Q1 2024 Bio-Techne Corp Earnings Call

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Good morning, and welcome to the biotech knee earnings conference call for the first quarter of fiscal year 'twenty 'twenty four.

At this time, all participants have been placed in a listen only mode and 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 would now like to turn the call over to David Clair Bio techniques, Vice President Investor Relations.

Good morning, and thank you for joining us on the call with me. This morning are Chuck comments pyrotechnics, Chief Executive Officer.

Jim Hippel, Chief Financial Officer, and Kevin <unk>, and Chief operating Officer.

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, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2023 identifies certain factors that could cause the company's actual results could differ.

For 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, what connects 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 Corporation website at Www Dot bio dashed technique dotcom.

Separately, we will be participating in the Stifel Stephens Evercore and J P. Morgan healthcare conferences in the coming months.

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 first quarter conference call. The biotech team continues to execute in a challenging environment as we delivered 2% organic growth for the first quarter of fiscal 2024. Despite several headwinds that are impacting the broader industry as well as biotech me.

The sources of these headwinds have remained relatively consistent during recent quarters, including a soft biotech funding environment inventory destocking from a handful of our OEM customers.

As well as broad economic challenges in one of our historically highest growing geographies China.

While the primary culprits remain the same the impact of the Biopharma funding challenges in the U S as well as the evolving macroeconomic environment in China were higher than our original expectations for the quarter, albeit not as onerous as we saw with many of our peers.

Despite these transitory challenges our growth pillars remain intact and continue to perform well specifically, our GMP proteins business extra Dx prostate and our protein simple franchise, all delivered impressive growth in the quarter, our portfolio remains incredibly well positioned in several high growth or penetrated end markets and our <unk>.

Team will continue to leverage our strategic playbook.

And strong financial position to gain share enter adjacent markets introduce innovative products and solutions and capitalize on the tremendous opportunity in front of the company.

Before we dig deeper into the performance of the quarter I'd like to personally congratulate can kelvin on his recent appointment as biotech <unk> incoming Chief Executive Officer effective February one 2024.

In the meantime, I will continue to leave biotech me as CEO and work closely with Cameron his new role as Chief operating officer until Chem takes the reigns as biotech do you see you all in February.

I will continue to support him in a senior advisory capacity prior to my retirement from the company and the board on July one 2024.

Kevin has successfully led the diagnostics and genomics segment since joining the company in 2018 during Tim's leadership of this segment. The team gained significant market acceptance and traction with the extra Dx prostate test.

The revenue of our AC business doubled.

The segment portfolio was strengthened through the surgeon and the window for our acquisitions and multiple new product introductions and partnerships position the business for future growth.

Prior to joining biotech me Kim ran multiple large businesses at Thermo Fisher scientific including most recently, leading its genetic analysis business unit.

Ken will be taking over an incredibly strong and talented team as well as the novel portfolio with leadership positions in some of the fastest growing life science tools and diagnostic markets.

He has been working with me since 2009, so I can assure everyone that I know he is more than ready for this tremendous opportunity and he is the right person to take biotech me on our 10 year forward journey to five plus $1 billion revenue target as outlined recently at our Investor Day in New York.

I like to also thank both well guys and Jim Hippel, who created an incredibly difficult decision for the board, Jim and extra things as he too has been with me since 2009 and is the best financial partner I've ever worked with.

Separately I'd like to highlight biotech these latest corporate sustainability report, which showcases our continued progress the company is making on its environmental social and governance or ESG initiatives.

The report is available on our corporate social responsibility section of biotech things website.

As you'll see in our report biotech and remains committed to our employees and the communities, where we live and work. We are proud of the innovative culture, we have built as well as our commitment.

To corporate governance and operational integrity.

Driving durable sustainable and responsible growth remains the cornerstone of our forward strategy.

Now, let's get into the details of the quarter, starting with an overview of our performance by geography and end market.

Europe had a very strong quarter as the region grew mid teens overall, including particularly strong performance from our Biopharma end market.

As a reminder, Europe was the region that was first experienced the effects of the post COVID-19 slowdown, which contributed to a high single digit decline in the comparable quarter of our last fiscal year that said the European Biopharma and academic end markets remain stable and our new leadership team is maintaining the positive momentum we experienced in the region over the last three quarters.

In North America, we delivered as expected mid single digit growth with the performance in the region nearing the growth rate, we experienced in the region last quarter and last fiscal year. It's worth noting that this is the region, where we are noticing the most impact from the soft biotech funding environment as a subset of these customers continue to exhibit a disciplined approach to managing their businesses.

In the current environment.

Now, let's discuss the geography remains at the top of everyone's mind, China. This.

This region declined low teens during the quarter and underperformed our original expectations with the business climate deteriorating as the quarter progressed. The funding challenges we highlighted in our last earnings call persisted in the quarter as Chinese government funding for life Sciences, R&D at hospitals and academic institutions.

Lower than last year.

Given the challenging macroeconomic conditions in China. It remains very difficult to ascertain with R&D funding will stabilize and step back up again.

Additionally, private equity and VC funding activity has slowed and the geography, which is creating more cautious near term spending patterns for cash dependent biopharma companies in the region.

We view the temporary pause in China's growth trajectory as transitory as the government remains focused on modernizing health care in both large metropolitan areas and rural communities. Our portfolio remains extremely well positioned in this geography, as our proteomics research reagents and analytical tools and increasingly our spatial biology solutions are the.

Tools researchers rely on to advance scientific discoveries and improve health care.

We are as bullish as we've ever been on our long term opportunities in China, but acknowledged that these headwinds will likely linger in the near term before improving.

Now I'll highlight the growth pillars that will propel our future starting with those within the protein Sciences segment, where organic growth was 2% in the current quarter.

During the quarter, we continued to advance our portfolio of cell and gene therapy initiatives as our portfolio of proteomics reagents and workflow solutions continue to enable our customers to further their therapeutic development work and made continued progress towards the commercialization of these next generation therapies collectively our portfolio of cell and gene therapy products and services increased over 25.

5% in the quarter.

GMP proteins remains a cornerstone of our cell therapy, offering and biotech Nic continues to benefit from having the broadest menu available, including several proteins that are unique to biotech me.

This broad offering is a critical selling point for customers working cross a cell therapy spectrum, especially in regenerative medicine cell therapies. As these tend to acquire not only several different proteins in that workflow, but also require complex proteins that are very difficult to manufacture playing a rate into water biotech needs his strong suit.

Overall, our portfolio of GMP proteins grew nearly 40% in the quarter.

We also continued to gain traction with our portfolio of GMP small molecules recall that these small molecules are key components in the room programming self renewal storage and differentiation processes that are key to regenerative medicine workflows. This business grew almost 20% in the quarter and is on its way to becoming a significant tribute to our overall cell and gene.

Business.

We were in the process of expanding our E&P portfolio to include additional media formulations gene editing engineering capabilities and antibodies positioning about checking to remain a leader in this rapidly growing industry. Additionally.

Additionally, we're continuing to finalize our aseptic immune cell therapy manufacturing solution, which pairs, our GMP proteins GMP media and Wilson Wolf T. Rex in a closed sterile manufacturing solution.

Moving on to our protein simple branded portfolio of proteomics analytical tools here the team delivered 9% organic growth, it's worth noting that excluding China the portfolio drilling even more impressive 18%, including over 35% growth in Europe.

Consumable pull through from our growing installed base remains very strong and continues to grow on a per instrument basis, reflecting the high value and productivity gains that these incidents deliver to our biopharma and academic customers.

The protein simple performance was led by our simple plex automated multiplex Elisa instrument branded as Ela, who is expanding menu of validated assays, including seven launches in Q1, and a growing installed base is driving consumable pull through on the platform. We recently received ISO $13 45 certification of our Wallingford, Connecticut facility quality.

Management system, demonstrating our commitment to producing products for clinical applications with this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on Ela opening up a large potential market for this fast highly sensitive and easy to use multiplexing immunoassay instrument.

Momentum continued in our biologics business as we experienced continued uptake of our <unk> flex instrument and strong demand for consumables. As a reminder, recent flexes protein charge varying fractionation capabilities position us Nexgen instrument is an easy to use a placement for legacy mass spectrometry fractionation methods, including ion exchange.

Matonga fee.

This new application entry of <unk> into a new $300 million market approximately doubling the addressable market opportunity for the instrument.

Capabilities of our legacy Maurice instrument as well as the Nexgen Murray's flexible recently highlighted by scientists from top pharmaceutical companies at the recent CE Farm conference, including a presentation from Pfizer scientists summaries <unk> capabilities for peak identification of AAV capsid proteins through fractionation.

I would note that there are several other marine flex collaborations and progress with additional top tier life science companies.

Our fully automated western blot solution branded as simple Western also continued to increase its market share this quarter the platform its ability to reduce the two day long manual messy western blotting process into a three hour push-button highly reproducible solution continues to drive demand within our biopharma and academic customer basis.

We are also seeing robust adoption of simple western and cell and gene therapy applications with our system increasingly being utilized to measure protein expression potency empty versus full capsid ratio and for process impurity detection.

Revenue from cell and gene therapy applications in simple western increased over 25% in the quarter and now account for almost a quarter and associated product related revenue.

Operator: Good morning, and welcome to the Bio-Techne earnings conference call for the first quarter of fiscal year 2024. At this time, all participants have been placed in a listen only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up.

Next I'll highlight the growth pillars within our diagnostics and genomics segment, where organic revenue growth was flat in the quarter current quarter compared to prior year.

Mostly due to the timing of large orders within our diagnostics reagents business as well as large lab orders for genetic tests within our molecular diagnostic business.

David Clair: I would now like to turn the call over to David Clair, Bio-Techne's Vice President and Best of Relations. Good morning and thanks. Thank you for joining us.

I'll start with our Exo Dx prostate tests, where we once again drove significant growth in test volume as the valuable information on whether a man with an indeterminate PSA score. She proceed with an invasive and potentially dangerous prostate biopsy continues to resonate with both patients and physicians.

David Clair: I'm the call with me this morning, our Chuck Cummeth, Bio-Techne's Chief Executive Officer, Jim Hippel, Chief Financial Officer, and Kim Kelderman, Chief Operating Officer. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10K for fiscal year 2023 identified 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.

Extra Dx prostate volume increased nearly 50% compared to prior quarter.

While our year quarter, while revenue increased in the upper teens.

Adjusting for prior year cash to accrual adjustments year over year revenue growth was approximately in line with our test volume growth.

As we highlighted during our recent Investor day applications for our exon based diagnostic platform are much broader than our current exo Dx prostate test.

Our pipeline includes single gene mutation test for monitoring several different cancers, a saliva based test for the diagnosis of children syndrome, a next generation prostate cancer rule in test as well as the colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous polyps.

David Clair: The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10K, 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-gap financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable gap measures are available in the company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. Separately, we'll be participating in the Steeple, Stevens, Evercore, and JP Morgan Healthcare conferences in the coming months. We look forward to connecting with many of you at these upcoming events.

We look forward to sharing additional data on this exciting pipeline in coming quarters.

Now, let's discuss our spatial biology business, which includes our ACD branded catalog of over 47000 unique probes as well as the lunar for branded spatial biology instrument assay and software portfolio.

Our spatial biology business increased upper single digits organically for the quarter as our broad portfolio of multi well make assets continue to play an important role in advancing gene therapy neuroscience and cancer research within the portfolio. We are experiencing continued momentum in batesville, which enables the detection of target sequences down to one nucleotide differences.

