Q4 2023 Bio-Techne Corp Earnings Call
[music].
Okay.
Good morning, and I'll come to the biotech and earnings conference call for the first quarter of fiscal year 2023.
At this time all participants have been placed in this little only mode. The call will be opened for questions. Following management's prepared remarks.
During our Q&A session. Please limit yourself to one question and a follow up.
I'd now like to turn the call over to Dave declare decades Vice.
<unk> Investor Relations.
Good morning, and thank you for joining us on the call with me. This morning are Chuck comment Biotech me as Chief Executive Officer, Jim Hippel, Chief Financial Officer, Kim <unk> diagnostics, and genomics segment, President and well guys protein Sciences segment precedent.
Before we begin let me briefly cover our safe Harbor statement.
Some of the comments made during this conference call maybe considered forward looking statements.
<unk> beliefs and expectations about the company's future 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.
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.
It's reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning, and the biotech knee Corporation website at Www Dot bio dash technique Dot com.
Separately, we will be hosting an investor day on September eight in New York City and also participating in the UBS Baird and Morgan Stanley conferences in August and September we look forward to connecting with many of you at these upcoming events.
I will now turn the call over to Chuck.
Thanks, Dave and good morning, everyone. Thank you for joining us for our fourth quarter conference call.
We finished our fiscal 2023, largely as expected with 5% fourth quarter organic growth nearing the growth we delivered for full fiscal 2023 and capped a year, where we successfully navigated a transitory macroeconomic environment.
I'm extremely proud of the team's ability to deliver this growth in the face of transitory headwinds, which we referred to as the Covid hangover that.
We face for the majority of this past fiscal year.
These post COVID-19 induced headwinds included a softer biotech funding environment inventory.
Inventory destocking from a subset of our OEM customers and macroeconomic challenges in China.
Despite these challenges the endurance of our key growth platforms was demonstrated yet again in Q4 and double digit growth in our protein simple branded instrument portfolio spatial biology, ACD platform cell and gene therapy workflow solutions, and our liquid biopsy exome platform.
Now, let's get into the details a bit starting with an overview of our performance by geography and end market.
In North America, we grew mid single digits for both the quarter and the fiscal year. This may appear underwhelming. However, keep in mind that North America grew over 20% for the quarter and full year in fiscal 'twenty, two driven by our Biopharma end markets that was on fire with over a 30% grower.
But that kind of comp as you can imagine North America faced the greatest headwind from lower biotech funding this year.
Europe had a great quarter to end the year with low double digit growth in Q4, finishing the year with growth in the high single digits.
This was on top of a comp from last year that was also incredibly strong with growth in the mid teens for both Q4 and full year fiscal 'twenty two.
Now for the region is on everyone's mind China.
<unk> is the region that has faced the most volatility throughout COVID-19.
And even now during the Covid hangover, you'll recall during our third quarter conference call.
We talked about how we saw our business in China come Roaring back once everyone. There was recovered from the Covid illness and back to work after the Chinese new year.
That strength continued through the first half of Q4.
Abruptly stalled when the annual funding of new programs and the Chinese government did not occur as it usually does during the April may timeframe.
Despite this delay in funding our team in China was still able to execute extremely well and delivered growth in the mid teens for Q4.
However at this moment it is still unclear when government funding of new programs in life Sciences will resume history suggests however, they won't be long.
And when it returns we expect the growth to be robust, while COVID-19 and its aftermath had been extremely disruptive to business in China is the only strengthen the long term thesis that the pursuit of better health care in China will continue to be a top national priority.
We are positioned extremely well with our differentiated portfolio to enable China in their pursuit.
In the meantime, we will continue to serve our customers in China by providing them the tools to make their research as productive as possible with the funds they have.
Now, let's discuss our growth platforms, starting with our protein Sciences segment, where we grew 4% in both the quarter and the fiscal year. This.
This growth was delivered on a particularly challenging comparison for both the quarter and fiscal year, where we grew 16% and 19% in the prior year periods respectively.
During the quarter, we advanced our cell and gene therapy initiatives as our reagents media and analytical workflow solutions continue to aid our customers progress on therapy development and clinical trials collectively.
Collectively our portfolio of cell and gene therapy products grew almost 30% in Q4.
And our position to remain a key growth driver going forward.
This strong performance puts an exclamation point on a year, where despite a soft biotech funding environment, our cell and gene therapy business increased over 20% for the full year.
For GMP proteins, we continue to offer the broadest menu on the market, including GMP proteins for immuno oncology therapies as well as an industry leading portfolio for regenerative medicine applications.
These proteins are manufactured with the high level of buyer activity lots of lot consistency and purity that has become synonymous with our R&D systems brand a region.
This unique offering and our reputation as the highest quality producer drove Q4 growth of almost 60%.
And our third consecutive quarter of record GMP protein revenue.
It's worth noting that over 400 cell therapy accounts have used our GMP proteins to date over 20% more accounts than in the prior year.
Additionally, we are in the very early stages of realizing the large cross selling opportunities that exist within our GMP protein customer base.
And the broader biotech in your portfolio and have strategies in place to drive adoption of our UL reagents immunoassay is cell culture products analytical tools and spatial biology solutions throughout these accounts.
Factoring in our pending Wilson Wolf acquisition in their roster of approximately 800 customers that we have access to via scale ready this immense cross selling opportunity becomes even larger.
Our GMP portfolio is not unique to just proteins. As we also offer GMP versions of several reagents within our small molecule portfolio.
As a reminder, our small molecules are critical ingredients for salary programming expansion and differentiation, which represent critical stages in regenerative medicine workflows.
High demand for our portfolio of GMP small molecules drove growth of over 250% in the quarter.
And we are adding capacity to meet current and anticipated demand for these key bioactive reagents.
There are other areas of our vast portfolio of reagents and media that are ripe for GMP offerings, including antibodies.
And we will continue to develop and commercialize products to meet growing demand for these key products going forward.
