Bio-Techne Corporation (NASDAQ:TECH) Q2 2024 Earnings Call Transcript

Bio-Techne Corporation (NASDAQ:TECH) Q2 2024 Earnings Call Transcript February 1, 2024

Bio-Techne Corporation misses on earnings expectations. Reported EPS is $0.4 EPS, expectations were $0.42. Bio-Techne Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Second Quarter of Fiscal Year 2024. . At this time, all participants have been placed in a listen-only mode and the call will be open for questions following management’s prepared remarks. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne’s Vice President, Investor Relations. Thank you. You may begin.

David Clair: Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, Bio-Techne’s Chief Executive Officer; Chuck Kummeth, Bio-Techne’s former Chief Executive Officer and current Senior Advisor to the company, and Jim Hippel, Chief Financial Office. Before we begin, let me briefly cover our safe harbor statement. 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. The company’s 10-K for fiscal year 2023 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.

The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company’s other SEC filings, are available on the company’s website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company’s press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. Separately, we will be participating in the Barclays and KeyBanc Healthcare conferences during the next three months. We look forward to connecting with many of you at these upcoming events.

I will now turn the call over to Chuck.

Charles Kummeth: Thanks, Dave, and good morning, everyone. Thank you for joining us for our second quarter conference call. As many of my official tenure as Bio-Techne’s Chief Executive Officer ended yesterday, and Kim Kelderman is now in this leadership role. He’s taking over a company that is incredibly well-positioned in several of the highest growth life science and diagnostic end markets. I heard Kim to lead a diagnostic and genomic segment in 2018. In November of 2023, he was appointed Chief Operating Officer, as soon as all operational responsibilities for the company. Prior to Bio-Techne, I worked with Kim for four years at Dental Fisher Scientific. I’m excited for the future of Bio-Techne as it continues to flourish under Kim’s leadership.

See also 15 Navies with the Most Submarines in the World and 40 Richest Countries in the World by Per Capita Net Worth.

Q&A Session

When I joined Bio-Techne in 2013, we were a much smaller organization. With approximately $300 million in revenue at the time, the business was a leader in its legacy $3 billion, total addressable market. But growth had largely styled out at the company. This legacy business of research reagents, immune-supply, and diagnostic controls and calibrators, which we refer to as our core, accounted for almost $650 million in revenue in fiscal 2023, and grew at a 7% figure over that period. Through a combination of 19 acquisitions, prioritized organic investments, and execution from our top-notch leadership team, we leveraged these core products and capabilities and grew the business to over $1.1 billion in fiscal 2023, while expanding our cam to an estimated $27 billion.

Under the Bio-Techne umbrella, we now augment this core with high-growth market-leading franchises and proteomic annulment instruments, well-engineered therapy, spatial biology, and their leprosy-gnostics. Our team of over 3,000 global employees has accomplished its magnificent growth while maintaining one of the most attractive profitability profiles in our industry. It’s been a pleasure getting to know many of you on this call today and leading this talented team over the last 11 years. I have never been more confident in the long-term growth potential of this business and look forward to its continued evolution in the cam leadership. With that, I’ll turn the call over to Kim.

Kim Kelderman: Thank you for your kind words, Chuck. And please know that all of us here at Bio-Techne wish you the very best going forward. Now to our Q2 results, the Bio-Techne team continued to execute well in a dynamic and constrained market environment. Our industry has faced several headwinds for over a year now, and those also impacted our second quarter, which resulted in an organic revenue decline of about 2%. The sources of these headwinds continue to be a very soft biotech funding environment, destocking by our large OEM and pharma customers, as well as a broad economic challenge in China, which happens to be historically our high-growth geography. Despite the negative impact from these headwinds, the long-term growth potential of our company remains intact.