Chuck Cummeth: 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. The Bio-Techne team continues to execute in a challenging environment, as we deliver 2% organic growth for the first quarter of fiscal 2024, despite several headwinds that are impacting the broader industry, as well as Bio-Techne. The sources of these headwinds have remained relatively consistent during recent quarters, including a soft Bio-Tech funding environment, inventory you stocking from a handful of our OEM customers, as well as broad economic challenges in one of our historically highest growing geographies, China.

And micro RNA scope for the visualization of micro RNA and other nucleic acid targets based scope and micro RNA scope increased almost 20% and 50%, respectively and are experiencing increasing acceptance and traction in gene therapy applications.

Chuck Cummeth: While the primary culprits remain the same, the impact of the Bio-Farma funding challenges in the U.S., as well as the evolving macro-economic-environment in China, were higher than our original expectations for the quarter, albeit not as onerous as we saw with many of our peers.

Integration efforts are our latest acquisition the lunar four are off to a great start and the team is embracing their new home under the biotech the umbrella as a reminder, Luna forest currently commercializing its common instrument a fully automated high throughput hyperflex platform that does not require the use of conjugated primary antibodies commerce high value proposition.

Is resonating with the translational research community, which is driving significant interest and rapid growth in its installed base. We continue to make progress developing our first fully automated space. So on multi omics workflow that will leverage lunar fourth common instrument inspire antibody panels as well as acd's RNA scope high plex technology to enable protein and <unk>.

Chuck Cummeth: Despite these transitory challenges, our growth pillars remain intact and continue to perform well. Specifically, our GMP protein business, XODX-Frostate, and our protein-simple franchise all delivered impressive growth in the quarter. Our portfolio remains incredibly well positioned in several high growth and under penetrated end markets, and our team will continue to leverage our strategic playbook and strong financial position to gain share, enter adjacent markets, introduce innovative products and solutions, and capitalize on the tremendous opportunity in front of the company, reporting.

RNA detection and visualization on a single slide.

In summary.

The biotech team continues to execute our strategic growth plan in this challenging environment as you look at our relative performance to many of the life science companies that have reported so far this quarter I'm, especially proud of our team's execution and have even more confidence in the perseverance of our growth platforms as.

As we highlighted during our recent Investor day, our portfolio of Proteomics research reagents cell and gene therapy workflow solution analytical tools spatial biology products and liquid biopsy diagnostics are aimed squarely at a 27 billion dollar addressable market with amazing long term growth prospects initiatives to cure cancer.

Chuck Cummeth: Before we dig deeper into the performance of the quarter, I'd like to personally congratulate Kim Kelderman on his recent appointment as Bio-Techne's incoming chief executive officer, effective February 1, 2024. In the meantime, I will continue to lead Bio-Techne's CEO, and we're closely with Cameron, his new role as chief operating officer until Kim takes the reins as Bio-Techne's CEO in February. I will continue to support Cameron as senior advisory capacity prior to my retirement from the company in the board on July 1, 2024.

<unk> degenerative and other diseases, along with understanding how these diseases develop and evolve.

As social priority for the foreseeable future and biotech these portfolio will continue to play a critical role in these efforts.

I am looking forward to when the transitory headwinds facing our industry subside, allowing the growth of our high value tools to once again shine through with that I'll turn it over to Jim.

Chuck Cummeth: Kim has successfully led the diagnostic and genomic segments since joining the company in 2018. During Kim's leadership of the segment, the team gained significant market acceptance in traction with the X or the X prostate test. The revenue of our AC business doubled. The segment portfolio was strengthened through the Asurgeon and Lutiful Acquisitions and multi-new product introductions and partnership position of business for future growth. Prior to joining Bio-Techne, Kim ran multiple large businesses at Thermal Fisher Scientific, including most recently leading its genetic analysis business unit.

Chuck I'll start with some additional detail on our Q1 financial performance and give some thoughts on our financial outlook.

Starting with the overall first quarter financial performance adjusted EPS was <unk> 41 cents compared to <unk> 45 from the prior year quarter, a decrease of 9% over last year.

Foreign exchange had and it had an immaterial impact on EPS in the quarter.

GAAP EPS for the quarter was 31 cents compared to 55 in the prior year.

Chuck Cummeth: Kim will be taking over an incredibly strong and talented team, as well as a novel portfolio with leadership positions of some of the fastest growing lifestyles, tools, and diagnostic markets. Kim has been working with me since 2009, so I can assure everyone that I know he is more than ready for this tremendous opportunity, and he is the right person to take Bio-Techne on our 10-year forward journey to $5 plus billion revenue as a target, as outlined recently at our investor day in New York.

Q1 revenue was $276 9 million, an increase of 2% year over year on an organic basis and 3% on a reported basis.

Foreign exchange translation had an immaterial impact while acquisitions contributed 1% to reported growth.

Moving onto our organic growth by region and end market in Q1, North America grew mid single digits Europe increased mid teens in China declined low teens in the quarter.

Chuck Cummeth: I like to also thank both Will Geist and Jim Heppold, who created an incredibly difficult decision for the board. Jim, an extra thing, because he too has been with me since 2009, and is the best financial partner I've ever looked at.

As Chuck previously mentioned the soft biotech funding environment remained a drag on our North American business, while Europe saw strong growth, but also how they was a difficult comp as the region declined high single digits in the comparable quarter last year.

Chuck Cummeth: Separately, I'd like to highlight Bio-Techne's latest corporate sustainability report, which showcases the continued progress the company's making limits, environmental, social, and governance, or ESG initiatives. The report is available in the corporate and social responsibility section of Bio-Techne's website. As you will see in the report, Bio-Techne remains committed to our employees and the communities where we live and work. We are proud of the innovative culture we have built, as well as our commitment to corporate governance and operational integrity. Driving durable, sustainable, and responsible growth remains the cornerstone of our forward strategy.

For China, the funding environment continued to impact the region.

Our long term enthusiasm on China remains fully intact healthcare remains a top priority for the government and our proteomics reagents analytical tools and spatial biology solutions will play a critical role advancing health care in this country.

That said the timing of this recovery remains incrementally more challenging to call at this point.

Meanwhile, APAC outside of China increased low single digits overall with government funding constraints in Japan, and South Korea.

Chuck Cummeth: Now let's get into the details of the quarter, starting with an overview of our performance by geography and end-market. Europe had a very strong quarter, as the region grew mid-teens overall, including with tickly strong performance from our bio-farm and end-market. As a reminder, Europe was the region that was first experiencing the effects of the post-Covid slowdown, which contributed to a high-single-digit decline in the comparable quarter of our last fiscal year. That said, the European Bio-Farm and academic end-markets remain stable, and the new leadership team has maintained the progenomenum we experienced in the region over the last three quarters.

By end market in Q1, both Biopharma and academia, excluding China grew upper single digits.

However, the biopharma growth was much larger in Europe, given the less difficult comps.

Below revenue on the P&L total company adjusted gross margin was 71, 3% in the quarter compared to seven 9% in the prior year.

The increase was primarily driven by productivity gains and foreign exchange, partially offset by the impact of the room for acquisition.

Adjusted SG&A in Q1 was 31, 3% with revenue compared to 27, 3% in the prior year.

Chuck Cummeth: In North America, we delivered, as expected, mid-single-digit growth, with the performance in the region mirroring the growth rate we experienced in the region last quarter and last fiscal year. It's worth noting that this is the region where we are noticing the most impact from the soft-pout tech funding environment. As a subset of these customers continued to exhibit a disciplined approach to managing their businesses in the current environment.

R&D expense in Q1 was eight 7% of revenue compared to eight 9% in the prior year.

The increase in SG&A was driven primarily by the room for acquisition and to a lesser extent strategic investments to position the business for future growth.

The price increases implemented during the first half of fiscal year 'twenty three continue to offset the dollar impact of inflation to operating income with pricing also largely offsetting the inflationary impact on our operating margin in Q1.

Chuck Cummeth: Now, as discussed, the geographer remains at This region declined low teens during the quarter and underperformed our original expectations with the business climate deteriorating as the quarter progressed. The funding challenge as we highlighted in the last one is called persisted in the quarter is Chinese government funding for life sciences R&D at hospitals and academic institutions is significantly lower than last year. Given the challenging macroeconomic conditions in China, there remains very difficult to ascertain when R&D funding will stabilize and step back up again.

Adjusted operating margin for Q1 was 31, 4% a decrease of 340 basis points from the prior year period excluding.

Excluding the <unk> acquisition, which closed at the beginning of Q1 adjusted operating margin was 100 basis points lower than the prior year due to strategic investments, which was partially offset by diligent cost management.

Chuck Cummeth: Additionally, private equity and VC funding activity has slowed in the geography, which is creating more cautious near-term spending patterns for cash-dependent biopharma companies in the region. We view the temporary pause in China's drill trajectory as transitory, as the government remains focused on modernizing healthcare in both large metropolitan areas and rural communities. Our portfolio remains extremely well positioned in this geography. There's our proteomic research reagents and analytical tools, and increasingly our spatial biology solutions are the tools researchers rely on to advance scientific discoveries and improve healthcare. We are as bullish as we have ever been on our long-term opportunities in China, but now that these headwinds will likely linger in a near-term before improving.

Looking at our numbers below operating income net interest expense in Q1 was $3 9 million, increasing $1 million compared to the prior year period due to higher debt levels, partially offset by higher interest income on cash deposits.

Our bank debt on the balance sheet as of the end of Q1 stood at $440 million, an increase of $90 million compared to last quarter, reflecting a little for acquisition, which was partially funded by debt and cash on hand.

Other adjusted Nonoperating income was $1 6 million in the quarter, an increase of <unk> 4 million compared to the prior year, primarily reflecting a 20% share of Wilson Wolf adjusted net income, partially offset by the foreign exchange impact related to a cash pooling arrangements.

Chuck Cummeth: Now, I'll highlight the growth pillars that will propel our future, starting with fellows within the protein sciences segment, where organic growth is 2% in the current quarter. During the quarter, we continue to advance our portfolio of cell and gene therapy initiatives. As our portfolio proteomic reagents and workflow solutions continue to enable our customers to further their therapeutic development work, and may continue progress towards the commercialization of these next-generation therapies. Collectively, our portfolio of cell and gene therapy products and services increased over 25% in the quarter.

Moving further down the P&L, our adjusted effective tax rate in Q1 was 22%.

Sequential increase from our Q4 tax rate to the international mix.

Turning to cash flow and return of capital $59 4 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $13 6 million.

Also during Q1, we can't we returned capital to shareholders by way of $12 7 million in dividends.

We finished the quarter with $161 9 million average diluted shares outstanding.

Chuck Cummeth: GFP proteins remain the cornerstone of our cell therapy offering, and biotechnic continues to benefit from having the broadest menu available, including several proteins that are unique to biotechnics. This thought offering is a critical selling point for customers working across the cell therapy spectrum, especially in regenerative medicine cell therapies, as these tend to require not only several different proteins in their workflow. But also require complex proteins that are very difficult to manufacture, playing a rate into what a biotechnic strong suits.

Our balance sheet finished Q1 in a strong position with $148 7 million in cash and our total leverage ratio remained below one times EBITDA.

Going forward M&A remains a top priority for capital allocation.

Before we get into the segment results I'd like to quantify some of the impacts from headwinds we experienced in the quarter compared to our initial expectations for organic growth.

A more challenging China funding and macro environment than expected represented an additional approximately 200 basis points headwind, while order timing in our diagnostics and genomics segment with another unanticipated headwind of approximately 100 basis points.

