Bio-Techne Corporation (TECH) Earnings Call Transcript & Summary

Well, hi. Welcome to the Bio-Techne presentation. I'm Chuck Kummeth, CEO of Bio-Techne. And I'll be taking through -- you through a few slides. Many of you may have seen me before. We've updated a lot of deck, and we have, hopefully, what you think is a lot more new and more useful information. Next slide. Of course, we have to start with our safe harbor, and you guys know what these are and how they read. And of course, we all want you to get on our website and check out all our reconciliation statements and see where we get all our numbers from. Next slide. So our high level slide, talking about the company. We've grown a lot, especially in the last couple of years. We're up now around 2,600 employees after the Asuragen acquisition, and we are at 35 locations. We are coming on the end of our fiscal year here, but going off of last year's numbers, officially $739 million, we're going to blow that number out of the water this year, as you all know. We have won wonderful stocks in what we think, and we are in the neighborhood of a $16 billion market cap. We are still mostly a consumables company. About 10% of that 82% are really consumables that help drive instruments, the cartridges and such, but we're still primarily content-driven to the company, which means really strong gross margins and lots of diversity and safety. We do have a growing royalty stream. And of course, our instrument portfolio is gaining steam and catching up and growing out, outpacing actually the growth of the consumables. But a ways to go until it's a 50-50 kind of company. On the right here, you can see what we're -- how we're built, and these are the major platforms that we have as a company. So obviously, we're known for proteins. We're the world's best in proteins, the world's biggest. Antibodies. We're certainly one of the top players. Automated protein analysis. Proteomics is kind of all the rage right now, and that's what we do, both in content and in instruments. We have immunoassays. We have biologics, protein purity measurement devices. We have microfluidic immunoassay instruments, et cetera. We have tissue pathology with our ACD Genomics platform. We have liquid biopsy with our Exosome Diagnostics platform. We're known for diagnostic kits and controls. In fact, that's how we started 45 years ago, and we are probably the world leader in controls at this point, especially when you map on Asuragen's electric controls. So next slide. Here's a breakdown. We have spent a lot of time trying to mitigate a lot of academic risk over the years. I've been here 8 years. Most of the team has been with me about that long. So we kind of know what we're doing here at this point. We're 38% biopharma and 23% academia, and the OEM and distribution is between our Diagnostics business, our Controls business and distributors are mostly Asian. So -- but we are roughly a 25% academia. It's -- 15% is NIH-driven U.S. academia for the company, which has come down from 25% from 7, 8 years ago. We have -- Asia's picking up a little bit of steam here and 18% growth there or 18% share there versus 25% in EMEA, used to be about 26%, 27% EMEA. Americas have been sitting around 56%, 57% for really my entire stay here. So it's -- they're all kind of growing together. And of course, lately the growth in America has been so good. It's keeping up almost everything. So next slide. We have 4 key strategies. They are pretty holistic in nature. They probably are maybe the same ones for a lot of companies, but you have to -- the devil is in the detail with us. We need to dig into these, but certainly, geographic expansion has been key for us, especially China, but not to discount Europe. We've have tripled the size of our European business since I've been here, and we've got a long way to go. Core product innovation. We are a science company, and we are about innovation. We have a subsidiary model. We have divisions and regions. We have our top scientists working together across divisions to create new platforms and new ideas for innovation, and it's working quite well. A lot of people think M&A is a tactic. For us, it is truly a strategy. We have an awful lot of gap filling M&A, broadening our portfolio, getting safety and mitigation of risk. Too much risk being in one area, just reagents was all we were in and assays 7, 8 years ago. Now we're much more diversified, I mean really among instrumentation and diagnostics as well. And we have a couple new areas coming. We'll talk about cell and gene therapy, which is a major future area for us. And you can grow from 800 people to 2,600 in 7 years and not have an issue with culture and dealing with talent. So we focus a lot on our culture and how to drive a culture, the 35 sites and as many employees now as California as we do almost in Minnesota. Big differences in those states, obviously. So we work hard on this. Also, we have a very big growing international component of the company, and we work hard at being an all-in Bio-Techne company. And coming through and coming out of COVID achieved even all more important. Certainly, a lot of attrition with young people deal