Bio-Techne Corp (TECH) — Q2 2021 Earnings Call Transcript

Good morning and thank you for joining us. On the call with me this morning are Chuck Kummeth, 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 as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2020 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 as a result 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 the most comparable GAAP measures are available in the company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. I will now turn the call over to Chuck.

Thanks, Dave, and good morning everyone. Thank you for joining us for our second quarter conference call. I hope you and your families have remained safe as we get closer to turning the corner on this horrible pandemic. The Bio-Techne team delivered another strong quarter, accelerating our organic growth year-over-year to 19%, building on the strength we experienced last quarter. In fact, our 19% organic growth rate represents our strongest performance since I joined the company in 2013. This growth was broad based across our segments and geographies as our print annotation in biopharma continues to be red hot. Even academia returned to double-digit growth. The new normal of social distancing and staggered shifts has become an accelerant for the continued adoption of several of our technologies, namely Simple Plex and Simple Western. I will dive into the specifics of each of these platforms later, but they are all gaining traction or remain in the early innings of penetrating their large respective markets. We delivered this record organic growth with a continued focus on profitability as our adjusted operating margin improved 530 basis points year-over-year to 38.7%. Some of this improvement reflects the timing of hiring investments to drive future growth but shows a leverage in profitability inherent in our business model. The COVID pandemic continues to impact traditional ways researchers are staffing labs and conducting experiments as well as the ways we are interacting with these customers. But I'm encouraged with the innovative solutions researchers have leveraged to push science further and the innovative strategies our commercial teams have implemented to meet their evolving needs in these challenging times. Academia, in particular, is getting better at managing through the COVID-related restrictions and we're encouraged with the sequential improvement we experienced in this end market. While we experienced robust growth with both biopharma and academia customers in Q2, both of these end markets remain largely closed to outside visitors, creating challenges for our commercial team to get in front of customers. Our commercial team once again did an excellent job adjusting to this new normal, leveraging webinars to educate current and potential customers on our portfolio of agents, selling gene therapy solutions, tissue biopsy and spatial analysis solutions and instruments. During the quarter, our team got even more creative, using virtual coffees and happy hours to get increased face time with our customers. These virtual meetings and webinars will remain an important cost-effective part of our commercial strategy for the remainder of the pandemic and beyond. Our digital marketing initiatives remain an important tool to differentiate Bio-Techne, educate the scientific community on our portfolio of innovative and productivity-enabling tools, drive traffic to our website, and ultimately convert this traffic to revenue. These digital efforts have become increasingly more effective during the COVID pandemic, and we continue to execute this strategy at a high level in Q2. Researchers often begin their quest for reagents and research productivity tools with an internet search, so ensuring Bio-Techne is one of the top results of these searches is critical to drive traffic to our website and convert these visits to sales of our products. Leveraging search engine optimization and targeted ad strategies remain a key component of our digital strategy, and both continue to generate high returns on investment with an outsized impact on sales within our antibody and protein portfolio. Last quarter, we announced the launch of OneWeb, a new website that unites all of Bio-Techne’s brands under one easy-to-navigate site, enabling our customers to order products across our instrument and reagent portfolio under one website while leveraging algorithms to drive purchases across our portfolio and position the business to realize increased revenue synergies. We began a scaled launch of OneWeb in November, and initial customer feedback, as well as traffic to our web, has been positive. OneWeb, paired with our SEO and targeted ad efforts, drove double-digit growth this quarter in a number of sessions, page views, new users, and repeat users on our website. Given the correlation of our revenue growth this quarter, our strategy is clearly generating results and we will continue to pull this growth lever going forward. Now let's discuss the performance of our growth platform, starting with the Protein Sciences segment, which grew 19% organically for the quarter. Growth is strong across our core reagent portfolio, with both RUO proteins and antibodies growing low double-digits. In addition to the impact of academic labs reopening in our digital initiatives, our reagent business also experienced a favorable tailwind from custom work for biopharma customers in need of additional protein or antibody capacity. Our custom reagent development business increased over 60% in the quarter and we are leveraging multiple strategies to capitalize on this outsourcing trend going forward. During Q2, we