Q3 2025 Bio-Techne Corp Earnings Call
As Last Man Standing We wish you a Merry Christmas
[inaudible]
Good morning and welcome to Bio-Techne Earnings Conference call for the third quarter of fiscal year 2025. At this time our participants have been placed in listenony mode and the call will be open for questions following the management's prepared remarks.
During our Q&A session, please limit yourself to one question and a follow-up
I would now like to turn the call over to David Clair, Bio-Techne's Vice-President, Investor Relations. Please go ahead.
David Clair: Good morning and thank you for joining us. I'm the Coll with me this morning are Kim Kelderman, President and Chief Executive Officer, and Jim Hippel, Chief Financial Officer, Bio-Techne.
Before we begin, let me briefly cover our safe harbor statement.
David Clair: Some of the comments made during this conference call may be considered forward-looking statements including beliefs and expectations about the company's future results.
David Clair: The company's 10K 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.
David Clair: The company does not undertake to update any forward-looking statements because of any new information or future events or developments or events.
The Ten K, David.
as well as the company's other SEC filings.
David Clair: are available on the company's website within its Investor Relations section.
David Clair: During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.
David Clair: Tables reconciling these measures to most comparable GAT measures are available in the company's press release.
David Clair: Separately, in the coming weeks, we will be participating in the BFA Securities, RBC Capital Markets, Benchmark, William Blair, Jeffries, and Goldman Sachs Healthcare Conferences.
David Clair: 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 Bio-Techne's third quarter
Kim: And please to report that we delivered yet another strong quarter with 6% organic revenue growth while operating in a relatively uncertain macro environment.
Kim: Our differentiated performance was evident across our product portfolio, namely within our core reagents, our automated analytical solutions, and in our cell and gene therapy offering.
Kim: This result was once again delivered with an emphasis on profitability as the operational efficiencies we continue to put in place led to an adjusted operating margin of 34.9%.
Kim: The team continues to do an excellent job balancing investments to position the organization for future growth with initiatives to drive efficiencies and by doing so we are maintaining our industry leading profitability.
Kim: Our performance by end-marketing Q3 was led by low double-digit growth in Pharma, which we expected to return to historical growth rates in calendar 2025, following the realignment of the R&D pipeline during March of 2024.
Kim: We saw early signs of disimprovement in our fiscal second quarter with that positive momentum continuing into our third quarter.
Kim: Going into calendar 2025, we did not anticipate the major US policy shifts impacting the academic and markets.
Kim: This started on February 7th with the NIH issuing guidance of a flat-inneric costly reimbursement rate of 15% across all NIH grants.
Kim: With the incoming NIH director announcing that he will be evaluating the impact of the proposed 50% cap, along with the federal judge implementing a permanent injunction on this policy, it remains to be seen how this will play out
Kim: In the meantime, however, our US academic customers are facing uncertainty around the future funding of their research projects
This can impact purchase decisions particularly around capital equipment.
Kim: Another policy shift that has been announced by the new Secretary of the Department of Health and Human Services is getting a much higher priority around combating conic diseases like cancer, diabetes and neurological disorders.
Kim: Once the dust settles around the overall level of the NIH funding, Bio-Techne stands to benefit from the NIH grant geared towards these diseases, as our product portfolio is perfectly aligned with those research areas.
Kim: Now let's discuss our growth drivers in the Poetine Sciences segment, where strong execution drove demand for a market-leading catalog of research for the agents, Poetine analysis tools and cell therapy workflow solutions which resulted in 7% organic revenue growth.
Kim: Starting with our core portfolio of research use only proteomic reagents that want to highlight at over the last 49 years we have amassed a catalog of over 6,000 proteins in 400,000 antibody types.
Kim: This biological content is relied upon by our global customers to gain novel insight into biological pathways to develop and manufacture advanced therapeutics and to enable precision diagnostics
Kim: In addition, we license and supply our content to other life science tools companies for usage in their essays and consumables.
Kim: Looking ahead, we are encouraged by the FDA's recent announcement to advance public health by replacing animal testing in the development of monoclonal antibodies and other drugs, with more effective human relevant methods.
Kim: The FDA's emphasis on reducing animal testing opens an opportunity for biotechnics, organoid solutions for both making and analyzing organoids.
Kim: Organoids, which better mimic human physiology than traditional cell cultures or animal models, offer an ethical, cost-effective, and faster alternative for assessing drug efficacy, toxicity and mechanisms of action.
Kim: And, usually, we sell over 50 million of our core agents, including proteins, small molecules, and media for organoid solutions in the market that has been growing north of 20%.
Kim: With this recent announcement by the FDA, we expect that the growth of organoid solutions will accelerate and that this will also be a tailwind for our GMP reagents once these solutions advance into the clinic.
Kim: Staying with our GMPL agents, here we saw a growth in the high single digits in Q3. We serve over 500 customers who rely on our GMPL agents for their self therapies across all stages of development.
Kim: As a reminder, customers in late-stage clinical trials can make large, less frequent orders making a trailing maintenance growth metric more reflective of underlaying demand.