Moving on to our catalog of our you will or research use only reagents, which includes over 6000 proteins and 400000 antibody types.
As a reminder, researches rely on these reagents as key inputs for their experiments as they could as these consumable products enable critical functions within the lab, including cell growth and differentiation disease.
Disease monitoring cell imaging immunoassay is immuno histochemistry, western blots and other foundational research functions.
The majority of our are you all reagent business has a run rate, where researchers order proteins antibodies and small molecules as needed for their ongoing research.
These reagents also service content for a handful of OEM customers, where they purchase our reagents frequently antibodies as a key component of their end product, which in turn generate royalties for biotech.
As predicted we expected a destocking effect again in Q4 with a handful of these OEM customers as they work their way through excess inventory stocked out of caution during the COVID-19 induced industry supply chain crunch.
We expect this destocking dynamic to gradually wind down over the next six months before normal ordering patterns resume for these customers in the back half of our fiscal 'twenty four.
During the quarter, we announced that we prevailed on a claim that one of our competitors <unk> Biosciences commercialized antibodies that is obtained by reverse engineering to a biotech into proprietary R&D systems branded antibodies.
Biotech, we take great pride in the fact that our proprietary products are the result of our own internally developed intellectual property.
We have a long history of selectively sharing our intellectual property with academic and Biopharma partners through licensing arrangements, but we'll vigorously defend our position against any unlawful use of our proprietary discoveries.
Continuing with the protein Sciences segment, let's discuss the performance of our protein simple branded portfolio of instruments and consumables, where we delivered low double digit growth in the quarter.
The Q4 performance was led by nearly 20% growth in our fully automated western blot solution branded as simple western.
The platform's ability to reduce the two day long manual messy western blotting process into a three hour push-button highly repetitive reproducible solution continues to drive demand within our biopharma and academic customer basis.
We are also seeing robust adoption of simple western in gene therapy applications with the system increasingly being utilized to measure protein expression potency empty versus full capsid ratio and to detect process impurities.
Our biologics business increased upper single digits for the quarter on top of a comp of nearly 40% growth last year.
As we experienced strong demand and initial sales of our <unk> flex instrument.
As a reminder, murray's flex as protein charge variant fractionation capabilities to maurice's legacy approach and identity charge in parity capabilities.
Fractionation as a front end step to mass spectrometry, and Maurice Flex resolves a labor intensive and time consuming challenges of using legacy fractionation message, including ion exchange chromatography.
This new application entry as Murray's into a new $300 million market approximately doubling the addressable market opportunity for the instrument.
We're very encouraged by the strong initial response to this exciting new instrument.
For our simple plex automated multiplexing of lives instrument branded as Ela, we continue to build the menu of assays launching 36 validated simple plex assays on the platform during fiscal 2023, including for AAV tighter assays for gene therapy, and five neuroscience markers.
Going forward neuroscience.
Neuroscience and cell and gene therapy represent large opportunities for Ala and.
And both remain a focus of application development and menu expansion initiatives.
During the quarter. We also made significant progress positioning ela as a clinical diagnostics platform as we successfully completed the ISO 13, 45 audit of our Wallingford facility and are waiting to hear back on our results.
With this certification in hand, we will be ready to pursue clinical diagnostic opportunities opening a large potential end market for this highly sensitive easy to use and fast multiplexing immunoassay instrument.
Now, let's discuss our diagnostics and genomics segment, where organic revenue increased 10% for the quarter and 8% for the fiscal year.
I'll start with our molecular diagnostics business, where we once again drove significant growth in our XO Dx prostate test is with valuable information on whether a man with an indeterminate PSA score should proceed with an invasive and potentially dangerous prostate biopsy continues to resonate with both patients and physicians excellent.
Dx prostate volume and associated revenue, both increased nearly 70% compared to the prior year quarter capping a breakout year for the test where volume increased by over 70% revenue increased over 90% and we surpassed 100000 extra Dx tests performed to date.
The value of our extra Dx prostate test was further solidified with the recent publication in the prostate cancer and prostatic diseases Journal of interim results from a randomized study of over 1000 patients designed to show the clinical utility of the test.
In this study patients identified as low risk by the extra Dx prostate test received fewer biopsies significantly deferred the time to their first biopsy and were significantly less likely to be diagnosed in the future with high grade prostate cancer.
The growing acceptance of the test's strong clinical utility data a Medicare local coverage decision is now reflective of the NCC guidelines and includes reimbursement for repeating annual testing as well as a fortified sales force and market access team positioned fiscal 'twenty four to be another record year for our XO Dx prostate test.
Now, let's discuss our spatial biology franchise, which includes our ACP branded portfolio of more than 45000 probes in over 400 species that enable biomarker imaging at single molecule sensitivity and single cell resolution.
Our spatial biology business increased low double digits in both Q4 and the fiscal year the growing interest in utilization of our ACD technology as the go to technology for translational spatial biology research applications is apparent in the growing number of publications, citing the technology.
Which increased over 10% during the first half of calendar 2023, and now total over 8000.
Within the portfolio, we are experiencing continued momentum in base cope which enables the detection of short RNA target sequences and micro RNA scope, which allow us for their visualization of ASO.
<unk> and S irony and other nucleic acid targets.
He is highly sensitive and specific assays increased over 20% and 30% respectively in Q4.
Following the robust growth for both the quarter and the fiscal year basically open micro RNA school are both becoming increasing more spatial to our overall spatial biology franchise.
Separately, we further this partnering strategic strategy for our gold standard RNA scope of technology with the release of a of an RNA scope multi omics workflow for the standard bio tools Hyperion imaging system.
We also expanded our growing arsenal of ASR probes with the launch of RNA scope probes for Kappa and Lambda and there's analyte specific reagents or he is ours.
Cap and Lambda more important oncology biomarkers for B cell lymphomas, and <unk> will enable CLIA labs to develop customized tests, while maintaining high standards of analytical and clinical performance.
