Earnings call transcript: BioTage reports strong year despite Q4 dip

BioTage (BTAG) has reported a robust financial performance for the full year, achieving over $1 billion in revenue with a 10.5% increase year-over-year. Despite a 9.5% decline in Q4 revenues, the company has shown resilience with improved gross margins and significant growth in cash from operations. The stock remains stable at $10.73, trading near its 52-week high of $11.26, with a strong YTD return of 7.44%. According to InvestingPro, the company maintains a FAIR financial health score, suggesting balanced operational performance and market position.

Key Takeaways

• Full year revenue surpassed $1 billion, growing 10.5% year-over-year.
• Gross margins improved to 62.7%.
• Q4 revenues dropped by 9.5% due to Astraea revenue comparison.
• Adjusted cash from operations increased by 33%.
• The company is preparing for potential revenue volatility in 2025.

Company Performance

BioTage demonstrated strong performance throughout the year, with a significant increase in revenue and operational efficiency. The company faced a challenging fourth quarter, attributed to comparisons with Astraea revenue. BioTage’s strategic focus on expanding consumable sales and launching new products positions it well for future growth, reflected in its impressive 9.63% one-year price return. For deeper insights into BioTage’s valuation and growth prospects, InvestingPro subscribers can access comprehensive Pro Research Reports, featuring detailed analysis of the company’s financial health and market position.

Financial Highlights

• Revenue: Exceeded $1 billion, up 10.5% year-over-year.
• Gross margin: 62.7%, up 1 percentage point.
• Adjusted cash from operations: $579 million, a 33% increase.
• Gross cash: CHF434 million; net cash: CHF184 million.

Outlook & Guidance

BioTage remains committed to its three-year revenue and profitability targets, despite expecting revenue volatility in 2025. The integration of the Astraea business is anticipated to bring revenue and cost synergies, albeit with one-time integration costs projected at $25-30 million in 2025. The company is focusing on high-growth drivers and market penetration to maintain its competitive edge. With the stock trading 19% above its 52-week low of $9.04, investors seeking detailed valuation metrics and growth projections can find exclusive insights through InvestingPro’s comprehensive financial analysis tools.

Executive Commentary

"We remain intact to our long term strategic objectives," stated Frederick VanderHagen, CEO, highlighting the company’s commitment to its strategic goals. Andrew Kellett, CFO, emphasized a shift towards "profitability and cash maximization," indicating a focus on financial efficiency.

Risks and Challenges

• Revenue volatility due to Astraea integration.
• Potential impact of lower backlog entering 2025.
• Market dynamics in the drug discovery and development sector.
• Geographical sales shifts, particularly in the Americas.
• Exposure to NIH funding, albeit low to mid-single digits.

BioTage’s strategic initiatives and strong financial performance suggest a positive outlook, though challenges remain. The company’s focus on innovation and market expansion will be critical in navigating future uncertainties.

Full transcript - Biotech Acquisition Co (BIOT) Q4 2024:

Conference Operator: Welcome to BioTage q four twenty twenty four report presentation. For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing 5 on their telephone keypad. Now I will hand the conference over to CEO and President Frederick VanderHagen and CFO Andrew Kellett. Please go ahead.

Frederick VanderHagen, CEO and President, BioTage: Good morning, good afternoon, good evening, depending which part of the world you’re joining us. It’s my pleasure today to introduce our interim report Q4 and full year 2024. Joining me today is our CFO, Andrew Kellett. On the agenda today, I will briefly introduce our Vision and Missions. Then I will turn it over to Andrew to give a deep dive on our Q4 and four years highlights.

I’ll cover as well our strategic priorities and Andrew will finalize it with the financial update. Next (LON:NXT) slide, please. Our mission statement of empowering our customers to simplify and accelerate discovery and development is defining on how we drive our long term growth and industry leadership. This is how we create value to our customers and shareholders. As we reflect on our Q4 twenty twenty four results and subsequently on our 2025 priorities, we are staying true to our vision and mission.