Chuck Cummeth: Overall, our portfolio of GFP proteins grew into 40% in the quarter. We also continue to gain traction with our portfolio of GFP small molecules, recall that these small molecules are key components in the reprogramming, self-renewled storage, and differentiation processes that are key to regenerative medicine workflows. This isn't screw almost 20% in the quarter, and is on its way to becoming a submissive contributor to our overall cell and gene therapy business.

The more cautious spending from our biotech customers, which.

Which were primarily experienced in the U S is more difficult to quantify that impacted the business Nonetheless, especially in the last couple of weeks of the quarter.

Chuck Cummeth: We're in the process of expanding our GFP portfolio to include additional media formulations, gene editing, engineering capabilities, and antibodies, positioning about teching to remain a leader in this rapidly growing industry. Additionally, work continues to finalize our accepted Canadian cell therapy manufacturing solution, which pairs our GFP proteins, GFP media, and Wilson Wolf G-Rex in a closed sterile manufacturing solution.

Now I'll discuss the performance of our reporting segments, starting with protein Sciences.

Q1 reported sales were $204 7 million with both reported and organic revenue increasing 2% comp.

Compared to the same period last year.

As a reminder, it is our protein sciences segment that has the most exposure to the China geographic region as well to the biotech end market.

Operating margin for the protein Sciences segment was 43, 2% an increase of 20 basis points compared to the prior year quarter as productivity gains and cost management more than offset the impact from strategic investments.

Chuck Cummeth: Moving on to our protein simple branded portfolio or proteomic analytical tools, here the team delivered 9% organic growth. It's worth noting that excluding China, the portfolio grew even more impressive 18%, including over 35% growth in Europe. Consumer pull-through from our growing installed base remains very strong and continues to grow on a poor, instant basis reflecting the high value and productivity gains that these incidents deliver to our biopharma and academic customers.

Turning to the diagnostics and genomics segment Q1 reported sales were $72 8 million with reported growth increasing 4% compared to the same quarter last year.

Organic organic revenue growth with some of it was flat with acquisitions, having a 3% impact in foreign exchange, having a favorable impact of 1%.

As Chuck previously mentioned organic growth was negatively impacted by the timing of certain OEM and lab orders for our diagnostic controls and genetic testing products.

However, our accident diagnostics business remained very strong in the quarter as our fortified marketing message strong clinical data and the updated Medicare LCD drove both test volume and revenue growth.

Chuck Cummeth: We recently received ISIL 1345 certification of our long-for-kinetic facility quality management system demonstrating our commitment to producing products for clinical applications. With this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on ELA, opening up a large potential on market for this fast, highly sensitive and easy-to-use, multiplexing, immuno-asset instrument. Momentum continued in our biologic business as we experienced continued uptake of our Maurice Flex instrument in strong demand for consumables.

Also our spatial biology business delivered upper single digit growth in the quarter with continued growth in RNA scope and strong performances in our base cope and micro RNA product lines.

We are very pleased with the traction we look for is having with its comment lunch as Chuck highlighted initial integration efforts are progressing well.

While we will fall and not be in our organic growth rates for the year. They are executing well on our plan to grow more than 100% for the fiscal year.

Chuck Cummeth: As a reminder, Maurice Flex's protein charge variant fractionation capabilities, position as next-gen instrument is an easy-to-use replacement for legacy mass spectrometry fractionation that is including ion exchange chromatography. This new application enters Maurice into a new $300 million market, approximately doubling the address of a market uptake for the instrument. The capabilities of our legacy Maurice instrument, as well as the next-gen Maurice Flex, were recently highlighted by scientists from top pharmaceutical companies that the recent CE farm conference, including a presentation from Pfizer scientists on Maurice Flex's capabilities for peak identification of AAV capsid proteins through fractionation. I would note that there are several other Maurice Flex collaborations and progress with additional top-tier life science companies.

We continue to expect moving forward to contribute at least one 5% to our overall company's reported growth for fiscal 'twenty four.

Okay.

Moving onto the diagnostics and genomics segment operating margin at 7% the segment's operating margin decreased compared to the prior year's 12, 4% due primarily to the impact of a move for acquisition and to a lesser extent strategic growth investments as well as unfavorable product mix.

Before we get to Q&A I'd like to provide some color on our current thoughts regarding the near term outlook.

As many of our life science tools peers have already mentioned the macro environment in China continues to weaken in the Biopharma end market has softened, especially in the U S.

Chuck Cummeth: Our fully automated western blood solution branded as simple western also continued to increase its market share this quarter. The platform has a ability to reduce the two-day long manual and messy western blooding process into a three-hour push button, highly reproduced both solution continues to drive demand within our biopharma and academic customer bases. We are also seeing robust adoption of simple western in cell and gene therapy applications. With the system increasingly being utilized to measure protein expression, potency, empty versus full capsid ratio, and for process impurity detection. Revenue from cell and gene therapy applications in simple western increased over 25% in the quarter and now account for almost a quarter of the associated product ready for revenue.

While we expect these headwinds and natively impacted our growth in the protein Sciences segment relative to Q1, we also anticipate the timing of OEM and Rob orders within our diagnostics and genomics segment can be accretive to growth relative to Q1.

Net net we are forecasting overall company organic growth to be about flat in Q2.

Beyond Q2, the macro environment is too dynamic to provide guidance with any sort of resolved while the headwinds of OEM destocking should be behind us in the second half of fiscal year 'twenty. Four it appears right now that are China, and Biopharma recovery will not be tailwind every once believed.

Whatever the macro environment throws at us in the near term our excellent management team and dedicated employees will continue to drive productivity to protect the bottom line.

Chuck Cummeth: Next I will highlight the growth pillars within our diagnostics and genomics segment where organic revenue growth is flat in the quarter compared to prior year. Mostly due to the timing of large order within our diagnostic reagents business as well as large lab orders for genetic tests within our molecular diagnostic business.

All while selectively investing in our growth pillars that will accelerate our overall company growth rate when the market headwinds subside and turn back into a tailwind.

And the wins will time.

As Chuck said societies priority to cure disease is inevitable in England.

Chuck Cummeth: I will start with our XODX prostate test where we once again grow a significant growth in test volume as the 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. XODX prostate volume increased nearly 50% compared to prior quarter while year quarter while revenue increased in the upper teens. Adjusting for a prior year cash to a cruel adjustment year over year revenue growth is approximate in line with our test volume, as we highlighted during our recent investor day, applications for our exosome-based diagnostic platform are much broader than our current exo-DX prostate test.

Biotech and he is ready now and will be even more so in the future to help our customers fulfill the societal need.

That concludes my prepared comments and with that I'll turn the call back over to the operator to open the line for questions.

Thank you.

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Chuck Cummeth: Our pipeline includes single gene mutation test for monitoring several different cancers, a saliva-based test for the diagnosis of children's syndrome, a next generation prostate cancer ruling test, as well as a colorectal cancer screening test designed for early detection of both colorectal cancer and pre-cancerous polyps. We look forward to sharing additional data on this exciting pipeline in tongue quarters.

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Thank you. Our first question comes from the line of Puneet Sudan with SBB Securities. Please proceed with your question.

Yeah, Hey, guys put easier from Leerink.

Chuck Cummeth: Now, let's discuss our spatial biology business, which includes our ACD branded catalog over 47,000 unique probes, as well as a luna-4 branded spatial biology instrument, assay in software portfolio. Our spatial biology business increased upper single digits, organically for the quarter, is our broad portfolio of multi-omic assays, continue to play an important role in advancing gene therapy, neuroscience, and cancer research. Within the portfolio, we are experiencing continued momentum in base scope, which enables a detection of target sequences down to one nucleotide differences, and microRNA scope for the visualization of microRNA and other nucleic acid targets.

Just.

Yeah.

Could you maybe just help us clarify I know a lot of uncertainties right now with China funding.

And and just overall macro but.

Should we expect a sequential recovery and growth in the second half of this fiscal year. I know you said flat for the next quarter, but should we expect that to continue to step up from that and what does that mean in terms of the overall growth for the full fiscal year, if Jim could elaborate.

Chuck Cummeth: Base scope and microRNA scope increased almost 20% and 50% respectively, and are experiencing increasing acceptance, interaction, and gene therapy applications. Integration efforts are our latest acquisition, the luna-4, are off to a great start, and a team is embracing their new home under the biotech named Brela. As a reminder, luna-4 is currently commercializing its common instrument, a fully automated, high throughput, hyperflex platform that does not require the use of conjugated primary antibodies.

Right on that that'd be super helpful.

Sure.

So we just came back from China and we.

We are pretty much staying where they're also saying on their calls here this past week or two.

This quarter was disappointing China's definitely has cratered there out of money. We did talk about funding returning starting next quarter last quarter and there are some glimmers of that but not enough to be material. So this next quarter as more of the same art.

The second half, we're hopeful but there isn't anything in your real evidence right now that there's that theres going to be any kind of a V recovery or recovery at all to be honest, but are.

Chuck Cummeth: Comment high-value proposition is resonating with the translational research community, which is driving significant interest in rapid growth in its install base. We continue to make progress developing the first fully automated spatial multi-omic workflow that will leverage luna-4 common instrument, inspire antibody panels, as well as ACDs aren't a school of hyperflex technology to enable protein and RNA detection and visualization on a single slide.

The team's very helpful.

There's energy there streets are full.

The economy looks great out of etiquette, our consumer commercial level, but I think in terms of government funding you know for this segment. I think is is right now we're kind of a wait and see.

I met with a bunch of very important kols and they all say the same thing that there's a lot of hope and they there's a lot of expectations. They don't they don't doubt, it's coming but yeah. The government's not real forward on there they're planning obviously, so so we're all kind of wait and see but you know other segments. There look look better on and it's just a it's just a downtime for biotech and we're kind of going away.

Chuck Cummeth: In summary, the biotechnology team continues to execute our strategic growth plan in this challenging environment. As we look at our relative performance to many of the life science companies that have reported so far this quarter, I'm especially proud of our team's execution, and I've even more confidence in the perseverance of our growth platforms. As we highlight during our recent investor day, our portfolio of proteomic research reagents, cell and gene therapy workflow solutions, analytical tools, spatial biology products, and liquid biopathy diagnostics are aimed squarely at a $27 billion decimal market, with amazing long-term growth prospects.

I'm trying to grind through it I guess.

And putting it I'll just add I mean.

As Chuck alluded to it but no sign right now or any kind of or even U shape recovery in this fiscal year. So we're just playing it fairly conservative.

The China situation is as Chuck outlined the other thing dynamic we saw was the U S market starts to soften in the last couple of weeks of the quarter and that's continued into October so that's.

Chuck Cummeth: Initiatives to cure cancer, neurodegenerative, and other diseases, along with understanding how these diseases develop and evolve, remain a social priority for the foreseeable future. And biotechnics portfolio will continue to play a critical role in these efforts. I am looking forward to when the transitory headwinds facing our industry subside, along the growth of our high-value tools to once again shine through.

That's reflected in our kind of flattish guidance here for Q2, but what's unknown is whether that trend continues beyond that or whether it stabilizes. So hence we're not commenting on the back half of fiscal year 'twenty four at this point.

I do want to emphasize that our you know you take out China, we had a not too bad a quarter you know mid to high single digit growth near 20% growth or instruments. All our growth platform is drawing actually right on plan more or less they just aren't big enough to cover the company right now but.

Jim Hippel: For that, I'll turn over to Jim. Thanks, Chuck. I'll start with some additional detail on our few financial performance, then give some thoughts on the financial outlook.