Kim: Argym Piri, Agents Business sits just over 30% growth on a TTM basis.
Kim: The next growth driver in poting sciences for this quarter was a poting analytical instrumentation business, especially in our biologics platform Maurice
Kim: As a reminder, Maurice is specced into bio-production processes for protein identity, protein charge, and protein purity testing purposes.
Kim: The Marie's family of instruments is enjoying robust growth from her farmer and CEO partners and is gaining traction as a gene therapy QAQC platform.
Kim: Biologics could double digit in the quarter with broad-based strength in both instant
Kim: Now, we will move to the growth drivers within our diagnostics and spatial biology segment, which delivered 2% organic revenue growth in the quarter
Kim: To grove across the divisions in the segment was in general consistent with order timing having a significant impact on our OEM diagnostic reagents business, as well as on our Surgeon carrier screening and oncology business.
Kim: The underlying markets and our performance remained healthy with year-to-date growth in the high single digits for the diagnostic reagents and low double digits for their surgeon portfolio.
Kim: A surgeon continues to launch innovative products that leverage its proprietary chemistry to resolve
Kim: For example, we launched the AmpliDex Nanopore Carrier Screening Plus Kit, which utilizes Oxford Nanopore's long-read sequencing technology to directly capture many complex genomic variants in a single workflow.
Kim: Also within the segment, we continue to drive ongoing utilization and penetration of our XRDX Post-Aid Cancer Test, which increased over 30% for the fiscal year to date.
Kim: Spatial Biology, which has the highest exposure to US academic and markets within the company, has been most impacted by the NIH uncertainty.
Kim: However, despite this uncertainty, our common instrument was still able to achieve double-digit growth in this quarter.
Kim: These remain key competitive differentiators and enable new scientific discoveries and accelerated drug development.
Kim: During the quarter, we made excellent progress upgrading the comet install base with multi-omic capabilities which provides images of RNA and proteins on the same tissue sample [inaudible]
Kim: This positions the system for steady ramp in consumables pull-through of RNA scoped reactions as well as our portfolio of newly validated spatial antibodies.
Kim: Before I hand the call over to Jim, I would like to address the most recent dynamic around tariffs which has impacted the global economy.
Kim: While the tariff escalation, which began in April , has understandably had an impact on our
Kim: We may not be immune to tariff escalations, but by utilizing our global operational footprint, we are extremely well positioned to mitigate most tariff impacts to our bottom line very quickly.
Kim: Jim will provide more details, but we mobilized a small, specialized and highly effective team within our company to focus on several work streams
Kim: One workstream is around the optimization of our global footprint for regional production, which is, of course, not subject to cross-border tariffs.
Kim: The second work stream is to focus on utilization of our global supply chain.
Kim: and we also initiated a workstream to make targeted price and or surcharge adjustments with the intent to minimize impact to our customers.
Kim: The output from this theme has yielded excellent results which we believe will fully mitigate the cost impact of the tariffs as current reconfigured by the end of the current quarter which happens to align with the start of our fiscal 2026 [inaudible]
Kim: The work done will also position us very well to quickly minimize the impact of future tariff changes.
Kim: Disapproach allowed the vast majority of our 3000 employees to continue to focus on our strengths, which include providing our customers the highest quality products
Kim: to quickly choose the right products and the right solutions to enable their success.
Kim: Is that a little positive call over to Jim? Jim? Thanks, Kim. I'll start with some additional details in our Q3 financial performance and then get some thoughts on the financial outlook for the remainder of the fiscal year.
Jim: Starting with the overall third quarter financial results, adjusted EPS was 56 cents compared to 48 cents in the prior year, with more exchange having an immaterial impact.
Jim: Gap EPS for the quarter was 14 cents compared to 31 cents in the prior year.
Jim: Q3 Revenue, which $316.2 million, an increase of 6% year-over-year on an organic basis, and 4% reported.
Jim: Forex James was unfaible to revenue growth by 1% and investors also had a 1% impact to revenue.
Jim: Bi-geography, North America increased low single digits your year driven primarily by our former customers.
Jim: Europe increased mid-single digits your over-year led by strength from academic customers.
Jim: and China-decreased mid-single digits as the economic situation there is still challenging.
Jim: Encouragingly, the rest of Asia increased mid-teens with our team executing very well on improving market conditions.
Jim: By end-market in Q3, Biopharma increased mid-single digits, while academia was flat in the quarter.
Jim: Be low revenue on the P&L, total company adjusted gross margin with 71.6% in the quarter compared to 71.9% last year down slightly due to unfavorable foreign exchange.
Jim: Adjusted SGNA in Q3 was 29% of revenue compared to 30.3% in the prior year, while R&D in Q3 was 7.8% of revenue compared to 8.5% in the prior year.
Jim: The decrease in SG&A and R&D was driven primarily by the benefit of structural streamlining and diligent expense control, which was partially offset by ongoing strategic growth initiatives.
Jim: Adjusted operating margin for Q3 was 34.9%, up 190 basis points compared the prior year to the impact of both volume leverage, productivity gains, and cost controls, partially offset by the impact of foreign exchange.
