Q1 2025 Bio-Techne Corp Earnings Call
Before we begin let me briefly cover our safe Harbor statement. Some of the comments made during this conference call maybe considered forward looking statements.
Including beliefs and expectations about the company's future results.
The company's 10-K for fiscal year 2024 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward looking statements made during this call.
The company does not undertake to update any forward looking statements because of any new information or future events or developments.
The 10-K as well as the company's other SEC filings.
Favorable 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.
Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier. This morning on the Investor Relations section of our biotech knee Corporation website at Www Dot bio dash technique Dot com.
Separately in the coming weeks, we will be participating in the UBS Stifel Stephens and Jefferies conferences.
We look forward to connecting with many of you at these upcoming events.
I will now turn the call over to Kim.
Kim: Thanks, Dave and good morning, everyone. Thank you for joining us for our first quarter conference call.
Kim: Im pleased to report that the start to our fiscal year 2025 was largely consistent with our initial expectation.
Kim: Continued stabilization of our Biopharma end markets combined with excellent execution by the biotech team led to 4% year over year organic revenue growth.
Kim: Our growth pillars, including our molecular diagnostics, especially rheology platforms as well as our proteomics analysis franchise.
Kim: For you to outperform and constrained end markets.
Kim: It's also encouraging to see early indications of improvements in our biotech end markets, which is validated by the strength, we experienced in our cell and gene therapy business. During this last quarter.
Kim: I will give additional details about the momentum in our growth pillars later, Nicole, but first I want to applaud the biotech knee team for delivering this top line performance.
Kim: <unk> focus on profitability.
Kim: Tim will discuss this in more detail, but the cost containment and productivity initiatives. We have put in place in recent quarters positioned the company to maintain its peer leading operating margin profile.
Kim: These efficiencies will also allow for continued strategic investments, while expanding margins is the life science markets returned to their historical growth rates.
Tim: Before we get to the specifics of the quarter I'd like to highlight the significant progress we made.
Tim: <unk>, our environmental social and governance or ESG initiatives.
Tim: During the quarter <unk> technique issued the fourth iteration of its corporate sustainability report or CSR.
Tim: In this latest CSR, we highlight the significant progress we've made on this front, including the recent submission of a letter of commitment to reduce the scope one two and three greenhouse gas emissions.
Tim: This reduction targets will be evaluated by the science based targets initiative in 2026.
I'm proud of the team's commitment and continued progress which positions biotech.
Tim: Our sustainable future.
Tim: Now, let's discuss our Q1 results starting with an overview of our performance by end market and by geography.
Tim: Overall, biopharma increased mid single digits with strength in our cell and gene therapy workflow solutions.
Tim: We also saw continued sequential stabilization from large pharma customers and improving ordering trends from our biotech customers.
Tim: Academia increased low single digits in the quarter with tough year over year comparable in both the U S and in Europe.
Tim: Now for our regions in the Americas, we grew low single digits, excluding the diagnostics end market.
Tim: This was driven by strong growth in our cell and gene therapy vertical.
Tim: Europe increased mid single digits overall, which was bolstered by strong performance in academia.
Tim: This overall performance in Europe is even more impressive considering the mid teens growth comparable from the prior year quarter.
Tim: In China, a challenging funding environment remains a hurdle to grow however, we did see pockets of strength, including in our cell and gene therapy solution as well as in our spatial biology franchise.
Tim: Our instrument business continues to see stimulus related tender activity, which we expect to translate into orders in the third quarter of our fiscal year.
Tim: Overall, China declined low double digits during the first quarter, but we anticipate that the Chinese government will continue to prioritize to improve health care through investments in scientific research.
Tim: Our portfolio of proteomics and spatial biology tools play an important role in these efforts.
Tim: Now, let's discuss the growth pillars within our protein Sciences segment, starting with our cell and gene therapy business.
Tim: We see that the value proposition of our broad portfolio of GMP reagents continues to resonate with the customers that are developing this life changing therapy.
Tim: Additionally, our cell therapy customers continue to transition from using <unk> proteins for preclinical work to GMP certified to the agents as they begin their clinical trial.
Tim: This dynamic is providing an increasing tailwind for our business.
Tim: For the quarter, our GMP reagent product lines increased over 60%, including robust growth from both our large customers as well as in the smaller biotech.
Tim: As a reminder, order timing among our larger customers can create quarter to quarter Lumpiness. So on a trailing 12 month basis, our GMP reagents business grew in the upper teens.
Tim: We are particularly pleased with this performance considering the market constraints over the same period.
Tim: Next I'd like to give an update on our skilled ready joint venture partner Wilsonville.
Tim: As many of you are aware Wilson move is the developer of the market, leading <unk> bioreactor Geo.
Tim: Rex is used as an efficient and cost effective bioreactor for scaling cell therapies and is currently used in around 45% of the clinical trials, taking place in Europe and in the U S.
Tim: We currently own 20% of <unk>, and we will purchase the remainder of the business by the end of calendar 2027 or potentially earlier, depending on the achievement of various milestones.
Tim: And from the imminent Wilson Wolf acquisition, the biotech team continues to drive synergies between the two businesses.
Tim: For example, we recently announced the launch of our OPEC GMP cytokines, which are optimized for use with the Wilson Wolf <unk> bioreactor.
Tim: The use of Pullbacks provides the precise quantity of GMP proteins needed to enable a highly simplified yet closed system pretty expansion of cell therapies. Additionally.