Jim Hippel: Starting with the overall first quarter financial performance, adjusted EPS was 41 cents compared to 45 cents in the prior year quarter, a decrease of 9% over last year. Foreign exchange had an immaterial impact on EPS in the quarter. Gap EPS for the quarter was 31 cents compared to 55 cents in the prior year. 2-1 revenue was 276.9 million, an increase of 2% year-over-year on organic basis, and 3% on a reported basis.

So it won't be too much longer this kind of stuff won't matter that much and I do believe in a couple of quarters, China will be start becoming a better story, but right now for one more quarter at least you know we're all in a wait and see so.

Okay. That's helpful.

Then could.

Could you elaborate a bit more on sort of what youre seeing on the bolt on both side of the business.

The contribution you're expecting here for.

Cell and gene therapy.

Jim Hippel: Foreign exchange translation had an immaterial impact while acquisitions contribute 1% to reported growth. Moving on to our organic growth by the region and end market in 2-1, North America grew mid-single digits, Europe increased mid-teens, and China declined low teams in the quarter. As Chuck previously mentioned, the soft biotech funding environment remained a drag on our North American business, while Europe saw strong growth but also had a less difficult comp as the reason declined high single digits in the comparable quarter last year.

And how much if any that could contribute to sort of the second half.

Growth here in the fiscal second half and then.

I mean, it seems like.

A number of Hum.

The expected pressures showed up in diagnostics and genomics segment.

Can you just.

Talk to us a little bit about sort of the timing and recovery in that as well.

Okay Al mentioned will fall off and I'll, let Kim disc.

<unk> discussed D. G. S. Wilson Wolf was kind of more of the same very flattish. We've not lost any customers were kind of a grinding forward with them too they've got 800, plus customers. We've got 400 overall with our protein side, but they are they are kind of a de facto standard out there in bioreactors and you know John's been focusing a lot.

Jim Hippel: For China, the funding environment continued to impact the region. Our long-term enthusiasm on China remains fully intact. Healthcare remains the top priority for the government and our proteomic reagents, analytical tools, and spatial biology solutions will play a critical role in advancing healthcare in this country. That said, the timing of this recovery remains incrementally more challenging to call at this point. While APAC outside of China increased low single digits overall with government funding constraints in Japan and South Korea.

On scale ready, though you know the sister business that will also carry our workflow through that's going extremely well. We have just launched our you know our new versions of our protein to be working towards a sterile type of a of a bioreactor module I guess a bundle.

Jim Hippel: By end market in 2-1, both biopharma and academia, excluding China, grew up with single digits. However, the biopharma growth was much larger in Europe given the less difficult comps. B-11, you won a P&L, total company adjusted growth margin with 71.3% in the quarter compared to 70.9% in the prior year. The increase was primarily driven by productivity gains and foreign exchange, partially offset by the impact of the room for acquisition. Adjusted SGNA and Q1 with 31.3% of revenue compared to 27.3% in the prior year.

So everything is kind of going okay, there and we just kind of waiting for the overall uptick, but we're not losing ground. It's just kind of treading water right now and.

Which means you know, there's there's still making lots of revenue or a meager 75% operating income in the you know pushing forward. So they're using all of that income to keep investing and driving driving faster. So.

And then Kim wants to follow yes, Anthony Thanks for the question. So obviously larger larger companies have been optimizing their inventories and for.

For us that are mainly impacted the D. R. D organization as they are they mainly sell into the larger <unk> companies.

Jim Hippel: While R&D expenses in Q1 with 8.7% of revenue compared to 8.9% in the prior year. The increase in SGNA was driven primarily by the room for acquisition into a lesser extent strategic investments to position of business for future growth. The price increases implemented during the first half of fiscal year 23 continue to offset the dollar impact of inflation to operating income. With pricing also largely offset the inflationary impact on operating margin in Q1.

It also affected to M D D a little bit and specifically in the genetic testing portfolio, which is the legacy of sure Jim.

They sell into the laboratory space in a larger laboratory space and of course. He said he has left but so he is also want to optimize that.

The inventories are specifically going into the end of the end of the calendar year.

But we see those assets in Peru, and we think that we're at the backend of the Destocking phase.

Jim Hippel: Adjusted operating margin for Q1 was 31.4%, a decrease of 340 basis points from the prior year period. Excluding the room for acquisition, which closed at the beginning of Q1, adjusted operating margin was 100 basis points lower than the prior year due to strategic investments, which was partially offset by the age and cost management. Looking at our numbers below operating income, that interest expense in Q1 was 3.9 million. Increasing 1 million compared to the prior year period due to higher debt levels.

Our next question comes from the line of Dan Arias with Stifel. Please proceed with your question.

Hey, guys. Thanks for the questions Chuck simple western growth stepped up nicely this quarter, particularly given the nature of the environment that we're in what do you think drove that and do you see that as sustainable what do you think a reasonable growth rate for that portion of the portfolio might be this year.

No. That's a great question I think we're kind of back to original type thinking on simple Western I think we had a roughly 9% growth or something like that with that consumables was even higher much higher we're knocking on the door of 3000 instruments out there, which is still under 20% penetration just for the western blot application alone.

Jim Hippel: Partially offset by higher interest income on cash deposits. Our bank debt on the balance sheet as it ended Q1 to the 440 million, an increase of 90 million compared to the last quarter, reflecting the little for acquisition, which was partially funded by debt and cash on hand. Other adjusted not operating income was 1.6 million in the quarter, an increase of 0.4 million compared to prior year. Primarily reflecting our 20% share of rules and rules adjust the net income.

And there's a bunch of new applications coming using that using the the instruments, including diagnostic related applications. So we're super bullish on our simple western platform. It sits we're in early innings, yet so I still think the long term growth rate for this talk like a decade is like a 15% CAGR for a decade, it's going to go up and.

Jim Hippel: Partially offset by the 4 exchange impact related to a cash pool in the range. Moving further on the P&L, our adjusted effective tax rate in Q1 was 22%. The sequential increase from a Q4 tax rate due to international mix. Turning to cash flow and return to capital, 59.4 million of cash was generated from operation in the quarter, and our net investment in capital expenditures was 13.6 million. Also, during Q1, we return capital to shareholders by way of 12.7 million dividends.

And I think you know late last year, we're still fighting comps from last year, we had 50% type growth last couple of years. So you know, we're still kind of working through that and we're still showing growth right now of strong growth and double digit growth in consumables. So long term I think it's going to bounce around 10% to 30%, but it's going to be an average of 15 I think and.

This is the only game in town with this type of technology has got strong IP no ones ever been able to get close to it.

It's automated western which is a nightmare for people so it's nothing but a great future.

Jim Hippel: We finished the quarter with 161.9 million average due to shareholders outstanding. Our balance sheet finished Q1 in a strong position with 148.7 million in cash, and our total leverage ratio remained below one time due to going forward and enabling the top priority for capital allocation.

Yeah, Dan I'll, just add to that it is Chuck just ended with I think it speaks to the productivity nature of the of the instrument, we've been saying all along it's amazing productivity tool and in these times as tightening budgets and concerned about funding should help but it that's what's driving the consumables growth. There you know so it's it truly is the productivity tool we've been saying all along.

Jim Hippel: Before we get into the segment results, I'd like to quantify some of the impacts from headwinds we experienced in the quarter, compared to our initial expectations for organic growth. A more challenging China funding and macro environment than expected, represented an additional approximately 200 basis points headwind, while older timing in our diagnostics and genomics segment was another unanticipated headwind of approximately 100 basis points. The more cautious spending from our biotech customers, which we primarily experienced in the US is more difficult to quantify, but impacted the business nonetheless, especially in the last couple weeks of the quarter.

Yes, okay.

And then maybe just on ACD, 9% growth I think you said during the quarter do you think that can get back up into the double digit range and then along those lines can you just touch on where you are now just in terms of the need for additional commercial scale up there and then whether you think the usage and the and the clinical translational setting as the <unk>.

Reasonable expectation and one of the things that you need in order to get back up into that two digit number.

Hey, Dan This is Kevin Thanks for the question absolutely.

I think it was mainly APAC slowing us down a little bit this.

This quarter.

Jim Hippel: Now discuss the performance of our reporting segment starting with protein sciences. Q1 reported sales with 204.7 million that both reported and organic revenue increasing 2% compared to the same period last year. As a reminder, it is our protein sciences segment that has the most exposure to the China geographic region, as well as the biotech and market.

By fixing just that Oh, normalizing, we will be back into double digits.

That's that's the entitlement for for not only the end markets, but also our unique solution if the RNA scope.

Portfolio of products.

Think about lunar four is going to keep this business a boost as well right and.

We will we will definitely have more pull through on the lunar for boxes to.

Jim Hippel: Operating margin for the protein sciences segment was 43.2%, an increase of 20 basis points compared to prior year quarter, as productivity gains and cost management more than offset the impact from strategic investments. Turning to the diagnostics and genomics segment, Q1 reported sales were 72.8 million, with reported growth increasing 4% compared to this in quarter last year. Organic revenue growth for the segment was flat with acquisitions having a 3% impact and 4x change having a favorable impact of 1%.

Docomo, specifically and then last but not least our clinical business has been outpacing the overall product portfolio already and it's becoming a more than 10% of our revenues.

Portion so so I think the undoubtedly I'm serious.

I said, we'll be back in double digits.

Okay, and just really quickly Tim is the percentage of revenues.

From in China for your special business similar to the overall corporate average.

No. It's it's much lower.

Jim Hippel: As Chuck previously mentioned, organic growth was negatively impacted by the timing of certain OEM and lab orders for our diagnostic controls and genetic testing products. However, our system diagnostics business remained very strong in the quarter, as our fortified marketing message, strong clinical data, and the updated Medicare LCD drove both test volume and revenue growth. Also, our spatial biology business delivered a personal digit growth in the quarter, with continued growth in RNA scope and strong performances in our base scope and micro RNA product lines.

Okay. Thank you.

Thank you.

Our next question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.

Hi, Good morning. This is Hannah on for Jacob Thanks for taking my questions. If the macro remains a headwind well into 2024, how does this impact your view on organic investment.

What are you trying to manage profitability or does this change your approach to organic investment.

Jim Hippel: We are very pleased with the traction we will forge having with its comment launch and as Chuck highlighted, initial integration efforts are progressing well. While we will fall will not be in our organic growth rates for the year, they are executing well on the plan to grow more than 100% for the fiscal year. We continue to expect uniform to contribute at least 1.5% to our overall company's reported growth for fiscal 24.

Yeah, Jimmy Cat cover this yeah. The short answer is no I mean, we are putting in productivity measures in place we have been anticipating this throughout the quarter and we continue to do that we of course pacing our investments accordingly, but our intention is to hold the margin guidance that we gave out earlier in the year and manage.

Our productivity to that while still investing in our growth platforms. So we're that's what we're paid to do is manage manage the.

Jim Hippel: Moving on to the diagnostics and genomics segment operating margin, at 0.7%, the segment's operating margin decrease compared to prior years 12.4%, due primarily to the impact of the legal fore acquisition, and to a less urgent and strategic growth investments as well as unfavorable product mix.

Supported the business given the current environment, while still investing for the future and that's what we intend to do.

Okay.

Thanks, and then can you talk about the outlook in proteins and antibodies for the remainder of the year you expect to end up bulk orders to be coming back.

