Operator:

[Call Starts Abruptly] Call for the Fourth 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 one follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President of Investor Relations.

Kim Kelderman:

Thank you, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. I'm pleased to report that our fourth quarter results came in, in line with our initial expectations. Continued stabilization of our end markets, combined with excellent execution by the Bio-Techne team, led to a 1% year-over-year organic revenue growth. This quarter wraps up our fiscal 2024, where our core portfolio of research and diagnostic reagents, together with the four growth verticals that leverage this content, delivered a 1% growth is what has proven to be a challenging fiscal year. It's worth noting that these growth verticals have enabled Bio-Techne to consistently outperform our peer group during this unprecedented post-COVID pandemic period. During this period, we experienced a challenging funding environment for biotech and a significant R&D budget recalibration by large pharma and academia customers. Let me give you some examples of the business dynamics we've experienced throughout our fiscal year. First, proteomics analytical franchise, branded ProteinSimple. This business provides productivity tools for laboratories commonly used to expand laboratory capacity. However, these products are also well positioned for customers that are operating under constraint budgets and are looking to replace manual processes with simple and effective automation. Here, we saw mid single-digit growth for the fiscal year, led by Simple Plex and Simple Western platforms, bolstered by double-digit growth for instrument-related consumables across all platforms. Our cell and gene therapy vertical, which is led by our quality GMP protein products, also grew mid single-digits for the year and added more customers even while biotech funding had a multiyear low. In our spatial biology vertical, we saw solid growth in fiscal year 2024 despite the budget reset by our pharma customers. Our new spatial biology instrument COMET is seeing a robust adoption and will bring accelerated growth to this vertical in the years ahead. And last, the ongoing traction and market adoption of our ExoDx Prostate test, together with new product launch within our surging franchise, drove double-digit growth in our Molecular Diagnostics growth vertical all year long. It is these four growth verticals that have carried us to the challenging post-COVID dynamic market slowdown, and we are confident that these same verticals will drive accelerated growth as our core market and our core portfolio of 40 agents gradually recover back to long-term historical growth rate. Over the last 48 years, we've mapped the core portfolio of research reagents and diagnostic tools, which include a catalog of over 6,000 protein and 400,000 antibody types. These products are critical components to many foundational workflows, and virtually all life science academic and biopharma research labs globally. Not only do the reagents unlock the power of scientific discovery, they are also the synergistic force behind our four growth verticals. The five-year CAGR for these growth verticals is over 20%, and they accounted for about 45% of Bio-Techne's revenue in fiscal 2024, which is significantly higher than the 30% of revenue in fiscal 2019. And that's only five years ago. Before we get into the details of the most recent quarter, I'd like to officially welcome Dr. Judith Klimovsky to Bio-Techne's Board of Directors. Dr. Klimovsky is currently the Executive Vice President and Chief Development Officer at Genmab, and she brings a significantly end market, scientific and international experience to Bio-Techne's Board. Dr. Klimovsky's insight and guidance will be very beneficial as we continue to execute our strategy and expand globally. Welcome to our Board, Judith. Now let's start with a discussion of our end markets and geographies, beginning with the biopharma end market, where we saw continued stabilization from our biopharma customers. Overall, biopharma, declined to low single-digits in the quarter, it was relatively consistent on a sequential basis. There is a broad awareness that biotech funding has been stronger for the first half of the calendar year, which is good news after a very challenging 2023. We anticipate that this recovery will bring incremental confidence to the capital-dependent companies and that this will eventually drive increased demand for our portfolio with life science products in the coming quarters. Academia decreased low single-digits in the quarter, reflecting a particularly challenging comparison with the same period last year during which revenue increased upper single-digits. From a geographic perspective, North America and Europe both declined low single-digits in the quarter, reflecting the aforementioned constraints in biopharma and academic end markets. Although it is worth noting that Europe had particularly difficult comparables and that it had double-digit growth in the fourth quarter last year. For China, the stabilization trend that we have experienced over the past several quarters fortunately continued into Q4. As China progressed through a recovery process, we would expect a portfolio of research and reagents to be in the first to return to growth, followed by our instrument portfolio. This prognosis strengthened by the fact that our team in China delivered their second consecutive quarter of double-digit growth for our core reagent portfolio. This performance was paired with mid single-digit growth in our biologics portfolio, which consists primarily of the Maurice family of instruments and associated consumables. Overall, China declined high single-digits in the fourth quarter, which was in line with our expectations at last year's stimulus resulted in a comp of mid-teens growth for this geography in last year's Q4. While the impact of the recently announced stimulus will likely not translate into revenue growth for the region until the second half of our fiscal year, we are encouraged by the overall stabilization in this region and the early return of the growth to our reagents. And let's discuss our growth pillars in more detail, starting with ProteinSimple instrumentation within the Protein Sciences segment, where overall organic growth was low single-digit for the quarter. As mentioned, robust utilization of these productivity tools drove double-digit consumable growth. It's worth highlighting that our Q4 is the 7th consecutive quarter in which the consumables related to our instruments grew at least double-digits, which indicates strong utilization of our global installed base. A protein analysis instrument provide automation, decision, reproducibility and labor savings, which makes them increasingly ingrained in both academic and biopharma workflows. Our automated multiplexing immunoassay instrument named Ella was a standout performer within the ProteinSimple portfolio as both the instrument and related consumables increased double-digits in the quarter. Ella is quickly becoming the go-to platform for cell and gene therapy customers for viral titer and release testing. Ella also seeing rapid adoption among CROs looking for high reproducibility paired with high sensitivity in an easy-to-use, fully automated immunoassay platform. Related to immunoassay technology, we recently announced an investment in Spear Bio’s Series A funding plan. Spear Bio is an innovation leader in the development and manufacturer of ultrasensitive immunoassays capable of measuring protein markers at automolar levels from sub microliter sample volumes. Spear Bio’s assays run on qPCR equipment, which is routinely found in research and clinical facilities therewith tapping into very broad existing installed base. Spear Bio’s initial assay will focus on key biomarkers supporting translational research in Alzheimer’s disease. Within our protein simple franchise, we also recently announced the latest addition to our Simple Western platforms called Leo. As a reminder, our Simple Western platforms automate the manual, laborious, cumbersome, time consuming and inconsistent western blotting process that is commonly used to identify proteins in complex mixtures. Leo is the high throughput automated western blot system enabling the simultaneous analysis up to 100 samples in a single 3 hour run. We are excited to introduce this next-generation system, which is expected to begin shipping in the second half of our fiscal year 2025. We remain the only fully automated western blot technology provider on the market and see a long runway for the future growth with this portfolio as our current market penetration is below 30%. Like our other platforms, Simple Western continues to gain traction in cell and gene therapy application as the system is increasingly used for absolute protein quantitation and relative potency assay. For example, Regulus Therapeutics recently reported positive top line data from the second cohort of patients in its Phase 1b study related to the treatment of a kidney disease called ADPKD. Regulus utilized our Simple Western platform to develop high performance biomarker assays to measure various proteins in urine as part of this study. We look forward to working with Regulus and of course with all our other partners to further the advancement of cell and gene therapy. I’ll now shift to the other growth pillars within our Protein Science segment, our own cell and gene therapy business unit. This growth vertical includes a proteomic reagent and scalable workflow solutions that enable our customers to accelerate e-clinical, clinical and eventually the commercialization of these next-generation therapeutics. As we’ve mentioned in the past, order timing from large customers can create quarter-to-quarter lumpiness in our GMP proteins business and that was indeed the case in our Q4. As a sign of underlying strength, however, we are pleased to see continued growth in the number of customers utilizing our highly active GMP protein. We will continue to actively seed the market to ensure we partner with our customers early in their development journey. Within our GMP reagent offering, we continue to drive significant growth within our GMP small molecules business. These small molecules are key components in the reprogramming, self-renewal, storage and differentiation processes that are key to regenerative medicine workflows. We are making good progress with our new GMP facility in Bristol, UK, which positions us well to meet current and forecasted demand for those critical reagents. This small molecule business grew nearly 50% for the quarter and is quickly becoming a material contributor to our overall cell and gene therapy results. In total, our Protein Science segment declined 3% organically for the quarter and declined 2% for the fiscal year. Remember that our Protein Science segment is where we have the most exposure to both China and the biopharma end market, and that this segment is positioned to see the most significant improvement as these end markets start to recover. Now, let’s discuss the growth pillars in our Diagnostics and Genomics segment where organic revenue grew by 9% in the quarter and 6% for the full fiscal year. Our molecular diagnostics growth pillar performed exceptionally well as organic revenue growth topped 20%. The value proposition of our ExoDx Prostate test continues to resonate with both patients and physicians. It does provides critical information to men with a gray zone PSA score on whether to proceed or not to proceed with an invasive and potentially dangerous prostate biopsy. During Q4, ExoDx Prostate volumes increased by almost 35%. We are seeing momentum across the various KPIs we track for our ExoDx Prostate test, including a 30% sequential increase in the number of physicians ordering 25 or more ExoDx Prostate tests per quarter. Rounding out molecular diagnostics business, the Asuragen brand delivered another strong quarter as the sensitivity and specificity of our proprietary assay chemistry drives global adoption of our carrier screening as well as our oncology kit. This led to mid-teens overall growth for the business and we continue to advance to innovative molecular diagnostic products through our pipeline and are looking forward to the launch of our exosome based ESR1 mutation kit for breast cancer monitoring as well as the expanded carrier screening essay in the coming months. Now let’s discuss our spatial biology growth pillar where once again, demand for a fully automated high throughput hyperplex spatial biology platform called Comet outpaced our manufacturing capacity in the quarter. The cross organizational manufacturing team continues to implement production process improvements and is making good progress scaling capacity to meet current and forecasted Comet demand. During the quarter, we enabled RNA detection and visualization on Comet with the launch of RNAscope HiPlex capabilities for the instrument. Following this launch, Comet is now capable of detecting and visualizing up to 24 plate proteins and 12 RNA targets simultaneously, creating a highly differentiated multiomic system for the rapidly growing spatial biology market. These enhanced capabilities are in the hands of our initial set of key opinion leaders and will be rolling out across our installed base over the coming months. In summary, the team delivered another solid quarter and another solid fiscal year in this challenging funding environment. As our end markets equilibrate back to a non-pandemic environment, we are well positioned to reinvigorate growth across our portfolio of core research reagent and continued momentum across our four growth verticals. I’m extremely proud of the execution by the Bio-Techne team in the stabilizing but still challenging end market. I’m also confident in our ability to deliver differentiated financial performance as our end markets progress through the recovery process. With that, I’ll turn the call over to Jim. Jim?

