to invest the CO Bovine Serum, or FBS, business.

Speaker Change: The exclusion of FBS unfavorably impacted reported segment revenue growth by 1%.

Speaker Change: Operating margin for the Protein Sciences segment was 43%, a decrease of 170 base points compared to the prior year quarter as unfavorable volume and product mix were partially offset by cost management and structural alignment initiatives.

Jim Hippel: Organic Revenue Growth, the segment was 9%, with the Lumenfor acquisition having a 6% impact. Unrecord Diagnostics, Growth Vertical, once again, let's look at segment growth. Moving on to the Diagnostics and Genomics Segment Operating Margin at 12.5%, the segment's operating margin decreased compared to the prior year's 18.5%, due primarily to the impact of the LUMIFOR acquisition.

Speaker Change: Moving on to the Diagnostics and Genomics Segment Operating Margin at 12.5%, the Segment Operating Margin decreased compared to the prior year's 18.5%, due primarily to the impact of the LUMIFOR acquisition.

Speaker Change: Excluding Moodle 4, the segment's operating margin would have been over 20%.

Jim Hippel: Excluding Moodle 4, the segment's operating margin would have been over 20%. Diagnostics and Genomics steadily improved operating margins throughout Fiscal 24, benefiting from the integration of LUNIFOR and sequentially increasing volume. The segment's operating margin improved 320 basis points sequentially from Q3 and improved from a nearly break-even operating margin at the beginning of the year to Q1. In summary, as we reflect on this past fiscal year, it has really been a multi-year unwinding of the massive investment that occurred in our industry and in markets during the COVID pandemic.

Speaker Change: Diagnostics and Genomics steadily improved operating margins throughout Fiscal 24 benefiting from the integration of LUNIFOR and sequentially increasing volume leverage.

Speaker Change: The segment's operating margin improved 320 basis points sequentially from Q3 and improved from nearly break-even operating margin at the beginning of the year in Q1.

Speaker Change: In summary, as we reflect on this past fiscal year, it has really been a multi-year unwinding of the massive investment that occurred in our industry and our markets during the COVID pandemic.

Jim Hippel: We are pleased that our strategic portfolio positioning, together with the resilient execution by our 3,100 employees, has enabled Bio-Techne's annual revenue to be higher today than it was before the unwinding began. We are encouraged that the past two quarters of sequential stabilization in our end markets suggest that the unwinding is largely behind us. Now, our industry waits for a return to normalized market growth, which for life sciences, we believe is mid-single-digit growth over the long term. However, how long it will take for this recovery to happen is a challenge for anyone.

Speaker Change: We are pleased that our strategic portfolio positioning, together with the resilient execution by our 3,100 employees, has enabled Bio-Techne's annual revenue to be higher today than it was before the unwinding began.

Speaker Change: We are encouraged that the past two quarters of sequential stabilization in our end markets suggest that the unwinding is largely behind us.

Speaker Change: Now, our industry waits for a return to normalized market growth, which for life sciences we believe is mid-single-digit growth over the long term.

Speaker Change: How long it will take for this recovery to happen is a challenge for anyone to predict.

Jim Hippel: But there are indications that a gradual recovery in the back half of calendar year 2024 and throughout calendar year 2025 is a real possibility. These indications include the following. OEM customer destocking appears to have abated. Biotech funding in the first half of calendar year 2024 has improved significantly from 2023 levels. Large pharma customers may have completed the realignment of their R&D pipeline priorities by the end of calendar 2024, but the pandemic is now in the rearview mirror, and the implications of new pharma industry-specific government regulation are better understood.

Speaker Change: But there are indications that a gradual recovery in the back half of calendar year 2024 and throughout calendar 2025 is a real possibility.

Speaker Change: These indications include the following.

Speaker Change: OEM customer destocking appears to have abated.

Speaker Change: Bio-Tech funding in the first half of calendar year 2024 has improved significantly from 2023 levels.

Speaker Change: Large pharma customers may have completed the realignment of their R&D pipeline priorities by the end of calendar 2024, but the pandemic now in the rear-view mirror and the implications of new pharma industry-specific government regulations better understood.

Jim Hippel: And finally, the China region should realize a lift in instrument growth at the start of calendar 2025 due to government stimulus that has been announced. As our end markets gradually recover, we believe that biotech needs relative revenue growth, and our performance will also change.

Speaker Change: And finally, the China region should realize a lift in instrument growth at the start of calendar 2025 due to government stimulus that has been announced.

Speaker Change: As our end markets gradually recover, we believe that bio-tech needs relative revenue growth. Our performance will also continue.

Jim Hippel: The value proposition that our proteomic analysis platforms have demonstrated to our customers during this downturn has resonated with strong instrument-based consumer growth over the past two years. And, by our calculation, there is pent-up demand and needed capacity for more. Our cell and gene therapy offering has demonstrated a value proposition by adding new customers throughout the past two years, even when new biotech funding has been drastically reduced. Our Spatial Biology Growth Vertical now has an automated solution that is unmatched in its speed and multi-element capabilities that will also pull through larger quantities of our gold standard RNA scope and antibody reagent.

Speaker Change: The value proposition that our proteomic analysis platforms have demonstrated to our customers during this downturn has resonated in strong instrument-based consumer growth the past two years. And by our calculation, there is pent-up demand and needed capacity for more instruments.

Speaker Change: Our cell and gene therapy offering has demonstrated value proposition by adding new customers throughout the past two years, even when new biotech funding has been drastically reduced.

Speaker Change: Our Spatial Biology Growth Vertical now has an automated solution that is unmatched in its speed and multi-element capabilities that will also pull through larger quantities of our gold standard RNA scope and antibody reagents.

Jim Hippel: And last but not least, our Molecular Diagnostics Growth Vertical is already in growth acceleration mode as its unique and underpenetrated portfolio of products continues to gain market share. Thus, the gradual road to end market recovery over the next 18 months. Together with our expectation for continued outperformance, this forms our baseline case for Bio-Techne's organic revenue growth from Fiscal 25. Our current momentum suggests low single-digit growth in the first half of the year, with the possibility of mid-single-digit growth once the higher biotech funding returns to biotech spending.

