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

Okay. Thanks, everyone, for hanging with us towards the end of the day here. And thanks for joining us for the Bio-Techne management presentation. My name is Matt Larew. Very happy to have CEO, Kim Kelderman here; and Dave Clair from IR is here as well. So thanks again for joining us. I have 2 logistical comments. One, the breakout as an offer on the second floor. And then second, for a list of our research disclosures and conflicts of interest can visit williamblair.com. I will turn it over to Kim. Thanks again for joining us.

Thank you, Matt. It's always an honor to be at this conference. I'm excited to provide you an update on our company, Bio-Techne. And before I get into the actual materials, I want to draw your attention to our safe harbor statement, which you can find on bio-techne.com under the Investor Relations section. With that, I will start off with a very important part of the presentation, which is the beginning of everything which drives us and what is exciting to us, and that is our mission statement. by catalyzing advances in science and in medicine. And it's important for our daily work, but also for our vision and our strategy is what drives value, long-term value for our customers and for our stakeholders. On the next 3 slides, I'll give you a quick overview of the status of the company is currently. And then the slide thereafter, it's more focused in on -- honed in on the strategy that we will continue to deploy going forward. Now Bio-Techne, where are we at? We are in Minneapolis, headquartered, around 3,100 employees that work from 34 locations globally. We've worked for 34 years -- 48 years really hard on creating a differentiated portfolio of core protein-based reagents and products that we leverage to enter into high-growth markets. Underneath, in the middle, you see that we report in 2 segments. It's the Protein Sciences segment as well as the Diagnostics and Spatial Biology segment. Within the Protein Sciences segment, we have very high-quality, differentiated core reagents, which are 6,000 proteins, 400,000 antibodies. We have a beautiful menu of small molecules and a vast menu of immunoassays. Those core reagents we utilize and pull through into certain growth vectors. And we have a growth vector around proteomic analytical instrumentation, where we apply those core reagents and pull through on a standard basis through the equipment this portfolio. In addition, we have a growth vector around cell therapy. And there, we also have various solutions that we'll get into. In the other segment, we have a growth vector around spatial biology. Obviously, we have an instrumentation there, but also core reagents we pull through and the diagnostic precision diagnostic tools that a similar setup. And last but not least, there's also a core in that spatial diagnostic business where we have diagnostic reagents and controls. Now that's a very portfolio, which gives you growth and it gives you high margins because of the mix between those growth factors as well as the core reagents. On the right-hand side, you can see the breakout of our revenues in 2024, we generated $1.2 billion in revenues, of which 80% came from selling consumables. 9% of the revenue is related to instrumentation, 9% of it related to services of that instrumentation, 2% related to royalties. And it's worth noting that 11% within the 80% of the consumables are consumables that directly get pulled through on our installed base within our instrumentation. So here, you can see that we have a highly differentiated portfolio that is very consumable rich and allows for strong profitability profile of our company. If we double-click on the revenues, here you can see the circles on the left-hand side. Let's focus on the outer circle, where you can see that 72% of our revenues are related to the Protein Sciences segment and here with much bigger than the 28% the Diagnostics and spatial Biology business. However, last year, that portion was 26%. So the Diagnostic and the Spatial Biology business has been outgrowing the Protein Sciences segment and there with balance is going to over time equal out. If we look at the inner circle, you can see the product lines that belong in those segments. So if you look at core RUO reagents, you can see that we have 42% coming from that area, which are the proteins, the antibodies and the small molecules. And select versions of that, we've been able to apply towards the cell and gene therapy growth vertical, where we specifically focus on cell therapy and we optimized a subset of this RUO portfolio for GMP usage and GMP certification. In proteomic analytical instrumentation is 24% of our revenues and is a very highly differentiated offering that also pulls through, of course, the reagents that I was talking about earlier. If we then move up to the right, we can see that we have the core diagnostic controls, 12% of our revenues, molecular diagnostics, 6%; and then spatial biology at this point in time, 10% of our revenues. As you would expect from a very high-quality and differentiated portfolio, our end markets are skewed towards the pharma, biotech end markets. We do have 21% globally of our revenues coming from academics, about half of that comes from the U.S. And we deem academic markets strategically important because the scientists of the future that will anchor the biotech and pharma companies, we like that they are already acquainted with our quality, our reputation and our instrumentation and that will eventually trickle through in the buying behavior once our students grow up. In the -- on the right-hand side there, you see that 17% of our revenues are related to diagnostic end-markets and then 12% are related to distributors, which we mainly use in the APAC region as well as in Latin America. On the bottom here, you see the geographies, 60% of our revenues come from the Americas and then 15% from APAC/China, 25% from Europe, and that's kind of how our regions stack up when it comes to our revenue differentiation. In the next slide, I will summarize the foundation of