Q2 2025 Bio-Techne Corp Earnings Call
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Speaker Change: Good morning, and welcome to the Biotech Me earnings conference call for the second quarter of fiscal year 2025.
Speaker Change: At this time, all participants have been placed in a listen only mode and the call will be opened for questions. Following management's prepared remarks.
During our Q&A session. Please limit yourself to one question and one follow up.
Speaker Change: I would now like to turn the call over to David Clair Bio Tech needs Vice President Investor Relations.
David Clair: Good morning, and thank you for joining us.
Speaker Change: On the call with me. This morning are Kim colder man, President and Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotech me.
Speaker Change: 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 Leafs and expectations about the company's future results.
Speaker Change: The company's 10-K for fiscal year 'twenty 'twenty four 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.
Speaker Change: The company does not undertake to update any forward looking statements because of any new information or future events or developments.
Speaker Change: The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section.
Speaker Change: During the call non-GAAP financial measures may be used to provide information pertinent to ongoing business performance tape.
Speaker Change: Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier. This morning in the Investor Relations section of our Biotech Me Corporation website at Www Dot bio dash technique Dot com.
Kim Colderman: Separately in the coming weeks, we will be participating in the Cowen Leerink and Barclays healthcare conferences, we look forward to connecting with many of you at these upcoming events I will now turn the call over to Kim.
Kim Colderman: Thanks, Dave and good morning, everyone. Thank you for joining our second quarter conference call.
Kim Colderman: I am pleased to report that we delivered yet another strong fiscal quarter. It had exceeded the initial projections that we made at the beginning of our fiscal year.
Kim Colderman: Improving bio pharma end markets, particularly on the large pharma side benefited our GMP reagents in their protein analytical instrumentation.
Kim Colderman: This combined with continued traction in our extra saw mdx and spatial biology franchises drove a 9% organic revenue growth for the quarter.
Kim Colderman: We are also seeing the benefits of the organizational and operational efficiency improvements that we have implemented over the last year and a half.
Kim Colderman: During the second quarter, our adjusted operating margin increased 110 basis points sequentially to 31% and I am confident that we are well positioned for ongoing improvement in our peer leading operating margin profile.
Kim Colderman: Our end markets continue to recover.
Kim Colderman: Jim will provide more details on these results later in the call.
Kim Colderman: I hope that many of you had a chance to see the latest corporate presentation. We provided last month during the JP Morgan Healthcare conference.
Kim Colderman: For those that have not seen it I would encourage you to visit the Investor Relations section biotech these website.
Kim Colderman: It presented the company strategy through a slightly different lens. This year outlining three major challenges, we help our customers solve.
Kim Colderman: Enable the discovery of novel biological insight, we support the development and manufacturing of advanced therapeutics can be enabled precision diagnostics.
Kim Colderman: Our public portfolio and solutions are uniquely positioned to reliably and efficiently supporting customers and advancing science across these sectors.
Kim Colderman: Now, let's review, our Q2 results beginning with an overview across our end markets and geographies.
Kim Colderman: Sales to our Biopharma end markets increased mid teens in the quarter as we experienced.
Kim Colderman: Strength in both the U S and European regions.
Kim Colderman: This strong performance included a notable improvement from large pharma customers with particular strength in both <unk> P. M reagent orders as well as in our protein analysis instrument portfolio.
Kim Colderman: For academic end market. The team delivered mid single digit revenue growth as a reminder, our academic end markets grew upper single digits in the prior year period, and we achieved this quarter as mid single digit revenue growth despite the challenging comp.
Kim Colderman: Cause of juice number of selling days related to the midweek holidays in December.
Kim Colderman: Now for the regions in the Americas, we grew low double digits for the quarter. This performance was primarily driven by the aforementioned strong demand from our cell therapy customers as well as the strength in our.
Kim Colderman: Automated protein analysis portfolio.
Kim Colderman: Our EMEA region grew low double digits as well, which was also driven by our automated protein analysis portfolio, which grew more than 20% in.
Kim Colderman: In addition, we expanded our geographic reach to new distribution agreements.
Kim Colderman: First we announced the partnership with leader Life Sciences to fortify access to our portfolio across the Gulf cooperating countries.
Kim Colderman: We follow this with a distribution agreement with Med Suntech.
Kim Colderman: To expand access to our portfolio in Turkey in Azerbaijan.
Kim Colderman: In China sales declined low single digits as the challenging economic environment remained a headwind to growth in the geography.
Kim Colderman: It's worth noting that the Q2 performance is in line with our expectations that the negative growth would ease and we will shift to modest positive growth in our <unk>.
Kim Colderman: Fiscal Q3 due to the expectation that it targeted stimulus program and a modest improvement in government funding will slowly materialize.
Kim Colderman: As a side note, Jim and I were just in China to visit our team and of course to meet a variety of our customers.
Kim Colderman: It was clear that our team remains extremely motivated and committed to our mission.
Kim Colderman: Customers continue to value the consistent quality across the breadth of our portfolio.
Speaker Change: In the long term the modernization of health care will remain a high priority for the Chinese government and techniques looking forward to playing a key role in enabling the evolution of health care for its citizens and the world.
Speaker Change: Now, let's discuss our growth pillars, starting with a portfolio of cell therapy workflow solutions.
Speaker Change: During the quarter, we experienced robust growth, but isn't there a GMP reagents portfolio as customers to their poor guessing their advanced therapeutics for later stage clinical trials.
Speaker Change: They are materially more GMP reagents.
Speaker Change: We now have over 500 customers flying on our GMP reagents for their cell therapy across all stages of development within this expanding customer base.
Speaker Change: 85 are in various phases of clinical trials, including six currently in phase III.
Speaker Change: For Q2, <unk> revenue increased over 90%.
