Q1 2023 Bio-Techne Corp Earnings Call
Good morning, and welcome to the biotech Mi earnings conference calls for the first quarter of fiscal year 'twenty 'twenty three.
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The call will be opened for questions following management's prepared remarks.
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I would now like to turn the call over to David Clair Biotech Neese, Vice President Investor Relations. Please.
Please go ahead Sir.
Good morning, and thank you for joining us on the call with me. This morning are Chuck comment Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotech me.
Before we begin let me briefly cover our safe Harbor statement some.
Some of the comments made during this conference call maybe considered forward looking statements.
Including beliefs and expectations about the companys future results as well as the potential impact of the COVID-19 pandemic on our operations and financial results.
The company's 10-K for fiscal year 2022 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward looking statements made during this call.
The company does not undertake to update.
Any forward looking statements because of any new information or future events or developments.
The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section.
During the call non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.
Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier. This morning on the biotech <unk> Corporation website at Www Dot bio dash technique Dot com <unk>.
Separately, we will be presenting at the credit Suisse Stifel Stephens and Evercore ISI health care conferences in November we look forward to connecting with many of you at these upcoming conferences I will now turn the call over to Chuck.
Thanks, Dave and good morning, everyone. Thank you for joining us for our first quarter conference call.
I am pleased to report that we started our fiscal 'twenty three with respectable 7% organic revenue growth on top what was our most challenging year on year comp of over 21% organic growth in Q1 of last year. We achieved this growth despite a slower summer for our business in Europe and continued although improving COVID-19 related shutdowns in.
The tough comps and we believe temporary regional challenges that our protein Sciences segment face. This was the quarter for our diagnostics and genomics segment to Shine and China did with 17% organic growth.
And our first quarter, we accelerated our spatial biology business to upper teen growth, we continued to drive incredible uptake and doctor and patient usage of our extra Dx prostate test and.
And we delivered double digit growth in our genetic Dx and diagnostic reagents businesses.
I will dig into the traction and encouraging trends, we're seeing across the segment and our broader portfolio later in the call.
But first I'd like to highlight the updated corporate sustainability report recently issued which details the significant progress we continue to make advancing our environmental social and governance initiatives.
64 page report provides insights into biotech and his commitment to growing the organization in a responsible manner.
While we deliver the products necessary to advance science and ultimately improve health care.
Our advancements on the ESG front also led to biotech. These inclusion in 2020 to Forbes list of best in state employers with this latest achievement, representing the third recognition from Forbes so far in calendar 2022.
I'd also like to briefly touch on how we are navigating the current global inflationary environment. The team has done an extraordinary job strategically implementing price increases across portfolio to offset the impact of inflation. We will continue to leverage our pricing power to offset rising costs, particularly labor going forward. It should also be noted that our operations team has delivered consistently.
With no supply chain issues this quarter or any of the past eight.
Now, let's discuss the specifics of our quarter, starting with an overview of our performance by geography and end market.
In North America, consistent execution across the portfolio drove low double digit revenue growth for the quarter driven by a continued strong biopharma end market.
In Europe , our revenue decreased mid single digits year over year here, we experienced an exceptionally slower seasonal summer dip in our consumable run rate business. It seemed like everyone ones on vacation in July and August , perhaps making up for the prior to Covid yours when travel is more restricted.
Any case, our run rates in Europe picked up considerably in September as researchers seemingly returned to the labs. However, the strong double digit growth in September which by the way. It's continuing October wasn't enough to overcome the tough Q1 girl copier.
Last year, when they grew a record 20%.
While there are potential macro challenges in the current European environment, our portfolio of proteomics research reagents analytical tool and spatial biology solutions remain core components to the scientific discovery process and position us to effectively navigate any near term regional instability.
Moving on to China, Despite the lingering impact of ongoing COVID-19 related lockdowns and academic institutions not returning to the labs, we delivered mid single digit organic growth.
On top of the Covid challenges I'd also note that China face, a particularly challenging year over year comparison, where we grew revenue by over 50% in the region last year, we see China rapidly returning to its historical growth rates as prior year comps normalize.
First to continue to better navigate the sporadic COVID-19 related government restrictions and the Chinese government continues to emphasize investing in health care.
Our biopharma end market remains healthy growing upper single digits globally for the quarter, and especially stronger in North America with growth in the mid teens sales.
Sales to our academic end markets increased low single digits year over year, but again, we're stronger in North America.
Now, let's discuss our growth platforms, starting with our protein Sciences segment, where organic revenue increased 3% for the quarter on a very strong comp from last year. When the segment grew over 26%.
Let's begin with our cell and gene therapy business, where our portfolio of reagents instruments media and technology and streamline workflows increase efficiencies and ultimately expand its access to these next generation therapy that lower cost to the health care system.
We haven't discussed T belts, there for a while so I will update you on the significant progress we are I'm experiencing with our non viral gene editing technology PC Buster has several advantages over legacy gene editing methods, including its ability to deliver larger gene editing cargo as well as the more predictable gene insertion location all at a lower cost compared to viral based gene insertion method.
