Brandon Couillard

Brandon Couillard noted Bio-Techne's outperformance in operating margin expansion in the first half despite mix challenges and asked if the company's decision to stick with 100 basis points for the full year implies reinvestment in the second half. He also inquired about the significant decline in operating cash flow in the first half and the full-year cash flow outlook.

Answer

Jim Hipple, Bio-Techne's CFO, explained that operating margin expansion in the second half would come roughly half from gross margin improvement and half from higher revenue, with Q3 being a tougher comp and Q4 easier. Regarding operating cash flow, he clarified that the Q2 cash flow was strong and on par with the prior year, but Q1 was impacted by the timing and amount of bonus accrual payouts and some tax payments, which will gradually unwind throughout the fiscal year.

Brandon Couillard noted Bio-Techne's outperformance in operating margin expansion in the first half despite mix challenges, asking if the company's commitment to 100 basis points for the full year implies reinvestment in the second half, and how margins are expected to trend. He also questioned the significant decline in operating cash flow in the first half, which typically accounts for under half of the full year, asking about timing dynamics and the full-year cash flow outlook.

Answer

CFO Jim Hipple explained that a Q3 anomaly (timing of expenses last year) impacted comparisons. He expects continued sequential improvement in gross margin due to mix unwinding and higher revenue in the second half, with roughly half of the expansion from gross margin and the other half from increased revenue, aiming for 100 basis points improvement for the second half. For operating cash flow, he clarified that Q2 was strong, but Q1 was impacted by two main drivers: the amount and timing of bonus accrual payouts (a larger cash outflow year-over-year compared to a low payout in the prior year's Q1) and the timing of tax payments, which will gradually unwind.

Brandon Couillard asked about Revvity's free cash flow conversion, which has improved over the last two years, seeking more color on the levers driving this improvement and the target for free cash flow conversion in 2026.

Answer

Max Grykowiak, SVP and CFO, attributed the improved free cash flow conversion (near 90% recently, up from 70% previously) to working capital initiatives, the benefits of a portfolio with a higher recurring mix, and company-wide incentives. He expects continued momentum in 2026, targeting 85% conversion or greater, in line with their long-range plan.

Brandon Couillard asked about Revvity's free cash flow conversion, noting its improvement over the last two years, and inquired about the target for 2026, including the levers for continued improvement and the expected free cash flow for the year.

Answer

Max Krakowiak, SVP and CFO, stated that free cash flow conversion has been incredibly strong, averaging close to 90% over the past couple of years, a significant improvement from around 70% previously. He attributed this to working capital initiatives, a higher recurring product mix in the portfolio, and incentivized cash flow targets across the company. For 2026, he expects continued momentum, with the long-range plan (LRP) calling for 85% conversion or greater, which is the expectation for the year.

Brandon Couillard asked about the 70% gross margin in Q3, whether it represents a new baseline for 2026, and what additional areas exist to lower COGS per test. He also sought clarification on any true-up revenue embedded in the Q4 revenue guidance and major clinical or reimbursement milestones for 2026.

Answer

Ross Taylor, CFO, indicated that while not providing 2026 guidance, maintaining gross margins in the high 60s% is a reasonable expectation, noting a negative mix shift from faster-growing oncology products. Oguzhan Atay, Co-founder, CEO, and Board Chair, added that individual product ASPs are growing and COGS are decreasing, expanding each product's gross margin. Ross Taylor confirmed Q4 true-up revenue is expected to be 3-5% of revenues, consistent with prior quarters. Oguzhan Atay identified the biggest 2026 milestone as securing the first Medicare/MolDX coverage for Northstar Response.

Brandon Couillard inquired if the 70% gross margin in Q3 2025 represents a new baseline for BillionToOne, and what additional areas offer opportunities to lower the cost per test over the next one to two years. He also sought clarification on true-up revenue in the Q4 guidance and key data readouts or reimbursement milestones for 2026.

Answer

Ross Taylor, CFO, suggested expecting gross margins to remain in the high 60s% for the next several quarters, noting the negative mix shift from faster-growing, lower-margin oncology products. Oguzhan Atay, Co-founder and CEO, added that individual product gross margins are expanding due to growing ASPs and decreasing COGS from increased lab capacity utilization. Taylor confirmed Q4 true-up revenue is expected to be 3-5% of revenues, consistent with prior quarters. Atay highlighted securing the first Medicare/MolDX coverage for Northstar Select Response as a major 2026 milestone.