Operator:

[Operator Instructions] We’ll take our first question from Puneet Souda with Leerink Partners. Your line is open.

Kim Kelderman:

Puneet, good morning. Thanks for your question. Let me start with the instrument question that you asked. Yes, like most others, our instrumentation growth rates have been under pressure in the end markets, as we know them, specifically China and biopharma being constrained. But we’re also proud to mention that the consumables directly related to these instruments have been growing double digits now seven quarters in a row. So we are very confident that the installed base is getting utilized optimally and that we are filling up capacity that we have in the installed base. And there with funding coming back in, we are pretty certain that there will be a drive to get increased capacity in the field and there will drive our instrumentation numbers. Your question on the RUO antibodies, it’s been, obviously, the dynamics with the different end markets swinging a little bit in a bottoming out process and that makes it a lumpy business. Overall, we are looking carefully at all the different product lines. And we see some lumpiness quarter-over-quarter, but nothing that we are alerted about. And we feel overall that portfolio is nicely positioned.

Jim Hippel:

Well, I guess, as I said, I’ve given some guidance on how I think the year will progress based on a baseline market expectation – that baseline market expectations for a very gradual improvement in our end markets. I don’t think we see anything immediately that would suggest an improvement in our end markets in the very near term. But I think by the end of the year, we’re hoping that we start to see some uplift with biotech, given the increased funding that we saw, we’ve seen so far year-to-date that should turn to spending. And then continue to 2025, you have Chinese stimulus starting to kick in and the pharma budgets being reset. So that’s kind of a gradual progression of the growth rates as we see it. And that’s what I’ve outlined in my prepared comments. And how fast that progression happens or how slow it happens will depend on what the full year number ends up being.

Jacob Johnson:

Hey, thanks. Good morning. Maybe Jim, sticking on the guidance theme, I heard some headwinds on the margin side in the first half of the year due to incentive comp, et cetera. It sounds like maybe a little bit better in the back half of the year, but still we’re looking at operating margins in FY 2024 that are well below where you’ve been historically. I know some of that is related to acquisitions. I guess as we think about returning to growth in the back part of this year, how should we think about incremental margins as growth picks up again? And then I heard 35% plus. But at times, we’ve seen a 40% target longer term. Is there any reason you couldn’t get back to 40% over time with the caveat of M&A, it can always be dilutive to margins?