Jim Hippel: Before we get to Q&A, I'd like to provide some color on our current thoughts regarding the near-term outlook. As many of our life science tools peers have already mentioned, the macro environment in China continues the weekend, and the biopharmate end market is softening, especially in the U.S. While we expect these headwinds immediately impacted our growth in the protein scientists that met relative to Q1, we also anticipate the timing of only-ending lab orders within our diagnostics and genomics segment to be accreted to growth relative to Q1. Net net, we are forecasting overall company organic growth to be about flat in Q2.

Oh, Yeah, I'll cover that and I just had a meeting yesterday with the team and the Bulks are on the rise. So that's a very good early indicator that our OEM business to be returning.

Destocking as Jim said, it's kind of largely behind US we're starting to we're starting to see a discussion of orders now in some very large orders. So I think we're turning the corner on that I think our run rate businesses, hopefully kind of bottomed here and we'll start a position that out I mean, we had a probably the worst quarter in 10 years of Fisher This last quarter and we see that.

Kind of flattening as well I mean, they talked about it in their call as well and they want to wear that the segment that lives and it couldn't have been very great but.

Jim Hippel: Beyond Q2, the macro environment is too dynamic to provide guidance with any sort of resolve. While the headwinds of only-ending stockings should be behind us in the second half of the fiscal year 24, it appears right now that a China and biopharmate recovery will not be tailwind as we once believed. Whatever the macro environment throws at us in the near-term, our excellent management team and dedicated employees will continue direct productivity to protect the bottom line. All while selectively investing in the growth pillars accelerate our overall company's growth rate when the market headwinds decide and turn back into tailwinds and the wind will turn.

Now these labs are running out of stuff.

They've got to start buying again, and we're starting to see the the first inklings of that so we think run rate I'll start improving some you know and I think our retail overall will start improving I remember now our.

That's not a majority of our of our of our revenue. So it is it takes all these things together to get us into double digit growth, but you know they all they all matter and this part here I'm kind of bullish looking forward finally.

Our next question comes from the line of Patrick Donnelly with Citi. Please proceed with your question.

Jim Hippel: As Chuck said, society's priority to cure disease is inevitable and endless. Biotechnology is ready now and will be even more so in the future to help our customers fulfill the societal need.

Hey, guys. Thanks for taking the questions.

Maybe first just on the Biopharma performance in the quarter can you just talk about what you saw across the customer set.

And how things progressed throughout the quarter.

Jim Hippel: That concludes my prepared comments and with the answer in the call back over to the opportunity to open the line for questions. Thank you.

The linear performance and then maybe just disaggregate between the trends smaller biotech versus mid and large pharma you know a few peers suggested things maybe deteriorated as the quarter went so curious what you guys saw.

Operator: We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may req in those questions will be addressed time permitting. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. Prepare to spend choosing speaker equipment and maybe necessary to pick up your hands up before pressing the star keys. One moment please while we pull for questions. Thank you.

Yeah, well overall for the company are our academic versus Biopharma is largely even while at the same.

But it wasn't lopsided. So it was it was much stronger biopharma in Europe. Okay. Then it wasn't U S. U S was was blow almost mid single digit growth. So that's that's that's a much poorer performance unusual for us in U S. As Jim said most of our pain was was in the U S and in China and it was on the Biopharma side, all in without China, we actually.

It didn't do too bad because academic was was not too bad I mean, probably better than many quarters in the past quarters to be honest. So so we're waiting on on that Biopharma to come back and of course, as you've mentioned biotech as part of that Biopharma and biotech is still soft out there the funding environment for biotech small to medium.

Puneet Souda: Our first question comes from a line of Puneet, Suda with SVB Securities. Please receive it with your question. Yeah, hey guys. Puneet here from Lerink. So just Chuck. Do you maybe just help us clarify? I know a lot of uncertainties right now with China funding and just overall macro, but you know, should we expect a sequential recovery and growth in the second half of this fiscal year? I know you said flat for the next quarter, but should we expect that to continue to step up from that?

Puneet Souda: And what does that mean in terms of the overall growth for the full fiscal year if Jim could elaborate on that, that'd be super helpful. Sure Puneet, so we just came back from China, and we were pretty much saying what Errol is saying on their call this past week or two. This quarter was disappointing. China is definitely as cratered there out of money. We did talk about funding, returning, starting next quarter, last quarter, and there are some glimmers of that, but not enough to be material, so this next quarter is more the same.

Companies going after their second or third round or trying to get that next wave of clinical is going or rejuvenate. The clinical's there Ryan its just softer they're all being very careful because money is tight its going to change, but it's going to be in a quarter or two I think on that part of Biopharma far.

Pharma is just being conservative because theyre, just being conservative because they just see the.

The wins the way, they're looking in that that can turn on a dime I'll give you. Some evidence why that can be very very you know.

Very quick I'm going to move we actually had a very good quarter on our on our immunoassay.

And you know assay Elisa dual sets.

High single digit growth and that was not the case a quarter or two ago. So that could be early evidence of things starting to flip because thats, mostly farmer driving most of that business. So our lives is still more or less the standard for driving testing in clinical so.

Puneet Souda: The second half, we're hopeful, but there isn't anything in your evidence right now that there's going to be any kind of a be recovery or recovery at all, to be honest, but the team's very hopeful. There's energy there. Streets are full. The economy looks great at a consumer commercial level, but I think in terms of government funding, for this segment, I think is right now we're kind of a wait and see.

Okay. That's helpful. Chuck Thanks, and then maybe just a follow up on China, I guess, what do you guys need to see to get a little more constructive in that market. Obviously, the prior guide you're talking maybe a little bit about a second half recovery. So curious what you're baking in at this point in terms of the year for China.

Theres any visibility into.

The level of improvement Thank you guys.

Yeah, you know we went how many.

Yeah.

Puneet Souda: Met with a bunch of very important KOLs, and they also the same thing that there's a lot of hope, and there's a lot of expectations, they don't doubt it's coming, but the government's not real forward on their planning obviously, so we're all kind of wait and see. But other segments there look better. It's just a downtime for Bio-Tech, and we're going to go out and go right into it, I guess. And putting out this ad, I mean, let's check alluded to, there's no sign right now, any kind of the or even new shape recovery in the fiscal year, so we're just playing it fairly conservative.

How many quarters in a row at 25% growth ourselves. So you know we're definitely in a lull right. Now. This this you know this is a negative teens quarter coming off of a you know high teens quarter growth last quarter, but going forward is going to be more of the same I think I think you know flattish would be hopeful the next quarter or two to be honest. So.

The second half or Q4.

You know who knows I mean, it wouldn't take we're not that big in China right. Overall, so it wouldn't take that much or that many orders or are you now a rejuvenation in any area to actually get back into some girls, but well just have to wait and see we're just you know, we're just going to be cautious and not over over promise theres not a lot of evidence.

Puneet Souda: The China situation is as chuck outline, the other thing we dynamically saw was the US market start to soften in the last couple of weeks of the quarter, and that has continued in October. So that's reflected in our kind of flatish guidance here for Q2, but what's unknown is whether that trend continues beyond that, or whether it stabilizes. So at hence we're not commenting on the back half of fiscal year 24th this point.

But the attitude is very high our team is at full strength, we have zero attrition.

Talked to a lot of customers personally here, a couple of weeks ago, and actually they're fairly bullish as well.

We're just waiting for the government to start loosening.

Loosening up here with what they usually do in April and they still haven't done it but once they do.

Puneet Souda: I do want to emphasize that you take out China, we had not too bad a quarter. You know, in the high single digit growth, near 20% growth or instruments, all our growth platforms growing actually rate on plan more or less. I just aren't big enough to cover the company right now, but you know, so it won't be too much longer. You know, this kind of stuff won't matter that much, and I do believe in a couple quarters. China will be start becoming a better story about right now for one more quarter at least. You know, we're all on a wait and see.

People will start talking to favorably again about China and you.

He got to believe and we've talked a lot of people health care is still number one is a priority for China. It looks it looks great. When you are in the middle of Shanghai, you don't have to go too far outside the city and you start seeing why the government still concerned about health care.

Our next question comes from the line of Catherine Schulte with Baird. Please proceed with your question.

Okay.

Yes, everyone. This is Tom on for Catherine.

Chuck Cummeth: Okay, that's helpful. Then, you know, could you elaborate a bit more on sort of what you're seeing on the both side of the business. The contribution you were expecting here for, you know, Selen gene therapy. And how much, if any, that could contribute to, you know, sort of the second half, you know, growth here in the fiscal second half. And then, I mean, it seems like, you know, a number of unexpected pressures showed up in diagnostics and genomic segment.

Wanted to maybe dig into Europe, a little bit obviously had a really strong quarter from an organic growth standpoint understand it theres some comp dynamics.

Within that number but kind of flagged the region.

Perhaps a leading indicator of some of the softness no carry.

Yes.

Kind of what were the drivers here and if you have anything to flag from a leading indicator standpoint within Europe.

Sure.

But first as you mentioned the comps were quite easy so that helped a lot, but you know you know.

15% organic growth was 15% organic growth. That's it's a great quarter to have that he is not talking about a negative Europe right. Now so we're two or three quarters into a real recovery for us and you're so that's also part of the story, we have a new management team in place.

Chuck Cummeth: Maybe just, you know, talk to us a little bit about sort of the timing and recovery in that as well. Okay, I'll mention Wolf Wolf, and I'll let Kim discuss that DGS. You, Wolf and Wolf, it's kind of more of the same, very flatish. We've not lost any customers. We're kind of grinding forward with them too. They've got 800 plus customers. We've got 400 overall with our protein side, but they are kind of a defactile standard out there in bioreactors.

<unk> done some reorganization a couple of quarters ago.

And quite frankly, it's working we're getting more synergies, we're getting more cross selling.

We're nearly at full strength, we've invested more salespeople as an example in the Nordic regions.

The new leader is German.

Chuck Cummeth: And, you know, John's been focusing a lot on scale already, the, you know, the sister business that will also carry our workflow through. That's going extremely well. We have just launched, you know, our new versions of our protein to be working towards a sterile type of a bioreactor module, I guess, a bundle. So everything's kind of going okay there. We're just kind of, you know, waiting for the overall uptick, but we're not losing ground.

Jeremy should be our biggest subsidiary in Europe, and it's not and it would be correcting that theres already been great.

Evidenced that they were going to have a we're going to have a strong are you know future I think in Germany with him at the helm.

And I guess wait and see but I'm right.

Right now I'm not focus too much on Europe for a change things are going pretty well.

Great. That's helpful. And then you know clearly we talked about a number of headwinds throughout the state that are popping up.

Chuck Cummeth: It's just kind of treading water right now. And, which means, you know, they're still making lots of revenue. A meager 75% operating income and, you know, pushing forward. So they're using all that income to keep investing and driving, driving faster, and then Kim wants to follow.

Throughout peer report with that in mind I was wondering if you had any comments on sort of your thoughts around the M&A landscape.

What does it look like here is there any more willingness among private.

Maybe enter those conversations kind of given where we are from a macro perspective.

Kim Kelderman: Yeah, Puneet, thanks for the question. So obviously larger, larger companies have been optimizing the inventories and for us that mainly impacted the D.R.D, organization as they, they mainly sell into the larger I.V.D, companies. It also affected MDD a little bit, specifically in the genetic testing portfolio, which is the legacy of Georgia. They sell into the, the laboratory space and a larger laboratory space. And, of course, these laboratories also want to optimize their, the inventories specifically going into the end of the, the end of the calendar year. But we see those as a temporal and we think that, that we're at the back end of the, the destocking phase.

