Bio-Techne - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 delivered 6% organic revenue growth (4% reported) to $316.2M and a strong adjusted EPS beat at $0.56 vs prior year $0.48, while GAAP EPS fell to $0.14 due to a non-recurring arbitration award impacting GAAP operating margin (12.2%).
• Adjusted operating margin expanded 190 bps YoY to 34.9% on volume leverage and cost actions; Protein Sciences grew 7% organically with 45.6% segment margin, Diagnostics & Spatial Biology grew 2% organically with 9.4% margin.
• Management flagged near-term headwinds from NIH funding uncertainty and tariff escalations; guided Q4 organic growth to temporarily slow to low-single digits and adjusted operating margin to be 100–150 bps below Q4 FY2024, but expects full tariff impact to be fully mitigated by the start of FY2026.
• Capital returns stepped up: $0.08 quarterly dividend and a new $500M share repurchase authorization; net debt remains modest with $330M bank debt and $140.7M cash at Q3.

What Went Well and What Went Wrong

• What Went Well

  • Protein Sciences executed strongly: 7% organic growth to $227.7M; segment margin expanded to 45.6% on volume leverage and profitability initiatives.
  • Adjusted profitability outperformed: adjusted operating margin 34.9% (+190 bps YoY) and adjusted gross margin 71.6% despite FX headwinds; CFO emphasized structural streamlining and diligent expense control.
  • Management highlighted robust pharma demand and traction in cell therapy and protein analysis platforms (Maurice), with biologics instruments growing double digits; “Our continued focus on profitability resulted in a 34.9% adjusted operating margin” (Kelderman).

• What Went Wrong

  • GAAP results compressed: GAAP EPS $0.14 vs $0.31 prior year and GAAP operating margin down to 12.2% due to a non-recurring arbitration award.
  • Academic end-market uncertainty tied to NIH policy changes pressured capital equipment demand; academia was flat and Spatial Biology, most exposed to U.S. academic funding, saw headwinds despite COMET’s double-digit growth.
  • China declined mid-single digits YoY with tariff-related pressures; management expects Q4 growth to slow to low-single digits and margin 100–150 bps below last year before tariff mitigation fully offsets by FY2026 start.

Transcript

Operator (participant)

Good morning and welcome to Bio-Techne earnings conference call for the third 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 the management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead.

David Clair (VP of 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 BofA Securities, RBC Capital Markets, Benchmark, William Blair, Jefferies, and Goldman Sachs Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim.

Kim Kelderman (President and CEO)

Thanks, Dave, and good morning, everyone. Thank you for joining Bio-Techne's third quarter conference call. I'm pleased to report that we delivered yet another strong quarter with 6% organic revenue growth while operating in a relatively uncertain macro environment. Our differentiated performance was evident across our product portfolio, namely within our core reagents, our automated analytical solutions, and in our cell and gene therapy offering. This result was once again delivered with an emphasis on profitability, as the operational efficiencies we continue to put in place led to an adjusted operating margin of 34.9%. The team continues to do an excellent job balancing investments to position the organization for future growth with initiatives to drive efficiencies, and by doing so, we are maintaining our industry-leading profitability.

Our performance by end market in Q3 was led by low double-digit growth in pharma, which we expected to return to historical growth rates in calendar 2025 following the realignment of the R&D pipelines during March of 2024. We saw early signs of this improvement in our fiscal second quarter, with that positive momentum continuing into our third quarter. Going into calendar 2025, we did not anticipate the major U.S. policy shifts impacting the academic end markets. This started on February 7th, with the NIH issuing guidance of a flat indirect cost reimbursement rate of 15% across all NIH grants. With the incoming NIH director announcing that he will be evaluating the impact of the proposed 15% cap, along with a federal judge implementing a permanent injunction on this policy, it remains to be seen how this will play out. In the meantime, however, our U.S.

Academic customers are facing uncertainty around the future funding of their research projects. This can impact purchase decisions, particularly around capital equipment. Another policy shift that has been announced by the new Secretary of the Department of Health and Human Services is getting a much higher priority around combating chronic diseases like cancer, diabetes, and neurological disorders. Once the dust settles around the overall level of the NIH funding, Bio-Techne stands to benefit from the NIH grants geared towards these diseases, as our product portfolio is perfectly aligned with those research areas. Now, let's discuss our growth drivers in the protein sciences segment, where strong execution drove demand for a market-leading catalog of research reagents, protein analysis tools, and cell therapy workflow solutions, which resulted in 7% organic revenue growth.

Starting with our core portfolio of research-use-only proteomic reagents, I want to highlight that over the last 49 years, we have amassed a catalog of over 6,000 proteins and 400,000 antibody types. This biological content is relied upon by our global customers to gain novel insights into biological pathways, to develop and manufacture advanced therapeutics, and to enable precision diagnostics. In addition, we license and supply our content to other life science tools companies for usage in their assays and consumables. Looking ahead, we are encouraged by the FDA's recent announcement to advance public health by replacing animal testing in the development of monoclonal antibodies and other drugs with more effective, human-relevant methods. The FDA's emphasis on reducing animal testing opens an opportunity for Bio-Techne's organoid solutions for both making and analyzing organoids.