Speaker Change: And last but not least, our Molecular Diagnostics Growth Vertical is already in growth acceleration mode, as its unique and underpenetrated portfolio of products continues to take market share.

Speaker Change: Thus, the gradual road to end-market recovery over the next 18 months, together with our expectation for continued outperformance, forms our baseline case for Bio-Techne's organic revenue growth in Fiscal 25.

Speaker Change: Our current momentum suggests low single-digit growth in the first half of the year, with the possibility of mid-single-digit growth once the higher biotech funding returns into biotech spending.

Jim Hippel: Our organic growth could gradually accelerate to the high single digits in the second half of the year as Chinese stimulus funds are released and assuming large pharma budgets are normalized for the calendar year 2025. As we look to adjust the operating margin for the year ahead, we intend to fund all new investments with productivity initiatives and cover inflation with pricing action. Allowing the anticipated volume leverage to drop through the bottom line. However, following a year of missed incentive compensation targets, there will need to be a reinstatement of incentive compensation accruals for both bonuses and sales commissions.

Speaker Change: Our organic growth could gradually accelerate to the high single digits in the second half of the year as Chinese stimulus funds are released and assuming large pharma budgets are normalized for the calendar year 2025.

Speaker Change: As we look to adjust the operating margin for the year ahead, we intend to fund all new investments with productivity initiatives and cover inflation with pricing action.

Speaker Change: Allowing the anticipated volume leverage to drop through the bottom line.

Speaker Change: However, following a year of missed incentive compensation targets, there will need to be a reinstatement of incentive compensation accruals for both bonuses and sales commissions.

Operator: The impact of this reinstatement will create an approximate 100 basis point headwind to fiscal year 25's full-year adjusted operating margin and more severely impact the first half of the year in the back. That's the expect first half adjusted operating margin for fiscal year 25 to be approximately 200 to 300 basis points lower than the prior year, and the second half margin to be approximately 100 to 200 basis points higher than the prior year.

Speaker Change: The impact of this reinstatement will create an approximate 100 basis point headwind to fiscal year 25's full year adjusted operating margin.

Speaker Change: and more severely impact the first half of the year than the back half.

Speaker Change: That's the expect first pass adjusted operating margin for fiscal year 25 to be approximately 200 to 300 basis points lower than prior year.

Speaker Change: and a second half margin to be approximately 100 to 200 basis points higher than the prior year.

Operator: The first half of the year will have margin headwinds related to the incentive compensation reinstatement, as well as continued negative product mix. However, the second half of the year should benefit from greater revenue volume leverage, planned productivity initiatives, and improving products. Assuming the indicators that we are all seeing are correct, fiscal year 25 should be the year of gradual recovery for our end markets and, with it, allow us to exit the year poised for double-digit growth and a multi-year run toward adjusted operating margins over 35% as per a long-term adjustment.

Speaker Change: First half of the year will have margin headwinds related to the incentive compensation reinstatement, as well as continued negative product mix.

Speaker Change: Assuming the indicators that we are all seeing are correct, Fiscal Year 25 should be the year of gradual recovery for our end markets and with it allow us to exit the year poised for double-digit growth and a multi-year run towards adjusted operating margins over 35% as per our long-term objectives.

Operator: That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the line for questions. If you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue by pressing star and 2.

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: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue by pressing star and 2. Once again, to ask a question, please press the star and 1.

Operator: Once again, to ask a question, please press the star and 1. We'll take our first question from Puneet Souda with Lerink Partners. Your line is open.

Speaker Change: We'll take our first question from Puneet Souda with Learink Partners. Your line is open.

Puneet Souda: Hi guys, thanks for taking my questions. I'm just wondering if you can elaborate a bit on the RU antibodies and cytokines in the quarter. How did that fare?

Puneet Souda: And also, it seems that your instrumentation portfolios are still holding up well, and your attached consumables are growing with that instrumentation portfolio. Maybe just help us understand the instrumentation dynamic a bit, because when we look at the peers, the instrumentations have been weaker, but it just seems like there is a bit more demand. Maybe a part of that is Lunaford, just if you could help clarify the instrumentation as well on that end as well. Puneet, good morning.

Puneet Souda: How did that fare? And also, it seems that your instrumentation portfolio is still holding up while your attached consumables are growing with that instrumentation portfolio. Maybe just help us understand the instrumentation dynamic a bit, because when we look at the peers, the instrumentations have been weaker, but it just seems like there's a bit more demand. Maybe a part of that is Lunaford, just if you could help clarify the instrumentation on that end as well.

Kim Kelderman: Thanks for your question. Let me start with the instrument question that you asked. Yes, like most others, our instrumentation growth rates have been under pressure in the Indian markets as we know them, specifically China, and biopharma being constrained. But we are also proud to mention that the consumables directly related to these instruments have been growing double digits now, seven quarters in a row. So we are very confident that the installed base is getting utilized optimally, and that we are filling up the capacity that we have in the installed base.

Speaker Change: Puneet, good morning. Thanks for your question. Let me start with the incident question that you asked. Yes.

Speaker Change: Specifically China and bio-pharma being constrained.

Speaker Change: But we are also proud to mention that the consumables directly related to these instruments

Speaker Change: have been growing double digits now seven quarters in a row, so we are very confident that

Speaker Change: and that we are filling up capacity that we have in the installed base.

Kim Kelderman: And with funding coming back in, we are pretty certain that there will be a drive to get increased capacity in the field, and that will drive our instrumentation numbers. Unknown Speaker Your question on the RUO antibodies was, obviously, you know, you know, the dynamics with the Unknown Executive, Puneet Souda, David Clair, Thomas Peterson, Kim Kelderman, Bio-Techne, Okay, thanks.

Speaker Change: you know different end markets swinging a little bit, and in a bottoming out process and that makes it a lumpy business. Overall we are we are looking carefully at all the different product lines and

Puneet Souda: And then, Jim, just clarifying the comments on fiscal year 25. Does this mean a mid to high single-digit overall growth rate for 2025 and an exit rate in the fourth quarter of fiscal year 25 of a low double-digit? Just wanted to make sure I was clear on that for organic growth.