Jim: We continue to execute cost-continent measures and prioritize our growth initiatives to drive efficiencies throughout the organization with the goal of maximizing operating leverage while we are in this dynamic macro-environment.
Jim: Looking at our numbers below operating income, net interest expense in Q3 was 0.8 million, decreasing 2.3 million compared to the prior year due to lower net debt levels.
Jim: Our bank debt in the balance sheet has been to Q3s to the 330 million.
Jim: Other adjacent non-opering income was 3 million in a quarter, an increase of 1.4 million compared to the prior year.
Jim: The increase was driven by the foreign exchange impact related to our overseas cash pooling arrangements.
Jim: Moving further down the P&L, our adjusted effective tax rate in Q3 was 21.5%, down 50 points compared to the prior year to the geographic mix.
Jim: Turning to cash flow and return to capital, 41.1 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was 10.1 million.
Jim: Also, our Board of Directors has recently approved a new Sherry Purchase Program authorizing the Re-Purchase of up to $500 million of common stock.
Jim: We finish the quarter with 158.9 million average diluted shares outstanding.
Jim: Our balance sheet finished Q3 in a strong position with 140.7 million in cash and our total leverage ratio remains well below one times EBITDA.
Going forward, M&A remains a top priority for capital allocation.
Jim: Next, I'll discuss the performance of our reporting segments, starting with the protein sciences segment.
Jim: The Seven Ants Organic Growth was driven by large formal customers across the portfolio. Operating margin for the protein science assessment was 45.6%, an increase of 140 basis points compared to prior year, primarily due to the impact of favorable volume leverage, cost management and structural alignment initiatives.
Jim: Turning to the diagnostics and spatial biology assignment, Q3 sales were 89.2 million, with both reported and organic growth increasing 2% compared to the same quarter last year.
Jim: Segment Growth was consistent across the businesses with stronger performance in our automated spatial instrument comment as well as continued strong growth in our XODX prostate cancer test.
Jim: Moving on to diagnostics and spatial biology segment operating margin at 9.4%, the segment operating margin was relatively consistent with the prior years 9.3%.
Jim: We anticipate improvement in the diagnostics and spatial biology, Aubrey Margin, as the climate platform continues to scale.
In summary, Q3 was a solid quarter overall. [inaudible]
Jim: And our team's executed extremely well, especially considering the turbulent market conditions induced by NIH funding and tariff uncertainties.
Jim: Up to this point in the year, our overall top line results have been in line with our expectations at the beginning of the fiscal year, while our bottom line has exceed our guidance.
Jim: However, as we approach the finish of our fiscal year, there was no way to predict last July that our market would be facing the uncertainties of future NIH funding and tariffs that we are now experiencing.
Jim: These uncertainties have only increased in April with the escalation of tariffs that began on April second, followed by the recent Trump administration's proposed fiscal year 26 budget, which includes a 40% cut to NIH funding.
Jim: Let me frame up how we think about our exposure to these two major uncertainties, and explain why we are so well positioned to turn these lemons into lemonade.
First, on the uncertainty of NIH funding.
Jim: As a reminder, approximately 12% of our annual revenue is from US academic customers and we estimate the roughly half of that is sourced from NIH grants
Jim: Also, during Trump's first administration, he proposed NIH cuts ranging up to 20% every year. However, in each of those four years, Congress actually passed increases to the NIH budget with bipartisan support.
Jim: However, even in the most severe scenarios, the decrease in funding would have an immaterial impact to our overall long-term double-digit growth rate expectations
Jim: And that's before you consider our lemonade, which is that Bio-Techne stands to benefit from a potential shift in NIH's emphasis on areas of research where our products are the most impactful.
Jim: Next, I'll address the uncertainty swirling around the ongoing terraform.
Jim: As it stands today, if we were to take no action to absorb all tariffs, the recent increases in global tariffs would amount to approximately $20 million annual impact to our adjusted operating income.
Jim: Most of this exposure is coming from Chinese terrorists on our proteomic analytical instrument platforms imported into China from the US
Speaker Change: As Kim stated in his remarks, we have focused teams who are driving work streams to negate the tariff impact to Bio-Techne and our customers, with the highest priority on leveraging our global footprint to regionally diversify our instrument manufacturing.
Speaker Change: Our lemonade, with respect to tariffs, is the speed by which we can negate the impact of these tariffs to our bottom line and position the company even better to mitigate any further tariffs should they escalate from here.
Speaker Change: This speed will allow us to not be distracted internally but rather double down our focus on our customers, especially as they are facing the same uncertainties.
Speaker Change: As we close off the remainder of fiscal year 25, the additional macro uncertainties around terrorists and potential budget cuts that arose this past month are likely to cause further distraction for our customers.
Speaker Change: Thus we expect our growth momentum will temporarily slow to the low single digits in Q4.
Speaker Change: With respect to the bottom line, there will likely be a temporary headwind to the terrace, resulting in a Justin operating margin being 100 to 150 basis points lower than Q4 of last year.
