Q3 2019 Earnings Call

Good day, ladies and gentlemen, and welcome to go up and then Corporation's third quarter two jobs not <unk> earnings conference call.

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Oh, no liked agenda calls or about to your hosts for today's call sunburn human Nobody head of Investor Relations for up again.

Great. Thank you Francesca good morning, everyone. Thank you for joining our call today will cover their financial results in business highlights for Ratledge and third fiscal quarter and first nine months of 2019 and will provide an update to our full year guidance, President and CEO Tony Hunt.

I will cover business updates then our CFO , John Snodgrass will cover our financial results and guidance.

As a reminder, the forward looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ additional information concerning risks factors is included in our annual report on form 10.

Okay. The current report on form 8-K, which we filed today and other filings that we make with the FCC today's comments reflect our current views, which could change as a result of new information future events or otherwise the company does not obligate or commit itself to update forward looking statements except as required.

Bylaw.

During this call, we're providing non-GAAP results and guidance reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to our web site and on FCC Dot Gov.

non-GAAP figures in today's report include the following revenue growth at constant currency gross profit in gross margin operating expenses, including R&D N.S. DNA operating income in operating margin income tax expense net income and earnings per share as well as EBITDA in it.

Adjusted EBITDA.

These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Replicants current results against historical performance and the performance of peers now I will turn the call over to Tony Huh.

Thank you Sandra and good morning, everyone and welcome to our Q3 earnings call.

2019 continues to be a very positive year for rutledge and driven by the strength in our three main franchises and proteins filtration on chromatography on strong market demand from monoclonal antibody vaccine and gene therapy customers.

Highlighting the strength, our direct businesses grew more than 40% organically in the quarter and we remain well positioned for next one finished the year.

Today, we are raising our full year revenue guidance to 267 to 270 million.

This reflects overall growth, 38% to 39%, including seven months ownership of see technologies on organic growth greater than 30% for the full year.

[noise] strategically Q3 was all about edge, great assay technologies executing on our long term manufacturing capacity plans for filtration chromatography product lines, completing phase one of Sep implementation and finally, moving key R&D programs through the development funnel and into the marketplace.

With respect to see technologies, we have hard the majority of the commercial team will be onboarded here in quarter four.

Giving our new process analytics franchise, a direct presence in Europe , India and Korea on a stronger presence in North America.

In Japan, and China, We will he is a combination of current direct sales and Kecy Tech distributors given on the excellent work done by these distributors and these countries.

In Q3 see technologies delivered approximately 7 million in revenue and is on track to hit our target of 16 to 17 million for the partial here.

Within the product portfolio, we are seeing studies friends and sales of soloviev, he along with growing interest in the flow VP technology from customers, who are excited by the potential to implement inline protein concentration measurement right on the manufacturing floor.

For our filtration and chromatography products, we focused on capacity expansion.

We are executing on the H.T. us move from Waltham Tomorrow with increased space for our single you say tee up production line within our Marlboro facility.

We are right on track to complete the first phase of Opus build out here in quarter, four adding four suites into Walt and finally, we just commenced the build out of additional clean room space and Ratchet Domingos, which we expect to come online during the second half of 2020 and will increase overall capacity for spectrum modules approach.

The next products.

In August we went live with phase one of Sep implementation for East Coast sites and we're on track to complete phase two for West Coast of select Europe , and Asia sites in second half of next year.

Finally, we're excited about the launch of our new products in particular, the T. FDF technology, where we received very positive reaction to the technical launch at the annual PPI show in Boston.

We see this technology as the first real scalable innovation and harvest start allocation in many years.

With a primary focus on chose self propagation. We're currently executing on customer trials and expect our process development GFT EPS system to hit the market in quarter four as customers love to develop scalable clinical manufacturing processes and their facilities and 2020.

In parallel we have already taken orders.

From our early adopters for the production scale TFT up systems, which will be delivered and quarter for Q1 of next year.

Finally, our next generation XL HF controller is right on track to launch later this quarter, giving customers significantly more flexibility and multiplexing capabilities as they implement a t. absence of their cell culture across intensification workflows.