Speaker Change: Okay, thanks. And then, Jim, just clarifying the comments on fiscal year 25.

Speaker Change: Does this mean a mid to high single digit overall for 2025 and an exit rate in the fourth quarter of 2025 of low double digit? Just wanted to make sure I was clear on that for organic growth.

Jim Hippel: Well, as I said, I've given some guidance on how I think the year will progress based on, you know, a baseline market expectation, that baseline market expectation for a very gradual improvement in our end market. I don't think we'll see anything immediately that would suggest an improvement in our end marks in the very near term, but I think by the end of the year, we're hoping that we start to see some uplift with biotech, given the increased funding that we've seen so far year-to-date, that should turn to spending. And then continue to continue to 2025; you have the Chinese stimulus starting to kick in, and pharma budgets being reset.

Operator: So that's kind of a gradual progression of the growth rates as we see it, and that's what I've outlined in my prepared comments, and how fast that progression happens or how slow it happens will depend on what the full year number ends up being. Our next question comes from Jacob Johnson with Stevens. Your line is open. Hey, thanks. Good morning.

Jacob Johnson: Maybe, Jim, sticking on the guidance theme, I heard some headwinds on the margin side in the first half of the year due to incentive comp, etc. It sounds like maybe a little bit better in the back half of the year, but still, we're looking at operating margins in FY24 that are well below where you'd been historically. I know some of that's related to acquisitions. I guess as we think about returning to growth in the latter part of this year, how should we think about incremental margins as growth picks up again?

Jacob Johnson: And then I heard 35% plus, but at times, we've seen a 40% target longer term. Is there any reason you couldn't get back to 40% over time with the caveat that M&A can always be diluted to margin? Yeah, thanks for the question.

Speaker Change: At times, we've seen a 40% target longer term. Is there any reason you couldn't get back to 40% over time with the caveat of M&A can always be diluted to margins?

Jim Hippel: So just to reiterate, from a margin perspective, you know, we do have a significant headwind with the incentive compensation accrual restatements across the entire transcripts primarily used in. That being said, we do see Atlanta's site, assuming the growth rates accelerate throughout the year, we do see Atlanta's site operating margins being 100 to 200 basis points higher than we ended this year, which would end us in the year somewhere in the mid-30s. My comment around, you know, 35% was actually greater than 35%, so it was really the message that we saw that, you know, this year is a year of recovery that would set us up very nicely to get back to our long-term growth objectives, which are north of 35% operating margin, up to 40%, of course. That's the range we've always done, and we are back on track to our long-term growth plans. That was the main message behind that. I got it. It makes sense.

Speaker Change: Thanks for the question, Jacob. So, just to reiterate, from a margin perspective, we do have a significant headwind with the incentive compensation accrual restatements across the entire company. That's about 100 basis points. So, without that headwind, we would be talking about some incremental margin improvement this year.

Speaker Change: My comment around, you know, 35% was actually greater than 35%.

Speaker Change: Up to 40% of course, that's the range we've always did.

Jacob Johnson: Thanks for that, Jim. And then, Kim, maybe, you know, Jim mentioned getting back to double-digit growth. Maybe we should start to revisit 2023 Investor Day and the potential for growth, you know, well into the double digits. You talked about your four key growth franchises earlier and the traction there, and obviously those are key to more robust levels of growth when the macro normalizes. I'm just curious, a year later after that Investor Day, are there any of those kind of four platforms where you're more confident in the growth outlook? And then, on the flip side, any of those pillars where maybe you have more restrained expectations? Thank you, Jacob. It's a good question.

Speaker Change: You talked about your four key growth franchises earlier and the traction there, and obviously those are key to more robust levels of growth when the macro normalizes. I'm just curious, a year later after that investor day,

Speaker Change: Are there any of those kind of four platforms where you're more confident in the growth outlook, and then on the flip side, any of those pillars where maybe you have more restrained expectations?

Kim Kelderman: It is quite, I must say, quite comforting that we look at these four growth verticals very carefully because those are also areas where investment dollars flow in, and our activity level is very high. And then we continuously look at our progress there, but also the competitive landscape. And you take that all together, and we're still very committed to each and every one of those.

Speaker Change: Thank you, Jacob. It's a good question. It is quite, I must say, quite comforting that

Speaker Change: You know, we look at these four growth verticals very carefully because those are also areas where investment dollars flow in and our activity level is very high.

Speaker Change: And then we continuously look at our progress there, but also the competitive landscape. And, you know, you take that all together, and we're still very committed to each and every one of those. We've...

Kim Kelderman: Yeah, we feel that we have really differentiated positions with wonderful symbiosis between those four growth verticals and the core, the core reagents, where each of these growth verticals pulls through a core reagent at very high margins. And we have very differentiated positions in the market. So we're still very confident about it. The difference that you could, you know, you would ask is like, "So what is the difference between now and a year and a half ago?"

Kim Kelderman: And that's obviously because the end markets have slowed since then and the question is not so much, will we get to the numbers that we projected at that time? But the question is, when do you get to those numbers? And that timeframe is an unlikely delay, you know, so in five-year forecasts, you always think about a couple of mediocre years, a couple of good years, a couple of bad years. Unfortunately, now we have a couple of lackluster years behind us.

Speaker Change: The question is not so much, will we get to the numbers that we at that time projected, but the question is, when do you get to those numbers? And that time frame is...

Kim Kelderman: So hopefully, that's the system, and we're still on track, but it could well be that that takes a little longer. And then, and then you would have to think about delaying the $2 billion mark. But whether we get there is not the question. We're really confident with our platform. Dan Arias with Stifel.

Speaker Change: Unfortunately, now we had a couple of...

Speaker Change: lackluster years behind us. So hopefully those are the system and we're still on track. But it could well be that that takes a little longer and then and then you would have to think about delaying the $2 billion mark. But whether we get there is not the question and we're really confident with our platforms.

Speaker Change: Our next question comes from Dan Arias with Stiefel. Your line is open.

Operator: Your line is open. Hey, good morning, guys. Thanks for the questions here. Jim, just looking at the model, can you maybe true us up on where GMP reagent revenue finished for the year? And then what do you think a good starting point on growth might be for this year? New products, I believe, but still recovering customer spending. So what do you think that translates to for 2025, just given the importance there to the growth algorithm? Yeah, thanks for the question, Dan.