Tim: Additionally, we already launched the <unk> Grant program and initiative. It is actively seeding academic and biopharma customers with <unk> bio reactors and biotech needs GMP reagents.
These customers get to experience the power of the combined product offering during the preclinical development process, which nicely positions. Both Wilson moved and biotech me to win in this nascent high growth industry.
Tim: Secondly, let's discuss the performance of our other growth pillar within protein sciences, the proteomics analytical instrumentation division marketed under the protein simple breath.
Tim: Here the team delivered mid single digit growth as.
Tim: As the challenging capital equipment environment was once again more than offset by strong consumables and service revenue growth.
Tim: Looking specifically at the performance of our proteomics analytical instruments, it's worth noting that after several quarters of decline our portfolio returned to low single digit growth in the America.
Tim: Continuing with protein simple.
Tim: To give an update on the latest addition to our simple western franchise called Leo.
Tim: This next generation instrument is a high throughput automated western blot system.
Tim: Enabling the simultaneous analysis of up to 100 samples in a single three hour run.
Tim: We have experienced significant customer interest in <unk>. Following the public announcement at the end of July and the team is building a promising funnel for the upcoming launch in the second half of our fiscal year 2025.
Tim: Simple western remains the only fully automated western blot system on the market.
Tim: So the penetration rate of less than 20%, we see a long runway for future growth in this portfolio.
Tim: Before we wrap up our discussion on protein Sciences I'd like to give you an update on how <unk> is leveraging artificial intelligence tools to further our already strong proteomics position.
Tim: As a reminder, biotech me was the first company to broadly commercialize research use only proteins and $19 85.
Tim: We are bearing the data generated over the last 39 years by our internal R&D team with generative AI tools to create new designer boating.
Tim: These patentable proteins are engineered to exhibit hyperactive properties enhanced heat stability and other novel features.
These attributes are relevant for many applications, including of course cell therapies.
Tim: We recently launched our first two designer proteins and these will be followed by many AI engineered cytokine crop factors and antibodies antibodies, which is nicely aligned with our roadmap.
Speaker Change: Overall, the team delivered 1% organic growth report in Science segment. While this performance is in no way indicative of the latent growth potential in this segment. It is a distinct improvement over the low single digit declines we've experienced over the last three quarters.
Speaker Change: Remember that our protein Sciences segment is where we have the most exposure to both China and Biopharma end market headwinds in this segment is positioned to see the most improvement as these markets continue to normalize.
Speaker Change: Now we will move on to the growth pillars in our recently renamed diagnostics and spatial biology segment.
Speaker Change: This segment has been previously referred to as the diagnostics and genomics segment. However, given the segments increasing leadership in the emerging space will be LNG field, we felt that the new segment name is more indicative of our focus.
Speaker Change: But in spatial biology demand remains strong for our fully automated high throughput hyperflex patient will be able as your platform called comment.
Speaker Change: I am pleased to report that following the successful Cross company initiative, we have increased comments manufacturing capacity to meet the growing demand for the instrument.
Speaker Change: We also launched the <unk> scope assays on comment this last quarter, which enables the platforms multi omics capability.
Speaker Change: This means that it can now detect and visualize up to 24 proteins and 12 RNA targets simultaneously.
Speaker Change: Enhanced capabilities are in the hands of the top key opinion leaders and spatial biology, who are currently generating multi omics data to support a broader rollout, which will take place in this current quarter.
Speaker Change: Additionally, we continue to lounge biotech knees R&D systems branded antibodies validated for use on the comment.
Speaker Change: To earn a scope capabilities paired with a growing portfolio of validated antibodies will support consumable stream that is expected to be the highest pull through of any instrument under the biotech the umbrella.
Speaker Change: Our other growth pillar within diagnostics and special is our molecular diagnostics business, which continues to perform at a very high level with nearly 40% growth in both our XO Dx prostate tests, and our insurance and kit business.
Speaker Change: We are in the initial stages of realizing the tremendous synergies that exist between the <unk> and <unk> businesses illustrated by the upcoming launch of the Kitten <unk> based test.
Speaker Change: <unk> cancer related ESR, one mutation, which we will commercialize who are sure Jenn Laboratory channel.
Speaker Change: In summary, the team delivered another quarter of differentiated performance in what has proven to be a prolonged period challenges facing the industry.
Speaker Change: Despite these challenges fiscal year 2025 is off to start that is in line with our initial expectation.
Speaker Change: Our unique portfolio of innovative tools and bioactive reagents is positioned to continue to generate differentiated growth going forward.
Speaker Change: We remain focused on delivering the solutions our customers rely on us to capitalized variances in science and medicine.
Speaker Change: We have the team and the portfolio to accomplish this while creating value for all our stakeholders.
Speaker Change: With that I'll turn the call over to Jim.
Speaker Change: Jim.
Jim: Thanks Kim.
Jim: I'll start with some additional detail on our Q1 financial performance and then give some thoughts on our financial outlook.
Jim: Starting with the overall first quarter financial performance adjusted EPS was <unk> 42 cents.
Jim: There are 41 in the prior year quarter.
Jim: With foreign exchange, having a favorable one cent impact.
Jim: GAAP EPS for the quarter was 21 cents compared to 31 from the prior year.
Jim: Q1 revenue was $289 5 million, an increase of 5% year over year on a reported basis.
Jim: A 4% increase on an organic basis with foreign currency exchange impacting sales by approximately 1%.
