The Bio-Techne Earnings Conference Call for the Third Quarter of Fiscal Year 2024 is about to begin. Participants will be placed in a listen-only mode and can ask questions after management's prepared remarks. The call will be limited to one question and one follow-up. David Clair, Bio-Techne's Vice President of Investor Relations, will be leading the call, with Kim Kelderman, President and CEO, and Jim Hippel, CFO, also present. The safe harbor statement is briefly covered, and non-GAAP financial measures may be used during the call. The company's 10-K and other SEC filings are available on their website. Bio-Techne will also be presenting at various conferences in the coming weeks.

Kim Kelderman, the speaker on the call, reports that the company's third quarter outperformed expectations with a 2% year-over-year organic revenue growth. The team's execution and product portfolio contributed to this growth despite challenges in the biotech funding and Chinese markets. The company also focused on profitability and saw a 290 basis point increase in adjusted operating margin. The growth pillars of the company, including GMP reagents and proteomic analytical tools, also showed strong performance. Bio-Techne was recently recognized by CiteAb for being the ELISA Kit Supplier of the Year.

Bio-Techne has been recognized by CiteAb for its leading portfolio of ELISA kits and its innovation in spatial biology. The company has also been highly commended for its educational initiatives. In addition, Bio-Techne is leveraging artificial intelligence to develop new patentable proteins and reagents with enhanced functionality. This aligns with the company's vision to work together with customers to advance science. The paragraph then transitions to discussing the company's quarterly results and provides an overview of its end markets and geographies.

The biopharma end market saw a low single-digit increase in the current year compared to the previous year, with a potential recovery in biotech funding in 2024. Academic budgets remain stable and North America saw growth in the low single-digits, while Europe declined due to a challenging comp. China's revenue decline has stabilized and the country has introduced an economic stimulus plan.

The company's plan to upgrade equipment in various industries will positively impact their insulin business. The Protein Sciences segment, which has the most exposure to these markets, saw a slight revenue decline but is expected to benefit from the improving markets. The company's proteomic analytical tools continue to see strong growth, with new applications being developed and expanded use cases in gene therapy, potency release, and quantitative immunoassay applications. The Simple Western platform is gaining share due to its ease of use, speed, and reproducibility compared to manual methods.

The company is pleased with the success of their new instrument and sees potential for further adoption. They have recently received certification to pursue clinical diagnostic opportunities with the instrument and have already formed partnerships, such as with Novomol-Dx in India. The company's cell and gene therapy products and services have also seen significant growth, with a 30% increase in the quarter. This includes GMP reagents, which saw a 40% increase in revenue and will soon be expanded to include GMP antibodies for cell therapy workflows.

The Diagnostics and Genomics segment reported 10% organic growth for the quarter, driven by the spatial biology growth pillar which includes the RNAScope ISH technology and the Lunaphore acquisition. RNAScope has become the most referenced spatial biology technology in the industry with over 10,000 customer publications. The demand for Lunaphore's fully automated high throughput hyperplex spatial biology platform called Comet continues to outpace manufacturing capacity, but a project to scale up production is on track. ACD's RNAScope HiPlex Pro is set to launch on the Comet at the end of the fiscal year, allowing for visualization of multiple RNA and protein biomarkers in one tissue sample. The liquid biopsy based molecular diagnostics business, specifically the ExoDx prostate test, saw 25% volume growth in Q3 due to its value in providing information for potentially dangerous prostate biopsies.

In the third quarter, the company experienced steady growth in their surgeon carrier screening and oncology kit business, with a 30% increase in Q3. They are also developing exosome-based single gene mutation tests for various cancer markets, which will be distributed through their surgeon laboratory channel. The biopharma end markets and China region stabilized compared to the previous quarter, and the company's growth pillars, including cell and gene therapy, proteomic analysis, spatial biology technology, and liquid biopsy platform, continue to outperform the market. Overall, the company remains well-positioned to drive advancements in science and medicine. In terms of financial performance, adjusted EPS was $0.48, impacted by foreign exchange.

