Q3 2021 Bio-Techne Corp Earnings Call
[music].
[laughter] good morning, and welcome to the biotech neat earnings conference call for the third quarter of fiscal year 2021. At this time all participants have been placed in a list and only mode and the call will be open for questions. Following manage and is prepared remarks during our Q&A session. Please limit yourself to one question any follow up.
I would now like to turn the call over to David Claire Bio technique senior director of Investor Relations and corporate development.
Good morning, and thank you for joining us and the call at me this morning, or Chuck comment Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotech me.
Before he began let me briefly cover our safe Harbor statement.
Some of the comments made during this conference call me be considered forward looking statements, including beliefs and expectations about the company's future results as well as the potential impact and the COVID-19 pandemic on our operations and financial results.
The companies 10-K for fiscal year 2020 identify certain factors that could cause the company's actual results to differ materially from those projected and the forward looking statements made during this call and.
The company does not undertake to update any forward looking statements as a result of any new information or future events or developments.
And the 10-K as well as the companies other SEC filings are available on the company's website with and it's Investor Relations section.
During the call non-GAAP financial measures and have you used to provide information hurt net to I'm going to performance.
Tables reconciling and these measures to most comparable GAAP measures.
Available and the companies press release issued earlier this morning, and the biotech Me Corp website at Www Dot bio dash technique Dot com.
And now turn the call over to Chuck.
4% organically and the quarter.
Our core proteomics research reagent portfolio had another strong quarter with research use only proteins growing nearly 10% and antibody is growing and the mid teens.
Our newest proteins are and more frequently being used and mrna research and production given the recent success and growing interest and mrna based vaccines. These could be a sustainable growth driver for this product line going forward. Meanwhile, our antibody business continues to benefit from our custom antibody service business, which grew over 50% and Q3.
The catalog of over 6000 proteins and approximately 450000 and antibody variations we have amassed not only enable scientific research, but also has potential therapeutic applications. This potential supported by the recently announced licensing agreement with <unk>, a clinical stage biopharmaceutical company developing engineered monoclonal <unk>.
Antibodies and cytokines for the treatment of cancer and autoimmune diseases.
Zen cores and alloy evaluating a third proprietary biotech and antibody for therapeutic development pipeline. This agreement speaks to the potential value of the vast protein and antibody content. We have built over the last 30 plus years and represents a largely untapped potential revenue stream for the company.
And our leadership and antibodies has also not gone unnoticed and our industry with biotech and his R&D systems and Novus brands recently named winners of the site.
And so COVID-19 Innovation Award this award celebrates innovative solutions or products that help shape, the life sciences sector and understanding of our resilience to COVID-19. The COVID-19 Innovation award reflects biotech and as quick and impactful response to the COVID-19, pandemic developing and commercializing new antibodies to support research as well as COVID-19 testing initiative.
This represents the fifth consecutive year biotech and <unk> antibody innovation efforts have been recognized with a site Abbott word and we are very proud of our antibody team.
During Q3, we also continued to make significant progress advancing our cell and gene therapy initiatives, including our GMP protein business. As a reminder, GMP proteins are a key ingredient and our cell and gene therapy workflow, providing the nutrients to grow the genetically modified cells prior to being infused back into the patient or portfolio of GMP proteins increased over 90%.
And the quarter as customers and leveraged our GMP cytokines to advance immune cell and regenerative medicine therapies.
We continued to scale.
Our state of the art GMP production facility with qualifications completed and production lots of initial proteins. Currently underway. We have launched a digital marketing campaign to promote the new facility our capacity and capabilities.
And this marketing message is resonating with the cell and gene therapy industry as our funnel of potential GMP protein supply agreements with Biopharma customers continues to grow and Q3.
We are also building momentum and market awareness and acceptance of another key component of our cell and gene therapy workflow solution Tc Buster or novel non viral transposon based gene delivery system. During Q3, we announced the signing of a licensing agreement with luminary therapeutics for the use of TC Buster in their development of our <unk> car T therapeutic.
Our genomic engineering service business, which includes the TC Buster solution is gaining traction with customers developing cell and gene therapies with a growing funnel of biopharma companies, relying and our experienced and hard to transfect cell lines to deliver solutions for their complex projects.
Biotech and <unk> reach into cell and gene therapy is much broader than our best in class GMP proteins, and DTC Buster technologies, Biopharma companies Crows, and CD and moes are increasingly relying on offerings across biotech and portfolio, including antibodies and media and supplements as well as our portfolio of analytical tools, including simple western <unk>.
Plex, RNA scope and our Maurice instrument to develop and scale their cell and gene therapy manufacturing capabilities, we have United our business leaders from across the company to develop strategies and how our products and technologies can be best positioned to create synergistic solutions and maximize productivity for these customers.
Now, let's discuss the proteomics and the analytical tools portion of our protein Sciences segment or the strength, we experienced in recent quarters continued into our Q3 once again, our automated multiplex immunoassay solutions simple plex had a stellar quarter with revenue increasing 90% globally.
Simple plex is ability to deliver high quality and reproducible data with a sub picogram level of sensitivity and a smaller footprint and comparatively less expensive offering continues to drive awareness interest placements and utilization of the platform. We are seeing increased simple plex adoption from cell and gene therapy customers and the broader biopharma industry as they leverage the platform from <unk>.
Marker discovery and immune cell characterization and quality control processes.
Produced and our higher and just instrument last year called reflects academic customers have been increasingly adopting our automated western platform to alleviate COVID-19 induced limitations on their lab activities and maximize productivity and we anticipate abbey's features and cost profile to increase penetration of this technology into this customer segment.
Finally, our biologics instruments, which provide protein purity information and are used directly and bio processing also had a standout quarter with over 30% growth as we continue to experience broad demand from biopharma, including several companies with COVID-19, vaccines and various stages of development or commercialization as well as continued interest from companies working on cell and gene therapies.