Jim: Looking at our organic growth by region and end market in Q1.
Jim: North America increased low single digits.
Jim: Europe increased mid single digits year over year, while China decreased low.
Jim: Double digit.
Jim: The challenging funding environment remains a headwind for our China business with our instrument business facing the biggest challenges in a geography.
Jim: We are seeing stimulus related instrument activity in China, which should start to benefit revenue growth in the region. During the third quarter of this fiscal year.
Jim: APAC outside of China increased low single digits overall, with Japan, and South Korea, both benefiting from growth in our instrument and spatial biology portfolios.
Jim: Which was partially offset by macro challenges in other Asian countries.
Jim: By end market in Q1, excluding China, Biopharma increased mid single digits, and academia increased low single digits in the quarter.
Speaker Change: As Kim previously mentioned, we continue to see sequential global stability in our Biopharma end market, which was bolstered by strength in our cell and gene therapy business in the quarter.
Speaker Change: He will revenue on the P&L total company adjusted gross margin was 69, 5% in the quarter compared to 71, 3% in the same quarter of the prior year driven by the impact of unfavorable product mix, partially offset by productivity initiatives and exclusion of the lower margin held for sell Fps business.
Speaker Change: Adjusted SG&A in Q1 was 32, 3% of revenue compared to 31, 3% in the prior year, while R&D expense in Q1 was eight 3% of revenue compared to eight 7% in the prior year.
Speaker Change: The increase in SG&A was driven primarily by the reinstatement of bonus and commission accruals, partially offset by diligent expense control.
Speaker Change: Adjusted operating margin for Q1 was 29% a decrease of 240 basis points from the prior year periods due to the impact of unfavorable product mix as well as the reinstatement of the previously mentioned incentive compensation accruals.
Speaker Change: We continue to execute cost containment initiatives and prioritize our growth initiatives to drive efficiencies throughout the organization with the goal of optimizing the operating leverage during the ensuing market recovery.
Speaker Change: Looking at our numbers below operating income net.
Speaker Change: <unk> expense in Q1 was $1 1 million decreasing $2 8 million compared to the prior year period due to lower debt levels compared to last year.
Speaker Change: Our bank debt on the balance sheet as of the end of Q1 stood at $300 million, a decrease of $19 million compared to last quarter.
Speaker Change: Other adjusted net operating income was $3 9 million in the quarter, an increase of $2 3 million compared to the prior year, primarily reflecting our 20% share Wilson Wolf adjusted net income and the foreign exchange impact related to a cash pooling arrangements.
Speaker Change: Moving further down the P&L, our adjusted effective tax rate in Q1 was 21, 5% down 50 basis points compared to the prior year due to geographic mix.
Speaker Change: Turning to cash flow and return of capital.
Speaker Change: $63 9 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $9 2 million.
Speaker Change: Also during Q1, we returned capital to shareholders by way of $12 7 million in dividend.
Speaker Change: We finished the quarter with $161 1 million average diluted shares outstanding.
Speaker Change: Our balance sheet finished Q1 in a strong position with $187 $5 million in cash and our total leverage ratio remains well below one times EBITDA.
Speaker Change: Going forward M&A remains a top priority for capital allocation.
Speaker Change: Now I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Speaker Change: Q1 reported sales were $204 5 million.
Speaker Change: Reported revenue flat compared to the prior year period.
Speaker Change: The exclusion of the fetal bovine serum business, which is currently classified as held for sale business.
Favorably impacted reported segment revenue growth by 1%.
Speaker Change: That's organic revenue for this segment increased 1%.
Speaker Change: Operating margin for the protein science and that was 39, 4% a decrease of 380 basis points compared to the prior year quarter, and unfavorable volume and product mix as well as the reinstatement of incentive compensation accruals were partially offset by cost management and structural alignment initiatives.
Speaker Change: Turning to the diagnostics and spatial biology segment Q1 sales were $83 2 million with both reported and organic growth, increasing 14% compared to the same quarter last year.
Speaker Change: Our molecular diagnostics business once again led segment growth.
Speaker Change: Moving onto the diagnostics and spatial biology segment operating margin at five 1% the segment's operating margin increased compared to the prior year's 0.7% due primarily to the impact of volume leverage and productivity initiatives, partially offset by the reinstatement of incentive compensation accruals.
Speaker Change: We anticipate steady improvement in diagnostics and spatial biology operating margin as Lou enforce scales throughout the fiscal year.
Speaker Change: In summary, our Q1 performance was largely in line with the expectations, we provided last quarter.
Speaker Change: Which keeps our initial assumptions and expectations for the remainder of fiscal year 'twenty five intact.
Speaker Change: As expected we started the fiscal year with broad strength across our diagnostics and spatial biology segment.
Speaker Change: We look forward continues to gain acceptance as the instrument of choice and spatial translational research.
Speaker Change: And I'm a core diagnostics business continues to capitalize on the opportunity in front of it with its informative exo Dx prostate cancer test.
Speaker Change: Surgeons pipeline of innovative product launches.
Speaker Change: Within our protein Sciences segment, we saw continued stability.
Speaker Change: Biopharma end markets with initial signs of improvement in the smaller biotech end market.
Speaker Change: This improvement combined with the strength, we saw in cell and gene therapy.
Speaker Change: We believe is indicative of the healthy biotech funding levels, we saw throughout 2024, starting to materialize into biotech spending.
Speaker Change: That's given how our first quarter play out our current momentum would suggest mid single digit growth from the first half of the year.