We continue to educate the market on the advantages of T C Buster and it's worth noting that we have signed a handful of commercial licenses.
Support a growing pipeline of cell therapies, primarily for T cell and NK cell therapies.
In addition to customers testing T C. Buster for therapeutic candidates. We also see growing interest in discovery research to take advantage of the technology is lower cost and increased speed, enabling an acceleration of a candy selection Tc Buster is currently being trialed and dozens of unique therapies and we believe the future is very bright for this technology, we continue to pair.
Trade the burgeoning cell therapy opportunity with our portfolio of GMP proteins and are seeing continued momentum in the regenerative medicine or re gen med market. As a reminder, re gen. Med is a form of cell therapy that leverages stem cells or the derivatives to promote the repair responses diseased dysfunctional or injured tissues are GMP capability.
Expand beyond proteins and include a portfolio of GMP small molecules. These small molecules are key components in the reprogramming self renewal storage and differentiation processes that are key to re gen med workflows.
While our GMP small molecule business is relatively small today it is growing rapidly including over 100 per cent for our first quarter and has potential to become a significant contributor to our overall cell and gene therapy business.
Now, let's talk about our core portfolio of proteomics research reagents, including there are you all proteins antibodies and small molecules that are key components to enabling biopharma and academic scientific discoveries.
Collectively our already well reagents grew nearly 30% in Q1 last year again housing how difficult. This quarter has accomplished despite the high hurdle or are you all regions were able to grow mid single digits in Q1 of this year driven by our digital marketing capabilities.
Moving on to the performance of our proteomics analytical tool, where we also face a challenging year over year comparison as the business grew over 25% in the same quarter last fiscal year.
Overall, the team delivered double digit growth in North America, and China, which was partially offset by much lower performance in Europe , leading to low single digit growth for the quarter.
Once again, our biologics platform reason lead to growth, we continue to see demand from protein Therapeutics gene therapy and C. R. O C D more customers, particularly in North America, and China, where combined growth of over 20%.
Innovation remains a key factor in growth of our biologics business. For example, we recently unveiled data demonstrating I see I F. Fractional station on the soon to be launched Maurice Flex instrument fractional ization of the fronts and step in mass spectrometry, where the sample to be analyzed and separate into mixture components based on differences in their size.
Charge or other characteristics.
The data showed how Maurice flex addresses the labor intensive and time consuming challenges of using legacy methods, including ion exchange chromatography for fractional nation.
Reflex is scheduled for release in early 2023.
In addition to the expanding capabilities and applications of the platform is also gaining recognition for its environmentally friendly activities. A recent study in the Green analytical chemistry journal highlighted Maurice and environmentally friendly method for evaluating the identity and stability of edema associated virus or AAV samples for gene therapy development.
Highlights marris's low sample and reagent volume requirements and built in waste reservoir is environmentally friendly attributes of the system.
We continue to expand the capabilities of our protein simple light of instruments in cell and gene therapy applications. During the quarter. We added three new viral titer assays for the expanding menu of our automated multiplexing Elisa instrument Ella for intact, AAV capsid quantification and gene therapy research and development Ellis wide dynamic range and high precision.
Insurance users get the high quality of data required to meet regulatory standards for AAV titration throughout bio production workflows.
Now, let's shift to the diagnostics and genomics segment, where we grew revenue by 17% organically in the quarter.
Our spatial biology business branded ACD accelerated to upper teens growth in the quarter as strong commercial execution and an enhanced marketing strategy generated well balanced growth in both our Biopharma and academic end markets. In addition to a strong performance from the core RNA scope product line, we are seeing increased traction from our base scope and.
Micro RNA scope offerings in cell and gene therapy applications, which grew almost 50% and over 70% respectively.
Base cope and micro RNA scope are rapidly becoming material contributors for spatial biology franchise.
We recently expanded our RNA scope portfolio with the launch of new automated co detection assays, specifically designed for the Roche discovery ultra platform, enabling simultaneous detection of RNA and protein on the same tissue section.
These new automated multi I'll make assets utilized both RNA scope and basically signal application.
To deliver best in class RNA sensitivity and specificity when combined with protein detection on Roche is the automated platform researchers will be uniquely enabled to power translational and clinical research studies.
We are also unlocking the cross segment synergies inherent in the broad biotech and product portfolio.
As an example, we recently launched the TSA David floor for for highly sensitive fluorescent detection of Rnas and proteins in cells and tissues pairing. These key fluorescent dye fate reagents from our small molecules business with Acd's RNA scope sets, a new standard for illuminating RNA biomarkers with industry, leading sensitivity and clarity.
Rounding out spatial biology, we also recently filed a patent infringement lawsuit in the United Kingdom to halt the infringement of our patented RNA scope I S. H technology by molecular instruments incorporated we've made significant investments over the years to build our catalog of over 40000, RNA scope I S. H probes available in over 400 species and remain.