our success in words. Over the decades, that's 48 years in the making, we have created a durable and differentiated product portfolio, which gives us a balanced exposure to established but also emerging applications in high-growth end-markets. We can play in those end markets successfully because we have a fantastic portfolio that leverages protein and antibodies that took us so long to put together. This resulted actually in a very high-quality portfolio and, of course, a high reputation and a loyal customer base. We have an organic and inorganic innovation machine, and we unlock with that certain new high-growth opportunities. And in addition, we build a lean and nimble team globally, and we have a culture of ownership and accountability. That's, of course, a very impressive position to be in as a starting point, but we are very dedicated to executing against a very interesting and differentiated strategy, which I will walk you through in the coming slides. Here is our growth factors and the pyramid slide, as I call it. On the left-hand side, you can see the different development phases that the usual project goes through for our customers. So researchers start off of research and discovery and at some point, that rolls into a translational and development phase where your research becomes something tangible, you start validating and looking at the manufacturing processes and eventually, this then turns into either a diagnostic or into a treatment. We feel that those phases are heavily influenced by megatrends, which you see in the middle of this pyramid, right? We feel that those are up -- up incoming and long-term trends influencing the progress for those phases. We always look at our multiomic insight generation. We feel that most of our customers truly need the right tools to look at multiomic progress, meaning you look at your DNA and your RNA and how this translate in proteomics. And this is an important aspect of discovering quickly and efficiently new drug opportunities. We do believe that proteomic interrogation at scale, so high volume, high throughput is here to stay. It is typically now used in the research and discovery phase, but we feel it will mature and go up the ladder into translational as well as into the eventually diagnostic space. AI-enabled innovation will be broadly applied. We feel that novel therapeutic approaches such as cell therapy are here to stay. We see tremendous progress and promise. Precision medicine will also continue to be important as every individual is biologically different. And then healthy aging, who wouldn't want to grow as bld and as healthy as possible. And we know that we have a growing aging population and therefore, we feel that's at the pinnacle of this pyramid. So we play a and truly help our customer very important instrumental role helping our customers to get through those phases, taking into account those different megatrends. And we group our growth factors on the right-hand side of this pyramid, and we typically talk about the discovery of novel biological insights, which is a focus point for us, the development and manufacturing of advanced therapeutics and then the enablement of precision diagnostics, where you want to diagnose early and you want to pick the right treatment. And there, we feel that our growth vectors capitalize on these megatrends and truly help our customers roll for those phases as efficient as possible, and that's what we all want. If I then map that slide of our portfolio that we've shown investors and customers for a long time on the left-hand side, you see the portfolio, as I showed on Slide 1. If youand other activities. A large menu of then would like to make a translation to these growth factors as you see on the right-hand side. And this is how we map our solutions and explain and prioritize internally the strategies that we want to evolve. We look at number one, the discovery of novel biological insights. There, our recombinant protein and small molecule solutions really help in cell-based work, cell therapy, but also organoids and other activities. A large menu of antibodies can power the proteomic platforms, the high-throughput proteomic platforms for the megatrends I mentioned earlier. And then, of course, spatial biology, where we allow multiomics on our solution, which has been -- is very important in neuro and immuno-oncology, and also a megatrend. And on the right-hand side, you see our proteomic analytical instrumentation, where automated ELISA and Western Blot are essential processes and very important for research applications. We then go to the next phase in the development, where you go into the manufacturing of advanced therapeutics. Here, you can see that we have a leading portfolio of GMP reagents that are GMP certified. We have 20% of the company called Wilson Wolf, which has a G-Rex, which is a device where you can grow your cells and where we would enter all our GMP reagents to optimize the cell growth. That, of course, helps with cell therapy, and it's a very cost-effective and scalable solution. This exceptional quality from -- in proteins and antibodies, and that gives you a real advantage from early process development all the way into high-volume GMP manufacturing and essential to be -- to help our customers with consistency and high quality of these reagents. On the proteome analytical instrumentation, you see that all 3 of our platforms, the ELISA, the Simple Western as well as the biological platforms play a relevant role in process development, but also in QA/QC of different lots of manufacturing of various therapies. And it's important to cell therapy, gene therapy, RNA therapy and even protein-based therapies like ADCs and others. A little there underneath that box, you see the spatial biology and the COMET solutions where COMET is an instrument fully automated to run RNA as well as proteomic analysis and spatial biology overall is very important in the cell therapy and gene therapy to look at biodistribution. And that rounds out how our products then map to the growth vertical # 2. If you look at number three, enablement of