Speaker Change: As a reminder, our GMP reagents business can be lumpy as.
Speaker Change: Orders from customers food or along their clinical trials can be much larger.
Speaker Change: Therefore order timing can make quarterly growth volatile. So we view trailing 12 month revenue has a better performance indicator.
Speaker Change: Current T P M for our GMP reagents, it's just over 40% organically.
Speaker Change: Now, let's discuss our protein analysis growth pillar, where we experienced strong sales momentum across our portfolio of automated workflow solutions. Once again, the ease of use precision and reproducibility offered by our simple western automated western blot instrument.
Speaker Change: Our simple plex automated multiplex immunoassay system.
Speaker Change: <unk> biologics platform drove strong consumable utilization on our installed base.
Speaker Change: Customers continue to appreciate the labor and cost savings these innovative platforms bring to their laboratories overall.
Speaker Change: Overall instrument specific consumables increased high teens in the quarter.
Speaker Change: This marks eight out of the last nine quarters, where we delivered at least double digit consumable growth across our growing installed base.
Speaker Change: It was not just consumables to show strength, though.
Speaker Change: We also experienced growth in new instrument placements.
Speaker Change: Globally, our instruments increased low single digits for the quarter and grew mid single digits, excluding China.
Speaker Change: This marks the first quarter in the last two years in which we delivered positive instrument growth.
Speaker Change: Separately I'd like to congratulate the team on the successful early access launch of our next generation high throughput simple western platform called Leal.
Speaker Change: The team capitalized on a growing order funnel to ship several of these high end Leo instruments at the end of the quarter.
Speaker Change: Wrapping up our platform discussion.
Speaker Change: Like to give an update on the reflex.
Speaker Change: Biopharma customers are increasingly utilizing murray's flex for protein analysis.
Speaker Change: The growing number of gene therapy applications as well as simple fractionation methods for mass spectrometry sample preparation.
Speaker Change: During the quarter, we announced a co marketing agreement with waters Corporation aiming to expand the market awareness of the biotherapeutic characterization capabilities of the malaise flex.
Speaker Change: Now, let's turn to our core portfolio of research use only or are you all proteomics reagents lets.
Speaker Change: Let me highlight that over the last 48 years, we've amassed a catalog of over 6000 proteins and 400000 antibody types.
Speaker Change: This biological content they relied upon by customers across the globe took a novel insights into biological pathways to develop and manufacture it filed suit of predicts and to enable precision diagnostics.
Speaker Change: Every day run rate business continue to modestly improve sequentially, while larger bulk orders. So far are you owe the agents to biopharma customers also picked up in the quarter.
Speaker Change: We view this as an indicator that our end markets are gradually starting to improve.
Speaker Change: All in our core portfolio are you all reagents grew low single digits in the quarter.
Speaker Change: Sticking with our core reagent portfolio I wanted to give an update on our AI initiatives within biotech me.
Speaker Change: As we have mentioned in the past, we see tremendous potential leveraging AI to develop proteins and antibodies with enhanced functionality.
Speaker Change: During the quarter, we continued to utilize our internal knowhow and our fast dataset, which can be generated over the last several decades to train our generative AI models and develop designer proteins.
Speaker Change: These adaptable proteins are engineered to exhibit hyperactive properties.
Speaker Change: He'd stability and other novel features.
Speaker Change: These attributes are relevant for many applications, including cell therapies.
Speaker Change: We added four new designer proteins to where I cut a lock in Q2, bringing the total portfolio to six.
Speaker Change: You can expect steady cadence of new design or protein launches going forward.
Speaker Change: Overall I'm very excited for the protein sciences team as they delivered 8% organic revenue growth.
Speaker Change: This is the best performance of this segment since the market headwinds that were related to the aftermath of the pandemic began in the first quarter of our fiscal 'twenty to 'twenty three.
Speaker Change: Now, we will move to the growth pillars spit into a diagnostics and space, you'll be allergy segment, which delivered 12% organic growth in the quarter.
It started with our space, you'll be able to as your business, where we continue to make significant progress with the launch of a common system, our fully automated multi omics base, you'll be allergy instrument.
Speaker Change: As a reminder, we recently enabled RNA scope capabilities on Nicole it to allow for visualization of up to 24 proteins and 12 RNA targets simultaneously.
Speaker Change: We are actively upgrading congress installed base to enable researchers to fully leverage to multifamily capabilities of the platform.
<unk>, we continue to launch biotech these R&D systems branded antibodies for use.
Speaker Change: The common system.
Speaker Change: The RNA scope capabilities paired with a growing portfolio of validated antibodies will support a consumable stream that is expected to be the highest pull through.
Speaker Change: Instrument under the biotech me umbrella.
Speaker Change: During the quarter, our spatial biology revenue increased mid teens and we are positioned for continued leadership in this fast evolving space.
Speaker Change: Next I'd like to give an update on our precision diagnostic tools business previously referred to as the molecular diagnostics business.
We believe the new name is a better reflection of the focus of this team which is to provide clinical laboratories with precise diagnostic tools that leverage or extra soon based diagnostic technology combined with <unk> proprietary chemistries.
Speaker Change: During the quarter, we announced the launch of a test for ESR, one mutations in breast cancer.
Speaker Change: This is the first get attached to utilize our excess homebase technology and assurance Chemistries.
Speaker Change: We commercialize these tests to a laboratory channel, which we also obtained fully acquisition for sure Jim.
Speaker Change: Meanwhile, our extra Dx prostate cancer test continues to enjoy rapid adoption as unit volume grew more than 30% in the quarter.
Speaker Change: In summary.
Speaker Change: I'm extremely pleased if the execution by the biotech team across all our businesses globally.
Speaker Change: We believe that the strength of our growth pillars, and cell and gene therapy and proteomics analysis.
