Conference Transcript - TECH 2026-05-12

Mike Riskin, Analyst — Bank of America

All right, we're going to kick off our next session. Thanks, everyone, for joining us. My name is Mike Riskin. I'm on the Bank of America Life Science Tools and Diagnostics team, and we're excited to be joined by Biotechni. We're pleased to host Kim Kelderman, Chief Executive Officer, and Jim Hipple, Chief Financial Officer. Kim, Jim, thanks for being here. Thanks for having us. For it will be a fireside chat, but raise your hand if you've got a burning question.

Kim Kelderman, CEO

I mean, maybe just to kick things off, you recently reported um any highlights from the quarter you'd like to talk through sort of how it played out relative to expectations you know what was a little bit better what was a little bit worse yeah um so yeah we reported our q3 um and uh printed negative two percent growth for the quarter and that was over a uh by year quarter of about six percent growth um a couple of dynamics in there, that we'll definitely double click on. But in a quarter like that, you always want to look back and ask yourself, do you have the right strategy and is it rolling out in the right pace? And there I've been pleased to see that, as you know, our strategy is around having a really broad core that reads on many different end markets. And that gives us the leverage to pick specific fast-growing vertical markets where we can build out full solutions in specific application spaces and for us that's cell therapy it's protein analytics and it's spatial biology so if i then walk through what happened in the core negative mid single digits but we have talked about a timing issue with a specific large order that moved from q3 to q2 take that into consideration we saw that most important product lines in the core proteins and antibodies were actually growing low single digits and with that are holding with or actually grow a little bit faster than markets. So that's a good sign. There we have the first growth vertical cell and gene therapy where we had some dynamics from large customers that got a fast track approval and are not ordering this year however underlaying that was growing 50 percent and that's also what we like to see in that vertical market then the protein analysis mid single digit growth again positive growth for the instrumentation as well this market has of course one read a strong read on biotech markets where i will get to in a minute and then last but not least our spatial biology franchise that grew mid-teens. And that's also where I would like to see this business. So overall the strategic aspects of our business were rolling out as we'd like them to see. Now there's no question however that every one of those product lines saw a suppressed biotech, early stage biotech demand. and the nice thing is that we saw that across the board so we know that it is a very specific dynamic to the early stage biotech and markets and yeah that was not how we expected it because if you think about large pharma has been very strong for us which is usually an early indicator for health in biotech as well that wasn't the case and in the meantime we had seen two really strong funding quarters for biotech and that would also give us the indication that things would slowly go better we had two mid single digits negative quarters in q1 q2 in biotech indicating a sort of stabilization so it was not unreasonable for us to think that a continued stabilization and then possibly followed by some improvement would be the right direction and trajectory for that end market that's not how it played out unfortunately but fortunately all the indicators for the end market are still very positive now if you go to the academic end markets there it exactly played out as we thought where we had two stabilization quarters of negative low single digits we had some positive news and there we flipped into the positive growth led by instrumentation and then the the last end market that we called and talked about is China where over a year ago we were we saw stabilization and then we called that we would be back into the positive growth territory and that also happened and this last quarter we printed for the fourth time a positive quarter last but not least our bottom line 34.2% on EBITDA exactly in line with how we saw that and called it and probably a little bit ahead of where the street house. So that's the dynamics for the quarter.

Mike Riskin, Analyst — Bank of America

Okay, that's great. I'm going to follow up on each of those in turn. Maybe let's start with emerging biotech. You know, you talked about a little bit surprisingly weaker in fiscal 3Q.