Organoids, which better mimic human physiology than traditional cell cultures or animal models, offer an ethical, cost-effective, and faster alternative for assessing drug efficacy, toxicity, and mechanisms of action. Annually, we sell over 50 million of our core reagents, including proteins, small molecules, and media for organoid solutions in a market that has been growing north of 20%. With this recent announcement by the FDA, we expect that the growth of organoid solutions will accelerate and that this will also be a tailwind for our GMP reagents once these solutions advance into the clinic. Staying with our GMP reagents, here we saw growth in the high single-digits in Q3. We serve over 500 customers who rely on our GMP reagents for their cell therapies across all stages of development.

As a reminder, customers in late-stage clinical trials can make large, less frequent orders, making a trailing 12-month growth metric more reflective of underlying demand. Our GMP reagents business sits just over 13% growth on a TTM basis. The next growth driver in protein sciences for this quarter was our protein analytical instrumentation business, especially in our biologics platform, Maurice. As a reminder, Maurice is specced into bio-production processes for protein identity, protein charge, and protein purity testing purposes. The Maurice family of instruments is enjoying robust growth from our pharma and CRO partners and is gaining traction as a gene therapy QA/QC platform. Biologics grew double-digits in the quarter with broad-based strength in both instrument placements and consumables pull-through. Now, we will move to the growth drivers within our diagnostics and spatial biology segment, which delivered 2% organic revenue growth in the quarter.

The growth across the divisions in the segment was, in general, consistent, with order timing having a significant impact on our OEM diagnostic reagents business as well as on our estrogen carrier screening and oncology business. The underlying markets and our performance remained healthy, with year-to-date growth in the high single-digits for the diagnostic reagents and low double-digits for the estrogen portfolio. Estrogen continues to launch innovative products that leverage its proprietary chemistry to resolve difficult-to-analyze genes. For example, we launched the AmplideX Nanopore Carrier Screening Plus Kit, which utilizes Oxford Nanopore's long-read sequencing technology to directly capture many complex genomic variants in a single workflow. Also, within the segment, we continue to drive ongoing utilization and penetration of our ExoDx Prostate Cancer Test, which increased over 30% for the fiscal year to date. Spatial biology, which has the highest exposure to U.S.

Academic-end markets within the company have been most impacted by the NIH uncertainty. However, despite this uncertainty, our Comet instrument was still able to achieve double-digit growth in this quarter. The Comet platform provides full automation and multi-omic capabilities. These remain key competitive differentiators and enable new scientific discoveries and accelerated drug development. During the quarter, we made excellent progress upgrading the Comet installed base with multi-omic capabilities, which provides images of RNA and proteins on the same tissue sample. This positions the system for a steady ramp in consumables pull-through of RNAscope reagents as well as our portfolio of newly validated spatial antibodies. Before I hand the call over to Jim, I would like to address the most recent dynamic around tariffs, which has impacted the global economy.

While the tariff escalation, which began in April, has understandably had an impact on our life science tools industry, it does represent a clear opportunity for Bio-Techne. We may not be immune to tariff escalations, but by utilizing our global operational footprint, we are extremely well-positioned to mitigate most tariff impacts to our bottom line very quickly. Jim will provide more details, but we mobilized a small, specialized, and highly effective team within our company to focus on several work streams. One work stream is around the optimization of our global footprint for regional production, which is, of course, not subject to cross-border tariffs. A second work stream is to focus on utilization of our global supply chain, and we also initiated a work stream to make targeted price and/or surcharge adjustments with the intent to minimize impact to our customers.

The output from this team has yielded excellent results, which we believe will fully mitigate the cost impact of the tariffs as currently configured by the end of the current quarter, which happens to align with the start of our fiscal 2026. The work done will also position us very well to quickly minimize the impact of future tariff changes. This approach allowed the vast majority of our 3,000 employees to continue to focus on our strengths, which include providing our customers with the highest quality products, to offer productivity tools to automate our customers' workflows, which will help offset some of the tariff-related cost pressures they may face, and we will continue to bring meaningful innovation to the market.

Last but not least, we provide access to an expert commercial team that enables our customers to quickly choose the right products and the right solutions to enable their success. With that, I will pass the call over to Jim. Jim?

Jim Hippel (CFO)

Thanks, Kim. I'll start with some additional details in our Q3 financial performance and then give some thoughts on the financial outlook for the remainder of the fiscal year. Starting with the overall third quarter financial results, adjusted EPS was $0.56 compared to $0.48 in the prior year, with foreign exchange having an immaterial impact. GAAP EPS for the quarter was $0.14 compared to $0.31 in the prior year. Q3 revenue was $316.2 million, an increase of 6% year-over-year on an organic basis and 4% reported. Foreign exchange was unfavorable to revenue growth by 1%, and divestitures also had a 1% impact to revenue. By geography, North America increased low single-digits year-over-year, driven primarily by our pharma customers. Europe increased mid-single-digits year-over-year, led by strength from academic customers. China decreased mid-single-digits as the economic situation there is still challenging.

