Bio-Techne Corp at Barclays Global Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Luke Sergott - Barclays - Analyst : I guess to start off, let's do the clean-up crew from some of the comments that were made yesterday. Interpretation is that the academic government market is hitting pretty hard on you guys and that the 3Q is going to be real soft. So just we want to kind of clean up some of the commentary. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Well, I appreciate the opportunity, Luke, and despite the clean-up potential effort here, it's always a pleasure to be down here in Miami at the (inaudible) so thanks for having us. Yeah, so academic market and what's going on there and how does it pertain to us? Let's start making it very clear with regards to what our exposure is regardless of what your belief are with regards to the state of the academic market. Let's talk about our exposure because I think it has been misinterpreted and misrepresented perhaps by a few publications out there. We've always said that 20% of our global revenue is academic and roughly half of that is in the US, so call it 10%. And we've always estimated because it's difficult to tell exactly. We've always estimated that roughly half of our academic revenue is not directly but indirectly influenced by NIH, meaning comes from academic institutions that receive NIH funding. And obviously, with the announcements that came out in early February regarding the -- what was then the freeze on reviewing new grants as well as the proposed 15% indirect cap or cap on indirect costs, we said, let's do a bottoms-up look at it and see what our -- make sure we understand this for sure and what our exposure is. So we took a look at what the database is and all the academic institutions in the US that received NIH funding and mirror that with our customer database with over 1,000 customers. And took the -- the worst-case assumption, which was going out was published by a couple of analysts back in early February was that my gosh, if this reduction comes into play, it will probably have to be funded in directly have to be funded out direct, and it might be as much as an 8% reduction in NIH is kind of what was being floated out there. So I said, all right, worst-case scenario, 8% reduction. Let's take a look at all of our TTM revenues from all of our customers that we know get NIH funding. Now does all of our revenue from those customers come from NIH funding? No, but I can't differentiate from one or the other. So worst-case scenario, 8% reduction on all those customers, what would that look like in the long term? It's about a 50 basis point hit. 50 basis points. It's a rounding error with regards to all the other moving parts we have in our business. So that's to kind of level set to the exposure. But let's talk about what's really happening now. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Luke Sergott - Barclays - Analyst : And when you're thinking about redeploying that, it's like the $4 billion in savings, right, into direct funds. Arguably, you're going to go towards the leading edge of all the research, right? So proteomics, you have multi-omics, the spatial stuff. That should be also beneficial to how you guys are set up. So walk us through kind of the new products or obviously moving forward to spatial, like how that has been playing out with you guys? And now that you're starting to see it come back in March, like up to low singles, like are these ongoing or obviously, the work that were ongoing grants that were just kind of paused, but like as that kind of continues to build the momentum, where in your portfolio do you see that kind of playing out first? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. So I guess, first of all, thanks for mentioning that because the analogy I always use, and I try to explain this to others outside the company is with NIH funding, when it goes up and it goes down, kind of all boats rise and all boats may drift down a bit. But what is -- and we've been saying this for years, what's most important to us to our company is what the current in the water is. And honestly, for the last three or four years through all the COVID years, when double-digit increases and NIH funding were occuring, we weren't in the current. We were growing, but we weren't growing double digit in academic. And why? Because most of that extra funding was being directed towards COVID research, infectious disease research, vaccine development, and that's not our wheelhouse. That's not our strength of our portfolio. Our strength in our portfolio is around chronic disease. And by the way, that's where the administration has been very public in saying that's where they want to refocus and reprioritize all their funding, including NIH grants, is around chronic disease. And they've specifically called out cancer, oncology. They've called out diabetes. They've called out neurology. Guess what? Those are probably the three top areas of applications where our tools and reagents are used. So what's way more important for us as a company is getting back in that current. And so as a company, we're much less concerned about the absolute levels of NIH funding as long as they're not draconic reductions then we are about where that money is being spent. And so we're very encouraged about the future with regards to at least what's being said about what the priorities would be for that spending going forward. And our applications are all geared towards those. It's not towards oncology, towards spatial. You mentioned COMET, for example, so we think we're extremely well positioned to benefit from that.

Question: Luke Sergott - Barclays - Analyst : And so it's not really -- that was the fear is what you're saying. It's like essentially a pull forward of budget flush. We're not going to get it next year. And -- James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Well, and I think our -- I think the reaffirming of our guidance for the back half of the year says just that, Luke, because I think what was also missed is that this was -- it wasn't just a reaffirmation. It was actually a beat and a raise because if we thought it was going to continue at the pace that we thought back in August, we would have actually guided Q3 to be lower, low single digits perhaps. Because of these orders, large orders that were originally in our forecast that came out of it. But that's not what we guided to. We guided to mid-single-digit growth, which is more or less consistent with what our guidance has been from the get-go. So we actually messaged strength and momentum improving as opposed to the other way around.