with, but we're also working hard on how to reward people, and it's been a boom year for us, and we're doing all our best here to make sure employees are well thanked for their endeavors and working a lot of overtime and a lot of extra effort this past year and a lot of working from home and stagger shifts and all the usual stuff we've all been grinding through with COVID. So thanks. Part of those changes in the last year is a bigger focus on sustainability. So we definitely have ERGs in place. We are focused on environmental concerns. We are focused on our management and energy and water management, which isn't -- we aren't a big user, but we are still working on it. We are over 50% female in our company. We have started centering minorities, mostly Chinese, especially here in Minneapolis, but we're pretty well diversified. I'd say we're still a little light on females in the upper management, but that's not so uncommon. We have a much more diversified Board now as well. And we have an independent share. It was separate from me. So it's kind of the also more of a safety issue, and we work well together. It's no issue for me at all. We have very good scientific experience. Out of 2,600 employees that -- we're between 250 and 300 PhDs. So it's very, very intellectual as a workforce. Next. So when I joined, with just the reagents and the assays, it was not that big of an addressable market or ponding in with proteins, we are by far the largest and a commanding share in that category. So we had to do more things to get more diversified and get into more areas so we could have more runway for growth. So these are the areas now, the 7 different addressable markets that we're in by all of our products. And you can see on the right how low a share position we really are across the board. And the reagents were down because of antibodies, primarily. There's so many people and antibodies, and we're just one of dozens and dozens of players, but we are probably in the top 5, but even the top 5 together isn't even 25%, 30% of the market. So anyway, it's a good -- it's good place to be if you're trying to grow at double-digit growth rates, which we are. Next. We have the company structured, as I mentioned, into a subsidiary approach. So we have 2 segments of which we have our business units underneath those segments. So we talk about protein sciences, and then we're settling also with diagnostics and genomics. Underneath that, you have the divisions and you see the brands, the company in those divisions. Most of these brands outside of R&D systems have come through acquisition. We tend to integrate on across all the systems and all the infrastructure for a company, but we do like to keep the brands of our acquisitions and drive those under a Bio-Techne umbrella if we can. If there isn't much of a commercial aptitude for the brand, then we will retire it, but there's been not so many instances of that actually. So -- but between the divisions here, of course, we have research reagents and instruments on protein sciences. I'll get into each of these in a minute. The reagents, I talked about in the beginning here and it's really the foundation of the company. Then we have diagnostic kits with Asuragen and in our genomics platforms, which ACD and Gen Exosome Dx. So next. Starting off with protein sciences, our new systems on proteins. It's really just a world-class brand, of course. It's known for quality. It's known for bioactivity. We are the leader. And I would say the big thing to remember about our protein business is that we're now taking it into the production round of the future in cell and gene therapy. So GMP proteins are a big part of our future. We've just finished a $50 million factory, of which we should be able to double if not triple the size of our overall protein business over the next 5 years. Antibodies. We have kind of a higher end and a working end in brands. We bought Novus quite a few years ago. Novus sources from as many as 60 different suppliers. So we brand those under the Novus brand when R&D systems as a premier brand doesn't give the user what they're looking for. To be in the antibody business, you have to be in search. You have to have an excellent website. You have to have lots of content online, as you know. It always starts with search when it comes to antibodies, and our catalog is, with all [ kanji ], it's over 400,000 SKUs. So it's pretty immense. Our assays is mixed. And we created a category of ELISA 30-plus years ago. And today, we are still known as the world leader. We sell our antibody pairs to almost all of our competition and receive royalties. We are known as a premier provider of high-valued, high-quality content. We have even a few license deals out there. You've seen some press releases lately that we have therapeutic partnerships in place with some of our antibodies. We'll see what happens over time. And then of course, we're in the right -- the ProteinSimple acquisition gave us a foray into protein-only-based instruments, mainly the Simple Western. It's the only -- world's only automated western blot instrument. The biologics platform, which just measures protein purity, it's a