Dan Arias: Hey, good morning, guys. Thanks for the questions here. Jim, just looking at the model, can you maybe true us up on where GMP, Reagent, Revenue,

Dan Arias: Finished for the year, and then what you think a good starting point on growth might be for this year. New products, I believe, but still recovering customer spending. So what do you think that translates to for 2025, just given the importance there to the growth algorithm?

Dan Arias: You know, GMP, overall, revenue growth for fiscal year 24 did grow. We were, you know, we did, we did have growth overall for the year, even though it was choppy, which is a positive sign in a very tough year. And so we expect those growth rates to increase, obviously, in an improving market. So that's essentially what's been baked into the four. Okay, but is there any way you can kind of like give us a number to work with as a jumping off point?

Speaker Change: Yeah, thanks for the question, Dan. You know, GMP, you know, overall GMP revenue growth for fiscal year 24 did grow.

Speaker Change: We did have growth overall for the year, even though it was choppy.

Speaker Change: which is a positive sign in a very tough year. And so we expect those growth rates to increase obviously in an improving market. So that's essentially what's been baked into the forward guidance.

Speaker Change: Okay, but is there any way you can kind of like give us a number to work with as a jumping off point?

Dan Arias: Well, I'd say this: we grew roughly mid-single-digit for the year, for the full year, in 2020. Okay, and then maybe just as a follow-up on the outlook and the growth that the company is capable of here, one of the things that you usually talk about when it comes to forecasting is this idea that biotechnology is historically and consistently been 500 to 1,000 basis points above peers on organic. To what extent do you think that that logic applies in 2025 if we just think about the assumptions about market growth that are implied there?

Speaker Change: Well, I'd say that we grew roughly mid-single-digit for the year.

Speaker Change: Thank you for watching. I'm James Hippel.

Speaker Change: Okay, and then maybe just as a follow-up on the outlook and the growth that the company is capable of here, one of the things that you usually talk about when it comes to forecasting is this idea that biotechnology has historically and consistently been

Speaker Change: 500 to 1,000 basis points above peers on organic. To what extent do you think that that logic applies in 2025, if we just think about the assumptions on market growth that are implied there?

Speaker Change: I mean, we're sticking with that guidance, right, and I think this quarter is yet another testament to it. By our calculations, our peer group in total shrank roughly about 4% this quarter, and we grew 1%.

Dan Arias: And so, you know, kind of back to Puneet's question in terms of getting back to double-digit growth, we are absolutely confident that when the market gets back to mid-single-digit growth, we will be at double-digits. And so trying to predict when that full-market recovery happens is difficult to do. I'll also point out that we have some company-specific activities that will help our growth rate as well. We have, obviously, the LUNO4 comet launch that is happening.

Speaker Change: And so, you know, kind of back to Puneet's question in terms of that getting back to double-digit growth, we are absolutely confident that when the market gets back to mid-single-digit growth, we will be at double-digit. And so trying to predict when that full-market recovery happens is difficult to do.

Speaker Change: But, you know, I think we're trying to become more conservative in a slower pace of recovery, that 2025 as a calendar year will be a year of recovery and, you know, it might take that full calendar year to get there, which is why we'll be conservative on a fiscal basis in June .

Speaker Change: We've been hearing from our peers also that bioproduction is looking to recover here perhaps a bit sooner, which might be the first bit of jolt that the industry needs to kind of get going again, too. So, again, I think there's a lot of positive signs. We called them green shoots last quarter. I think there's still green shoots this quarter. They just haven't quite sprouted yet.

Speaker Change: You know, I'll also point out that we have some company-specific...

Speaker Change: We have a lot of activities that will help our growth rate as well. We have the Lunar 4 comet launch.

Jim Hippel: It gives us multi-ionic capabilities, so that should be an upside for growth. And then we have our LEO instrument that Kim talked about in our Protein Simple Franchise, which has already gained a lot of interest from customers since we announced that future release. So, between our company-specific activities and the market improving, we're feeling pretty good about next year, but we're just being very conservative around the pace of market recovery, as I think everyone else has been up here. Take up space.

Speaker Change: that's happening, gives us multi-omic capabilities, so that should be an upside for growth. And then we have our RIO instrument that Kim talked about in our Protein Simple franchise.

Speaker Change: which has already gained a lot of interest from customers since we announced that future release. So between our company-specific activities and the market improving, we're feeling pretty good about next year, but we're just being very conservative around the pace of market recovery, as I think everyone else is on our peers' side.

Operator: B.S. Your line is open. Thank you. I have a question about your RUO reagent product line. Is there anything you could do to accelerate growth there independent of market improvement? Yeah, thanks for the question. You know, the linkage to the growth platform is key there. Some of the RUO reagents fit nicely in the pull-through.

Speaker Change: Next question. Take up space. Dan Leonard with CBS . Your line is open.

Dan Leonard: Thank you. I have a question on your RUO reagent product line. Is there anything you could do to accelerate growth there independent of market improvement?

Speaker Change: Yeah, thanks for the question. You know, the linkage to...

Speaker Change: The linkage to the growth platform is key there. Some of the RUO reagents fit nicely and pull through. As you know that we are now have enabled, for example, the

Unknown Attendee: As you know, we now have enabled, for example, the COMET instrument to utilize our biotechny antibodies that sit in the RUO reagent. And those mechanisms will start pulling through the core. Of course, the core goes to the market itself, but that is a lackluster end market. Now we can also think about how you get through that better than others, and that's by continuing to improve and solidify our marketplace as well. So the marketplace, making sure that it's easy to transact with biotechny, making sure that our website is in great shape, combine that with the vertical platforms pulling through those reagents. Is the secret sauce there?

Speaker Change: The combat instrument to utilize our biotechne antibodies.

Speaker Change: that sit in the REO reagent, and those mechanisms we'll start putting through the core.

Speaker Change: Of course the core goes to market itself, but that is a lackluster end market. Now we can also think about how do you get through that better than others, and that's by continuing to improve.