In the third quarter, GAAP EPS decreased from the prior year and revenue increased by 2% organically and 3% overall. North America saw low single digit growth, while Europe and China decreased. Biopharma demand improved in both North America and Europe. APAC outside of China decreased, but China showed signs of stabilization. The company remains confident in China's long-term growth potential. Excluding China, biopharma grew while academic remained relatively flat. Adjusted gross margin decreased year-over-year due to the impact of an acquisition.

In the third quarter, the company's adjusted SG&A was 30.3% of revenue, an increase from the previous year due to the Lunaphore acquisition. However, their strategic pricing strategy helped offset the impact of inflation on operating income. Adjusted operating margin was 33%, a 400 basis point decrease from the previous year due to lower volume leverage and strategic investments. Net interest expense increased due to higher debt levels from the acquisition, but bank debt decreased by $58 million. Other adjusted non-operating income also increased. The company generated $81 million in cash from operations and returned $12.5 million to shareholders through dividends.

In the third quarter, the company had $160.5 million average diluted shares outstanding and a strong balance sheet. M&A is a top priority for capital allocation. The Protein Sciences segment had a reported revenue decrease of 2%, but organic revenue only decreased by 1% after divesting the FBS business. Operating margin for the segment was 44.2%, a decrease of 90 basis points. The Diagnostics and Genomics segment had reported growth of 16%, with organic revenue growth of 10%. The Lunaphore acquisition had a 6% impact on growth, and the Molecular Diagnostics division performed well.

The Diagnostics and Genomics segment's operating margin decreased due to the Lunaphore acquisition, but improved sequentially in Q3. The company expects Q4 to be similar to Q3 with stable markets and continued outperformance. They anticipate incremental revenue and improved margins in Q4, but may face tougher year-over-year comps. The company will monitor the impact of recent biotech funding and government stimulus on their fiscal 2025 outlook. The call was then opened for questions from analysts.

Jim Hippel, responding to a question about the company's potential for high single-digit or 10% plus organic growth in fiscal year 2025, expresses confidence in the company's track record and team execution. He believes that when the market returns to its historical growth rates, the company's performance will be at least the same, if not better, and they will be well in double-digit growth territory. While the timing of the market's recovery is uncertain, Hippel sees positive signs and the company is closely monitoring the situation as they prepare for potential growth.

The analyst reports show that there is significant financial support for the biopharma industry. The company expects funding to first flow into consumables before larger investments. The growth in cell and gene therapy is sustainable and has been outpacing overall company growth. The company has strong products in this vertical and sees a great opportunity for growth.

The company is optimistic about the potential for growth in the cell and gene therapy space and acknowledges that quarterly results may be affected by larger orders from companies in their pipeline. They have seen strong growth in earlier-stage companies and believe this will provide a more stable foundation for future success. The company also discusses the challenges they have faced in the biopharma market in China, but remains hopeful for improvement in the future. They are keeping an eye on funding efforts and believe that instrumentation will be a key driver of growth in the region.

The company is optimistic about the potential benefits of the government's $70 billion funding for instrumentation base in China. They believe their automation technology fits well with this funding and their sales force is receiving positive feedback from customers. They do not see a need to change their go-to-market strategy in China and are confident in their current product portfolio and value proposition. The company expects margins to improve in the fourth quarter and remain in the mid-30s range for next year.

In this paragraph, Jim Hippel clarifies that the company's goal is to reach a mid-30s margin by the end of the fiscal year, but it is not guaranteed. The consensus for Q4 feels about right, which will give them a good start for fiscal year 2025. The margin expansion in Q2 to Q3 was due to increased volume and seasonal factors, but the company continues to invest for long-term growth. In terms of revenue, they expect a slight increase in Q4 compared to Q3, but the organic growth rate may be challenged due to a tough comp in China. Last year, China had mid-teens growth, but this year it is only 8-10% of the business, resulting in a 1.5 point headwind.