Encouragingly, the rest of Asia increased mid-teens, with our team executing very well on improving market conditions. By end market in Q3, biopharma increased mid-single-digits, while academia was flat in the quarter. Below revenue on the P&L, total company adjusted gross margin was 71.6% in the quarter compared to 71.9% last year, down slightly due to unfavorable foreign exchange. Adjusted SG&A in Q3 was 29% of revenue compared to 30.3% in the prior year, while R&D expense in Q3 was 7.8% of revenue compared to 8.5% in the prior year. The decrease in SG&A and R&D was driven primarily by the benefit of structural streamlining and diligent expense control, which was partially offset by ongoing strategic growth initiatives.

Adjusted operating margin for Q3 was 34.9%, up 190 basis points compared to the prior year due to the impact of favorable volume leverage, productivity gains, and cost controls, partially offset by the impact of foreign exchange. We continue to execute cost containment measures and prioritize our growth initiatives to drive efficiencies throughout the organization, with the goal of maximizing operating leverage while we are in this dynamic macro environment. Looking at our numbers below operating income, net interest expense in Q3 was $0.8 million, decreasing $2.3 million compared to the prior year due to lower net debt levels. Our bank debt in the balance sheet as of the end of Q3 stood at $330 million. Other adjusted non-operating income was $3 million in the quarter, an increase of $1.4 million compared to the prior year.

The increase was driven by the foreign exchange impact related to our overseas cash pooling arrangements. Moving further down the P&L, our adjusted effective tax rate in Q3 was 21.5%, down 50 points compared to the prior year due to geographic mix. Turning to cash flow and return of capital, $41.1 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $10.1 million. Also, during Q3, we returned capital to shareholders by way of $12.6 million in dividends and $100 million through stock buybacks. Also, our Board of Directors has recently approved a new share repurchase program authorizing the repurchase of up to $500 million of common stock. We finished the quarter with 158.9 million average diluted shares outstanding.

Our balance sheet finished Q3 in a strong position with $140.7 million in cash, and our total leverage ratio remains well below 1x EBITDA. Going forward, M&A remains a top priority for capital allocation. Next, I'll discuss the performance of our reporting segments, starting with the protein sciences segment. Q3 reported sales were $227.7 million, with reported revenue increasing 6% compared to the prior year. Organic revenue growth was 7% for the quarter, with foreign currency exchange having an unfavorable impact of 1%. The segment's organic growth was driven by large pharma customers across the portfolio. Operating margin for the protein sciences segment was 45.6%, an increase of 140 basis points compared to prior year, primarily due to the impact of favorable volume leverage, cost management, and structural alignment initiatives.

Turning to the diagnostics and spatial biology segment, Q3 sales were $89.2 million, with both reported and organic growth increasing 2% compared to the same quarter last year. Segment growth was consistent across the businesses, with stronger performance in our automated spatial instrument, Comet, as well as continued strong growth in our ExoDx Prostate Cancer Test. Moving on to the diagnostics and spatial biology segment operating margin at 9.4%, the segment's operating margin was relatively consistent with the prior year's 9.3%. We anticipate improvement in the diagnostics and spatial biology operating margin as the Comet platform continues to scale. In summary, Q3 was a solid quarter overall, and our teams executed extremely well, especially considering the turbulent market conditions induced by NIH funding and tariff uncertainties.

Up to this point in the year, our overall top-line results have been in line with our expectations at the beginning of the fiscal year, while our bottom line has exceeded our guidance. However, as we approach the finish of our fiscal year, there was no way to predict last July that our market would be facing the uncertainties of future NIH funding and tariffs that we are now experiencing. These uncertainties have only increased in April, with the escalation of tariffs that began on April 2nd, followed by the recent Trump administration's proposed fiscal year 2026 budget, which includes a 40% cut to NIH funding. Let me frame up how we think about our exposure to these two major uncertainties and explain why we are so well-positioned to turn these lemons into lemonade. First, on the uncertainty of NIH funding.

As a reminder, approximately 12% of our annual revenue is from U.S. academic customers, and we estimate that roughly half of that is sourced from NIH grants. Also, during Trump's first administration, he proposed NIH cuts ranging up to 20% every year. However, in each of those four years, Congress actually passed increases to the NIH budget with bipartisan support. We view the potential for severe cuts to NIH funding over the next four years as rather unlikely. However, even in the most severe scenarios, the decrease in funding would have an immaterial impact to our overall long-term double-digit growth rate expectations. That is before you consider our lemonade, which is that Bio-Techne stands to benefit from a potential shift in NIH's emphasis on areas of research where our products are the most impactful. Next, I'll address the uncertainty swirling around the ongoing tariff war.

As it stands today, if we were to take no action to absorb all tariffs, the recent increases in global tariffs would amount to approximately $20 million annual impact to our adjusted operating income. Most of this exposure is coming from Chinese tariffs on our proteomic analytical instrument platforms imported into China from the U.S. As Kim stated in his remarks, we have focused teams who are driving work streams to negate the tariff impact to Bio-Techne and our customers, with the highest priority on leveraging our global footprint to regionally diversify our instrument manufacturing. Our lemonade, with respect to tariffs, is the speed by which we can negate the impact of these tariffs to our bottom line and position the company even better to mitigate any further tariffs should they escalate from here.