Finally, I'd like to officially welcome the lunar 14th to biotech me as a reminder, we recently closed the lunar for acquisition, which is the 18th acquisition. Our team has closed during my tenure as CEO .
This acquisition strengthens our spatial biology franchise, while adding a talented group of innovators to the company.
Our strong track record of a diet identifying state of the art platforms and technologies on the cusp of significant market uptake in growth likelihood for has been a key driver of our double digit revenue and total stock return CAGR over the last 10 years.
This acquisition builds off a partnership we announced with Luna for earlier this year, where the two companies partner to develop the first fully automated multi omics spatial biology platform.
This novel offering will be capable of simultaneously in interrogating protein and RNA expression at a single cell resolution using a fully automated same slide workflow.
Herring lunar force common instrument inspire antibody panels with our legacy RNA scope high flex technology.
Common is early in its initial commercialization, but the systems end to end capabilities that fully automate staining imaging and image preprocessing steps.
Use of conjugated antibodies and high throughput design is generating significant interest mark attraction and placements.
In summary.
Q4 concludes the fiscal year with a team successfully navigated several challenges facing the company and the broader life Sciences tool industry.
While the short term macro challenges are not over we are encouraged that they will gradually diminish in the year ahead.
Starting with a less challenging comps from the Covid Halo days.
Less destocking by our OEM customers from the Covid Hangover days.
And a more stable biotech funding environment going forward.
While Q4 was a good quarter for us in China in the funding environment in China will likely be a big challenge for at least the first half of the year.
But don't doubt China's resolve for better health care and we believe when the funding returns it will come back strong.
As this past year has proven our stable of growth platforms can persevere in good times as well as challenging ones. We will continue to prioritize and focus our execution on these growth platforms, which were Pal This company to accelerated growth and profitability in the years to come.
With that I'll turn it over to Jim.
Thanks, Chuck I'll start with some additional detail on our Q4 and fiscal 2023 financial performance and then give some thoughts on our financial outlook for the year ahead.
Starting with the overall fourth quarter financial performance adjusted EPS was <unk> 55 cents compared to <unk> 51 from the prior year quarter, an increase of 8% over last year.
Foreign exchange negatively impacted adjusted EPS by a penny or minus 2% in the quarter.
GAAP EPS for the quarter was <unk> 47, compared to 38 cents in the prior year.
Q4 revenue was $301 3 million, an increase of 5% year over year on both an organic and reported basis.
For the full fiscal year 2023 revenue was over $1 1 billion, an increase of 3% on a reported basis and 5% on an organic basis.
Foreign exchange translation had an unfavorable impact of 2% and acquisitions had an immaterial impact on our full fiscal year revenue growth.
Moving onto our organic growth by region and end market in Q4, North America grew mid single digits Europe increased low double digits in China grew mid teens in the quarter.
As Chuck already mentioned the growth in North America, and Europe was on top of a very high comps from the prior year when they were experiencing what we now refer to as the Covid Halo effect.
China was more volatile as it has been all year with a very strong first half of the quarter, followed by a rather weak half.
On the left the mid teens growth rate, we delivered in China appears to be one of the best results along our life Science tool company peers and speaks to the overall resiliency and value that our bioactive reagents analytic tools and spatial biology solutions deliver to our customers in the region.
APAC outside of China declined low single digits overall with similar Covid hangover induced challenges is China and several countries in the region.
By end market in Q4, Biopharma grew mid single digits on top of very tough comps in the prior year.
Academia grew upper single digits.
Similar to our Q3 destocking by a handful of our protein sciences, OEM licensing and supply customers negatively impacted overall company revenue growth by approximately 2%.
Below revenue on the P&L total company adjusted gross margin was 71, 6% in the quarter compared to 73, 2% in the prior year. The decrease was primarily driven by unfavorable product mix.
Adjusted SG&A in Q4 was 26, 8% of revenue compared to 27, 8% in the prior year, while R&D expense in Q4 was seven 8% of revenue compared to eight 1% in the prior year.
The decrease in relative SG&A, and R&D was driven by operational efficiencies and diligent expense management, which was partially offset by ongoing strategic growth investments.
The businesses implement strategic price increases during the first half of fiscal year 'twenty three to offset the dollar impact of inflation to operating income with pricing also largely offsetting the inflation impact on our operating margin in Q4.
Adjusted operating margin for Q4 was 37, 1% a decrease of 30 basis points from the prior year period, but a 10 basis point improvement sequentially.
Julian and MSL acquisition from earlier this fiscal year adjusted operating margin was 40 basis points higher than the prior year due diligent cost management and prioritization.
Looking at our numbers below operating income net interest expense in Q4 was $2 5 million, increasing <unk> 3 million compared to the prior year due to higher debt levels, partially offset by higher interest income earned on cash deposits.
Our bank debt on the balance sheet as of the end of Q4 stood at $350 million, a decrease of $20 million compared to last quarter.
I would note we closed a little for acquisition at the beginning of this current fiscal year, which was partially funded by debt and cash on hand, and we anticipate our net interest expense to increase sequentially to approximately $4 5 million in the first quarter of fiscal year 'twenty four.
Other adjusted Nonoperating expense was <unk> 1 million in the quarter, a decrease of $1 3 million compared to the prior year.
Primarily reflecting our 20% share Wilson Wolf, adjusted net income, which amounted to $1 7 million in the quarter more than offset by the foreign exchange impact related to our cash pooling arrangements.
Moving further down the P&L, our adjusted effective tax rate in Q4 was 19, 2%.
Turning to cash flow and return of capital $83 4 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $10 8 million.
Also during Q4, we returned capital to shareholders by way of $12 5 million in dividends.
We finished the quarter with $161 9 million average diluted shares outstanding.
Our balance sheet finished Q4 in a strong position with $204 3 million in cash and short term available for sale investments and our total leverage ratio remained well below one times TTM EBITDA.