Despite increased volatility and macroeconomics challenges affecting the sector, BioTege is very pleased to report a 10.5% growth in revenue during 2024. We have seen a slightly improved gross margin reaching 62.7 percent. Adjusted cash from operations increased 33% year over year, equivalent to 106% of our adjusted EBITDA. In summary, these results show that our product and services remain in high demand and that we can face both current and future headwinds in the sectors without deviating from our long term strategy. I’m particularly pleased by the performance of our core business that is now reporting sequential quarter over quarter growth and excluding China is resuming back to mid single digit growth.

As we’ve seen in quarter four, Astraea business can be quite volatile on a quarter by quarter view. Our revenue is derived by our customers base that use our product in productions. While our long term growth is defined by how many new customers we get specified in clinical Phase II, our short term revenue is defined by those customers in production mode. We remain true to our long term growth strategies and we are pleased to report that we continue expanding our customers based in clinical Phase II. But we also have to balance this with our short term imperative.

As such, our 2025 priorities will be to further integrate the Astra businesses to realize full revenue and cost as well as knowledge synergies between the two businesses. We have put new leadership in place to execute the strategy execution and derive the cost savings initiatives that we have defined. We will remain true to executing our long term vision for the Astra business, which aim to develop new solutions to address customers’ needs in partly expanding our service offering in column packing and binding ligands to your beads. Astra will continue to be volatile through 2025. We are completing our strategic review of oligo businesses, which we have defined as not being part of our future strategic focus for the company.

Through the year of 2025, we will continue deriving disciplined operational executions, pivoting to profitability and cash maximizations, streamlining our cost structures and deriving operational excellence across the business. We will continue focusing on high growth drivers and enabler, accelerating our application development and executing our new product launches. As such, we will increase market penetration in the attractive peptides and purifications market. We continue remaining committed to our three years revenue plan and profitability targets. I’m now turning over to Andrew to give you a deep dive on our financial results.

Thank you, Fred. Good morning, everybody.

Andrew Kellett, CFO, BioTage: The Q4 report along with the presentation available on the BiTAGE website under the Investors section and then Financial Reports. As Fred has just indicated, the business had a solid Q4 performance and continued momentum for the full year. Revenues for the first time exceeded billion and grew by 10.5% on prior year. We also grew gross margins, underlying EBITDA and underlying cash from operations in the year. For the full year, our core Biotage business grew revenues 1.3 excluding China and narrowed the decline to just minus 1.9% including China.

China continues to be a smaller part of our total business, below 5%. Strayer full year revenues grew 23% and our full year recurring revenues remained strong at 72%. In Drug Discovery (NASDAQ:WBD) and Development, we delivered full year revenues of billion, up 11% and this accounted for 71% of our total revenues. In Analytical Testing, we delivered full year revenues of million, up 9%, and this accounted for 29% of our total revenues. In the fourth quarter, we saw similar trends to what we’ve seen throughout the year, a gradual momentum building in our key Western markets and continued headwinds in China.

Total (EPA:TTEF) revenues in Q4 were million, down 9.5%, reflecting the very high weighting of Astraea revenue in Q4 ’twenty three. Highlights in Q4 include the sequential quarter on quarter growth in the core Biotage business of 6%, Small Molecules backing growth at 2% and growth in Systems revenue at 3%, with Q4 Systems revenue the highest quarter since Q4 twenty twenty two. Large Molecules declined in the quarter as expected attributed to the strong comparable period, although they were still very strong at $220,000,000. Our gross margins for the full year were 62.7% at one percentage point with Q4 margin 61.8% up 0.7 points. Australia had a very strong margin performance, delivering 71% in Q4, up 10 points and 66.7% for the full year, up five points.