Or said another way, we expect our Q2 top line performance it looks similar to Q1.
Speaker Change: We continue to see the potential for organic growth to do it.
Speaker Change: Graduate accelerate in the second half of our fiscal year to a fourth quarter exit rate of high single digits.
Speaker Change: Chinese stimulus funds are released.
Speaker Change: By a gradual recovery in large pharma earlier stage R&D spending.
Speaker Change: Admittedly large pharma remains the most significant wildcard in this outlook, but we believe calendar 2025 has the potential to be a year of more normal levels of pharma R&D spend is greater clarity on the IRA impact.
Speaker Change: As well as recent project rationalization and restructuring initiatives.
Speaker Change: Clear the path for new investments by these customers.
Speaker Change: Our adjusted operating margin outlook also remains intact with the first half half of fiscal 2025 are expected to be 200, or 300 basis points lower than prior year and our second half margin expected to be approximately 100 to 200 basis points higher than prior year.
Speaker Change: First half of the year, we will have margin headwinds related to the incentive compensation accrual reinstatement as well as negative product mix.
Speaker Change: Well the second half margin should benefit from greater revenue volume leverage and productivity initiatives and improving product mix.
Speaker Change: That concludes my prepared comments and with that I'll turn the call back over to the operator to open the line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: I would like to ask a question at this time. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Thank you.
Speaker Change: Our first question comes from the line of Puneet <unk> with Leerink partners. Please proceed with your question.
puneet: Yes, hi, guys.
Speaker Change: For taking the question and congrats on the quarter here.
Speaker Change: The first one is.
puneet: It's great to see the beat in diagnostics and spatial but could you elaborate how you know.
puneet: Sustainable is that momentum and speak to both the special versus the diagnostics side of the business.
puneet: And what you're seeing on the biotech and Biopharma improvement I have to say is it is it is rare in the current market backdrop to see that so.
puneet: Can you elaborate a bit on.
puneet: On your confidence to continue to see that growth in and why is this not.
puneet: Something unique to this quarter and what gives you confidence that that should continue.
puneet: Into the December ending quarter and into the first half of 2020 five.
Speaker Change: Yes puneet.
Speaker Change: For your question and then I'll I'll take the first part of it and then pitch the second second part two to Jim.
Jim: You know to your question diagnostics and spatial biology, as a sustainable I do believe so.
Jim: Pick it apart we have the extra <unk> Dx prostate tests right and it has had great momentum over the over the last six quarters or so.
Jim: We still have plenty of runway and market penetration ahead of us and we're seeing real strong adoption. So we believe that we still have.
Quite a ways to go there in the meantime, we also know that we have similar momentum in the Georgia kits that we sell into diagnostics laboratories that momentum. We are also confident we will continue we have a strong R&D funnel we have already.
Jim: Talked about a upcoming lounge for ESR one Brett.
Jim: Breast cancer treatment resistance test right, which is in excess AUM based test that we will launch through our Oh sure Jin Laboratory channel and in addition, we will lounge other genetic tests. During this said this fiscal year in that portfolio. So good momentum in the market as well as <unk>.
Jim: Momentum in the R&D funnel, if it and jump to the spatial biology business commit lounge is still in its early days and sees very nice adoption.
Jim: From an instrument point of view in a in the markets and then.
Jim: We know internally that we will see bolstered growth from the consumables we are.
Jim: Enabling on this instrument right.
Jim: We have we have RNA scope in the early days that is now compatible so that you can do true multi omics experiments on the comment lounge and of course, we are continuing to launch our R&D systems branded antibodies of which we've launched 25 or so in this last quarter that also will run.
Jim: On this multi omics instruments. So we believe we have momentum in all three arms of this this segment and that it will continue like that.
Speaker Change: For the second half of the question I'll give him the microphone yeah, hi, many thanks.
Speaker Change: As we talked about is we talked about last quarter and continue this quarter for us to have mid single digit growth by.
Speaker Change: You know in Q2, we need to see the biotech funding constraints that we've seen throughout the year start to materialize into biotech span.
And in Q3, our first quarter here calendar Q3.
Speaker Change: We had very strong cell and gene therapy growth, which well.
But I think both by the smaller biotechs as well as larger pharma.
Speaker Change: And what we saw in the broader within cell and gene therapy. It was again broad based growth now we know we have some very large customers that can be lumpy and yes, those did well this quarter, but even the smaller customer mix within cell and gene therapy. Also was strong now it was very very strong we don't have to expect that same level of strength in Q2, we saw them.
Speaker Change: Q1, but always encouraging was that in the back half of our first quarter as you know puneet, we monitor our daily run rates our run rate business. Those sales that are under a thousand bucks a pop that make up a very large portion of our <unk> business. We monitor that on a daily basis to look for underlying momentum in trends and in the back half of the quarter, we started to see.
Speaker Change: The smaller biotechs.
Speaker Change: Growth rates, not just stabilize but actually start to pick up a bit now that's not off the races, but its nice to see some positive growth from those run rates within small biotech.
Speaker Change: More broadly across our entire <unk> portfolio and we saw that momentum continue into October so.
Speaker Change: That's what gives us some confidence that that funding is starting to turn into spending on a more.
Speaker Change: More broad based broad basis, the cell and gene therapy.
Speaker Change: We maintain we think a very strong growth.
Speaker Change: In Q2 as it did in Q1 is probably not as strong so that will.