Kim Kelderman, CEO

Why do you think that happened, given you saw stabilization the last couple quarters, given funding has been better, given the indicators are still strong is this a timing dynamic is there some sort of disconnect between funding and spending um just sort of why why was it so disappointing yeah it's a very good question um it is really uh the underlying dynamics of the funding and it has been clear that ipos mna lots of activity in the biotech and market but very much screw to the later stage projects and companies that have assets that are closer to commercialization and that eventually of course trickles into other programs earlier stage where these companies would have would broaden their portfolio but initially the funding is is really focused on on boosting the late stage programs and that we can clearly see that in for example our biologics instrumentation where you know you you you are supporting manufacturing and commercialization of of of these later stage therapies you see double-digit growth for us there but the overall research activity has been actually lagging in recovery and there was a nice a nice write-up from Evercore this morning where there was more more dynamics underneath being studied and very much in line with how we experience the quarter and the recovery okay nonetheless all as i mentioned you you already said the the funding has been very strong i mentioned the the licensing deals and the mna activity all of it very strong indicators for for improved improved dynamics and therefore we're very confident that this sets us up really nicely for fiscal 2027. okay so you think it's just a matter of time you just need more and more quarters of consistent stability and and then those biotechs will work to replenish the pipeline exactly yes it will flow into earlier stage it will stabilize for us and then it will highly likely improve significantly specifically based upon those indicators i just mentioned okay then maybe let's talk about large pharma for a second that's been doing a lot better um is that you know normalization post mfn is that more confidence and policy and regulatory is that you know maybe portfolio specific and technology specific sort of like what's driving the strength there yeah you mentioned the important dynamics the the budgets in R&D for for the large pharma companies is is in the mid single digits and that's where we would like it to be it's actually increased a little bit year over year but that's all we need from a funding level point of view and then as i as i mentioned earlier our strategy of having broad access from a core portfolio but also having these growth verticals that are very applicable in in large pharma driving our growth and and creating pull through of our high margin core core reagents that is the setup that that that we've seen now for six quarters in a row giving us a double digit performance in that end market. Now we layer on in the future additional traction from on-shoring as well as from AI where the initial steps are all about getting more instrumentation and with that more digital information for AI models and you would like to have highly characterized high quality reagents to have reproducible results as well and therefore we feel that our whole portfolio is very nicely aligned with with the trends within large pharma okay um let's keep running through the the end markets um an academic government you kind of talked through that's more or less as expected as you thought can you parse out maybe u.s versus o us the trends you're seeing there we've seen really varying um results from a number of your of your tools pierce it seems like things are a bit murky there you know has visibility improved yeah overall we have 22 percent of our revenues coming out of pharma globally 10 coming out of academic so sorry academic um 10 of that comes out of europe academic europe academic has been very stable and there's definitely signs of of improvement that that we hear from the funding level but has been stable for us it's been a 12% that comes from the US that has been challenged under the under the last couple of quarters definitely improved improved picture though we can clearly see an improvement in the type of grants that are being released very much aligned with our research portfolio and our verticals so So the grants are more in chronic disease versus the infectious diseases. And on top of that, we see that there is more traction in certain grants where if customers get these grants, you will start with buying equipment that will help you in the methods that you will need to utilize during the grant. So you see traction in our protein analysis, you see traction in our spatial biology and cell therapy verticals exactly in line with our strategy so so we can we can see a nice a nice initiation of of of heightened activity and that's that's in line with our expectations as i said we had stabilization for two quarters and now we flipped into the positive growth for the academic u.s market yeah and so the you know the grants being um are the grants already being uh dispersed are scientists spending the money is there still any caution because we've gotten mixed signals there maybe they're still a little bit worried that you know you could have another another round of fewer disbursements or fewer grants being granted yeah overall there's there's been quite some dynamics in in that end market right so we had a government shutdown for for a while combine that with yes we had an approved budget which was great news with a slight increase on it but then there were grants being held back and and all these dynamics made it a little bit murkier. But on the bottom line we can now see that grants are being released. We've seen that the right grants are being released if you talk from a biotechnic point of view. And then we can also see that there's traction in the growth verticals or basically the technologies that are on the forefront of research that academics would be interested in the moment you get funding.

Mike Riskin, Analyst — Bank of America

So all of that actually makes a lot of sense if you take all the noise out okay okay um you touched on uh you touched on china as as giving you broadly positive um indicators and moving in the right direction um is there anything um you know anything you could expand on that is it more on the local biotechs is it multinationals there um more more generics brand is sort of like where you know cdmo cros what parts of china are you seeing better trends from we are very excited about the fact that it's a very broad-based recovery.

