TECH - NASDAQ

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2025. At this time, all participants have been placed in listen-only mode and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations.

Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2024 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the UBS, Stifel, Stephens and Jefferies conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our first quarter conference call. I'm pleased to report that the start to our fiscal year 2025 was largely consistent with our initial expectation. Continued stabilization of our biopharma end-markets combined with excellent execution by the Bio-Techne team led to 4% year-over-year organic revenue growth. Our growth pillars, including our molecular Diagnostics or Spatial Biology platforms, as well as our proteomic analysis franchise continued to outperform in constrained end-markets. It's also encouraging to see early indications of improvements in our biotech end-markets, which is validated by the strength we experienced in our cell and gene therapy business during this last quarter. I'll give additional details about the momentum in our growth pillars later in the call, but first, I want to applaud the Bio-Techne team for delivering this top-line performance with a continued focus on profitability. Jim will discuss this in more detail, but the cost containment and productivity initiatives we have put in place in recent quarters position the company to maintain its peer-leading operating margin profile. These efficiencies will also allow for continued strategic investments while expanding margins as the life science markets return to their historical growth rates. Before we get to the specifics of the quarter, I'd like to highlight the significant progress team made advancing our environmental, social and governance or ESG initiatives. During the quarter, Bio-Techne issued the fourth iteration of its Corporate Sustainability Report or CSR. In this latest CSR, we highlight the significant progress we made on this front, including the recent submission of a letter of commitment to reduce the Scope 1, 2 and 3 greenhouse gas emissions. These adoption targets will be evaluated by the Science Based Targets Initiative in 2026. I'm proud of the team's commitment and continued progress, which positions Bio-Techne for a sustainable future. Now, let's discuss our Q1 results, starting with an overview of our performance by end-market and by geography. Overall, biopharma increased mid-single digits with strength in our cell and gene therapy workflow solutions. We also saw continued sequential stabilization from large pharma customers and improving ordering trends from our biotech customers. Academia increased low-single digits in the quarter with tough year-over-year comparables in both the U.S. and in Europe. Now for our regions. In the Americas, we grew low-single digits, excluding the diagnostics end-market. This was driven by strong growth in our cell and gene therapy vertical. Europe increased mid-single digits overall, which was bolstered by strong performance in academia. This overall performance in Europe is even more impressive considering the mid-teens growth comparable from the prior year quarter. In China, a challenging funding environment remains a hurdle to growth. However, we did see pockets of strength, including in our cell and gene therapy solutions as well as in our spatial biology franchise. Our instrument business continues to see stimulus related tender activity, which we expect to translate into orders in the third quarter of our fiscal year. Overall, China declined low-double digits during the first quarter, but we anticipate that the Chinese government will continue to prioritize to improve healthcare through investments in scientific research. Our portfolio of proteomic and spatial biology tools play an important role in these efforts. Now, let's discuss the growth pillars within our Protein Sciences segment, starting with our cell and gene therapy business. Here, we see that the value proposition of our broad portfolio of GMP reagents continues to resonate with the customers that are developing this life-changing therapy. Additionally, our cell therapy customers continue to transition from using RUO proteins for preclinical work to GMP certified reagents as they begin their clinical trials. This dynamic is providing an increasing tailwind for our business. For the quarter, our GMP reagent product lines increased over 60%, including robust growth from both our large customers as well as in the smaller biotech. As a reminder, order timing among our larger customers can create quarter-to-quarter lumpiness. So on a trailing 12-month basis, our GMP reagents business grew in the upper-teens. We are particularly pleased with this performance considering the market constraints over the same period. Next, I'd like to give an update on our ScaleReady joint venture partner, Wilson Wolf. As many of you are aware, Wilson Wolf is a developer of the market-leading G-Rex bioreactor. G-Rex is used as an efficient and cost-effective bioreactor for scaling cell therapies and is currently used in around 45% of the clinical trials taking place in Europe and in the U.S. We currently own 20% of Wilson Wolf and will purchase the remainder of the business by the end of calendar 2027 or potentially earlier depending on the achievement of various milestones. In front of the imminent Wilson Wolf acquisition, the Bio-Techne team continues to drive synergies between the two businesses. For example, we recently announced the launch of our ProPak GMP Cytokines, which are optimized for use of the Wilson Wolf G-Rex bioreactor. The use of ProPaks provides the precise