Speaker Change: That will come that will that will come down a bit perhaps in growth rates, but we think the offset by the rising tide. We are seeing and are you a momentum in pharma biotech.
Speaker Change: Got it that's super helpful. Jim So just following up on the cell and gene therapy comments, you made can you elaborate a bit on.
Are these new trial starts or existing trials that are scaling up or moving into later phases.
And I think you had provided some account metrics before just wondering where the.
Speaker Change: Overall account metrics are for the GMP proteins in the cell and gene therapy business. Thank you.
Speaker Change: Yeah Puneet.
Speaker Change: The cell and gene therapy growth vertical as you know.
Speaker Change: We are really pleased with the progress there.
Speaker Change: We mentioned in the past that we have about 400 customers in this funnel.
Speaker Change: And of which 58 customers are now in.
Speaker Change: The early phases of various stages of the clinical trials.
Speaker Change: And we see customers progressing through the funnel, which then drives order sizes, but Fortunately, we also see the volume and the order sizes for the smaller customers increase just as well so we feel theres broad momentum in this <unk>.
This business.
Speaker Change: Thank you. Our next question comes from the line of Jacob Johnson with Stephens.
Proceed with your question.
Jacob Johnson: Hey, good morning, congrats on the quarter.
Jacob Johnson: Maybe sticking with the cell and gene therapy theme.
Jacob Johnson: Kind of below the line you add positive other income during the quarter I believe that's where Wilson will flow through can you just talk about how those trended in the quarter and any benefit.
Jacob Johnson: On the other income line from them and maybe how to think about that the next few quarters.
Speaker Change: Jay Thanks for the question. So it Wilson Wolf is also seeing great momentum in and Thats, probably where you see the numbers coming from as you know we own 20% of Wilson move at the moment and they had a great quarter of with over 30% growth just as well.
Speaker Change: Further financial detail.
Speaker Change: I'll ask Jim to pitch them, yeah, I won't get into specifics of the contribution part of that there was some work, but it did grow.
Speaker Change: Nicely year over year, but I would say a big chunk of that favorability in other nonoperating income below the line came from the FX.
Speaker Change: Translation from our from our cash pooling arrangement.
Jacob Johnson: Got it thanks for that Jim and Jim maybe sticking with you just just on the cost side of things I guess, specifically around Opex. Some moving pieces on yesterday SG&A line I think.
Speaker Change: You guys are talking about efficiency I think there's a restructuring charge in there and then obviously you have the return of incentive comp can you just you reiterated in your commentary around the margin outlook for this year, but as we think about SG&A and kind of the pacing. The rest of the year can you just help us think through kind of any onetime items in <unk> and then any benefits from from.
Jacob Johnson: Cost savings as we get into the rest of the year.
Speaker Change: Sure.
Speaker Change: As you think about the margin profile of specifically for the upcoming quarter here Q2, a couple of things to keep in mind is that our incentive comp headwinds are actually stronger in Q2. They were in Q1, meaning we had even more clarity as to where our performance is going to be in Q2 than we did Q1 last year. So we reversed accruals even further.
Speaker Change: There is a larger year over year headwind when it comes to that part of the equation. When you think about the sequential margin profile from Q1 to Q2. There is also a slight headwind.
Speaker Change: And the fact that our merit increases that go annually to our employees are are the last month of the quarter. So we basically have two two months of a headwind in Q2 relative to Q1 as a result of that so.
That's why we're kind of still holding at that same.
The same overall guidance for the half in terms of margin when you think about Q3 and Q4, but.
Speaker Change: It really holding the line as we did last quarter our view there.
Speaker Change: It is dependent on the pace of recovery on the top line, but we have a lot of productivity initiatives and rationalization, that's happening and prioritization to protect the bottom line and as long as that growth modestly come through as we predicted we think we can get back.
Speaker Change: Back to the positive margin expansion in the back half.
Speaker Change: Thank you.
Speaker Change: Question comes from the line of Dan <unk> with UBS. Please proceed with your question.
Speaker Change: Thank you first one on comment I'd love to better understand the unit model. There could you remind me what is the ASP for the instrument and what would you expect pull through per year to look like in consumables and then also by how much did you increase comment manufacturing capacity.
Speaker Change: Yeah, Dan. Thanks, Thanks for your interest in this spatial biology that we also saw enthusiastic about the.
Speaker Change: Yeah the comment.
Speaker Change: <unk> B is around $3 50, and $350000 that is.
Speaker Change: And of course, there is variations of types, you can order or.
Certain certain capabilities, so theres, a little bit of variation in there, but typically around $3 50, and we've not been able or if not have to discount is yet.
Speaker Change: At all so we see that.
Speaker Change: That price point to be the right one at the moment.
Speaker Change: Momentum has been great.
Speaker Change: We have increased our manufacturing capacity to be able to keep up with demand.
However, we do not usually talk about unit numbers as to how many how many are in our installed base of how many of these ships so that part I will refrain from.
Speaker Change: Okay, and just to circle back on your comments on China can you remind me how much of your revenue mix in China is instruments versus consumables and any more color you can offer on the magnitude of the tender activity that you were discussing.
Speaker Change: Yeah.
Speaker Change: Yeah. So as you know China is around 9% of our overall global revenues for biotech me.
Speaker Change: You are.
Speaker Change: And it has been declining as as is well known.
Speaker Change: We do believe that the mix is.