continued to push our cell and gene therapy initiatives forward. One of the key components within our cell and gene therapy business is GMP proteins, with these cytokines and growth factors playing a critical role in the cell and gene therapy workflow. Revenue generated from our portfolio of GMP proteins once again increased nearly 100% in Q2. Recall that we recently opened a 61,000 square foot state-of-the-art GMP reagent manufacturing facility to address the expected demand for GMP proteins and reagents as a growing pipeline of cell and gene therapeutics progress through the regulatory approval process. We made significant progress qualifying the facility and have begun manufacturing production lots of select GMP proteins. We also executed our second long-term GMP protein supply agreement in the quarter. We remain in various stages of discussion with several other biotech companies of pipeline cell and gene therapies for future potential long-term GMP protein supply agreements and are very pleased with the funnel of potential deals. Sticking with cell and gene therapy, our genome engineering services business, which includes our non-viral vector-based gene transfer technology TCBuster, continues to gain attention from the cell and gene therapy industry. I would also note we're seeing a growing list of collaborators and positive feedback on Cloudz, our non-magnetic deep base cell separation technology for human T-Cells, natural killer cells, and human regulatory T-Cell T-Reg activation and expansion kits. We are still in the early innings of both TCBuster and Cloudz, but both of these innovative cell and gene therapy workflow technologies remain important pieces of our cell and gene therapy workflow solutions. ScaleReady, our JV with Fresenius Kabi and Wilson Wolf, formally launched at the beginning of calendar 2021 with a mission of providing a more simple, scalable, and versatile cell and gene therapy manufacturing platform in the industry. As a reminder, this consortium pairs Bio-Techne’s portfolio of cell and gene therapy workflow solutions, including our Cloudz cell separation and activation technology, GMP proteins, and genome engineering services, with Fresenius Kabi’s leukapheresis instrument and Wilson Wolf’s bioreactor to enable a modular, cost-efficient workflow solution. The ScaleReady website is up and running, and the commercial team began its initial customer outreach campaign, including initial contact with over 600 industry participants and almost 250 gene therapy companies. Also during Q2, Bio-Techne made an initial strategic investment in Changzhou Eminence Biotechnology Company, a China-based life science company with best-in-class media, including CHO cells and other GMP media products, as well as custom cell line and media formulation development services. Eminence will use the financing proceeds to expand its manufacturing capacity and increase the service capabilities of its China headquarters GMP media production facility. Investing in Eminence expands Bio-Techne's foothold in providing additional products and services to support the needs of the rapidly growing Chinese biopharmaceutical industry and fits extremely well with our existing high-growth product portfolio in China. We look forward to working with the Eminence team. Now let's discuss our proteomic analytical tools portion of the protein sciences segment where the strong momentum we saw in Q1 continued with our portfolio of instruments and assays enabling research labs to increase productivity while adhering to social distancing and staggered work shift protocols. Once again, we experienced very strong growth in our SimpleFlex multiplexing ELISA instrument ELLA, with our revenue almost doubling year-over-year. Encouragingly, SimpleFlex utilization within our customer base continues to increase as researchers leveraged ELLA to investigate inflammation, cancer, neuroscience, and other disease states and biological pathways. ELLA's relatively small footprint, low price point, sub-picogram level of sensitivity, and reproducibility are driving both instrument placements and consumable pull-through. Our clinical program with Micropoint in China is on track, which speaks to the incredible diversity ELLA is capable of. We are now taking ELLA through a 510(k) process in the U.S., which will unlock new clinical opportunities for this amazing platform. It was a similar story with our automated Western instrument portfolio, where we grew almost 30% in the quarter. Our automated Western platforms turn the labor-intensive, messy, inconsistent, cumbersome manual Western Blot process, which can take up to two days, into a fully automated, reproducible sample-to-answer three-hour process. This value proposition has been resonating incredibly well with researchers as they return to the bench. With our solutions, less than 15% penetrated in the addressable market, there's plenty of room for continued growth. Our biologics instruments, which provide protein purity information and are used directly in bioprocessing, also had a standout quarter as we experienced broad demand from biopharma, including several companies working on COVID-19 vaccines in various stages of development or commercialization. Now I will provide an update on our diagnostics and genomics portfolio where organic revenue also increased 19% in Q2. Let's start with an update on our ACD or tissue pathology franchise, where organic revenue increased in the upper 20% range for the quarter. This growth was broad-based across geographies and product lines, including very strong performances from micro RNAscope following its launch this past summer as well. Momentum we experienced in