Kim Kelderman, CEO

We see, of course, government funding is important and they have approved their 15th five-year budget and that creates a certain foundational health. Also, life science tools are still very high on the agenda to be funded and supported aspects of the Chinese economy. So those are fundamentally good things. But in the meantime, you can also clearly see a heightened activity level on biotech and pharma if you look at the novel therapies being developed. And the model there is interesting because many of these companies create novel therapeutics that they then take the rights for the China market, and they can create a model where they serve the Chinese market but out-license for the Western world. And that created a dynamic where that end market became much more fundable and could attract local as well as international money. And therefore, you see definitely a heightened activity level and quite some successes over the last two quarters if it comes to licensing to Western companies. So a very broad-based recovery. Four quarters ago, we said it would be back in the black, but we also said it wouldn't be a V-shape, that it would be very foundationally coming up from a core strength, rather than a jolt of funding, which happened to be the case over the last couple of years. A more foundational strength, and we're really happy to see that.

Mike Riskin, Analyst — Bank of America

Okay. Is there any talk of government stimulus or government supporters, does this feel more organic and actual sort of driven by real demand?

Kim Kelderman, CEO

So there's, as I mentioned, the broad support from the government with a five-year plan of funding, and that's foundational and financially important, but the activity level comes from several corners, private as well as government institutions and very broad-based. so from pharma to biotech early stage biotech and academics so so very very healthy rebound okay all right um let's dive into some of the segments and sub-segment results um you know you talked about cell and gene therapy um uh some of the moving pieces there in the quarter more broadly can you talk about um your solutions um in cell and gene therapy and sort of how that's been received by the market what the uptake of that has been yeah the cell therapy is a is important strategic pillar for us we are really focused on having very efficient scalable and affordable cell therapy solutions and that's what we're working towards and we had real real nice traction if you look at our overall portfolio of of customers we've seen a low single digits growth in the customers over the last year we saw some turnover with companies moving out of cell therapy and some others moving in and coming up with better better solutions better therapy so we see a healthening of the pipeline and while it's still growing and yes we've talked over the last four quarters or so about the dynamics of two large customers that received fda fast track designation that's great news because that will shorten their time to approval however it created an air pocket for us if it comes to the revenue throughout fiscal 2027 the in 2028 will be sorry 2026 in 2027 we will be past that and that created a dynamic that you know influenced the top line results but if you look underneath those two accounts we can see clearly that there is a mid single digit, high single digit growth underneath which is definitely where we expect it to be. And with a recovery in biotech we definitely believe that the underlying growth should be above 20% on a 12 trillion month basis. And we have this quarter seen 50% growth. And that's definitely something that we continue to expect from the underlying business.

Mike Riskin, Analyst — Bank of America

Are there any other sort of implications or ramifications of those fast track designations? Is there, you know, have you seen a pickup in interest from other customers?

Kim Kelderman, CEO

Is there more investment in the space? maybe as some some others see you know the opportunity here and the you know the easier path the commercialization it's a very interesting question because yes of course this is a very positive aspect for the two companies that will that have received this designation if it comes to working together with the FDA and and and shortening their timelines for approval and with that of course plowing some snow for others to follow a similar path especially since several of these therapies are relatively novel for the FDA and the reviewers so that is a good aspect and will bolster the confidence of others to enter now in general also people see that hey there is a definite interest by the by the administration for specific therapies and we have seen let's call them fast followers other companies that feel that hey this is this is very investable we should do something similar maybe slightly different but at the end of the day enter the same space and develop similar therapies for these very prevalent diseases and and therefore there is a little bit of a comet hayley effect okay but you still have that air pocket just arithmetic correct demand being pulled forward yeah it was a 300 basis points air pocket for q3 it will be 150 basis

Mike Riskin, Analyst — Bank of America

points for our upcoming q4 and from there it will be out of comparables okay okay um maybe um on that point let's let's dive into the numbers a little bit um uh jim maybe you could talk us through sort of the, you know, the implied 4Q or the, you know, the 4Q guide, what are the moving pieces there? And then jumping off into next fiscal year, many points, you know, we just touched on the air pocket, but any other dynamics we should keep in mind as we look to next year?