Speaker Change: Bind with the momentum that we saw in our core products are indicative of an early stage recovery in key Biopharma end markets.
Speaker Change: If you then add to that the performance of our best in class patient biology franchise and.
High value precision diagnostic tools got for them you will understand why I'm confident that we have positioned biotech me for continued differentiated growth going forward.
Speaker Change: With that I will turn the call over to Jim Jim.
Speaker Change: Okay.
Thank you Kim I'll start with some additional details on our Q2 financial performance and then give some thoughts on our financial outlook for the remainder of the fiscal year.
Speaker Change: Yeah.
Speaker Change: Starting with the overall second quarter financial performance adjusted EPS was <unk> 42 cents compared to 40 in the prior year.
Speaker Change: With foreign exchange, having an unfavorable two cent impact.
Speaker Change: GAAP EPS for the quarter was 22 cents compared to 17 cents in the prior year.
Speaker Change: Q2 revenue was 297 million, an increase of 9% year over year on both a reported and organic basis.
Speaker Change: Recapping, our organic growth by region and end market in Q2 that you previously heard from Kim.
Speaker Change: North America, and Europe increased low double digits year over year, driven by strength from our biopharma customers, particularly in our cell therapy in proteomics analysis portfolios.
While China and APAC decreased low single digits.
Speaker Change: By end market in Q2, excluding China.
Speaker Change: Pharma increased mid teens in academia increased mid single digits in the quarter.
Speaker Change: Our biopharma business benefited from larger reagent and instrument orders in our pharma and cell therapy and markets.
Speaker Change: While our run rate business and Biopharma showed modest improvement year over year.
Speaker Change: Below revenue on the P&L total company adjusted gross margin was 75% in the quarter compared to 69, 7% last year.
Speaker Change: Driven by the impact of favorable product mix and productivity initiatives.
Speaker Change: Adjusted SG&A in Q2 was 32% of revenue compared to 31, 2% in the prior year.
Speaker Change: While R&D expense in Q2 was eight 5% of revenue compared to eight 4% in the prior year.
Speaker Change: The increase in SG&A was driven primarily by the reinstatement of incentive compensation accruals, partially offset by the benefit of structural streamlining and diligent expense control.
Speaker Change: Adjusted operating margin for Q2 was 31% up.
Speaker Change: Up 110 basis points sequentially and flat compared to the prior year due to the impact of favorable volume leverage and cost controls offset by the reinstatement of incentive compensation accruals.
Speaker Change: We continue to execute cost containment measures and prioritize our growth initiatives to drive efficiencies throughout the organization with the goal of optimizing operating leverage during the ensuing market recovery.
Speaker Change: Yes.
Speaker Change: Looking at our numbers below operating income net interest expense in Q2 was <unk> 7 million decreasing $2 7 million compared to the prior year due to lower net debt levels.
Speaker Change: Our bank debt on the balance sheet as of the end of Q2 stood at 300 million unchanged from last quarter.
Speaker Change: Other adjusted Nonoperating expense was $1 3 million in the quarter, an increase of $4 4 million compared to the prior year.
Speaker Change: The increase was driven by the foreign exchange impact related to our overseas cash pooling arrangements.
Speaker Change: Yeah.
Speaker Change: Moving further down the P&L, our adjusted effective tax rate in Q2 was 21, 5% down 50 basis points compared the prior year due to geographic mix.
Speaker Change: Yeah.
Speaker Change: Turning to cash flow and return of capital.
Speaker Change: The $4 3 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $6 8 million.
Speaker Change: Also during Q2, we returned capital to shareholders by way of $12 7 million in dividends and $75 6 million through a 1.1 million share stock buyback.
Speaker Change: We finished the quarter with 166 million average diluted shares outstanding.
Speaker Change: Our balance sheet finished Q2 in a strong position with $177 5 million in cash and our total leverage ratio remains remains well below one times EBITDA.
Speaker Change: Going forward M&A remains a top priority for capital allocation.
Speaker Change: Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Speaker Change: Q2 reported sales were $211 6 million with reported revenue, increasing 7% compared to the prior year.
Speaker Change: The exclusion of the fetal bovine serum business, which was classified as a held for sell business and subsequently divested in the quarter.
Speaker Change: Unfavorably impacted reported segment revenue growth by 1%.
Speaker Change: Thus organic revenue for this segment increased 8%.
Speaker Change: As Ken previously mentioned the strength in the segment's organic growth was driven by a protein analysis portfolio as well as our GMP protein business for several large orders that we initially expected to be placed in our third quarter were requested by our cell therapy customers in Q2.
Speaker Change: Yeah.
Speaker Change: Operating margin for the protein Sciences segment was 41, 2% an increase of 90 basis points compared to prior year as the impact of favorable volume leverage cost management and structural alignment initiatives were partially offset by the reinstatement of incentive compensation accruals.
Speaker Change: Turning to the diagnostics and spatial biology segment Q2 sales were $84 1 million with both reported and organic growth, increasing 12% compared to the same quarter last year.
Speaker Change: All three businesses within this segment, our core diagnostics reagents spatial biology, and precision diagnostic tools all contributed nicely to growth.
Speaker Change: Moving onto the diagnostics and spatial biology segment operating margin at three 9% the segment's operating margin decreased compared to the prior year, 6%.
Speaker Change: Excluding the impact of incentive compensation accrual reinstatement operating margins would've expanded approximately 200 basis points year over year due to the impact of favorable volume leverage.
Speaker Change: We anticipate improvement in the diagnostics and spatial biology operating margin as Luna for continues to scale.
Speaker Change: In summary, Q2 was a very solid quarter.
Speaker Change: Earlier than expected in the fiscal year, we saw improvements in all types of order activity from our larger pharma customers, including Capex spend for instruments bulk order reagent requests and increased daily run rate purchases.