Moving now to our quarter three financial results and year to date performance.

Overall, our organic growth for the quarter was 28% on over 35% here today.

For our direct filtration and chromatography businesses organic growth was over 40% for both the quarter on the first nine months at 29 gene.

Gains were driven by opus pre packed columns single use HF systems on hollow fiber module systems and flow Pops.

Gene therapy accounts, where again in the 13% to 15% range of revenue and European sales were up almost 50%.

Our proteins business, while down in the quarter due to expected softness in Lincolns is still up significantly year to date.

We now expect to post our first 15% plus growth year for proteins since 2015.

As discussed in prior calls, we expect our largest OEM customer for logans to diversify their supply chain next year, which will reduce overall ligand demand for rutledge and in 2020.

To limit the impact on our overall proteins business, we continue to invest in a reflection on Lincoln portfolio.

We're very encouraged by reports that the protein a resin utilizing our NGL impact a ligand is gaining traction in the marketplace with a number of key accounts expected to scale up over the next few years.

So moving now to our direct businesses.

Our filtration business had an excellent quarter with strengthen hollow fiber modules Flowerpots TFS systems on single use AOCF.

Our spectrum business accelerated in the third quarter with all regions up approximately 30%.

We are seeing continued adoption of hollow fiber products across multiple application areas from vaccines to gene therapy to animal health.

Demand for hollow fiber TFS systems continues to accelerate but strong adoption for production so scale systems in quarter three.

Spectrum deal model revenue revenue synergies for the year are now close to 12 million with overall synergies from the spectrum deal topping 17 million, which is tracking above one year ahead of plan.

On the HF fronts, we continued to see strong interest in the technology, what process development devaluations up 35% this year.

Demand across the regions remains high and we are encouraged by some of the scale up plans for key accounts in Asia.

Single use HF sales were down robust what customers moving into late stage implementation as we finish off 2019 move into 2020.

We expect single use 80 up to comprise 28% to 30% of XL HF sales by the end of the year.

Our flashy cassette business continues perform well with increased demand for single use cassettes and process development and continued traction in Asia and that gene therapy accounts.

And chromatography, our pre packed columns business had an outstanding quarter with very strong revenue and unit volume growth.

As reported last quarter, we continued to see strong adoption that gene therapy accounts as customers recognize the value and benefits of pre packed columns for this application.

So overall, we really we've we've executed really well here through the first three quarters of 2019 with strong traction across our businesses.

See technologies integration is right on track. We are ahead of our revenue synergy plan for spectrum, new products are hitting the market and we're building out capacity to stay ahead of long term demand. We're very confident now about our finish here in 2019 and I look forward to updating you in February on our overall performance for the year and with that level.

The call over to John to walk through our financial results.

Thank you Tony and good morning, everyone.

Today, we are reporting our financial results for the third quarter of 2019, as well as updating our financial guidance for the year.

Unless otherwise mentioned all financial measures discussed today reflect non-GAAP measures.

Before diving into our quarterly results I'll take a minute to close out on our recent financing activities, including the impacts on cash and share count.

The final result of the combined effect of our year to date financial raises extinguishment of our May 2016 convert and to see technology is still has a net increase in cash of 291 million and the issuance of an estimated 8.1 million new shares.

Moving now to our third quarter and year to date 2019 financial results.

As you've seen in our press release. This morning, we delivered very strong financial performance for the third quarter and we are again, raising both our top and bottom line financial guidance for the year, while we continue to ramp up our investments in capacity systems and personnel to stay ahead of strong market demand.

Specifically.

We delivered revenues of 69.4 million with growth of 42% at constant currency and organic growth of 28%.

Secondly, we increase adjusted operating income by 34% year over year to 15.1 million, while continuing to invest in capacity at Nike systems to set us up for long term growth.

And finally on the bottom line, we reported a 44% year over year increase and adjusted EPS to 26 cents per fully diluted share.