Speaker Change: However, we are confident that the bottom line impact of current terrorists will be fully mitigated by the time we start our fiscal year 26, positioning us extremely well to continue our differentiated financial performance.
Speaker Change: That concludes my prepare comments and with that I'll turn the call back over the operator to open the line for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue Thank you.
Speaker Change: You may press star and two if you would like to remove your question from the queue
Speaker Change: For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we pull for questions for questions.
Puneet Soda: The first question comes from Puneet Souda with Learing Partners, please go ahead.
Hi guys, thanks for taking my questions here.
Um...
Speaker Change: Maybe the first one on the guide. Could you provide more context into that gem in terms of the impact you're expecting on academic basis? It's meaningful.
Speaker Change: Reduction versus what you had before and what you're seeing in the quarter. So it does, you know, vague a question. Was there a pull forward that you saw on the pharmacide?
Speaker Change: and as a result you're seeing more impact in the fourth quarter.
Speaker Change: Also, on the pharma side, if you could clarify, I think you said low double digit at first, but then mid single digit for bio-pharma, could you just clarify what was the growth in pharma and large pharma?
Speaker Change: Alright, I don't recall saying about bio-forma, but so, to clarify, large-forma was...
Double digit growth for the quarter. [inaudible]
Speaker Change: are all assault sold to other light science tools companies or partners, as you know, call it ingredients into some of their products.
Speaker Change: and some of those orders we don't expect to repeat, again, the Scyling Q4, so that's going to be part of the reason for...
The step down and organic growth, but...
Speaker Change: As it pertains to academia, we started our Q3 in academia very strong in January , and then of course in February with all these announcements there was a great slowdown in academia and then a kind of stabilized to get in March.
Speaker Change: Conservative, but I think prudent to be conservative on the pharmacide.
You know, announced as of April 2nd, which is...
is really, I think, with the biggest...
Speaker Change: Difference in the Guide is in Q4 versus how we perform in Q3. [inaudible]
Speaker Change: Alperformed, really expected to be up to this point in time.
The clearly we didn't expect situation with the academic. [inaudible]
in the U.S. policies.
and then, you know, Paul...
Speaker Change: We talked about that being gradually gaining momentum in our first half of the year.
Speaker Change: and I think that's just a nature of the overall global economic uncertainties where our bio-tech customers are a little susceptible to that in terms of whether their next dollar might come from down the road. So I think there's highly, more highly sensitive to the more macro environment and that's what we're seeing from them. So hopefully that helps.
Speaker Change: Puneet, this is Kim Good Morning. Thank you for your question. And you mentioned Pull Forward, right? In Q2,
Speaker Change: We posted 9% of our getting growth, but I've mentioned that three of that were probably because of early demand by our customers, so we are very transparent in that and in this quarter though, we do not see that. So we do not have a carve out related to pull forwards. [inaudible]
Speaker Change: We do think this was really based upon momentum in the end market of large farmers.
Speaker Change: Got it, the top full. And then, since we're at, you know, 50 or 26 is around the corner.
Speaker Change: I'm wondering what you can provide there, just given a lot of, appreciate the uncertainty, but-
Speaker Change: with China, NIH, and with tariffs. I appreciate your quantifying at least the gross impact.
Speaker Change: But how should we think about 26? And this may be a specific question on China. I believe it's 50-50 instrumentation and consumables for you there. How should we think about the China growth rate in 26?
Thank you.
Speaker Change: Yeah, Puneet, yeah, 2026, we usually do a soft guide at the beginning of a fiscal year, which is about three months from now.
Speaker Change: And one thing that we feel relatively certain about is that we expect that there will be more clarity.
Speaker Change: from the different wet winds in our end markets over those three months. It seems to be that of course a lot of turbulence has been installed upon NIH.
Speaker Change: as well as on the tariff situations. But, you know, we think that the more clarity will come in in coming months, coming quarters, and that will definitely help us quantifying the impact for Bio-Techne in a coming year.
I think, you know, the tariffs...
As I mentioned in my prepare remarks, [inaudible]
Fortunately, a very negatable for Bio-Techne, I'm very positively...
Speaker Change: Posted about how we can offset the terror of impacts and negate them and you know we'll just have to see how the Chinese economy holds up and how their internal funding works [inaudible]
Speaker Change: We definitely saw a little bit of a step back from our initial guide, right? So we had mentioned that China was
Speaker Change: Stabilizing earlier in the fiscal year, we had mentioned that it would crawl back to the black.
Speaker Change: and it was definitely on that trajectory, but this last quarter, with all the turbulence, you could certainly see a step back into mid-single-digit's negative, and you know, that's...
Speaker Change: You know, that's very much driven by the tariffs and by the local economical activities.
Thank you.
Speaker Change: Next question comes from Daniel Leonard, with UBS, please go ahead
Dan Leonard: Thank you. My first question is on tariffs. I would love to understand your exposure a bit better. I mean, China is 9% of your revenue and I think you quantify the analytical instrument exposure into China, but as Puneet mentioned, you sell more than analytical instruments into China. And I would assume that most of that is manufactured outside of China. So any kind of color commentary, Kim, you can provide on why that tariff had wind is not larger. Thank you.