Speaker Change: We view this as a positive sign that much of the R&D pipeline repositioning by our large pharma customers is behind us.
Speaker Change: And then a more broad based increase in R&D funding from discovery through the clinic is more likely in calendar year 2025.
Speaker Change: We also saw continued outperformance in our GMP protein business in Q2, although much of this unexpected upside came from the timing of large orders by several cell therapy customers, who are progressing their programs through clinical trials.
Speaker Change: That's the organic growth outlook for the second half of fiscal year 'twenty five that we've provided the past two quarters is still intact.
Speaker Change: For Q3, specifically this means the upper range of mid single digit organic growth.
Speaker Change: As you think about our expected organic growth performance in Q3 relative to Q2.
Speaker Change: There are a couple of headwinds to consider.
Speaker Change: First the year over year comp in Q3 is more difficult by four percentage points and it was in Q2 as our revenue declined 2% in Q2 of last year, and then grew 2% fall in Q3.
Speaker Change: Also the previously mentioned timing of several large GMP protein orders.
Speaker Change: We had in our recent Q2 are not expected to reoccur in Q3.
Speaker Change: However on a more positive note the earlier than expected momentum we are seeing from our larger pharma customers as well as an expected return to growth in China. In Q3 allows us to hold the organic revenue outlook that we shared since the beginning of our fiscal year.
Speaker Change: The early improvement in large pharma activity also strengthens our confidence that we can exit our Q4 with organic growth in the high single digits as we had predicted all year.
Speaker Change: As it pertains to reported revenue growth with the recent strengthening of the U S. Dollar at current foreign exchange rates, we do expect a headwind of approximately 1% of sales in the back half of our fiscal year.
Speaker Change: As much of the top line foreign exchange falls directly to the bottom line of our P&L, we do expect a negative impact to adjusted operating margins by approximately 50 basis points.
Speaker Change: Thus, we are now forecasting adjusted operating margins in the second half of fiscal year 'twenty five to be between 50, and 150 basis points higher than the prior year.
Speaker Change: There's still represents a significant step up in margin from the first half of the fiscal year due to higher volume leverage continued improving product mix and the full impact from productivity initiatives.
That concludes my prepared comments and with that I'll turn the call back over the operator to open the line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow up if you have additional questions. You made me queue and those questions will be addressed time permitting.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Puneet <unk> with Leerink partners. Please proceed with your question.
puneet: Yeah, Hi, guys.
Speaker Change: Thanks for taking my questions.
Speaker Change: First of all congrats on the quarter here, but I really strong but.
Speaker Change: But can you talk a little bit about the pull forward that you saw from <unk> to.
Speaker Change: <unk>, Q and cell and gene therapy <unk>.
<unk> products.
Speaker Change: You seem to be talking about essentially the biopharma.
Speaker Change: Mentum continuing China also improving so that is offsetting but can you elaborate a bit on where you have more confidence and recovery. Among those three vectors that you talked about where you think you'll have.
You know what.
Speaker Change: And in the third quarter, whereas where things could be a more a little bit softer just given the backdrop of the market right now and some of the concerns around the NIH as well.
Speaker Change: Okay.
Speaker Change: Yeah Puneet. Thank you very much for your for your question.
Speaker Change: First of all I think let me talk about the cell and gene therapy orders you mentioned.
Speaker Change: Fortunately, we're very happy to see that there are there's tremendous traction there right. We grew about 90% on the GMP proteins.
Speaker Change: And some of these larger orders right from from customers that are further down in their clinical studies.
Speaker Change: We have anticipated for the second half of the fiscal year and upon customer's demand. These were pulled into Q2 and and were delivered earlier than we originally anticipated. This of course true drove several points of growth and are we.
Speaker Change: We feel confident that this is also a very positive sign for the overall market.
Speaker Change: And we're quite quite happy with the traction we have there.
Speaker Change: Moving to China.
Speaker Change: We did see that the replacement funding.
Speaker Change: Some early effects in our Q2 and a handful of instruments, where we're sold related to this are replacement funding. We know it's a three year plan. So we can we expect continued traction.
Speaker Change: Two the funding and.
Speaker Change: The interesting thing is that the China National Science funding, which you can apply for during the calendar Q1, and the deadline is March 20th.
Speaker Change: That that should also provide some additional lift in China that.
Speaker Change: Eventually our forecast or our own internal projection that we that we anticipated for China, where we would go from slight negative to positive growth in Q3 were still very confident with that with that view.
Speaker Change: Maybe Jim you want to you want to add something.
Yeah sure. So I'm pretty I think the thing I'd add is that it's you know it gives us confidence with regards to holding our forecast in Q3, despite the timing of the cell and gene and cell and gene therapy are large orders, it's really the broad based strength, we saw across pharma as I mentioned in my comments.
Speaker Change: It wasn't just cell and gene therapy, we saw it of course in our instrument portfolio a protein simple franchise did phenomenally well, especially in large pharma.
Speaker Change: And ER and even our run rate business within the large pharma also has improved.
Speaker Change: It improved from our prior quarter. So it's it's a that's what gives us some confidence that it's a it's a broad base of large pharma started recovery, it's not back to normal yet our run rates aren't back to normal, but it was a noticeable improvement from the prior quarter.
Speaker Change: And you mentioned NIH and concern around that's all kind of hit that head on as well you know it is very early days and all the kind of noise and chatter in.
A lot of what's happening what we're reading is that not all that unusual in terms of what happens in administrative.
Speaker Change: Change with regards to kind of freezing or holding a certain department funds as they as the new administration comes in and assessing all I can tell you is that.
Speaker Change: So far in January we have seen no we've actually seen improvement in our academic overall growth rates and improvement in our run rate as well. So we're not overly concerned about the noise you're hearing out of it.