Now I will provide an update on our diagnostics and genomics portfolio, where organic revenue increased 17% and Q3.
Let's start with an update on our <unk> or tissue pathology franchise, where organic revenue increased above 40% for the quarter with RNA scope basically and our multiplexing technology high Plex, all having a very strong quarter ACD is seeing significant traction with cell and gene therapy applications with RNA scope, representing the only currently available method for under.
Standing single cell bio distribution information within the context of tissue histology. This information is critical to understanding the safety and efficacy profile of gene and RNA eye therapies and as a result, RNA scope is being used by these companies and many IND enabling studies.
<unk> is also being increasingly used as a validation technology following super flexing experiments with the single cell resolution and spatial information provided by our solutions supporting the move from discovery to translational research and we remain and the early stages of penetrating both the research and clinical potential of this exciting technology and have plenty of room for continued.
Growth and.
As we look ahead to Q4 and FY 'twenty. Two we are very excited about a new product to the ACD family that we launched recently, which leverages RNA scope technology and expand its addressable market biotech. These new chromogenic DNA in situ hybridization technology DNA scope employees, the proven double V probe design and signal application system of RNA scope and.
Enabling rapid and flexible probe development for any DNA target and enabling visualization of targets and formula and fixed paraffin embedded tissues DNA scoop delivers benefits over current commercial fish techniques that fall short on morphological detailed due to the use of fluorescent nuclear staining that rely on our high resolution microscopy to visualize gene.
Rearrangement and copy number variations signals. Additionally, traditional fish uses bacterial artificial chromosome back cone based probes that are large and tend to span multiple genes and lack single gene detection specificity.
Unlike most commercially available assays DNA scope utilize utilizes oligos probes, coupled with proprietary signal application system to enable high resolution and precise target detection for small genomic regions and single gene locally.
Now, let's discuss our Exosomes diagnostics liquid biopsy platform, starting with our prostate cancer liquid biopsy assay and the XO Dx prostate test while urology practices have largely reopened at this point. The older population that is the primary audience for the extra Dx prostate test has remain hesitant to visit their doctor or urologists due to COVID-19 related concerns.
Clearly a headwind to test volume since the pandemic began.
During Q3, we experienced a continued and recovery of extra Dx prostate test volumes with March representing the best month for test sample inflows since the beginning of the pandemic. We are encouraged with the volume trajectory. We experienced in March and anticipate continued momentum and this business is vaccinations continued to work their way through the population and patients return to their physicians for checkups and their urology.
For our XO Dx prostate tests.
Private payers are increasingly recognizing the patient benefits and cost savings exo Dx prostate delivers by avoiding unnecessary biopsies as well as the strong dossier of data, we have supporting the efficacy and clinical utility of the tests. During Q3. This recognition led to a contracted coverage decision with Humana, the first national payer to issue a favorable coverage.
Decision, we remain in discussions with several other national and regional payers and look forward to expanding access to this test and enabling additional men to make more informed decisions on whether its differ or proceed with a prostate biopsy.
We have also expanded our geographic reach with the <unk> prostate test by completing its clinical validation with self enabled certification is a CE IBD kit as of March 'twenty 2021 and the BCE tests will be performed and our Munich. ISO 15, 189 accredited clinical laboratory and be made available throughout Europe through various distribution.
Panels beginning in Q4.
In addition to the Exo Dx prostate test we continue to advance our pipeline of novel <unk> Zone based liquid biopsy products and Q3, we announced initial data on our next commercial tests excellent true and assay designed to detect kidney transplant rejection initial data supporting the potential of extra true was published and a journal of the American Society of Nephrology with the.
And I say capable of discriminating between any cause rejection and no rejection with a negative predictive value of 93, 3% and positive predictive value of 77, 8%. We view. This initial data is best in class compared to competing kidney transplant rejection assays and extra true is not just differentiated with best in class data assessed use of urine and.
Blood is the sample, which opens up opportunities for at home sample collection, allowing these immuno uncompromised patients.
Patients to the ability to take the test and the comfort of their home and avoid a trip to the hospital for a blood draw and we look forward to launching extra true later in calendar 2021.
The COVID-19 related headwinds and restrictions of not just impacted our <unk> zone Dx test volumes with patients deferring routine visits to physicians also impacting broader diagnostic testing volumes. Despite these ongoing challenges our diagnostic reagents division increased mid single digits. During Q3. This is the seventh quarter and a role that our diagnostics raised your agents division has.
<unk> delivered positive growth is the development pipeline and new COVID-19 related opportunities continued to smooth out the impact of what can sometimes be lumpy bulk reagent orders.
I'd like to now give an update on our COVID-19 initiatives since the start of the pandemic biotech needs and reagents and instruments have enabled insights into the virus, including ACD probe to detect the virus and tissue sales of bulk diagnostic.
Diagnostic reagents used and COVID-19 testing applications as well as pathogen specific by antibodies and proteins to known variance of the COVID-19 virus COVID-19 was and then this estimated 3% tailwind to our business in Q3, including initial revenue from sales of the <unk> antibody serology kit, we expect the COVID-19 research and diagnostics, we round from.
Many years, particularly as new viral strength continue to emerge, making this tailwind a sustaining new layer of our product portfolio going forward.
Our business is clearly firing on all cylinders, our innovative portfolio of proteomics reagents research reagents and analytical tools tissue biopsy and spatial products are meeting the productivity needs of the scientific community to drive research and discoveries forward, our emerging cell and gene therapy workflow solutions are set to enable the next class of biological therapies.
And with increased efficiency at lower cost and our liquid biopsy platform is expanding with a best in class assay for kidney transplant patients in need of a better solution for detecting allograft rejection layer on this a favorable research funding environment and I believe biotech needs and the best position ever or at least since I've been with the company to deliver and our long term revenue and.
<unk> ability aspirations, which keep getting bigger every year with that I'll turn the call over to Jim.
