Bio-Techne Corporation is hosting an earnings conference call for the fourth quarter of fiscal year 2023. The call is led by David Clair, Vice President of Investor Relations, and is joined by Chuck Kummeth, Chief Executive Officer; Jim Hippel, Chief Financial Officer; Kim Kelderman, Diagnostic and Genomics Segment President; and Will Geist, Protein Sciences Segment President. The call will cover forward-looking statements as well as non-GAAP financial measures. Bio-Techne Corporation will also be hosting an Investor Day on September 8 and participating in conferences in August and September.

In the fourth quarter of fiscal 2023, the company experienced 5% organic growth despite post-COVID headwinds, such as a softer biotech funding environment, inventory destocking, and macroeconomic challenges in China. North America experienced mid-single digit growth for both the quarter and the fiscal year, while Europe had low double-digit growth in Q4 and high single digits for the full year. China experienced growth in the mid-teens for both Q4 and full year fiscal 2022.

In the fourth quarter, China's growth was in the mid-teens despite a delay in government funding for new programs. This disruption has only highlighted the importance of healthcare in China and the company is well-positioned to help the country in its pursuit. Protein Sciences segment grew 4% in the quarter and fiscal year, despite challenging comparisons of 16% and 19%, respectively. During the quarter, the company advanced its cell and gene therapy initiatives with reagents, media and analytical workflow solutions to help customers with therapy, development and clinical trials.

Bio-Techne's cell and gene therapy products grew 30% in Q4 and 20% for the year, while GMP proteins grew 60% in Q4 and have been used by over 400 cell therapy accounts. Additionally, Bio-Techne offers GMP versions of small molecules which are critical ingredients for cell reprogramming, expansion and differentiation in regenerative medicine workflows. The pending Wilson Wolf acquisition will provide access to 800 more customers, creating a large cross-selling opportunity.

Bio-Techne's portfolio of GMP small molecules experienced over 250% growth in the quarter, and they are adding capacity to meet current and anticipated demand. They also have a catalog of over 6,000 proteins and 400,000 antibody types which are used for research purposes. Additionally, they have OEM customers who purchase their reagents to use as content in their end products. However, they experienced a destocking effect in Q4 due to the COVID-induced industry supply chain crunch, which they expect to gradually wind down over the next six months. They also announced that they prevailed on a claim that one of their competitors reverse engineered two of their proprietary R&D Systems branded antibodies.

Bio-Techne takes pride in their proprietary products and defends their intellectual property. In the Protein Sciences segment, they saw low double-digit growth in their ProteinSimple portfolio, led by 20% growth in their Simple Western automated Western blot solution. They also experienced upper single digit growth in their biologics business due to strong demand for their MauriceFlex instrument, which resolves labor-intensive and time-consuming challenges of using legacy fractionation methods and doubles the addressable market opportunity for the instrument.

Ella is a Simple Plex automated multiplexing ELISA instrument used for a variety of assays, including four AAV titer assays for gene therapy and five neuroscience markers. Ella has been certified for clinical diagnostics and is now ready to pursue clinical diagnostic opportunities. The Diagnostics and Genomics segment saw organic revenue increase 10% for the quarter and 8% for the fiscal year, with the ExoDx prostate test seeing a 70% increase in volume and a 90% increase in revenue, surpassing 100,000 tests performed. A randomized study of over 1,000 patients was recently published in the Prostate Cancer and Prostatic Diseases Journal to show the clinical utility of the test.

ExoDx Prostate Test is growing in acceptance and has received reimbursement for repeat annual testing, while the ACD portfolio of over 45,000 probes has increased in utilization and has over 8,000 citations. BaseScope and microRNA scope have both increased over 20% and 30%, respectively, in Q4, and the partnering strategy for the gold standard RNAscope technology has been furthered with the release of an RNAscope multiomic workflow.

In the fourth quarter of the fiscal year, Bio-Techne launched new ASR probes for Kappa and Lambda biomarkers, closed the acquisition of Lunaphore, and announced a partnership with them to develop a fully automated multiomics spatial biology platform. The new platform will use Lunaphore's COMET instrument and Bio-Techne's RNAscope high-plex technology to simultaneously interrogate protein and RNA expression at a single cell level. Despite the challenges of the year, the company is encouraged that they will gradually diminish in the year ahead.