Yeah, well, it's we've never been busier to be honest, it's I spend all year, it's going to be a great year in M&A and how we've landed lunar for I just came back from Aldo or I'm on the board and I never received more confidence about a deal in my entire tenure here. There's this lunar for deal. It seems like everybody wanted it so it's gonna be a marvelous platform and it has lots of application.

And you know that.

We mentioned the growth year on year of 170%. This thing is exploding, it's gonna be a wonderful asset.

And Kim personally close that deal.

We've been involved in others I mean, we just saw link you know we were there we know a lot about oh length, we sell them a lot of products and they're.

They're a good partner and we look forward to.

Chuck Cummeth: Our next question comes from a line of Dan Arias with Steve old, please proceed with your question. Oh my gosh, thanks for the questions. Chuck, simple Western growth stepped up nicely this quarter, particularly given the Eastern environment that we're in. What do you think drove that? And do you see that as sustainable? What do you think a reasonable growth rate for that portion of the portfolio might be as year? No, that's a great question.

Continuing our partnership on many fronts with Thermo Fisher, Oh link as well so it's been a great relationship with Thermo Linda.

We don't see any problems there, but we'd sure like to pick up a few more assets like that there. There are lots of them out. There you mentioned private this was definitely a year it would be looking at smaller deals private deals.

In deals in the core even that are you know funding is tight and.

Chuck Cummeth: I think we're kind of back to original type thinking on simple Western. I think we had roughly 9% growth or something like that with that. Consumbles was even higher, much higher. We're knocking on the door of 3000 south there, which is still under 20% penetration just for the Western blood application alone. And there's a bunch of new applications coming using the, using the, you know, the instrument, including the diagnostic related applications.

And we're seeing multiples kind of picking up a price tags needs. These latest deals are have been pretty good and that that gives hope for owners and they you know they pick up the phone so I'm still expecting a pretty.

Pretty good are you now.

Coming year here for M&A, we have lots of purchasing power for our size and we will try to use it and.

I mean I'll be gone soon but I'm sure, Jim and Kim and the team here will continue the the mission on that so.

Chuck Cummeth: So we're a super bullish on our simple Western platform. It's, we're early innings yet. So I still think the long term growth rate for this, you know, talk like a decade is like a 15% keg or for a decade. It's going to go up and down. I think, you know, last year we're still fighting comps and last year we had 50% type growth last couple of years. So, you know, we're still kind of working through that.

As a reminder, if you would like to ask a question press star one on your telephone keypad.

Our next question comes from the line of Matt Larew with William Blair. Please proceed with your question.

Hi, good morning.

Chuck Cummeth: And we're still showing growth right now strong growth and double digit growth and consumables. So long term, I think it's going to bounce around 10 to 30%. But it's going to be an average of 15, I think. And this is the only game in town with this type of technology. You've got strong IP. No one's ever been able to get close to it. It's, it's automated Westerns, which is a nightmare for people. So it's nothing but a great future.

Just something you. Thank you thanks, Jim called it out in his comments was.

The headwinds around biotech funding and I think you said that hurt, especially in the last couple of weeks of the quarter and so given that.

Patrick funding has been under pressure for some time just curious if there was anything that you picked up on in the last couple of weeks So I've noticed.

Chuck Cummeth: Yeah, I'll just add to that. It's just ended with, I think it speaks to the productivity nature of the instrument. We've been saying all along. It's an amazing productivity tool. And in this time, the tightening budgets and concerns about funding should help it. That's what's driving the consumable growth there. You know, so it's it truly is, you know, the productivity tool. We've been saying it all along. Yep. Okay.

On that front.

Yeah, I mean, we've been saying how biotech is with relatively stable for us after its initial kind of drop in the first part of fiscal year 'twenty three and that they're.

A quick stabilization was pretty consistent up until like I said the last couple of weeks, we saw a rise in rates drop off we saw some larger deals not close and that kind of continued here in October.

Unknown Attendee: And then maybe just on ACD 9% growth, I think you said during the quarter.

I don't have a good answer as to why that's the case, except to say that all of our peers are pretty much saying the same thing. So it appears like there as we get into the year end here, there's another round of belt tightening going on across Biopharma, especially in biotech.

Kim Kelderman: Do you think that can get back up into the double digit range. And then along those lines, can you just touch on where you are now, just in terms of the need for additional commercial scale up there. And then what do you think usage in the in the clinical translational setting is a reasonable expectation and one of the things that you need in order to get back up into that that two digit number.

Optimism that it's an end of the year belt tightening exercise unless we get into this in the county or 'twenty, four but new budgets get approved.

At the at the business level that will start to see.

Kim Kelderman: Yeah, Dan is Kim. Thanks for the question. I absolutely. I think it was mainly APEC slowing us down a little bit to this quarter by fixing just that or normalizing. We will be back in the double digits. That's the entitlement for not only the end markets, but also our unique solution with the RNA scope portfolio of products. Think about Luna 4 is going to keep this business a boost as well, right?

The pickup in activity, but again, we're a little bit too early to tell at this point.

Okay, and then sort of aggregating your comments.

Sounds like we should be thinking about China, continuing down in this low teens elsewhere.

We are modeling now, but obviously growth.

Ex China.

It seems like Youre not providing guidance.

That is fair to say and that's consistent with Q1.

Kim Kelderman: And we will we will definitely have more pull through on the Luna 4 boxes to come up specifically. And then last but not least, our clinical business has been outpacing the overall product portfolio already and is becoming a more than 10% of our revenues portion.

I think one of the biggest drivers to in terms of.

I think by the second half and so forth the diagnostics and genomics, where our growth would've been better this quarter if it weren't for those timing issues that Kim talked about and so we do see a nice snapback in the diagnostic genomics segment going forward and then to reiterate what I said earlier in the near term protein sciences can still be very challenged by China, China is going to get worse.

Kim Kelderman: So I think the undoubtedly answer is yes, it will be back in double digits. Okay, just really quickly, Kim, is the percentage of revenues from in China for your spatial business, similar to the overall corporate average? No, it's much lower. Okay, thank you. Thank you.

Before it gets better.

The the view from our teams out in China. We just visited is that Q2 is hopefully the bottom. The question is does it is it is it a dead cow dead cat bounce for Awhile does the funding come back in the early part of <unk>.

Calendar year 'twenty for that remains to be seen.

Our next question comes from the line of Alex Nowak with Craig Hallum. Please proceed with your question.

Unknown Attendee: Our next question comes from line of Jacob Johnson with Stevens. Please proceed with your question. Hi, good morning. This is Hannah on for Jacob. Thanks for taking my questions. If the macro remains a headwind well into 2024, how does this impact your view on organic investment? Will you try to manage profitability or does this change your approach to organic investment? Yeah, Jim can cover this. Yeah, the short answer is no. I mean, we are putting in productivity measures in place.

Okay, great. Good morning, everyone. Tim I think we're all very excited to work with you and the CEO position, but maybe just expand maybe the whole team here could you expand on the internal search process.

<unk> considered.

And Jim as well, what ultimately led to the decision here.

Well I can't speak for the board, but.

We didn't announce very early.

I went through that quite carefully and it's going on a year and a half ago.

Unknown Attendee: We have been anticipating this throughout the quarter and we continue to do that. We are, of course, pacing our investments accordingly, but our intention is to hold a margin guidance that we gave out earlier in the year and manage our productivity to that while still investing in our growth platforms. So that's what we're paid to do is manage the support of the business given the current environment while still investing for the future.

I think it was very clear why we announced it one which is uncommon was to give us enough time to do very be very thoughtful in the process look at leading executives that have might have noncompete to work through.

I think the board went through an extensive and exhaustive list doing their fiduciary duty I do know that there was.

More than a half a dozen external.

On the list at one point in it but I think.

Jim Hippel: That's what we intend to do.

To say more or less what Bob it set it at a meeting recently was there was there just didn't seem to be.

Chuck Cummeth: Thanks, and then can you talk about the outlook and proteins and antibodies for the remainder of the year? You expect in the end of bulk orders to be coming back? Yeah, I'll cover that. I just had a meeting yesterday with the team and Valks are on the rise. So that's a very good early indicator that OEM business be returning. De-stocking, as Jim said, is kind of largely behind us. We're starting to see discussion on orders now and some very large orders.

That big a difference in what they thought.

The experience levels and.

And the you know the abilities of the external versus our three top notch internal candidates, which I spent the last decade.

And in some cases longer [laughter] from two different companies and so why take the risk externally with their point of view and I do think it was a tough decision as I mentioned and you.

Chuck Cummeth: So I think we're turning the corner on that. I think our run rate business is hopefully kind of bottomed here. We'll start position that out. I mean, we had probably the worst quarter in 10 years of Fisher, the last quarter. And we see that kind of flattening as well. I mean, he talked about it in their call as well. Where that segment that lives in, it couldn't have been very great. But these labs are running out of stuff.

Kim's thrilled.

Jim unwilling I'm sure you know.

We are happy for Cam, but wherever there there is still here and where we've done a good team with very low politics for many years together and both here in Thermo Fisher when we all came from and I see no reason why it won't continue and we've got a lot of work to do or our stock is down like everybody else as an industry and so there's a lot of potential upside.

Chuck Cummeth: They've got to start buying again. And we're starting to see the first thinkings of that. So we think run rate will start improving some. And I think our retail overall will start improving. Remember now, that's not a majority of our revenues. So it takes all these things together to give us in the double digit growth. But you know, they all matter. And this part here, I'm kind of bullish looking forward to finally.

We see a path to a $5 billion revenue company in 10 years and my.

My guess is the stock will be much higher than that so they'll probably stick around.

Makes it makes total sense and Ken there's always been a biotech news that this is a unique combination of.

<unk> Tec products, and then call it diagnostics and genomics.

Chuck Cummeth: Our next question comes from line of Patrick Donnelly with city. Please proceed with your questions. Hey guys, thanks for taking the questions. Maybe first, just on the biofarmer performance in the quarter. Can you just talk about what you saw across the customer's set. And how things progress throughout the quarter, kind of, you know, the linear performance. And then maybe just disaggregate between the trends, smaller biotech versus first mid-large pharma, you know, a few peers suggested things, maybe deteriorated at the quarter went.

Would you anticipate with this move here that biotech needs you to lean a little bit more diagnostics focus after the transition or you're very focused on keeping this.

Truly well define high growth areas.

Absolutely so so the ladder.

There's no.

There are no bias to either one I think we have defined our our core growth platforms, our true growth platforms, our vertical markets that we're focused on and I'm Gonna love all of them equally and on top of that some of them have a higher potential than others and we're going to invest in the true growth of about four.

Chuck Cummeth: So curious what you guys all. Yeah, well overall for the company, our academic versus biofarmer was largely even about the same, but it was lopsided. So it was much stronger by pharma in Europe. Okay, then it was in US. US was was low, almost mid single digit girls. So that's that's that's a much poorer performance than usual for us in US. As Jim said, most of our pain was was in the US and then China, and it was on the biofarmicide.

And that's going to be.

The best way for the company as well as go to shareholders.

Our next question comes from the line of Paul Knight with Keybanc. Please proceed with your question.

Yes, thanks, very much Chuck your longtime China expert.

Chuck Cummeth: All in without China, we actually didn't do too bad because academic was was not too bad. I mean, probably better than many quarters, the past quarters to be honest. So so we're waiting on on that biofarmer to come back. And of course, as you mentioned, biotech is part of that biofarmer and biotech is still soft out there. The funding environment for biotech, small to medium, you know, companies going after their second or third round or trying to get that next way, the clinicals going or rejuvenate the clinicals they're in.