quantity of GMP proteins needed to enable the highly simplified yet closed system for the expansion of cell therapies. Additionally, ScaleReady launched a G-Rex Grant Program, an initiative that is actively seeding academic and biopharma customers with G-Rex bioreactors and Bio-Techne's GMP reagents. These customers get to experience the power of the combined product offering during the preclinical development process, which nicely positions both Wilson Wolf and Bio-Techne to win in this nascent high-growth industry. Secondly, let's discuss the performance of our other growth pillar within Protein Sciences, the Proteomic Analytical Instrumentation division marketed under the ProteinSimple brand. Here, the team delivered mid-single digit growth as the challenging capital equipment environment was once again more than offset by strong consumables and service revenue growth. Looking specifically at the performance of our proteomic analytical instruments, it's worth noting that after several quarters of decline, our portfolio returned to low single digit growth in the America. Continuing with ProteinSimple, I'd like to give an update on the latest initiative to our Simple Western franchise called Leo. This next-generation instrument is a high-throughput, automated Western Blot system, enabling the simultaneous analysis of up to 100 samples in a single three-hour run. We have experienced significant customer interest in Leo following the public announcement at the end of July and the team is building a promising funnel for the upcoming launch in the second half of our fiscal year 2025. Simple Western remains the only fully-automated Western Blot system on the market. With a penetration rate of less than 20%, we see a long runway for future growth in this portfolio. Before we wrap up our discussion on Protein Sciences, I'd like to give you an update on how Bio-Techne is leveraging artificial intelligence tools to further our already-strong proteomics position. As a reminder, Bio-Techne was the first company to broadly commercialize research use-only proteins in 1985. We are pairing the data generated over the last 39 years by our internal R&D team with generative AI tools to create new designer proteins. These pivotable proteins are engineered to exhibit hyperactive properties, enhanced heat stability and other novel features. These attributes are relevant for many applications, including, of course, cell therapies. We recently launched our first two designer proteins and these will be followed by many AI engineered cytokines, growth factors and antibodies, which is nicely aligned with our roadmap. Overall, the team delivered 1% organic growth in the Protein Sciences segment. While this performance is in no way indicative of the latent growth potential in this segment, it is a distinct improvement over the low single digit declines we've experienced over the last three quarters. Remember that our Protein Sciences segment is where we have the most exposure to both China and biopharma end-market headwinds, and this segment is positioned to see the most improvement as these markets continue to normalize. Now, we will move on to the growth pillars in our recently renamed Diagnostics and Spatial Biology segment. This segment has been previously referred to as the Diagnostics and Genomics segment. However, given the segment's increasing leadership in the emerging spatial biology field, we felt that the new segment name is more indicative of our focus. Within spatial biology, demand remains strong for our fully-automated, high-throughput, hyperplex spatial biology platform called COMET. I'm pleased to report that following a successful cross-company initiative, we have increased COMET's manufacturing capacity to meet the growing demand for the insulin. We've also launched the RNAscope assays on COMET this last quarter, which enables the platform's multiomic capabilities. This means that it can now detect and visualize up to 24 proteins and 12 RNA targets simultaneously. These enhanced capabilities are in the hands of the top key opinion leaders in spatial biology, who are currently generating multiomic data to support a broader rollout, which will take place in this current quarter. Additionally, we continue to launch Bio-Techne's R&D system branded antibodies validated for use on the COMET. The RNAscope capabilities paired with a growing portfolio of validated antibodies will support a consumable stream that is expected to be the highest pull-through of any instrument under the Bio-Techne umbrella. Our other growth pillar within diagnostics and spatial is a molecular diagnostics business, which continues to perform at a very-high level with nearly 40% growth in both our ExoDx prostate test and our Asuragen kit business. We are in the initial stages of realizing the tremendous synergies that exist between the ExoDx and the Asuragen businesses illustrated by the upcoming launch of the kitted exosome-based test for breast cancer-related ESR1 mutation, which we will commercialize through our Asuragen laboratory channel. In summary, the team delivered another quarter of differentiated performance in what has proven to be a prolonged period of challenges facing the industry. Despite these challenges, fiscal year 2025 is off to a start that is aligned with our initial expectation. Our unique portfolio of innovative tools and bioactive reagents is positioned to continue to generate differentiated growth going forward. We remain focused on delivering the solutions our customers rely on to catalyze advances in science and in medicine. We have the team and the portfolio to accomplish this, while creating value for all our stakeholders. With that, I'll turn the call over to Jim. Jim?