Question: Luke Sergott - Barclays - Analyst : Sounds good. On the -- let's talk a little bit of a competitive landscape on the antibody side. You're one of the big four and was described as a big 4, big 5. Talk about pricing and competitive dynamics there. where you guys are seeing your share gains, particular customer set? Or is it from a particular modality and then how that leads into the GMP side on your protein -- how those two play out. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. I mean, as you've mentioned, antibodies is probably one of the most competitive pieces of our business. And the good thing for us is not any one product category that makes up such a huge majority of our portfolio that if it ever became a problem, it's going to bring -- it's going to bring our company down in like that. But obviously, antibody is an important part of our portfolio. the most competitive. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Luke Sergott - Barclays - Analyst : On China. A lot of -- on the diagnostic side, we see increasing competition from local players there. Give us the landscape there from you just kind of walked through it a little bit, but are you seeing increased competition from local Chinese players in some of your pieces of your business? Like where do you think that your portfolio would be at most at risk there? And where you kind of have your moat. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Honestly, it's similar for China as it is everywhere globally. I mean the most competitive part of our portfolio is antibody globally and as well as it is in China. It's arguably nothing is easy in our portfolio to make, but it's arguably the easiest thing to make. And so there's a lot of small antibody companies in China. There's still hardly any that are nearly close to the breadth of what we can offer and some of our larger peer companies can offer. But that's probably the more competitive space. And proteins will probably be second, but even there, there's maybe one or two notable players that are even -- have business in the West as well. But we see them more as global players and China-specific players. When it comes to our instrument portfolio, which, by the way, in China, we have our heaviest concentration of instruments. It's more like 50% of our business as opposed to 10% globally everywhere else. And for most part, our platforms don't have much in the way of competition, globally much less than China. And so they've -- the CapEx environment has been tough globally everywhere as it has been for us, but the consumables that are unique to our instruments that are needed to run our REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Luke Sergott - Barclays - Analyst : Yes. And on the stimulus side with China, we've heard from peers that they're starting to see a lot of those bookings and orders start coming through for the higher-end CapEx equipment, and you guys kind of fit in that mid- to small range of that CapEx side. So are you -- talk about the order book from the stimulus? And how you see this time playing out differently than you're seeing that? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. So one thing is I hate to even call it really stimulus because traditionally, in China, when there were stimulus, it was almost like a blank check. And then every life science tools company would see a 30% or 40% (inaudible) we see only a 10% or 15% growth. But we see a 30%, 40% pop, and then it would settle back down again, right? We definitely validated this when we were there in December. This is a very, very targeted program to upgrade technological equipment across many industries across China. And as it pertains to life sciences, it's very specific that you basically have to demonstrate that you're decommissioning an instrument and replacing it with one with higher technology and you got to prove essentially to the government, its technological merit, right? So it is very nichey and very narrow. And yes, the higher-end instrumentation is going to be more applicable to them. And for us, we have our three instrument lines, where we've got Maurice. For biologics, we have Simple Western and then we have our Simple Plex. Well, Simple Plex is still relatively new. So there's nothing really there to upgrade. Maurice did replace ICE instruments, but China loves our biologics instrumentation, and they replaced all their ICEs right away. So there's not a whole lot there to replace. But our Simple Western, there's still some Chinese customers that have the old West instrument box that we decommissioned. And so that's where we're actively working with our customers to upgrade them to Jess. And we've been asked the question, how do you know so much about the industries about what's going on with stimulus because it seems like certain companies saying all, but have been more kind of ambiguous about it. And it's really because, at least in our case, we actually have to go with our customers and help them fill up the applications. So we can say, here's what's different. Here's why it's technically better, et cetera. That all being said, it's not a big needle mover. This is not going to be a big spike, but it does provide a nice base as we head into 2024 to work from. And we are see -- we actually saw a couple of those orders to come through in Q2. We're going to see a few more come here in Q3. The bolus will probably happen in our Q4, but what's more important is when we were in China in December, we were hearing not only from our team but also from our customers, that the National Academy of Sciences, which is kind of the equivalent of NIH for China, for the first time in probably a couple of years was starting to message that they're encouraging the submission of grants. They haven't heard this for a long time. So it's an early indication that finally, China might start be getting back to a more normalized funding pattern of grants throughout their country. We haven't seen it yet, and we were told not to expect to see it until sometime after the Chinese New Year, that month-long celebration. So we're kind of there now, and we'll see if that starts to materialize. But our teams there definitely feel as though China has bottomed. We're hoping to get into the black here in our Q3. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Luke Sergott - Barclays - Analyst : Great. Thank you. It's all the time we have. Seems like the momentum is kind of coming back and building. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance It is in this room. I'll tell you that. All right. Thanks so much. Appreciate it. DISCLAIMER Refinitiv reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES REFINITIV OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.