Bio-Techne Corp at Stifel Healthcare Conference Transcript

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

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : My pleasure. Kim, maybe just an obvious place to start would just be talking about the quarter, you reported 1 week, 1.5 weeks ago. Maybe thinking about the top line first, 1% overall organic, Protein Sciences was down, Spatial was up -- I think Spatial and Diagnostics was up. And there's a lot of crosswinds going on in life sciences land today. So maybe we can just talk a little bit about that and we can naturally move our way into GMP, which was a meaningful part of the conversation on the quarter. Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics That's correct, Dan. Yes, a quick flyby on the market -- sorry, on the company's results for the first quarter. We had a organic revenue decline of 1% and that was really based by two larger customers that had ordered GMP proteins in quite high volumes a year earlier, Q1 and Q2. You might remember that in those quarters, the GMP proteins were growing 60% and 90%, and we were saying, listen, don't extrapolate that because there's definitely some tailwind there. These companies had some additional tailwind in that they got fast-track approval from the FDA designation, and with that, could shorten their clinical studies, and with that, they had enough materials, and therefore, didn't order new materials this quarter. That gave us a 200 basis points headwind, and therefore, the underlying growth is really low single digits in the 1% range. Now overall, we were more optimistic in our call than usual, and that was more based upon fly through the three to four end markets and our verticals. The end markets, academic, really tough end market, but we saw some positive outlays and we clearly see some of the grants more aligning with our research market. So we had some positive feeling about academics, especially as the quarter progressed. So definitely, in the last month, we saw some momentum building. 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: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Okay. How has visibility changed over time with the GMP business? You have a greater number of customers, obviously, than you used to, but there is a concentration at the top. To your point, these were 2 of your largest, if not your largest customers. So how has visibility changed? And how do you think your forecasting abilities change over time? Do you see this becoming less of a lumpy business for you? Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics Over time, with more customers and also, of course, more customers progressing through the phases and then even more so -- more important is customers progressing into commercial stages that will -- the law of numbers will, of course, make the ramp more stable over time. I think the most important part there is going commercial, and we have zero commercial customers currently, five in Phase III. But in the early phases, customers typically buy enough material to finish a whole clinical study. So by definition, that becomes very lumpy. They will not order like every month or every quarter. But once you go commercial, they will have supply agreements, they typically go for rolling forecasts, and then things become much more manageable. It might still not be super smooth, but yes, at least you know what's coming from an order perspective. But over time, we saw it in DRD for many years, it was a very lumpy business and it continued to grow the diagnostic reagents and controls, and it's now also been much more stable for all of us over the years.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : What do you think is the right growth rate for this business? It's been an above-average grower. I mean, I would certainly put it in the bucket of some of your most important products in the franchise. So how do you see long-term growth for GMP? Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics I think that in recovering markets, I wouldn't say at full speed, but also not when it's totally subdued and in distress. But in recovering markets, we feel that 20%-plus is a good rate. We have a real nice coverage from the GMP proteins, launched the ProPak, which is a form factor where human mistakes as well as contamination is highly reduced. And then small molecules, we have made investment there for GMP production in the UK. So we have a real broadening portfolio with some good innovations. So we feel that, that should be 20%-plus. But if you then think about a further recovery in the markets and especially if you would add Wilson Wolf to the equation later, that should be north of 20%. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I'll add there as well because that's -- if your time horizon in the next three to four years, I think I agree with Kim completely 20%-plus is kind of what we expect as we add new customers and customers progress through clinical trials. But you get beyond that and hopefully, many of these customers start to become commercialized, it could actually be significantly higher than 20%. Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics We have the two that are now working on their clinicals and going into their filing that by themselves could drive significantly higher than 20%.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : When we were talking earlier in the year, the way in which you were thinking about the situation in the US was very much that it was the uncertainty around the budget rather than the actual numbers that was causing the biggest problem in the mind of the academic scientists. Do you still feel like that uncertainty removal will drive better spending? Or is the reality of what the dollars and cents might be looking more important in your mind over the next, call it, two to three quarters? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I mean I think the answer is, yes. I think what we've seen in the past three quarters in our academic end market, particularly our reagents, which kind of show the day-to-day mentality of our customers points to exactly that where in the sense that as the proposals that were coming out of the two of the houses for a flattish budget year over year became more public and pronounced, we saw the run rates continually improve towards that flat growth that we saw this most recent quarter. So said another way, the customers are starting to behave now more like what the expectation is, which is for more of a flat budget versus two quarters or three quarters ago when the hammer first came down around threats of 40%, 20%, that range of cuts, not so much with us, but we believe the end markets, we were hearing customers talk about voluntarily slashing their budgets by 15%, 20% in preparation of what was to come. We're not hearing that -- we have not heard that this most recent quarter, and our results would suggest they're behaving more like how they're expecting more of a flattish budget going forward.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : So do you feel comfortable that pharma can continue to be double digit from 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: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : You would in pharma. Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics Yes. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance And the reason is that -- I mean everything I've been reading and hearing is that pharma budgets continue to be up mid-single digits and are expected to be again next year. As long as they're up mid-single digits and they're not doing any massive reshifts of their portfolio, which they went for that major shift in calendar year 2024, it should continue to be a normal market. And for us, normal, our expectation is to grow essentially 2 times that in pharma.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Jim, are you able to separate out ACD growth from Lunaphore growth within the spatial bucket? 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: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Could you do that for us? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance No.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : And do you think that pull-through when we were talking was in the 40,000, 50,000 per instrument per year. Do you see that as stable going forward or is there the potential for acceleration just given that it does sound like it has the momentum? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I think there's definitely potential for acceleration because we haven't even gotten started really with the antibody pull-through yet in any of our RNA scope, and that's kind of a -- that's a low bar, I think, we put out there. But between the RNA scope pull-through, the antibody pull-through and then just the chip pull-through on the instrument itself, 40,000 is a starting point. 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: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : It's going to be a double as far as overall revenues for the Lunaphore business? Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics It's going to double -- the pull-through per box per year is going to go from, let's say, 45 to 90.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Maybe Simple Western. I do want to make sure that I hit a couple of the important product categories, at least in my mind, anyway. Simple Western has been this really great business for you. It's been 15% to 20% growth over time, but it's been 20-plus in certain periods. Probably more than it's been below 15%. Is that still a range that you think is appropriate there? Can you touch on Leo, the new instruments? And how does what you're doing in cell and gene therapy play into the Simple Western growth rate because my understanding is that there is some demand coming from those customers for that product? Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics Yeah. No, it's very broadly applicable. Of course, Western blot is a process that gets used everywhere. And our simple way of automating it and then having quantitative results instead of visual results is a huge differentiator. We have very good success with our original offering. And now we recently added -- three quarters ago, we added a Leo instrument, which is basically more specific, but also 4 times higher throughput, meaning you can run 100 samples instead of 25. You can run different samples in the same run doing different experiments. So very flexible, high throughput if it comes to the consumables as well, so definitely a benefit, higher ASP box and has met all our expectations from a launch point of view, if you look at the quantities of boxes we've placed. And those launch targets were set in more normalized markets. So in a way, this is outperforming our targets in a subdued market. So we're very optimistic about it. And yes, of course, people are going to find different applications for it because Western blot was just such a messy process. Now you can, first of all, automate it; and secondly, you can bring it back in the lab for other applications. And you asked about the cell and gene therapy applications, the AAV potency, the gene potency application is one that is really driving some of the adoption at the moment. 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: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Okay. Jim, maybe just thinking a little bit about the course of growth over the year, so down 1% in 1Q. It sounds like something similar in 2Q and then low single-digit growth in the back half, especially as the comps ease, to our point here, presumably some easier or better end market conditions. So 1% growth feels like a good starting point for the year, but it also feels like there's ambitions for something higher. Leaving aside the obvious, which is that a bunch of academic customers decide to spend more or pharma ends up being better, where do you see the upside in the model when you really look, primarily, I guess, at the back half of the year, which is where things seem like they have the most variability, but tell me if I'm wrong there? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. So let me tell you how we think about our forecast from a buildup perspective and then it might become more obvious where the upside is. So as we think about from going from Q1 to Q2, we've called for essentially the same amount of overall organic growth, which is, call it, minus 1% roughly. But the reality is you take out these two customers we spoke of, the underlying -- the whole -- the business in its entirety is actually gradually stepping up its growth rate. So if you backed out these two customers, as Kim talked about in Q1, we were plus 1, not minus 1. If we do the same for our forecast for Q2, the headwind is even greater. It's about a 400 basis point headwind as opposed to a 200 basis points. We grew 90% in cell therapy a year ago in Q2. So you back those two out, that means the minus 1% actually is more like plus 3% for the entirety of the company. So we're seeing -- predicting a gradual ramp-up in our overall growth rate. And really, what's behind that is, I'd say, from a portfolio perspective, now that we're seeing stabilized -- more stabilized markets in academic, we believe biotech will start to stabilize now that funding appears to have