Emitted to protecting these investments in defending our intellectual property rights and our spatial biology business and more broadly throughout the portfolio.
Now, let's discuss our molecular diagnostics business, starting with the significant progress in our excess on diagnostics business test volume and our extra Dx prostate or FTE test increased over 7% while associated revenue grew over 100% in the quarter importantly, a favorable doctor retention trends and steady increases in the.
<unk> physician base sets the stage for continued robust exo Dx prostate growth going forward I am extremely pleased with the traction we are seeing an extra dx prostate and believe our fiscal 2023 will be a breakout year for this test.
Exosomes diagnostics also announced initial data on our novel Noninvasive saliva based profiling assay leveraging X is almost to diagnose and monitor individuals with <unk> syndrome.
Children's syndrome is an autoimmune disease disease that is often undiagnosed and misdiagnosed with an estimated 4 million Americans currently living with the condition, but two and a half million undiagnosed symptoms of Shogun syndrome can mimic other auto immune diseases allergies drug side effects, and menopause, making diagnosis, particularly challenging leading.
To an average diagnosis time of three years and creating a need for a noninvasive accurate molecular tests.
We are looking forward to providing future updates for this exciting pipeline assay.
A recent proof of concept study for a novel <unk> based platform capable of monitoring space flight associated neuro ocular syndrome or sans and.
And astronauts with published in N P J microgravity or nature publication. In addition to potentially providing a needed tool to assist fans and astronauts that are going on longer missions as well as commercial space crafts injured.
The study showcases the potential power of X was almost for the diagnosis of neurological conditions.
Continue with molecular diagnostics assures and had another great quarter as demand for its portfolio of genetic carrier screening kits and expansion into Europe drove growth of almost 25% for the quarter.
In addition to the ongoing geographic expansion the surgeon has a rich product pipeline positioning the business for continued growth going forward.
Finally, our diagnostic reagents business continued its streak of consistent growth quarters.
The return of patients to the doctors office is driving demand for hematology coagulation and clinical chemistry test, which is driving demand for our clinical control for agents.
These improving underlying diagnostic trends combined with market share gains and increased wallet share at existing customers.
Led to a low double digit growth in the quarter and sets the stage for a sustainable growth in our diagnostic reagents business going forward.
In summary, we continue to execute our growth strategy and remain on track to deliver our long term financial targets our portfolio of proteomics research reagents and analytical tools are critical components in scientific research.
Key to unlocking the full promise of the proteomics Revolution currently underway and are positioned to enable the oncoming biolay the cell and gene therapies.
Under this the portfolio of diagnostics and genomic solutions that include our leading platforms and spatial biology in liquid biopsy and I believe we are just getting started unlocking the full potential value of this business.
With that I'll turn it over to Jim.
Thanks, Chuck I will provide an overview of our Q1 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 the fiscal year.
Starting with the overall first quarter financial performance adjusted EPS was $1 78 versus $1 83, one year ago, a decrease of 3% over last year.
Foreign exchange negatively impacted EPS by <unk>, 12 cents or minus 7% in the quarter.
GAAP EPS for the quarter was $2 21 compared to $1 69 in the prior year.
The biggest driver for the increase in GAAP EPS was realized gains on the sale of our investments in chemo centric and eminence during the quarter.
Q1 revenue was $269 7 million, an increase of 5% year over year on a reported basis and 7% on an organic basis.
Foreign exchange translation had an unfavorable impact of 3% and acquisitions had a favorable impact of 1% to revenue growth.
Given the tough comp we faced this quarter versus the prior year I will point out that our two year organic growth CAGR for Q1 was approximately 13% right in line with the early part of the five year plan. Our leadership team presented at our Investor Day in New York City, a little over a year ago.
Moving on to the details of the P&L total company adjusted gross margin was 79% in the quarter compared to 71, 2% in the prior year.
The decrease was primarily driven by unfavorable foreign exchange impact, partially offset by productivity gains.
Adjusted SG&A in Q4 was 27, 3% of revenue compared to 25, 1% in the prior year, while R&D expense in Q1 was eight 9% of revenue compared to eight 3% in the prior year.
The increase in SG&A, and R&D was driven by wage inflation and progress made in the second half of fiscal year 'twenty, two and building the team to support ongoing strategic growth investments.
Speaking of inflation the businesses implemented strategic price increases during the quarter to offset the dollar impact of inflation to operating income.
However, the dollar for dollar offset did have a negative impact on operating margin.
Adjusted operating margin for Q1 was 34, 8% a decrease of 300 basis points from the prior year period.
The pricing inflation dynamic decreased adjusted operating margin by 120 basis points negative foreign.
Exchange decreased margin by another 110 basis points.
While carryover of second half fiscal year 'twenty, two investments drove the remainder of the margin dilution for the quarter.
As stated in the fourth quarter of fiscal year 'twenty two earnings call. We expect Q1 to be the low point for adjusted operating margins for the year.