RNAscope last quarter continued in Q2 as the single-cell spatial resolution and high sensitivity provided by this technology continues to drive market adoption. Biopharma’s need for increased productivity while working with limited or staggered shifts remains a tailwind for our PAS or pharma assay services business within ACD. Biopharma outsourcing their spatial genomic analysis has driven 40% growth in this business in the first half of fiscal year 2021. Now let's discuss our Exosomes Diagnostics business, starting with our prostate cancer liquid biopsy assay, the ExoDx prostate test. Encouragingly, we believe most of the urology practices across the country have reopened and we experienced another sequential increase in our prostate test volume. But patient traffic is still down from last year as older patients are more likely to quarantine at home until they become vaccinated. We expect urology traffic to continue to improve as vaccines make their way into this segment of the population, which in turn should have a positive impact on our ExoDx prostate testing volumes. In the meantime, our home kit version of the test continues to be the safest solution for patients to continue to work with their urologist. Recall that we partnered with Baseball Hall Famer Cal Ripken Jr. to co-promote our ExoDx prostate test following his personal prostate cancer journey, including his use of the ExoDx prostate test, which ultimately influenced his potentially life-saving decision to get the biopsy that led to the discovery of his aggressive prostate cancer. The marketing campaign continues to be successfully leveraged across all social media platforms and channels and is driving traffic to the Fight Like Hell page on the ExoDx website, where we saw page visits increase over 1400% sequentially. We also launched a physician locator function on the ExoDx website, enabling patients interested in taking a test to find physicians offering a test in their respective city. Our Exosome Diagnostics platform is not just limited to our ExoDx prostate test. There is a full pipeline of high-value diagnostic tests with our Exo True Kidney Transplant Rejection assay next in line for commercialization. We expect ExoTrue to become an important tool in the management of kidney transplant patients with its easy-to-collect urine-based sampling, enabling increased adherence to testing protocols. We completed verification of the assay and have optimized the workflow. Initial ExoTrue data has been accepted for publication in a well-respected medical journal, and we anticipate publication in the coming weeks. Despite generally soft non-COVID related diagnostic testing volumes, our Diagnostic Reagents division once again delivered a solid quarter, with organic revenue increasing in the upper single digits. This is actually the sixth quarter in a row that our Diagnostic Reagents division has delivered positive growth as the development pipeline and, to a lesser extent, COVID-related opportunities continue to bear fruit and smooth out the impact of what can sometimes be a lumpy bulk reagents order. I'd like to now give an update on our COVID-19 initiative. The products we sell are directly related to COVID research, for example, reagents and instruments with specific viral research applications, ACD probes to detect the virus in tissue, and sales of bulk diagnostic reagents using COVID testing applications, was an estimated 3% tailwind to our business in Q2. We expect that research in COVID will be around for many years, thus making this tailwind a sustaining new layer of our product portfolio going forward. We continue to make progress with the commercialization of the COVID-19 serology assay that we co-developed with Kantaro Biosciences based on Mount Sinai’s technology. The Kantaro serology assay is a truly differentiated test, providing not only information on the presence of COVID-19 antibodies, but also the level of titer of those antibodies. In November, the Kantaro COVID-Seroklir assay received EUA approval as a semi-quantitative assay, and we have submitted additional data to the FDA supporting a full-quantitative claim as we received in Europe with a CE Mark. We have commercial agreements now set up in many countries and are in discussions with many U.S. Spacelab systems. Today, most of the demand for COVID-19 testing has been PCR based, geared towards answering the question, am I infected with COVID-19? Now that vaccines are becoming available, with a lot of virus continuing to mutate, we believe demand for serology testing will increase as patients look to answer the question, am I immune? Ultimately, following a full FDA quantitative claim, we believe the Kantaro assay will be able to answer this important question, allowing us to return to the pre-COVID lifestyle we are all looking forward to. Our Q2 is evidence of the growth we are starting to unlock with our portfolio of proteomic analytical instruments, tissue pathology in spatial genomics products, cell and gene therapy workflow solutions, and liquid biopsy diagnostics. These large high-growth end markets remain under-penetrated and we're in the early innings of realizing the full potential of these growth technologies and platforms. Later on, for these the content and cross-divisional synergies inherent in our core reagent portfolio, and I'm increasingly confident in our ability to deliver our long-term revenue and profitability targets. I'm extremely proud of the execution that the Bio-Techne team delivered during the first half of our fiscal 2021, and we're looking forward to building on its success in the second half of 2021 and beyond. With that, I'll turn it over to Jim.