Kim: Yeah, Dan, thank you very much for your question. Yes, China has 9% of revenues, that's a good point. Usually, right, over the last couple of years it was 50-50, if it comes to the mix between consumables and instruments. Over the last year that has actually shifted a little bit, so that's not the real ratio anymore. But nonetheless, we...
Kim: Let's say it's 50% of their main instruments. We have a very clear and fast pathway.
Kim: to be able to move some of the instrumentation manufacturing that we right now have in the US to another location, and that's the benefit of having a global footprint.
Kim: Another Bio-Techne location that would be exempt from import fees into China and that is really the largest part of the tariffs.
Kim: Our consumable part is vastly different if it comes to the tariff, so we've actually, over the last couple of weeks, noticed that we do not pay any tariffs on importing wells and that really negated most...
Kim: Those two activities really negated most of the terror exposure going into China.
Kim: If I could just add also, not all the instruments and all the cartridges for the instruments are produced in the US today.
Kim: So it's not a one-for-one exposure. And it also allows for an easier transition of the instruments that are not currently made or that are currently made in the US for China to allow those to be moved to the facility where there are instruments being made for China.
Speaker Change: Understood. Thank you for that clarification and then just a follow-up. Does the current terror situation impact that all you're thinking on having more of a local manufacturing footprint in China?
Speaker Change: Yes, Dan, I think it doesn't the tariffs have not changed our position there. We always had a mindset of China for China, and yeah, actually last year we talked about
Speaker Change: Bio-Techne haven't opened a new facility in the Shanghai area to serve the Chinese market and we're actually quite glad that we have this footprint because it might actually
Speaker Change: We'll come in handy in the coming quarter as well if necessary, right? But we are really happy with the layout as we have it because the local manufacturing in the different regions and there with minimizing cross-border tariffs is definitely a tailwind right now.
Thank you.
Speaker Change: Our next question comes from Matt LaRue with William Blair. Please go ahead.
Speaker Change: Daniel just circled back on the first question actually.
Speaker Change: As you'd have really built the guide for this year, which I think you've called fairly well, it was exiting the high single digits then
Speaker Change: in the streets where he uses a proxy for fiscal 26. As you alluded to, much has changed, but to the point, Jim, on sort of lemons and lemonade.
Speaker Change: I feel like maybe the lemons are accumulating in your term, and the lemonade may take a little longer to squeeze out. So, you know, 8.5% street organic growth for next year is maybe the way you're guiding us for fiscal 25, at least more reasonable starting points than the maple street that today.
Yeah, I mean, what I would say, Matt, is that- [inaudible]
What we're experiencing right now is...
Speaker Change: Very abrupt, but we all thought that everyone hopes will be somewhat temporary, right? Our momentum going into Q3 was very strong. We were on our projections for a smaller biotech. We were on our projections and trajectory for China. [inaudible]
Speaker Change: and Academic was holding up very, very well as it had been consistently up until this last couple months. And in formal it was actually a head of our expectations.
Speaker Change: and I think once that uncertainty is resolved and becomes more certain, almost regardless of what the outcome is, we will be extremely well positioned to basically resume the trajectory that we were on.
Speaker Change: Now is that a quarter out, or six months out, or a year out, hopefully we'll have more clarity in three months, but at some point the uncertainty becomes more certain.
Okay.
Speaker Change: of something like 5% year-to-date as the cop line has recovered. You mentioned in the comments but can you just speak to sort of that tension between ongoing costs, containment and investment and where you're seeing additional opportunities to drive leverage?
Speaker Change: I mean, the teams have been doing a great job, you know, actually for a couple years now and with regards to managing that balance between investments and cost containment and alignment of our structure according to the various profiles of our business.
Speaker Change: and that, you know, it has just basically continued and we've been especially been diligent on the, you know, kind of called discretionary cost side.
Speaker Change: The past three months or so, especially with the increased uncertainty that we've been seeing in our end markets, you know, a time of uncertainty is a lot
Speaker Change: It's the last time that you want to shift gears with regards to accelerating investment or any kind of...
Speaker Change: Discretionary Spend. I think the outperformance we saw in our margin was combination of the revenues coming in as we had expected, but really holding back on the cost, seeing the kind of uncertainty build throughout the quarter that we did, just to make sure that we're extremely well prepared. Thank you very much.
Speaker Change: for Fiscal Year 26 in particular, when these uncertainties, yes.
Start to become more certain [inaudible]
and I think
and others.
Speaker Change: The tension between us, not even tension really, we always said that we didn't want to get ahead of our skis if it comes to in our cost position, so we've been very prudent, like Jim mentioned, but it's cast and they spend
Speaker Change: We have integrated further some of our acquisitions to increase efficiencies at the digital side. We have looked at ERPs and
Speaker Change: and the different software packages for efficiency gains. And then last but not least, our operational processes and the margin boost from operations is also fantastic. So those have definitely been driving our results. And in the meantime, on the R&D side, we have a very...