Thank you. Thanks, Kim. I'll start with some additional detail on our Q1 financial performance and then give some thoughts on the financial outlook. Starting with the overall first quarter financial performance, adjusted EPS was $0.42 compared to $0.41 in the prior year quarter, with foreign exchange having a favorable $0.01 impact. GAAP EPS for the quarter was $0.21 compared to $0.31 in the prior year. Q1 revenue was $289.5 million, an increase of 5% year-over-year on a reported basis and a 4% increase on an organic basis with foreign currency exchange impacting sales by approximately 1%. Looking at our organic growth by region and end-market in Q1, North America increased low-single digits. Europe increased mid-single digits year-over-year, while China decreased low-double digits. The challenging funding environment remains a headwind for our China business with our instrument business facing the biggest challenges in a geography. We are seeing stimulus related instrument activity in China, which should start to benefit revenue growth in the region during the third quarter of this fiscal year. APAC outside of China increased low-single digits overall with Japan and South Korea both benefiting from growth in our instrument and spatial biology portfolios, which was partially offset by macro challenges in other Asian countries. By end-market in Q1, excluding China, biopharma increased mid-single digits and academia increased low-single digits in the quarter. As Kim previously mentioned, we continue to see sequential global stability in our biopharma end-market, which was bolstered by strength in our cell and gene therapy business in the quarter. Below revenue on the P&L, total company adjusted gross margin was 69.5% in the quarter compared to 71.3% in the same quarter of the prior year, driven by the impact of unfavorable product mix, partially offset by productivity initiatives and exclusion of the lower margin held-for-sale FBS business. Adjusted SG&A in Q1 was 32.3% of revenue compared to 31.3% in the prior year, while R&D expense in Q1 was 8.3% of revenue compared to 8.7% in the prior year. The increase in SG&A was driven primarily by the reinstatement of bonus and commission accruals, partially offset by diligent expense control. Adjusted operating margin for Q1 was 29%, a decrease of 240 basis points from the prior year period due to the impact of unfavorable product mix as well as the reinstatement of the previously mentioned incentive compensation accruals. We continue to execute cost containment initiatives and prioritize our growth initiatives to drive efficiencies throughout the organization with the goal of optimizing operating leverage during the ensuing market recovery. Looking at our numbers below operating income, net interest expense in Q1 was $1.1 million, decreasing $2.8 million compared to the prior year period due to lower debt levels compared to last year. Our bank debt on the balance sheet as of the end of Q1 stood at $300 million, a decrease of $19 million compared to last quarter. Other adjusted net operating income was $3.9 million in the quarter, an increase of $2.3 million compared to the prior year, primarily reflecting our 20% share of Wilson Wolf's adjusted net income and the foreign exchange impact related to our cash pooling arrangements. Moving further down the P&L. Our adjusted effective tax rate in Q1 was 21.5%, down 50 basis points compared to the prior year due to geographic mix. Turning to cash flow and return of capital. $63.9 million of cash was generated from operations in the quarter and our net investment and capital expenditures was $9.2 million. Also during Q1, we returned capital to shareholders by way of $12.7 million in dividends. We finished the quarter with $161.1 million average diluted shares outstanding. Our balance sheet finished Q1 in a strong position with $187.5 million in cash and our total leverage ratio remains well below one times EBITDA. Going forward, M&A remains a top priority for capital allocation. Now, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q1 reported sales were $204.5 million with reported revenue flat compared to the prior year period. The exclusion of the Fetal Bovine serum business, which is currently classified as held-for-sale business, unfavorably impacted reported segment revenue growth by 1%. Thus, organic revenue for the segment increased 1%. Operating margin for Protein Science segment was 39.4%, a decrease of 380 basis points compared to the prior year quarter as unfavorable volume and product mix as well as the reinstatement of incentive compensation accruals were partially offset by cost management and structural alignment initiatives. Turning to Diagnostics and Spatial Biology segments. Q1 sales were $83.2 million with both reported and organic growth increasing 14% compared to the same quarter last year. Our molecular diagnostics business once again led segment growth. Moving on to the Diagnostics and Spatial Biology segment, operating margin at 5.1%. The segment's operating margin increased compared to the prior year's 0.7% due primarily to the impact of volume leverage and productivity initiatives, partially offset by the reinstatement of incentive compensation accruals. We anticipate steady improvement in diagnostics and spatial biology operating margin as Lunaphore scales throughout the fiscal year. In summary, our Q1 performance was largely in-line with the expectations we provided last quarter, which keeps our initial assumptions and expectations for the remainder of fiscal year '25 intact. As expected, we started the fiscal year with broad strength across our Diagnostics and Spatial Biology segment. Lunaphore continues to gain acceptance as the instrument of choice in spatial translational research and our molecular diagnostics business continues to capitalize on the opportunity in front of it with its informative ExoDx prostate cancer test and Asuragen's pipeline of innovative product launches. Within our Protein Sciences segment, we saw continued stability in our biopharma end-markets with initial signs of improvement in the smaller biotech end-market. This improvement combined with the strength we saw in cell and gene therapy, we believe it's indicative of the healthy biotech funding levels we saw throughout 2024, starting to materialize into biotech spending. Thus, given how our first quarter playout, our current momentum would suggest mid-single digit growth in the first half of the year or said another way, we expect our Q2 top line performance to look similar to Q1. We continue to see the potential for organic growth to gradually accelerate in the second half of our fiscal year through a fourth quarter exit rate of high single digits as Chinese stimulus funds are released, followed by a gradual recovery in large pharma earlier stage R&D spending. Admittedly, large pharma remains the most significant wildcard in this outlook, but we believe calendar 2025 has the potential to be a year of more normal levels of pharma R&D spend as greater clarity on the IRA impact as well as recent project rationalization and restructuring initiatives clear the path for new investments by these customers. Our adjusted operating margin outlook also remains intact with the first half of fiscal 2025 expected to be 200 to 300 basis points lower than prior year and the second half margin expected to be approximately 100 to 200 basis points higher than prior year. The first half of the year will have margin headwinds related to the incentive compensation accrual reinstatement as well as negative product mix, while the second half margin should benefit from greater revenue volume leverage, planned productivity initiatives and improving product mix. That concludes my prepared comments. And with that, I'll turn the call back over to the operator to open the line for questions.