Thanks, Chuck. I will provide an overview of our Q2 fiscal 2021 financial performance for the total company, provide some additional color on the performance of each of our segments, and give some thoughts on the remainder of our fiscal 2021. Starting with the overall second quarter financial performance, adjusted EPS was $1.62 versus $1.08 one year ago, an increase of 50% over last year representing a new company record. Foreign exchange positively impacted EPS by $0.08. GAAP EPS for the quarter was $1.15 compared to $3.02 in the prior year, representing a 62% decrease. Our GAAP EPS results in the second quarter of last year benefited from a favorable realized and unrealized gain on our investment in ChemoCentryx. Q2 revenue was $224.3 million, an increase of 21% year-over-year on a reported basis and 19% on an organic basis for exchange. Foreign exchange translation had a favorable 2% impact on our revenue. Our strong growth in Q2 was fairly consistent across the globe, ranging from the high teens in the U.S. to 25% organic growth in China. By end market, biopharma growth was very strong at over 20%, and it was nice to see academia continue to grow in the low teens during the second quarter. Moving on to the details of the P&L, total company adjusted gross margin was 71.5% in the quarter compared to 70.6% in the prior year. The increase was primarily driven by favorable volume leverage. Adjusted SG&A in Q2 was 25.2% of revenue, a 310 basis point decrease compared to the prior year, and R&D expense in Q2 was 7.5% of revenue, 140 basis points lower than the prior year. While our adjusted SG&A and R&D spend both increased sequentially and compared to the prior year, a tight labor market in the life science space did not allow us to fill all headcount additions to the team at the pace we'd originally anticipated. Given the continued improvement we are seeing in our end markets, we still plan to fill these positions and continue with investments to position the company for growth going forward. The resulting adjusted operating margin for Q2 was 38.7%, an increase of 530 basis points from the prior year period and a 50 basis point sequential improvement from Q1. Looking at our numbers below operating income, net interest expense in Q2 was $3.4 million, decreasing $1.1 million compared to the prior year. The decrease was due to a continued reduction of our bank debt during fiscal 2021, as well as lower floating interest rates. Our bank debt on the balance sheet as of the end of Q2 stood at $231.5 million. Other adjusted non-operating expense was $1.3 million for the quarter, compared to $2.5 million expected in the prior year, primarily reflecting the foreign exchange impact related to our cashpoint arrangements. For GAAP reporting, other non-operating income includes unrealized gains from our investments in ChemoCentryx. Moving further down the P&L, our adjusted effective tax rate in Q2 was 20.6%, a 120 basis point improvement over the prior year, with the improvement primarily driven by geographic mix. We expect our effective tax rate going forward to be consistent with Q2 barring no changes in corporate tax law. As Chuck mentioned, during Q2, we made a strategic equity investment in China-based Eminence, a company focused on providing media as well as custom cell line development and media formulation services to the Chinese biopharmaceutical market. The $130,000 non-controlling interest line item reflects one-month loss from the portion of Eminence which we do not own. The impact to other lines of the P&L as a result of consolidating Eminence was immaterial in Q2. Turning to cash flow and return of capital, a record $89.3 million of cash was generated from operations in the quarter. In Q2, our net investment in capital expenditures was $11.4 million, primarily driven by the completion of our new GMP protein factory. During Q2, we returned capital to shareholders with $12.4 million in dividends. We finished the quarter with 40.3 million average shares outstanding. Our balance sheet remains very strong with $283 million in cash and short-term available for sale investments and a total leverage ratio of well under one times EBITDA. Next, I'll discuss the performance of our reporting segment, starting with the protein sciences segment. Q2 reported sales were $172.2 million, with reported revenue increasing 22%. Organic growth increased 19%, with foreign exchange having a favorable impact of 3% on revenue growth. Within the segment, strong growth was very broad based, with double-digit growth in nearly all reagent assay and instrument platforms. As Chuck described in his remarks, platforms of Noble mentioned include Simple Plex, Simple Western, Biologics, and cell and gene therapy, especially pertaining to GMP proteins. Operating margin for the protein sciences segment was 46.6%, an increase of 360 basis points year-over-year, due primarily to stable volume leverage and cost management. Turning to diagnostics and genomics segment, Q2 reported sales were $52.5 million, with reported revenue increasing 20%. Organic growth for the segment was 19%, with foreign exchange translation having a favorable 1% impact on revenue. Similar to Q1, our genomics division led this segment in the quarter. We experienced strength across the entire ACD branded portfolio, with micro RNAscope, Bioscope, and our diagnostics partnership with Leica being an honorable mention. Also a driver of growth for diagnostics and genomics, Exosome Diagnostics Q2 revenue increased over 100% from last year, with higher collections for Medicare, private payers, and patient cash collection driving the year-over-year increase. As Chuck mentioned, our diagnostic reagents division continued its growth streak by executing on COVID-related opportunities to offset the headwind many of its traditional OEM diagnostic customers are facing with patients forgoing routine visits to the doctor. Moving on to the diagnostics and genomics segment operating margin at 15.5%, this segment’s operating margin improved from 2.2% reported in the prior year. The increase reflects stable volume leverage in our genomics division, less dilution from Exosome Diagnostics, as well as strong cost management. In summary, our fiscal 2021 is off to a great start with 15% organic revenue growth during the first half of the fiscal year, our results thus far have demonstrated that our portfolio of products and solution offerings are more relevant than ever to our customers who are on the front lines of diagnosing and developing cures for disease. We believe that the current pandemic has only strengthened the resolve of our customers to accelerate their great work and we will continue to do everything in our power to provide them the tools to help them succeed. Thus, we see the current momentum of our business continuing in the back half of our fiscal year. However, to support our customer’s needs beyond the remainder of this fiscal year, we need to catch up on our investments and our product pipelines and post-sales service and support while continuing to invest in customer engagement activities, especially those of a digital nature. We start to make progress with these additional investments in Q2, but intend to accelerate back to our plan in the back half of the year. If successful, these investments may slightly lower our operating margin from its level in the first half of the fiscal year, but will position us well for our long-term strategic plan of continued double-digit growth for years to come. That concludes my prepared comments. And with that, I'll turn the call back over to the operator to open the line for questions.