As Tony mentioned earlier, our direct product franchise as filtration and chromatography continued to perform very well growing at greater than 40% organically on a combined year to date basis versus the comparable period in 2018.

On a regional basis through the first nine months in 2019 direct product revenue growth. Excluding see technologies was strongest in North America, 52%, well Asia Pacific grew up 44% and Europe grew at 26%.

Overall, 57% of our direct product revenue for the year to date period came in from North America.

In Europe , and Asia accounted for 27, and 16% respectively.

Based on market strengthened overload visibility, we continue to expect another strong quarter in Q4 for our proteins filtration and chromatography businesses against tough comps and our direct businesses in 2018.

Overall for the year, we continue to expect that are a direct product lines will grow at greater than 35% organic and proteins will grow at greater than 15% organic.

Moving down our income statement.

Third quarter 2019, adjusted gross profit was 39 billion, an increase of 11.4 million or 42% compared to the third quarter of 2018.

Adjusted gross margin was 56.1% an increase of 50 basis points compared to third quarter 2018 Directorate directly resulting from strong operational execution, partially offset by facility capacity and systems investments to support our long term growth expectations.

Through the third quarter of 2019 year to date adjusted gross margin for the company was 56.9%. We continue to expect modestly lower adjusted gross margins in the fourth quarter stemming from the aforementioned strategic investments related to capacity systems and personnel to support higher product volumes.

Going through our factories.

With respect to operating expenses.

Adjusted research and development costs for the third quarter of 2019 expanded to 5.1 million or 7.4% upset sales compared to 3.6 million into 2018 period.

The increase from the third quarter 2018 period was due to the addition of see technologies and overall increases and program spend to bring important new products to market.

Adjusted R&D expenses through the third quarter 2019 year to date period were 7% of revenue and continue to support key investments on our new AOCF controller technology Cfds systems as well as on the C technologies pipeline.

We continue to expect an overall adjusted R&D expense of approximately 7% of revenue for full year 2019.

Shifting to SGN today.

Adjusted SGN a expense was 18.7 million in the third quarter of 2019 compared to 12.6 million for the comparable period in 2018.

The year over year increase and adjusted SGN eight was tied to the addition of see technologies to replication and the expansion of our commercial organization facilities and IP systems.

We continue to expect increases and adjusted EPS DNA expenses in the fourth quarter of 2019 supporting the expansion of facilities in Waltham depreciation related to our SAP implementation and other IP investments as well as global commercial and operations headcount to support long term growth.

Overall, we continue to expect full year adjusted SGN expenses to be approximately 26% of overall revenue and this is reflected in our full year 2019 guidance.

We continue to expect total adjusted operating expenses to come in at 33% to 34% of sales for the year.

Moving now to adjusted income and EPS.

Consistent with earlier comments on our third quarter 2019, adjusted operating income was 15.1 million.

34% increase compared to 11.3 million reported in the third quarter of 2018.

Our adjusted operating margin was 21.8% a reduction of 100 basis points compared to the third quarter of 2018, where sales volume leverage in the quarter was more than offset by increase investments.

For the full year of 2019, we now expect adjusted operating margin expansion to increased by 50 basis points versus our last guidance to a range of 23% to 24%.

Third quarter 2019, adjusted net income was 13.3 million, an increase of 62% compared to 8.2 million in the third quarter of 2018.

Adjusted EPS increased to 26 cents per fully diluted share in the third quarter of 2019, an increase of 44% from 18 cents and the third quarter of 2018.

Our cash and cash equivalents, which our GAAP metrics totaled 513.5 million at September Thirtyth 2019, net of our second and third quarter financing activities convertible debt extinguishment and the acquisition of see technologies.

On the third quarter 2019 year to date basis, we generated free cash flow of 33.5 million inclusive of 49.5 million of operating cash flow.

Plus $16 million of capital investments, primarily related to our ongoing capacity expansion activities and our safety implementation program.

Now moving to 2019 full year guidance.

