Bio-Techne Corp at Robert W Baird Global Healthcare Conference Transcript

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

Question: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Maybe just to kick things off, give us the state of the union on the fourth quarter, you delivered 3% organic growth. Maybe just talk a little bit about what you're seeing from your end markets and then we can dive into each of those. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Sure. So I mean our key 3 end markets, of course, would be starting large to small, would be our pharma end markets, roughly 30% of our revenue, followed by smaller biotech, which is roughly 20%. And then academia, which is also around 20%, although like roughly a little -- just slightly over half of that's US based and the rest of it is mostly US-based. And when we think about those 3 end markets, starting with pharma, we had predicted a year ago that a lot of the pipeline reshuffling, so to speak, pharma was down as a result of the IRA legislation was going to be occurring throughout 2024, which it was, and that it would be mostly behind us by the time we got the calendar 2025 and that the R&D funded would be allocated, maybe more pro rata across the portfolio as opposed to leaning towards more early-stage stuff. And we were happy to see us exactly kind of how it played out even earlier than we thought, starting even in late November, December and definitely throughout our Q3 and Q4, which gets us into the summertime, pharma returned to what we call normal kind of growth, which for us is double-digit growth. And it was great because it was -- we watched it carefully how real it was. The fact that it was over two quarters, made it feel real, but also the breadth of the strength. It was strong in almost all of our product categories and expect [ELISA] instrumentation, which we'll put about that a little bit later. But even within our reagents, it was healthy, right? So pharma was back to normal and we'll come back to where I'll come full circle to where we are now when we ended the year. But for the quarter, it was back to normal. 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: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Yes. So as we think about that and a low single-digit outlook going forward. You just did 3% in the fourth quarter. But as you noted, Pharma grew double digits. You had some pull forward in China. I know low single digit isn't necessarily a guide, but should we think about that as at least a floor for the first half? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. I mean, how I would think about it. I think the analysts. We're in line with the analyst view they have us pretty much at low single-digit growth for the year. And we believe that is very possible, very doable, even in this dynamic environment. And we've positioned the company for that rate of growth from a cost perspective to make sure we can hold and even grow our margins. But the dynamics within the quarters can be a bit noisy. We already talked about the headwinds that are more near term than perhaps in the back -- the first part of 2026 calendar year. I think the noise will settle down by the -- and that's what we're looking for. It's for a baseline where our customers can now know what to work from. But also, frankly, a little bit of suffered a little bit from our own success from last year, right? I don't think there's any other company out there that reported

Question: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Yes. And maybe on the academic side, it seems like NIH award activity has picked up quite a bit in recent months. There's this fiscal year-end from a government standpoint to get those awards out the door, which is encouraging. Have you seen any improved sentiment in July or August from researchers at that seems James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. I mean, like I said, I won't even comment on July, August because every year, whether it's good years or bad years, Joe, I know that's driven me created because it's off such low baseline. But to answer your question, I mean, we obviously still are having conversations with customers and so forth. And we haven't seen or do any notable change in behavior yet. I mean, they've all been a bit shell-shocked and you have some money has been released, and that's great. I think it's also -- you've heard me say this for years, Catherine, we've been trying to figure out the algorithm between NIH funding and our growth in US academic since I've been there for 11 years plus, 11 years plus and still haven't figured it out. And I think it's for a number of reasons. One of 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: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : As we think about this kind of low single-digit near-term outlook versus the mid-teens CAGR that you guys expect long term. How would you rank these headwinds of pharma uncertainty with MFN and tariffs? Biotech, China, academic, what do you think is -- how would you rank order those in terms of the biggest -- driving the biggest delta between what you're seeing today versus your long-term expectations? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Well, I know it makes sound like a bit of a copout answer, but the biggest delta is just getting the markets healthy again. I mean I believe that our -- what's kept us in the black throughout this entire call it, COVID hangover period, much less at first two quarters of this, I call the new disease, which is the Trump effect in our industry, at least. But what's kept us afloat has been those growth pillars, many that you just mentioned, cell therapy, our proteomic analytics instrument or protein simple franchise. Our spatial franchise even although academic recently still didn't end up mid-single-digit growth for the year. So our growth pillars of what had been carrying us. And if anything, the performance in this down market has given us added confidence of their ability to lead with very solid double-digit growth when the markets normalize. And when the markets normalize, then the 55% that's our core, will no longer be a drag and the growth will actually help contribute to the growth. When you add those two together, it makes for -- I hate to say simplistic, but actually a pretty logical rationale as to how we get to double digit, and I'll add one more to that from a quantitative perspective. If you go back five years ago right before COVID hit. These growth pillars we talk about made up roughly 30% of our revenue, and our core made up roughly 70%. Fast forward five years later, and those growth pillars now make up 45% of our revenue, and the core makes up a 55%. Thank you, they aren't growth numbers. And it's not because of our core shrink during that time period. Our core is still significantly bigger than it was five years ago. It just gives you a sense of how much now that those growth pillars have made an impact on our company. And by the way, they're all still very well underpenetrated in their markets. And if anything, to keep on expanding their applications and growing their market potential. So I think it was a snowball that just -- in that next term of the snowball can be even more accelerated growth. Go get the markets to cooperate a little bit here. 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: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Yes. Maybe on one of those growth pillars. And in an environment where research instruments are having a tougher time. Your analytical instruments grew at mid-teens in the quarter. So can you just talk through what's driving that strength and how you expect the instrumentation portfolio to trend going forward? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. I mean the simplest answer is it was driven by pharma. Big pharma is the biggest end market for our instrumentation. And the return of pharma -- two quarters in a row, getting back to health in terms of their allocation of spend across the portfolio. And they always spent the same out that was all -- in 2024, it was all about near-term stuff. Now they've rebalanced it. And we saw that come back in spades in our instrumentation. And I've been saying for quite a while now, which sounds a little bit counterintuitive because kind of the main thesis out there, which is usually true is that when -- in a recovery of markets, you usually see it in your consumables first and your instruments later. But I actually believe at least for us, we would actually see it in our instruments first and the reason I say that a couple of reasons, but one of the main reasons is that throughout the COVID hangover and downturn that we had, the utilization of our instruments continue to grow at a double-digit rate, placements, new placements were low, but the consumables, and we know exactly because they have to buy the cartridges from us to use the instrument every time they use it. And we had some course 20% growth even during the downturn. And at the rate of utilization, we knew what the capacity instruments were. First of all, it validated to us that these instruments are used as productivity tools in a down market. But at some point, they start to run out of capacity. And so our my thesis is once they have some available dollars, especially for CapEx, we're going to see it. And I think that's what happened.