The core Biotage business delivered full year margins of 61% and Q4 margins of just under 57. In Q4, in our core Biotage business, margins were impacted by the softness in the Oligo service business, which had a negative impact of approximately 1.8 points, some provisions on a small number of specific inventory items with an impact of 1.5 points and mix, which had a negative impact of two points. FX had a positive impact of 0.4 points. Q4 mix was impacted by both higher system sales and the composition of specific product sales. Broadly, systems deliver margins at high 50s, early 60s percent, whereas recurring revenues deliver margins in the high 60s, early 70s percent, depending on the type of products sold in a particular period.

For the full year, the Oligo service business had a negative impact on the existing biotage margins of approximately 0.6 points. FX had a negative impact of 0.5 points and mix had a positive impact of 0.4 points. Excluding the Oligo service business, margins were comparable year on year. We are now in the process of a strategic review of our Oligo service business and will report when we have concluded this. In Q4, we delivered an adjusted EBITDA of million and for the full year million, up 6%.

In the quarter, we delivered adjusted cash flow from operations of $181,000,000 and for the full year, $579,000,000 up 33%, clearly demonstrating our ability to successfully convert profits into physical cash. We finished the year with gross cash of CHF434 million and net cash of CHF184 million. In the year, we funded acquisition earn out payments of CHF287 million, a dividend of CHF128 million dollars and investments in tangible and intangible assets of 169,000,000 for future growth. So to conclude, we’ve delivered a good full year performance, delivering revenue margin, EBITDA and cash flow growth despite the market headwinds we have faced. As we look at 2025, we will have a disciplined approach into the operational execution of our strategic priorities.

We will pivot to profitability and cash maximization, streamlining our cost structure and driving operational excellence throughout the business. We plan to further integrate Australia to enable us to fully realize the long term revenue, cost and knowledge synergies. This will incur estimated one off integration costs of approximately $25,000,000 to $30,000,000 in 2025. With the leadership changes in the commercial teams that have already occurred and future ones we are making at Astraea, we are likely to see much more revenue volatility in 2025. In 2020 as we enter 2025 with an Australia backlog down on what we entered 2024.

And as that backlog typically gets converted in H1, we can expect this to have a corresponding impact on reported revenue. Despite the short term volatility, we still believe we will deliver on our long term vision for the business. We’re also focused on high growth drivers and enablers, accelerating application development and execution of new product launches and increasing our market penetration in the attractive peptide purification market. Above all, we remain committed to our three year revenue and profitability goals. But I think we’re now happy to take questions.

Conference Operator: If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Matthias Hagblom from Handelsbanken. Please go ahead.

Matthias Hagblom, Analyst, Handelsbanken: Thanks so much. Good morning. Thanks for taking my questions. I have two questions, please. So first on Astrea, you had a modest Q1 last year with sales up 7% to 8% and you speak about the quarterly volatility for Astrea in 2025% and the back of down by the end of the year compared to the year before, which has guest fixed to some of those challenging comps.

I’m more interested to hear how we should think about 2025 as a year as a whole for Austria. I don’t know what concerns this model for Astraea in 2025. We carry 15% growth for the year. Anything you can say to help us frame fair expectations for Astraea for the year would be helpful. And then secondly, also on Astraea, you’ve now been in place as CEO for five years roughly and there’s been some departures within the Astraea team.

You’re speaking your CEO statement about a relatively young organization. I think I heard you talk about the new leadership team in place. So any additional color on those organizational changes would be helpful. Thanks so much.

Frederick VanderHagen, CEO and President, BioTage: Yes, Matthias, thank you for the question. This is Frederic. I’m going to answer your questions. First, we don’t provide a full year guidance. We provide a long term guidance for the business.

And as Andrew and I have stated early on, it does remain intact. Our commercial organizations today is focusing on expanding our customer base in clinical Phase two. We recognize that as this has limited impact on the short term revenue, but it’s fundamental to a long term growth trajectory as those customers who are evolving and when we are seeing those in short in clinical Phase two, the product gets specified and will later on evolve through clinical Phase three and subsequently in production. To give you a perspective, when we see customers in early stage discovery, we enjoy revenue in the $10,000 to $15,000 a year. And as those customers evolve subsequently in scaling up, we can increase that by tenfold.