A detailed process.
Speaker Change: We call it prioritization to really rank and stack all the investments
Speaker Change: in all the different R&D projects, and make sure that we fund the ones that are of strategic importance, and that have good returns of investment, and we have a fantastic clarity on where to invest, and therewith we manage the balance between the two very, really well.
Thank you.
Speaker Change: Next question comes from Daniel Markowitz, with Evercore ISI, please go ahead.
Daniel Markowitz: Hey, thanks for taking the question. The first one I had is [inaudible]
Speaker Change: Based on the guidance, it seems like 4Q margins are expected in like the 32% ish type range.
Speaker Change: And that's before tariff mitigation flows through. Is it fair to assume that fiscal 26 margins at that 4Q exit rate of about 32% make sense? Or should we be more prudent given the macro could imply that 26 organic needs to come down a few percent?
Speaker Change: Yeah, we're not going to comment on guiding for fiscal year 26 at this point in time, again, given all the uncertainties we're still dealing with, and so...
Speaker Change: Similar to the top line, you know, hope for those uncertainties to become more certain or less uncertain [inaudible]
Speaker Change: Three months from now we can provide some more direction then all I can share with you today is that
Speaker Change: I think this quarter demonstrated that we are positioned the company extremely well for whatever fiscal year 26 brings to market perspective.
Speaker Change: Great, and then just one follow-up on ANG specifically.
Speaker Change: Just using pure comments, it implies that the US academic and government and market could see like 10 to 15% incremental headwinds in calendar 25. Is there any reason to believe this wouldn't be an appropriate way to think about it? Is your exposure a little bit different? And then just what are the kind of cost offsets? [inaudible]
Speaker Change: and a reasonable decriminal margin profile on these U.S. academic and government revenues.
Speaker Change: Yeah, I mean, I, you know, I can't come out specifically on a 10 to 15 percent except to say that our thoughts are this is that, you know, first of all, the money that's largely being spent now by academic can probably force quarters to come from grants that would already be approved and released.
Speaker Change: So we're really talking about the impact of, you know, probably counting to 26 and beyond with regards to whatever gets decided upon with regards to NIH budgets.
Speaker Change: and as a reminder, I think everyone understands this history, but I'll repeat it.
Speaker Change: This has happened before in a prior Trump administration where the over severe cuts proposed.
Speaker Change: Again, I think it's been overblown with regards to what the impact of budgets will be, but in the meantime, it's understandable that and we have several members who come from academia and
Speaker Change: and of course they've shared with us that...
Speaker Change: That all being said, much of the double-digit increases that have occurred in NIH funding over the past four or five years since COVID has been directed more towards infectious disease, vaccine development, things around COVID and such.
Speaker Change: and that is not our sweet spot where we're a portfolio place.
Speaker Change: and so, and we heard the administration say they want to defocus those areas and so if that's where the cuts happen
Speaker Change: that will likely ultimately be much less if any impact to us and could actually be a tailwind, which is the lemonade I spoke of, with regards to funds being redirected more towards
Speaker Change: Yeah, and Daniel, thanks for the question. Let me add to that. Thank you very much.
Fortunately, Europe academics were really, really strong, right? Right, so it's...
Speaker Change: It's interesting to see that dynamic, which we might continue to see. But in the meantime, you think about the, you know, our portfolio and how it also maps towards the economic market. Arguably, you would think that instrumentation is probably more impacted than are consumables.
Speaker Change: and we've seen that in our numbers, our consumables are relatively flat in the U.S. academic markets.
and that's obviously a very favorable mix. [inaudible]
Speaker Change: If you then look at the other 10%, that's instrument related. Now, these instruments...
Speaker Change: are actually on a relatively low price point, around 50k, which then also you would expect is a little bit different decision making process that's best.
So, lower cap-axe [inaudible]
Speaker Change: But then in the meantime they are positioned to automate very clunky yet fundamental processes in your laboratories.
which might be something that you really would like.
Speaker Change: During Times of Constraints, so the positioning of those are just really really really good and then last but not least we're just really happy that we also have fantastic commercial accidents, right? So we have consultative selling
Speaker Change: from our team, a team of experts that can help you pick the right reagents really quickly and make sure that your experiments are repeatable and give you the right results. And in the meantime, for convenience we have very much a valued partnership with Thermo Fisher Scientific where we utilize the Fisher channels for ease of auditing. And with that, the academic market we feel that we are from all angles, [inaudible]
as well position as you could be.
Thank you.
Moderator/Host: Our next question comes from Daniel Arias, which Thiefel, please go ahead
Dan Arias: Hey, good morning guys, thanks Jim. I'm sorry, but I think I need to go back to the academic stuff here.
Dan Arias: You're calling out the headwinds there, which makes total sense, and then you're guiding organic down next quarter, partially with that in mind. But I think your comment was that even under the most severe scenarios, funding would have an immaterial impact to getting to double digit growth long term. So...
Speaker Change: You know, if the budget over the next couple of years is down 20, 30, 40%, which is in line with the proposals for 26.