Speaker Change: Shifting temporarily a little bit more towards the consumable side, but typically the mix in the revenue there is $50 50, so 50% in instruments and 50% and consumables.
Speaker Change: The activity around the tender yet we are as you know we are in our models were looking at and some slight benefits from tender activity in our third quarter, which is the first calendar quarter and we do see this activity if it comes to.
Speaker Change: Acquisitions in and.
Speaker Change: Inbound.
Speaker Change: <unk> around instrumentation.
Speaker Change: Most of that sits in the western Western blot business, the automated western blot and that makes sense because the.
Speaker Change: The funding is aligned with refreshing larger capital and is also focused on the more academic setting. So so that's where we see that's where we would expect a slight tailwind.
Speaker Change: And.
Speaker Change: That could spark definitely a.
Speaker Change: The turnaround in the country, which we all have been waiting for.
Speaker Change: And I'd just add from a magnitude perspective, it would be we.
Speaker Change: We think right now within the pipeline that would be enough to.
Speaker Change: Go from declining growth that we're seeing today to modest positive growth in the region and our Q3.
Speaker Change: Thank you.
Speaker Change: Question comes from the line of Thomas do you foresee with need from research. Please proceed with your question.
Speaker Change: Hi, guys. Thanks for taking the question.
Speaker Change: Just had a question related to your kind of.
Speaker Change: Directional guidance on Q2.
Speaker Change: Kind of sequentially flat.
Speaker Change: Thank you.
Speaker Change: Year over year basis, it would kind of hubs.
Speaker Change: Roughly mid single digit growth, but.
You do have a little bit easier comp in Q2, so just any thoughts.
Speaker Change: Just otherwise between the segments in terms of whats kind of driving.
Speaker Change: Sort of.
Speaker Change: <unk> digit growth.
Speaker Change: For the second half for Q2.
Speaker Change: Yeah, I mean, there's some nuances within that in that sense.
Speaker Change: That.
Speaker Change: Again, because we're dealing with so much of our business is based off of daily run rates purchased every every day that researchers are in their labs, we look at the holidays for example, and where the holidays fall, particularly around Christmas and new year's and Theyre. Both in the middle of the week this year as opposed to the beginning or the end and I know it sounds like Oh.
Speaker Change: New on split is important with regards to when people take their vacations and so forth. So that's a bit of a headwind relative to last year. When you. When you talk about an easier comp for example, so.
Speaker Change: Other than that I'd say, it's really just a.
Speaker Change: It's really pharma has been I would call it stable for the past couple of quarters, and we see that continuing into Q.
Speaker Change: Our Q2 without any significant uptick as of yet.
Speaker Change: Hopeful for that as we get into 2025 and new budgets are released academic.
Speaker Change: Academic pretty much chugging, along the way it has been in the low single digits and it's really about the smaller biotech and we think there's a bit of a well.
Though the overall biotech market for us at least it appears to be slowly gaining some momentum we did have an exceptional quarter in Q1 of them with reprint with regards to specifically cell and gene therapy.
Speaker Change: As you know in our bigger customers in particular all of it's in large purchases and we think that will settle down a bit in our Q4, I'm sorry, Q2 calendar Q4.
Speaker Change: But the offset by by the gaining momentum we're seeing in our already low biotech.
Speaker Change: And just I guess, one quick follow up.
Speaker Change: Sort of related to that is just in terms of your kind of overall thoughts on year end calendar year end budget flush.
Speaker Change: Last year there was.
Speaker Change: Very little budget flush by either academic or Biopharma.
Speaker Change: Maybe it's not back to normal, but would you expect that to be incrementally better versus last year.
Speaker Change: And again budget flush doesn't impact us as greatly as it does perhaps other companies with large with a much higher instrument percentage as well as more expensive instruments, but that being said it does impact our protein simple franchise in particular, a little bit and.
Speaker Change: Honestly, it's a it's anyone's guess right now there's a you know.
Speaker Change: There's a.
Speaker Change: He sits out there that.
Speaker Change: Pharma in particular has been holding back on their capex budgets, all year and have even spent their budgets and there might be some budget flush as a result of that.
Speaker Change: Factor as seen a more return enormously into ahead of them in 2025.
Speaker Change: But we're not necessarily hearing that from the field yet so.
Speaker Change: As of right now I would say that it looks less likely than more likely based on what we're hearing out in the field, but it can it can it can flip pretty quickly. So we really won't know until we get into December.
Speaker Change: But if it happens that they can use some of it could be some upside.
Speaker Change: Oh, okay.
Speaker Change: Thank you. Our next question comes from the line of Jeff sitting powers with Deutsche Bank. Please proceed with your question.
Speaker Change: Hey, good morning, everyone and just sticking with the previous line of questions.
Speaker Change: Questions with.
Speaker Change: Jim would sort of the similar organic growth outlook into Q is is there any.
Speaker Change: Any divergence within the segments I E. You're still looking for sort of like low single digit in protein Sciences, and then call it mid teens.
Speaker Change: And U S b.
Speaker Change: And then.
On on within Biopharma, It sounds like Youre, saying that large pharma has been fairly stable in terms of spend.
Speaker Change: Over the last couple.
Speaker Change: A couple of quarters are we hearing that correctly and then.
Speaker Change: The follow up to that would be within within the different businesses within protein.
Speaker Change: Within our proteins franchise E proteins simple the run rate business and our lives.
Speaker Change: Are there trends fairly stable there or is there is there some movement there.