Going forward M&A remains a top priority for capital allocation.
Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Q4 reported sales were $223 million with reported revenue, increasing 3% compared to the same period last year.
Organic growth was segment was 4% with foreign exchange, having an unfavorable impact of 1%.
As a reminder, it is our protein Sciences segment has the most exposure to biotech funding considerations the.
The OEM Destocking that has occurred among our licensing and commercial supply customers as well to the China and geographic region.
Operating margin for the protein Sciences segment was 44, 7% a decrease of 20 basis points year over year, driven by the impact of the nano cell acquisition.
Turning to the diagnostics and genomics segment Q4 reported sales were 79 million with reported and organic revenue both increasing 10%.
Our excellent diagnostics business remained very strong in the quarter as our fortified marketing message strong clinical data strength in commercial team and the recently updated Medicare LCD drove test volume and revenue growth.
Also our spatial biology business delivered low double digit growth in the quarter with strong performances in our RNA scope based scope and micro RNA product lines.
As Chuck highlighted earlier, we are very excited about our recent acquisition of little four and expect it will add at least one 5% for the company's reported growth in fiscal year 'twenty four with a standalone growth rate over 100%.
Moving onto the diagnostics and genomics segment operating margin at 18, 5%. The segment's operating margin increased 280 basis points compared to the prior year.
The segment's operating margin was favorably impacted by volume leverage.
Before we get to Q&A I will summarize our fiscal year 'twenty, three and how it shapes our view for the upcoming fiscal 'twenty four as follows.
We view fiscal 'twenty three of the year of the Covid Hangover, which followed two extremely strong years that we referred to as the Covid Halo.
This hangover included a more risk off mentality for smaller biotech investing go for it.
Induced shutdowns in our highest growth region that would be in China.
And destocking of excessive inventories that took place during the COVID-19 induced supply chain crunch.
Through it all and as Q4 demonstrated our growth platforms are still winning with double digit growth.
Now the question on everyone's mind is will the Covid hangover last as long as the Covid Halo did.
Well as with everyone else, we don't have a crystal ball that gives us that answer.
But we do see is that biotech spending has stabilized.
Therefore, we are hopeful that going into fiscal year 'twenty for this headwind we faced in fiscal year 'twenty three is diminished.
However, we haven't noticed any meaningful increases in biotech funding that would suggest this becomes a tailwind anytime soon.
We do estimate that destocking from our OEM licensing and commercial supply customers will unwind by the end of this calendar year and should become a tailwind in calendar year 'twenty four.
As buying from these customers resumes.
As Chuck described earlier, China took a surprising and suddenly reversal in revenue trajectory halfway through the most recent fourth quarter than the usual annual cycle of renewed government funding did not occur.
Until funding until funding of life Sciences by the Chinese government returns tools companies like Us will see continued headwinds in this region.
When will government funding of life Sciences returned in China is anyone's guess, but given China's history and publicly stated importance of life sciences to their sovereign strategy. We expected the funding will return sooner rather than later and when it does it will be strong.
So what does this all potentially mean for our fiscal year 'twenty four.
Well, we believe it means that we will need to grow primarily by Guinea wallet share in this cautionary financial environment, just as we did for the entirety of fiscal year 'twenty three.
We will continue to do this by selectively investing in promoting our long term growth platforms, namely cell and gene therapy liquid biopsy spatial biology, and our analytical instrument platforms.
Thus, we expect our organic revenue growth in the first half of fiscal year 'twenty four to be similar to our organic growth in fiscal year 'twenty three.
With regard with regard to the back half of our fiscal year. There is a path to accelerating growth rates and OEM purchasing returns and if China government funding of life Sciences occurs before the next Chinese new year.
As we look to adjusted operating margins for the year ahead, we estimate they will be down approximately 300 basis points from fiscal year 'twenty, three mostly driven by our acquisition of <unk> four and to a lesser extent due to continued selective investment in our key growth platforms as well as our overall customer digital experience.
These investments together with the acquisition of <unk> four will ensure that we stay on track of our long term growth goals as macro conditions improve.
Margins can improve slightly from this base case, depending on if and by how much revenue growth rates improve in the second half of the year.
That concludes my prepared comments and with that I'll turn the call back over the operator to open the line for questions.
We will now begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Our first question.
It comes from fewer new soda with Leerink partners.
Hey, Chuck and thanks for taking the questions really appreciate your thoughts on the guide versus all the uncertainties in the sector is facing.
But a few more questions there.
How should we think about expectations for North America and Europe given.
Growth that youre seeing despite.
Comp that you have how much of that is <unk>.
Strength that is sustainable.
And then when we look at 'twenty four as you mentioned the first half being sort of mid single digits similar lines to the full year of 'twenty three.
Do we think.
We could improve in the second half to potentially get to at least maybe high single digits for fiscal year 'twenty four I know, it's really hard to.
Look at that but there are a number of moving parts and just wanted to I want to understand how youre thinking about those different moving parts, including China Destocking.
And what that all means.
And numbers for 2024 and organic if you could thank you yeah. Thanks Puneet.
Let me start off with some high level comments around that because your question is going to be repeated about 29 times today, probably so I think first of all we are one of the first companies to kind of come out and talk about.
The hangover beginning about a year ago next quarter, and we talked about will be coming on the front end a lot sooner and we really are in fact this quarter, if China wouldn't have been a surprise, we would've been really ahead always where everyone expected us to be.
So you know buy it by a little bit anyway.
So it's really all China will get to that in a minute North America in all stacked up okay about as expected Europe had actually came in stronger than expected and is turning the corner, but you know they went south before North America did so we expected that as well.
Behind the scenes you guys don't know is a lot of work we had done in this this this off year of doing our homework and getting ready for the come out party alright. So we have hired three senior executives, we have a new leader in Europe , we have a new commercial leader for North America from <unk>.