precision diagnostics. Here, we have a tremendous know-how and a large offering in proteins that really enable proteomic diagnostic applications. We have a portfolio of diagnostic reagents and controls, which is a very sticky business and serves most of the large IVD companies globally. And a few years ago, we bought Asuragen, which is a company that has a portfolio of genetic testing, kitted genetic testing that sells into laboratories, and they also brought a channel to sell into laboratories. We already have the Exosome Dx, which basically is a capability of fish out exosomes out of your sample, so you can find hard to find genes. And with the Asuragen technology, you can read hard-to-read genes. So a very powerful combination that you can run on easily accessible instrumentation such as CE and/or QPCR instrumentation, widely available. So if we then move to the last part, which is spatial biology. We have several markers like HPV and Kappa/Lambda that are already in the clinic and one of the few spatial companies on the -- on the ISH side, that already has more or less 10% of our revenues coming from the clinical space, and it's outgrowing the RUO portfolio. So very promising part there. Now we would look at how do we strengthen those verticals. Yes, of course, looking at organically and later on inorganically. But in this slide, organically, innovation, how we strengthen, also aligned with the 4 -- the 3 vectors. First vector in the discovery of novel biological insights. Here, we started shipping 2 quarters ago, the Leo instrument. It's a next-generation high throughput, fully automated Western blot system that can run anywhere between 25 to 100 samples. So you have fantastic flexibility, high throughput, and it runs within 3 hours and therefore, an ideal fit for biopharma customers, and we have a real strong pipeline. We're really happy with the uptake that we've generated from this system. I mentioned earlier, we're 48 years into the development of proteomics-based materials and, of course, have a vast database around proteins and antibodies. And we definitely use this database, proprietary database to have AI help us design AI-generated proteins. And we've launched 8 of those over the last couple of quarters. And those are hyperactive proteins and antibodies that are actually not existing in nature, and that means you can patent them. And that creates a durable advantage for us, and that's why we want to be one of the first movers in this space and continue to more or less launch 9 to 12 of those annually to further our differentiation. On the multiomic spatial biology platform, we launched a multiomic solution, RNA and protein for visualization on the COMET instrument. Here, you see that you can run about 12 targets comes to the RNA -- on the same slide, we have 24 protein targets. And it's really interesting to see that if you bring in a certain RNA, whether it blocks or whether it accelerates the production of a certain protein. And that is very often how the mechanism of action is with drugs. And you can see this on one slide, and the instrument allows you to run 4 slides in parallel overnight all the way from putting a sample in, staining and processing into an image, and the next morning image is ready. So it's the one and only box that does all of this fully automated in high throughput. So we're very proud of this solution. In the middle vector is basically the cell therapy solution where we have launched ProPaks. Those are still bag with the right concentration and the right amount of GMP proteins or cytokines that you can squirt into the Wilson Wolf GRx, which is a small bioreactor, disposable bioreactor. And now your system is actually full proof and reoptimize the quantities and concentrations of the different reagents to optimize your cell growth so that you have early in stage have enough cells to reinject into the patient. And we feel this is a very powerful, scalable, affordable solution for cell therapy. The last factor, the enablement of precision diagnostics. I talked about the marriage of the kit Asuragen portfolio, combine that with the hard-to-find capabilities of exosomes. We have launched our ESR1 kit, which is the combination using the combination of the 2 capabilities. And this is a kit that detects ESR1 mutations, 11 of them. And that helps manage breast cancer and the occurrence of breast cancer and the treatment of breast cancer. And doing that monitoring at the right time and the right frequency actually doubles the life expectancy of a patient. And therefore, we feel that's a very important progress and shows the capabilities in this pipeline, and we will continue to bring out capable products that we can sell into laboratories through our channel that are differentiated in the market. So collectively, you can see that those innovations strengthen our portfolio. Our financial performance. Now you can see here the 2 different bar graphs for revenue and operating income. Of course, we had a fantastic bull market followed by a pandemic, which, of course, put a lot of print in the sales of the life science tools markets. But at some point, biotech funding, large pharma spends because of the IRA as well as the China economy were headwinds. So here, you can see that at some point, our revenues flattened out Fortunately, we're one of the few life science tools companies that paid in the back. So we still have 1% growth, not that we're proud of it, but it was a lot better than many others. And then you see in the 2 smaller bars in the box to the right that the year-to-date, so that's the first 3 quarters of our fiscal year 2025, the growth came back, and there we are happy that we booked year-to-date 6% organic growth. We have, of course, newer trends hitting our Q4, and it would be lot lovely to talk about the dynamics in a breakout session that we'll entertain later. Operating margins, also 40% CAGR. At some point, we had a product mix shift with the down year where the Protein Sciences segment, high margin, had some tougher times to grow and the diagnostic space is growing much faster. That's why you see a