Our GAAP to non-GAAP reconciliations for our 2019 financial guidance are included in the reconciliation tables in today's earnings press release as previously mentioned unless otherwise noted all 2019 financial guidance discussed will be non-GAAP .

Please also keep in mind that our 2019 guidance may be impacted by fluctuations in foreign exchange rates beyond our.

Gives me beyond our current projection.

Have a 2% headwind on sales.

Today with our expectations of continuing strong market conditions and overall execution, we are increasing and tightening our 2019 full year revenue guidance, a GAAP metric to 267 to 270 million an increase of 2.5 million from the midpoint of our previous range, reflecting growth in the range of.

38% to 39% as reported and 31% to 32% organic.

We are maintaining or adjusted gross margin guidance for 2019 at 56% to 57% and we're increasing our non-GAAP operating margin guidance by 50 basis points to 23% to 24% of revenue.

We're also raising our guidance for adjusted operating income to 60 to 64 million an increase of 2 million at midpoint compared to our prior guide.

On an adjusted other income and expense, we now expect to see a net full year income of approximately 3 million an increase of 1 million from our previous guidance, reflecting higher than expected interest income from cash on hand.

We're now expecting our 2019 adjusted income tax expense to be approximately 22.5% of adjusted pre tax income.

The 150 basis point reduction compared to our previous guidance as result of higher than expected benefits from stock compensation exercises investing.

We're also raising our full year 2019, adjusted net income guidance by 3 million at mid point to a new range of 50 to 52 million as well as the midpoint of adjusted EPS by six cents to the range of one dollar to one dollar and four cents per fully diluted share.

We are increasing our adjusted EBITDA range by 1 million at the midpoint to 69 to 71 million for full year 2019, with depreciation expense is expected to be 7.2 million an intangible amortization expense is expected to be 13.6 million.

In terms of fully avoided fully.

Diluted average share count assumptions for 2019, we have slightly lowered our expectation to 49.9 million at year end.

For the fourth quarter weighted average fully diluted shares are expected to be approximately 52.5 million.

We are guiding to full year 2019, capex investment of $20 million at the upper end of our prior guidance.

In terms of our 2019 yearend cash and cash equivalents or GAAP metric. We now expect to be in the range of 500 520 to 530 million an increase of 10 million at midpoint compared to our prior guidance.

This completes our financial report and guidance update and then we'll now turn the call back to the operator to open the lines for questions.

We will now begin the question answer session to ask a question you May plan for Star then one duston fun.

Your question. Please press Star then too.

James.

Two questions at this time.

First question is from Tyco Peterson with JP Morgan. Please go ahead.

Hi, Thanks. This is bill let me on for Tycho.

Going back to your comments on the protein business with grills now expected at 15% for the year.

Yes. So in general I think we had we had a very strong first half of the year for both ligands and growth factors Q3 came in exactly as we had predicted which was lighter in Lincoln's based on.

The demand that we were seeing from our from our top to OEM accounts.

Growth factors set at a very good Q3, as well so it offset a little bit of the of the lightness in in ligands and as we look into Q4, we can see exactly where it will finish for the year. So we're confident about a 15% organic growth for proteins.

Which is honestly the first time in since 2015 that we've seen that and if you look at the overall year I think it was real strength and growth factors.

On a good solid year for ligand.

Great. Thanks, Anne and then in terms of leveraging the direct see pack sales force.

Could you talk about the cross selling opportunities and in terms of integration efforts, where you stand then what still needs to get done.

Sure on the C Tech side, we've taken the approach of building a dedicated small sales team that will drive process analytics sales for per Rep legend. So obviously the solo and flow VP products are the first products that were putting into what we call process analytics, but if you go out over the next.

Two years, our expectation will be that we'll continue to build out that portfolio of products. So we've gone with the strategy of a small dedicated sales team very similar to what we do with the the bioprocess product lines, where we talk about the BSS, which are the bioprocess sales specialists, so think about see tech sales team.

As you know.

Great. Thank you.

Yes, Hi, Tony John Thanks for the questions.

So first of all I just wanted to get a sense of your view on the overall market growth, we saw strong growth from the peers can.