Jacob Johnson:

Got it. Makes sense. Thanks for that, Jim. And then, Kim, maybe Jim mentioned getting back to double-digit growth. Maybe just to revisit the 2023 Investor Day and the potential for growth well into the double digits. You talked about your four key growth franchises earlier and the traction there. And obviously, those are key to more robust levels of growth when the macro normalizes. I’m just curious, a year later after that Investor Day, are there any of those kind of four platforms where you’re more confident in the growth outlook? And then on the flip side, any of those pillars where maybe you have more restrained expectations?

Operator:

Our next question comes from Dan Arias with Stifel. Your line is open.

Jim Hippel:

Yes. Thanks for the question, Dan. GMP – overall GMP revenue growth for fiscal year 2024 did grow. We were – we did have growth overall for the year, even though it was choppy, which is a positive sign and a very tough year. And so we expect those growth rates to increase obviously an improving market. So that’s essentially what’s been baked into the forward guidance.

Jim Hippel:

Well, I’d say this, we grew roughly mid-single digit for the year – for the full year in 2024.

Jim Hippel:

I mean, we’re sticking with that guidance, right? And I think this quarter is yet another testament to it. By our calculations, our peer group in total shrink roughly about 4% this quarter and we grew 1%. And so kind of back to Puneet’s question in terms of that getting back to double-digit growth, we are absolutely confident. When the market gets back to mid-single-digit growth, we will be at double digit. And so trying to predict when that full market recovery happens is difficult to do. But I think we’re trying to conserve in a slower pace of recovery that 2025 as a calendar year will be a year of recovery and it might take that full calendar year to get there, which is why we’re being a bit conservative on the fiscal basis ends in June. We’ve been hearing from our peers also that bio production is looking to recover here perhaps a bit sooner, which might be the first bit of jolt that the industry needs to kind of get going into. So again, I think there’s a lot of positive signs. We call them green shoots last quarter. I think they’re still green shoot this quarter. They just haven’t quite sprouted yet. I also point out that we have some company specific activity that will help our growth rate as well. We had obviously Lunaphore, Comet launch that's happening, give us multiomic capabilities, so that should be an upside for growth. And then we have our real instrument that Kim talked about in our ProteinSimple franchise, which has already gained a lot of interest with customers since we announced that future release. So between our company-specific activities and the market improving, we're feeling pretty good about next year, but we're just being very conservative around the pace of market recovery, as I think everyone else is in our peer side.

Dan Leonard:

Thank you. I have a question on your RUO reagent product line. Is there anything you could do to accelerate growth there independent of market improvement?

Dan Leonard:

Got it. Appreciate that. And Kim, correct me if I'm wrong, but it seems like your spatial portfolio is less subject to macro headwinds. So could you size that portfolio in aggregate at this point? And how fast do you think it grows in 2025?

Operator:

Our next question comes from Tom DeBourcy with Nephron Research. Your line is open.

Kim Kelderman:

Yes. Thanks, Jack. As you know, the funding program is trickling through the different systems and regional governments. It's certainly on its way, is what we hear. Customers are certainly interested in receiving the benefits and also interested in spending the money already. And as you know, it's highly tailored to instrumentation only. And I think we're really well positioned to benefit from it. A couple of data points. First of all, our instrumentation is pretty unique and creates efficiencies and improve the data that you get out of it. So there's a fantastic value proposition there. Secondly, about a year ago, a similar funding concept was put in place, and we truly benefited. That's why our current Q4, the one we're reporting on right now, had relatively high comparables year-over-year because of that funding. And that worked out very well for us. This program is put in place for three years. So we feel that the moment these funds become available, we will benefit short-term. And then, I feel it will be a positive driver for the coming years ahead, which is, of course, better than just one quick jolt that then falls flat again. So I'm happy with that concept. Now in the meantime, out of our four product lines, we have the Ella, Ella product line and that one has already been growing very nicely in China. And as I mentioned at the beginning of the earnings call, we have seen the consumables on all four of our platforms continue to grow double-digits in the market as well and indicating that there is a very healthy usage of our instruments. So overall, I'm pretty confident that this will be a positive driver for the company. But like everybody else, the timing and when it trickles through is a little bit more vague, but I think the – if it's more important than the when, and I'm pretty certain that if is going to take place.

Operator:

Our next question comes from Matt Larew with William Blair. Your line is open.

Kim Kelderman:

Yes. Thank you for the question. First of all, we were delighted that we saw a healthy demand above our capacity. That of course, always a good starting point, painful nonetheless. So our teams have worked really hard in cranking up the capacity. And yes, I think, that's ongoing now for a little over two quarters. And I'm very pleased to see the progress there. And yes, we've mentioned it that it was still a consideration in Q4, our last fiscal quarter that we are now reporting on. But that in Q1 fiscal year 2025, this problem should be going away. So the lines of capacity and demand are going to be crossing any week or any month right now. And from there, we should not be held back by the capacity constraints anymore and just be able to focus on increasing demand. So it's looking very promising from that point of view. You might not hear about that topic anymore.

Jim Hippel:

Yes. I mean the reality is that we've been working on productive initiatives throughout this down cycle. So it's definitely throughout fiscal 2023, 2024 and have more projects in the fiscal year 2025 as well. And it's a delicate balance of making sure we adjust the structure inside of our business relative to our volumes, while maintaining and fueling the growth pillars, the growth verticals in our company that are allowing us to outperform, our competition and will propel us in the double-digit growth once the market gets back to the normal growth rates. And so it's a delicate balance, but I think we've been pretty successful in these initiatives that we're doing. And we have a line of sight to do that yet again this year and basically offset any new investments we're making in those growth pillars in particular to keep them moving forward to our five-year plan objectives. So it's an ongoing process for our company.

Catherine Schulte:

Hey guys, thanks for the questions. Maybe first, just on the outlook for the first half of low single digit organic growth, does that hold for the first quarter as well? And then any color on how we should think about protein sciences, specifically in the first half versus the back half.

Catherine Schulte:

Okay, got it. And then maybe for China, any thoughts on kind of how that trended throughout the quarter? It sounded like stabilization was what you guys were seeing, but any differences as you worked your way throughout the quarter and then what are you expecting for the first quarter for China?

Operator:

Our next question comes from Justin Bowers with Deutsche Bank. Your line is open. Justin Bowers, your line is open.

