The operator welcomes participants to the Bio-Techne Earnings Conference Call for the Second Quarter of Fiscal Year 2024. The call will be open for questions after management's prepared remarks. The company's Vice President of Investor Relations briefly covers the safe harbor statement and mentions the use of non-GAAP financial measures. The company's former CEO and current Senior Advisor, along with the CEO and CFO, are present on the call. The company's 10-K and other SEC filings are available on their website. The company will also be participating in upcoming healthcare conferences. The call is then turned over to the former CEO.

Charles Kummeth, former CEO of Bio-Techne, thanks everyone for joining the second quarter conference call and introduces the new CEO, Kim Kelderman. Kummeth highlights the company's growth since he joined in 2013, with revenue increasing from $300 million to over $1.1 billion through acquisitions, organic investments, and strong leadership. The company's core business of research reagents and diagnostics has expanded to include high-growth areas such as proteomic analysis, engineered therapy, and spatial biology. Despite this growth, Bio-Techne maintains a strong profitability profile.

The Bio-Techne team has faced challenges in the past quarter due to a soft biotech funding environment, destocking by large customers, and economic challenges in China. However, the company's long-term growth potential remains strong, with its strategic growth pillars and core portfolio continuing to deliver solid growth. The company will continue to focus on these areas and leverage its unique follow-catalog and expertise to drive growth and improve global healthcare.

The CEO of Bio-Techne discusses their efforts to increase operational efficiencies and their focus on driving growth while also identifying opportunities for efficiency improvements. They welcome a new member to their leadership team and mention the decline in growth for their biopharma market in the previous quarter.

In the biopharma market, customers were cautious with spending due to the funding environment, but the academic market remained consistent and saw single digit growth. Europe had positive momentum, while North America was flat due to the soft biotech funding environment. China experienced a decrease in performance, but the trend has stabilized and the company remains optimistic about the long-term prospects. The growth pillars within the protein science segment will now be discussed.

The protein-simple branded portfolio had a challenging quarter in terms of new instrument placement due to budget constraints in China. However, there were a few positive developments, including a 20% growth in consumables usage and double-digit growth in the Simple Plex platform. The company also received ISO 13485 certification for their Wallingford facility, allowing them to pursue clinical diagnostic opportunities. Additionally, the biologics platform, Maurice, saw over 20% growth, particularly in the launch of Maurice's flex for biological drug development and production.

In addition to its protein science segment, Bio-Techne is also seeing growth in its cell and gene therapy business vertical. Despite funding constraints, the company remains committed to investing in this area and has filed a Drug Master File for an animal-free GMP expansion medium. This will make it easier for customers to submit to the FDA and Bio-Techne is also expanding its GMP portfolio to include more products for this rapidly growing industry.

The company is finalizing a closed-to-air-out immune cell therapy manufacturing solution and experienced a decrease in revenue in the protein science segment due to funding challenges and order timing. The diagnostics and genomics segment, specifically the spatial biology franchise, is seeing growth with ACD's RNA scope and the recently acquired Lunaphore platform. The Comet instrument is in high demand and the company is scaling production to meet it. They are also launching a fully automated spatial multiomics workflow to detect RNA and protein markers on the same tissue section.

The paragraph discusses the growth pillars within DGS, including ACDs, RNA-scoped technologies, and the ExoDx prostate test. It also mentions the de-stocking and strict inventory management from core diagnostics OEM customers, and the overall organic growth of 5% in the diagnostics and genomic segments. The team's ability to navigate challenges and the company's portfolio of core technologies are expected to drive advances in science and medicine.

In the second quarter, the company's adjusted EPS was $0.40, a decrease from the prior year. Revenue was $272.6 million, with a 2% decrease on an organic basis, but flat on a reported basis. North America, Europe, and APAC all had varying levels of growth or decline, with China experiencing a significant decline due to government funding constraints. However, there has been a stabilization in business in China since December and the company remains optimistic about long-term growth in the region. In terms of end markets, excluding China, biopharmaceuticals declined while academia grew.

In the second quarter, the company's adjusted gross margin decreased to 69.7% due to lower volume leverage, unfavorable product mix, and the Luma-4 acquisition. Adjusted SG&A and R&D expenses increased, primarily due to the Luma-4 acquisition. However, price increases implemented in the previous fiscal year helped offset inflationary impacts on operating income. Adjusted operating margin decreased by 540 basis points, but excluding the Luma-4 acquisition, it was still 300 basis points lower than the prior year due to volume leverage and product mix. Net interest expense and other adjusted non-operating income both increased, while the adjusted effective tax rate remained at 22%. The company generated $83.1 million in cash from operations and invested $14.9 million in capital expenditures.

In Q2, the company returned capital to shareholders through dividends and a share buyback. Their balance sheet remains strong with a low leverage ratio. M&A is the top priority for capital allocation. The protein science segment saw a decrease in sales and operating margin due to unfavorable volume and product mix. The diagnostic syndrome segment saw an increase in sales driven by spatial biology and molecular diagnostics, but operating margin decreased due to an acquisition. However, operating margin improved compared to the previous quarter due to volume leverage and favorable mix.