Speaker Change: Washington, right now regarding NIH.
Speaker Change: Got it thanks for touching on all of those.
Speaker Change: Just quickly if I could ask on your updated thoughts on M&A.
Speaker Change: Your ability to lever just given the backdrop of the market and some of the challenges that some of the small cap tools companies are seeing how does that shape your opportunity base when looking at M&A.
Speaker Change: Thank you yeah, M&A will continue to be a priority for capital deployment.
Speaker Change: And during the JP Morgan Health care conference, we've been relatively clear as to our strategy and where we feel we are we would like to.
Speaker Change: Two to add to our portfolio. Fortunately, we don't really have any huge gaps. So it's not that we have to move but we do we do like.
Speaker Change: The area of discovery of novel biological insights right. There are various analytical platforms that we would be interested in and.
Speaker Change: We would love to continue to support the development and manufacturing of advanced Therapeutics and you ought to think about.
Speaker Change: Any processes that are sitting before or after the GE Rex and any another the analytical tools that would support a cell and gene therapy workflows. So those those are really the areas that we are that we are very interested in and we do have a nice nice timeframe here between the.
Speaker Change: Acquisition of Wilson of all at the end of 2027 and right now with a very strong balance sheet and a very very precise strategy in cable with management to to to integrate a new M&A activity.
Speaker Change: Okay helpful guys. Thank you.
Speaker Change: Cute.
Speaker Change: Our next question comes from the line of Dan Leonard with UBS. Please proceed with your question.
Thank you I want to circle back on a couple of our put each points I guess first off when you think about your current run rate business.
Speaker Change: Where do you think you're currently trending is at that upper mid single digit figure you talked about for Q3, and then you need progressive market improvement to hit the high single digits for Q4 is that the way to the right way to normalize what you called out as being positive lumps in the December quarter.
Speaker Change: And I'll try to answer your question I understand that correctly.
Speaker Change: Our run rate. So you are our day to day run rate business is going to perform closer to the overall market and it's our growth factors our growth pillars that we talk about that really caused us that you now have this need differentiation in acceleration versus the market and so the way to think about that is that our our run rate is performing.
Speaker Change: Closer to market, but the market is gradually improving and does so our our run rates.
Speaker Change: So our run rate growth is lagging the overall company growth.
Speaker Change: In a normalized market of mid single digit growth would you expect a run rate business to be at least mid single digit growth and when it is we expect to be a double digit growth company because of our growth vectors and the acceleration that that provides for.
Speaker Change: That helps.
Speaker Change: Okay, and just a quick follow up Jim the comment you made on January run rates was that in academic of U S academic and government comment specifically or were you more commenting broadly on your run rate business in the month of January.
Speaker Change: That was a specific comment regarding the U S academic market.
Speaker Change: Alright. Thanks.
Kim Colderman: This is Kim I like to help you quantify the NIH exposure.
Speaker Change: Jim was talking about the overall academic market globally, which represents about 21% of our revenues and then if you think about the U S portion of that is about half of that which is 11%.
Speaker Change: And then if you think about NIH exposure, we'd say about more or less half of that so that would be mid single digits and then.
Speaker Change: Revenue directly related to NIH itself would be less than 1% of our revenue so that that really kind of scopes for U D. A.
Speaker Change: The exposure there.
Speaker Change: Sure. Thank you bet, but the January comment was specific to that 10 ish percent of revenue that's U S academic and government correct, yes that is correct.
Speaker Change: Alright, perfect. Thank you.
Yeah.
Speaker Change: Our next question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.
Hi, This is actually Hannah on for Jacob Thanks for taking the question.
Speaker Change:
Speaker Change: How much of the benefit from larger cell therapy customers do you think there was in the quarter is there any way you can quantify this for us.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I can give it a initial shot and then Jim can follow up the so so I don't think we've really quantified. It makes there, but we did see very nice traction of our customers in general So overall order rate.
Speaker Change: From our buy now 500 customers in this field.
Speaker Change: Is doing really well.
Speaker Change: But in the meantime, several of these customers are moving up the chain if it comes to their clinical studies.
Speaker Change: And we used to talk about <unk> 50.
Speaker Change: 57 of those being in Clinical's, rather than in preclinical and by now those are 85 customers that are in the in the clinical stages of which 13 or so in phase two and then a little bit more than a handful of six to eight that are sitting in the phase III clinical stages.
Speaker Change: And of course.
Speaker Change: The the customers that are sitting in these later stage clinical trials those orders are also.
Speaker Change: Elegantly larger and that creates some some of the lumpiness that we've talked about in the past but.
Speaker Change: Nonetheless, we are growing 40% organically.
Speaker Change: If you look at the 12 months trailing which is very encouraging and that's also where we we hope to or expect to be.
Speaker Change: And I'll, just add a little bit to an answer Ken gave the puneet around the same topic around the.
Speaker Change: Larger cell and gene therapy customers and what got accelerated into Q2.
Speaker Change: We originally forecasted in Q3 it was about two points of overall growth that was attributed to that for cell and gene therapy, I think Kim mentioned three but that's because there was probably another point of of of revenue that also moved within our core diagnostics reagent division. So we talk about that and talk about that for years, it's a very lumpy.
Speaker Change: Business and it's not always easy to predict exactly when those orders will come through from our large customers there and we saw.
Speaker Change: Some orders there come in earlier than expected as well and that won't necessarily repeat either so I'd say about two points that's come out from Celgene therapy large customer large customers and about one point is from our diagnostic reagents to visit core division.
Speaker Change: Thanks, and then you also mentioned the instruments grew into Q.
Speaker Change: Could you just talk about is this comment around placements growing again versus consumables.