Jim Hippel:

Yes, I mean, biopharma taking China out of the mix, which we report biopharma, it’s really excluding China. Anyway, we mentioned that it was low single digit growth and was very consistent globally, both in Europe and in the U.S. And yes, low single digit decline growth. But more importantly, the sequential performance of biopharma was consistent in Q4 as it was in Q3. So try not to get too caught up in growth rates because they can get a bit wonky, but really focused on the momentum of the business going forward and because 80% of our business is consumables that book and ship in the same day. It really is all about the momentum. And we’re encouraged that the momentum overall, even within biopharma has at least stabilized. So I think we’ve been saying this, there was no change in our message from the past two quarters where we felt like the December quarter was a bit of a bottom, and that we’re kind of in this bottoming process until the markets start to fully recover. And as I mentioned in my opening comments, there’s reasons to believe from a macro perspective that it will recover sooner than later, but it will probably be a gradual process going forward.

Kim Kelderman:

Yes. Thanks for the question. No, the initiation of linking the RNAscope HiPlex to the box is actually happening this quarter and is going to roll out throughout this quarter. The antibodies you could be using right now, so that’s also already in place. Will we broaden that portfolio and add different tools to it? Yes, and that will be, I would just stay filling out of the toolbox over the coming quarters and years. But to start to get going and to do your experiments across most diseases, most species, fully automated multiomics, that’s possible as we speak in the coming months.

Sung Ji Nam:

Hi. Thanks for taking my questions. Just on the academic end market. I know it’s relatively small. But is the expectation there also for the – for that segment to gradually recover throughout fiscal year 2025 given comps get easier? If you could maybe highlight some of the key puts and takes for that end market.

Kim Kelderman:

I think what is a positive driver for our company is that much of the NIH funding, but also the Horizon funding in Europe has been focused on infectious diseases and technologies and sciences related to infectious diseases initiated through because of the pandemic. But there is a more normalization if it comes to doing your studies and your sciences around neurology as well as immuno-oncology, and those are areas we are stronger and better positioned in. So overall, we feel that the mix coming out of those funds will be in our advantage.

Kim Kelderman:

I think it’s a mixture, and thanks for the question. There are certainly just fundamental improvements where we feel that we are taking share. There’s also, of course, some dynamics that we should not count on going forward all the time, because we don’t know exactly. Remember that we had a couple of quarters of inventory adjustments. And then, we knew that with the destocking that we were going through a couple of quarters that were lackluster. And then we call the end of that in December and that we would be free and clear of that in the new calendar year. And that became true. But I do believe that some of the inventories also got normalized and that there is a little extra momentum there that won’t repeat. Overall, though, I think there is some real underlying strength in that these end markets are healthy, and we are taking market share.

Kim Kelderman:

Yes, I will go ahead with closing statements. Thank you very much for joining the call today and for all the insightful questions. I’m extremely proud of the Bio-Techne team’s accomplishments and all the results that we have been able to deliver in the quarter and in the fiscal year even under the current market conditions. Our differentiated portfolio address some of the highest growth markets in life sciences and is positioned to deliver best-in-class performance for all of our stakeholders going forward. So thank you very much and to the next earnings call.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third 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 one follow-up. I would now like to turn the call over to David Clair, Bio-Techne’s Vice President, Investor Relations. Please go ahead.

Kim Kelderman:

