Bio-Techne(TECH) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EPS for Q2 was $0.46, up 10% year-over-year, with GAAP EPS at $0.24, up from $0.22 in the prior year [19][20] - Total revenue for Q2 was $295.9 million, flat year-over-year on both an organic and reported basis, with foreign currency exchange contributing a 2% tailwind [20][22] - Adjusted gross margin was 68.5%, down from 70.5% last year, while adjusted operating margin reached 31.1%, up 100 basis points year-over-year [22][24] Business Line Data and Key Metrics Changes - Protein Sciences segment reported sales of $215.1 million, with organic revenue declining 1%, but excluding cell therapy timing impacts, organic growth was 4% [24][25] - Diagnostics and spatial biology segment sales were $81.2 million, down 4% year-over-year, with 3% organic growth after accounting for divestiture impacts [26] - Core reagent and assay portfolio delivered low double-digit growth for the quarter, while proteomic analytical tools grew upper single digits [15][25] Market Data and Key Metrics Changes - Revenue from large pharma customers increased low double digits for the fourth consecutive quarter, while emerging biotech declined mid-single digits [9][21] - U.S. academic business saw a modest decline, partially offset by stable growth in Europe, resulting in a low single-digit decline overall for this end market [10][21] - China grew mid-single digits, marking its third consecutive quarter of growth, supported by R&D investments from CDMO, CRO, and biotech customers [10][21] Company Strategy and Development Direction - Company focuses on four strategically important growth verticals: cell therapy, proteomic analytical instrumentation, spatial biology, and precision diagnostic tools, which now represent 47% of total revenue [6][19] - The company aims to balance growth investments with operational efficiency, targeting 100 basis points of operating margin expansion for the full fiscal year [29] - Continued emphasis on innovation and product introductions to drive growth in key markets, particularly in organoids and multiomics [80][84] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stabilization of end markets, particularly in biotech funding and U.S. academic budgets, which are expected to improve gradually [18][27] - The company anticipates that the headwinds from FDA Fast Track designations for two major customers will moderate, allowing for a return to normalized growth [27][68] - Overall sentiment remains positive regarding the company's competitive position and the potential for growth in the upcoming fiscal year [19][68] Other Important Information - The company is actively pursuing M&A opportunities to enhance its portfolio, particularly in novel antibodies and cell therapy [84] - The acquisition of Wilson Wolf is on track, with expectations to complete it by the end of calendar year 2027 [12][84] - The company launched Cultrex Synthetic Hydrogel to support organoid development, aligning with trends towards reducing animal model usage [80] Q&A Session Summary Question: Growth cadence and expectations for fiscal year 2026 - Management confirmed expectations for mid-single-digit growth in fiscal year 2026, excluding specific customer impacts [31][32] Question: Drivers of gross margin changes - Management explained that gross margin decline was due to unfavorable product mix and customer profiles, with expectations for gradual improvement [34][36] Question: Impact of AI on biotech demand - Management believes AI will enhance customer capabilities and drive demand for more complex materials, benefiting the company [44][45] Question: Biotech funding and timing of revenue impact - Management indicated a typical 6-month lag for funding improvements to reflect in revenue, with positive trends observed in funding and M&A activity [62][63] Question: Cell therapy customer impacts on GMP business - Management noted that the two major customers' Fast Track designations have created temporary headwinds, but growth is expected to normalize post-2027 [66][68]