Speaker Change: Yes. It is we've we're very proud that we on the consumable side have had a eight out of the last nine quarters in which we grew double digits on the consumable side and we always anticipated that such growth in consumables kind of indicates.
Speaker Change: No a capacity constrained eventually in the market and therefore, we we anticipated it at some point is it placement of our instruments would be growing again and this quarter. We are indeed went back into the black if it comes to growth in our instrument base.
Speaker Change: Alright, Thanks, I'll leave it there.
Speaker Change: Our next question comes from the line of Matt Lover, with William Blair. Please proceed with your question.
Matt Lover: Hi, Good morning, Hugh you referenced stuffs, the academic market and I mentioned it in within Biopharma mid teens.
Matt Lover: I'm wondering if you could break that out is it still sounds like it's mainly large pharma where most of the recovery is what if any recovery are you seeing.
Matt Lover: In terms of the smaller customers about the biotech customers or if not are you seeing any signs of green shoots.
Speaker Change: I can I can ask a little highlight also high level and then have Jim double double click on it.
Speaker Change: Overall, the biotech portion of our end markets, which is around 30% of our revenues was more or less recovering in line with our expectations and you might remember how we laid out the the year and our expectations in the different markets and we certainly expected some of.
Speaker Change: The good biotech funding to trickle through into that market and that is some happening in line with our expectations, a little bit better than expected as large pharma and.
Speaker Change: That's that's driving some additional momentum in our in our Q2 in the last quarter of the fiscal year. So of the calendar year, sorry, and we're quite happy to see that momentum. It's a it gives us a confidence that our the second half will will also rollout and are in line with our expectations.
The only thing I would add Ken is that you know, we're not we're not claiming full recovery mode, yet in either one of those markets.
Kim Colderman: But we did we did continue to see the smaller biotechs gradually progressed and as Kim alluded to what was a nice surprise was with the beginning of the recovery in larger pharma that we werent really expecting until April may timeframe, we started to see that already here in Q2, which was nice.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, and then.
Speaker Change: Flipping to <unk>.
Speaker Change: The diagnostics and spatial side.
Speaker Change: Focus on little more obviously, there's been a couple of mergers in the space in the past six months, you know about a year or so and to Washington and multi omics.
Speaker Change: Solution for RNA scope.
Speaker Change: You know what.
Speaker Change: What is your assessment of the competitive landscape at this point and then whats key to slip.
Speaker Change: Flipping that familiar significant operating margin headwind into more of a can't wanted to it just a function of consumable pull through or are you having any issues.
Speaker Change: Factoring side, but the instruments.
Speaker Change: To get a sense for how that will progress throughout the year.
Speaker Change: Yeah. Thanks for the question so there's been activity in the market, which we deemed positive.
Speaker Change: A positive sign overall that spatial biology as it is a market to be in yes.
Speaker Change: Yes year ago, we launched the comment and we have been very happy with the uptake and the capabilities of an instrument I do want to correct, you a little bit that the RNA scope capabilities.
Speaker Change: At least in the multi omics setting have been launched last quarter. So those are rolling out as we speak.
Speaker Change: And then we've also been able to lounge 45.
Speaker Change: R&D systems branded antibodies on the instrument and if that we expect the pull through of consumables on the comment to be.
Speaker Change: To be one of the a higher pull through instruments in our portfolio.
Speaker Change: Yeah.
Speaker Change: We do not have any manufacturing constraints anymore on this product line, which is which is good to know and.
Speaker Change: I forgot the third leg of your question, but.
Speaker Change: Do you mind repeating repeating that part.
Speaker Change: Yeah, just had you thought when you called it out as a headwind to operating margins and good okay.
Speaker Change: Okay Yeah.
Speaker Change: Yes.
Speaker Change: Yeah. So the two components there of course will help them. One as you know continued uptake of Oh, selling the instruments right and then the pull through if it comes to the agents.
Speaker Change: And both will be very important going forward to us so we're measuring us against hitting certain milestones.
Speaker Change: And we see positive traction in both of these aspects as well. So so our profitability will well will increase as a result of dose finding the traction.
Speaker Change: Our next question comes from the line of Catherine Schulte with Baird. Please proceed with your question.
Speaker Change: Hey, guys. Thanks for the questions maybe first on China, what was reagent performance verses instrumentation in the quarter and how do you expect that to trend in.
Speaker Change: That region returns to growth.
Speaker Change: I always say that the growth was relatively comparable for the two.
Speaker Change: Again, it was very stable at low low single digit declines in China.
Speaker Change:
Speaker Change: And we see a gradually improving and turning them into the black in a in Q2 Q3, and I think it will be very comparable again, both on the instrument side as well as the and as well as the reagents. So not a notable difference there.
Speaker Change: Okay, Great and then maybe for I know the agency said up low single digits in the quarter and what was academic questions fire My performance, there and what's your expectation for that as you get into the back half of the year.
Speaker Change: I'm, sorry, Catherine academic versus pharma performance.
Speaker Change: Cards to what.
Speaker Change: Within our region.
Are you all reagents.
Speaker Change: It was it was.
Speaker Change: Again relatively comparable but slightly stronger in Europe.
Speaker Change: With respect to the or are you a run rate reagents.
Speaker Change: Both in Biopharma and in academic but again both are.
Speaker Change: Europe European and U S growth totals were like within a point or two of each other so we're not talking about a massive massive difference.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from the line of Dan Arias with Stifel. Please proceed with your question.
Dan Arias: Good morning, guys. Thanks for the questions Jim too for you on GMP reagents, if I could number one is what kind of growth expectations. Do you have for that piece next quarter. Obviously, you had the pull forward that you mentioned, but it does sound like you you like the overall direction of that business inside of it and so you know just.
Dan Arias: Just given how wide that range has been for that piece of it would be helpful. If you could kind of put some guardrails.