Great, thanks and Chuck, congrats on the strong quarter, impressive growth here in protein sciences and across the board. First of all, could you provide sort of the contribution that we're seeing from GMP proteins and cell and gene therapy and sort of how should we think about that for the full year here given the momentum that you're seeing so far?

Sure, we won't provide too many details. We've discussed aiming for a 100% growth, targeting a portfolio around $30 million, most of which is currently serious. We're on track for a $10 million run rate on protein, and we've shared the growth rates. We can increase our capacity at headquarters by four times if necessary. We're in a good position while we qualify the new site, which is progressing well. Previously, we spoke about a $10 million GMP approach potentially growing to $20 million next year and doubling after that, with ramp-up expected once production of therapeutics begins post-clinical trials. As for the rest of the portfolio, it's difficult to predict. We had an excellent quarter for both Cloudz and TCBuster. We're seeing a lot of new revenue opportunities to explore these technologies, and the team is excited about TCBuster's performance, leading us to expand the site. It's challenging to estimate next year’s figures, but they could be double this year's and potentially double again the following year. As outlined in our five-year outlook, targeting a $1.5 billion goal, we envision a $300 million business comprised of various components, including around $150 million from GMP proteins, with the rest generated from Cloudz, TCBuster, instrumentation, and other technologies for spatial cell analysis and QC testing. We're still about a year away from making detailed predictions about the portfolio's composition, but focusing on GMP proteins seems the safest bet for now.

That's very helpful. Regarding Ella, this is another strong quarter, and you've noted that in the last couple of quarters as well. Clearly, this product line is gaining considerable traction. Can you provide insight into the potential of this business, especially considering the competitive ELISA market? Additionally, what other key initiatives do you have, including the 510(k) approval you're submitting? In the same vein, can you explain the current momentum in proteomics? Bio-Techne plays a central role in proteomics, and you are among the leaders in antibodies, proteins, cytokines, and the field of proteomics overall. Can you help us understand the potential for the protein sciences business and the overall proteomics business in the long term, as well as what that might look like in a five-year timeframe?

It's growing more than we anticipated, and we are very well positioned in proteomics as research expands during this exciting period. As funds from stimulus plans are redirected towards pandemic relief and research to prevent future outbreaks, we will benefit significantly. We're experiencing substantial growth across all aspects of our business globally; it's truly remarkable. I've never seen such positive results in my career. It's challenging to separate the effects of COVID from general research advancements. We've examined our customer base, and larger biopharma companies are increasing their investments, particularly vaccine manufacturers who are channeling additional funds into R&D. Where there’s increased research activity, we gain advantages. I've often mentioned that Simple Flex was an underdog, and if its growth approaches 100%, it will quickly become significant. We've surpassed 500 instruments deployed worldwide, which is considerable. This machine represents outstanding technology from a dedicated team that has refined it for years before our acquisition. Micropoint recognized this early in China, and if their clinical developments progress as planned, that partnership could yield $100 million in revenue over the next few years. The leader behind Micropoint has a solid reputation and aims to create a standardized patient monitoring system for large hospital systems in China. We are navigating the 510(k) approval process in the U.S. to stimulate interest similar to Micropoint's in China. Micropoint will handle all CFDA processes independently since they are experts. We’ll complete the 510K using a standard analyzer, which is well known, and we are engaging with potential interested partners. This technology has potential applications in neuroscience and oncology, particularly in testing biomarkers. In terms of competition, while there are multiplex formats, such as with Luminex, where we are partners, our platform has no crosstalk issues. We are expanding to eight channels, possibly more, aiming for an optimized performance with a quick sample-to-answer time, which is rare. Mesoscale has a comprehensive workflow, and we need to enhance our integration into customer processes. The clinical side holds immense potential; we’re developing a 4x8 cartridge that allows for running multiple tests without delays. Overall, I see a promising future. Estimating the business's potential, I believe it could reach $200 million to $300 million in five years or even more, depending on market acceptance and diversification into new applications. Automated ELISA and multiplex-based proteomics, along with biomarker research, are currently in high demand, and this momentum is increasing rather than stabilizing. We anticipate continued strong growth in this platform. Although it’s already a significant platform, the 100% growth doesn’t surprise us; it is aligning with our original expectations for the protein Simple segment, including Simple Western, and its impact will continue to grow.

Thank you for the insights, Chuck, and I appreciate the detailed information. I have one more question for Jim. Jim, I value the investments made in Eminence and the GMP facility, which is currently contributing to growth. However, regarding acquisitions and organic growth, we haven't observed much activity recently. Is this mainly due to valuations in the market, or are there specific areas that are more challenging compared to others? Please share your thoughts on this, as it is a significant aspect of Bio-Techne's history.

Yeah, what I'd say on the evaluation front is that, the evaluations have been a challenge for many years, if that's really nothing new. It's really the ebbs and flows of the deal flow and what's coming up available and I think for a lot of 2020, probably the pandemic being a good reason why the flow wasn't as strong as it had been in prior years. But in the last several months, we're starting to see that turn around and seen a lot more deal flow, a lot more interesting targets. So it's hard to predict because there's a lot of stars that need to align, but I would predict that we will see more activity by us on that front in the remainder of calendar 2021 than we saw last year.

Hey guys, congrats on the strong quarter and thanks for the question. I guess first, just as you think about the outlook for fiscal 2021, last quarter you talked about maybe a 10% to 15% range for the year. So just curious if you had an updated thought on where you should end up in that range or if we should be thinking about a new range, given the strong performance you saw this quarter?

Sure, I'm not sure who was noted was this morning talking about clearing 15% plus for the year. We've stayed away from that. We certainly were bullish on ending up double-digit again. We left our comments at continuing momentum and the momentum is 15% to half year. And we have the easiest comp ahead of us for the rest of the fiscal year. So you can do the math from that but yeah, we're pretty bullish continuing at the levels we're at or even better to be honest at this point.