The company is cautiously optimistic about the future, as there are some positive signs in the macroeconomic environment. While biotech funding and the Chinese economy have not fully recovered, there are indications that they are stabilizing. The company's growth pillars are still performing well despite the challenging conditions. The company is closely monitoring its reagents business and is encouraged by early results. They expect the trend of decelerating growth to subside and are confident in their long-term growth potential. They are also managing costs and investing in the business for future growth.

The speaker, Charles Kummeth, discusses the company's plan to protect and increase their operating margins for the rest of the fiscal year. He then hands the call over to the operator for questions. The first question is from Puneet Soda, who congratulates the team and asks about the headwinds that affected the company's performance in the last quarter. Charles defers to Jim, who was responsible for the forecast and will address the question.

The company experienced a decline in growth in the previous quarter, particularly in biotech and pharma. This trend has continued for a longer period than expected, but there are signs of stabilization in China and overall in the business. The current quarter is expected to be the low point, with the possibility of growth rates improving in the following quarters. However, this is not yet a definite trend and should be taken with caution. The company is optimistic about the future, but there is uncertainty in predicting growth rates for the rest of the year.

The speaker discusses the challenges faced by the company in the biopharma market, stating that headwinds increased in December and that there was a sense of hesitation among customers to make large purchases due to budget constraints. They also mention that the company's view is consistent with what other peer companies are experiencing.

The company had conversations with customers about potential funding constraints in the biotech industry. Analysts report a decline in biotech funding in the December quarter, which affected the company's business. However, the company's portfolio is well-positioned to provide efficient and reproducible results in a constrained environment. Despite the overall decline in the market, the company's consumables and instrument platforms have continued to see an increase in sales, indicating the value of their tools in boosting productivity for customers.

The company is optimistic about the potential demand for new instruments once funding becomes more prevalent. They have also taken steps to improve efficiency and divest non-core businesses, which will have a positive impact on margins going forward.

The company plans to reach a mid-30% range by the end of the year for Q4. The antibodies business has been performing well despite challenges in the environment. The company is confident in its ability to compete in the market and expects the headwinds to subside soon. The analyst asks about the growth platforms highlighted at the analyst's day and their projected market growth rates.

In the paragraph, James Hippel discusses the company's growth projections for the next six to 12 months and how they will be impacted by the current market conditions. He expresses confidence in the company's growth pillars and believes that once the market returns to its normal growth trajectory, the company will see double-digit growth. However, he cautions that the timeline for this depends on when the market normalizes. In response to a question about the near-term outlook, Charles Kummeth states that the company expects the growth rate in the third quarter to be similar to that of the second quarter and that the previous deceleration in growth is now behind them.

In this paragraph, James Hippel and Kim Kelderman discuss the recovery in China and their expectations for the future. They mention that China is an important market for them, accounting for 10% of their revenues, and that they have been able to outgrow their peers in the past. However, the recent standstill in China has affected their business. They believe that the activity in China is stabilizing, but there is no clear indication of when things will return to normal. They also mention that China will continue to be a fast-growing market and they are building a local facility to serve the market. They believe their high-quality products and automation will be well-received in China.

The speaker mentions their long-term belief in China and their optimism for the country's recovery. However, they cannot predict when or what will trigger a V-shaped recovery. They also mention a decline in their protein sciences business, specifically in reagents and instruments, due to capital constraints from customers. The growth rate for cell and gene therapy portfolio was also down compared to the previous year.

The company's biopharma segment saw a decline in orders and invoices, but the number of orders was still at a record level. The decline was primarily due to a decrease in biotech funding, with conservatism from pharma also playing a role. The company plans to release new products to increase its share of the market.

The speaker discusses the recent Lunaphore acquisition and their satisfaction with it, as well as their interest in continuing to pursue M&A opportunities. They are particularly interested in filling out their sub-engine therapy portfolios, strengthening their core, and expanding their reagents business. They maintain a long list of potential targets but will only pursue those that meet their financial expectations and contribute to their overall financial goals. They are open to both small and large, public and private companies as long as they fit their criteria.

The speakers discussed the state of the pharmaceutical and biotech industry, noting that smaller biotech companies may struggle with funding but there are signs of improvement. These companies tend to use automation platforms for their labs, while mid-sized companies focus more on consumables.

The speaker discusses the progress of Wilson Wolf since the company's investment. They have seen improvements in their overall performance, with a recent return to profitability. However, there have been some challenges due to canceled projects. The speaker also mentions upcoming clinical studies and an upcoming approval for the company.

The speaker believes that Wilson Wolf will be successful in the future, thanks to John Wilson's investments. The company had a tough year in 2023, but saw improvement in the December quarter and is expected to continue improving. The speaker is excited about the company's strategy and proud of their team's execution. They look forward to speaking at the next earnings release.

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