Going forward, we expect adjusted operating margins to expand sequentially and in the fourth quarter of fiscal year 'twenty, three approximately 100 basis points higher than the fourth quarter of fiscal year 'twenty two.
For the full year fiscal year 'twenty, three our expectation for adjusted operating margin to be approximately 150 basis points lower than our full year fiscal year 'twenty two remains unchanged.
Looking at our numbers below operating income net interest expense in Q1 was $3 million decreasing point 1 million compared to the prior year period.
Our bank debt on the balance sheet at the end of Q1 stood at $264 7 million, an increase of $8 8 million compared to where we finished last fiscal year.
During the quarter, we drew down approximately $100 million on our line of credit to fund the damaged cell acquisition, which was partially offset by applying the proceeds of our chemo citrix investment sale to our debt balance.
Other adjusted Nonoperating income was $1 2 million for the quarter unchanged from the prior year.
Primarily reflecting the foreign exchange impact related to our cash pooling arrangement.
For GAAP reporting other nonoperating income includes realized gains from the sale of our investments in chemo centric and M. S.
Moving further down the P&L, our adjusted effective tax rate in Q1 was 21%.
Turning to cash flow and return of capital.
$6 1 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $9 6 million.
Also during Q1, we returned capital to shareholders by way of $19 6 million in stock buybacks and $12 5 million in dividends.
We finished the quarter with $40 5 million average diluted shares outstanding.
Yeah.
Our balance sheet finished Q1, and a very strong position with $203 1 million in cash and short term available for sale investments our net leverage ratio remains well below one times TTM EBITDA.
During the quarter, we replaced our previous debt financing with a new 1 billion dollar line of credit facility with a five year term.
Our Corp. Dev team has been very active in investigating external investment opportunities and this new increased debt facility emphasizes the continued importance M&A will have on our capital allocation strategy.
Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Q1 reported sales were $199 9 million with reported revenue increasing 1%.
Organic growth for the segment was 3% with foreign exchange, having an unfavorable impact of 3% and acquisitions contributing 1%.
Given the tough year over year comps that Chuck pointed out for this segment I will highlight that the two year organic growth CAGR for this segment is greater than 14%.
Longer term historical five year CAGR is approximately 12%.
Operating margin for the protein Sciences segment was 43.0% a decrease of 270 basis points year over year.
Productivity gains more than offset by the impact of foreign exchange price versus inflation dynamics that fiscal year 'twenty to carryover of strategic investments to support future growth and the damage cell acquisition.
Turning to the diagnostics and genomics segment Q1 reported sales were $69 9 million with reported revenue increasing 15%.
Organic growth for the segment was 17% with foreign exchange, having an unfavorable 2% impact.
As you heard from Chuck earlier, the double digit growth was broad based throughout the segment with spatial biology accelerating a high teens organic growth in our extra zone diagnostic prostate test really now in hyper growth mode, with the Medicare reimbursement and Kobe headwinds behind it.
Moving onto the diagnostics and genomics segment operating margin at 12, 4%. The segment's operating margin increased 20 basis points compared to the prior year the.
The increase reflects the favorable impact of volume leverage partially offset by the impact of foreign exchange and price versus inflation dynamics.
Looking ahead, our end markets remain healthy and our momentum in capturing share in these markets is in line with our five year plan.
As we get past the recent regional challenges in Europe and in China, We are keeping a watchful eye on any potential short term macro challenges that could impact our trajectory to our long term goals.
With confidence in our nimble and experienced team who has a track record of successfully navigating a dynamic environment.
With the toughest comp of the year now in our rearview mirror, we anticipate a return to double digit organic growth for the remainder of the fiscal year.
That concludes my prepared comments and without from a call back over to the operator to open the line for questions.
Thank you.
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Ladies and gentlemen, please limit your question to one.
A follow up.
One moment, please while we poll for questions.
We have our first question from the line of Puneet Saadawi. It S V. B Securities. Please go ahead.
Hi, Jim.
Thanks for taking the question. So first one it's really I mean I appreciate that you had tough comps in the quarter protein Sciences.
But it was still meaningfully below our number in the street number.
So I mean I think the key question that we're getting here as you know how should we think about protein sciences in the second quarter here how much of this was really sort of pull forward of demand.
Versus actual weakening of demand as you talked about Europe , and China, and because I can't recall a time when you had 3% organic growth in this segment. So maybe just walk us through.
What you see now and how should we think about.
The next quarter and for the full year.
Sure. Thanks, Puneet, Yeah, I'll give some comments, but I do remember when I joined it was negative so I remember plenty of quarters below mid single digits by the way because it's been a while.
We are weird totally on our plan for five years and you know we were been ahead of schedule and our models are mid single digit in our core anyway. So don't don't forget that but I will cut to the chase right now, but you know September was strong October is remaining strong we're basically double digit across the board, it's not high teens, so things look good.