This speed will allow us to not be distracted internally, but rather double down our focus on our customers, especially as they are facing the same uncertainties. As we close out the remainder of fiscal year 2025, the additional macro uncertainties around tariffs and potential budget cuts that arose this past month are likely to cause further distraction for our customers. Thus, we expect our growth momentum will temporarily slow to the low single-digits in Q4. With respect to the bottom line, there will likely be a temporary headwind due to tariffs, resulting in adjusted operating margins being 100-150 basis points lower than Q4 of last year. However, we are confident that the bottom line impact of current tariffs will be fully mitigated by the time we start our fiscal year 2026, positioning us extremely well to continue our differentiated financial performance.

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 (participant)

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Puneet Souda with Leerink Partners. Please go ahead.

Puneet Souda (Senior Research Analyst)

Yeah, hi guys. Thanks for taking my questions here. Maybe the first one on the guide, could you provide more context into that, Jim, in terms of the impact you're expecting on academic? I mean, it's a meaningful reduction versus what you had before and what you're seeing in the quarter. It does beg a question: was there a pull forward that you saw on the pharma side? As a result, you're seeing more impact in the fourth quarter. Also, on the pharma side, if you could clarify, I think you said low double-digit at first, but then mid-single-digit for biopharma. Could you just clarify what was the growth in pharma and large pharma?

Jim Hippel (CFO)

All right. I do not recall saying anything about biopharma, but to clarify, large pharma was double-digit growth for the quarter. With respect to, if we think about Q3 versus Q4, Kim mentioned in his comments that our reagents, our quality reagents, are also sold to other life science tools companies, our partners, as you call it, ingredients into some of their products. We had some nice orders come from those customers who were largely serving pharma customers as well this most recent quarter. Some of those orders we do not expect to repeat, again, necessarily in Q4, so that is maybe part of the reason for the step down in organic growth. As it pertains to academia, we started our Q3 in academia very strong in January.

Of course, in February, with all these announcements, there was a great slowdown in academia, and then it kind of stabilized again in March. We kind of expect that stabilization to occur or continue throughout Q4, but thus be lower than where we were in Q3. I think the biggest question, and I think where we're being somewhat conservative, but I think prudent to be conservative, is on the pharma side. To expect double-digit growth in pharma in Q4, given the tariff environment that had been announced as of April 2nd, which did not really impact Q3 as much as it could Q4, is really, I think, where the biggest difference in the guide is in Q4 versus how we performed in Q3.

With regards to where our expectations were at the very beginning of the year, clearly, yeah, even though our performance year to date has more or less been in line with those expectations, how we got there is quite different, meaning large pharma has outperformed where we expected to be up to this point in time. Clearly, we did not expect a situation with the academic in the U.S. policies. Since you asked about smaller biotech or pharma, we talked about that being gradually gaining momentum in our first half of the year, but that momentum somewhat stalled. It did not go backwards, but it somewhat stalled in Q3. I think that is just the nature of the overall global economic uncertainties where our biotech customers are the most susceptible to that in terms of where their next dollar might come from down the road.

I think they're just more highly sensitive to the more macro environment, and that's what we're seeing from them. Hopefully that helps.

Kim Kelderman (President and CEO)

Yeah, Puneet, this is Kim. Good morning. Thank you for your question. You mentioned pull forward, right? In Q2, we posted 9% organic growth, but had mentioned that three of that were probably because of early demand by our customers. We are very transparent in that. This quarter, though, we do not see that. We do not have a carve-out related to pull forwards. We do think this was really based upon momentum in the end market of large pharma.

Puneet Souda (Senior Research Analyst)

Got it. That's helpful. Since we're at fiscal year 2026 is around the corner, wondering what you can provide there, just given a lot of, I appreciate the uncertainty, but with China, NIH, and with tariffs, I appreciate you quantifying at least the gross impact, but how should we think about 2026? There's maybe a specific question on China. I believe it's 50/50 instrumentation and consumables for you there. How should we think about the China growth rate in 2026? Thank you.

Kim Kelderman (President and CEO)

Yeah, Puneet. Yeah, 2026, we usually do a soft guide at the beginning of a fiscal year, which is about three months from now. One thing that we feel relatively certain about is that we expect that there will be more clarity from the different headwinds in our end markets over those three months. It seems to be that, of course, a lot of turbulence has been installed upon NIH as well as on the tariff situations. We think that more clarity will come in the coming months, coming quarters, and that will definitely help us quantifying the impact for Bio-Techne in the coming year. Your question around China, I think the tariffs, as I mentioned in my prepared remarks, fortunately are very negatable for Bio-Techne. I'm very positive about how we can offset the tariff impacts and negate them.

We just have to see how the Chinese economy holds up and how their internal funding works. We definitely saw a little bit of a step back from our initial guide, right? We had mentioned that China was stabilizing earlier in the fiscal year. We had mentioned that it would crawl back to the black, and it was definitely on that trajectory. This last quarter, with all the turbulence, you could certainly see a step back into mid-single-digits negative. That is very much driven by the tariffs and by the local economical activities.