Okay. And you've talked about some research labs perhaps needing to buy a second version of things given social distancing and building out secondary labs. How much of the rebound that you've seen do you think is related to perhaps some of that stocking or build-out dynamics?

There is some stocking going on. After last quarter and considering our recent results, we haven't seen much impact from COVID in our numbers yet. COVID is still anticipated to affect us, hopefully with serology. We conducted a comprehensive global analysis to understand why we're performing so well, looking closely at individual customers and by segments to explain our success. There isn’t a single factor driving this; for obvious reasons, we're seeing growth with vaccine manufacturers and biopharma, which we have mentioned before, but there’s also been an increase in OEM work. These companies are having a good year and are outsourcing more, leading to more customers for us. In academia, we're seeing some complexities, possibly a resurgence and budget increases on multiple fronts, which we've noticed, though it’s not a significant part of our overall growth. In essence, our success comes from multiple factors. It's not solely due to COVID or any single reason; rather, it's a collective rise in research performance across the board. As Puneet mentioned earlier, we are in a strong position, particularly in proteomics. Whether it’s purchasing antibodies for COVID tests or needing extra support for vaccine development due to increased workloads, or the academic institutions expanding and needing new equipment—preferably cost-effective, productive equipment like ours—that's where the demand is coming from. Our reagents also show broad growth. Even with our traditional ELISA kits, which have been around for 35 years, we see them reflecting the health of projects in biopharma, marking the best year in years. This speaks to the overall growth we’re experiencing, and we aren’t the only company observing this trend. Many are benefiting from this wave, but we are fortunate to be doing slightly better, which is advantageous for us.

Okay. And last one for me, just on the Exo kidney transplant test, you talked about publication in the next few weeks, what's the path forward for that test and how should we think about potential launch timing there?

I was really hoping we would be discussing that publication by now. It is imminent, and it should be days, not weeks, but who knows? The data looks fantastic. If it had been published, we could have talked about it. It's very good data, and it's the first peer-reviewed article. We need to get a second article and conduct an outcomes test. There is still work to do before we pursue an LDT approach or collaborate with a Mac, but we are on the right track and believe we are a year or less away from early access for selling this product. We're probably about a year away from a crosswalk or anything like that. We are also exploring partnerships and looking at other Macs that are different from the one we used for prostate. There is a lot happening, and things are going very well. The platform is outstanding and works amazingly well. We believe Exosome is the best in class for liquid biopsy, and the data will demonstrate that soon. It's a big market, and there aren't the same barriers as we face with prostate and urologists. We have organ centers, and there aren't many of them, making them easier to target for commercialization. There is a significant need; it's unfortunate to require a new kidney and then risk rejection or damage through biopsies or testing. Half of these cases are rejected within ten years, so this tool is essential. It's a simple urine test that can be sent in without needing contact with a phlebotomist. We see a lot of potential for both cost and pricing to be favorable compared to current options.

Great, good morning everyone. So the vaccines are being administered now, more coming in soon. It looks like immunity to a particular variant actually might last pretty long, but then we're seeing new variants that come out to lower the overall efficacy. So I guess my question is how has the vaccine rollout and the emergence of these new variants changed your thinking around this quantitative COVID antibody tests? And then you mentioned it in the prepared remarks for where do you stand with partnering this test with the vaccine companies and then just separately, the diagnostic labs?

We've had our test ready since late last spring, but there has been a lot of confusion with the FDA and some early unqualified versions of serology. We still have some challenges ahead to get accepted. Real demand won't emerge until there are enough vaccines out and people vaccinated, prompting them to ask their doctors about their immunity and whether they can see their grandkids again. People want to return to concerts, travel, and shopping, and they need to feel safe first. Currently, we are collaborating closely with Mount Sinai, which has been conducting long-range testing on immunity for about seven to eight months without seeing a reduction in antibodies yet. However, experts believe immunity will likely last between one and two years, as long as there are no mutations. If mutations occur, it could mean needing boosters annually, similar to a flu vaccine, which would complicate things. This indicates a growing need for serology tests, as people will want to regularly check their immunity status. We may see the development of immunity passports in the next few years, which would be available on mobile apps. However, this technology rollout will be gradual, with vaccinations progressing slower than desired, and we won't reach herd immunity by summer. There will be increasing demand for serology tests, and we’re hoping to receive FDA approval for our quantitative claim soon, as we have submitted all necessary data. We are collaborating with WHO to establish an international standard that the FDA is interested in supporting. We are optimistic about our prospects and believe we will emerge as one of the leading options. While the demand for PCR tests won't disappear, we anticipate a slower recovery to normalcy than many expect. We are a research company first, so our focus remains on scientific contributions, which are valuable to us.

Thanks, Chuck. That's very helpful. Maybe to expand on the more macro life science funding flush that you're seeing here. So right now, Washington is hashing out the COVID stimulus plan. What specifically are you hearing in that plan that could be funded, that could be deployed for life science research funding and for how long could that benefit lab? And then I guess the same question, but directed more towards China, their plans with the next five-year plan. Are you hearing anything in particular there?