[Operator Instructions] Thank you. Our first question comes from the line of Puneet Souda with Leerink Partners. Please proceed with your question.

Yes, hi guys, thanks for taking the question. And congrats on the quarter here. The first one is, you know, it's great to see the beat in diagnostics and spatial, but could you elaborate how sustainable is that momentum and speak to both the spatial versus the diagnostic side of the business. And what you're seeing on the biotech and biopharma improvement? I have to say is, you know, it is rare in the current market backdrop to see that. So just can you elaborate a bit on your confidence to continue to see that growth and why is this not something unique to this quarter? And what gives you confidence that that should continue into the December ending quarter and into the first half of 2025?

Yes, Puneet, thank you for your question. And I'll take the first part of it and then pitch the second part to Jim. You know, to your question, diagnostics and spatial biology, is it sustainable? I do believe so. We, if I pick it apart, we have the ExosomeDx prostate test, right. And it has had great momentum over the, over the last six quarters or so. We still have plenty of runway and market penetration ahead of us, and we're seeing real strong adoption. So we believe that we still have quite a ways to go there. In the meantime, we also know that we have similar momentum in the Asuragen kits that we're selling to diagnostics laboratories. That momentum we are also confident will continue. We have a strong R&D funnel. We have already talked about a upcoming launch for ESR1 breast cancer treatment resistance test, right, which is an exosome-based test that we will launch through our Asuragen laboratory channel. And in addition, we will launch other genetic tests during this fiscal year in that portfolio. So good momentum in the market as well as good momentum in the R&D funnel. If I then jump to the spatial biology business, I mean, a Comet launch is still in its early days and sees very nice adoption from an instrument point of view in the markets. And then we know internally that we will see bolstered growth from the consumables we are enabling on this instrument, right. We have RNAscope in the early days that is now compatible so that you can do true multiomics experiments on the Comet launch. And of course, we are continuing to launch our R&D systems' branded antibodies of which we've launched 25 or so in this last quarter that also will run on this multiomics instrument. So we believe we have momentum in all three arms of this segment and that it will continue like that. For the second half of the question, I'll give Jim the microphone.