Can you give a sense on at a high level of maybe the overall growth that you are seeing versus any any any share taking that you had in the quarter as well and units or the new product expansion.

Yes, I think overall, we've we've maintained a very high growth rate through three quarters for our direct product lines.

Obviously, the filtration and chromatography businesses have done very well.

We continue to see strong order demand as we've moved through three quarters of the year. So again expect that will finished the year off fairly strongly here.

Is really related to the differentiation of the products that we have in the marketplace. So our filtration portfolio is highly differentiated whether you're dealing with ats or the 10 Jennings flat sheet to sets or the systems are proconnect slow paths from spectrum. So highly differentiated there and then if you look at the.

From a target portfolio, our opus pre packed columns are also highly differentiated.

In that area and obviously for US one other things that we've been trying to do is really start to look at predicting long term demand and making the investments into.

For modules and Proconnect products, and obviously, we continue to build out on opus as we look to the future so where we really like the position we have in the marketplace. We like the new products for need that are coming through whether its TFT effort HF controller, and I think puts us in a good position going forward.

Coming off the early phase and you know sort of a growing into into some maturity here.

Products through phase one phase two so I think we all kind of have to wait and see a little bit.

But I think everybody's encouraged im sure all our peers or see at the same way that everybody's encouraged by.

And if I could ask the last one on on C. Tech see technologies could you help us understand sort of what the new commercial force and in place and.

The products that you have in the market solo inflow.

What are the opportunities to here you know eggs is are there more opportunity due to expand downstream or is it and just large and capturing new accounts. Just could you help understand where you know where the next phase of sort of expansion lives for you here as I do as even as you integrate seatac. Thank you.

Yes, I think the big thing with Seatac is that Craig and team done a tremendous job.

Over the last.

Eight to 10 years building out that franchise.

It was clear when when the acquisition happened that we could we really needed to build out the commercial team, we're adding in a number salespeople have added in a number salespeople in North America. We've done the same thing in Europe , we've added and in Korea in India, and we're using some of the Kecy tech distributors in in China and Japan.

So.

For me there.

We're scaling in the right in the right direction.

Most clarification all the way through two final formulation and the types of labs that are interested and are adopting.

Solo VP, which is the offline apt line technology. It ranges from the process development analytics groups to the quality control teams to formulation labs to.

Protein concentration measurement device, we've seen actually some really nice uptick in demand as we've gone through this year and expect that thats going to continue into 2020.

Alright very helpful. Thank you.

Your next question is from John Kreger with William Blair. Please go ahead.

Hi, Good morning, this is Jon Kaufman on per Krieger.

Fairly close to what the predicted organic growth will be in Q4.

Surely we've had a stellar year I think people should remember that the second half of 2018 was really strong. Our Q4 in 2018 was the strongest quarter that we had in 2018, so not overly concerned at all that 20% organic growth is.

As for will finish up in Q4, I think when it comes to 2020 2021.

Especially when it comes 2020 I think it's a little early to call what the organic growth is going to be we clearly have some headwinds rate with.

With obviously GE moving some volume in house, we have some very tough comps, we've set that up this year by having a tremendous yourselves.

But to counter that I think we're really happy with our product portfolio. We love the products that are coming through out of our R&D team.

And we just wanted to see a little bit how the orders play out here in Q4, and early Q1 before making the call for 2020, but I think you'd longer term you know, we've always said, 10% to 15% organic growth is is a real target for us as a company and obviously with new products coming through we'd like to be able to target the high end of that range.

Okay that makes sense and then on T. FDF can you just remind us what makes sense.

Really differentiated offering.

And how do you think about the size of this opportunity compared to Ats.

Yes, I think the when you think about Ats HF is very mature in the in the sense that it's been around for 10 plus years.

You see we've had the technology since 2014. So it has a number of applications that people are using from traditional perfusion to end minus one.

Obviously has done very well.

To make a true comparison to TFT efficacy Cfds is just essentially launching as we speak.