shift there if it comes to operating income. We also had our first year of the Lunaphore acquisition on board, which was a very early-stage acquisition, also putting some pressure on operating margin. If you combine for the 5 years, you're still looking at 9% growth. But you also can see that our year-to-date for the first 3 quarters continue to be in the black and it's now back up by 5%. Good. Let me now talk through the inorganic expansion. And we want to just say that M&A will continue to be our top priority for capital deployment. Yes, over the last couple of quarters, we also bought back some of our stock because we felt that we are undervalued under the current conditions. But buying high margin or high-growth companies that we could add to the portfolio would still be a high priority for us. We -- I grouped this along with those 3 growth factors that I talked about earlier. And here, you can see that the discovery of novel biological insight is indeed #1 -- vertical #1, but it is also the highest priority for us. So it's nice that the priority where to invest is aligned with the numbering here. Number one for us would be this vector. And we would be looking at analytical platforms especially the ones that pull through our core reagents like the Razor-Razor Blade model I described a couple of times. Product tuck-ins that belong in there, different applications that we could utilize and of course, other targeted innovation capabilities. If you go one vector lower, also of interest for us would be cell therapy workflow components. Yes, we have the GRx and we have the GMP protein cytokines and small molecules, but there are other components that would fit in that workflow, and we would be quite happy to take on an acquisition like that. Same for bioanalytical solutions and other opportunistic expansion. Now let me stay away from #3. It's highly unlikely. And on the right-hand side, you see that we could start another growth factor, and that could opportunistically done. But I do believe that I don't have to talk about #3 and the one to the right just because there's so much opportunity for us that we could definitely be more effective in our strategic sweet spot, which is the vector #1 and 2, and that's where we will focus on for the time being. Now let me map those opportunities back to our core portfolio. Here, you see in the middle, right, that we have the core products and the 4 growth verticals around it. In total, these address $28 billion of market opportunity. Our core products, which took us decades to build together, we had continued to expand and of course, make sure that those are applicable for many of the proteomic analytical -- different growth factors such as the proteomic analytical instrumentation, where we continue to expand in different applications, especially applications around cell therapy. In the lower left, you see cell and gene therapy, where our state-of-the-art proteins after you create and pass the GMP hurdle are being utilized to grow this market and to enable cell therapy companies to have a scalable solution, especially if you combine this with direct bioreactor. This will create a very unique, efficient and scalable solution, which is incremental to the development of this end market. If we then move to the top right, spatial biology. Here, we have combined the ACD portfolio of about $170 million run rate of core reagents to detect RNAs, 75,000 different blots. And then we combine that with the Lunaphore instrument, which already talked about the multiomic capabilities and its differentiated performance. And then we, of course, have a portfolio of antibodies that you could use to detect certain proteins. So this instrument is going to be the highest pull-through instrument from our core reagents as it uses antibodies as well as the RNA reagents. On the bottom right, you see our precision diagnostic tools, where I already talked about the power of exosomes, interrogating exosomes as well as the power of distributing kits to different laboratories with the Asuragen brand name. So I think this is really showing how we've created a very differentiated position in a very sustainable market that we play Sustainable is an important word for us, and that's why I have a slide on sustainability. We published our fourth corporate sustainability report. Here, you can read all about our people and how we have a diverse and inclusive foot place, a fantastic team that works on advancing science, and we launched over 800 new products in 2024. On the bottom left, we are overall a relatively environmental friendly company, but we nonetheless continue to focus on reducing waste, especially when it comes to packaging, and we have quite a portfolio of different projects and activities to improve our footprint. And on the right-hand side, from a governance point of view, we are supervised by a Board of Directors with deep scientific as well as business expertise. Now to my final slide to just summarize my overall presentation. The key takeaways are that the megatrends that I showed in the pyramid slide create a flywheel for our 3 strategic growth factors. Over the last 48 years, Bio-Techne has built a very differentiated proteomic core portfolio, which -- which provides leverage across the different vectors. We have a strong innovation and M&A pipeline, and we enjoy a durable position in critical applications across $28 billion market opportunity. This really enables sustainable and above-market financial performance when it comes to top line because we aspire to always outgrow the overall market by 500 to 1,000 basis points. On the bottom line, because our operating margins, we target always anywhere between 35% and 40% EBITDA range. Of course, there's a newer acquisition in there, it will temporarily dip, but then we will always aspire to get back to that range. And then, of course, we want to deliver high teens CAGR for the adjusted earnings per share, and we will deliver this performance while we unlock the possibilities of science. So thank you for your interest in Bio-Techne, and I hope to see you in the breakout session.