Thanks, Dave, and good morning, everyone. Thank you for joining us for our third quarter conference call. I’m pleased to report that our third quarter outperformed our initial expectations as several of the green shoots we’ve discussed during our last earnings call continue to sprout and combined with excellent execution by our Bio-Techne team contributed to delivering 2% year-over-year organic revenue growth. We’re looking forward to seeing these green shoots further develop as the headwinds we have faced, namely the biotech funding and the macroeconomic challenges in China continue to stabilize and eventually improve. Our team demonstrated that our product portfolio can show relative strong performance in the stabilizing but still challenging end markets. And therefore, we are confident that we can perform extremely well when our end markets fully recover. Additionally, we delivered this quarter’s growth while we continue to focus on profitability. The recent initiatives to drive efficiencies across the organization while investing to position the business for future growth are taking hold. And this shows by our adjusted operating margin increasing sequentially by 290 basis points to 33%. Our growth pillars within our portfolio continue to lead to our strong performance with a new quarterly record for our GMP reagents business, a continued increase in adoption of our ExoDx Prostate test, robust utilization trends across our proteomic analytical tools portfolio and strong demand for Comet, a fully automated special biology instrument. I will double-click on these highlights and encouraging trends later in the call. First, I’d like to bring to your attention. The Bio-Techne’s recent recognition by CiteAb, a reagent search and data services company. Bio-Techne did not receive just one, but two awards. The first award I would like to mention was received for being the ELISA Kit Supplier of the Year. This important designation is awarded to the ELISA kit manufacturer that receives the most citations throughout the year. Citations are an important indicator of market adoption, particularly within academia. We are proud of our leading portfolio of ELISA kit stemming from a long history of innovation. CiteAb also recognized Bio-Techne’s RNAscope HiPlex 12 with the Innovation Award. That is acknowledging its role in enabling spatial detection of RNA in tissue. Our overall spatial biology efforts were also recognized as Bio-Techne was highly commended for Educational Initiative of the Year, which is related to our ongoing work to enhance spatial biology research and education. This recognition is representative of our company’s vision to work together with our customers to unlock the possibilities of science. The second topic I want to highlight is related to artificial intelligence. Given the significant potential that AI and machine learning bring to the advancing science, I want to describe an example of one of the many ways our team is proactively and safely, leveraging these important tools. As you already know, Bio-Techne is the global leader in research use only proteins. Researchers from around the world rely on our portfolio of highly bioactive proteins for many important laboratory workflows. Some examples of these workflows include cell growth and differentiation, antibody production and screening as well as biomarkers in disease monitoring. We are leveraging AI capabilities to create new patentable, hyperactive designer proteins and other reagents with new functionalities. For over 40 years, Bio-Techne has been on the leading edge of protein development and bioactivity. Today, we are using the power of AI to increase that lead even further. Now let’s get deeper into our quarterly results, starting with an overview of our end markets followed by our geographies. Our biopharma end market performance led by our cell and gene therapy growth vertical improved sequentially with a low single-digit increase compared to the prior year quarter. Industry reports point to a recovery in biotech funding during the first calendar year of 2024 with estimates suggesting significantly higher funding levels compared to pre-COVID periods. However, this increase in funding comes after a December quarter that was an eight-year low. So it may be too early to call this a new trend. But nonetheless, it’s a green shoot that appears to be taking root. And if so, could blossom into meaningful revenue growth as we get into our fiscal year 2025. On the academic side, we delivered low single-digit revenue growth, even though we had a tough comparable from robust mid-teens performance in Europe last year. Within the U.S. and Europe, academic budgets remain stable and their spatial biology and proteomic instrument growth pillars outperformed in these end markets. Now I will discuss the three geographies. North America improved sequentially with year-over-year growth in the low single-digits. This improvement was led by a strong performance in cell and gene therapy. Europe declined mid single-digits as mid-teens growth in the prior year period created a challenging comp for the geography. However, on a multiyear CAGR basis, Europe has performed well, mid single-digit growth. Last but not least, I will discuss China, which saw revenue decline in the mid single-digits versus prior year. We mentioned in our last earnings call that we saw a stabilization of revenues in December and January and we called for revenues in Q3 to be similar to Q2, and that was indeed in line with how the quarter played out, which is a confirmatory sign that the bottom may have been reached in China. With the deceleration of revenue in China seemingly behind us, we also saw some green shoots in the region with China’s State Council’s introduction of a broad economic stimulus plan. This plan is focused on upgrading equipment across several industry to support innovation. While the specifics of this $70 billion lending program remain fluid, we anticipate that this will be a multiyear program that will eventually have a positive impact on our insulin business. Improving healthcare remains a priority for the Chinese government in our portfolios of bioactive reagents, proteomic analysis and spatial biology technologies will remain important tools for the modernization of healthcare in China. Now let’s discuss our segments and their growth pillars, starting with our Protein Sciences segment, where revenue declined 1% year-over-year on an organic basis. This is a sequential improvement from our second quarter and reflects the stabilizing of the biopharma and Chinese end markets. Our Protein Sciences segment is where we have the most exposure to these end markets and stands to benefit the most from the green shoots taking root. Utilization of our protein simple branded portfolio of proteomic analytical tools remain very strong as consumables used on those instruments continued its long streak of double-digit growth. This growth was broad-based and was further enhanced by the growing installed base and expanding applications of these productivity tools. Examples of new applications are fractionation on MauriceFlex as well as QA and QC applications for gene therapies across our platforms, such as Maurice Simple Western and Simple Plex. Our Simple Western platform of automated western blot solutions continues to gain share as demonstrated by the low double-digit growth for this quarter. The platform performance if it comes to ease of use, speed and reproducibility, compares very well to manual methods, which resonates with both our biopharma and academic end users. Customers continue to expand the Simple Western use case and workflows as we can see from increased utilization in gene therapy, potency release and quantitative immunoassay application. We are encouraged with the uptake of this novel instrument and given its low mid-teens market penetration and its expanded use cases, we see a long runway for adoption of this technology. Now let’s discuss the promising opportunity for our multiplex ELISA instrument branded Ella as a clinical diagnostic platform. Following the recent ISO 13485 Certification, we are now ready to pursue clinical diagnostic opportunities on the Ella platform. This opens up a large potential end market for this highly sensitive, fast and easy to use multiplexing immunoassay instrument. The recently announced partnership with Novomol-Dx is a great example of this opportunity. Their Bio-Marker Pathfinder, or BMP kit utilizes Ella, its consumables as well as Bio-Techne’s reagents as the basis for their point-of-care [indiscernible] test. Novomol-Dx will initially launch the BMP kit in India that has potential to deploy this test more globally in the future. Moving on to the performance of the next growth pillar within Protein Sciences, which is cell and gene therapy. This novel portfolio of reagents, media, analytical and workflow solutions enables our customers to further their therapeutic development to progress through clinical trials and to make continued inroads towards the commercialization of these next-generation therapies. Collectively, our portfolio of cell and gene therapy products and services increased over 30% in the quarter. GMP reagents, including GMP proteins and small molecules, remain a cornerstone of our cell therapy offering. We experienced continued traction during the quarter, especially in regenerative medicine applications. In the current quarter, we will be strengthening our GMP reagent portfolio with the launch of GMP antibodies, which are designed for cell selection and activation in cell therapy workflows. Overall, our portfolio of GMP reagents grew over 40%, which resulted in a record revenue quarter. Now let’s shift to our Diagnostics and Genomics segment, which reported 10% organic growth for the quarter. Starting with our spatial biology growth pillar, which includes both our ACD business as well as our Lunaphore acquisition. The single molecule sensitivity, unrivaled specificity and subcellular resolution offered by the RNAScope ISH technology is driving utilization in cancer, neuroscience, immunology, cell and gene therapy and regenerative medicine applications. This broad utilization has enabled RNAScope to become the most referenced spatial biology technology in the industry as the number of our customers publications recently surpassed 10,000. Importantly, over 50% of these publications were released in the last three years as increasing global awareness and expanded market adoption further solidify ACD’s leadership in spatial biology applications. Jumping to a Lunaphore platform. Demand for our fully automated high throughput hyperplex spatial biology platform called Comet once again outpaced our manufacturing capacity in the quarter. However, across divisional project to rapidly scale up Lunaphore’s instrument production capacity is on track to meet current and future platform demand. We also remain on track to launch ACD’s RNAScope HiPlex Pro on the Comet at the end of our current fiscal year. This will enable a novel, highly differentiated multiomic spatial biology platform capable of visualizing up to 12 RNA and 24 protein biomarkers simultaneously in one tissue sample. Moving on to our fourth and final growth pillar, which is the liquid biopsy based molecular diagnostics business. Our ExoDx prostate test provides valuable information on whether a man with a gray-zone PSA score should proceed with an invasive, potentially dangerous prostate biopsy or not. With over 25% volume growth in Q3, the value of this test continues to resonate with both patients and physicians. I’d also like to highlight the continued traction we are experiencing with our surgeon carrier screening and oncology kit business. A surgeon’s ability to solve complex molecular diagnostic challenges continues to resonate with their clinical laboratory partners as growth for this business approached 30% during Q3. Also, we continue to execute on technology synergies within our molecular diagnostics division. We are developing exosome-based single gene mutation tests for monitoring various cancer markets. These kits leverage our ExosomeDx technology and will be distributed through our surgeon laboratory channel. We expect this first monitoring test to be launched in the upcoming quarter. Before I hand the call over to Jim to walk you through the financials in more detail, I would summarize the key takeaways for Q3 as such. Biopharma end markets as well as the China region stabilized relative to the previous quarter and there are early indications that these markets will improve in the back half of the calendar year. Our growth pillars, which are comprised of cell and gene therapy, proteomic analysis solutions, spatial biology technology and our liquid biopsy platform, all continue to outperform the market with their superior portfolio positioning and by the excellent execution of our team. These growth pillars enabled by our leading portfolio of proteomic reagents and assays remain incredibly well positioned to enable our customers to improve the quality of life by catalyzing advances in science and medicine for years to come. With that, I’ll turn the call over to Jim. Jim?

Operator:

Thank you. [Operator Instructions] The first question comes from the line of Puneet Souda with Leerink Partners. Please go ahead.