Thanks, Chuck and I will provide an overview of our Q3 fiscal 2021 financial performance for the total company provide some additional details on the performance of each of our segments and give some thoughts on the remainder of our fiscal year.
Starting with the overall third quarter financial performance adjusted EPS was $1 79 versus $1 39, one year ago and increase of 29% over last year, representing a new company record.
Foreign exchange negatively impacted EPS by <unk> <unk>.
GAAP EPS for the quarter was $1 12, compared to 92 and the prior year, representing a 22% increase year over year.
Q3 revenue was $243 6 million and increase of 25% year over year on a reported basis and 22% on an organic basis.
Foreign exchange translation had a favorable 3% impact on our revenue.
All geographies had strong growth in Q3 led by China growing nearly 50, 50% followed by EMEA with over 30% growth and in the Americas with growth north of 20%.
The rest of the world grew and the low teen.
You will recall that last year was the start of the pandemic, which severely hit China and to a slightly lesser extent Europe, and our Q3 fiscal year 'twenty.
Our business and the U S was not materially impacted by pandemic shutdowns until April of last year.
Hence the comps in Q3, this year were easier and China, and Europe and in the U S.
That being said China's revenue in Q3 of this year was still nearly 60% higher than the same quarter and fiscal year 19 and.
And Europe's revenue was over 20% higher than Q3 of fiscal year 19, while the Americas revenue is up over 35% from the same quarter and fiscal year 19.
By end market Biopharma continues to be very strong with year over year growth well over 25%, while academia continues to make big improvements growing approximately 20% per quarter compared to last year.
Moving onto the details of the P&L total company adjusted gross margin was 72, 9% and the quarter compared to 71, 5% and the prior year.
The increase was primarily driven by favorable product mix and volume leverage.
Adjusted SG&A in Q3 was 25, 8% of revenue 100 basis point decrease compared to the prior year and R&D expense in Q3 was 7% of revenue 120 basis points lower than the prior year.
While our adjusted SG&A and R&D spend both increased sequentially and versus the prior year, a tight labor market and the life science based and not allow us to fill all planned head count additions to the team at the pace we had anticipated.
Especially in the more technical scientific and engineering fields.
However, our pace of hiring did increase over the course of Q3, and we still plan to fill remained open positions and Q4.
This investment and critical human capital will position the company for growth going forward.
The resulting adjusted operating margin for Q3 was 41% and increase of 360 basis points from the prior year and 140 basis point sequential improvement from Q2 and <unk>.
<unk> adjusted operating margin for the company and six years.
Looking at our numbers below operating income net interest expense in Q3 was $2 5 million decreasing $1 7 million compared to the prior year period.
Decrease was due to a continued reduction of our bank debt during fiscal 2021 as well as lower floating rates are.
Our bank debt and the balance sheet as of the end of Q3 stood at $215 4 million.
Other adjusted non operating expense was $4 $1 million per the quarter compared to $3.
Compared to $3 million of income and the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements.
For GAAP reporting other non operating income included unrealized losses from our investment and chemo centrex.
Moving further down the P&L, our adjusted effective tax rate in Q3 was 22% a 110 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 Q3, barring no changes and corporate tax law.
Note that the GAAP effective tax rate and Q through in Q3 was favorably impacted by the discrete timing and stock option exercises.
As a reminder, during Q2, we made a strategic equity investment and 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 $380000 Noncontrolling interest line item on the P&L reflects the loss from the portion of imminent, we do not own.
The impact to other lines of the P&L as a result of consolidated eminence was immaterial in Q3.
Turning to cash flow and return of capital $74 9 million of cash was generated from operations and the quarter more than a 50% increase over the prior year and.
And Q3, our net investment and capital expenditures was 10, $610 6 million and during Q3, we returned $55 6 million of capital to shareholders by way of $12 4 million and dividends and $43 2 million and stock buybacks.
We finished Q3 with $40 7 million average diluted shares outstanding.
Our balance sheet finished Q3, and a very strong position with $276 2 million and cash and short term available for sale investments and.
And and and essentially zero net debt leverage position.
Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Q3 reported sales were $185 6 million with reported revenue increasing 28%.
Organic growth increased 24% with foreign exchange, having a favorable impact of 4% on revenue growth.
Within this segment the strong growth was very broad based with double digit growth and nearly all reagent assay and instrument platforms.
As Chuck described in his remarks platforms of Noble mentioned includes simple plex simple western biologics and cell and gene therapy, especially pertaining to GMP proteins as well as our core proteomics and reagent business.
Operating margin for the protein Sciences segment was 47, 6% and increase of 290 basis points year over year, due primarily to favorable volume leverage and cost management.
Turning to the diagnostics and genomics segment Q3 reported sales were $58 1 million with reported revenue increasing 18%.
Organic growth of this segment was 17% with foreign exchange translation, and having a favorable 1% impact on revenue.
Similar to the first half of our fiscal year, our genomics Division led the segment and the quarter.
We experienced strength across the entire ACD branded portfolio with RNA scope mrna scope base scope and other day and our diagnostic partnership with Leica all driving growth.
<unk> diagnostics Q3 revenue increased over 20% from last year with strong revenue from our companion diagnostic partnerships driving the growth as our XO Dx prostate tests continue to recover from from the pandemic lows experienced and our fiscal Q4 of last year and.
And as Chuck mentioned, our diagnostics reagents Division continued its growth streak by executing on COVID-19 related opportunities to offset the headwinds many of its traditional OEM diagnostic customers are facing with patients foregoing routine visits to the doctor.
Moving onto the diagnostics and genomics segment operating margin at 17, 9%. The segment's operating margin improved 360 basis points compared to the prior year. The increase reflects strong volume leverage and our genomics division as well as strong cost management across the segment.