Dan Arias: is the idea that you can still get back to double digits once the smoke clears on the other macro elements. I think I just need a little help with how you're framing that.
Over the 26th, 27th period
Yeah, sure, Dan. Thanks for the question. And so, um...
Speaker Change: Yeah, I mean, at the end of the day, when you looked around our strategic plan, you know, the key academic is, you know, it's even, it's an important part of our business because it feeds in the bio-Tech and Parma, etc.
Speaker Change: And so, quite simply, I took the details of our strategic plan and assumed the worst, absolute worst case scenario with the 40% cut
Speaker Change: and our academic revenue across the board. And then from there, a gradual increase to historical growth rates of 3% to 5%, and we were still overall at double-digit growth rate over a five-year period. So.
Speaker Change: So yes, I've taken that most severe situation to account in stating that it would still be a double-digit growth trajectory given our strategic plan.
Speaker Change: Okay. Okay, thanks for that. And then just maybe on cell and gene apologies if you did give it, but I didn't catch it. Is there a growth rate for the quarter? And just given what we're talking about about some of the fluctuations in pharma ordering patterns, can you just sort of orientate us around what a good growth rate for a GNP reagent cell and gene would be for this year? This is pretty important to the model. Thanks so much. Thank you.
Speaker Change: The Sylingine Therapy product line, we talked about the trailing 12 months and that was a little over 30% for the 12 months.
Speaker Change: period. And as you know, we had quarters where it was 90%, 60%, 10% and it swings in between, and that's just because the customers...
Speaker Change: Food are long in the clinical process, so in phase three they order less frequently and larger orders and that makes it lumpy. So that's why we always look at our 12 months trailing and that sits north of 30.
Thank you.
Speaker Change: Our next question comes from the line of Thomas Diversi with Neffron Research. Please go ahead.
Speaker Change: Hi guys, thanks for taking the question. The question is just a diagnosis, the genomics-organic growth. I know you have four difficult cobs to the second half of the year, but I would have expected I get so surged overall to kind of be more...
Speaker Change: I guess, unaffected by changes and so just curious whether there's, you know, I guess, just timing issues, you know, related to subtle, the diagnostic agenda with portfolio growth.
Um...
Thank you, Paul, for the question. I think that
Overall, I might prepare remarks, I mentioned that...
And of course we looked. [inaudible]
Speaker Change: We look very, very stringently at what is going on and in detail understand why the growth rate was lower than we usually have but
You know, it was...
Speaker Change: Diagnostic Reagions Division, as well as Surgeon, with the larger accounters
Speaker Change: You know, like I mentioned earlier, there's just a larger orders where timing becomes very important, so we definitely look on account of two account basis, are we losing shares, the market slowing down and there's a clear no and no [inaudible]
Speaker Change: So it was definitely a timing related dip for those two businesses which is not uncommon and that's why I look back at the
Speaker Change: at the year-to-date numbers for those two businesses which are in both cases healthy, high-single and low-double for those two divisions.
are
and certainly did not have the growth.
Speaker Change: And there we just look back at, do we have a fantastic offering? Are we competitive with our instrumentation? Do we win the deals that we compete in? And they're also everything is...
Speaker Change: very, very healthy. It is a purely and market driven headwind in that division so that that gives you basically the flavors of the four divisions in the segment. Thank you very much.
Great. Thank you.
Thank you.
Speaker Change: Our next question comes from Patrick Donnelly with Citi, please go ahead
Hey guys, answer to the questions.
Speaker Change: Maybe one on the biopharma piece, think you talked about mid-single digit growth this quarter. Can you break that down a little bit? I just wanted to talk about the biotech piece in particular. I need to talk a little bit about GMPs, but can you talk about what you're seeing from the biotech customer base? It's certainly been a concern across the industry, just given the volatility of the funding backdrop. So curious what you're hearing from the customers there and expectations on that front.
Speaker Change: Yeah, thank you, Patrick. We certainly know that large-former continues to be ahead of Bio-Tech in recovery, right?
Speaker Change: Bio-Tech is 30% of our revenues and large firm are 30 and Bio-Tech was flatish in Q3
Speaker Change: And we believe that, you know, Bio-Tech funding is obviously very sensitive to capital markets and those are very sensitive to economic uncertainty and that typically leads to more frugal spending and that's what we saw this quarter and that we expect next quarter.
Speaker Change: Okay, that's helpful. And then, if you don't mind, just a quick update on what's happening with Wilson and both what the trends were this quarter, so we'll keep an eye on that as we go as well. Thanks.
Speaker Change: Patrick, this is Jim, thanks for the question. Wilson will continue to perform very well. They had growth very solidly into the double-digit growth rates.
Speaker Change: at this most recent quarter, so they were projecting to have a very, very strong year in our, in what will be counter, you counter your 25 for them, go in and counter your 26 and so far they're right on track for them [inaudible]
All right. Thanks, guys.
Thank you.
Speaker Change: The next question comes from Sang Ji Nam with Scorsior Bank. Please go ahead.
Sanjeev Naam: I'm just curious, you know, would love to hear your thoughts in terms of, you know, in an environment where there might be
Um...