But that doesn’t offset a customer that is in production which generates millions of dollars on column’s business. So I think this is where we have to balance or short term imperative a long term strategy. So as I said early on, we remain intact to a long term strategic objectives because our customers’ base as we are seeding is constantly expanding on a year over year basis. So we are penetrating more molecules, more workflows as we speak. Considering the management changes as I started pivoting to further integrating the structures and we have come to the conclusion that it was time for us to change leadership there.

Subsequently, some of the commercial leaders have also decided to pursue a new endeavor outside of Biotage. That has little impact on to our short term revenue. And as we rebuild an organization with new capabilities and fresh expertise, we believe that the team will be able to continue executing on the long term imperatives that we set for the business. So we don’t expect these management changes having an impact into the business on the short term level.

Matthias Hagblom, Analyst, Handelsbanken: Two quick follow ups, if I may. So firstly, on the long term prospects for us three of them being intact, could you remind me what those are? Are those the same as for the group? Or are they specific? I’m not sure exactly I fully get.

I want to make sure I fully understand what you referenced there. And then secondly, in terms of the leadership and the new leadership, so is that now Ram comes centrally from Bipartisan or do you have a new team in place at Astellia or perhaps both?

Frederick VanderHagen, CEO and President, BioTage: So I’ll take up the second question. So I think we are I think through last year’s we have started to bridge between the two businesses. So I think the Chief Scientific Officers from Astra has now a broader role and is overseeing the two businesses from a technology and scientific standpoint. Andrew was the former CFO from Astra has also oversees responsibilities for the whole business. We’ll continue driving synergies and cost synergies by leveraging the back office activities and senior leadership activities across the two businesses.

When it comes to the commercial organization, the business model are still fundamentally different in terms of revenue generations and activities. So we remain focused with a commercial team that is dedicated to Astrea. The sizable business though does not need to have a dedicated general management or CEO for the Astra business. So I think from that perspective, we don’t intend to replace the general management CEO type like function that we inherited from the acquisition of Astra at the time. When it comes to our long term objective, it is about seeding customers in early stage discovery.

And as such, when one of those customers goes into production, then we can enjoy the long term revenue in several millions. So while we cannot predict if and when a customer that we exceeded in clinical phase two will get into a production mode, I think the model relies upon exceeding as many of those molecule as possible. Last year we have we were fortunate to have one customer that have evolved into production that has started to generate revenue for us. And we hope and trust that by seeding as many molecules we get more customers moving sooner into production mode.

Matthias Hagblom, Analyst, Handelsbanken: Thanks so much.

Conference Operator: The next question comes from Ludwig Lundgren from Nordea. Please go ahead.

Ludwig Lundgren, Analyst, Nordea: Yes. Hi, Frederic and Andrew. So continuing a bit on Astrea, comparing to last year, you have really changed the geographical sales split with about half of it coming from Americas Now. Can you comment a bit on what has been driving this shift?

Andrew Kellett, CFO, BioTage: Yes, I mean, hi Ludwig. Yes, I mean, I think this is kind of one of the kind of commercial strategy in action. As we work with our customers and they’re bringing their products into production, that can obviously have quite a significant impact in the amount of product we’re selling them. So what we’ve seen in the growth in The States is one of our customers is moving one of their products has now has got into production and that’s much commercialization. And therefore, you can see a rapid swing up in the level of demand for the product.

Frederick VanderHagen, CEO and President, BioTage: So Ludwig, if I can chime in as well. I think it’s well known that the most dynamic market when it comes to innovation in the large market space is The U. S. Market. So I think our efforts about seeding customers in clinical phase two is primarily driven towards that market.

We cannot predict ultimately if and when the manufacturing will end up into US or Europe or if the customer is going to produce the molecule themselves or go through CDMO or CMO for production. So I think our revenue recognition is dictated by the ship to addresses. But as Andrew indicated, last year as one of our customers decided to produce into The U. S, and that is one that’s driven our short term revenue.