In Q4, adjusted EPS was $0.55, an increase of 8% over the prior year quarter, and revenue was $301.3 million, an increase of 5% year-over-year on both an organic and reported basis. For the full fiscal year 2023, revenue was over $1.1 billion, an increase of 3% on a reported basis and 5% on an organic basis. North America, Europe, and China grew mid-single digits, low-double digits, and mid-teens respectively in the quarter.

In Q4, Thermo Fisher Scientific reported mid-teens growth in China, low-single digit decline in APAC outside of China, mid-single digit growth in biopharma, and upper single digit growth in academia. The company's adjusted gross margin decreased due to unfavorable product mix, while adjusted SG&A and R&D decreased due to operational efficiencies and strategic investments. Strategic price increases during the first half of the year offset the dollar impact of inflation on operating income and margin.

In Q4, adjusted operating margin decreased by 30 basis points compared to the prior year, but improved sequentially by 10 basis points. Net interest expense increased by $0.3 million compared to the prior year, and other adjusted non-operating expense decreased by $1.3 million. Cash flow from operations amounted to $83.4 million and $12.5 million was returned to shareholders in the form of dividends. The balance sheet finished Q4 with $204.3 million in cash and short term investments, and the total leverage ratio remained below one times TTM EBITDA. Going forward, M&A is a top priority for capital allocation.

In Q4, the Protein Sciences segment reported sales of $223 million, with organic growth of 4%, and an operating margin of 44.7%. The Diagnostics and Genomics segment reported sales of $79 million, with reported and organic growth of 10%, and an operating margin of 18.5%. Fiscal 2023 is seen as the year of the COVID hangover, following two strong years referred to as the COVID halo. The acquisition of Lunaphore is expected to add 1.5% to the company's reported growth in fiscal year 2024.

In fiscal year 2023, smaller biotech investing, government shutdowns in China, and destocking of inventories created a headwind for the company. However, biotech spending has stabilized and destocking is expected to unwind by the end of the calendar year, potentially becoming a tailwind in 2024. The Chinese government funding of life sciences has not returned yet, creating headwinds in the region. The company expects to need to grow primarily by gaining wallet share in this cautionary financial environment in fiscal year 2024.

The company expects organic revenue growth in the first half of fiscal year 2024 to be similar to their growth in fiscal year 2023, with the potential for accelerated growth rates in the back half of the year depending on China government funding. Adjusted operating margins are estimated to be down 300 basis points from fiscal year 2023 due to investments in key growth platforms and the acquisition of Lunaphore. North America and Europe are expected to continue to show growth despite the challenging comps.

Chuck Kummeth explains that the company is coming out of the hangover sooner than expected due to their hard work in the off year. They have hired three senior executives and restructured Europe commercially. This has already resulted in a stronger finish in Europe, and North America has stacked up as expected. He believes that the company will be able to improve in the second half of 2024 to reach high single-digit growth.

James Snook has brought many changes to North America, including increasing inventories and efficiencies in Europe, improving the customer experience, and softening in the first half of the quarter. Despite this, they have still managed to beat everyone in their field this quarter and have met their bottom line targets. However, growth is dependent on the market and the Chinese government, which has not yet funded them again.

Bio-Techne had a strong quarter, exceeding expectations in their three major investment platforms (spatial, cell and gene therapy, and exosomes). They are looking forward to the coming back party and anticipate a significant increase in business when the government turns the lights back on. They have been working on their infrastructure and will soon introduce their new website, Bio-Techne, to improve their customers' experience.

Chuck Kummeth provides an update on the company's M&A strategy, highlighting the recent acquisition of Lunaphore and the synergies it will bring. He also mentions that the company is busy with other M&A activities and that the Lunaphore acquisition is already showing strong revenue growth. He mentions that there will be some dilution in the coming year as a result of the acquisition.

The Lunaphore acquisition is responsible for two-thirds of the 300 bps margin decrease, with the remaining third attributed to strategic investments in growth areas. To improve margins, revenue gains are needed. Organic margin, excluding Lunaphore, is expected to be better than the current year.