Operator (participant)

Thank you. Our next question comes from Dan Leonard with UBS. Please go ahead.

Dan Leonard (Managing Director and Research Analyst)

Thank you. My first question is on tariffs. I would love to understand your exposure a bit better. I mean, China is 9% of your revenue, and I think you quantify the analytical instrument exposure into China. But as Puneet mentioned, you sell more than analytical instruments into China. I would assume that most of that is manufactured outside of China. Any kind of color commentary, Kim, you can provide on why that tariff headwind is not larger.

Kim Kelderman (President and CEO)

Yeah, Dan, thank you very much for your question. Yes, China is 9% of revenues. That's a good point. Usually, right, over the last couple of years, it was 50/50 if it comes to the mix between consumables and instruments. Over the last year, that has actually shifted a little bit, so that's not the real ratio anymore. Nonetheless, let's say it's 50% on our instruments. We have a very clear and fast pathway to be able to move some of the instrumentation manufacturing that we right now have in the U.S. to another location, and that's the benefit of having a global footprint. Another Bio-Techne location that would be exempt from import fees into China. That is really the largest part of the tariffs. Our consumable part is vastly different if it comes to the tariffs.

Over the last couple of weeks, we have actually noticed that we do not pay any tariffs on importing those. That really negated most of the tariff exposure going into China.

Jim Hippel (CFO)

If I could just add also, not all the instruments and all the cartridges for the instruments are produced in the U.S. today. It is not a one-for-one exposure. It also allows for an easier transition of the instruments that are not currently made or that are currently made in the U.S. for China to allow those to be moved to the facility where there are instruments being made for China.

Dan Leonard (Managing Director and Research Analyst)

Understood. Thank you for that clarification. Just a follow-up. Does the current tariff situation impact at all your thinking on having more of a local manufacturing footprint in China?

Kim Kelderman (President and CEO)

Yeah, Dan, I think it doesn't. The tariffs have not changed our position there. We always had a mindset of China for China. Yeah, actually, last year, we talked about Bio-Techne having opened a new facility in the Shanghai area to serve the Chinese market. We're actually quite glad that we have this footprint because it might actually come in handy in the coming quarters as well if necessary, right? We're really happy with the layout as we have it because the local manufacturing in the different regions and therewith minimizing cross-border tariffs is definitely a tailwind right now.

Operator (participant)

Thank you. Our next question comes from Matt Larew with William Blair. Please go ahead.

Matt Larew (Equity Reserach Analyst)

Actually, I'll just circle back on the first question, actually. As you originally built the guide for this year, which I think you've called fairly well, it was exiting in the high single-digits, and the street's were used as a proxy for fiscal 2026. As you alluded to, much has changed. To the point, Jim, on sort of lemons and lemonade, it feels like maybe the lemons are accumulating near-term and the lemonade maybe takes a little longer to squeeze out? At 8.5% street organic growth for next year, is maybe the way you're guiding us for fiscal 2025 at least more reasonable starting points than maybe where the street's are today?

Jim Hippel (CFO)

Yeah. I mean, what I would say, Matt, is that what we're experiencing right now is very abrupt, but we also think everyone hopes will be somewhat temporary, right? Our momentum going into Q3 was very strong. We were basically on our projections for smaller biotech. We were on our projections and trajectory for China. Academic was holding up very, very well, as it had been consistently up until this last couple of months. Pharma was actually ahead of our expectations. It is really this temporary, I call it temporary, jolt of uncertainty caused by proposed changes in policies and tariffs. I think once that uncertainty is resolved and becomes more certain, almost regardless of what the outcome is, we will be extremely well-positioned to basically resume the trajectory that we were on.

Now, is that a quarter out or six months out or a year out? Hopefully, we'll have more clarity in three months. At some point, the uncertainty becomes more certain.

Matt Larew (Equity Reserach Analyst)

Okay. Obviously, the margins were very strong, the strongest in a couple of years here. Year over year, that was mostly driven from spending leverage. I think OpEx up something like 5% year to date as the top line has recovered. You mentioned it in the comments, but can you just speak to sort of that tension between ongoing cost containment and investment and where you're seeing additional opportunities to drive leverage?

Jim Hippel (CFO)

I mean, the teams have been doing a great job actually for a couple of years now with regards to managing that balance between investments and cost containment and alignment of our structure according to the various profiles of our business. That has just basically continued. We have especially been diligent on the, I'd call it, discretionary cost side the past three months or so, especially with the increased uncertainty that we have been seeing in our end markets. At times, uncertainty is the last time that you want to shift gears with regards to accelerating investment or any kind of discretionary spend.

I think the outperformance we saw in our margin was a combination of the revenues coming in as we had expected, but really holding back on the cost, seeing the kind of uncertainty build throughout the quarter that we did, just to make sure that we're extremely well-prepared for fiscal year 2026 in particular when these uncertainties start to become more certain.