production tool, a QC tool for basic biopharma. And then we have mapped in our -- also added to this division the Simple Plex platform, which is growing out of control for us. We can't make enough. We could sell them more if we could make more. We'll talk more about it. But that's a microfluidic immunoassay, a multiplex system, as many as 8 different distinct channels, 0 cross talk, really can outclass, out-beat every type of multiplex immunoassay system in the market today. Next. So going a little deeper here, proteomic research reagents. You can see the citations on the left. We're widely talked about and written about and then, of course, when you're in research, it always starts with a citation. Scientist research is one if, I think, our brothers left off and not duplicate, recreate the wheel. So it's important to have citations. And it's important to have an easy-to-use search function to find different things. I just lost my slide. There it is. I mentioned earlier about the number of antibodies. We do have also 6,000 proteins. It is kind of peculiar as we get the GMP proteins. Our catalog currently is 50. [Audio Gap] with that alone, we'll probably duplicate the entire research size of our protein business. So amazing scale coming up. Digital marketing is also a big part. I mentioned, especially for antibodies, and we do a lot of marketing, a lot of AdWords research investment, buying clicks, so to speak. It's very complicated now at being in the first page for Google, but we have an amazing website now and search function in data analysis, analytics. We can tell where our orders are coming from. We can do one-stop shopping. We can let customers fill baskets from products from any division now. So we've come off a long way in the last 3 or 4 years. Next slide. So application, just a little bit on proteins and antibodies. You can see, especially antibodies, but we touch so many applied markets. This is why R&D systems is so well recognized worldwide. We're literally just in everything. People typically ask me about so-and-so company, and are they a customer. I don't know of anybody in biopharma or anybody in life sciences that's not a customer, to be honest. We just had everybody at least a little bit. Our average order size is $900. So you can do the math. It's a lot of orders. It's here and in Europe. Anyway, I won't get in all these applications. Many of them you know, full Western blot, of course, imaging. Cell and gene therapy proteins, this is a big area for us and talk more about it coming up. Here is a little bit on our new factory. It is an amazing, I guess, piece of engineering. It will definitely be a deal closer for us. It's 61,000 square feet. I like to say we bought this building for $3 million, and then we stuck $40 million -- $47 million of stuff in it. So this is all pharma grade equipment, all kinds of stainless steel, every well x-rayed as you're doing it. It probably doesn't get more expensive to build on this stuff. And it's going to be an amazing site, and we're going to be able to really -- we just think the GMP protein business, being we're the world leader in research proteins since we think it's ours to lose. So as cell and gene therapies explode in the market and in the world over the next 3 to 5 to 10 years, we plan to be right on top of that ball wave, be it remaining the leader in proteins and proteins for all applications. So next. A little bit of the tools, again. I mentioned a lot of this already. It's a pretty big TAM. A little bit in Simple Western. It's a $1 billion market or more. We are under 15% penetrated. We have no competition. We're the only automated platform. You can do these by hand. It takes a day to 2 days. It's messy with gels and all the tribal knowledge and secrets you've got to do to learn over years of experience to get these done right. Or you can plug it into a cartridge in our system and go away for 3 hours, come back and everything is printed beautifully. So we have a wonderful IP here protecting us. And there's really no competition horizon. It's reached the tipping point. We have 1,500 instruments in the field now, and where a couple of years ago, it used to all start with a demo to get a sale. Today, it's, "Sally down the hall loves your equipment. And we've seen it, we love it, and we'd love you to bring in 2 more this week if you can." So it's reached its tipping point for sure. Simple Plex, I'll just talk about a little bit as well. 90% growth quarter, it's been over [ 50% to 60% ] for the last couple years. It's at a $50 million run rate at this point. It will probably pass and lap Quanterix within the next year or 2. It's high sensitivity 4 logs of dynamic range. It is quite simply the best bank for the buck for an immunoassay system you can buy. And it's -- we have the data to prove it. And customers are thrilled with it. It is kind of a sleeper. I think biomarker discovery is where it's really being used primarily, but we're taking it through 510(k) process. It's being used in a similar CFDA process in China. It has many clinical applications, especially for patient lounging for cytokine storm, which you've probably heard and learned a lot about during