Sanjeev Naam: A significant cap-back spending going towards U.S., expanding U.S. manufacturing, ensuring et cetera, but potential pressure on the early stage or early discovery.
Development work .
Sanjeev Naam: just curious how Bio-Techne is positioned in that environment, or if you have different thoughts in terms of how the tariffs could play out. Thanks.
I'll start off with this again. Thanks for the question.
Sanjeev Naam: You know, I think part of the looming discussions we're hearing out of the administration around terrorists for pharmaceuticals is, again, part of the reason for the guy that we did for Q4.
Sanjeev Naam: I think there's going to be perhaps a letter level three right now, another level uncertainty as it pertains to our pharma customer base and so we've seen how uncertainty impacts other parts of our end market so we kind of expect a thing for pharma at least temporarily.
Sanjeev Naam: I don't know. It's probably anyone's guess as to how it ultimately plays out. It's hard to put out different scenarios when we don't even know what the proposal is going to be with regards to terrorists on our pharma base.
Sanjeev Naam: But I would say this, you know, farmers spent the good part of the last year already realigning their pipelines for what was the IRA Act?
Sanjeev Naam: and I found something they do to take lightly and it's a pretty great large endeavor. And for the most part, what we're hearing from our customers is that behind them.
Sanjeev Naam: So, you know, I think they'll be clearly going to be some changes with regards to CapEx spending and so forth. But at the end of the day of the former company's overall flush with cash, they're overall doing very, very well.
Sanjeev Naam: and just because they need to perhaps spend some more on cap-axes, that's what they need to do to move some manufacturing lines around. It doesn't necessarily mean that they'll cut that out of their, take that out of their P&L for R&D, but you know, it's a good question to remain seen.
Sanjeev Naam: and let me add to that that, you know, overall, I mean the early stage Bio-Techne with the Cori Agents was very much research.
Sanjeev Naam: Oriented. But over the years, we have definitely diversified our portfolio, make sure that we can continue to join a customer in their downstream processes into clinicals and into eventually a treatment. So we have now our
are products way more distributed along the different
stages.
and you can see that in some of our presentations.
Sanjeev Naam: and of course also have a portion of our company aligned with the diagnostics. [inaudible]
Sanjeev Naam: and the treatments of diseases. So our portfolio is much more distributed than it has been in a long time ago.
Sanjeev Naam: So that means that even though there might be some shifts in where the farmer spending is, we feel that we're nicely distributed and therefore will benefit from the overall spend level.
Got it, that's helpful. And then just quickly on the [inaudible]
Speaker Change: On the spatial biology side, I think for the color there and the exposure to the academic market, with wondering about the academic market outside the US, whether a spatial could be growing faster.
Speaker Change: was curious if that could be also, you know, could be utilized within Pharma and kind of if you could talk about the competitive dynamics fair for that particular application, just not familiar with it. Thank you.
Well, I think, thanks for noticing it, and- [inaudible]
Speaker Change: Yeah, so I do believe, you know, especially for my instrumentation point of view, where we still booked, you know, double digital growth.
Speaker Change: As I mentioned, we certainly look at our win-loss rates and we're really happy where those sit so we know that we're not losing share and if anything we're really doing really well with our placements
Speaker Change: and a very competitive offering. As you notice, we have an instrument that is fully automated and it can run through multiomics.
Speaker Change: So you can see that we've been building out the multiomics where there's truly no competitor already looking at just RNA and proteins and now we're adding RNA proteins and protein interactions. So that's truly unique if it comes to the offering and very high value to our customers. So we're very pleased with our competitive positioning there.
Thank you.
Speaker Change: That was the last question for the day, I would now like to hand the conference over to Kim Kelderman for closing remarks
Kim Kelderman: Yeah, thank you very much for your insightful questions and before we conclude the call, I'd like to formally welcome Dr. Amy Hurd to the Board of Directors of Bio-Techne. Dr. Hurd is currently a Chancellor's Professor of Bioengineering at the University of California, Berkeley, and she also serves as the Vice President of the Chan Zuckerberg Bio-Hop Network. Thank you very much for your time, Dr.
Kim Kelderman: Dr. Ur's appointment completes a two-year process to identify and appoint successors to retighting director Randy Steer, who retired in 2024 and Dr. Roland Nuss, who will be retiring later in 2025.
Kim Kelderman: Dr. Heur's deep biological and engineering experience are an ideal fit for our Board of Directors and the Strategic Direction of the Company. Welcome Dr. Heur.
Kim Kelderman: Our differentiated financial performance is a testament to the value our customers place on a uniquely positioned portfolio of research reagents, proteomic analysis tools, cell therapy workflow solutions, and diagnostics and special biology products.
Kim Kelderman: This portfolio unlocks cutting-edge discoveries and significant efficiencies for our customers. It also provides strong foundation to sustainable value creation within Bio-Techne, while we pursue our mission to improve the quality of life by catalyzing advances in science and medicine.
Kim Kelderman: Thank you very much for attending our call and have a great day.
Kim Kelderman: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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