We have a new divisional senior Vice President for RSV. We have we are fully done reorganizing Europe commercially and were you know with with Peters guidance, we're kind of trying to re launching it would probably already seeing a little bit of what's happening from that with a stronger finish here.
North America, even coming yet further now with with the coming of Jim Snuck, you know, where we're making a lot of changes a lot of observations you've made.
And those are going to start paying off.
We will we've been at full strength in our in our other segment you know for a while we're actually still short of its very aggressive and spatial as you know a very very competitive and where we seem to always be down one route, but we're only down one rep or not down five.
We are increasing there were increasing inventory isn't that any efficiencies, especially in Europe . So this is Ben.
There's lots of talk about on digital side in ERP and then what we're doing on making our customer experience much better we've made huge improvements there in the last quarter or two as it was well.
All of these are really coming are coming in place. So we're ready for.
The new wave of growth ahead, and which is going to be starting I think this coming quarter. We we have soften a little bit for this first half as you know in order to Jim's comments, but it is kind of unknown and we need to wait and see what happens in China I think China.
Surprise us all a bit this quarter. It started out really good by the way I mean really good for us and just shut down the second half of the quarter. We do expect the government will come around and start funding again, but they haven't yet so it's hard to get too ahead of things if they if they don't we'll then there'll be more of the same for a while and that's for everybody and we had we had literally resulted beat everybody in our field this quarter. So.
It's all about the forward not what's happened right. So we feel really good about about where things ended up as you noticed we met our bottom line.
We're operational experts here, we all come from large companies, we know how to operate and we nailed every every target we had the nail but growth is growth and we can't we can't make markets do with markets won't do.
And so we're ready we're ready for the coming coming back party, when it's coming in especially in China, but we're already seeing it in other areas like like we commented on and let's Hope Europe continues its progression back <unk>.
And we're really only all talking about our core here I mean, it's it's RFD and it's you know it's in the instrument side not the consumables, which are killing it by the way on all our instruments and all I know everything on the other segment of our three major investment platforms spatial and cell and gene therapy and <unk> all had banner.
Our quarters and a banner year.
Really exceeding expectations on many fronts, so and that's by next year do more of the same which it will maybe even accelerating will start becoming much more material and can offset any headwind we have in our core anymore. So.
With that you know it may be.
Do you want to comment on the numbers, but I think it's we don't want to cover the same question with everybody. Its kind of just set the stage for the day, we're really thrilled this quarter to be honest, especially as we saw more and more of our peers come out with a horrendous numbers, we feel really good and.
You know where.
We came out we came out we came out last quarter. After a trip to China, who are telling us they would be a 50% quarter. We told you would probably be 40 hedging a bit and then we ended up around 20 still better than everybody, but with the government shut anything down. It just is what it is right now and it'll be a soft quarter, but I think when they turn the lights back on which will happen probably within a quarter or so more than likely.
It's China for God's sake.
We're gonna be off you know like a tear.
Quite simply and we're ready and we've spent this last year.
Working under infrastructure and sometime in the coming quarters, we I'd tell you more about our new expanded website are one biotech thing, where we're getting everything and put it in one place for customers to really really improve their experience and it's already starting to pay off for us.
Yep.
Hey.
No that's super helpful. Chuck and thanks for the great context there.
I'll spare jimena could come back to four more questions for him on the call, but just maybe one final one for me.
<unk> updated thoughts on M&A.
You talked about 18 acquisitions so far.
How do you think.
How are you thinking about the life sciences side versus the diagnostic side, obviously exosomes diagnostics is doing good you didn't I didn't hear your uninsured Jen how are you thinking about M&A overall.
We feel really good as you know, we just pulled off lunar for that was an asset I can't even tell you how many people one of that asset.
We've been working a long time as you know we're very ubiquitous worked with everybody you know in spatial and we have an open platform kind of a mentality here and Luna score is no different other content will work on that platform.
But that thing is going to be amazing.
And it's going to allow us to actually go after much stronger not only in research, but on the pathology side without really getting in all crossing over into areas. We don't want to create any conflicts or partners like <unk> and others, So which which are all okay with all of this well we need to figure out a way to automate and get more out of our our discovery.
Platform translational down in the under under 10 Plex without taking two weeks 24, seven running and running assays by hand, we can do all of that now so we need this platform and its ready to go.
The synergies are amazing.
Jim talked about the numbers theyre going to easily beat those numbers and we've got a couple of points of dilution here in the coming year as we always do with a bigger acquisition, but this thing is already growing and already you know.
You know heavy into revenue and we're not waiting a year or two for this going to take off it's sorry, it's already happening.
And there's a strong future. So that is one area other M&A, where I only we've ever been busier.
We're busy on more than a few right now.
Voice that would be it should be a big M&A or M&A year everyone's staying the same.
Smaller companies arent being able the IPO right now a lot of funding issues at the time for finding partners in new owners, and we're very busy and Theres a lot of areas. We're still looking to address things like in cell and gene therapy and media and other areas that tariffs are there. They are all coming and there's a lot of proteomics companies selling all starting to you know to look outside it.
At being in being acquired even very public even though even add canvas for sale you know and I wouldn't have thought that would have happened yet, but theres a lot of surprises out there in the market. These days so.
Alright, thanks, guys.
The next question comes from Patrick Donnelly with Citi.
Hey, guys. Thanks for taking my questions.
Jim maybe one on the margin outlook down 300 bps.
You mentioned meaningful solution can you just talk about maybe a bridge.
M&A dilution versus kind of the organic number and I guess just that path. Obviously, you guys have the long term target out there of about 40%.
Yes, what are the key levers you can pull to maybe get that margin down a little bit on the core side.
So I would say over two thirds of that dilution is driven strictly by the legal for acquisition.
The rest has to do with our continued strategic investments in those growth areas that we've talked about during this call.
We see it out if you exclude <unk> from our results we see.
Similar to this past year, we see our organic margin.