Speaker Change: and solidify our marketplace as well. So, the marketplace, making sure that it's easy to transact with Biotechni, making sure that our website is in great shape, combine that with the vertical platforms pulling through those reagents.

Speaker Change: is the secret sauce there and fortunately in parts of the portfolio that is already working because some of the RUO product lines are already in the black.

Kim Kelderman: And fortunately, in parts of the portfolio that is already working, because some of the RUO product lines are already in the black. Thanks for the question.

Kim Kelderman: Appreciate that. And Kim, correct me if I'm wrong, but it seems like your spatial portfolio is less subject to macro headwinds. So could you size that portfolio in aggregate at this point? And how fast do you think it grows in 25?

Speaker Change: Thanks for the question.

Speaker Change: Got it. Appreciate that. And Kim, correct me if I'm wrong, but it seems like your spatial portfolio is less subject to macro headwinds.

Speaker Change: So could you size that portfolio and aggregate at this point and how fast do you think it grows in 25?

Kim Kelderman: Yeah, so fortunately, we've seen some resilience in that portfolio, but I wouldn't say it's immune, right? So there are still larger pharma customers that would have a run rate of a million or more if it comes to quarterly usage of some of our reagents, and there is shuffling going on in that end market, where sometimes programs get closed or sometimes locations get consolidated. Now, overall, I don't think that will have a long-term effect on the need for spatial biology.

Kim: Yeah, so fortunately we've seen some Brazilians in there.

Kim: in that portfolio.

Kim: But I wouldn't say it's immune, right, so there are still larger pharma customers that would have a run rate of a million or more if it comes to quarterly usage of some of our reagents.

Speaker Change: And there is shuffling going on in that end market in which sometimes programs get closed or sometimes locations get consolidated. Now, overall, I don't think that will have a long-term effect on the need of spatial biology. I'm very confident.

Kim Kelderman: I'm very confident that they will be there, but the shuffling in the interim could result in some lumpiness. Overall, the run rate of that business is now at $120 million, and we see double-digit growth in the coming years, especially because we're nicely combining an instrument, a top-notch instrument in the market, that can pull through our RNA-scope reagents as well as our antibodies. Right now, that instrument is running, or pulling through, just short of 50k a quarter, and once we get all our reagents linked to So I'm very confident this is going to be a very positive product line for us and have a positive effect on our customers. Our next question comes from Tom Deborsey with Nefron Research. Your line is open.

Speaker Change: That will be there, but the shuffling in the interim could result in some lumpiness. Overall, the run rate of that business is now at $120 million.

Speaker Change: We see double-digit growth in the coming years, especially because we're nicely combining an instrument.

Speaker Change: Top-notch instrument in the market that can pull through our RNA scope reagents as well as our antibodies

Speaker Change: And right now that instrument is running, or pulling through, just short of 50k a quarter. And once we got all our reagents linked to it, we feel that that pull-through could double, and there we've become our highest pull-through instrument. So I'm very confident this is going to be a very...

Speaker Change: Very positive product line for us and a positive effect on our company.

Speaker Change: Our next question comes from Tom DiBorsi with Nefron Research. Your line is open.

Operator: Hi, thanks. This is Jack Mian on for Tom. I was wondering if you could elaborate on what you're seeing as it relates to Chinese stimulus, how that, you know, what parts of the portfolio are exposed to that, and maybe just how it impacted the current quarter and confidence that steps up in the second half. Yeah, thanks, Jack. As you know, the funding program is trickling through the different systems and regional governments.

Speaker Change: Hi, thanks. This is Jack Mian on for Tom.

Jack Meehan: I was wondering if you could elaborate on what you're seeing as it relates to China stimulus, how that, you know, what parts of the portfolio, you know, are exposed to that and maybe just how it impacted the current quarter and confidence that steps up in the second half of the fiscal year.

Speaker Change: Thank you.

Jack Meehan: Yeah, thanks, Jack.

Speaker Change: As you know, the funding program is trickling through the different systems and regional governments. It's certainly on its way. It's what we hear. Customers are certainly...

Jack Mian: It's certainly on its way, is what we hear. Customers are certainly interested in receiving the benefits and also interested in spending the money already. And, as you know, it's highly tailored to instrumentation only.

Speaker Change: Interested in receiving the benefits and also interested in spending the money already. And as you know, it's highly tailored to instrumentation only. And I think we're really well positioned to benefit from it.

Kim Kelderman: And I think we're really well positioned to benefit from it. A couple of data points. First of all, our instrumentation is pretty unique, and it creates efficiencies and improves the data that you get out of it.

Speaker Change: A couple of data points. First of all, our instrumentation is pretty unique and it creates efficiencies and improves the data that you get out of it.

Kim Kelderman: So there's a fantastic value proposition there. Secondly, about a year ago, a similar funding concept was put in place, and we truly benefited. That's why our current Q4, the one we're reporting on right now, had relatively high comparables year over year because of that funding. And that worked out really well for us. This program is being put in place for three years.

Speaker Change: So there's a fantastic value proposition there.

Speaker Change: Secondly, about a year ago, a similar funding concept was put in place and we truly benefited, that's why our current Q4, the one we're reporting on right now, had relatively high comparables year-over-year because of that funding

Kim Kelderman: So we feel that the moment these funds become available, we will benefit in the short term. And then, I feel, it will be a positive driver for the coming years, which is, of course, better than just one quick jolt that then falls flat again. So I'm happy with that concept. Now, in the meantime, out of our four product lines, we have the Ella product line. And that one has already been growing very nicely in China.

Speaker Change: And that worked out really well for us. This program is put in place for three years.

Speaker Change: So we feel that the moment these funds become available, we will benefit.

Speaker Change: short term, and then I feel it will be a positive driver for the coming years ahead, which is, of course, better than just one quick jolt that then falls flat again. So I'm happy with that concept.

Speaker Change: Now, in the meantime, out of our four product lines,

Kim Kelderman: And as I mentioned at the beginning of the earnings call, we have seen consumables on all four of our platforms continue to grow double digits in the market, indicating that there is a very healthy usage of our. So overall, I'm pretty confident that this will be a positive driver for the company. But like everybody else, the timing and when it trickles through is a little bit more vague, but I think the if is more important than the when, and I'm pretty certain the if is going to take place. Sounds good.