In summary, the momentum we experienced during the first half of our fiscal 2021 accelerated during Q3 was 17% organic revenue growth year to date, our products remain at the forefront of science, enabling cutting edge scientific and therapeutic discoveries, while our key growth drivers remain underpenetrated and large and growing markets.
We believe the COVID-19 pandemic has elevated our profile and market awareness of our tools and solution offerings.
<unk> and biotech need to exit the pandemic stronger and before the pandemic hit.
This brings us to our thoughts and how we might close the year and short for our base business. We see Q4, looking very strong and similar to Q3, both from the top line in terms of absolute revenue and bottom line in terms of adjusted EPS.
With most of our customers both in Biopharma, and academia and now back to work and with a need and priority to fund medical research still high and both the private and public sector.
We see the strong revenue run rate, we experienced in Q3 continuing into Q4.
And to fuel and support further revenue growth and fiscal year 'twenty, two and beyond it is critical that we catch up on the growth investments that were in our strategic plan to accomplish this year.
As I have already mentioned, we made good progress at the end of Q3 on hiring and the human capital needed and we see that continuing into Q4.
As we fully expect our adjusted operating margins to finish sequentially lower than Q3, but still significantly higher than the prior year as well as higher than previous analysts' consensus consensus estimates.
Also we expect the acquisition of a surge and in April to contribute 2% to 3% sequentially more revenue on top of our base business and Q4.
However, as the surge and has just recently become profitable it will likely be dilutive to our overall adjusted operating margins in Q4 by approximately 100 basis points.
That concludes my prepared comments and with that I'll turn the call over to Maria to open the line for questions.
At this time, we'll be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that Youre line is and the question queue. You May Press Star two if you would like to remove your question from the queue from participants using speaker equipment and may be necessary to pick up your handset before pressing the star.
One moment, please while we poll for question.
Our first question is with Dan areas with Stifel. Please proceed with your question.
Hey, guys. Good morning, Congrats Hey, Chuck Congrats on the performance that you're seeing your strength.
And you're just talking about the early days of servicing your customers with the <unk>.
Expanded GNP capabilities and are you seeing the orders came in and the way that you had hoped and then how should we think about building out the portfolio there.
And the reason I ask this because if I'm thinking about the situation right at.
It sounds like one of the key factors that will influence the ramp will just be the pace of expansion of the catalogs and so can you just sort of touch on growing the product set there such that you feel like that will be less of a limiting factor and that might be and the near term.
Yeah.
I'll start kind of from the back forward it won't be it won't be a limitation of the catalog we've got out and we've got the most full GMP catalog already of anyone and then when the world. It is.
Just a matter of qualification and getting and inventory. So the issue is all commercial and it's all waiting for this industry to really happen. So we've had a really good quarter.
We're farther along with a dozen or so customers we've talked about a couple of we've locked in already.
Hard for them to to talk about forecasts and numbers and stuff. So we've contracted in terms of percent and we've had no issue with contracting and 95% of their needs whatever those needs be and I've talked in the past about they range anywhere from $10 million per year to over 50 of other just like a single.
Protein.
So we're making progress.
Also getting help because of scale already out there and we've got you now.
A dozen different people and commercial between sales and technical they're starting to drive more interest and.
And awareness and that's also helping find our way to more potential business more quickly. It's still a J curve like we've talked about I mean, so you've been keeping track of the model and we've been talking about the growth rate. So you can do the math and you'll see that we're at a 15 and $16 million run rate right now of GMP proteins I've talked in the past that even on this site here Minneapolis headquarters, we can make as much.
Is $40 million. So we've got plenty of time here before we exhaust our capacity before we have to have this factory turned on and you know we slipped a couple of months, but we're looking at September October to be selling out of inventory, but we're qualifying and making lots right now so.
We're in a good place it's more about what are we going to do for commercialization and accelerate and they come and two varieties that come and new specs for new new indications coming with <unk> got pretty good pipeline and stuff and then doing a conversion of things that are that are and clinical is right now and going through talking them into equivalency studies. So if they have it and nothing else at least a backup protein and so we're making progress and all those free.
And it has really nothing to do with the catalog, where we've got the best catalog and the best proteins, we can make.
Anything you've heard about that's needed rate out there for for GMP proteins and as I've mentioned also before I think what what the world thinks they need today, I think and five years, we radically different and who would you rather put your trust in the world leader and protein design or people, who focus more and instruments or other parts of the workflow I think over time. These proteins are going to continue to differentiate.
And it themselves for different reasons, and where it's going to play to our strength because we make the we make the best protein and the world period. So.
Okay. That's helpful.
And then maybe just moving over to simple plex, I mean, youre going to be rounding out a pretty big year there.
How are you feeling about carrying that strength into next year. My initial thought a couple of quarters ago is that a lot of those lx systems and being driven by COVID-19, but it also sounds like cell and gene and some.
Unreleased areas or are you may have noticed placement and right there you.
You may have noticed that our numbers are even bigger this quarter. So we yeah.
So we have found ways to make more we've been throttled because of just we couldnt make anymore, it's hard to grow and instrument business at 90%.
Talk to anybody and now.
And we've also beefed up our cartridge lines, we have more flexibility, we keep expanding our analyte line solely and other things that go and the cartridges for the customers. So we're giving them more flexibility, but it really comes down and like I said, it's biomarker discovery, it's QC applications, it's being looked at and being <unk>.
Hi, Lee received by and cell and gene therapy applications and so all of these things are way beyond our expectations four or five years ago and other diagnostics applications that we really are just getting started on and we're in the middle of a 500 10-K for process of course, you've got the partner in China and were doing going through their own. So this thing is one of the big sleepers of our company and we've got to get in.
Building, we've got expand capacity, it's more than just adding shifts we are all over this is right.
Right up there with <unk> being the number one number two priorities and the company and we expect momentum to continue we're now well over 500 boxes out there.
And that's kind of a tipping point, where things start selling themselves.