Yes. Hi Puneet, Thanks. You know, as we talked about, as we talked about last quarter and continue this quarter, for us to have mid-single digit growth by, you know, in Q2, we need to see the biotech funding strength that we've seen throughout the year start to materialize into biotech spend. And in Q3 -- our first quarter here, calendar Q3, we had, you know, very strong cell and gene therapy growth which was benefited both by the smaller biotechs as well as larger pharma. And what we saw in the broader and within cell and gene therapy, it was again broad-based growth. Now, we know we have some very large customers that can be lumpy and yes, those did well this quarter. But even the smaller customer mix within cell and gene therapy also was strong. Now, it was very, very strong. We don't necessarily expect that same level of strength in Q2 that we saw in Q1. But what was encouraging was that in the back half of our first quarter, as you know, Puneet, we monitor our daily run rates, our run rate business; those sales that are under 1,000 bucks a pop. That make up a very large portion of our RUO business. We monitor that on a daily basis to look for underlying momentum and trends. And in the back half of the quarter, we started to see the smaller biotechs growth rates not just stabilize, but actually start to pick up a bit. Now, it's not off the races, but it's nice to see some positive growth in those run rates within small biotech, more broadly across our entire RUO portfolio. And we saw that momentum continue into October. So that's what gives us some confidence that that funding is starting to turn into spending on a more broad basis. Broad basis, the cell and gene therapy will maintain, we think, a very strong growth in Q2 as it did in Q1, just probably not as strong. So that will come down a bit perhaps in growth rates, but we think be offset by the rising tide we're seeing in our RUO momentum in smaller biotech.

Got it. That's super helpful, Jim. So just following up on the cell and gene therapy comments you made. Can you elaborate a bit on -- you know, are these new trial starts or existing trials that are scaling up or moving into later phases? And I think you had provided some account metrics before. Just wondering where the overall account metrics are for the GMP proteins and the cell and gene therapy business. Thank you.

Yes, Puneet. Cell and gene therapy growth vertical, as you know, we are really pleased with the progress there. We mentioned in the past that we have about 400 customers in this funnel and of which 58 customers are now in the early phases of various stages of the clinical trials. And we see customers progressing through the funnel which then drives order sizes. But fortunately, we also see the volume and the order sizes for the smaller customers increase just as well. So we feel there's broad momentum in this, in this business.

Thank you. Our next question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.

Good morning. Congrats on the quarter. Maybe sticking with the cell and gene therapy theme, I think kind of below the line. You had positive other income during the quarter. I believe that's where Wilson Wolf flows through. Can you just talk about how Wilson Wolf trended in the quarter and any benefit on the other income line from them and maybe how to think about that the next few quarters?

Jake, thanks for the question. So Wilson Wolf is also seeing great momentum and that's probably where you see the numbers coming from. As you know, we own 20% of Wilson Wolf at the moment, and they had a great quarter with over 30% growth just as well. For further financial detail, I'll allow Jim to pitch in.

Yes, I won't get into specifics as the contribution part of that to Wilson Wolf, but it did grow nicely year-over-year. But I'd say a big chunk of that favorability in other non-operating income below the line came from the FX translation from our cash pooling arrangements.

Got it. Thanks for that Jim. And Jim, maybe sticking with you just on the cost side of things, I guess specifically around OpEx, some moving pieces on the SG&A line. I think you guys are talking about efficiency. I think there's maybe a restructuring charge in there and then obviously the return of incentive comp. Can you just -- You reiterated your commentary around the margin outlook for this year, but as we think about SG&A and kind of the pacing the rest of the year, can you just help us think through kind of any one-time items in one queue and then any benefits from cost savings as we get into the rest of the year?

Sure. As you think about the margin profile specifically for the upcoming quarter here, Q2, a couple of things to keep in mind is that our incentive comp headwinds are actually stronger in Q2 than they were in Q1, meaning we had even more clarity as to where our performance was going to be in Q2 than we did Q1 last year. So we reversed accruals even further. So there is a larger year-over-year headwind when it comes to that part of the equation. When you think about the sequential margin profile from Q1 to Q2, there's also a slight headwind from the fact that our merit increases that go annually to all employees are the last month of the quarter. So we basically have two months of a headwind in Q2 relative to Q1 as a result of that. So that's why we're kind of still holding that same overall guidance for the half in terms of margin. When you think about Q3 and Q4, really it's holding the line as we did last quarter. On our view there, it is dependent on the pace of recovery on the topline. But we have a lot of productivity initiatives and rationalization that's happening and prioritization to protect the bottom line. And as long as that growth modestly comes through as we predicted, we think we can get back to a positive margin expansion in the back half.

Thank you. Our next question comes from the line of Dan Leonard with UBS. Please proceed with your questions.

Thank you. First one on Comet. I'd love to better understand the unit model there. Could you remind me what is the ASP for the instrument and what would you expect pull through per year to look like in consumables and then also by how much did you increase Comet manufacturing capacity?

Yes, Dan, thanks. Thanks for your interest in spatial biology that we're also so enthusiastic about. Yes, the Comet ASP is around 350 and $350,000, that is. And of course, there's variations of types you can order or, you know, certain capabilities. So there's a little bit of variation in there, but typically around 350. And we've not been able or we've not had to discount this yet at all. So we see that that price point to be the right one at the moment. Momentum has been great. We have increased our manufacturing capacity to be able to keep up with demand. However, we do not usually talk about unit numbers as to how many are in our installed base or how many we shipped. So that part I will refrain from.