Dan Arias: On what we might see there and then the second question is can you comment on where the margin profile for that business is I mean, I know you don't get too specific on individual parts of the portfolio, but it is it's.
Dan Arias: It's a piece that's moving the needle and so it would just be helpful to understand the mix impact that that business has as it accelerates. Thanks so much.
Dan Arias: Sure.
Dan Arias: I appreciate the question, Dan and as you know, we don't we don't give up.
Dan Arias: Guidance down to that level of fidelity.
Dan Arias: What I'd say is that it is as we talk about with these large orders that can be very lumpy. If you back out the larger orders.
Dan Arias: The underlying growth of our customers continues to increase every quarter and cell and gene therapy and the revenues do as well you talked about the T. P M being roughly 40% I can Matt that's like saying it can be that next quarter, but it will definitely not be the.
Dan Arias: The large contributor to growth and it was this quarter, which again I think it says a lot about the underlying strength of the.
Dan Arias: The rest of the business are in the end markets improving the fact that we can still hold our forecast for Q for Q3 that we've been saying all year.
Dan Arias: With regards to the margin profile it.
Dan Arias: It is a very nice profitable business for us and not quite as profitable.
Dan Arias: Profitable as are our core are you all reagents, but very very close it's probably the second most profitable product line within our business, but again, we're not necessarily calling that out as any kind of margin issue for Q3, even though that mix will change just because we do see continued improvement within our our IOL business that will compensate for that.
Speaker Change: Okay, just to maybe get you on the grille. So it sounds like for GMP reagents, we can model that up decently up but not anywhere near where it has been for the first half of the year is that fair.
Dan Arias: That's fair.
Speaker Change: Okay. Thank you.
Dan Arias: Okay.
Speaker Change: Our next question comes from the line of Conner Mcmahon with RBC. Please proceed with your question.
Conner Mcmahon: Hey, guys. Thanks for the time and congrats on a really strong quarter.
Speaker Change: First off on them.
Speaker Change: On the handful of program in cell and gene therapies that are in late stage phase II phase III is there anyway, you could quantify or give us color on those programs and the incremental opportunity as those advance.
Speaker Change: Either from phase two to phase three or as they come to market.
Speaker Change: That's really hard corner.
Speaker Change: The so in general you would see roughly.
Speaker Change: All the sides and orders that each time, there's a clinical clinical progress through the next stage, but then again.
Speaker Change: It really varies with how often the customer orders and the and how how long how large the clinical study really is so it's really hard to give you a a a standard template there it really depends on each customer.
Speaker Change: Okay. That's two axis. That's helpful. Thanks for that and then just on.
Speaker Change: Cell and gene therapy strike, how did Wilson wolf due in the quarter and can you remind us if there's any opportunity to consolidate that prior to 2027th given the rebound youre seeing in that market. So thanks for that.
Speaker Change: Okay.
Speaker Change: Yeah, I'll take that so with the Wilson Wolf.
Speaker Change: I'd say that there is there a core growth business and mean, there a noncommercial wise businesses was consistent with consistent with our.
Speaker Change: Earlier stage growth. So we're seeing consistency across the cell and gene <unk> cell and gene therapy market. There I will remind you that they have.
Speaker Change: Five of these flat five.
Speaker Change: Customers now that are commercialized.
Speaker Change: And just the preliminary forecast from just the three from three of those alone will be enough to put them in that.
Speaker Change: It's very very very solid double digit growth for calendar year 2025, so far.
Which is very bright there.
Speaker Change: Our next question comes from the line of Patrick Donnelly with Citi. Please proceed with your question.
Patrick Donnelly: Hey, guys. Thanks for taking the questions maybe a follow up on China. I know you guys mentioned you over there last month can you just talk about I guess, what you saw in terms of the environment confidence level in terms of the recovery, obviously a lot of noise over there. Just just curious are you know from the ground like you guys saw and your expectations there.
Speaker Change: Yeah, I think a couple of aspects.
Speaker Change: You know the drive to to continue to research and life Sciences.
Speaker Change: It continues to be there I I I am certain the country, you would love to make.
Speaker Change: Make make a big steps forward in and designing treatment than and helping the Chinese citizens as well as the world getting.
Speaker Change: Getting access to better treatments.
Speaker Change: On the other hand, we.
Speaker Change: We are encouraged that there are some more.
Speaker Change: Activities on the funding government funding level.
Speaker Change: Which historically has been elevated compared to the last couple of years. So.
Speaker Change: So we do see some increased activity there again and that's also why our expectations are that China is going to be back into the positive growth slightly.
Speaker Change: But on the other hand, there is no doubt that debt.
Speaker Change: There is a tough economic environment in China and that are that are that things are not all in the in the green just yet and we just continue to hope that things will improve and that and biotech and he will be ready to support all the science activities.
Speaker Change: In order to get to to get to a better situation there.
Speaker Change: Okay. That's helpful and then Jim maybe one for you it sounds like the margins in two age no FX a little bit of an offset there can you just talk about the moving pieces.
Speaker Change: The expansion opportunity and again anything else under the Hood other than FX in terms of a shift for two H. Thank you guys.
Speaker Change: Yeah sure so I think nothing.
Speaker Change: Nothing has changed with regards to our outlook in the second half margin nuclear initially got it to 102 hundred basis points higher than the beginning of the year now with the changes in FX as you heard me, saying this call earlier, there's about 50 point headwind to that but still significant margin improvement year over year at 50 to 150 basis points in that range and.
Speaker Change: Even more significant step up when you think about it sequentially from the first half the second half and it just shows the power of our of our contribution margin that comes from our products and so with the both the seasonality and the continued acceleration of our growth.
Speaker Change: Year over year, but also sequentially seasonality wise that step up in revenue has a very nice pull through and we've done a lot to make.