Kim Kelderman (President and CEO)

I think it's the tension between, it's not even tension, really. We always said that we didn't want to get ahead of our skis if it comes to our cost position. We have been very prudent, like Jim mentioned, with discretionary spend. We also have been really focused on efficiencies, right? We have management processes in your company that we've definitely looked at and streamlined. We have integrated further some of our acquisitions to increase efficiencies. The digital side, we have looked at ERPs and the different software packages for efficiency gains. Last but not least, our operational processes and the margin boost from operations is also fantastic. Those have definitely been driving our results. In the meantime, on the R&D side, we have a very, very detailed process.

We call it prioritization to really rank and stack all the investments in all the different R&D projects and make sure that we fund the ones that are of strategic importance and that have good returns of investment. We have a fantastic clarity on where to invest. Therewith, we manage the balance between the two very, very well.

Operator (participant)

Thank you. Our next question comes from Daniel Markowitz with Evercore ISI. Please go ahead.

Daniel Markowitz (VP)

Hey, thanks for taking the question. The first one I had is based on the guidance, it seems like Q4 margins are expected in the 32%-ish type range. That is before tariff mitigation flows through. Is it fair to assume that fiscal 2026 margins at that 4Q exit rate of about 32% makes sense? Or should we be more prudent given the macro could imply that 2026 organic needs to come down a few percent?

Jim Hippel (CFO)

Yeah. I mean, we're not going to comment on guiding for fiscal year 2026 at this point in time, again, given all the uncertainties we're still dealing with. Similar to the top line, hopefully, those uncertainties will become more certain or less uncertain three months from now, and we can provide some more direction then. All I can share with you today is that I think this quarter demonstrated that we are positioning the company extremely well for whatever fiscal year 2026 brings from an end market perspective.

Daniel Markowitz (VP)

Great. Just one follow-up. On A and G specifically, just using peer comments, it implies that the U.S. academic and government end market could see 10-15% incremental headwinds in calendar 2025. Is there any reason to believe this wouldn't be an appropriate way to think about it? Is your exposure a little bit different? Just what are the kind of cost offsets and a reasonable decremental margin profile on these U.S. academic and government revenues?

Jim Hippel (CFO)

Yeah. I mean, I can't comment specifically on the 10-15%, except to say that our thoughts are this, is that first of all, the money that's largely being spent now by academic and probably for quarters to come are from grants that will already be approved and released. We're really talking about the impact of probably calendar year 2026 and beyond with regards to whatever gets decided upon with regards to NIH budgets. As a reminder, and I think everyone understands this history, but I'll repeat it, this has happened before in a prior Trump administration where there were severe cuts proposed, and a bipartisan Congress actually increased budgets every single year. I think it's a bit overblown with regards to what the impact of budgets will be.

In the meantime, it's understandable that, and we have several members of our board who come from academia, and of course, they've shared with us that there's natural concern around all this uncertainty, and it causes distraction for them as they think about where their next funds might come from for future grants. That's why I think certainty as to where the budgets are at will be the most important thing to calm down the academic market. That all being said, much of the double-digit increases that have occurred in NIH funding over the past four or five years since COVID has been directed more towards infectious disease, vaccine development, things around COVID and such. That is not our sweet spot where our portfolio plays. We've heard the administration say they want to defocus those areas.

If that's where the cuts happen, that will likely ultimately be a much less, if any, impact to us and could actually be a tailwind, which is the lemonade I spoke of with regards to funds being redirected more towards traditional chronic diseases such as cancer, diabetes, and neurology. That's, again, where our portfolio strengths are. That's how we think about it.

Kim Kelderman (President and CEO)

Yeah. Daniel, thanks for the question. Let me add to that that, fortunately, Europe academics were really, really strong, right? It is interesting to see that dynamic, which we might continue to see. In the meantime, think about our portfolio and how it also maps towards the academic market. Arguably, you would think that instrumentation is probably more impacted than our consumables. We have seen that in our numbers. Our consumables were relatively flat in the U.S. academic markets. 80% of our revenues come from consumables, 10% from services. That is obviously a very favorable mix. If you then look at the other 10%, that is instrument-related. Now, these instruments are actually on a relatively low price point, around $50,000, which then also you would expect is a little bit different decision-making process, so lower CapEx.

Then in the meantime, they are positioned to automate very clunky, yet fundamental processes in your laboratories and basically take cost out and increase your efficiencies, which might be something that you really would like during times of constraint. The positioning of those are just really, really, really good. Last but not least, we're just really happy that we also have fantastic commercial excellence, right? We have consultative selling from our team, a team of experts that can help you pick the right reagents really quickly, make sure that your experiments are repeatable, and give you the right results. In the meantime, for convenience, we have very much a valued partnership with Thermo Fisher Scientific, where we utilize the Fisher channels for ease of ordering.

With that, the academic market, we feel that we are, from all angles, as well-positioned as you could be.

Operator (participant)

Thank you. Our next question comes from Dan Arias with Stifel. Please go ahead.

Dan Arias (Managing Director)

Yeah. Hey, good morning, guys. Thanks. Jim, I'm sorry, but I think I need to go back to the academic stuff here. You're calling out the headwinds there, which makes total sense. You are guiding organic down next quarter partially with that in mind. I think your comment was that even under the most severe scenarios, funding would have an immaterial impact to getting to double-digit growth long-term. If the budget over the next couple of years is down 20%, 30%, 40%, which is in line with the proposals for 2026, is the idea that you can still get back to double-digits once the smoke clears on the other macro elements? I think I just need a little help with how you're framing that over the 2026, 2027 period.