Chuck Kummeth explains that the OEM customers have been stocking a lot due to the COVID supply risk era, and this is now coming down. However, he states that the run rate has softened, but that Fisher has been strong all year. He also states that they have visibility into the situation, as they know exactly where each customer is at.

The quarter began strong in China, but ended much worse than expected. Everyone in the industry is in a waiting pattern for the Chinese government, who has their economy shut down due to a lack of money. They have made healthcare a priority, and are expecting to see an outlay of stimulus come October when the new school year begins and institutions reopen. However, nothing dramatic has been seen yet.

Chuck Kummeth discussed the strong quarter for instruments, noting that China is the area with the strongest ratio of instrument sales. He also mentioned the success of Simple Western and Ella, and that the 1345 will soon be released. He also mentioned that the team in China is very positive and optimistic about the future.

Chuck and Will discussed the future of ProteinSimple's instruments and applications. They mentioned a big clinical launch in India that will use tears as the analyte in the cartridge, and the utilization of consumables and service contracts. They also discussed the ISO 1345 certification of the Ella platform and the launch of 35 new application nodes across the Simple Western portfolio, such as AAV titer, empty-full capsid ratios, and potency assays, which have been used in an FDA approved product.

Will discussed Ella and Ello, two platforms that offer applications for cell and gene therapy, as well as neuro applications and laboratory developed tests. Chuck then discussed the success of the cell and gene therapy market, citing a 60% growth in the quarter and 30% growth for the year. He also mentioned that they are expanding their product offerings in their St. Paul facility, adding eight more products beyond just cell therapies.

The company is expecting to grow its customer base to over 400 customers, and is seeing growth in its small molecule platform, with 260% growth this quarter. The company is optimistic that it will become one of the big players in the industry, due to its partnerships and coming acquisition. However, the company is not willing to commit to a full year outlook for its fiscal year, due to the challenging circumstances, particularly in China.

Jim Hippel explains that although the company is in a fortunate position with regards to 2024 guidance, it is difficult to predict when the code hangover will be resolved and when China will come back. He also mentions that biotech funding headwinds are mostly behind them, but they have not yet turned into tailwinds and NIH budgets may be cut instead of increased. However, if funding is redirected towards oncology and neurology, this could be an upside for the company.

Chuck Kummeth expects the company to be in the run rates of double digit, if not mid-teens again by the end of the fiscal year. He acknowledges that the current quarter and next quarter will be affected by the slowdown in China, which accounts for 10% of the company. He also notes that the company's growth platforms are accelerating and could potentially pick up some of the slack from the core business. He mentions that the company is two to three years into their five-year plan and that the major growth areas are running much higher than expected.

Chuck Kummeth discussed the growth of GMP proteins, which is attributed to larger orders from both existing and new customers. He also mentioned that as customers become more established, they are able to order more. He suggested that in the future, there could be dozens of customers ordering large amounts.

Chuck Kummeth discusses the end market mix in China, which is mainly government-sponsored and well-funded academic institutions. He explains that reagents and instruments are roughly split evenly between the two, and that there are 180 institutions in Beijing and Shanghai. He also mentions the current consternation in China due to the COVID-19 pandemic and the resulting economic issues, but notes that the Chinese government has a high priority for healthcare and research.

Chuck Kummeth provides an update on the performance of Wilson Wolf, noting that it is flat to mid-single digit growth despite the market imploding. Kummeth states that Wilson Wolf is taking share and is more profitable than expected, which allowed for the 20% trigger early. He estimates that the full acquisition of Wilson Wolf will take three to four years, with a revenue of $225 million or EBITDA of $136 million. Kummeth and John [ph] are working to invest and diversify Wilson Wolf to help with growth.

The unidentified company representative believes that the total number of customers has not declined and that the uptake in development and the portfolio is strong. Chuck Kummeth then discussed the Exosome platform, which is doing well with record test days and crossing 100,000 tests. He also mentioned a colorectal program that is making great progress with multi-analyte screening component tests. He concluded by thanking everyone for attending the call.

The company was thankful for the interest in their company and they will be back next quarter. The conference has now concluded and those attending the presentation can now disconnect.

This summary was generated with AI and may contain some inaccuracies.