And people start seeing them and the word of mouth gets out just like we did with simple western and a couple of years ago. There was a tipping point, where it just got a lot easier and we're reaching that point and now with simple plex.
Okay, and just I guess, a simple way of thinking about it would be to say that if youre expanding manufacturing and the way that you are there then obviously you've got a decent line of sight into some out year demand that cash.
And I think you've got to look at the competition here is <unk> and they've done a good job I just read their print this morning, and they they beat as well it just speaks to the need.
Although this industry is opening up and there is a need for highly sensitive and our <unk>.
<unk> immunoassay systems and right now there's only a couple of really good ones out there its kind of us and quanta et cetera, and sensitive enough and ours just happens to be about 110th the size and 110th the price and still highly sensitive so we're catching up to them and you know.
But I think there is room for both of US I think it's it's really expanding market for all these different.
Applications I just mentioned it's.
It's kind of unknown, it's going to get big.
Yeah, Okay. Okay. Thanks Chuck.
Our next question is with Pony Sudan with Leerink.
<unk> Leerink. Please proceed with your question.
Hey, great. Thanks, and thanks, Chuck So first of all congrats on a strong quarter here.
Great to see the strong growth and really.
And impressive operating margin here are the key question is.
How sustainable is that and Jim address some of that and.
And based on what you expect to see here and look fourth quarter.
But.
Given the sort of the pent up demand that's already there the reagents and consumables, which are more easier to order and if you look back into the sort of the second half of the calendar year or the next fiscal year.
Obviously, you know comps get tougher so maybe just speak to us and in terms of how long of a sort of sustainable total tailed but you see here yes.
Yes, well first of all if we put a pretty key phrase and the commentary from Jim had talked about revenue as being similar in Q4 to Q3 and on a dollar basis. When you do the math, that's a big growth rate.
That's going to give us something north of 20, if we hit that and momentum looks very strong right. So whether you talk about for the year or take it for two years, it's double digit for two years too and I almost teens. So and then you've got to talk about well, we're hitting on all cylinders everything is growing amazingly well it speaks to the industry and speaks to the funding it speaks to us crossing.
And all these tipping point as a company is it speaks to our digital presence and our investments and and just the awareness of our company and our platforms and our quality has always been there a lot of our brands, but we're expanding it.
Speak to us being able to entice companies to come on board like assure Jenn and I don't think we're going to talk to them. They come onboard three or four years ago. There they see the candy and the store and they want it they want to help out.
We see and the Q1 and Q2 and are further next year, probably is not a 20% year, but it's going to be strong and right now it's too early to talk about what that could be.
We've listened to all the other peers out there and everyone's staying kind of shy about next year comps are going to be tough, but but you got to look at the market indicators, they're crazy good and we're going to be good.
Putting the I would just add I think we're a bit beyond the point of.
Pent up demand I think at the end of Q2, we had a 19% quarter, we had some more questions.
Among ourselves, but how much of that might have been some pent up demand.
By the time, we get here into Q3, that's no longer. The case, we are seeing is it really sustainable run rate in fact, if anything and the momentum accelerated throughout Q3 as opposed to leveling off or sloping downwards. So I don't think its pent up demand at this point I think it is.
It's ongoing funding.
Got it and then Jim.
Our operating margin.
Suggesting that these are sustainable and the near term, but how are you thinking about those longer term given the level of investment that you wanted to do and the business and.
Lee you have done and successful acquisitions here and passed and so how should we think about that operating margin profile longer term yeah.
And so it gets it gets that and how you define long term and short term, but I think the message I'm trying to convey here is that the fact, we were able to hit 40% well ahead of our well ahead of schedule some of it for some <unk>.
Reasons that you know like travel and things like that that were unforeseen a couple years ago, but the point being is that we are a highly profitable business model and shows that we can get to 40% and.
And we have that much more confidence, we can get that and a sustained basis going forward.
And the long term and the short term, we need to catch up on some investments and that short net catch up on the investments will bring that rate down for a while and the short term and we grow back up and get back to 40%.
But still on but still on plan from our previous guidance I would argue ahead of plan ahead of plan. So so I think.
Compared to fiscal year, 19, and definitely compared to fiscal year 'twenty. We're well ahead of plan on that trajectory.
And so a good got it and we're getting we're getting great leverage and and we have this quarter with a lot more investment and the previous quarter. So we've got great leverage as you saw and a number of our scale and thats going to continue.
Okay, that's very helpful and Chuck.
Proteomics, obviously protein so very much core to you and.
Great to see the growth here and simple plex, and meld platforms and protein simple.
And.
And when you think about the antibodies portfolio debt you have.
The combination with simple Plex, how are you thinking about proteomics now obviously there.
And linker technologies, all link and others that are emerging on the market.
<unk> and other approaches that are coming onto the market. So how are you thinking about.
Proteomics overall are there opportunities that you think where you can potentially expand into and how do you see the benefits flowing from that too broadly too.
Antibodies portfolio.
Although forget mostly it would be you mentioned are also our customers first off and first and foremost and.
We enjoyed relationships with almost anybody and in the field of proteomics.
I think the core underlying growth level for just on the basic research is phenomenal I do think that.
Avenues like Soma, and then and OLED are high plex and kind of different different niche high value applications that drive a lot of value and.
And that I think will reach and of those spaces as well.
To work with them and and probably compete with them, but we never giving up our core and we will be we will be king of the core in terms of antibodies and proteins for some kind of from time to come I think.
Okay, and then last one if I could squeeze and matures and obviously.
Very interesting asset and it appears to be Intel inside for the some of the Ni PT assays.
So just getting and wanted to get your sense on the contribution this year and then sort of next year. If anything you can provide there that.
And that would be very helpful and we expect this to be a fixed April closed so and I suppose it is going to add to the next quarter or two thank you yeah. So yeah, so puneet and Mike.
My comments I addressed what we thought they would add for Q4, roughly 2% to 3% revenue on top of our base until a couple of our core business for next quarter.