Okay. And just to circle back on your comments on China, can you remind me how much of your revenue mix in China is instruments versus consumables and any more color you could offer on the magnitude of the tender activity that you were discussing?

Yes. So as you know, China is around 9% of our overall global revenues for Bio-Techne and it has been declining, as is well known. We do believe that the mix has shifted temporarily a little bit more towards the consumable side. But typically, the mix in revenue there is 50-50. So 50% in instruments and 50% in consumables. The activity around the tender, we are, as you know, we are in our models, we're looking at some slight benefits from tender activity in our third quarter, which is the first calendar quarter. And we do see this activity if it comes to, you know, acquisitions and in-bound questions around instrumentation. Most of that sits in the Western Blot business, the automated Western Blot. And that makes sense, because the funding is aligned with refreshing larger capital and is also focused on a more academic setting. So that's where we see, that's where we would expect a slight tailwind and that could spark definitely a turnaround in the country which we all have been waiting for.

And I just add from a magnitude perspective, you know, it'd be -- we think right now what's in the pipeline would be enough to go from declining growth that we're seeing today to modest positive growth in the region in our Q3.

Thank you. Our next question comes from the line of Thomas DeBourcy with Nephron Research. Please proceed with your question.

Hi guys, thanks for taking the question. Just had a question related to your kind of directional guidance on Q2, and I guess kind of sequentially flat. I think on a year-over-year basis it would kind of have roughly mid-single digit growth. But you do have a little bit easier comp in Q2. So just any thoughts just otherwise between the segments in terms of what's kind of driving sort of that mid-single digit growth for the second half, for target Q2?

Yes, I mean there's some nuances within that in the sense that, you know, again because so much of our business is based off of daily run rates purchased every day that researchers are in their labs. We look at the holidays, for example, and where the holidays fall, particularly around Christmas and New Year's and they're both in the middle of the week this year as opposed to the beginning or the end. And I know it sounds like a nuance, but it is important with regards to when people take their vacations and so forth. So that's a bit of a headwind relative to last year when you talk about an easier comp, for example. So other than that, I would say it's really just -- it's really pharma has been, I would call it, stable for us the past couple quarters and we see that continuing into Q2 without any significant uptick as of yet. You know, we're hopeful for that as we get into 2025 and new budgets are released. Academic, you know, pretty much chugging along the way. It has been in the low single digits and it's really about the smaller biotech, and we think there's a bit of a -- although the overall biotech market for us at least appears to be slowly gaining some momentum, we did have an exceptional quarter in Q1 with regards to specifically cell and gene therapy in our bigger customers, in particular, all did some large purchases. And we think that will settle down a bit in our Q4, I'm sorry, in our Q2, calendar Q4, but these offset by the gaining momentum we're seeing in our RUO biotech.

And just, I guess one quick follow-up, you know, sort of related to that is just in terms of your, you know, kind of overall thoughts on year end, calendar year end, budget flush. You know, I think last year there was very little budget flush by either academic or biopharma. You know, maybe it's not back to normal, but would you expect that to be incrementally better versus last year?

And again, budget flush doesn't impact us as greatly as it does perhaps other companies with a much higher instrument percentage as well as more expensive instruments. But that being said, it does impact our ProteinSimple franchise in particular a little bit. And honestly, it's anyone's guess right now. There's a thesis out there that pharma in particular has been holding back on their CapEx budgets all year and haven't even spent their budgets. And there might be some budget flush as a result of that. If in fact, they're seeing a more return to normalcy ahead of them in 2025. But we're not necessarily hearing that from the field yet. So, you know, as of right now, I would say that it looks less likely than more likely based on what we're hearing out in the field. But it can flip pretty quickly. So we really won't know until we get into December, but if it happens, it could be some upside.

Okay. Thanks.

Thank you. Our next question comes from the line of Justin Bowers with Deutsche Bank. Please proceed with your question.

Hi, good morning everyone. And just sticking with the previous line of questions with Jim, with sort of the similar organic growth outlook in 2Q, is there any divergence within the segments, i.e., are you still looking for sort of like low-single digit in Protein Sciences and then call it mid-teens and DSB? And then within biopharma, it sounds like you're saying that large pharma has been fairly stable in terms of spend over the last couple of quarters. Are we hearing that correctly? And then the follow-up to that would be, within the different businesses within Protein, within the Proteins franchise, i.e., ProteinSimple, the run rate business in ELISA are the trends fairly stable there or is there some movement there?