Question: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Got it. And so should we still expect strong 20%-plus growth for GMP for you in '26? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance We don't -- I'm not going to comment on any specific product lines. And -- and to be frank, I can't commit to that one way or the other, even internally because of the lumpiness of the nature. And they still don't always -- it's frustrating that they don't always tell us where they're at in their trial and when they're going to need more. It's kind of a cent of we've made it very available to them, which it's good, but it also lessens our visibility a little bit.

Question: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Yes. Okay. Very interesting. And then maybe for your own margins, maybe talk about the levers for fiscal '26. You have the exosome divestment. You've got some productivity initiatives, volume leverage. Just maybe talk through what's embedded in your outlook there and how you're managing the business for this potentially low single-digit environment. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yes. So I actually have a higher level of a higher level of confidence, but I felt like I tried not to give real guidance here because it was like it says, Hey, we need low single digit growth, that's what we're managing to. But yet, I did give a fairly strong guidance on the margin, maybe 100 basis points. And the reason for that because we are managing to that day-to-day basis to make sure we achieve that margin expansion. And starting with, okay, I already told you we are preparing kind of for the worse in the sense of a low-growth environment for at least the next 6 to 12 months. So we're managing our cost base that way. So our commitment is to be able to at least hold our margins in a very low growth environment, which is still difficult to do. You still have to take productivity actions to get there because wage inflation is still very much with us. So that's kind of the starting point. And then, of course, we talk about it, but exosome no longer in the portfolio that does provide about a 200 basis point lift tailwind and we see it less as a divestiture and more as a true portfolio decision to not invest there, but rather invest in our other growth pillars, namely our cell therapy, our proteomic next-generation instrumentation for both proteomic analysis and for spatial and as well as organoids, which is another exciting area of application for our proteins. It's been growing very fast. So we want to take some of the savings that we're getting from no longer investing in Exosome Diagnostics and pile that back into the growth vectors have really been driving our growth for our company. But still leaving some left over for margin expansion, and that's where the 100 basis points come in. And in terms of the cadence throughout the year, as these productivity actions kick in, it will be relatively flat early on because we haven't fully disposed of exosome yet and these productivity actions have been fully kicked in yet. So we'll get some natural lift as those things occur. But then we also any who follow our company, it's just a seasonality thing. We have much higher revenues in the back half of the year than we always do in the first half of the year. So we always get a margin lift from that as well in the back half.

Question: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : All right. We've got a minute left, maybe a closing question. As you think about the next 12 to 18 months, what do you think the two biggest opportunities for your business are? And maybe the two biggest potential challenges? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Let's see. End markets and end markets. That's kind of I would say. I mean, in all fairness, I mean, that's what it is. When you think about the opportunities, I do feel like we are in the mindset of our academic US customers and our biotech customers is that the settlement for them is at an all-time low. So I'm very encouraged that when you start -- when you look 12 months out, the academic threat that we've been facing in the last 6 months, maybe even for a year before we're out of it, but we'll be behind us I think pharma, again, I think that noise will settle down relatively quickly, and this will be more of a blip for them as opposed to a whole pipeline review like they had to do with IRA. I feel pretty comfortable about that. The biotech one, it still gives me the most pause about the next 12 months, and that would be the -- that would be more of the downside challenge. But just even getting those two farm out back to make sure that stays healthy, getting academic healthy again. I always kind of joke a little bit, Catherine, that either in those end markets get a sniffle biotech gets a cold. And if anyone else get a cold, biotech gets pneumonia and that's kind of how I feel right 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: Catherine Ramsey - Robert W. Baird & Co. Incorporated - Analyst : Yes. All right. Great. Well, with that, we're out of time. Thanks, everyone, for joining. And Jim, Dave, thanks for being here. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Thank you, 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.