Minimal EBITDA contribution they just broken to profitability and we will provide more guidance as to what that might mean for fiscal year 'twenty two as we wrap up our Q4 earnings call next quarter.
I think what you got to remember there they've got a great pipeline and they are about to launch a trio of new assays, along with when you get the sister Frac cystic fibrosis out and that we're in.
And that is a potential homerun so it's.
They've got great credibility, they are known for great quality, there and some cases their indications are unique and some cases, they've got competition, but we've seen and best in class. So.
Stay tuned and I think as we launch these new things and their pipeline, which is really imminent over the next few months to a year and youre going to see some immediate.
Help and support and and we're not used to buying companies that are already and the black and to begin with so this is all good.
Yes.
Got it thank you and yes clarifying debt.
More carrier screening and that versus and IPG. Thanks, Thanks for the comments.
Yes.
Our next question is with Jacob Johnson with Stephens. Please proceed with your question.
Hey, Thanks, Good morning, everybody, maybe first just a broader question and then and Dan's on cell and gene therapy, Chuck I lost count on the number of times, you mentioned cell and gene therapy and <unk>.
And your prepared comments and can you just from I guess.
The size of the end market across the portfolio today, what this could be and a few years and then are you seeing more applications and market across your portfolio outside of things like GMP proteins GC.
And thank you RK Youre right Jacob probably over did it but it is a pretty exciting area for us and it it starts really paying for <unk> and a year or two out here, but right now it's on about a $50 million run rate.
Cross all our portfolio and that's probably we still are a little bit dark and just what potential is coming out and with that with scale ready, but our TC Buster is really starting to and a lot of deals start to become significant.
You already know the fabulous growth and GMP proteins, but we also have media.
And the growing well and as well and other things so.
We see it as a $500 million plus market and with.
And five years for us and he is addressable to be honest and and and there as we talked we alluded to all the different synergies across the company. There just there's a lot of unknowns, we have put in place and you.
The company, we've designed here as a team is a subsidiary model and multinational model. We have five divisional businesses right now six if you want to call. It a surge and one we'll probably do some.
And through some synergistic worked together other diagnostics platforms over the next year or two but looking forward, it's going to be six 810 different divisions are going to be synergistic and and.
And we run a tech council process, we make sure all the scientists are actually working together, we have a strong pipeline of new new things that nobody else can do because the AD platform and a platform B, we've come up with a new with new things and nobody else can do because they don't have all of that to all the things together.
And this goes back to my past and a lot of other people's past and accompanying and some fabulous companies would come from innovation reigned Supreme here and.
And we probably oversight and cell and gene therapy, but it is probably the most exciting future market for our company.
In terms of size I think I still think exosomes as a platform is the biggest potential but it's going to take years to really get all these things through because there's just so much more regulatory aligned with most of those but we're really excited there too.
Don't be surprised and a year or two you see extra true lap prostate and extra true is just there is crazy interest and it and we're doing really well and issue as you saw and a report from.
Got it thanks for that Jack and I have.
And then I called out for saying cell and gene therapy too much as well.
Yeah.
And then the other question check my second one just the last few quarters, I think you'd called out robust growth and custom products and protein can you just remind us how much of protein.
Some work and maybe just talk about the kinds of customers.
And does custom products.
Yes, it's as much about custom antibody is cut and protein we are accustomed group.
It's really a great.
Development situation for our leaders we've taken some of these people and worked in those areas because they're very strong technically but they have to be very particularly with customers et cetera, and they turned out being great business people and technical business people, so even going.
Going into that camp that said, it's roughly under $20 million, we don't want it too big because we got to it's hard to scale everything if we can get things and the catalog, it's great, but not everybody wants things and catalog. They want a unique built to them. So we charge and awful lot to get access to our really great intellect, but it's not something that we want to.
Make a division or see a roadmap to 100 or $200 million I think I think the scalability issue around around around a custom model because its service is difficult and it would tap to many of our star people and I'd rather have them working on products that we can sell to everybody.
Got it but it's good it's very profitable, it's very it's growing very nicely and and it is.
And it's an incubator it feeds into everything else we're doing so.
Okay that makes sense I'll leave it there congrats on quarter, thanks for taking the questions.
Our next question is with Alex Nowak with Craig Hallum Capital Group. Please proceed with your question.
Great Good morning, everyone.
And that didn't get any mentioned was the one web and as you look through the metrics. There are you seeing a big step up either increased traffic increased card sizes or just.
Ways Research labs, and put multi year products together and put into a solution and anything that could help explain the broad based growth and the quarter.
Well you know here's a funny thing.
We know what you're right we've talked a lot about our digital presence and our investments in digital and SCO and how it's driven a lot of our growth and it's explained a lot of our growth outside of our peers.
And every time I talk too much about it all my digitally can be it come to you and say you know youre, telling all our competition way too much.
And they show me data showing that some of our competitors are actually paying for Edwards on biotech me theyre buying biotech and these adwords.
China Theyre trying to creep in and our flow of of customer contacts are actually trying to lock up our own company name.
So that was pretty clear to me that we're certainly got their attention and they are and Theyre trying every avenue that candidate to get into R.
Our model because we are taking share from everybody and our core areas everybody and because it's working our if you look at our website lately, it's phenomenal and we just keep it and making it better and the one web is really a it's really an umbrella and term over really a complete one basket approach to buying and we're not there yet, but we've made big improvements. So you can where instead of you saw me.
We sell army, we continue to have an issue of de mystifying and talk about all the different potential single Unicorn platforms, and this company and yet can you buy them altogether and one on one site and he couldnt now more increasingly and you can.
And we're not going to.
Talk as much about it going forward because it's one of our Differentiators as a company.
But it's going very well understood is cleared by the numbers right. So.