You are exactly correct. We were really hot Q4 coming in that are you know 14 versus consensus of 11 definitely had some pull forwards. There we've done some studying and you know we had probably a you know we had a lot of a lot of price increases July one there was definitely some of that I think also to point out and instrument side, we're not too far off it's just.
More of a weakness in Europe cautiousness around around purchasing but we've also dug into what's going on because our bookings you know in our funnel is very strong it's actually the strongest funnel, we've ever had but it's taken longer to get through the booking cycle and.
Signatures are coming we're cautious with last quarter, especially and.
And we were a bit Rob do we think our we think you know we've not had any supply chain issues. The last couple of years and we've been pretty steady Eddy and very good growth.
And a lot of other instrument in acres and a lot of other hum higher capital or higher students share purchases have been have had more supply any issues and we think theres been a little bit of a bubble of pent up demand and some other areas and I think we just maybe lost a little bit on priority in some some of the purchases. This quarter is what we were coming to we don't see a lot.
Of issues against price and we don't see any issues really some from September on.
We definitely had a softer quarter in Europe and some of it was vacation for US we do live in a little different world. We don't have direct comps competitors, whether it's just kind of pieces here and there and we have a you know a large a larger segment in biotech as well and there is definitely some on the on the midrange biotech there has definitely been softness, especially in Europe on Cigna.
Sure is in conservatism overall going forward looks pretty strong you heard the news from Jim There were more concerned about that are more concerned about our long term outlook, which we don't think has changed a bit.
And.
Some highlights there, we'll let you dig in deeper now.
Okay great.
So on the small biotech side I'm wondering if you're seeing anything there.
Any sort of.
The weakening of demand I appreciate your comments about the current I mean, the September and October .
And Jim if I could ask you about the low to mid teens that you had talked about in the prior quarter about fiscal year 'twenty three.
What could keep that on the lower end versus the higher end, maybe just walked us through.
Potential upsides and potential things that we need to watch out.
Which would be lower.
Yeah. So I guess, the first thing that to address the biotech.
We're seeing performance in our smaller biotechs pretty you know relative to a larger pharma, we're not seeing much differentiation.
For us when you look at a smaller purchase that we call our our run rate business, which has lower dollar value.
Which as you know, we're probably 80% of the purchases come through.
The growth in Q2 and continuing here in October continues to be like mid teens growth, particularly here in the U S.
Back to Chuck's earlier point, it's really the larger bulk purchases that were had tougher comp and we're one more call. It soft this quarter and probably face more competition with some of the supply chain breaks were occurring in the larger.
Dollar instrument purchases in terms of competing for dollars.
With regards to looking forward I mean, I think Europe is still the biggest question Mark.
<unk> strong performance here early in October , but obviously the macro picture there is a bit cloudy for everyone and that's something we're keeping our eyes on that could you know that would be the one play that could deter us from achieving double digit if anything.
Okay. That's great and then last one if I could squeeze it in.
On Wilton, both I didn't hear an update just if you could provide an update and when do you think.
No.
Options agreement could materialize.
I think we're still looking at the at the near the end of Q3 in.
In that range so.
I would say overall I know our cell and gene therapy, and you know our GMP proteins. We didn't have a 50 plus percent quarter like we've been doing and things have leveled off is very lumpy is still we don't have a lot of large large customers and there was some timing and some of that and Wilson Walter has seen some of that as well as well as issues around clinical and finding patients.
So things have softened a little bit.
Still more or less on track for what our our you know our schedule was for them there, although the improvement isn't there EBITDA their EBITDA is north of 70% till they're doing really well and there is volume they're getting good scale. So so there are a lot of good news there too and we're.
We're investing into more sales reps, we're calling our surge team there are helping more outside of the whole scale ready team from a from a proteins point of view, because we're gonna be adding more and more proteins to our factory factory. The remainder of this year fiscal year, we're going to add six more products. So by far will be the largest.
Largest menu out there in GMP proteins for both re gen and cell and gene therapy. So that's all a really good story, yet and we just wanted to focus on what we thought you guys would you want to focus on this quarter. So no issues there.
Got it thanks, Thanks, guys.
Thank you we have next question from the line of John .
Yes with Stifel. Please go ahead.
Hi, Good morning, guys, Chuck how do you see ACD growth tracking across the quarters. This year and what should we pencil in for the impact of the partnership that you have with Korea.
And then on the hiring side do you feel like the commercial team will be fully staffed out in and sort of in the position that you want it to be to start calendar 'twenty three.
More or less yes, we're down two heads which is about normal we do we always theres still attrition in our business. So long everybody else's, but were you know pretty much the 95 per cent full strength and have been for this quarter, we promised to fix a succession of improving our quarters. Since we kind of turn this around three or four quarters ago and its we didnt they didnt.
They didn't come off that at all they had a tremendous quarter or 17% of growth.
I would say Korea is still more in the future.
We're kind of waiting on them at this point, but we're ready to go you saw our other announcements where we're really going after this this front end for mass spec, it's a big Tam out there and.
We talk about out you know.