I will start reverse. China's not really good at laying out what they're going to do, but the demon we're looking at, I think the 14th version of a five-year plan, what typically happens is year one is a little bit soft and year two it kicks into high gear. Year five is a bit softer too and we had a bit of we'll call it budget flush over there too because they're also changing some tax consequences there. So I think everybody that had strong instrument results in China probably we're seeing a little bit of pull forward from that. Haven't seen him much mentioned, but we certainly saw it and we'll admit to it. But I think it's going to be really good. The next plan for China, I think healthcare is still way behind where they are in other parts of their economy and their industry. And, it's a lagging industry and now more than ever with COVID and they certainly don't want to see a pandemic hit there that people want health care there. I mean life sciences is on the rise still. That's why we continue to see 25% or better growth and, we will for a long time, I think.

I think, regarding our government, whether it ends up being 600 million more, a billion more, or 1.9 billion, there will definitely be parts of this allocated as grants for pandemic research, particularly in infectious diseases, an area that has been somewhat neglected. Most of the National Institutes of Health is mainly focused on oncology, neuroscience, and similar fields. As I've often pointed out, when was the last time you paid more than a dollar for an antibiotic? We're lagging in many infection-related areas, and I believe there will be significant benefits from additional funding. This is likely a factor in the official NIH budget for this year, which is looking at a 3% increase. They appear to be waiting to see how the stimulus packages will impact the scientific community, which I believe they will. If there is no significant impact, we may see increased pressure on the NIH to secure more funding.

Okay, great. Thanks Chuck, I appreciate it.

Good morning guys, thanks. Chuck, on the GMP proteins business, you've talked about pharma customers looking for a provider that can handle some pretty large orders. They're multi-million dollar lots. Do you have some of these in the pipeline or as semi-firm commitment at this point? And then when we think about what you're prepared to do in terms of supplying here in initial days with the new facility, what is the plan for scaling up that portfolio? It sounds like the idea is to kind of start off with a couple of key molecules, and then work from there, so I'm just curious what the portfolio expansion ramp looks like and whether that's what you really need in order to sort of drive the acceleration that you've talked about recently?

Sure, we recently secured our second contract. These agreements began years ago when a client approached us, mentioning that they had been purchasing proteins from us for a long time, typically in small quantities, and estimated their annual spend with us at around $0.5 million. They expressed interest in cell and gene therapies, anticipating a demand for proteins in the workflow that could rise to over $10 million a year. At that time, we could only respond that we were not able to meet that need. Fast forward to now, we are in the process of building a factory and have also enhanced our current site and headquarters, enabling us to produce upwards of about $40 million annually in GMP proteins. We've made significant progress, which will help bridge the gap as we qualify this new factory and await larger orders. We are not aiming for a vast catalog; instead, we will focus on producing fewer than 50 different proteins, prioritizing the main products that typically start with an IL. Both initial customers have expressed needs exceeding $10 million a year, and we are also in discussions with at least six additional clients, one of whom requires $50 million annually. To address the challenges in forecasting from these customers, we have structured our contracts to demand 95% of their projected volume, understanding that the specifics around demand can be uncertain. They share this frustration with us, as it complicates our planning. Therefore, we have pivoted our contracting approach to require a range in their needs, expecting to fulfill 95% of whatever volume they ultimately require. This is essentially how we are conducting business. Just these eight customers could significantly exceed our capacity in a year if their forecasts materialize, and there are potentially another 50 to 100 clients beyond them. So, we are confident that we will eventually fill this factory.

Yeah, okay. Okay and then maybe on the epi side, appreciate some of the comments that you made thus far. Leaving aside the dark visit dynamic and just the challenges related to the pandemic, what do you think the things are that the urology community needs to see this year in order to really feel like this is a test that's sort of a must use option rather than a nice to have option, is it additional data in publications, is it being seen by a sales rep now that you've kind of solidified the use case a little bit? I'm curious about what you think at this point, given where we are really kind of fulfills the dream here?

I understand your last comment. The utilities and outcome studies are what the major payers are increasingly seeking. We're likely halfway to our goal and close to securing a partnership with one of the major players, though I can't confirm anything yet. Hopefully, that will happen soon. Once we gain some traction, we anticipate more opportunities. What they're primarily interested in is the outcomes—specifically, how our solution can save money for the industry and improve patient lives. So far, we've sold about 2,500 units to urologists, and there's a market of around 20,000, so we have significant work ahead. Out of those sold, 57% have been reordered, indicating that once urologists try our solution, they see its value. The challenge lies in actively engaging with them again to facilitate sales. The home testing kits are part of our strategy, and they're proving helpful. We have strong key opinion leaders in our corner and expect to meet with NGS again in February for reconsideration, which should contribute positively. However, the process is challenging. Urologists, like many other specialists, can be resistant to change. Many may prefer their existing $1,500 biopsies, despite knowing that many results are negative, so we need to work hard to encourage a shift to our approach, which, while more beneficial for patients, generates less revenue for them. The more progressive urologists understand this and are supportive, but expect that it won’t happen overnight.