No that makes sense, Okay, and then a ton of success and AC D. Right. Now is there really any new innovations and research projects that are better propelling our business units forward and then I guess I'll take a step back there is it fair to put ACD and a similar position as protein simple was maybe five years ago or what.
Would you say you don't expect ACD to hit the levels that protein and cycles due to the contrary I think thats very.
Very prolific W. Prophetic.
But you know Theres RNA scope Theres <unk> Theres DNA scope. There there is high <unk>, we got a hell of a portfolio coming.
And all of our new our new extensions of our platform are higher our higher plex strategies.
And also to be aware, all the high Plex and guys out there and they know it.
Don't need to halfway and our boxes with our technology. It doesn't destroy morphology theres a lot of benefits to the till we have and we have strong IP protecting it so.
We've always said this could be a two to 300 or more larger division. So it's very much at a tipping point, it's going to be knocking on a $100 million next year, probably real close if not exceeding and very profitable because you know us and in a day its kits alright, great gross margins and the.
The team is unbelievable.
And they are really good in terms of cross linking other people and the company and technically and getting help and also also helping them stronger and our strongest technical teams I've ever seen in my career to be honest and.
And if anything our issue is how do we keep acquiring talent and the bay area and keep this machine moving.
And the competitive out there for people and that's probably the bigger concern is can we fuel the growth with more investments and key people.
And just add the recent launch of our DNA scope and the market for DNA scope basically doubles, our addressable market from what just RNA scope.
And we've been asked for it for your very very difficult, it's probably about a year late because it's just so tech and the difficult retracted.
No that's great I appreciate the update thank you.
Our next question is with Catherine Schulte with Art. Please proceed with your question.
Hey, guys congrats on the quarter and thanks for the questions I guess first and the core reagents business.
Five year outlook kind of 5% to 7% growth rate. There can you just talk through some of the new accounts drivers that you've referred to earlier, whether it's mrna or proteomics and the potential for those to be adequate and as you think about that next five year outlook.
And that.
That's very astute and it's true I mean going back and you've been with US a long time and and in the early days, we talked about guidance to a healthy mid single digit growth and because the markets from really growing anymore and that any way in terms of antibodies and proteins even assays.
But you know.
And that's what's happened right. So the markets have all improved there's a lot more funding out there.
And Theres a lot of Halo effect stimulus I've talked a couple of quarters ago about don't be too worried about a 3% NIH budget, they're probably going to come back next year with them of something much bigger share and author talking 'twenty, 1% starting fiscal October it's going to be big and this is without infectious disease. This is just oncology neuroscience the traditional.
Funding from the NIH COVID-19 is going to be another layer and there is a halo effect off of all of this debt.
The vaccine makers are all buying everyone's exploding there is a halo effect off of all of that.
And it all starts with proteins and antibodies and assays and what can I say I think high single digit growth at a minimum going forward and we've been we've been exceeding that as you know we kind of look we kind of look silly because we've been double digit here for quite a few quarters.
Okay, Great and then maybe on etc, and I can sincere excitement. There can you just talk about your commercialization strategy and building out a sales force from the launch later this calendar year, maybe that timelines and Medicare coverage.
And my number one question is guidance why don't you start with that.
It's a lot of it a lot fewer barriers.
And we don't have to worry about 20000 urologists would have to worry about the pathologists and drive the urologists with being paid per sample off a biopsy theres a lot of there's a lot of converting to do and Exosomes diagnostics and we're doing it we're growing and cranking and it's going to be sticky, but it's going to take some time X X what's related to kidney rejection and there's only 100 center.
Theyre very regionally located.
85% of all the of all the work of just enough and and the top tier of them.
So this is why it's important to have and at home collection potential because a lot of these these patients are going to have to be traveling a lot every couple of months to get these.
And you get there and they're new they're new.
Kidney checked and.
And now they don't have to and now they can send and urine is simple.
So we don't have a big commercial plant and it's going to be like a key account model theres going to be a half a dozen different reps will probably be higher from heavy hitters that are well known and industry and.
Go to work flow.
And right now we've got some good news right I mean, we've got multi axa offering up via and being a <unk> solution.
A lot more I guess acceptance of the <unk> just in general for this issue of kidney rejection and if we can get our if we can get ngls too to abide by by this opening its going to actually accelerate our process. Our LCD process. So we don't know yet, but we're talking and Ngls and they've been very supportive so far and very open and they are very very <unk>.
And they like the data they liked the publication, we've done already and.
And I'm, hoping and expecting it'll be a much smoother commercial transition and then excellent excellent for <unk>.
And for prostate to be honest and as most transplant patients are covered by Medicare you don't have to worry about trial and convert a bunch of private bank to 85% Medicare and so that's another nice thing.
Okay, and then last one from me maybe on this enquiry agreements how should we think about the timeline for those antibodies and Mr Chronicles and potential magnitude of milestones from those agreements.
Yeah, well, it's unknown as you know working with therapeutic companies, who they were.
Won't tell you everything anyway, but we're on our third.
Are there different antibody there all along and the first one.
I don't know, how I know as debt.
And we're getting paid and a prime Oregon paid milestones where get royalties, we hope that they are successful with their clinical's, but.
And we don't have their schedule for clinical for what's going on but it certainly won't be known and six months or a year, it's going to be a year or two auto share to see much come back from that beyond the milestone payments and everything else but.
And now we've got a list I mean, we're.
<unk> got quite a few of these coming and going out and it's not.
10 Grand 20 Grand here, we're talking bigger much bigger numbers upfront just to get access to our technology, we never used to do that and.
And Thats and becoming a nice new layer of new revenue as we mentioned.
Great. Thank you.
Our next question is with Patrick Donnelly from Citi. Please proceed with your question.
Hey, guys. Thanks for taking the questions Chuck maybe just on Exo Dx and obviously you got a nice payer on board I think and at the beginning of April.
I know you've talked often about maybe if you get a big one it'll be the first and a few dominoes to fall relatively quickly can you just talk about the conversation pay since then with payers and what we should expect we will go next couple of quarters and as well as flow there yes.