You know L. L C mass spec and G. S. You know mass spec you know like it's so one term out there, but you know there are different ways to be a front end on mass spec, which is a massive opportunity and we're taking more and more share all the time. So we're we're focused on that as well, but you know S. B DS is good and we're going after and eventually more pathology.
With automation and they're not the only game in town and you're quite we're working with more than just them, but we are you know solidified with them on a deal and partnerships going very well and kind of waiting on them to get it gets it gets to a point, where we can start making revenue together and getting something out of it so.
Yeah.
Okay, and then maybe on simple plex as we think about this post COVID-19 phase and hopefully we stay in here. How are you thinking about average pull through for the installed base and how that might look this year. I mean, you guys. Obviously took place with a ton of those systems. During COVID-19. So when it comes to the overall comp issue that we're talking about here I'm curious, how you think utilization.
And recurring revenue streams compare as we come off the peak.
But overall all overall in consumables for you know for ESD and we were we were mid twenties for growth in the U S. Just so you know so with very strong symbols and that's in the similar double digit growth overall with simple plex in the U S. It's more of a it's more of a of an issue around Europe and just some of the normal Lumpiness, we see you know with the.
On the large orders around these big clinical is a simple plex, but a very solid you know and we're knocking on the door getting near 2000 machines in the field and those things to cartridges like Crazy right. So we see a big bright future and and get ready clinical stuff right around the corner you know we have very little in clinical yet, it's all coming a lot of interest.
Still one of the bigger PPD.
Do you see utilization as a headwind this year is that one of the areas where you think there is a headwind when you just think about.
How much those systems might've been run last year and potentially running less.
Maybe in Europe .
<unk> and there is certainly one large customer in Europe , there were waiting to turn on again through the next set of clinical <unk>, if that doesn't develop there might be a bit of a headwind, but but in general North America is steady Eddy it's more about the Europe on your question.
Overall, we feel its okay I think.
Thanks Chuck.
Thank you we have next question from the line of Dan Leonard.
Credit Suisse. Please go ahead.
Thank you. So I wanted to start off Jim can I confirm that you said you believe you'll deliver double digit growth in the balance of the year and if that's the case that would imply a bigger sequential step up in Q2 than you typically achieve you can can you talk through the drivers.
Yeah.
Yeah, I mean, if you look at our year over year comps first of all the comps become less of a hurdle year over year as we progress through the year, including next quarter.
And you know were hopeful.
And that the regional.
The regional headwinds, we face, namely in China as well as in Europe for the first two months of a quarter of this quarter. We will continue to improve we have a lot of confidence in that with China and so far here in October have you seen more confidence with that with regards to Europe had those two had those two regions.
Not underperformed relative to the U S and to their historical performance relative performance, we probably wouldn't be talking about double digit growth in Q1 as opposed to something below that even with a tough comp yeah.
Especially with the pull forwards yeah.
And can you elaborate further on how youre thinking about European macro headwinds that does seem to be a point of confusion with folks I speak to given your end market mix.
Yeah sure well, we're seeing cautiousness, and we do see some lumpiness as I mentioned already anyway.
We definitely had a weaker than normal July and August across the board I mean everywhere. So it's not it's not a it is it's not a systemic issue.
And September came back gangbusters, but not enough to cover what we saw in July .
In August and I would say well that's great, but then October better be hot in October as you know is also looking okay. So far.
But you know its there is definitely cautious with our teams over there are having issues we sent over some more help in the field I'm. You know we were I would say in the in the seventh or so inning of kind of correcting Europe anyway. If you remember we weren't that happy with Europe before all this so I don't think we're through that.
And we're focused a lot on our new platforms over there and things like SPT, which had really gone soft in the previous year and our coming back alive.
So we'll see.
Instrument, and then where I talked about time for signature it's delayed longer than were usual in our funnel and we're trying to you know get to that I think it really hasnt been an issue of competing for dollars with other other suppliers, having finally enough inventory to supply to support things and I think we were made.
B.
Pushed down a little bit this quarter.
Our funnel is massive it's the best it's ever been both here in the U S. So you know and my our teams can believe me we've had some.
You know very detailed we call Kiwi ours, our quarterly business reviews and.
And the other adamant that the funnel and the pipeline looks great demand is solid and it's just taken longer to get capital signatures.
I appreciate that color. There's also as I mentioned to I mean, we definitely had some simple plex you know.
A lot of our clinical the very large cartridge buys and theres some timing issues in there and you know like I said I think these bounce back like we think you know they come on and come off and come back on there, they're doing more or less that will help as well so.
Understood. Thank you.
Thank you we have next question from the line of Jacob Johnson with Stephens. Please go ahead.
[laughter].
Hi, its Dan on for Jacob and good morning.
Can you just update us on the at the test I think youre close to getting reimbursement for annual testing and use of the surveillance tool scene, where do you stand on the business development effort around rules, yeah, we we got it so.