Hey, thanks. And I'll add my congrats on a really nice quarter. Just Chuck one question on the outlook for this year, and I want to make sure I'm clear on your comment earlier. You're lapping I think a similar organic growth quarter or gain a growth number next quarter, and then obviously a much easier comp in the fourth quarter. Is there any reason organic growth shouldn't be at this 19% level, like this quarter or potentially higher at the next couple of quarters?

I'm going to let my esteemed CFO answer that one for you.

Hi Jacob. Our focus in the forecast is on the clear momentum in the business and the sequential progress moving forward rather than year-over-year growth rates, which can be misleading, particularly for us in Q4 due to last year's performance. We believe the momentum we’ve seen in our absolute revenue will persist. Typically, our fiscal Q3 and Q4 show slightly stronger results than our second quarter, partly because there are fewer holidays in those quarters compared to November and December. We expect that the increase in momentum we experienced in absolute terms in Q2 will continue for the remainder of this fiscal year. This is how we are approaching the forecast moving forward.

Got it. Thanks for that, Jim. And then Chuck you made some interesting comments on TCBuster earlier. It sounds like business development efforts are going well there, can you give us any more details on where that offering stands, maybe how many customers you're working with, any color around that? And then you mentioned the potential to maybe add some capacity. Would that suggest that the opportunity here could be greater than I think that kind of $50 million revenue aspirations you've previously outlined?

I think it's more about the ramp and acceleration to that $50 million. I don't think we know enough yet. The gene editing portion of the workflow is, if not the most expensive, not the most valuable part of the workflow. It is a critical part obviously, and we'll see. Given the domain of customers is a little over a hundred as you know, and we are certainly working with a couple dozen and we are certainly sold to more than half a dozen, quite a few. And they are coming in bigger chunks. So they get access and do a trial, it's hundreds of thousands of dollars. So, we're in the millions now for revenue with TCBuster. So it's starting to get there. This thing's going to happen. Unfortunately, it's a critical part of a brand new workflow for a cell and gene therapy that's radically different than using viral approaches. So it's kind of next generation. So we've got to kind of grind through getting a half a dozen, two dozen of these guys lined up and get them into their clinical and then get going on it. I think this one really is a J-curve for five years from now to the $50, $60, or whatever it ends up being. But it's also going to probably be growth rates of 50% to 100% starting now for the next two, three years until it grows even faster as it really ramps as these things go into production.

Hey everyone, I appreciate you taking the time for questions. Chuck, regarding the ACD segment, it's encouraging to see it return to growth levels we experienced before the pandemic and even exceed them. Could you provide more details about what you’re observing in that market and your expectations moving forward? It really seems like it has stabilized, and I’m curious about what we can anticipate in the next few quarters.

I believe that companies like Nanostring and 10X, among others, are significantly contributing to the spatial analysis industry. There is a substantial demand for spatial analysis in research, particularly in proteomics and other fields. When it comes to single-cell analysis, especially if the morphology of tissue samples is crucial, this technology is invaluable. Furthermore, technologies relying on antibodies often face challenges such as the availability and effectiveness of those antibodies, while gene detection is much more straightforward. The Z probe technology can reliably detect signals, making it highly effective. This is reflected in our recent performance. A few years ago, we had to reorganize our European operations, but now Europe is performing exceptionally well, showing over 20% growth this quarter, due in part to our genomics division. We're also observing growth in Asia, even though it’s at a smaller scale. Our products like RNAscope and base scope are performing well, and our High Plex multiplex version is starting to gain traction, with an FFP version expected soon. Additionally, we anticipate the launch of DNA scope by the end of this fiscal year, adding to our promising pipeline. We foresee this technology generating $200 million to $300 million in our five-year plan, with nearly 30% growth on the horizon, which should accelerate over the next few years as production ramps up.

And I think we've shared this last quarter. It's a similar story this quarter, if you exclude Exosome from our results, the total company would have been in the low forties with regards to our adjusted operating margin. So that'll give you some insight as to the dilution impact of Exo currently. With regards to the margin profile, the second half versus first half, I mean, the margin performance has far exceeded our expectations, but mainly because we are behind on our investment plan, as I've mentioned even last quarter. It is absolutely important that we continue to invest in our R&D pipelines and our customer-facing and customer service post-sale support in order to maintain this momentum. So, we do expect to get caught up on those investments and if we are successful in doing so, our margin profile, we think will be slightly less than the back half than it is in the front half. It's still very, very strong compared to last year. And ahead of plan of where we thought we'd be at this point in time and track to a total comfy performance of North of 40% in the next couple of years.

Well, thanks everyone. It was a record quarter. We enjoyed it. We enjoyed this call. We know they're not all like this. We hope we don't have one of those other kinds very soon. And, we look forward to seeing the next quarter and it should be a great second half this year, we think. So let's tune in again next quarter, thank you.