Speaker Change: We have the Ella product line, and that one has already been growing very nicely in China. And as I mentioned at the beginning of the earnings call, we have seen the consumables on all four of our platforms.

Speaker Change: Continued to grow double digits in the market as well and indicating that there is a very healthy usage of our instruments.

Speaker Change: So overall, I'm pretty confident that this will be a positive driver for the company. But like everybody else, the timing and when it trickles through is...

Speaker Change: is a little bit more vague, but I think the if is more important than the when, and I'm pretty certain the if is going to take place.

Speaker Change: Sounds good. Thank you.

Kim Kelderman: Our next question comes from Matt Larew with William Blair. Your line is open. Hi, everyone. I want to start on a little bit more obviously.

Speaker Change: Our next question comes from Matt Larew with William Blair. Your line is open.

Matt Larew: For some, a few quarters now, you've reported that demand is outstripping capacity, and I know you brought manufacturing in-house and are attempting to scale that. So, could you maybe speak to where you are from sort of fixing the manufacturing there from a backlog perspective and how those two things maybe filter in to what you think you can deliver from Luna 4 in fiscal 25? Yeah, thank you for the question. First of all, we were delighted that we saw healthy demand above our capacity. That's, of course, always a good starting point, although painful nonetheless.

Matt LaRue: For some, a few quarters now, you've reported that demand is outstripping capacity, and I know you brought manufacturing in-house and are attempting to scale that up.

Kim Kelderman: So our teams have worked really hard to crank up the capacity. And yeah, I think that's ongoing now for a little over two quarters. And I'm very pleased to see the progress there. And yes, we mentioned that it was still a consideration in Q4, our last fiscal quarter that we're now reporting on. But that in Q1, fiscal year 25, this problem should be going away. So the lines of capacity and demand are going to be crossing, you know, any week or any month right now.

Speaker Change: Yeah, I think that's ongoing now for a little over two quarters.

Speaker Change: And yes, we've mentioned that it was still a consideration in Q4, our last fiscal quarter that we're now importing on.

Speaker Change: but that in Q1, fiscal year 25,

Speaker Change: This problem should be going away. So the lines of capacity and demand are going to be crossing, you know, any week or any month right now.

Kim Kelderman: And from there, we should not be held back by the capacity constraints anymore and just be able to focus on increasing demand. So it's looking very promising from that point of view. You might not hear about that topic anymore. Okay, that's good to hear.

Speaker Change: From there, we should not be held back by the capacity constraints anymore and just be able to focus on increasing demand. So, it's looking very promising from that point of view. You might not hear about that topic anymore.

Matt Larew: And then, Jim, just thinking about margins next year, obviously, you gave the first half, first, second half guidance. I think this is I kind of do quick math on the top line and what it implies for margins that spending next year, absent some of the resets you described, is going to be quite a bit less in terms of year-over-growth than in recent years. You referenced some productivity programs.

Jim: Okay, that's good to hear. And then, Jim, just thinking about margins next year, obviously, you gave the first half, first, second half guidance.

Jim: Quite a bit less in terms of year-over-growth than in recent years. You referenced some productivity programs, so maybe just wanted to get a sense for, you know, where you're targeting from an efficiency perspective and, you know, kind of what the balance is between trying to pull costs out to get margins back in line relative to allocating investments for some of the future growth opportunities.

Jim Hippel: So maybe just want to get a sense for where you're targeting from an efficiency perspective and, you know, kind of what the balance is between trying to pull costs out to get margins back in line relative to allocating investments for some of the future growth. Yeah, I mean, the reality is that we've been working on productive initiatives throughout this down cycle. So it's definitely throughout CISCO 23, 24, and more projects in CISCO year 25 as well.

Jim Hippel: And you know, it's a delicate balance of making sure we adjust the structure inside of our business relative to our volumes while maintaining and fueling the growth pillars, the growth verticals in our company that are allowing us to outperform our competition and will propel us into double-digit growth once the market gets back to normal growth rates. And so it's a delicate balance, but I think we've been pretty successful in these initiatives that we're doing.

Speaker Change: It's a delicate balance of making sure we adjust the structure inside of our business relative to our volumes.

Speaker Change: while maintaining and fueling the growth pillars, the growth verticals.

Speaker Change: I think we've been pretty successful in these initiatives that we're doing and we have lens sight to do that yet again this year and basically offset any new investments we're making in those gold pillars in particular to keep them moving forward to our five-year plan objectives.

Speaker Change: It's an ongoing process for our company.

Jim Hippel: And we have one site to do that yet again this year and basically offset any new investments we're making in those growth pillars in particular to keep them moving forward to our five-year plan objective. It's an ongoing process for our company. Our next question comes from Patrick Donnelly with Citi. Your line is open, and Patrick Donnelly, your line is open.

Speaker Change: and many more. Thank you. Thank you.

Speaker Change: Our next question comes from Patrick Donnelly with Citi. Your line is open.

Speaker Change: And Patrick Donnelly, your line is open.

Operator: We'll take the next question from Catherine Schulte with Baird. Your line is open. Hey guys, thanks for the questions. Maybe first on the outlook for the first half of low single-digit organic growth. Does that hold for the first quarter as well?

Patrick Donnelly: Thank you.

Speaker Change: We'll take the next question from Catherine Schulte with Baird. Your line is open.

Catherine Schulte: And then any color on how we should think about protein sciences specifically in the first half versus the back half? Yeah, I'll take that. Thank you, Catherine. Yeah, again, it's a gradual improvement under Sec. I'll make sure that that's clear. With regard to where that improvement comes from, I think Ken mentioned this in his opening comments as well.

Speaker Change: Hey guys, thanks for the questions. Maybe first, just on the outlook for the first half of low single-digit organic growth, does that hold for the first quarter as well? And then any color on how we should think about protein sciences, specifically in the first half versus the back half?

Speaker Change: Yeah, I'll take that. Thank you, Catherine. Yeah, again, it's a gradual, it's a very gradual...

Speaker Change: increase that we're talking about fuel based off of market projections, right? And I said in my opening comments that somewhere below, atmeal with integer growth in the first half which would suggest some level of progression in both our end markets and our absolute performance.