Jim Hippel (CFO)

Yeah. Sure, Dan. Thanks for the question. Yeah, I mean, at the end of the day, when you look around our strategic plan, the key academic has never—it's an important part of our business because it feeds into biotech and pharma, etc.—it has never been the key growth driver for our growth plans. Our projections never assumed academic being a double-digit grower and more like a mid-single-digit grower, which it historically has been. Quite simply, I took the details of our strategic plan and assumed the worst case scenario, which was a 40% cut in our academic revenue across the board, and then from there, a gradual increase to historical growth rates of 3-5%. We were still overall at a double-digit growth rate over a five-year period.

Yes, I've taken that most severe situation into account in stating that it would still be a double-digit growth trajectory given our strategic plan.

Dan Arias (Managing Director)

Okay. Okay. Thanks for that. Maybe on cell and gene, apologies if you did give it, but I did not catch it. Is there a growth rate for the quarter? Just given what we are talking about, about some of the fluctuations in pharma ordering patterns, can you just sort of orientate us around what a good growth rate for GMP reagent cell and gene would be for this year since it is pretty important to the model? Thanks so much.

Kim Kelderman (President and CEO)

Yeah. Dan, the cell and gene therapy product line, we talk about the trailing 12 months, right? And that was a little over 30% for the 12-month period. As you know, we had quarters where it was 90%, 60%, 10%, and swings in between. That is just because the customers further along in the clinical process, so in phase three, they order less frequently and larger orders. That makes it lumpy. That is why we always look at our 12-month trailing, and that sits north of 30.

Operator (participant)

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

Thomas DeBourcy (Principal)

Hey, guys. Thanks for taking the question. My question is just diagnostic to genomic organic growth. I know you have more difficult comps in the second half of the year, but would have expected, I guess, as you rigid overall to kind of be more, I guess, unaffected by changes. Just curious whether there's, I guess, just topic issues related to some of the diagnostic and genomic portfolio growth.

Kim Kelderman (President and CEO)

Thank you, [Paul], for the question. I think that overall, in my prepared remarks, I mentioned that, of course, we looked very stringently at what is going on and in detail understand why the growth rate was lower than we usually have. It was the diagnostic reagents division as well as Asuragen with the larger account. Like I mentioned earlier, there is just the larger orders where timing becomes very important. We definitely looked on account or to account basis, are we losing shares? The market's slowing down, and there is a clear no and no. It was definitely a timing-related dip for those two businesses, which is not uncommon. That is why I look back at the year-to-date numbers for those two businesses, which are in both cases healthy, high single and low double for those two divisions.

Our diagnostic test from the EPI point of view, the prostate test has been growing very nicely in line with the other quarters, around 30%-ish for the year. Last but not least, we have our spatial biology division, which has been seeing some headwinds from the NIH funding issues. That is the division that is mostly or most severely exposed to NIH markets and certainly did not have the growth numbers that we have seen over the last couple of quarters, last couple of years. There we just look back at, do we have a fantastic offering? Are we competitive with our instrumentation? Do we win the deals that we compete in? There also, everything is very healthy. It is a purely end market-driven headwind in that division. That gives you basically the flavors of the four divisions in the segment.

Thomas DeBourcy (Principal)

Great. Thank you. Appreciate it.

Operator (participant)

Thank you. Our next question comes from Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly (Managing Director)

Hey, guys. Thanks for taking the questions. Maybe one on the biopharma piece. I think you talked about mid-single-digit growth this quarter. Can you break that down a little bit? I just wanted to talk about the biotech piece in particular. I know you talked a little bit about GMPs, but can you talk about what you're seeing from the biotech customer base? It's certainly been a concern across the industry just given the volatility on the funding backdrop. Curious what you're hearing from the customers there and expectations on that front.

Kim Kelderman (President and CEO)

Yeah. Thank you, Patrick. We certainly know that large pharma continues to be ahead of biotech in the recovery, right? Biotech is 30% of our revenues and large pharma 30%. Biotech was flattish in Q3. We believe that biotech funding is obviously very sensitive to capital markets, and those are very sensitive to economic uncertainty. That typically leads to more frugal spending. That is what we saw this quarter and what we expect next quarter.

Patrick Donnelly (Managing Director)

Okay. All right. That's helpful. If you don't mind, just a quick update on what's happening with Wilson Wolf, what the trends were this quarter. Just want to keep an eye on that as we go as well. Thanks.

Jim Hippel (CFO)

Yeah, Patrick, this is Jim. Thanks for the question. Yeah, Wilson Wolf continues to perform very, very well. They had growth very solidly into the double-digit growth rates this most recent quarter. They were projecting to have a very, very strong year in what will be calendar year 2025 for them, going into calendar year 2026. So far, they're right on track for that.

Patrick Donnelly (Managing Director)

All right. Thanks, guys.

Operator (participant)

Thank you. The next question comes from Sung Ji Nam with Scotiabank. Please go ahead.