The speaker discusses the current state of organic growth and the recent expansion of the Fisher agreement into Europe. They explain that this will provide more convenience and reach for customers and that Bio-Techne will continue to work with the Fisher channel while maintaining their direct channels. The following question asks about the strength in the cell and gene end market and the speaker is asked to elaborate on their customer cohort.

Kim Kelderman discusses the strong growth potential for the company's cell and gene therapy products, which are in high demand due to their use in the GRx container developed by Wilson Wolf. The company's GMP proteins and other ingredients are essential for the growth of T cells, and they have seen consistent high growth in this market. Kelderman also mentions that more companies are entering the race in this space, and they are excited about the potential for cell and gene therapy to cure previously incurable diseases. The company's partnership with Wilson Wolf is also a contributing factor to their success.

Kim Kelderman, CEO of Bio-Techne, discusses the stability and growth of their collaboration with Wilson Wolf in clinical trials. He mentions that several of the companies they work with have reached the commercialization stage, with Bio-Techne participating in 45% of these clinicals. He also notes that the company has started growing again in double digits, with high margins and potential benefits for Bio-Techne. When asked about the spatial business, Kelderman mentions production constraints but is pleased with the demand and expects to meet it soon. He believes that they will be able to produce as many Comets as ordered in the current quarter and expects the business to continue growing going forward.

The speaker discusses the company's plans for the third quarter and the first half of the fiscal year. They express enthusiasm for the growth potential in the spatial market and the success of their reagent and Comet systems. They also mention their high throughput and extensive range of antibodies. The company is expecting modest growth in the fourth quarter despite challenging conditions in China.

The speaker, Kim Kelderman, responds to a question about Lunaphore and the investments being made to scale up manufacturing. Kelderman explains that the increased demand for Lunaphore products has exceeded initial projections and requires an increase in in-house capacity and support for vendors. This is seen as a positive problem and there are no underlying issues. Kelderman also mentions the ScaleReady program and its components.

The company's GMP protein business, partnership with Wilson Wolf, and ScaleReady technology have received positive feedback and are driving growth. The ScaleReady solution is well-regarded in the cell and gene therapy space and is a complete and scalable solution. The company's success is attributed to both the quality of the solution and the efficient implementation and education by the team. Organic growth was four points higher than expected.

The speaker, Jim Hippel, discusses China's performance in the third quarter, stating that it was in line with their expectations. He highlights two areas that exceeded their expectations: cell and gene therapy and the proteomics instrument portfolio, specifically Simple Western, which saw double digit growth in both instruments and consumables. These areas were not originally included in their outlook a quarter ago, but their strong performance was a pleasant surprise.

The company is seeing strong growth in their diagnostics and genomics business, particularly in the surgeon business. There was no stocking contribution from the European Fisher deal in the past quarter and none expected in the next quarter. The academic market, which has been performing well, is expected to remain stable in the coming quarters.

The company has seen a boost in sales in the academic market due to their sales reps refocusing their efforts. This is expected to continue as long as academic funding remains stable or improves. In regards to Lunaphore and spatial bio, the company is seeing competitive wins and believes that the market will continue to grow significantly due to the importance of these tools in research. The company's Comet automation system and unique antibodies give them a strong advantage in this market.

The company has been successful in selling Comets to customers who have used other systems, and some larger pharma companies have even ordered a third Comet. This shows that the workflow is a strong value proposition compared to other solutions in the market. The Protein Simple business, specifically the Simple Western platform, has seen double-digit growth in both instrument placements and consumables. The entire instrument portfolio has been resilient despite struggles with placements, thanks to strong consumable sales.

The speaker is pleased with the performance of the company's instrument portfolio and is confident that growth will accelerate once the market normalizes. They also mention that the GMP facility has enough capacity for at least a decade and that the regenerative medicine side still needs to be built out. The speaker thanks everyone for joining the call and is proud of the company's accomplishments and results. They believe that their differentiated portfolio is well-positioned for future success.

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