COVID, is 1 application. Of course, on the top left is our immunoassay, our ELISAs and we're -- we've been doing it for decades. So it does -- it's still there. And people -- it's still the de facto standard. Biologics. We're really seeing a new resurgence. It was kind of a 15% grower for us. It's up more than 20%. It was 30% last quarter. It's being mapped into cell and gene therapy workflows now. It's being broadly -- more broadly adopted because we have the Empower software LIMS platform on it now. So it has competition, but it is a great instrument for what it does and for the price, and we see continued access to it and momentum. Next. Diagnostics and Genomics. The AC technology platform, which we now call our Genomics division, is pretty amazing. We have over 45,000 probes out there now. It grew 40% last quarter. It's truly remarkable how this technology works, how we can get down to a single cell spatial analysis. So things light up. The signal that comes from our patented Z probe technology is just amazing. And we see continued strong growth and also a strong future, also in the IHC and pathology as well, not just drug discovery applications. Liquid biopsy, ExoDx, I could fill an hour on this. We have a prostate Medicare-approved diagnostic in the market. It's growing. It's growing quite well. It's a bit soft. It's partly because of COVID because the urologists weren't seeing their patients but starting to light back up. We have a tremendous couple programs going, driving growth, Cal Ripken Jr. campaign. He came to us. Our diagnostic gave him -- he had information that could -- convinced him to get a biopsy and found out that his cancer was very aggressive, and he doesn't even like thinking about it. He'd waited a year. We also have a home kit version, being this is really pee in a cup. It's very, very easy and very -- gives us a differentiation of the competition, noninvasive. And it's simple PCR with great results. Others more coming up on this anyway. And the case for Asuragen, I'll talk about Asuragen a little bit, but a great addition to our family of diagnostics. It comes with a great team, a lot more experience here with regulatory than we have in the company. So they're already a welcome addition. We have the new classes of diagnostics, which they sell, which we love to have there. They're on -- they're rated a tipping point as well. They've been working on SMA and cystic fibrosis, which is launching this fall. So we do see -- we do think there's a big uptick in growth coming for them. We want to help with that, if we can. And then of course, on the reagent side, we are just worrying off of that, that brand [indiscernible]. Our new system's in BiosPacific. Next. So a little bit on that tissue pathology. So RNAscope is the main product. It's a novel in situ hybridization assay, which is different in fish, which has been around. It's based of its proprietary probe design because it really gives us more amplified signal. And they can be stacked, and they're actually quite easy to build. So it's really kind of a breakthrough in technology, which is IP-protected by us and just has incredible traction because it works so well. One of the biggest reasons, of course, is that when you're trying to identify a protein, and you're looking for an antibody and more novel ways to do that, or IAC, in particular, 25% of the time that doesn't -- you don't know what the antibody is you need or it doesn't exist. So this goes into the cell and really interrogates the RNA and looks for genes. And if the genes are there, well, then you know you're on to something. If they're not there, you can move on. And does all this with complete tissue preservation. The morphology is completely retained, which is a really nice feature since tissue is more and more becoming so important to protect. Okay. Exosome. A lot on this slide, is just to make it simple and quick: of the 3 types of liquid biopsy, we just feel that Exosome's are by far the best. Why? Because there's thousands more copies of RNA that are in the fluids of your body than there is DNA for cell 3D applications. The RNA is fully protected by being totally enclosed by the vesicle itself, the exosome. And then on the surface of that exosome are proteins to tell you where it came from. So other liquid biopsy applications don't have as much information, just don't work as well. So it's -- we think it's going to be a transformational platform for us. When I talk about this to investors and analysts, I talk about all the different unicorns in our stable of product platforms, but we only have one that we think has $1 billion potential. And that's this one. This one is going to have 3, 4, 5, 6, maybe 10 different diagnostic indications to the next decade. And they're all attacking markets that are $1 billion or more. They're all going after very, very difficult situations where there's a big need. We're working on one that -- the second one coming out after prostate is for kidney rejection. And it's a huge problem, huge market. And this is, again, pee in a cup and the TCR, the best data, best-in-class data against all competition and very easy to work with. You can mail it into