It's certainly accelerate things we have.
Much more many more of the satellite Blue Cross Blue Shield's now and the.
The final throes of contracting with US and of course, we're still going after United and all other big ones and the.
As always we're total it always starts like this one of the big ones has to go and then eventually the other ones aren't going to be left behind.
And he gets to a point where patients are demanding it alright. So.
So it's going to happen. This is just way too good a technology it works and way too well and we're just going to keep grinding away at it and it's just too bad debt. This is this is a patient set that just aren't leaving their homes and going to see the urologists and getting checkups, but theyre coming back now and our numbers are improving dramatically as we mentioned in March for share and.
<unk>.
And we're getting there.
I think all in from the beginning were well north of 50000 tests administered so we're.
This is not this is getting more than and being a secret.
So we're getting there.
Right Okay.
And then on the COVID-19 side I know you talked about a few different product lines and played into the mrna vaccines are you able to quantify what the impact was from the quarter.
And even at a high level would be helpful.
Well, we had as I mentioned, we had 90% growth and some of that growth is mrna vaccine related I don't even have the numbers in front of me I don't think it's half or anything but it's just another component of the growth and so on all cylinders zone.
Okay.
And then maybe last one just on the geographic basis, China has been a source of strength for much of the group here can you just talk through your.
Our performance there and then the outlook and certainly seems like things are pointing out.
And that region.
As you remember China fell off the table first of all they are the easiest comps, but 50% here is a damn good number and they're they're back strong and the momentum is good. So we're kind of back on track. If you can just level it all out or looking back a year or two where it's a 25% grower zone.
At least 2022 and bipolar pushing them for 25, and I think it I think thats going to happen. So we fared better than most of last year and in China, where we still grew and China was.
Single digit growth as opposed to the typical 20% plus so we had an easy comp for China, but not an easy and easy comp compared to much of our competition and China Yeah.
Understood. Thanks, guys, we've been and we've been hiring there is the <unk>.
<unk> is expanding.
It's kind of business as usual and China to be honest, except for some of our management trying to get in to help may have to go through quarantine, it's tough and then.
And Darren and Chinese extended leases, yet so you can and Glenn for two months and they kick you back out and you guys start over again so.
No visits for a while for any of us.
Great. Thanks Chuck.
Okay.
Our next question is Paul Knight from Janney Montgomery Scott. Please proceed with your question.
Hi, Chuck.
Emphasized how youre catalog is the very best.
And a long time for any threat to is it the annotation now that you have around it along with the content.
Or would you describe the barriers to your catalog now.
There really arent any I mean, I mean in the beginning and Youre pretty up on this I know Paul but IL. Two was kind of first thing being sold and is probably still a leading protein being sold and we make that as well, but we're and of IL <unk> IL 10, and IL 15, and there is more there if theres others, we have a catalog of roughly 50 or competition.
And as have to lessen that I'm, just saying we have a strong catalog we are not the largest GMP protein provider yet.
But what we will be.
Right and.
And.
Yeah.
Kind of how we kind of have to wait and see where these guys go with.
The process and the next spec and their next clinical and are they looking for IL 27, or IL 37 or whatever.
We have all the hardest to make proteins from re and research that and to kind of lead and lead the way for the whole world following on what proteins come about when and how.
How many of these become asked for put into a GMP format is unknown and then to be honest will probably have to work with them they'll have to use us more than they have been if they want to understand the benefits of and advance new protein that they don't really understand or don't know about because we will always have the most early information and the world and a new protein.
Is that also the profile of your St. Paul customer is it a technical product.
What are they what are they finding and your facility to book capacity.
Well right now it's all about qualification they want to see that they know and R&D systems brand is a high quality protein they want to see instead of.
Couple of hundred thousand dollars of purchases for research needs can can they get $10 million of it.
At the same quality level large lot consistency and lots and all the paperwork and has to go with it for being GMP right because it's regulated so they come in and do audits and all that and it's not really about <unk>.
Checking this out if we can make the protein and that they kind of get that its more about all everything else can you make enough. It is a consistent.
Have we done all the GMP regulatory stuff correctly.
Do we have the bandwidth of the teams and place the leadership team.
Typical audit stuff and.
And then on very well and yes.
And you guys can start traveling again.
And we will bring towards Italy, it's a deal closure of a facility it's amazing.
And then lastly, there hasnt been a lot of M&A and the industry with diagnostics asset.
Or is the pipeline or the candidates out there much more attractive than they used to be due to maturity of the industry whats behind your M&A. What do you think is behind the activity and the industry.
Well I think it's the growth for the industry is driving the activity and now we're going to have a bunch of very difficult comps and a lot of companies with a big war chest of COVID-19 cash and so it's going to drive a lot of M&A I think starting probably now.
Certainly been to next fall.
I mean and start doing the math and what is the big guys and our interest you have for cash it's amazing and.
And they're not going to want to shrink next year and I want to grow so theres going to be more M&A and turns off will be and their swing and like we always have or we're not trying to compete with thermo and danaher and <unk> and is a perfect example of yet another private deal we did that getting a great team of bolt on synergies and place and we'll be able to and.
And grow much better with them then they would be and their own we have certainly come in second and third on and a few of the past year and some <unk>.
Some spain to be I really wanted them, but we're not going to overpay and.
Things are pricey right now just because of that.
At the industry, we're in and <unk>.
People are demanding innovation and growth and they can do it it's just classic make versus buy and and I guess, but it's driving valuations and.
And the growth, we're seeing and our company.
And we're not the only one right is striving valuations as well.
Yes.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Chuck and Mr closing remarks.
Alright, well thank you Maria.
He was a great quarter.
And what's not to like with our 25 year record so.
As you guys. All know Q4 should be even maybe more fun to talk about and I look forward to next quarter and when we were all together again. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.