When you look at the funding do you what portion is.

The government funding.

And what portion is this biotech private sector demand that I guess developed in the last five years. So.

What's what's kind of the proportion of this kind of funding discussion you're seeing or your perspective would be super interesting.

It's a great question and it's probably very difficult to answer to really answer definitively youre absolutely right in the last five years or so it's been definitely a drift away from solely relying on government funding and finance and government plans and the biotech sector has definitely grown in China and there have been Arab been some companies that have come you know.

Chuck Cummeth: It's just softer. They're all being very careful because money's tight. It's going to change, but it's going to be a quarter to I think on that part of biofarmer. Farmer is just being conservative because they're just being conservative because they just see the, you know, the wins the way they're looking and that that can turn on a dime. I'll give you some evidence why that can be very, very, you know, very quick to move.

<unk> and become real companies like Beachy IV come when they come to mind that have been very successful.

Chuck Cummeth: We actually had a very good quarter on our, on our, you know, I say Eliza, dual sets, high single digit growth. And that was not the case a quarter or two ago. So that could be early, you know, evidence of things starting to flip because that's mostly Farmer driving most of that business. So Eliza is still more or less a standard for driving testing and clinicals.

I think.

Thank God private equity and VC money has grown.

I think he's got a lot of our Chinese <unk>.

American.

People.

With that our Chinese descent have gone home and taken with them business principles and business models from from America, and that's gone quite well we have some we.

Chuck Cummeth: Okay, now I don't pull Chuck, thanks. And then maybe just to follow up on China, I guess what do you guys need to see to get a little more constructive in that market? Obviously the prior guide, you're talking maybe a little bit about a second half recovery. Curious what you're baking in at this point in terms of the year for China and if there's any visibility into a level of improvement. Thank you guys.

We have some great friends. There we know we know some of them there have been some great track records of some Chinese firms that have been doing.

<unk> venture and done quite well.

The percentage I think though as hard or difficult at I think we still you know we are going more and more direct all the time all of US there, but we still mainly fulfill through master distributors in China.

Chuck Cummeth: Yeah, you know with we went how many? How many quarters in Roa 25% growth or so? So, you know, we're definitely in a law right now. This, this, you know, this is a negative teens quarter, coming off of a, you know, high teens quarter growth last quarter, but going forward is going more the same. I think, I think, you know, flatish would be hopeful the next quarter or two, to be honest.

So it's a little bit hard to understand you know you know where it all really is coming from there's a run rate component as well and I think that is largely driven by institutions with term largely government funded we have.

We have some growing OEM opportunities as well, especially.

Especially in our D. R D segment.

And there are companies like minor a and others that have been around a long time and very successful in growing double digit that have taken a bigger and bigger.

Chuck Cummeth: So, the second half are Q4, you know, who knows. I mean, it wouldn't take, we're not that big in China right overall. So it wouldn't take that much or that many orders or, you know, you know, rejuvenation in any area to actually get back into some growth. But we'll just have to wait and see. We're just, you know, we're just going to be cautious and not over, over promise. There's not a lot of evidence.

Piece of our business and going direct with us.

But.

So the government portion is definitely shrinking, but it's still it's still such a major portion of it is going to drive drive the overall size of the business and the overall call. It the pulse of the economy over there plus I would add too I thought I would add if I could.

Chuck Cummeth: But the attitude is very high. Our team is at full strength. We have zero nutrition. Talk to a lot of customers personally here a couple weeks ago. And actually they're fairly bullish as well. We're just waiting for the government to start, you know, loosening up here with what they usually do in April. And they still haven't done it. But once they do, you know, people start talking favorably again about China. And you got to believe when we've talked a lot of people health care is still number one is a priority for China.

Perhaps unlike the U S. The government funding in China has more of an indirect impact on VC funding than it does in the U S. I think VC fund in the U S is irrespective of NIH funding does but in China. The VC funding often full follow or accentuate what the government does so.

Why following the government Monday is really it's really the lead we believe on with a direction a direction of where its of where there are spaces going there yeah.

Chuck Cummeth: You know, it looks, it looks great. You know, you're for the middle of Shanghai. You don't have to go too far outside the city. And you start seeing why the government is still concerned about health care.

What that follow up on that then to me would be.

It does appear that the government.

Catherine Schulte: Our next question comes from a line of Catherine salty with their please proceed with your question. Yeah, everyone that is talking about on for Catherine. One of the maybe dig into Europe a little bit. Obviously had a really strong quarter from an organic growth standpoint. Understand that there's some comp dynamics within that number. But kind of flags the region as, you know, perhaps leading indicator of some of the softness. So curious to see, you know, kind of what were the drivers here? And if you have anything to flag from a leading indicator standpoint within Europe?

You know clearly is behind hospitals in core pulse care at some numbers across the industry show improvement there.

But do you think the government still is behind fundamentally picking up R&D to create that biotech sector. So yeah that would be my last follow up thanks.

I think they're very bullish on that I think that's something they definitely want.

Hey.

China wants to be in a leadership position as best they can in biotech and life sciences, and not being a predictor like they are in semiconductor for sure.

Chuck Cummeth: Sure. Well, first of you mentioned the comps work quite easy. So that that helped a lot. But, you know, 15% organic growth is 15% organic growth. It's a great quarter to have that. We're, these are not talking about a negative Europe right now. So we're two or three quarters into a real recovery for us in Europe. That's also part of the story. We have a new management team in place. They have done some reorganization a couple quarters ago.

Our next question comes from the line of Justin Bowers with Deutsche Bank. Please proceed with your question.

Hi, good morning, everyone. So just sticking with.

Now the topic is your.

Where you talked about next quarter being potentially the trough for China and somewhat of a philosophical question, but if we if we <unk>.

Chuck Cummeth: And quite frankly, it's working. We're getting more synergies. We're getting more cross selling. We're nearly at full strength. We've invested more sales people as an example. In the Nordic regions. The new leader is German. You know, Germany should be our biggest subsidiary in Europe. And it's not. And if you're correcting that, there's already been great. You know, evidence that we're going to have a strong, you know, future, I think in Germany with them at the helm. And I guess wait and see. But I'm right now I'm not focused too much on Europe for a change. Things are going pretty well. We're going to have to do that.

Exclude hope and return of government funding and just think about.

The infrastructure that's in place now and.

What's needed to sustain the business.

Is <unk> sort of like a good reflection of the run rate and just taking a step back I mean, you guys are outperforming peers, a little bit in that market.

Summer down 30, 40, 50% right.

You know theres only so many quarters you can have those sorts of drawdowns before you start cutting into the bone.

Unknown Attendee: Great, that's helpful. And then, you know, clearly, we talked about a number of headwinds throughout the space, you know, that are popping up throughout peer reports.

So just any thoughts on that well that's a good it's a good question.

Chuck Cummeth: You know, with that in mind, you know, was wondering if you had any comments or your thoughts around the M&A landscape? I mean, what does the funnel look like here? Is there any more willingness among private, you know, maybe enter those conversations kind of given where we are from the macro perspective?

The institutions there.

Good comment from our leader in.

In APAC last week, and you say well, they're not really in the cutting people, they're just sitting around playing in Asia.

Waiting for money to come in so, but the teams are there and but you're right they've got to get work done and they are labs and they've got run rate, we needs and I think their.

Chuck Cummeth: Yeah, well, we've never been busier to be honest. I've said all year, it's going to be a great year in M&A, and we've landed Lunafora. I just came back from Aldo where I'm on the board, and I've never received more confidence about a deal in my entire tenure here. This is this Lunafora deal. It seems like everybody wanted it. So, it's going to be a marvelous platform. It has lots of applications.

It's about it's about growth, it's about future growth, it's about money for new programs, but there is a certain level of keep the keep the lights on funding happening. So it's shrinking but it has not gone away you know so so I mean put it you got to put it in perspective, there I think I think other companies top of that too. There is that you know we had 17% growth last quarter.

Chuck Cummeth: And, you know, did we mention the growth year on year, 170%, this thing is exploding. It's going to be a wonderful asset, you know, and Kim personally closed that deal. Well, we've been uninvolved in others. I mean, we just saw O-Link, you know, we were there. We know a lot about O-Link, we sell them a lot of products. And, you know, they're a good partner, and we look forward to continuing our partnership on many fronts with Thermo Fisher with O-Link as well.

This quarter, we were down mid teens.

Maybe it'll be end up being flat, but it isn't like there's no money no funding I mean people aren't working or going to work, they're going to work and they're doing work, but there isn't funding for new programs right now so so everything's kind of at a standstill waiting on that so that's that's really the tone going forward.

I don't know of any real layoffs, we have our full team right now and are there isn't much attrition I don't think there that kind of a of an economy anyway, but they they pre are playing a lot of them Asia very long waiting waiting for the checks to come in so.

Chuck Cummeth: So, it's been going to a great relationship with Thermo, and we don't see any problems there, but we'd sure like to pick up a few more assets like that. There are lots of them out there. You mentioned private. This is definitely a year to be looking at smaller deals, private deals in deals in the core, even, that, you know, funding is tight. And we're seeing multiple kind of picking up. The price tags and these latest deals have been pretty good.

It is pretty.

Pretty happy team too I mean, it's if you've gone to China is many times I have I'm, just always come back pretty energized because theyre just theyre.

They're just such hard working people and they're just really enjoy seeing you and they really are authentic and.

Chuck Cummeth: And that gives hope for owners, and they, you know, they take up the phone. So, I'm still expecting a pretty good, you know, coming year here for M&A. We have lots of purchasing power for our size, and we will try to use it.

And you'll never get more honest questions and honest answers from than you will from our teams in China, you know your teams or our customers or anyone for that matter. So just love it.

Chuck Cummeth: And, I mean, I'll be gone soon, but I'm sure Jim and Kim and the team here will continue the mission on that.

Got it and then just one follow up and sort of ending on a more positive note within within the protein simple franchise.

Operator: As a reminder, if you would like to ask question, press star one on your telephone keypad.

Can you talk about a lot of runway left where.

As you had the most success.

Matt LaRue: Our next question comes from line of Matt LaRue with William Blair. Please proceed with your question. Hi, good morning. Just something you, I think you'd make a Jim call that out in his comments was the heavy underground biotech funding. And I think he said that heard, especially in the last couple weeks of the quarter. And so given that, you know, biotech funding has been under pressure for some time, just curious if there's anything that you picked up on in the last couple weeks or have noticed since on that front.

Which sort of.

Accounts, or which end markets and penetrating and where do you think theres more sort of education that needs to happen.

The adoption of the platform.

And <unk>.

15% growth going forward is it highly attractive and the comps that you put up this quarter as well so yeah, well we do have.

Got it.

Table of nice businesses here, good dozen or so platforms with three of them are three most important where we put most of our energy and our funding all had great quarters with 50% growth and Exosomes, we had double digit growth nearly in spatial we had solid growth in cell and gene therapy, 40% in GMP proteins.

Matt LaRue: Yeah, I mean, we've been saying how biotech was well till we stable for us after it's initial kind of dropped in the first part of fiscal year 23. And that that stabilization was pretty consistent up until like I said the last couple of weeks, we saw the run rates drop off. We saw some larger deals not close and that that's kind of continued here in October. I don't have a good answer as to why that's the case to come to say that all of our peers are pretty much saying the same thing.

We're going to more than double the number of proteins that come out of the factory. This coming year, We're building a new factory in China for GMP proteins, because the demand there is actually accelerating as well so yeah.