Finishing the year better than we did this year.
It really just the window for that brings it down below I think with regards to triggers that could.
To improve on those margins it's largely.
Our revenue game like I mentioned in my opening in my comments.
If revenue increases the more revenue improvements in growth improves in the back half of the year.
The better is to get more leverage off of our cost base and increase margins, but were already being very very prudent on our definitely on our discretionary spend and extremely selective in prioritizing our strategic spend but we're not you know we're not going to not do those strategic investments to sacrifice our growth in the future.
But I think the biggest lever for improving margins would be higher revenue growth in the back half of the year.
Yeah understood, Okay, and maybe one for you just on the stock.
Assuming a destocking, maybe six months or so can you just talk about the visibility into that.
I guess any level of confidence that at six months, obviously, it's been a moving target.
The entire industry.
Yes.
Customer conversations certainly would be helpful. Yeah, as we've mentioned in the past and previous quarters, we've talked about missing double digit growth by re literally a handful of OEM customers and that's kind of more of the same with very lumpy for us. So a lot of a lot of our larger Oems, especially in antibodies and areas that they were stocking a lot through the COVID-19 supply risk era.
And there it's already coming down it so it's moving the right direction I think we have seen.
Through that period pre period call it two or three quarters ago, we had very strong run rate still and they will have softened because of funding overall soften. So we're seeing a bit of a barbell shift here, but.
But not dramatic so other data point as you know like Fisher Fisher is very strong has been strong all year.
So a lot of our channels look good so it's pretty lumpy.
It's very very targeted we kind of know by customer exactly where theyre at and as you know we get we get we got a lot of these guys are licensed in a lot of royalties and stuff. So we totally have.
Decent.
Metrics that we have actual data from them on just how they're doing what they are buying what they expect and in their outlook. So.
Brighter year ahead.
By the end of this calendar year and next year things will be recovered there and a lot of the OEM areas. So that's the main thats. The main difference I think.
Phil.
Sure.
Yes, Okay, and if I can just sneak one last one in on China any way you could give kind of the exit rate and I know, obviously it sounds like the linearity.
Beginning kind of eroded a little bit of a good quarter one.
Way to just thinking about the exit rate July .
July I can think about this year, where there are different markets.
Thank you.
Well I'm not sure I can say more than we know and we've been very transparently always have been.
This quarter started off great in China, and a terribly and attend but I ended up much worse for everybody else, we know in our industry.
I think we're all in this kind of waiting pattern for the government I think they have their economy shutdown. So badly that I think they have any money.
But we do know, they're very public about how what our priority health carriers and.
So I think as they get back on track and we're told that come October at the New school year and all the institutions reopening as when they are expecting to start getting better and start seeing that outlay there've been some initial targeted stimulus areas, but nothing dramatic. This is just really a downtime for China very very surprising everybody but.
But you know where they are on a scale of one to 10 of getting health care across the country their whole population to where the rest of the world. As you know there are two so it's the big cities that are really in good shape, but you don't have to go too far out to see a lot of struggle in the you know the government is certainly still on their plan and healthcare is number one priority and I don't expect.
Anything will change there so.
You know we've been here before wondering while China and then it comes back like a Roaring Tiger and also I expect that to be sometime before end of the calendar year here, but.
Okay.
The next questioner is very our team there is very bullish just by that date.
They didn't sound any alarm.
Apprise, even them. So I think Thats also a good sign.
Uh huh.
The 200 plus employees strong team we have in China is really very positive.
Positive and very.
I guess.
Very very big future head so.
Next question comes from Jacob Johnson with Stephens.
Hey, good morning, everybody.
I suppose I'll apologize for contributing to the 29 questions about 2024, but maybe on the instrument side of things a strong quarter. There just any thoughts about how we should be thinking about that business into 2024, I guess in particular, you talked about the marine flax being.
You'll hear this quarter sounds like al could move into the clinic, maybe next year that could be an opportunity and then maybe on the bad Guy side, China is something we should be looking out for but just any kind of commentary around the outlook on instruments.
China is the area, we actually have our strongest ratio of instrument sales for business. So it's really 50 50 with our core it's nowhere like that anywhere else, so with China being so soft it takes a big hit on the overall instrument.
We are pretty good shape and simple western and across the board not too bad, but mainly consumed consumables incidents are being used in a really good productivity instance, we're known for that and that has gone great Ela had a pretty good quarter overall and yes. The $30 45 is coming it should have been here a month ago that the paperwork, but it's definitely coming we.
We have a big clinical launch with that application in India that through there.
There are what they would be like a 500 10-K processor a predicate process here, but they are ready to go very soon 2000 person clinical.
On a macro generation and I at different I related illnesses using peers as the analyte and the cartridge. So that's coming and then we have a bunch more but I'm going to let will say a couple of words here I think the future now we have we're getting more and more instruments, but we're getting more and more applications of the instance, we have a simple western isn't just about converting you know western blots anymore.
A bunch more stuff coming flex isn't just about.
<unk>.
Protein purity in the line of manufacturing anyway in a more now is a lot more things come with maybe a couple of words on where you see the future of our instruments and by application the growth actually improving what we see now yes, hey, thanks, Chuck and thanks for the question Jacob.
Things Chuck already hit on some of the nice indicators for our future as we look at consumables utilization Super strong.
Last quarter, we also like with service contracts. We know these instruments are being leveraged and used across the industry. So those are real positive when we look to the future you hit on one thing and I'll come back to the ISO 13, 45 certification of our Ella platform in a second but as we think of kind of these emerging growth applications areas like cell and gene therapy, we launched <unk>.
Five new application notes across a simple luster excuse me the protein simple portfolio.
So those are for simpler and more recently our platforms. So things like AAV tighter empty forecasted ratios potency assays for example on simple western.
Even recently in an FDA approved product the potency assay release assay is run on simple western for confidentiality, we can't share what that is but it gives you an indicator there of how strong we are.