Speaker Change: I'll try to within Margaritaville.
Speaker Change: As you know, we generally don't give any kind of guidance by segment, but what I would say in general is if you.
Speaker Change: You think about the end markets and how I just described the end markets. What I would suggest is that do we see a very gradual improvement within our protein Sciences segment as the biotech funding and hopefully continues to gain momentum.
Speaker Change: And with regards to the diagnostics and spatial biology, you know there is that there is a component of business in there that's very OEM driven that can be more lumpy. So although we expect double digit growth to continue in our diagnostics and yummy somebody who may not be as strong as what we saw this quarter, which is how you can kind of get to the same overall growth rate.
Speaker Change: In Q2 as Q1.
Speaker Change:
Speaker Change: As it pertains to.
Speaker Change: The questions around the assays.
Speaker Change: Say the assays are generally performing very similar to our reagents in terms of most of its already low based I'm trying to get with the middle question was.
Speaker Change: More around as they launch large pharma is that.
Speaker Change: Yeah.
Speaker Change: Sorry, Okay.
Speaker Change: Yeah I got another question now so yeah, I mean, it's been stable for us as we've talked about before we saw our larger pharma customers kind of drop off in their run rates early in the calendar year 2024, we think when their budgets were initially released.
And we've seen that pretty much.
Speaker Change: Somewhat down year over year overall, we've seen it be stable sequentially quarter to quarter in terms of what we'd expect to see from a seasonality perspective. So.
Speaker Change: <unk> not seen any major change in pharma, one way or the other as of right now, but we didn't expect to either as our guidance.
Speaker Change: Adjusted you know we feel like.
Speaker Change: Some of the pharma does come back in 2025, we probably won't.
Speaker Change: See much of it until our April may timeframe, which is our last quarter fifth last last quarter of the fiscal year.
Speaker Change: Understood just one quick follow up what was the comp for Biopharma in fiscal one.
Speaker Change: 24.
Speaker Change: I know we talked about it.
I can find it quickly.
Speaker Change: Let's go onto the next question and I'll try to interject that at some point.
Speaker Change: Sure. Thank you Yep.
Speaker Change: Yep.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Catherine shoot with Baird. Please proceed with your question.
Speaker Change: Everyone. This is Tom Peterson on for Catherine Thanks for taking our question congrats on a solid quarter.
Tom Peterson: Wanted to maybe or turn to this based on biology portfolio here you on the updated manufacturing capacity for a comment.
Tom Peterson: I guess, what was ACD growth in the quarter specifically.
Tom Peterson: With respect to your comments around the pull through on that ultimately be.
Tom Peterson: Slade at the Hyatt brand.
Tom Peterson: Any instrument in the portfolio I guess, what's your level of visibility into how close do you think you can get to that level in fiscal 2025.
Speaker Change: Yeah. Thanks, Tom for the question.
So the overall momentum in the spatial biology, we're very pleased to see come it has indeed.
Speaker Change: <unk> met our expectations if it comes to two.
Speaker Change: To the lounge. The first couple of quarters as you know we have to indeed.
Speaker Change: Two a little bit of a sprint and the building.
Speaker Change: Building out the capacity, we feel comfortable we can now deliver on that.
Speaker Change: Many agents earlier day right. So we are as you heard in the script, we have RNA scope now running on the comment but it is in the hands of key opinion leaders are generating the data necessary for a broader rollout which will happen in the in this current quarter.
Speaker Change: The <unk> franchise overall saw a little bit of a headwind from.
Speaker Change: We call it P S pharma as a services.
Speaker Change: And that debt.
Speaker Change: Put some pressure on the overall numbers of that division and we don't talk on.
On that level, though if it comes to growth and absolute revenue numbers, but there were some pressure in there especially related to.
Speaker Change: Pharma projects. So some pharma projects got pushed out which is in line with you know.
Speaker Change: Overall health of that market that we've been talking about.
Speaker Change: So so nothing nothing new there.
Speaker Change: But definitely still a slight impact from from projects pushed pushed out.
Speaker Change: Overall, though we do see that.
Speaker Change: The future of this special biology will be will be bright we are we know the system is.
Seeing real traction customers are really happy with it we will have RNA scope available on there and then we will start pulling through our our antibodies from the R&D systems brand.
Speaker Change: Got it that's super helpful and maybe just a quick follow up on China stimulus.
I guess here some of the comments around the funnel activity any changes in underlying activity levels here in the quarter and then we've heard from some other peers in the space that.
Speaker Change: Seamless program isn't covering the entirety of the instrument purchases.
Speaker Change: I guess at a high level, how big of an impact do you think that this dynamic is and do we need to see broader China macro improvement alongside these stimulus distributions to kind of drive a return to typical market growth in China in 2025.
Speaker Change: Yeah, Thanks, Tom I'll take the first part of it.
As we mentioned earlier, we see.
Speaker Change: We're pretty much seeing what we expected, which is a different quoting activity and interest in our product lines as I mentioned in the earlier question very much related to western blot automated western blot.
Instrumentation, which makes sense.
Speaker Change: And Jim also mentioned earlier and I will give him the microphone.
Speaker Change: About the impact it will have on our growth rate, Jim Yeah, as I mentioned earlier.
Jim: It will be it will be enough of a stimulus to flip China for us from being negative growth to modestly positive growth.
Speaker Change: Thank you. Our next question comes from the line of Matt <unk> with William Blair. Please proceed with your question.