What differentiates TFT up versus other technologies is you're getting the benefit of depth filtration and cross flow filtration in a single device.

And.

To be able to do that with alternative technologies you have to use some combination of centrifugation indepth filtration.

To be able to accomplish and get to the same levels of.

Alpha beta sites that we've been working with through this year and I think it's I think it's a really good endorsement that a number of companies have moved forward and placed orders for large skid systems to be able to run TFT f. technology in their manufacturing facilities in 2020. So I think that's really the encouraging parts here I think were too.

Early to be able to make a comparison between.

FDF, an ATM the way I would look at it is rutledge and is now really well positioned with two clarification technologies. One is a T.F., which is predominantly used in perfusion and then TFT ETF, which will be used in fed batch. So it puts us in a really good position in the harvest clarification space for Bioprocessing.

That's great. Thank you.

Next question is from Jacob Jones, and that would just Stephens Inc. Please go ahead.

Hey, Thanks for taking the question maybe too early to ask this question, but now that you even see tanks for a couple of months here.

And you've got some cash on the balance sheet has your interest in process analytics assets change Jane I now that you can see tag are you seeing more M&A opportunities here, just any updated thoughts there.

M&A for replication is it's a big part of what we've done over the last five years and I think it's something that we will continue to look at our pipeline in 2019 is very similar to what we have in 2018 thats all around trying to find the right assets.

In terms of process analytics, obviously, that's an area that we really like.

But we also like filtration and chromatography so.

We continue to look broadly at at the space and.

And expect that Thats something that we're going to continue to do in terms of.

Bringing other assets into into the fold over there over the coming years.

And then maybe could you give us an update on slow VP. It I think you're making some investments there and has the potential sort of growth ramp just.

Talk about how that how that products doing and how we should think about it going forward.

Yes, So I think you probably can see from the numbers.

When we announced the deal flow flow VP represented a small part to the overall revenues from sea technologies.

We haven't really decided exactly the timing of when that hits the market, but we're really working on things like software and just and just in terms of the overall size of the technology. There the areas that we're focused on so it's an engineering software.

Next generation type product and we'll talk more about as I'm sure when we get into the Fabry may timeframe next year.

Great. Thanks for taking the questions.

Your next question is from Paul Knight with Janney Montgomery Scott. Please go ahead.

Hi, Tony could you talk to the cell and gene therapy market business that you had isn't growing above were at your overall corporate rate and specifically what products fit that market.

Yes, I'll start with the products.

When we look at our product portfolio, we carefully.

Our seeing good traction with our opus product line with our flat sheet cassette and hollow fiber.

And and Ats as well so it does actually go across.

A significant swap of off we have in terms of products.

Partner operating out of Wales, and also your German I believe it's a JV, but could you talk about how those.

Programs or partnerships or.

Moving along.

Yes, I'll start with navigate though so we have.

Our relationship business relationship would now be go which is in Germany. So they're working on next generation.

Like ends and so that program, we put in place two years ago.

That product.

Here's to be doing very well in the marketplace and I think as customers look to scale with the technology. There is a benefit for reflection in the long term. So it's really around building out for us.

Portfolio of of ligands I think when I think I mentioned this before but when we were looking at our overall strategy and the protein space.

Lincoln's that are unique and differentiated in the marketplace and thats been the program that we've been running with for a few years now.

I expect to see over the next couple of years, the the fruits of that work.

Thank you.

The next question from Matt Yeah, We do with Craig Hallum Capital. Please go ahead.

Just one question for me I guess, a lot of alumina answered, but regarding the C pick acquisition last quarter you talked about.

Incorporating some of that technology into some of your filtration products I realize it's still early days, but I'm wondering what kind of progress you've made on that front. Thank you.

I was referring to.

On the last call was really the potential of flow VP.

As part of systems that Rutledge and continues to manufacture so if you.

A year ago, we put together we put in place a systems team focus very much on.

TFS systems into hollow fiber space.

Obviously, they're very much use downstream.