Jim Hippel:

Yes, Puneet, thanks for the question. Like as we said before, you look at our track record, both during the COVID era upswing, but also during last almost a couple of years, what we call the COVID hangover, our organic growth rates have been consistently between 500 basis points to 1,000 basis points better than the overall market when you combine it. And this quarter appears to be no different. And so that gives us confidence in our portfolio, positioning gives us confidence in our team’s execution. And bottom line is that when market returns back to its historical growth rates of mid-single digit, we expect that gap in our performance relative to the market to be at least the same, if not better. So the real question is when do the markets get that mid-single-digit growth? And when they do, we believe we’ll be if not high single-digit, will be well in double-digit kind of growth territory. And that’s an open question. And the analysts and our peers, and we all debate that. But the good news is that there’s green shoots ahead of us as opposed to perceived headwinds. And so that’s exactly why we’ll be monitoring that very closely here as we prepare our own operating plans to prepare for that. But I’m not going to sit here and try to predict exactly when the markets come back to their kind of normal rate. But the sentiment is definitely going to be improving. And at least from the analyst reports that are out there, the dollars seem to be behind it as well.

Kim Kelderman:

Yes. Thank you, Puneet. Regarding pharma and the early funding, thank you, you and I have discussed in earlier this quarter, I do believe that funding would be seen to flow through earliest for the consumables part, right? So we do believe that CapEx, larger events will have a little bit longer of a lead time before their fundings flow through. We also do know like we mentioned earlier, that there is a couple of months that we now have seen good funding for the pharma, biopharma areas. And we do know that there’s usually two quarters or so of a delay before that funding flows into the business. I think that overall, this looks very good right now. But as I also mentioned, those are only trends for three months, and we had some disastrous months at the end of the calendar year. So yes, good indication. It looks like a green shoot, looks like things are going up, but it’s early days, and therefore, we want to be careful that prognosis. The cell and gene therapy, it has been outpacing our overall company’s growth for a long time. I think it’s a very strong product line as are all four of our verticals. And I think that we are having a great opportunity there. We have the best reagents to place in that space. And as you know, we have a real good opportunity to consolidate all our reagents into the GRx [ph] for the cell and gene therapy space. So we’re very bullish on it. We do know that some of these quarters can be very – can be a little bit lumpy because of the larger orders from the companies that are food in their pipeline and that really can make a quarter swing. However, we saw really strong growth in the earlier-stage companies. And that will give us a better foundation because if more of these 400 customers or so that we have started ordering earlier in their pipelines that will give us a more stable foundation to continue to put up great numbers. But for now, we are, of course, very encouraged with our play in cell and gene therapy and are very glad to see here some momentum building in that end market.

Unidentified Analyst:

Good morning. This is Mac on for Jacob. Just a few quick ones for me. I appreciate the commentary around biopharma in China. There’s been some muted commentary from most of your peers recently, but also the prospect around the stimulus that you mentioned earlier. So I’m curious as to what you’re watching for to signal an improved backdrop in that country at this point in time?

Unidentified Analyst:

And then just quickly, is there anything that you think you need to change or could change to better capitalize on opportunities in the current environment? Or as it relates to your go-to-market strategy? Or do you think a reacceleration in growth largely depends on the macro environment?

Operator:

Thank you. Mr. Johnson [ph], please rejoin the queue for more questions. Next question comes from the line of Patrick Donnelly with Citi. Please go ahead.

Jim Hippel:

Yes, sure. Thanks, Patrick. So first on the margin question. We talked about for a couple of quarters now that our goal was to get that to mid-30s type margin by the time we exit this fiscal year. It’s not a slam dunk to do that. We still got a ways to go to get from 33 [ph] to that point, but it’s not out of reach at this point. So I think, honestly, where the consensus has us right now feels about right for Q4, which gives us a nice launching pad into fiscal year 2025. And it’s really going to depend on the revenue where the markets are and what – I’ve already talked about our expectation of growth above and beyond the market growth. So as you saw from Q2 to Q3, the amount of margin expansion we had on the increased volume and much of that is seasonal. We have amazing pull-through, amazing gross margins in our products. So when you get that volume it contributes tremendously to the bottom line. And of course, we continue to invest because we’re investing for the long term. We’ve got these amazing growth pillars that we have to continue to kind of feed those bees so they can reach their full potential five years, 10 years down the road. So we’ll be balancing that as we go through our operating plan this year and look forward to providing you some more insight to that next call. With regards to the revenue question, to be clear, have clarity on that. As I mentioned, we do believe that revenues will be slightly higher in Q4 than Q3. But the organic growth percentage year-over-year might be a bit challenged, mainly because of the tough comp we have in China. If you think about China last year, we had mid-teens growth versus where it’s running right now, being 8% to 10% of our business, that’s up 1.5 points of headwind just in itself. So that’s kind of where we’re at right now in terms of the range of organic growth.

Kim Kelderman:

Yes. Thank you, Patrick. Thermo Fisher Scientific has a ton of capabilities, but one of the big ones is the Fisher Scientific channels, and that channel provides great reach and ease of use for transactions for our customers. As you might know, we’ve had a distribution agreement, a very similar one in the U.S. since 2014, so for about 10 years now. And we’re very, very comfortable and used to collaborating with the Fisher channel. I can expect a similar trend and a similar setup in Europe, where our European customers can benefit from the commercial footprint, the reach and also the ease of transactions that come with dealing with the Fisher Scientific channel. And of course, this convenience and this reach is very important for us as well. And therefore, we can – we hope that we can serve our customers better. Nonetheless, of course, Bio-Techne will maintain and grow our direct channels as we have done in the U.S.A. as well. And we will make sure that we fine-tune and work really well together with the Fisher channel and collaborate to eventually optimize our customers’ convenience and the reach we have as a company.

Justin Bowers:

Hi. Good morning. I just want to pivot back to the cell and gene end market and the strength there. Can you talk about sort of what you’re seeing in that customer cohort? And is the durability of that growth over the next couple of quarters, supported by existing programs and customers? Or do you need to see sort of new customer activity? Or is that just sort of like greenfield for you on the go forward?

Justin Bowers:

Okay. So it sounds like increased pull-through and scaling up? And then on Wilson Wolf what are trends like there? Is that still stable? Or is it starting to grow again? Any commentary there would be helpful?

Operator:

Thank you. Mr. Bowers, please rejoin the queue for more questions. Next question comes from the line of Dan Arias with Stifel. Please go ahead.