Ludwig Lundgren, Analyst, Nordea: Okay. Very clear. And then you have previously highlighted that the three largest Astrea accounts make up a significant share of sales. So like are these three accounts still active? And how do you view the growth potential from these in 2025?

Frederick VanderHagen, CEO and President, BioTage: Yes. I think we haven’t lost any single customers. They are all active. You know that the product is all preg is specified into the downstream processing. And as such, the process defines the product.

And we haven’t seen neither loss in market share. Customers are having a very I would describe it as interesting molecules. What we reported early on, one of our customers in the plasma business is resuming back to normal growth rate, which is one of the drivers for business onwards. The other one that we are creating ammo on the non plasma business, which is recumbent on proteins and that one’s remained solid from an outlook point of view. So I would say we haven’t lost the single customers.

The customers the plasma demand resumed to normal for us and the non plasma business remain intact from an outlook point of view.

Ludwig Lundgren, Analyst, Nordea: Okay. Understood. So then kind of a follow-up. So in Europe then, the business was significantly lower in Q4 twenty twenty four compared to last year. Could you say anything about like the underlying drivers for this?

I believe plasma has been somewhat weaker here in Q4. And also then how you view the European market then into 2025?

Andrew Kellett, CFO, BioTage: Yes. I mean, yes, I mean, clearly, the plasma demand I mean, I would say the plasma demand was low. It was just it was just phased differently. So the, you know, as we see, rather than in q in 2023, that plasma demand was was very back end loaded. In 2024, it was much more in a way front end loaded into the first three quarters rather than the fourth quarter.

That’s why you’ve got that big disparity kind of quarter on quarter. But when you look at the kind of the year, you’ll get a more kind of considered

Ludwig Lundgren, Analyst, Nordea: view. Okay. And like is there any reason why the total amount of sales in ’25, so to say, will be lower than ’24 for plus? I believe like the inventories now are more in stable levels. So like is a similar level, so to say, from that end market fair to assume for 2025?

Frederick VanderHagen, CEO and President, BioTage: Again, we don’t comment on the outlook. We are responding to demand of our customers. And as Andrew indicated, we entered the year with a sizable backlog in 2024 that basically increased our demand and our revenue in 2024. We are entering 2025 with not such a strong backlog. So that’s certainly going to have an impact on our revenue outlook for the plasma business.

Andrew Kellett, CFO, BioTage: Okay. So where is

Ludwig Lundgren, Analyst, Nordea: the final one?

Karl Noorin, Analyst, SEB: Sorry.

Matthias Hagblom, Analyst, Handelsbanken: Sorry,

Andrew Kellett, CFO, BioTage: look, if it’s worth just kind of commenting that kind of that plasma, we are not losing business to others. That is a baked in, Biotage Australia product. So it is customer demand dictated. It’s not as they’re moving supplier. It is not that is not the cause of any changes in orders.

It is purely the customer.

Ludwig Lundgren, Analyst, Nordea: Okay. Great. And then final one on Small Molecules. I believe sector peers has been somewhat optimistic about the market like improving here in Q4 with like quite okay exit rates and some peers at least has been guiding for quite solid growth in 2025. Could you comment anything about the market here, like the exit rate for the market at least in Q4?

Frederick VanderHagen, CEO and President, BioTage: Yes. I think you’ve seen that 2024 was characterized for us on the small molecule by the China situation. I think we believe that China has come to a bottom here. We don’t expect China to be a a substantial growth driver as far as Khaled given the small impact it has on our business. But we also and we have demonstrated in Q4, we have seen mid single digit growth resuming back into that space.

So I think as we have new product coming to the market that will primarily influence that small molecule sectors, I think we remain optimistic into that space as we think about 2025.

Ludwig Lundgren, Analyst, Nordea: Okay. Thank you for taking my questions.