Speaker Change: Hey, good morning.
I wanted to ask on that.
Like a cell and gene therapy, which is broadly within biotech and biopharma.
Speaker Change: Visibility to this.
Speaker Change: And sort of the pickup in work that you maybe assess was paused.
Or on hold or delayed and now is returning or is this related to new project work.
Speaker Change: That's been coming in and maybe the second part of that would be if there's any breakdown in your vehicle and that's sort of a discovery of witches political.
Speaker Change: And so somebody back.
Speaker Change: Thanks for the question.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: I think we see both right. So I mentioned earlier that we see come.
Speaker Change: Customers progressing through the funnel and getting into their phase one clinical some of them even in the phase II clinical and with that the order sizes.
Speaker Change: Increasing.
Speaker Change: As you would expect in the meantime, we've also seen order frequency of the.
Speaker Change: The existing smaller accounts or smaller orders.
Grow in a similar similar speed and then we are glad to also report that we found.
Speaker Change: I'm not sure if he should be mentioning the number but we found it.
Speaker Change: A good a good portion of our customers to be new and added to the funnel.
Speaker Change: So so basically we're pretty happy with the activity level on all three of those parts of the equation.
Speaker Change: Okay and then.
Nobody <unk> grants.
Speaker Change: On a scale ready partnership made in advance of one in Boston.
Speaker Change: That that space, obviously remains competitive with new entrants Levine and you are investing in the future. There. So just be curious for you.
Speaker Change: Take on where you stand from that sort of product and strategy development that as well.
So the competitive standing.
Speaker Change: On the portfolio of your offering.
Speaker Change: Yeah. Thanks.
Speaker Change: First off we are very happy with the competitive advantages, we see utilizing the <unk> incubator.
Speaker Change: Versus our competitors.
Speaker Change: The scalability the cost position flexibility as well as the performance.
Speaker Change: Just very much where we hope them to be and significantly differentiating from other solutions.
Speaker Change: In the meantime, we know that there are tremendous synergies with our core portfolio specifically.
Speaker Change: R&D.
Speaker Change: Systems related GMP proteins cytokines.
Speaker Change: Media. So we have a fantastic overlap there we are.
Speaker Change: Also know that.
Speaker Change: It is in the early days of a customer being exposed to <unk> and starting their projects, where you make your decisions related to what reagents used in the <unk> and if you use the <unk> as a vehicle to be to begin with so that's the reason why we feel that these grants are important we help these customers not one.
Speaker Change: Really getting towards the their therapy and the design of their therapy faster, which is great for humanity, but we also help them.
Getting getting the right the right tools in place and we also know that once these customers are happy with their solution that they will be.
Speaker Change: Utilizing the <unk> as well as our biotech mediations going forward. So we feel we feel is the smart way to to create a win win.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of <unk> with Scotiabank. Please proceed with your question.
Speaker Change: Hi, Thanks for taking the question.
Speaker Change: Just on the academic end market side of things great to see outgrowth. There. Despite the challenging comparisons you pointed out Europe, but could you maybe elaborate further in terms of you know which of the product or business segments, where where you might have seen the strongest growth.
Speaker Change: In the quarter.
Speaker Change: Yeah. We were overall very pleased to have academic performance and we did mentioned Europe because.
Speaker Change: It grew nicely against very significant comparable.
Speaker Change: However that was not very different than the U F meaning the U S. Comparable so we're very very strong as well and that means that we're really happy with the performance in academic.
Cross across the product lines and across the region.
As you know there's been some good good news around horizon funding in Europe and in.
Speaker Change: And funding levels in the U S. Just as well however, we always say that the overall funding levels are interesting for us, but not the true driver for our results. It is typically in these last couple of years being related to where the funding flows and for the last.
Speaker Change: The last year, it's been clearly flowing more in the direction, where our products are benefiting from which are.
Speaker Change: More of the cancer related neuroscience related fields, which will definitely drive adoption of our products.
Speaker Change: The dynamic there and academic.
Speaker Change: Got you Great and then just on the molecular diagnostics side.
Speaker Change: So great to see strong growth. There was wondering if there might be any update in terms of and you have the partnership opportunity, especially with the ergotism diagnostic technology.
Speaker Change: Yeah, So we have.
Speaker Change: As you know signed an agreement around kidney rejection.
Speaker Change: With thermo.
Speaker Change: Teams are working on that essay.
Speaker Change: And it's in their most hands as you know we will we will continue to support the efforts there and.
Speaker Change: Yes, we have other signatures in the making but for now as as I have mentioned over the last couple of quarters. The team is mainly focused on creating exosomes based.
Speaker Change: Yes that we can market ourselves food year surge in channel and in the script as well as I. Just mentioned earlier is there a one test is the very first product of bringing the extra some base testing into the <unk> channel that goes and sells commercialize into lab.
Speaker Change: Authorities and Thats really our preferred modus operandi.
And that's what we're going to focus our pipeline on for the future.
Speaker Change: Great. Thank you so much.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: This concludes our Q&A session I would like to pass the call back over to Kim for closing remarks.
Speaker Change: Okay.
Kim: Thank you and thank you for joining the call today and for your insightful questions I'm extremely proud of the biotech new team's accomplishments and the results we have been able to deliver this quarter.
Kim: Our differentiated portfolio addresses some of the highest growth markets in life Sciences and is positioned to deliver to deliver best in class performance for all our stakeholders going forward. Thank you and have a great day.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: Sure.
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