We look at our applications on Ela in addition to the cell and gene therapy applications for potency. We've got five new neuro applications, we expect that space to take off for us as we fill out the rest of that portfolio and then finally hitting on <unk> with the ISO $13 45 certification pending while we've already seen is really strong.
The option because the platform just lends itself, so well to clinical applications, we've already seen nice adoption and laboratory developed tests.
We know that <unk> 45 will enable our customers to kind of take their assets put them on those boxes and start driving broader clinical adoption.
Got it thanks for that well and that's a good segue Chuck I wanted to go back to cell and gene therapy.
That's been.
Somebody is a poster child for biotech funding concerns I think the commentary around the end markets.
Varied depending on the company, but you have had.
On a good quarter there.
Seems like new customer wins, maybe helped on the GMP side. It seems like small molecules trending well, maybe just talk about what's driving that growth and then two just kind of the potential for new products in that space. It sounded like you alluded to GMP antibody. So curious what else do you think you bought on that side of things.
Yes, the answer would take an hour or so much good news to cover there we had an exceptional quarter.
Beat everybody I've ever noticed in this space quite below on blow everybody away it really but.
60% growth.
It's a pretty good third central of the year and in proteins. Some we've gone from six.
Products in our St. Paul facility, we'll be doing we'll be adding another eight this coming year. So we're getting wave beyond just cell therapies that more on the regenerative side as well.
Strength is on all cylinders, we were quoting roughly $2 50 to 300 customers up until this quarter. We're now over 400 customers. So a lot of that growth is coming from new customers and.
Yeah, there may be a adult room in the industry now, but when it comes to cell therapy is it's still it's still a very much a growing area and we're growing and taking share and getting more getting more visibility, we're becoming <unk>.
Real after lane track here for five six years. We are we are where we are going to be one of the big guys. It's just going to happen it's inevitable.
And of course, our partnerships in the coming acquisition, while small it's going to help they still got already hearing customers. It is probably the only de facto standard out there for bioreactor in cell therapy, that's helping the new sister company sell ready.
<unk> is being used as well so we've got scale ready and sell ready.
Those platforms are working and it's driving more business, our way for proteins and across our portfolio of small molecule not a bad number 260% growth this quarter and frame for the year over 114.
We've been waiting a long time for our small molecule platform to really take off and now finally really is and it's there's no stopping it now.
That puts you to sleep.
[laughter].
The next question comes from Dan Arias with Stifel.
Good morning, guys. Thanks, Chuck I guess I'm going to apologize to here just because I really don't think we're going to have a company that finishes their fiscal year and doesn't offer our full year outlook and obviously, they're all dealing with a set of challenging circumstances in a gym. It seems like you're offering a view on the hardware portion of the year to forecast just given.
China is a tough call right now so.
Why wouldn't you be willing to commit to more meaningful acceleration in second half of the year. If you expect some of these issues to resolve themselves in the shorter term rather than the longer term, which is what I think Chuck said, there and the comps are basically the same first half versus second half.
Well first of all the peer companies out there that are giving guidance for the year through the rest of this calendar year 'twenty three.
In the unfortunate position where were heading.
Fiscal year in that six months further out.
So we're putting our next out there with regards to 'twenty four.
And you know.
I don't think anyone has can read the tea leaves as to exactly when this code hangover completely resolved itself I mean at the end of the day, we know that.
The one thing we feel the most confident about of course is the OEM destocking stopping and at some point to start re buying I would say the second thing we feel most confident about is China, eventually coming back and coming back strong but tie.
Timing exactly when that will happen, it's very difficult to do and you tell me as someone who knows who can people can pinpoint that that answer.
And then with regards to the overall rest of the markets whether its file.
One hour, whether it's academic I think we're just being cautious in the view right now and kind of a wait and see because at the end of the day. The biotech funding Haywood, we think are mostly behind us they.
They haven't yet turned in a tailwind I mean, I'm not hearing or reading about major increases in biotech funding at this point.
So I think it's just and then same thing on the academic side, where if anything the news is about cutting NIH budgets not adding to them going forward now I think we are well positioned to where theres mix components within the academic funding where that could actually help us if the cuts happen and more the call. It the COVID-19 related areas and funding gets redirected towards oncology and <unk>.
And things of that sort, where we're very well positioned that could actually be an upside for us, but there's just a lot of dynamics in moving parts with the macro environment right now and I don't think its be wise to two two.
To give any guidance firm guidance beyond the next six months, where were those variables come into will be help them become more clear as we as we close out this calendar year, let me add a couple of things to just work backwards from what you guys I'd love to hear what would you like to hear is that we're back to our 15% or better growth plan coming next quarter.
We have a couple of things happening in our favour starting in Q1, we start getting really good comps away from these horrible comps so thats going to help.
By by the the back end of the fiscal year and Jim is right, we will be only when talking about.
About a full year from now everybody is talking about finishing this calendar year and we've got to get the beginning of the fiscal year, starting now and by the end of this fiscal year I expect us to be in yielded in the in the run rates of double digit if not mid teens again, but how does that stack up for a year averages. It's hard to acknowledge right now with us through this quarter next quarter with the especially with China in China.
10% of our company and coming off in August 2030% growth. That's two to three points of growth rate there for the company. So we got to factor that in and maybe it's only another quarter that maybe it's more if it's more it will affect the number long term.
So we're looking at all that we don't give guidance, we give you a range for the coming year and you know you're smarter than we are in the knowing our numbers up and down in backwards and forwards. You can you can see I think our run rates can be where we expect it a year from now.
Maybe even higher.
Because of our growth platforms seem to be accelerating now deciding to become more material as you know on our on our five year goal were two to three years into that now we talk about these major growth pass would be at 50% theyre running much much higher than that if they continue that it's going to pick up some of the slack here on the core.