Matt LaRue: So it appears like there's we get into the year end here. There's another round of belt tightening going on across biopharma, especially in biotech. There's a optimism that it's an end of the year belt tightening exercise. And as we get into the in the county or 24, but new budgets get approved at the business level that will start to see, you know, the pickup and activity. But again, we're too early to tell it. Point.

I think now is the time to be thinking of Haddon and not be short term thinking and it isn't just our company stock. It's a lot of in our industry a year from now this is al could you know it could be all behind us and.

There's going to be a fast flight back to quality earnings and that's US you know we are we make money and.

We operate well.

But you know we are definitely you now can say that we're in a.

Jim Hippel: Okay, and then sort of aggregating your comments. It sounds like, you know, we should be thinking about trying to continuing down in this low teens as we're as we're modeling now, but obviously growth in the business X China, and that's fair to say, even though you're not super running guidance. That is fair to say, and that's consistent with Q1. I think, you know, one of the biggest drivers to in terms of, you know, the team of the second half and so forth, is diagnostics in genomics.

Now we're definitely in a recession in fact whole world's waiting and talking about.

Our rates and interest rates are a big issue, obviously and are waiting for a pivot and whether or not we can hit a soft landing.

Now for the economy and I'm, an old pool, Walter I would say in life Sciences, we missed the pit itself.

In terms of life Sciences. It was a hard landing so we're gonna out, but we'll get through it.

Disease neuroscience cancer, they're not going away on their own and you know the big macro.

Jim Hippel: Our growth would have been better this quarter if it weren't for those timing issues that Kim talked about. And so we do see a nice snap back in the diagnostics genomics segment going forward. And to reiterate what I said earlier, you know, in the near term, protein sciences can still be very challenged by China. China's going to get worse before it gets better. The view from our teams out in China, we just visited is that Q2 is, is hopefully the bottom. The question is does it, is it a dead count, dead count bounce for a while or is the funding come back in the early part of county or 24 that remains to be seen?

You know the trends out there ageing obesity things.

Things like that our rguest getting worse not better. So you know our our time will come again in the.

Smart investors will be there early so.

Thank you we have reached the end of the question and answer session.

Mr comment that I would now like to turn the floor back over to you for closing comments.

Well again, thanks for the quarter I'm, probably my last.

Full earnings call. This is like number 42.

Kim will probably take more of a lead next quarter and I'll be around for a couple more so but.

Alex Novak: Our next question comes from line of Alex Novak with Craig Hall. And please receive your questions. Okay, great.

We're all pretty energized here and are still having a good time and we love what we do and we love we love the science and anyway, we'll see you next quarter. Thanks.

Kim Kelderman: Good morning, everyone. Kim, I think we're all very excited to work with you in the CEO position. But maybe just expand the whole team here could expand on the internal search process that the board considered Will and Jim as well. What ultimately led to the decision here? Well, I can't speak for the board, but we did announce very early. I went through that quite carefully. I mean, it's going on a year and a half ago.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Kim Kelderman: I think it was very clear why we announced that one which is uncommon was to give enough time to do very thoughtful in the process. Look at leading executives that might have non-compete to work through. I think the board went through an expensive exhaustive list. During their fiduciary duty, I do know that there was more than a half a dozen external on the list at one point. But I think to say more or less would Bob, it said that at a meeting recently was there just didn't seem to be that big a difference in what they thought the experienced levels and the abilities of the external versus our three top notch internal candidates, which I spent the last decade.

Kim Kelderman: And some cases longer from two different companies. And so I take the risk externally was their point of view. And I do think it was a tough decision, as I mentioned, and you know, Kim Thrill, Jim and Will, I'm sure are happy for Kim, but they're still here. And we've been a good team with very low politics for many years together. And both here in thermal Fisher, where we all came from.

Kim Kelderman: And I see no reason why it won't continue. We've got a lot of work to do. Our stock is down like everybody else's in the industry. And so there's a lot of potential upside. We see a path to a $5 billion revenue company in 10 years. And my guess is a stock up to much higher than. So they'll probably stick around. Makes makes folks and can there's always been a biotechnics of this unique combination of, you know, biotech products and then called diagnostics and genomics.

Kim Kelderman: Would you anticipate with this move here that biotech needs to lean a little bit more diagnostics focus after the transition or very focused on keeping this, and truly well-defined, high-growth areas. Absolutely, so the latter, there's no internal bias to either one. I think we have defined our core growth platforms, our true growth platforms, our vertical markets that we're focused on. And I'm going to love all of them equally. And on top of that, some of them have higher potential in others. And we're going to invest in the true growth platforms, and that's going to be the best ones for the company, as well as for the shareholders.

Chuck Cummeth: Our next question comes from line of Paul Knight with Keybank. Please be here with your question. Yeah, thanks very much. Chuck, you're a long time, China expert. When you look at the funding, what portion is the government funding and what portion is this Bio-Tech private factor demand that I guess developed in the last five years? So what's kind of the proportion of this kind of funding discussion you're seeing or your perspective would be super interesting?

Chuck Cummeth: It's a great question, and it's probably very difficult answer to really answer definitively. You're absolutely right in the last five years or so. It's been definitely a drift away from solely relying on government funding and the government plans. And the Bio-Tech sector has definitely grown in China, and there have been some companies that have come, you know, and become real companies, you know, like BGI become one to come to mind that have been very successful.

Chuck Cummeth: I think private equity of EC money has grown. I think you've got a lot of Chinese, you know, American people that are Chinese in descent have gone home, and taken with them business principles and business models from America, and it's gone quite well. We have some great friends there. We know some, there have been some great track records of some Chinese firms that have been doing, you know, venture and done quite well.

Chuck Cummeth: The percentage, I think, though, is hard to get at. I think we still, you know, we're going more and more direct all the time all this there, but we still mainly fulfill through this master distributors in China. And so it's a little bit hard to understand, you know, where it all already is coming from. There's a run rate component as well, and I think that is largely driven by institutions, which are largely government funded.

Chuck Cummeth: We have, we have some growing OEM opportunities as well, especially in our DRD segment, and there are companies, you know, like mine, Ray and others that have been around a long time and very successful and growing double digit that have taken a bigger and bigger, you know, piece of our business and going direct with us. And so the government portion is definitely shrinking, but it's still, it's still such a major portion that it's going to drive drive the overall, you know, size of the business and the overall call it the pulse of the economy over there.

Jim Hippel: Paul, I would add to my, I thought I would add if I could that perhaps unlike the US, the government funding in China has more of an indirect impact on VC funding that does in the US. I think VC funding in the US is irrespective of what NIH funding does, but in China, the VC funding often fulfill or accentuate what the government does. So that's why following the government Monday is really the lead we believe on, with a direction of where our space is going there.

Chuck Cummeth: Yeah, you know, that follow-up on that then to me would be, it does appear that the government, you know, clearly is behind hospitals and core health care, some numbers across the industry show improvement there, but you think the government still is behind fundamentally picking up R&D to create that Bio-Tech sector, so yeah, that would be my last follow-up thanks. I think they're very bullish on that. I think something they definitely want. They're trying to want to be in a leadership position as best they can in Bio-Tech and life sciences and not be in a predicament like they are in semiconductor for sure.

Justin Bowers: Our next question comes from line of Justin Bowers with Deutsche Bank. Please proceed with your questions. Hi, good morning, everyone.

Chuck Cummeth: So just sticking with the topic, you know, the topic, you know, where you talked about next quarter being potentially the trust for China and somewhat of a philosophical question, but if we exclude hope and return to government funding and just think about the infrastructure that's in place now and what's needed to sustain the business, it's too cute sort of like a good reflection of the run rate and, you know, just taking a step back. I mean, you guys are out performing peers a little bit in that market, you know, summer down 30, 40, 50%, right?

Chuck Cummeth: And, you know, there's only so many quarters, you can have those sorts of drawdowns before you start, you know, cutting into the bone. So just any thoughts on that would do. Yeah, it's a good, the good question. The institution there is a good comment from our leader in APAC this week and he said, well, they're not really in the cutting people. They're just sitting around playing Meijong, waiting for money to come in.

Chuck Cummeth: So the teams are there and but you're right, they've got to get work done and they are labs and they've got run rate we need. And I think they're, you know, it's about, it's about growth, it's about future growth, it's about money for new programs, but there is a certain level of keep the, keep the lights on funding happening. So it's shrinking, but it's not gone away, you know, so you put it, you got to put it in perspective there.

Chuck Cummeth: I think I think other companies top of that too. You know, we had 17% growth last quarter in this quarter, we're down mid teams, you know, maybe it'll be end up being flat, but you know, it isn't like there's no money, no funding and people aren't working or going to work, they're going to work and they're doing work, but there isn't funding for new programs right now. So everything's kind of a standstill waiting on that.

Chuck Cummeth: So that's, that's really the tone going forward. Don't know of any real layoffs. We have our full team right now and there isn't much attrition. I don't think they're that kind of an economy anyway, but they are playing a lot of Meijong right now, waiting for the checks to come in. So it's pretty, pretty happy team too. I mean, if you've gone to China as many times as I have, I'm just always come back, pretty energized because they're just, they're just such hardworking people and they just really enjoy seeing you and they really are authentic. And you'll never get more honest questions and honest answers from then you will from the teams in China, you know, your teams or customers or anyone for that matter. So just love it.

Chuck Cummeth: Got it, and then just one follow-up and sort of ending on a more positive note, within the protein simple franchise, you talk about a lot of runway left, where has you had the most success? Which sort of, you know, accounts or which end markets and penetrating, and where do you think there's more sort of education that needs to happen around adoption of the platform? Oh yeah, you know, 15% growth going forward is highly attractive, and the Council, you put up this quarter as well, so.

Chuck Cummeth: Yeah, well, we do a, you know, we've got a stable of nice businesses here, good dozen or so platforms, but three of them are three, most important, we put most of our energy in our funding, all had great quarters, with 50% growth in exosome, we had double digit growth nearly and in spatial, we had solid growth in cell and gene therapy, 40% in GMP proteins, we're going to more than double the number of proteins that come out of the factory this coming year, we're building a new factory in China for GMP proteins because the demand there is actually accelerating as well. So yeah, I think, now is the time to be thinking ahead and not be short term thinking, and isn't just our company stock, it's a lot of an our industry.

Chuck Cummeth: A year from now, this could be all behind us, and there's going to be a fast light back to quality earnings, and that's us, we make money and we operate well, but we're definitely, you know, could say that we're definitely in a recession. In fact, a whole world is waiting and talking about, you know, rates and interest rates are a big issue obviously, and waiting for a pivot, and whether or not we can hit a soft landing, or you know, for the economy, and I'm an old pole vault there, I would say in life sciences, we missed the pit in terms of life sciences, it was a hard landing, so we're going to, you know, but we'll get through it, disease, neuroscience, cancer, they're not going away on their own, and you know, the big macro, you know, trends out there, aging, obesity, things like that are getting worse, not better, so you know, our time will come again, and the smart investors will be there early, so.

Operator: Thank you.

Chuck Cummeth: We have reached the end of the question and answer session.

Chuck Cummeth: Mr. Cummins, I would now like to turn the floor back over to you for closing comments. Well, again, thanks to the quarter, probably my last full earnings call, this is like number 42, so I don't know about that. Camo probably takes more of a lead next quarter, and I'll be around for a couple more or so, but we're all pretty energized here, and still having a good time, and we love what we do, and we love the science.

Operator: Anyway, we'll see you next quarter, thanks.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines this time. Thank you for your participation, and have a wonderful day.