Our strategic growth pillars, such as the protein simple branded portfolio of analytical tools for protein, our spatial biology franchise, as well as our ExoDx liquid biopsy business, all delivered solid growth during the past quarter. In the years ahead, we will continue to bolster these high-growth businesses with market-leading, high-quality content from our core portfolio of research reagents. By the way, our core portfolio with over 6,000 proteins and more than 400,000 antibodies has been a solid growth business by itself, by delivering an average growth rate of about 7% over the past decade. We will continue to drive growth in this core portfolio and leverage a unique follow-catalog, as well as our expertise to enable industry discoveries, fortifier existing growth pillars, and ultimately improve global healthcare.

During my transition period to become CEO, I also spent time understanding the efficiencies of our global operational footprint. We evaluated resource needs across all the businesses. We analyzed relatively strategic importance, as well as profitability of various product categories across our overall portfolio. As our operating margins show, Bio-Techne is already a very efficient organization, but with that said, we have been able to identify opportunities to increase efficiencies throughout the global Bio-Techne operating model. In the face of the current environment, we will remain focused on driving our growth pillars, while executing on those aforementioned efficiency increase opportunities. Before I proceed with the specifics of the quarter, I’d like to officially welcome Matt McMannis to Bio-Techne as the president of Diagnostics and Genomics segment.

Matt might be familiar name to several of you as he was formerly Executive Vice President and Chief Operating Officer for Azenta. Prior to that role, he was leading Bio-Techne’s molecular diagnostics business, following our acquisition of Asuragen, where he was the CEO. We are excited to have Matt back at the Bio-Techne family, given his existing knowledge of the business, strong cultural fit and breath of life science leadership experience. He is the ideal leader to take our diagnostics and genomics business to the next stage of growth. Matt runs out the Bio-Techne leadership team that has deep experience and a proven track record of driving growth through market cycles, and I’m excited to lead this talented team going forward. Now let’s start with a discussion on our end markets and geographies, biopharma.

Biopharma are growth-declined low single digits in the quarter. As we noted at last call, the trajectory for the global biotech sales stepped down at the end of our first quarter and into the early part of our second quarter. This trajectory continued throughout the remainder of that second quarter. The biopharma customers remained very engaged with their sales force, but given the overall funding environment, they took a much more cautious stance on spending in front of their 2024 budget cycles. Onto the academic market — on the academic side, demand remains very consistent and healthier across the geographies. We drove up a single digit growth in the quarter, and even though we saw a challenging biopharma market, the team has done an excellent job pursuing and converting opportunities in the academic market.

From a geographic perspective, you have grew mid single digits. Our strengthened European leadership team continues the positive momentum which we have experienced over the last four quarters. The team executed well, despite the aforementioned spending behavior from our former customers. In North America, we experienced a flatish year-over-year performance. It’s worth noting that this is the region where we continue to experience the most significant impact from the soft biotech funding environment. Now moving on to China, you might recall that while accessing our first quarter of the fiscal year, China was highlighted as a geography where we experienced deceleration and spend mostly impacting our portfolio within the protein science segment.

These headwinds led to a year-over-year decrease of over 20% in the geography for the quarter. The good news is that following a particularly challenging October and November, the run rate stabilized as we closed the calendar year, and this trend has continued at the start of calendar 2024. While it’s difficult to pull the bottom based on two months of performance, we are encouraged with the current trend stabilized. Access to improved healthcare remains the top priority for the China government, and we remain very bullish on the long-term prospects of our product portfolio serving researchers in this region. Now let’s discuss our growth pillars, starting with those within our protein science segment. A protein-simple branded portfolio of novel, productivity-driven, analytical tools had a challenging quarter when it comes to new instrument placement.

This is related to the budget constraints across biopharma having in China. However, there were a number of green shoots within that portfolio, namely the consumables used specifically on the protein-simple platforms. For the fourth quarter in a row, these consumables have grown by at least 20%, which means that our customers are utilizing our instruments at record levels even when budgets are constrained. Another green shoot has been our Simple Plex platform, an automated multiplexing ELISA instrument, branded Ella. Overall, the platform experienced double-digit growth in Q2 as Ella is becoming the go-to platform in the high-volume accounts, such as CROs and Cell Therapy QC Lab. These accounts perform large translational studies that increasingly rely on the high sensitivity and ease of use of the platform for their multiplexing ELISA needs.