James T. Hippel, CFO

Sure. Yeah. So as we think about Q4, the guidance we gave on the earnings call was essentially a flat quarter year over year, which again, taking the 150 basis point headwind in an account for these two fast-track customers implies an underlying growth or a jump-off point for fiscal year 27 of a positive 2% or so, which is very similar to what our Q3 performance was. If you take the 400 basis points, 300 from these two fast-track, one from this OEM timing, and put that into play, it's basically saying the same kind of underlying growth. You know, at the end of the day, pharma is already performing very, very well. We still don't see any reason why that doesn't continue in both the near and intermediate and longer term. Academic is stabilizing and, for us, gradually improving. We think that, as Kim outlined, it will be a gradual process, but nonetheless going in the right direction. So we kind of see that continuing. And then, of course, biotech is really the big swing factor. It has been as to when this funding turns into spending. As Kim alluded to, there's all kinds of As you dive deeper into the funding detail, it points to, you know, a one-quarter lag for emerging versus the overall biotech in terms of when the funding really started to come in. And so whether it's the very end of Q4 or whether that's the start of our fiscal year 27, it's like trying to, you know, thread a needle. But nonetheless, it does appear like it's on the horizon sooner than, you know, more sooner than later. And it's not a matter of if, it's a matter of when, as long as the funding continues in the right direction. So, you know, we've said, hey, we're not going to try to thread this needle anymore by quarter. We're assuming that our Q4 is very similar to our Q3, even for biotech. But either way, it sets us up for a very nice jump-off point as we think about fiscal year 27, because if you think about plus two as being the jump-off point, you know, biotech going from high single-digit declines just to flat gives you a couple extra points. It's over 20% of our revenue. So just that dynamic alone would suggest a nice step up. And, of course, you've got the dynamic of easier comps in general, definitely in biotech as well as academic, and generally improving markets for both academic and in Asia. So it's setting up for a nice, I think, recovery or start to recovery in fiscal year 27. I think we're very pleased with our relative positioning going into our fiscal year 27.

Mike Riskin, Analyst — Bank of America

Okay. I mean, it sounds like you're generally more constructive on most of these factors, but still some uncertainty and some unevenness. Is visibility broadly getting better, or is it still, you know, a little bit challenging some of these, you know, swing factors, things like biotech, things like A&G?

James T. Hippel, CFO

I always say being a very highly consumable-based business as we are, it's, you know, it's a blessing and a curse sometimes, right? It's a blessing because of the great reoccurring nature of it. it's a curse from a forecasting perspective sometimes because the book and the book and ship all happens within a day or two so you really got to look at momentum and external factors and try to calibrate all that I'd say where it is encouraging in terms of the biotech funding starting to turn into spending sooner than later is where we're seeing some increased activity with our customers that require longer funnel building and longer lead times and that would be in our instrument portfolios both in our proteomic instruments but also in our spatial And we're hearing from the field that for the first time in quite a while, the interest level from biotech customers are starting to pick up there. The funnel is actually starting to build. So, again, that bodes well, maybe not for Q4, but as we start to fiscal year 27, that's a very good sign that we're seeing actually in the field right now with regards to our biotech customers. And we saw that same dynamic, by the way, play out in U.S. academic. So, yes, we grew low single-digit in academic. that growth was actually driven, believe it or not, by our proteomic instrumentation and our spatial instrumentation. And we've always said that when we see markets start to turn, we often see it in those two areas first because they're high-growth areas. They're tools that are in high demand by our customers. You can tell that by the consumables usage. Like, for example, proteomic analytics has the cartridges. is we have not had a down quarter in consumables since COVID for our instruments. So they're using the heck of our instruments, and it makes sense that when the money starts to become available, that's one of the first places they'll start to spend it.

Mike Riskin, Analyst — Bank of America

Kim, something you touched on earlier, AI, and sort of how that's factoring into conversations, have to touch on that. Just, you know, how prominent is that in your conversations with your pharma and biotech customers in terms of AI applications in research and discovery and sort of how you can fit into that narrative?