I'll try to hit in a little bit. As you know, we generally don't give any kind of guidance by segment. But what I would say in general is, if you think about the end markets and how I just described the end markets, what it would suggest is that we see a very gradual improvement within our Protein Sciences segment as the biotech funding hopefully continues to gain momentum. And with regards to the Diagnostics and Spatial Biology, there is a component of business in there that's very OEM driven that can be more lumpy. So although we expect double-digit growth to continue in our diagnostics in general, it may not be as strong as what we saw this quarter, which is how you kind of get to the same overall growth rate in Q2 as Q1. As it pertains to the questions around the assays, I would say the assays are generally performing very similar to our reagents in terms of the, most of it's RUO based. I'm trying to remember what the middle question was - large pharma?

More around large pharma, is that stable? Or is it?

Yes. Sorry, sorry. Yes, I know the question now. So yes, I mean it's been stable for us. As we talked about before, we saw our larger pharma customers kind of drop off on their run rates early in the calendar year 2024, we think when their budgets were initially released. And we've seen that pretty much be somewhat down year-over-year. Overall, we've seen it be stable sequentially quarter to quarter in terms of what we'd expect to see from a seasonality perspective. So not seeing any major change in pharma one way or the other as of right now, but we didn't expect to either. As our guidance suggested, we feel like assuming pharma does come back in 2025, we probably won't see much of it until our April-May timeframe, which is our last quarter of the fiscal year.

Understood. Just one quick follow-up. What was the comp for biopharma in fiscal 1 '24?

I know we talked about it. Hold on one second. I can find it quickly. Let's go on the next question, and I'll try to interject at some point.

Sure. Thank you.

Yep.

Thank you. Our next question comes from the line of Catherine Schulte with Baird. Please proceed with your question.

Hi everyone, this is Tom Peterson on for Catherine. Thanks for taking our questions. Congrats on the solid quarter. Wanted to maybe return to the spatial biology portfolio. You know, hear you on the updated manufacturing capacity for Comet, I guess what was ACD growth in the quarter specifically? And you know, with respect to your comments around the pull through on that ultimately being, you know, potentially that the highest frame any instrument in the portfolio. I guess, what's your level of visibility into how close do you think you can get to that level in fiscal 2025?

Yes, thanks Tom for this question. So the -- yes, overall momentum in the spatial biology, we're very pleased to see. Comet has indeed met our expectations if it comes to the launch. The first couple of quarters, as you know, we had to indeed do a little bit of a sprint in the building out the capacity. We feel comfortable we can now deliver on that. The reagents, it's earlier day, right. So as you heard in the script, we have R&A scope now running on the comet, but it is in the hands of key opinion leaders generating the data necessary for a broader rollout, which will happen in this current quarter. The ACD franchise overall saw a little bit of a headwind from we call it PAS, Pharma Assay Services, and that put some pressure on the overall numbers of that division. We don't talk on that level though, if it comes to growth and absolute revenue numbers, but there were some pressure in there, especially related to pharma projects. So some pharma projects got pushed out, which is in line with the overall health of that market that we've been talking about. So nothing new there, but definitely still a slight impact from projects pushed out. Overall though, we do see that the future of this spatial biology will be bright. We know the system is seeing real traction. Customers are really happy with it. We will have R&A scope available on there and then we'll start pulling through our antibodies from the R&D systems brand.

Got it. That's super helpful. And maybe just a quick follow-up on China stimulus. I guess, you know, hear some of the comments around the funnel activity, any changes in underlying activity levels here in the quarter. And then we've heard from some other peers in the space that this seamless program isn't covering the entirety of the instrument purchases. So I guess at a high level, you know, how big of an impact do you think that this dynamic is and do we need to see broader China macro improvement alongside these stimulus distributions to kind of drive a return to typical market growth in China in 2025? Thanks.

Yes, thanks, Tom. I'll take the first part of it. You know, as we mentioned earlier, you know, we see, we're pretty much seeing what we expected, which is, you know, the different quoting activity and interest in our product lines. As I mentioned in the earlier question, very much related to Western Blot, automated Western Blot instrumentation, which makes sense. And Jim also mentioned earlier, and I will give him the microphone about the impact it will have on our growth rate. Jim?

Yes, as I mentioned earlier, it will be enough of a stimulus to flip China for us from being negative growth to modestly positive growth.