Integrate that into overall skid systems, I think for now and probably for the foreseeable future, it's really around getting flow VP.

Broadly adopted in the marketplace and obviously it will be something that we'll be able to offer as a.

Either integrated or Standalone with systems that we would develop.

Got it great. Thank you very much.

Your next question is from a rather on this but as you.

C. Wainwright. Please go ahead.

Good morning. This is Ed remarks on for Rob I appreciate you taking the questions.

Just wondering if you could give any guidance on how the DC take integration is going regarding those seem metrics, whether it's progressing faster at the same rate.

Do you anticipate this piece accelerating at all in the future.

Yeah, I think in terms of obviously spectrum has.

Really really good product line.

When we did that deal we talked a little bit about I think that deal got done in August and we said not to expect any sort of revenue synergies and in the partial year on that they would really start to kick in in the first full year of ownership, it's no different with Seatac right.

In terms of what we're trying to do with see technologies.

The real step one for us is to build out the commercial organization get them trained.

That's what we're doing that's where we're focused on there is no real or no revenue synergies that we're going to see in 2019. Once we have of sales team up and running then we can start to see what the impact is of having a dedicated organization that is sales field application specialists. So the messes development folks that try.

Mike has in place and also the service team that's actually really.

Abroad dedicated service team that's already in place that we'd be able to leverage so I think really in terms of revenue synergies there'll be some next year.

Understood and just moving back on to M&A really quickly I was hoping you can dive a little bit deeper into how you answered that previous question just really wondering if you see viable targets currently, especially at the appropriate prices.

And then what kind of size and shape of a transaction might you guys be looking for and then.

Mentioned, a little bit on the business segment previously, but would you be increasing your presence for got systems that you currently are in.

Or could you could conceivably look to move into an entirely new area.

I'll start with size and shape.

You know.

Weve I think we've shown over the last five years that the.

That's kind of those the sized up we've always looked at.

Clearly our criteria when it comes to M&A Israeli around technology leadership that slot, we do at replicant Thats whats differentiated us in the marketplace. So when you look at assets there are a lot of assets out there that.

Assets out there that have lower multiples, but in general I think.

Good Bioprocessing assets are selling in the six to 10 times revenue range.

And everyone is unique and everyone is different in terms of moving outside our core bioprocess space I think that I think we've we've really stayed true to bioprocessing, we happened lumped into the research space I think I made some comments over the last few calls that we had some.

Opportunities in the last year to Tim to look at other analytical companies, but they tended to be 80% to 90% in the research space, and maybe 10% and Bioprocessing and we didn't feel like that that was the right move for Rutledge and so we'll continue to assess it doesn't mean, we would totally reject moving into an adjacent space.

But I think what we've done over the last five years that blueprint is going to be a consistent blueprint that you're going to see as we move forward.

Excellent. Thank you I appreciate all the detail thanks for taking the questions.

You talked to you gave some detail there you talked about the bill down in Rancho just wondering if you could give us a little bit more maybe high level or a little bit more color on the what types of business are garnering the capacity.

Buildout themselves, where do you see resources devoted to which business lines. Thanks.

You look at the priorities, we have right now we can see and I think we've been really transparent about those switches are opus.

Business, we want to really build out capacity that goes out over four or five years, so thats kind of being our number one focus.

We made the decision to centralize ATM off into a larger space and Marlboro, where we have our filtration center of excellence and then the final part of the equation really has been around our.

Spectrum business, especially in Rancho and as that.

Historically has been in that 15% to 20% growth range and now as you can see up around 30% last quarter, we've seen that acceleration and we really see the need to make sure that we're staying ahead of demand for those product line. So we have because of the way we're set up with our.

Business teams and the way operations runs we have dedicated folks to each of those.

Business from an operations point of view. So they are the folks that are really dedicated to building out the capacity over the over the next few years.

Okay. Thank you.

This concludes several question and answer session I would like to turn the conference back over to Donny.

For any closing remarks.

Great like to thank everybody for joining us this morning.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[laughter].

Yeah.

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Okay.

Okay.

Okay.