your transplant center and then it can work from there without taking big trips and such. So we're excited to get this in the market over the next year or so, and we'll tell you more as we keep going there. But maybe enough on Exosome for now. And diagnostic [ as ] Asuragen. We just completed the acquisition not that long ago. It feels like the team has already fairly integrated. We've never -- in 17 acquisitions, we've never had an integration or an acquisition go this well. This is one unbelievably nice, great team, good people to work with. Very knowledgeable, already helping in many parts of our company. And of course, we can't wait to give them the keys to the candy store at Exosome to help work in our kitting and regulatory issues and to accelerate the business of Exosomes. And they've got their own wonderful products as well. And Fragile X is a standard. And as I mentioned, we have 2 new applications coming soon that should help ramp up their growth. So welcome to the team to them, and we look forward to talking about them more and more over time. Well, roughly a $30 million business now, but it's going to be ramping pretty heavily, pretty soon in growth. Next. We talk too much about reagents, again, the foundation of the company. It's stable. It doesn't grow too much, it doesn't shrink ever. It's a 30% op margin kind of business. And it's -- we're just known. It's mainly OEM, it's very sticky. We're -- there's roughly 30, 35 different instruments that represent hematology-type laboratories, and we're in all of them. So it's a great place to be, great position, and we just let it run. Next. Cell and gene therapy, kind of one of our future platforms. We've been busy the last 3, 4 years getting this in place. We have a JV, where it also gives us bioreactors as well as a leukapheresis instrument. They would be under that #1 on the right there. But you can see all the positions we have in this workflow. So we have, we think, the best workflow going forward, especially for the new generation of clinicals that are going to want to be nonviral. So we have the Quad B technology, which is a better than magnetic approach, we feel. Our TcBuster imaging technology. That's our gene editing. It's based on transposon. Much more accurate, much more efficient, faster and cheaper than using viral vectors. ACD, of course, spatial cell interrogation, you have to know what the cells look like as you're building and growing them. Proteins, you got to feed these guys, and that's going to be the cornerstone of our franchise here will be our new factory and hopefully scaling a very sizable GP protein business within the next year or 2. Of course, we have antibodies and every variety you want. And then, of course, our Ella technology, the Simple Plex technology is another QC instrument near the end of the cycle before the product goes back into the patient. So really exciting. It's about a $50 million business for us right now across all these different products. And we think it will grow to roughly $300 million in the next 5 years, will be its own division. And there's a lot more upside than that. We're just really being conservative, to be honest. Next. So a little bit how we've done. Then last year, we were on a pretty good track. But if you look at where -- how we're going to end up this year and had in last year and divide it by 2, we're kind of still be on track. We've also -- I'm really proud of the team for just the way we've held our margins and done productivity programs internally, and we've been able to just figure out ways to make more and more margin, and we're not a low-margin business. We're on track for, we think, something much greater, which I think the next slide gets into. Next. So here's our vision slide that we really came out with a year ago. We're going to have an Investors Day September 10, where we're going to update this slide. We've just finished our very rigorous prioritization process that we do every year that goes into our AOP and strategic planning cycle. And we think we've got a good shot at a $2 billion target for 5 years out coming this October. So it's a vision as these always have been every year for us. And we are not coming off our 40% op margin target as well. So when you start rolling those numbers forward, and we have developed some credibility because we can look back now 4 or 5 years and see how we did, and we're right on our numbers, where we predicted we'd be this year, within 1% top and bottom line. So it's working quite well. This is all organic, no acquisitions. So being able to reach these targets with acquisition is a bit of a hedge, and we feel more confident now than we ever have of reaching these targets and going beyond. So I think that's probably it. Thank you. It's been an exciting year for all of us. And I wish I was in a room with all of you in person. Next time we will be. Brandon, it's always good to see you and talk to you, and I welcome the next time we can all get together in person and keep discussing the great success and then the future of our business. So thank you.

Okay. Thanks so much for being here, Chuck. I appreciate the time.

Okay.

Goodbye. Have a great day.