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Okay. So the take-home message is that your assumption, the 2% to 3% that we might model for the back half, that you don't seem to be disagreeing with, doesn't require any improvement in the end market conditions, what's in place today can get you there and so then it's about what kind of improvement we see from here? James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Correct.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : So you still see there being a path back to double-digit organic growth for the company? 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: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Op margins. All of the op margin expansion is -- you will expand margins this year. Let's start with positive. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance I told you we would.

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Last question in the speed around here. Just to that point and to Kim's point on there, there are things that need to be invested in, in any one year, especially for a company trying to develop the types of products that you are. When you look at the next 12 to 18 months, do you see your -- do you see the investment levels that will be -- investment and compensation and expense levels that will be required for the business as on the way down, on the way up or something on par with where we've been? Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics I think we are in a healthy investment level. So we're not starving the company at all. I think that one of the things I forgot to mention earlier, we have accelerated and taken dollars to assign to a relatively new opportunity, at least for the US in organoids. It's right over alley if it comes to being able to grow cells and to manipulate cells into a certain state. So it's an opportunity that was already, let's say, five years in the making in Europe, but we're definitely now accelerating in the US as well with these organoids being accepted for generating data by the FDA. So definitely another opportunity to invest in. Now I think the moment markets will normalize and our growth would go back into double digits, as we mentioned, you could be more aggressive on the investment levels. And fortunately, we're in a company that has plenty of ideas or projects that we could kick off. And we would do so in normalized conditions and always make sure that we end up somewhere around 35% on EBITDA margin and manage the company around. If we keep the belt somewhat tightened, then we would run to 40% unless we do M&A, unless we do some heightened R&D investments. So that's how

Question: Daniel Arias - Stifel, Nicolaus & Company Inc - Analyst : Okay. It's a good session when your last question involves organoids. So I'm going to leave it there and say thank you both for attending. Appreciate it. James Hippel - Bio-Techne Corp - Chief Financial Officer, Executive Vice President - Finance Yeah. Thank you, Dan. Kim Kelderman - Bio-Techne Corp - President - Diagnostics and Genomics Thank you, Dan. 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.