Kim Kelderman:

Yes. Thank you, Dan. The production constraints are really, really facing the output right now. We are really happy, first and foremost, that we see the demand that we would like, right, and then actually exceeding expectations. So that’s the most important fundamental. We do believe that during this quarter, the quarter we’re currently in that we will get very close to what our book is. But the real status quo where we can produce as many Comets as that get ordered will be in our first fiscal year quarter. So the third calendar quarter and then we will continue to reel in the backlog in the first half of our fiscal year. You asked about my enthusiasm in spatial, it’s huge. Obviously, it’s a very fast-growing market, and you’ve been – you’ve gotten used to ACD being a real winner in the reagent space, with all the benefits that we know about it. And then Comet, it’s early days. But if we compare the system to other peer systems in the field, we know that Comet is the only instrument that has a full workflow automation, right? So there’s no manual interference or manual steps in the workflow. The Comet you can use any antibodies that you’ve used to utilize in your workflow. We have 50,000 RNA targets, a truly multiomic machine. So you can see your protein and your RNA targets sanely in the same slide. As you know, Bio-Techne has 400,000 antibodies. So there’s plenty of choice to pick from in order to boost our pull-through on the instrument. And as you know, we can run four slides in parallel, and there we have the highest throughput in the market. So I’m extremely pleased with our positioning from a reagent as well as from an automation point of view, and we will continue to work to make our reagents, our antibodies as what the system seamlessly working together from some preparation [ph] all the way to image analysis to eventually make it most convenient for our customers to perform their special biology test.

Jim Hippel:

Yes, we’re absolutely – we absolutely are helping on – stay in the black for sure, so in terms of growth.

Matt Larew:

Hi. Good morning. I wanted to follow-up on Lunaphore. And the investments you’re making today to scale up manufacturing, would you say that generally they’re within the bounds of what you expected to make just perhaps they’re pulled forward? Or I guess the flip side of that would be; do you have different or worse expectations about the long-term margin potential. So just trying to get a sense for whether this is scale up to meet accelerated demand or perhaps something you discovered once you did the deal?

Matt Larew:

Okay. That’s great to hear. The next question is about ScaleReady and the components of that. So your own GMP protein business, partnership and Wilson Wolf; just curious now that it’s been out there for a little while. What kind of feedback you’ve been getting if there’s any way to talk about how that’s translated to win rates? Is that a driver of some of the pickup in GMP proteins? And obviously, Wilson Wolf has been some market leading technology. I think there probably is some looming competition out there. Beyond just integration to offer a more full and automated solution like you’re trying to do already, are there also additional areas for platform improvement with GRx or that broader suite as well?

Operator:

Thank you. Mr. Larew, please rejoin the queue for more questions. Next question comes from the line of Catherine Schulte with Baird. Please go ahead

Jim Hippel:

Yes. Hi, Catherine, this is Jim. Thanks for the question. Yes. I mean, I think generally speaking, the broad-based market performed as we expected. As you mentioned, China overall those as we expected as well. I think there is – if you look within the Protein Sciences, it gets back to our growth pillars and how resilient they are even in this down cycle we’ve been in. So a two point I’d call out would be one was cell and gene therapy. So we always said that when biotech funding came back, we believe that cell and gene therapy will be one of the first places you’d see it. And I’m not saying there’s a direct correlation there, but definitely a positive sign. And it was a bit of a surprise for us how quickly cell and therapy rebounded for us here in the third quarter. And again, we saw the same thing over, as Kim mentioned, in Wilson Wolf as well. So that was very encouraging. It was not necessarily in our outlook a quarter ago. The other growth pillar within Protein Sciences was within our instrument, proteomics instrument portfolio and even more specifically, Simple Western. Simple Western performed extremely well and actually grew double digit in instruments as well as consumables. So also a very good sign because we always figured that when the instrument market came back, that would be the first part of our portfolio that we would see it given it’s a broad base of applications. It’s also very used widely in cell and gene therapy, and it’s very the most underpenetrated of our three platforms. So that was not necessarily in our outlook a quarter ago, and it was very nice to see that come back so strong here this quarter. And then if I turn over to our diagnostics and genomics business, there is, I’d call out the surgeon business. As we talked about the growth rates there, we’re pretty much nearing our EPI test with Exosome. And – so very – one of the highest growth rates we’ve seen with the surgeon since we’ve owned the company and they got some new product launches out there are performing extremely well, and we think that momentum will continue. So that was also very nice to see.

Kim Kelderman:

Catherine, thank you for the question. No, there were no such influences in this past quarter and don’t expect them in the next quarter either, specifically because the setup is that Fisher will bring in the leads, and we will ship directly from our warehouse. So you will not see any of those dynamics, if that makes sense.

Sung Ji Nam:

Hi, thanks for taking the question and congratulations on the quarter. Maybe just on the academic end market perspective at this juncture. Just kind of curious, if you guys have visibility into that market, especially in the U.S. and Europe. Obviously, you’re seeing continued stable growth there, but potentially more difficult comps ahead. So just kind of curious what your outlook might be for the coming quarters.

Sung Ji Nam:

Got it. And then I also have a follow-up on Lunaphore and spatial bio. Just kind of curious, it may be early, but are you seeing competitive wins on Lunaphore currently? And just for the spatial bio addressable market in general, just kind of curious what’s driving the – other than your performance there, just from an end market standpoint, are there a disproportional funding going towards your addressable market, current environment, do you think? Or – just kind of any color would be great. Thank you.

Operator:

Thank you. Ms. Ji Nam [ph], please rejoin the queue for more questions. Next question comes from the line of Paul Knight with KeyBanc Capital Markets. Please go ahead

Jim Hippel:

Yes. Paul, this is Jim. So thanks for the question. Good to hear from you. Not given the size of so much on the by product line anymore. We try to avoid that from a competitive perspective. But as I highlighted in earlier – as an answer to earlier question, I think the Simple Western platform specifically was a highlight of that portfolio this quarter with double-digit growth overall and double-digit growth in both instrument placements as well as consumables. That being said, our entire instrument portfolio has been very resilient through this downturn. Despite struggles with the instrument placements the last several quarters, the consumables on all three platforms continue to offset that to keep those product lines in a very stable state overall. So we’re very pleased with how those – our instrument portfolio has performed and gives us that kind of great confidence that when the market normal, as no [ph] markets normalize, we’ll see accelerated growth in that portfolio once again.

Jim Hippel:

Capacity is not – yes, capacity is no longer an issue. We’re probably stop talking about it because I think we have capacity could last as a decade or more, to be honest with you at least as it pertains to our GMP proteins for the CAR-T for the immunotherapy market. We still have some capacity that we need to build out for our regenerative medicine side of our – the GMP protein business. But as it pertains to what that facility was specifically built for, which is the immunotherapy side of cell therapy market. Capacity will not be an issue for a decade or more to come.