Thank you. Our next question comes from the line of Matt Larew with William Blair. Please proceed with your question.

Hi, good morning. I wanted to ask on actually the - well I guess cell and gene therapy one, which is just broadly within biotech and biopharma. The extent you have visibility to this is sort of the pickup in work that you maybe assess was paused or on hold or delayed and now is returning, or is this related to, you know, new project work that's been coming in? And maybe the second part of that would be, if there's any breakdown in your view from sort of a discovery versus clinical stage and some of the work coming back?

Thanks for the question. Yes, I think we see both, right. So I mentioned earlier that we see customers progressing through the funnel and getting into their Phase 1 clinicals, some of them even in Phase 2 clinicals. And with that, the order size is increasing as you would expect. In the meantime, we've also seen order frequency of the existing smaller accounts or smaller orders grow in a similar speed. And then we are glad to also report that we found, I'm not sure if we should be mentioning the number, but we found a good portion of our customers to be new and added to the funnel. So basically we're pretty happy with the activity level on all three of those parts of the equation.

Okay. And then you made another announcement about a G-Rex Grant. Obviously, you've been working each on the ScaleReady partnership, even advance of owning Wilson Wolf. That space obviously remains competitive with new entrants looming, and you are clearly investing back in the future there. So just be curious for your take on where you stand from that sort of product and strategy development as well as sort of the competitive standing of the portfolio you're offering.

Yes, thanks. First off, we are very happy with the competitive advantages we see utilizing the G-Rex incubator versus our competitors. The scalability, the cost position, the flexibility as well as the performance are just very much where we hope them to be and significantly differentiating from other solutions. In the meantime, we know that there are tremendous synergies with our core portfolio, specifically the R&D systems related GMP proteins, cytokines, media. So we have a fantastic overlap there. We also know that it is in the early days of a customer being exposed to a G-Rex and starting their project where you make your decisions related to what reagents you use in the G-Rex and if you use the G-Rex as a vehicle, to begin with. So that's the reason why we feel that these grants are important. We help these customers not only getting towards their therapy and the design of their therapy faster, which is great for humanity, but we also help them getting the right tools in place. And we also know that once these customers are happy with their solution that they will be utilizing the G-Rex as well as our biotech media agents going forward. So we feel it's a smart way to create a win-win.

Thank you. Our next question comes from the line of Sung Ji Nam with Scotiabank. Please proceed with your question.

Hi, thanks for taking the questions. Just on the academic and market side of things, great to see growth there despite the challenging comparisons. You pointed out Europe. But could you maybe elaborate further in terms of which of the product or business segments where you might have seen the strongest growth in the quarter?

Yes, we were overall very pleased with our academic performance. And we did mention Europe because it grew nicely against very significant comparables. However, that was not very different in the U.S. Meaning the U.S. comparables were very, very strong as well. And that means that we're really happy with the performance in academic across the product lines and across the regions. As you know, there's been some good news around Horizon funding in Europe and funding levels in the U.S. just as well. However, we always say that the overall funding levels are interesting for us, but not the true driver for our results. It is typically in these last couple of years being related to where the funding flows. And the last year, it's been clearly flowing more in the direction where our products are benefiting from, which are more the cancer related, neuroscience related fields which definitely drive adoption of our products. So that's the dynamic there in academic.

Gotcha. Great. And then just on the molecular diagnostic side, you know, also great to see strong growth there. Was wondering if there might be any updates in terms of any of the partnership opportunities, especially with the Exosome Diagnostics' technology.

Yes, so we have, as you know, signed an agreement around kidney rejection with Thermo. The teams are working on that assay, and it's in Thermo's hands. As you know, we will continue to support the efforts there. And yes, we have other signatures in the making. But for now, as I have mentioned over the last couple of quarters, the team is mainly focused on creating Exosome based tests that we can market ourselves through the Asuragen channel. And in the script as well as I just mentioned earlier, the ESR1 test is the very first product of bringing the exosome-based testing into the Asuragen channel that goes and sells, commercializes into laboratories. And that's really our preferred modus operandus, and that's what we're going to focus our pipeline on for the future.

Great. Thank you so much.

Thank you. This concludes our Q&A session. I would like to pass the call back over to Kim for closing remarks.

Thank you. And thank you for joining the call today and for your insightful questions. I'm extremely proud of the Bio-Techne team's accomplishments and the results we have been able to deliver this quarter. Our differentiated portfolio addresses some of the highest growth markets in life sciences and is positioned to deliver best-in-class performance for all our stakeholders going forward. Thank you. And have a great day.