Kim Kelderman, CEO

Yeah, it's certainly on the forefront of many of the discussions. We believe that eventually it will increase the efficiency of development work and therewith allows for a broader portfolio and more projects that can efficiently move forward to a commercial drug. So increase of the pipeline, bottom line. But short term, you can clearly see that customers would like to make sure that they can use their data for building their models. And therefore, automation is on the forefront of their minds. And of course, our protein analytics platforms, all three of them help you creating digital information on your biological instruments sorry, biological experiments and our comet instrument very much aligned with doing large experiments as well and then if you think about the data you generate you would like to have reproducible data using high quality reagents where there are many publications as well as good characterization data around those reagents And that's exactly what we've built over the last 50 years, taking every reagent that we launched very serious, highly characterized, and over the many decades published from all angles. So we do believe that we have a very strong competitive advantage in that environment. To validate it all, we've done a survey of over 100 of our customers, 140 or so, to see how and where they are in their adoption cycles, what their needs will be. and very much validated the storyline I just elaborated on. So we're very confident that we're in the right spot with the right sense of urgency, with the right direction.

Mike Riskin, Analyst — Bank of America

I mean, trends you're talking about in terms of reproducible data, high-quality data, high-quality reagents, automation, more high-content screening, high-throughput screening, that's stuff that pharma's been doing for 10, 20, 30 years, right? It's been a trend, a move in this direction. has there been a real step function change in the last like six months 12 months where it's taken another leg higher where you can see sort of like okay this is when pharma started using ai and boom they're doing a lot more high throughput screening they're doing a lot more automation or is it still more gradual is it still to come is it you know are they still experimenting with these workflows these protocols or is it already kind of being implemented yeah it's a good question at the end of the day i would have to say that in general the adoption has definitely increased over the last year.

Kim Kelderman, CEO

And you can imagine with the rhetoric and the drive top-down in a company to be in the forefront, there is definitely a step up. But you're also right in saying that many of them have already been adopting the large language models for several years. So with that, you can conclude that not everybody is at the same stage, right? And you'll see a bell curve. You have the fast movers where they're already building models and starting using the data. And others are right on time and started putting it in gear over the last year. And you'll see laggers. And overall, though, the trend is undeniable that we will see this bell curve moving through our customers and their demand and the type of products they would like to have.

Mike Riskin, Analyst — Bank of America

And the pharma that's already adopting this, and that's sort of further along on the curve, what are you seeing from them in terms of, like, spend levels overall? Are they spending more money total, or are they spending the same amount of money but shifting it around in terms of baskets, how they're doing R&D? Sort of, like, what are the early earnings in terms of how they're implementing it? Because there's a lot of debate of, you can make an argument that, you know, biotech and tools in general are beneficiaries here. You could argue that it's a detriment to the space, sort of, like, you know, it's hard to tell where the overall dollar amount will go.

Kim Kelderman, CEO

The overall view is that it will be beneficial and I think maybe not in overall volumes of the standard reagents because you could argue that there's now enough data where you don't have to do the exact same volume with the rudimentary early stage experiments. But the moment you have a hypothesis of something that could work for you, you will have to start doing your tests and your your design of experiments and for that you will need very highly characterized and you will have more complicated uh molecules in your in your on your wish list and and that's where we come into play and that's where we've been really uh really differentiated and that's because we have been thinking around with proteins and antibodies and other reagents for 50 years okay all right uh we're almost out of time uh maybe just as our concluding question um any any last thoughts you'd like to leave investors with um anything that's sort of top of mind or anything that you're getting a lot from investors that you want to address well overall uh you know we have the specific dynamics that we're glad that we're getting at the back end of of our fiscal year with with these uh these shifting timing of orders and fast-track customers. That's obviously a storyline that can distract investors but underlaying is a very strong strategy and a strategy that is even in tougher end markets holding up. As I mentioned in my opening statement we have seen strength in our core businesses and definitely growth in the three verticals we talk about where we have fantastic solutions and we can generate disproportionate growth by pulling through disproportionate high margin reagents and the setup works very nicely and i'm very confident that we can be able to further demonstrate the strategic advantage in 2027. okay that sounds great uh we're gonna leave it there thanks erin for joining uh kim jim thank you so much for being