Conference Operator: The next question comes from Karl Noorin from SEB. Please go ahead.

Karl Noorin, Analyst, SEB: Yes. Good morning. Can you hear me?

Matthias Hagblom, Analyst, Handelsbanken: Yes. Hi, Carl.

Karl Noorin, Analyst, SEB: It’s Carl. Yes. Yes, a question on the analytical testing side. I mean, now two week quarters in a row with really no real growth. I think when I asked the question in Q3, you said it was more temporary, but now it’s coming in a little bit weaker again.

So could you just explain what is the driver of the weakness here? It seems to be related to The U. S.

Andrew Kellett, CFO, BioTage: Yes, I think the main driver of analytical testing business is The U. S. And no, I wouldn’t necessarily I kind of I know it’s again you know I wouldn’t necessarily read a lot into it you know we’ve seen our business growing and we still think our analytical testing business is a solid growing business. So yeah I mean I kind of yes, again, I wouldn’t read a lot into that. We certainly have a lot of confidence in it.

And certainly, as we look into twenty twenty five, we think the drivers behind it are still solid and we expect we still expect progress there.

Karl Noorin, Analyst, SEB: Okay. So growth to be expected in that space going forward, it sounds like?

Frederick VanderHagen, CEO and President, BioTage: Yes. We are I would add to what Andrew said. We are aiming to launch products in that segment to support the growth there. So I think that is what help us to remain confident throughout 2025.

Karl Noorin, Analyst, SEB: Yes. That’s good. And then on the Small Molecules side, I noticed that you yes, started to quite a big step up sequentially and the growth year over year again reported at least. And I noticed that the system sales are quite much up here. So I’m just wondering if that’s related totally to the peptide system sales?

Or

Matthias Hagblom, Analyst, Handelsbanken: are the

Karl Noorin, Analyst, SEB: other segments also seeing growth there?

Frederick VanderHagen, CEO and President, BioTage: I think our peptide systems have been strong. We have increased our output with our partners by 50 persons, so five-zero. That has certainly helped us to clean a little bit of what we had as a backlog, but the demand has remained very strong. We also have seen demand expanding across the different segments and not only specific to the peptides. So that’s where I think we remain cautiously optimistic as well when it comes to the equipments.

But our strategic focus is next to the equipment also to make sure we leverage or install is to overdrive consumable across the business, which is a key imperative to continue driving margin expansion.

Karl Noorin, Analyst, SEB: Okay. That’s all for me. Thank you.

Conference Operator: The next question comes from Ludwig Lundgren from Nordea. Please go ahead.

Ludwig Lundgren, Analyst, Nordea: Yes. Just a final one, if I may. So just regarding NIH funding, we’ve seen a lot of rumors about this indirect cost limitation, yes, being implemented probably from the U. S. Government?

Like how much of an exposure does BioTorch have to these types of funding channels?

Andrew Kellett, CFO, BioTage: That’s for our U. S. Business, Ludwig. It’s kind of mid to low single digits. It’s very small.

So it’s not yes, it would be a slight headache if it was curtailed, but we don’t we’ve seen lots of reports that even in the first Trump administration, NIH funding actually increased. So if it did cut off, yes, it was slight headache, but I say it’s low to mid single digits of our U. S. Business only. So it’s a relatively small amount.

Ludwig Lundgren, Analyst, Nordea: Okay. Thank you.

Conference Operator: On your telephone keypad. There are no more questions at this time, So I hand the conference back to the speakers for any closing comments.

Frederick VanderHagen, CEO and President, BioTage: So I want to thank you. I want to say that, we continue executing flawlessly towards our operational execution focus this year and profitably as well as strong cash conversion for the year 2025 and that despite the volatility that we have seen in Astra, we remain confident on our long term algorithm for growth and we are confident into the perspective of our business. We don’t believe that the management change will have an impact into our short term revenue and we are continuing to seeding all clinical Phase two customers to drive towards the long term objectives. I want to thank you all for joining us today.

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