Jim Hippel: Largely, it's going to come from our protein science segment. That's the segment that's a part of our business that's been most severely impacted by China, by the biotech funding issues, and by the slowdown in big pharma. That's all hit and dead center on our protein science segment. So as those end markets recover, our protein science, Okay, got it. And then maybe for China.

Speaker Change: and in the first half of our fiscal year, 2025.

Speaker Change: I'll make sure that that's clear.

Ken: With regards to where that improvement comes from, and I think Ken mentioned this in his opening comments as well, largely it's going to come from our protein science assignment. That's the segment that's a part of our business.

Ken: has most been severely impacted by China.

Ken: by the Biotech Funding Issues, by the...

Catherine Schulte: Any thoughts on kind of how that trended throughout the quarter? It sounded like stabilization was what you guys were seeing, but any differences as you worked your way through the quarter and then, you know, what are you expecting for the first quarter for China? I would just say for China that it was basically a repeat of Q3.

Jim Hippel: It really was in terms of looking at the absolute dollars, the growth rates, you know, our rate agents continue to be double digits like they were last quarter, which is a great time for recovery, but instruments continue to be down. And we're not projecting any major pickup on instruments until we get into our first quarter 25, I'm sorry, first quarter, first calendar quarter, when the stimulus kicks in for China. So, we think we will see China continue to be stable but then really pick up its growth rates in the back half of our fiscal year. Our next question comes from Justin Bowers with Deutsche Bank. Your line is open. Justin Bowers, your line is open.

Operator: Pardon the mute there. Can you talk? Can you talk?

Justin Bowers: Good morning. Can you talk about the biopharmaceuticals on the market and how that performed across the different geographies?

Speaker Change: Mentioned that it was low single digit growth and was very consistent globally, both in Europe and in the U S.

Ken: <unk>.

Jim Hippel: Any notable thoughts? Transcripts provided by Transcription Outsourcing, LLC. Yeah, I mean, biopharma, you know, taking China out of the mix, which we report biopharma, it's really excluding China anyway, we mentioned that it was low single-digit growth and was very consistent globally, both in Europe and in the US. And yeah, so low, low, you know, low, low.

Speaker Change: And yes.

Speaker Change: Low single digit decline.

Justin Bowers: So you will get- But, you know, more importantly, the sequential... performance of Bioforma was consistent in Q4 as it was in Q1. So, try not to get too caught up in growth rates because they can get a bit wonky, but really focus on the momentum of the business going forward. And because 80% of our business is consumables that book and ship in the same day, it really is all about the momentum.

Speaker Change: Growth and but more importantly, the sequential.

Speaker Change: Performance of Biopharma was consistent in Q4 as it was in Q3, so I'll try not to get too caught up in growth rates, because they can give us a bit lumpy, but really focused on the momentum of the business going forward and because 80% of our business is consumables.

Speaker Change: And ship in the same day it really is all about the momentum.

Justin Bowers: We're encouraged that the momentum, overall, even within biopharma, has at least stabilized. So, you know, I think we've been saying this, we're going to have no change in our message from the past two quarters where we felt like the December quarter was a bit of a bottom and that we're kind of in this bottoming process until the markets start to fully recover and, As I mentioned in my opening comments, there's reasons to believe, from a macro perspective, that it will recover sooner than later, but it will probably be a gradual process. Thanks, Jim. A quick follow up on Luna 4. In terms of linking the reagents to, when you talk about that, that process.

Speaker Change: We're encouraged that the momentum overall you within Biopharma is at least stabilized.

Speaker Change: So I think we've been saying.

Speaker Change: No change in our message for the past two quarters, where we felt like the December quarter was a bit of a bump a bomb and you were kind of in this bottoming process until the markets start to fully recover and.

Speaker Change: As I mentioned in my opening comments there is reasons to believe from a macro perspective that it will recover sooner than later.

Speaker Change: But it will probably be a gradual process going forward.

Jim: Thanks, Jim a quick follow up on lunar four in terms of Lincoln three agents.

Speaker Change: Two.

Speaker Change: The instruments there.

Speaker Change: Is that like a multi quarter or multi year process can you talk about that now.

Speaker Change: Process and facing a little bit.

Kim Kelderman: Yeah, thanks. Thanks for the question. No, the initiation of linking the RNA scope HyPlex to the box is actually happening this quarter and is going to roll out throughout this quarter. The antibodies you could be using right now, so that's also already in place.

Speaker Change: Yes. Thanks, Thanks for the question.

Speaker Change: No.

Speaker Change: <unk>.

Speaker Change: The initiation of linking the RNA scope high Plex two the box is actually happening this quarter.

Speaker Change: And its going to rollout throughout this quarter.

Speaker Change: The antibody is you could be using right now so that's also.

Kim Kelderman: Will we broaden that portfolio and add different tools to it? Yes, and that will be, you know, just a filling out of the toolbox over the coming quarters and years? But, you know, to start to get going and to do your experiments across most diseases, most species, fully automated multiomics, that's possible as we speak and in the coming months. We'll take our final question from Sanjeev Naum with Scotiabank. Your line is open.

Speaker Change: Already in place.

Speaker Change: We broadened the portfolio and add different tools to it yes, and that will be just a filling out of the toolbox over the coming quarters or years, but to start to get going into to do your experiments across most diseases. Most pcs.

Speaker Change: Fully automated multi omics.

Speaker Change: That's possible as we speak and in the coming months.

Sanjay <unk>: We'll take our final question from Sanjay <unk> with Scotiabank. Your line is open.

Operator: Hi, thanks for taking my questions. Just on the academic end market, I know it's relatively small, but is the expectation there also for that segment to gradually recover throughout fiscal year 25, given comps get easier? You know, if you could maybe highlight some of the key puts and takes for the end market.

Sanjay <unk>: Hi, Thanks for taking my questions just on the academic end market I know, it's relatively small but is the expectation there also.

Speaker Change: <unk> for that segment congratulate recover throughout fiscal year, 'twenty, five given comps get easier.

Speaker Change: You could maybe highlight some of the key puts and takes for that end market.