Sung Ji Nam (Managing Director and Senior Equity Research Analyst)

Hi. Thanks for taking the questions. Maybe if I could go back to pharma, biopharma, the sectoral tariffs that are under discussion. Just curious, would love to hear your thoughts in terms of in an environment where there might be significant CapEx spending going towards expanding U.S. manufacturing, reshoring, etc., but potential pressure on the early stage or early discovery development work. Just curious how Bio-Techne is positioned in that environment or if you have different thoughts in terms of how the tariffs could play out. Thanks.

Jim Hippel (CFO)

I'll start off. This is Jim. Thanks for the question. I think part of the looming discussions we're hearing out of the administration around tariffs for pharmaceuticals is, again, part of the reason for the guide that we did for Q4. I think there's going to be perhaps another level right now, another level of uncertainty as it pertains to our pharma customer base. We've seen how uncertainty impacts other parts of our end markets. We kind of expect the same for pharma, at least temporarily. I don't know. It's probably anyone's guess as to how it ultimately plays. It's hard to put out different scenarios when we don't even know what the proposal is going to be with regards to tariffs on our pharma base.

I would say this: pharma spent a good part of last year already realigning their pipelines for what was the IRA Act. That's not something they take lightly, and it's a pretty great large endeavor. For the most part, what we're hearing from our customers is that's behind them. I think there are clearly going to be some changes with regards to CapEx spend and so forth. At the end of the day, the pharma companies overall are flush with cash. They're overall doing very, very well. Just because they need to perhaps spend some more on CapEx, if that's what they need to do to move some manufacturing lines around, doesn't necessarily mean that they'll take that out of their P&L for R&D. It's a good question. It remains to be seen.

Kim Kelderman (President and CEO)

Yeah. Let me add to that that overall, I mean, the early stage biotech with the core reagents was very much research-oriented. Over the years, we have definitely diversified our portfolio, made sure that we can continue to join a customer in their downstream processes into clinicals and into eventually a treatment. We have now our products way more distributed along the different stages. You can see that in some of our presentations where we're definitely playing discovery all the way through manufacturing. Of course, we also have a portion of our company aligned with the diagnostics and the treatments of diseases. Our portfolio is much more distributed than it has been a long time ago.

That means that even though there might be some shifts in where the pharma spending is, we feel that we're nicely distributed and therefore will benefit from the overall spend level.

Sung Ji Nam (Managing Director and Senior Equity Research Analyst)

Got it. That's helpful. Just quickly on the spatial biology side, thanks for the color there and the exposure to the academic markets. I was wondering about academic market outside the U.S., whether spatial could be growing faster? Also, the recent launch of the spatial protein proximity detection capability, I was curious if that could be also utilized within pharma and if you could talk about the competitive dynamics there for that particular application. Just not familiar with it. Thank you.

Kim Kelderman (President and CEO)

Thanks for noticing it. Yeah, I do believe, especially from the instrumentation point of view, where we still booked double-digit growth. As I mentioned, we certainly look at our win-loss rates, and we're really happy where those sit. We know that we're not losing share. If anything, we're doing really well with our placements and a very competitive offering. As you noticed, we have an instrument that is fully automated, and it can run true multi-omics. It will pull through our antibodies as well as our RNAscope for the RNA detection. On the consumable side, we now have the capability of not only showing your proteins as well as your RNA, but also protein proximity, meaning protein-protein interactions, which can be extremely important in the development and the treatment of a disease.

You can see that we've been building out the multi-omics where there's truly no competitor already looking at just RNA and proteins. Now we're adding RNA, proteins, and protein-protein interactions. That's truly unique if it comes to the offering and very high value to our customers. We're very pleased with our competitive positioning there.

Operator (participant)

Thank you. That was the last question for the day. I would now like to hand the conference over to Kim Kelderman for closing remarks.

Kim Kelderman (President and CEO)

Yeah. Thank you very much for your insightful questions. Before we conclude the call, I'd like to formally welcome Dr. Amy Herr to the Board of Directors of Bio-Techne. Dr. Herr is currently a Chancellor's Professor of Bioengineering at the University of California, Berkeley. She also serves as the Vice President of the Chan Zuckerberg Biohub Network. Dr. Herr's appointment completes a two-year process to identify and appoint successors to retiring Director Randy Steer, who retired in 2024, and Dr. Roeland Nusse, who will be retiring later in 2025. Dr. Herr's deep biological and engineering experience are an ideal fit for our Board of Directors and the strategic direction of the company. Welcome, Dr. Herr. To conclude the call, I want to say that I'm extremely proud of the team's continued execution in what has proven to be a prolonged period of uncertainty in our end markets.

Our differentiated financial performance is a testament to the value our customers place on our uniquely-positioned portfolio of research reagents, proteomic analysis tools, cell therapy workflow solutions, and diagnostics and spatial biology products. This portfolio unlocks cutting-edge discoveries and significant efficiencies for our customers. It also provides a strong foundation to sustainable value creation within Bio-Techne while we pursue our mission to improve the quality of life by catalyzing advances in science and medicine. Thank you very much for attending our call, and have a great day.

Operator (participant)

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.