More or less the long long laundry list of reconsideration items over the last two years, we've got everything he wanted back to match the NCC guidelines, but one issue and that's the negative biopsy. So we're really good to go on that more or less double the Tam so into the numbers are going up dramatically on Jim pointed out the numbers, we're seeing hyper growth now so we're.
Adding the reps, we've added I'm, not giving numbers, where we added 25% our reps. This last two quarters. So we're on we're on fire of the new leadership team there over the last six months or so has been amazing we've done everything from changing our message to you know lining up with Cal Ripken Junior again, a lot of shows that we are just right.
The next two and a half year outcome study, which is like a thousand patients. That's the that's the big event waiting for it for the rest of the big guys out there in the insurance.
Got humana, but we're after United in the rest of the blues in all isn't there where we're knocking on the door it's coming so.
Okay.
And you talked about X zone at the platform that can be 1 billion revenue unicorns now that you've partnered off excellent you. What are you working on next.
About six things multi variable, there's a bunch of things I won't get into but we can on one on ones. So we've got a strong half for one reason we did.
Licensed software for sure. It is because we have a strong hopper things also to work out where do we can't work on the mall and launched them all ourselves so well where you have strong interests are in a good part a good channel partner has strength in their area like thermal does.
So true you know, we're going to do that.
But we have a lot of stuff coming so you know sjogren is just the tip of the iceberg.
If it's a great example of the things we can launch and get out there. So the statements around $1 billion platform is about you know five to 10 years out when there's at least a dozen different indications out there, which we think will have so they won't all be done by us there'll be a mix of partnerships and and some driven by us so.
It's the future liquid biopsy. So write it down you can look back 10 years and say we said so so.
Thanks Chuck.
Thank you we have next question from the line of Alex Nowak with Craig Hallum. Please go ahead.
Great. Good morning, everyone I wanted to expand on that softness in bulk purchasing that you mentioned, Chuck and I just spoke to Dan about the European Summer vacations, but do you think any of the weakness there in the bulk purchase side is just related to just being less dollars out there for biotech projects I know one of your peers. This morning about like manufacturing reported they cite is from.
Short term cash sensitivity decisions by biotech customers. So just more detail what you're hearing out there in the field around.
Well, we separate our run rate into we call you know larger orders and smaller orders and our large orders or something over $10000 and those those are either <unk>.
Pharma related larger orders are larger biotech orders or bulks and the bulks around a special volume curves sold not a pricing impact, but it was so that not it doesn't explain that but everything else about the bulks I think what you just said is very possible.
An issue that's happened that we are seeing slowness to to purchase.
And and some push outs on lot of these orders and being told such that the demand has not gone away, but they're being they're watching their dollars and there's a kind of a cash crunch right now and I think we have.
It probably it's uncomfortable tell us that maybe we were a de prioritized versus getting an instrument that they couldnt get to the last nine months because of supply chain issue from somebody else or whatever we've had no issue isn't everybody knows we're steady and we can deliver and our on time delivery records are at record levels.
And we're unique out there we've never had one supply chain issue through the whole Covid Miss you know to speak of so of anything material, we sell so yes.
Outstanding and I'd, just add Chuck we're hearing from our commercial teams. It's not it's not so much it's not that we're losing any kind of bulk orders or instrument orders its more about delay in getting them through the system.
[laughter].
Okay understood. That's helpful. And then maybe just thinking it's taking that commentary.
The expense growth that you're expecting for the year, just how you're thinking about hiring and then also has the employment market eased up here a bit or is it still pretty tightened talent yeah, great question.
Awesome.
You know I have a long career at three am and.
Which had a lot of our operations management in a low growth company. So so I know how to pull triggers on and off and I and I know how to deal with things when they slow down or whatever.
<unk> been more or less a nightmare for us and everybody and so we are still full steam ahead, you know part of our margin impact has been the catch up in hiring and so we're still looking at doing that so we're really you know hiring hard in SPD hiring still in China, China is lighting it up again now.
Enamel sell our new acquisition, we've almost doubled their head count and the six months we've owned them.
But you know were in other areas of like we're maybe looking softer antibodies and proteins. We talked with this quarter. We're looking at you know our mission critical needs and placements and looking at as we expand it. So you know as businesses grow they need people, if they're not growing at that they're going to need less people.
We are still on a track that we added 300 people net last year I'd be shocked if we didn't add 300 net this year to be honest. So so we've got a cautious outlook and some areas where we're looking at all the areas that we manage we have five divisions and we have roughly a dozen or so business units.
As you know a couple are super important of cell and gene therapy.
<unk> homes and so those are you know kind of what they need is once they get.
Even assure Jim drawing your 25% on lighting it up in your meeting people, we're adding people. So I'm more concerned about losing great people and then getting behind all this attrition and it is it is getting better as you as you commented and you asked about much better.
But people are coming back.
Coming back to work to some people are wanting to come back to work finally.
That is good too.
Thank you we have next question from the line up Catherine Schulte with Baird. Please go ahead.