Speaker Change: Make organizational efficiencies over the past year and a half to be to be more ready you know more ready than ever for margin expansion. When the growth returns. So that's been the story, all year, and it hasnt changed and and and and.
That coupled with not just the volume leverage but also the mix improvement as we saw this quarter when our PSS returns tied.
Speaker Change: Solid growth you can see.
Speaker Change: The great pull through that we get from that and we expect that to continue in the second half.
Speaker Change: Yeah.
Speaker Change: Thank you guys.
Speaker Change: Our next question comes from the line of soon gene I'm with Scotiabank. Please proceed with your question.
Speaker Change: Hi, Thanks for taking the questions maybe on the AI capabilities into new design. Your protein would you be able to comment on kind of how biotech me stacks up against competitors on that front.
Speaker Change: How game changing is this capability in this industry right now and kind of what the competitive advantages are moving forward.
Speaker Change: Yes. Thank you for the question.
Speaker Change: We do believe that there is.
Speaker Change: I engineered antibodies as well as proteins will well are truly a stepwise change in innovation.
Speaker Change: We do believe they are sustainable advantages.
Speaker Change: Because these products are patentable and.
Speaker Change: We have combined our tremendous internal know how and the fast database that we've built over last couple of days in a couple of decades.
Speaker Change: And <unk> invested very early in in the AI capabilities and you really need all three to be successful there and I know that we were uniquely positioned to grab this opportunity and and run with it.
And if you think about the benefits of having these AI engineered proteins the hyperactivity.
Speaker Change: Temperature stable. So you can really really boost your cell based work and then the enhanced receptor binding are all.
Speaker Change: Very differentiated features and really things that were not possible in the past and.
Speaker Change: Yeah, We think we will create a real nice stepping letter for customers, where you know.
Speaker Change: You would normally be constrained to only are you old versions of these proteins, but now you can you know.
Speaker Change: Yet enhanced activities by picking the AI designed.
Speaker Change: Proteins and then of course, you can step up to the GMP.
Speaker Change: <unk> of our proteins and eventually we will allowance the GMP AI engineered proteins. So we will have a real nice continuum for customers to lean on.
Speaker Change: Great. That's Super helpful. And then just on the special Biocide D. The RNA scope assays on the comment that you just launch just curious how quickly do you expect the customers to adopt them alteon became fidelity, whether that would require Friday market development and then also how you.
Speaker Change: It's really the clinical market I think youre, gaining good traction there as well whether the multi let me keep fidelity thoughts there wont be a competitive advantage. Thank you.
Speaker Change: Thanks for that question as well.
Speaker Change: Yeah, I think that having the multi omics capability and we are truly the only provider of Av.
Speaker Change: Multi omics in the special market where.
Speaker Change: Our customers can that can look at 12 RNA targets in 'twenty four protein targets all in parallel on the same slide and then having to comment.
Speaker Change: With the features of a very high throughput you can use off the shelf antibodies that you've been using in the past. So you don't have to change your experiments.
Speaker Change: For slide simultaneously that will give you 20 slides throughput in a week those are all market, leading performances and and I think that.
Speaker Change: That we're really set up to to continue to do really well in the special markets.
Speaker Change: On the.
Speaker Change: Currently we have our key opinion leaders really work working with the multi omics K.
Speaker Change: Capabilities.
Speaker Change: We envisioned is rolling out throughout the market.
Speaker Change: And very the instrument is very stable easy to use and so are the agents. So I don't feel that there's a lot of market development to be done it was truly the rollout of the product and the solution.
Speaker Change: And then that's been at least Youre right our footprint in clinical as continue to outpace the growth of this overall spatial biology market. So we're really happy that our RNA scope product line for example is stable enough and relevant enough to.
Speaker Change: To perform in the clinical markets and also there we feel that we're one of the few spatial biology.
Speaker Change: <unk> that have been successful in the clinical.
Speaker Change: Clinical space so.
I think we're very very confident that we will have that we're really well positioned to continue to outperform there.
Speaker Change: Yeah.
Speaker Change: Thank you. Our final question comes from the line of Paul Knight with Keybanc. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Hi, This is Lucas on for Paul Knight.
Speaker Change: Kind of sticking with the theme of the previous question in the press release, you called out signs of improvement for some of your instrumentation businesses was the comet one of those instruments you saw an uptick in interest for and how our placements for that trending generally thanks.
Speaker Change: Yeah, when we talk about our instruments, we really talk mostly about our protein analytical instrumentation portfolio of which which we were very encouraged about getting back into the black and this is excluding the spatial biology.
Platform that that still sits in gets reported.
Speaker Change: In in this space, you'll be LNG vertical if that answers your question.
Speaker Change: Just follow on to say that.
Speaker Change: The interest and that still remains very very high and the growth rates are.
Speaker Change: We're still very very very strong so yeah.
Speaker Change: Yeah.
Speaker Change: And then just one final question I believe you were expecting China's stimulates to primarily benefit your automated western blot equipment is that still what you are seeing or is interest broadened out to other product groups.
Speaker Change: I think you're correct that that will be the primary product line that we will see traction, but then again, we have we have really good traction into biological platform as well. So we feel that all three of our platforms will be will be in a much better position in China going forward.
Speaker Change: Excellent that's all I had.
Speaker Change: Thank you Mr killed them and I would now like to turn the floor back over to you for closing comments.
Speaker Change: Thank you and thanks, everybody for joining the call today and of course for your insightful questions.
Speaker Change: I'm extremely proud of the accomplishments and the results the biotech and the team has been able to deliver this quarter.
Speaker Change: And our differentiated portfolio addresses some of the highest growth markets in life Sciences and is positioned to deliver best in class performance for all our stakeholders going forward.
Speaker Change: I want to thank you and have a great day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.