Sanjeev Naum: Yeah, I would just say from an academic perspective, it's even throughout the pandemic, both, you know, during the pandemic and after the pandemic. I think as we track our peers' performance, we're not that different in that it hasn't been an overly dynamic environment for academics. It's been pretty much low single-digit and then single-digit growth in our space, and we had some lumpiness in our comps this quarter, but that's kind of what we're predicting going forward.

Speaker Change: Yes, I would just say from an academic perspective, even throughout the pandemic.

Speaker Change: During the pandemic and post pandemic I.

Speaker Change: I think as we track our peer performance, we're not that different in that it hasnt been overly dynamic environment for epidemic, it's been pretty much a low single digit and been single digit kind of growth in our space.

Speaker Change: We had some some.

Peanuts, and our comps this quarter.

Speaker Change: Kind of what we're predicting going forward call it a low single digit market.

Sanjeev Naum: We call it low single-digit market growth in academia, and that's basically what we've experienced for the past several years, and we see that kind of not changing much going forward. And I'm sure you follow it as much as I do.

Speaker Change: Growth in academia and Thats, what <unk>, that's basically what we've recently experienced.

Past several years, and we see that kind of machine that not changing much going forward, an intriguing cloud as much as I do there is different bills in Congress right now that would suggest that it will reconcile somewhere in that range and the way going forward from an earnings perspective.

Jim Hippel: There are different bills in Congress right now that would suggest that it will reconcile with some more in that range anyway going forward for academia. I think what is a positive driver for our company is that much of the NIH funding, but also the Horizon funding in Europe, has been focused on infectious diseases and technologies and sciences related to infectious diseases initiated through and because of the pandemic. But that there is more normalization if it comes to doing your studies and your sciences around neurology as well as immuno-oncology.

Speaker Change: I think what what is a positive driver for our company is that much of the NIH funding, but also know as <unk> funding in Europe has been focus on infectious diseases and technologies and sciences related to infectious diseases initiative through because of the pandemic, but that there is a more normalize.

Speaker Change: <unk> if it comes to.

Speaker Change: During your studies and Youre sciences around neuro neurology as well as immuno oncology and those are areas, we are stronger and better positioned and so overall, we feel that.

Kim Kelderman: And those are areas we are stronger and better positioned in. So overall, we feel that the mix coming out of those funds will be in our favor. A function of you taking share, or is it just the underlying market growing faster than expected, and then kind of could this kind of level of growth momentum could that continue into 25 as well? Thank you.

Speaker Change: The mix coming out of that those funds will be in our advantage.

Speaker Change: Gotcha and then just on now molecular diagnostics also small part as small business for you guys relatively speaking, but you saw very strong growth throughout 2024, and just kind of curious if this is more of a function more of a.

Speaker Change: It's a function of that you're taking share or is it just the underlying market growing faster than expected and then kind of could this kind of level of growth and momentum could that continue into 'twenty five as well. Thank you.

Sanjeev Naum: And thanks for the question. There are certainly just fundamental improvements where we feel that we are taking share. But there are also, of course, some, you know, some dynamics that we should not count on going forward all the time because we don't know exactly.

Speaker Change: I think it's a mixture and thanks for the question.

Speaker Change: Certainly just fundamental improvements, where we feel that we are taking share.

Speaker Change: There is also of course some.

Speaker Change: Some dynamics that we should not.

Kim Kelderman: Remember that we had a couple of quarters of inventory adjustments, and then we knew that with the destocking that we were going through a couple of quarters that were lackluster. And then we called the end of that in December and that we would be free and clear of that in the new calendar year. And that became true, but I do believe that some of the inventories also got normalized, and that there is a little extra momentum there that won't repeat.

Speaker Change: Count ongoing forward all the time, because we don't know exactly remember that we had a couple of quarters of.

Speaker Change: Inventory adjustments and then we knew that the Destocking that we were going through a couple of quarters that were lackluster and then we call. The end of that in December and that we would be free and clear of that in the new in the new calendar year.

Speaker Change: It became true, but I do believe that some of the inventories also got normalize a bit there is a little extra momentum there that won't repeat overall, though I think there are some real underlying strengths in net these end markets are healthy and we are taking market share.

Kim Kelderman: Overall, though, I think there is some real underlying strength in that these end markets are healthy and we are taking markets. It appears we have no further questions. I'll turn the program back to the speakers for any additional or closing remarks. Yeah, I will go ahead with my closing statement. Thank you very much for joining the call today and for all the insightful questions. I'm extremely proud of the Bio-Techne team's accomplishments and all the results that we have been able to deliver in the quarter and in the fiscal year, even under the current market conditions. Our differentiated portfolio addresses some of the highest growth markets in life sciences and is positioned to deliver best-in-class performance for all of our stakeholders going forward. So, thank you very much. Until the next earnings call.

Speaker Change: It appears we have no further questions I'll turn the program back to the speakers for any additional or closing remarks.

Speaker Change: Yes, I will go ahead with my closing statements.

Speaker Change: Thank you very much for joining the call today and for all the insightful questions.

Speaker Change: I'm extremely proud of the biotech team's accomplishments and all the results that we have been able to deliver in the quarter ending the fiscal year, even under the current market conditions.

Speaker Change: Our differentiated portfolio addresses some of the highest growth markets in life Sciences and is positioned to deliver best in class performance for all of our stakeholders going forward. So thank you very much until the next earnings call.

Kim Kelderman: This does conclude today's program. Thank you for your participation, and you may disconnect your line at any time. Unknown Executive, Puneet Souda, David Clair, Thomas Peterson, Kim Kelderman, Bio-Techne Corp. Have a Simply Wonderful Day. Stay fragrant.

Speaker Change: This does conclude today's program. Thank you for your participation and you may disconnect. Your line at any time.

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Operator: Adieu. See you next time. Attendance Report. Thank you for watching! AAAAAAAAAAAAAAAA Aaaaaa, ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? Children of the World. Dave Brubeck, J. D. Waldhaus Liliana Fasse, Michael Phoebus, Sig Hurst, Dakota Fritz, Dan Lowe Joel DeAndard DeFranco, Samuel Hill, tirarumalo, Iowa on canon, Ah!

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