Hey, guys. Thanks for the questions first on the on China, how much of an impact and Lockdowns have in the quarter are you seeing any impact from the recent lockdown, so that happened and how do you view that outlook for the upcoming quarter and all year.
Yeah well.
We were roughly.
12 or more.
Full points ahead of last quarter and growth. So we're on a track back we expect a you know mid teens in that range for this quarter and on our way back to 25 into the year at a run rate level.
I'm kind of expecting the year to be roughly twentyish or so even with the you know the the soften dig out here from a China Lockdowns, it's still sporadic intact.
We've got meetings. This week was trying to get my my head of Asia in these in Shanghai and he couldn't get out because he couldn't get through through candidates for visa issue. So.
We just heard Disney lock people in there [laughter] and their resort and they can't let they won't let them go because there's a there's an outbreak or something so it's gonna be almost building by building block by block is a way we can describe to us its not is a citywide and it's not over yet but I.
I always say, it's drifting slowly towards opening overall and I don't we don't see Shanghai locking down again.
Which would hurt our our warehouse. So we think we're still open for business across China. So I think we talked about the steady improvement in China, and we're on track if not better than on track.
For this quarter and going beyond.
Got it and then on GMP reagents, he talked about adding additional teams by the end of the year.
Are you just give us a status update on customer signing on them.
<unk>.
We have not enough whales few tuners and way too many plankton and our and our and our customer list. So we've got 150 customers, but only a handful of really large ones in there and obviously, they're there the timing issue there spotty and their orders for their you know for their clinical and such so we're adding people and driving the pipeline and.
You know just getting out there doing more with Wilson Wolf and our scale ready team to try and get our stuff pulled in focusing as much on regenerative medicine as we are in cell and gene therapy. Because we are the leader in region medicine for free agents, whereas we arent in cell and gene therapy, and we have a lot of buy in there and a lot of new products going out for region Med. So we will have.
The largest portfolio, we do now, but we will have the largest in St. Paul as well by end of the year, we think so.
Menu items.
We're sampling a lot people are astounded at the lot to lot consistency in what we have.
But in the day you know, it's it's not the big ticket item for doing a clinical on the reagents are important.
Critical but you know you're going to have to show more than just price and things to you know to work your way in and whereas we are in a great. We're in the pole position in region, but we're not in cell and gene therapy. So we're still fighting some big competitors out there with.
<unk> and <unk> and others, so, but we're holding our own and growing nicely.
And it's coming so.
[laughter].
Great. Thank you.
Thank you we have next question from the line of Patrick Donnelly with.
Citi. Please go ahead.
Hey, guys. Thank you for taking my questions Chuck.
Chuck maybe one for you another one for you I should say I'm kind of a quarterly cadence I think you flagged October I think I heard a high teens and there was that specific to protein sciences and I guess, what are you seeing there in terms of that kind of sharp recovery. We can just push out you know I know.
You mentioned the vacation issue in Europe .
Europe kind of coming back maybe just talk about that are kind of high teens kind of like in terms of October .
Alright.
I think I said did double digit to mid teens, and maybe theres, a high teen or two and it primarily is around all the different platforms. We have in PSS is they are they are having a good.
October and still focused more on the on the U S. We're still collecting data here for Europe , but Europe is improving but you know how could it know how could it not improve so.
So yeah.
Strong proteins for sure antibodies for sure assays.
For sure.
Okay. That's helpful.
And then Jim maybe on the margin side, you know in spite of the the top line being a little softer you guys manage expenses pretty well it sounds like maybe perhaps a little bit of price to offset can you just talk about I guess kind of the margin cadence as we work our way through the year here. Obviously the guidance is holding but maybe just the levers you have and kind of what you are.
What do you pull there in the quarter and kind of how we should think about.
Yeah, and it's really going to be it's really going to be volume leverage that will allow us to continue to expand our margin on a go forward basis. I think we'll still have the same headwinds around FX and around that price inflation dynamic, even though we're covering inflation dollar for dollar.
But with the investments we as Chuck mentioned earlier, we caught up in a big way in the second half of fiscal year 'twenty, two particularly in Q4 with our growth investments and so where it's much more surgical in terms of the investments going forward as opposed to.
Yeah, Hi, everyone, you can kind of mentality as it was the past couple of years so with it.
With the growth investments moderating and the volume ramping as we sequentially go through the year.
Our debt leverage to drop to the bottom line and margins to expand.
Helpful. Thank you guys.
[laughter].
Okay.
<unk>.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back over to Chuck comment CEO for closing remarks over to you Sir.
Okay, well thank you.
It's interesting that we have a double digit quarter in our diagnostic reagents division, but there are no questions. So we had so many so many quarters and years of negative girl with them. This thing as lighting it up as well in small molecule is just on fire, especially in in the G&P format for us, but the only thing we didn't cover too much but more good news there.
With that I'll end, the call and look forward to the one on ones rest of the day and talk to you next quarter and we're looking forward to it. Thank you.
Thank you.
Gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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