But we're getting better and better in the core and I think all we need is just the markets to stabilize and then we're back on track overall, but I do think we've got a bit a bit longer than the hangover here in the quarter at least that's the way to think about it and we'll get we're about the most transparent company guys talk to that and we'll tell you more next quarter when we see what happens with one more this quarter.
But at least we're going to have an easy comp this quarter and things will start improving for us dramatically and we.
We didn't have a bad quarter the way it was with everybody else being negative negative negative. We did we did post growth quite a bit comparatively slow impact. So stay tuned we'll know more within a quarter, but.
We ended the year run rate should be pretty damn good we think.
Okay fair enough I can work with that I appreciate that color there while I have you can we just maybe touch on GMP proteins.
And just have you talk about what's driving the most growth. There is it menu expansion is it larger orders from existing customers or is this larger orders, maybe with some customers and new customers.
We've expanded the customer list as you as we mentioned so thats one part component growth. The other is that customers that have been with us for two or three years there.
They're they're getting further along in their clinical scenario they are asking for more.
We talked about in the past of turning the plankton into <unk> mendelson, the tuna and tuna and Wales.
We've only got a handful of tuna in Wales, and we need we've got foreign customers. So just imagine a day in a couple of 235 years, where we have.
<unk> of whales.
It's going to be amazing to see.
The next question comes from Dan <unk> with credit Suisse.
Alright, thank you.
Could you talk a bit about your end market mix in China between academic and government Biopharma any difference in trends you see.
And what growth rate for China is assumed in the first half of your year in that mid single digit view for the total company.
Yes sure.
While China is little different than most of our regions. We don't have a spell out pharma versus biotech versus academic.
I'll kind of government sponsored well funded almost like academic.
There are more and more institutions, forming their their biosimilars is kind of where things are going in pharma, there and we would call them industrial but by far its really well funded government sponsored academic as most of the market for us.
So with the research research research, mainly alright and.
And it's a very evenly split between our reagents and our instruments and we had a we've had a couple already boom years instruments. There as we've talked about so we're coming off a heavy comps there and then with the COVID-19 issues there.
Their funding issues, just dry things up for now, but as it comes back it will come back to the institutions know, it's roughly about 180 institutions in both Beijing and Shanghai and then you have modest numbers and some other that major cities, but nothing like the two major cities and that's what drives everything.
I think we're in a very interesting time with China because they've.
<unk>, probably as a government I think they have never they haven't seen as much consternation for many many many years. He got she firmly in charge, but which you've got you've got a lot of people that are that are not used to seeing negative GDP.
Generation of people that have never seen this you've got real estate tipping over you've got a lot of issues has got a kind of work its way through but underneath all of that you've got a high priority for the country for the administration there on health care for their people.
And Thats got to begin with research and end of the day, we're only $100 million of revenue in China.
So.
It could be $500 million of 1 billion I'd still say, it's small compared to the to the to the the opportunity. So we're getting back very strong.
We have a lot of products for the size of our business and our company there with a lot of businesses. So there's plenty of levers to pull and plenty of interest across the board.
Yeah.
The next question comes from Katherine Xu with Baird.
Hey, guys. Thanks for the questions I guess first just any commentary on how Wilson Wolf is performing in this environment and any change in thoughts on one o'clock with mission critical.
Yes, I don't think were moving the game the data for anything yet.
They're they're not they don't have heavy growth rate and we are there, but they're they're flat to two I'd say mid single digit growth for the last quarter or two <unk>.
Given that the actual.
We will market there has has imploded and funding is down.
<unk>. This is a good sign we're actually taking share.
So he is he's actually getting more business than you thought compared to what everyone else is dealing with.
It's a good time, so we're going to get we're going to lever off of this come next year.
The profitability is way beyond our expectations, which are which allowed us to do the 20% trigger early.
But we're probably on track for three to four years for the full acquisition and that would be at the.
225, or so million dollars revenue or 136 and in EBITDA.
Probably the EBITDA what will happen first again, if things continue the way they are we.
We are working more and more with Jonathan.
On investments and diversify and things to do but right now he is running at a very very profitable model.
Probably more than it should be for the <unk>.
We should have more investment for growth and we're helping with that.
Paul if you want to comment anymore on that well, yes, I think the comment about taking share is great. I think the total number of customers has not declined so they're not losing them. So as folks rationalize their spend that's a good indicator I think the other.
They're nice indicator, having some insight into the product mix is that the uptake in development and kind of the developmental elements of their portfolio are really quite strong right now and finally, we expect to be closing off some of our joint development projects closed system cytokine delivery and and media at GMP.
It is in the platform too so we'll start seeing more and more kind of synergies.
<unk>.
The portfolio overlaps and we deliver a higher value proposition with our customers with a closed system.
Yeah.
Since we're talking about growth and growth in China. Other places we didn't talk much about <unk>, but I don't want I don't want to leave this colleges.
I mean, they shut off the team our <unk> platform is really killing it right now where we're at.
Getting record test stays virtually weekly we crossed 100000 tests.
We have a colorectal.
Program, that's making great progress, we have a multi analyte screening.
Component.
Coming that'll that'll do.
Many upstream pre cancer type tests.
And it builds on top of methylation, so it'll be it'll be we'll go well above and beyond the other competitors in the field are doing with cell free DNA.
The future for <unk>, I think is amazing and.
You know you guys never focus on the great numbers more than four where that where the damages.
But coming quarters youre going to be don't want to talk more about exosomes, you've seen numbers, we're investing more people.
And we are very close the list now of tipping over the large private payers is getting very close.
Okay.
This concludes our question and answer session for today I'd like to turn the conference back over to Chuck for any closing remarks.
Well I guess, just thanks to everyone for attending the call.
We always see the call count as we go and it's a very big list. We know there's a lot of competition for your time out there and we're glad there's all the interest in our company and we'll be back next quarter. Thank you.
Thank you the conference has now concluded.
Thank you for attending today's presentation you may now disconnect.
Okay.