Kim Kelderman:

Yes. Thank you, and thank you, everybody, for joining the call today and for the insightful questions. I’m extremely proud of the Bio-Techne team’s accomplishments in this dynamic environment, and I’m also proud of the results we’ve been able to deliver in this quarter. Our differentiated portfolio addresses some of the highest growth markets in life sciences and is positioned to deliver best-in-class performance, for all our stakeholders going forward. Thank you very much for joining the call.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Second 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. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Thank you. You may begin.

Charles Kummeth:

Thanks, Dave, and good morning, everyone. Thank you for joining us for our second quarter conference call. As many of my official tenure as Bio-Techne's Chief Executive Officer ended yesterday, and Kim Kelderman is now in this leadership role. He's taking over a company that is incredibly well-positioned in several of the highest growth life science and diagnostic end markets. I heard Kim to lead a diagnostic and genomic segment in 2018. In November of 2023, he was appointed Chief Operating Officer, as soon as all operational responsibilities for the company. Prior to Bio-Techne, I worked with Kim for four years at Dental Fisher Scientific. I'm excited for the future of Bio-Techne as it continues to flourish under Kim's leadership. When I joined Bio-Techne in 2013, we were a much smaller organization. With approximately $300 million in revenue at the time, the business was a leader in its legacy $3 billion, total addressable market. But growth had largely styled out at the company. This legacy business of research reagents, immune-supply, and diagnostic controls and calibrators, which we refer to as our core, accounted for almost $650 million in revenue in fiscal 2023, and grew at a 7% figure over that period. Through a combination of 19 acquisitions, prioritized organic investments, and execution from our top-notch leadership team, we leveraged these core products and capabilities and grew the business to over $1.1 billion in fiscal 2023, while expanding our cam to an estimated $27 billion. Under the Bio-Techne umbrella, we now augment this core with high-growth market-leading franchises and proteomic annulment instruments, well-engineered therapy, spatial biology, and their leprosy-gnostics. Our team of over 3,000 global employees has accomplished its magnificent growth while maintaining one of the most attractive profitability profiles in our industry. It's been a pleasure getting to know many of you on this call today and leading this talented team over the last 11 years. I have never been more confident in the long-term growth potential of this business and look forward to its continued evolution in the cam leadership. With that, I'll turn the call over to Kim.

James Hippel:

Thank you, Kim. I'll start with some additional detail on our Q2 financial performance, then give some thoughts on the financial outlook. Starting with the overall second quarter financial performance, adjusted EPS was $0.40, compared to $0.47 in the prior year quarter. Foreign exchange benefit EPS by $0.02. GAAP EPS for the quarter was $0.17, compared to $0.31 in the prior year. Q2 revenue was $272.6 million, a decrease of 2% year-over-year on an organic basis, and was flat on a reported basis. Foreign exchange translation had a favorable 1% impact, while acquisitions also contributed 1% to reported growth. Looking at our organic growth by region and end market in Q2, North America declined slightly year-over-year. Europe increased mid-single digits, and China declined over 20% in the quarter. As Kim mentioned, the soft biotech funding environment combined with overall conservatism from our biopharmic customers, were both a drag on our North American business, and to a lesser extent also represented a headwind to our European performance relative to more recent quarters. APAC, outside of China, increased low single digits overall, with government funding constraints in South Korea, partially offset by growth in Japan and India. For China, the soft government funding environment continue to impact the region. Following many months of decelerating run rates in China, we experienced a stabilization in our run rate business in December. Encouragingly, the stabilization has continued as we began calendar 2024. It is challenging to call the bottom in this dynamic geography, that we are optimistic that headwinds going forward will be less severe. It'll likely be a while before we return to the kind of growth rates that we historically achieved in China. But we remain confident that China will still be the fastest growing major region in the world for life science tools over the long term. By end market and Q2, excluding China, biopharmic declined low single digits, while academia grew upper single digits. U.S. revenue on the P&L total company adjusted gross margin was 69.7% in the quarter compared to 71.7% in the prior year. The decrease was primarily driven by lower volume leverage, unfavorable product mix, and the impact of the Luma-4 acquisition. Adjusted SG&A and Q2 was 31.2% of revenue compared to 27.9% in the prior year, while R&D expense in Q2 was 8.4% of revenue compared to 8.3% in the prior year. The increase in SG&A was driven primarily by the Luma-4 acquisition, partially offset by diligent cost management across the business. The price increases implemented during fiscal year '23 continue to offset the dollar impact of inflation to operating income, with pricing also largely offsetting the inflationary impact on our operating margin in Q2. Adjusted operating margin for Q2 was 30.1%, a decrease of 540 basis points from the prior year period. Excluding the Luma-4 acquisition, which closed at the beginning of Q1, adjusted operating margin was 300 basis points lower than the prior year, due to the impact of unfavorable volume leverage and product mix. Looking at our numbers below operating income, net interest expense in Q2 was $3.4 million, increasing $1.2 million compared to the prior year period due to higher debt levels. Our bank debt and the balance sheet as we ended Q2 stood at $447 million, an increase of $7 million compared to last quarter. Other adjusted non-operating income was $3.1 million a quarter, an increase of $3.1 million compared to prior year, primarily reflecting our 20% share of Wilson-Wilson Adjustment Income and the foreign exchange impacts related to our cash pooling arrangement. Moving further down the P&L, our adjusted effective tax rate in Q1 was 22%. Flat sequentially, but up 100 basis points compared to the prior year due to geographic mix. Turning to cash flow and return of capital, $83.1 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $14.9 million. Also during Q2, we returned capital to shareholders by a way of $12.5 million in dividend and completed an $80 million buyback of 1.4 million shares. We finished the quarter with 160.1 million average diluted shares outstanding. Our balance sheet finished Q2 in a strong position with $135.6 million in cash, and our total leverage stood below one time due to that. Going forward, M&A remained the top priority for capital allocation. Now I'll discuss the performance of our reporting segment starting with the protein science assignment. Q2 reported sales were $107.7 million, which reported revenue decreasing 3% compared to the prior year period. Organic revenue decreased 4%, but foreign exchange having a 1% favorable impact. As a reminder, is our protein science assignment that has the most exposure to the China geographic region as well as to the biotech and market. Operating margin for the protein science assignment was 40.3%, a decrease of 350 basis points compared to the prior year quarter, as unfavorable volume and product mix were partially offset by cost management initiatives. Turning to the diagnostic syndrome segment, Q2 reported sales were $75.4 million, with reported growth increasing 11% compared to the same quarter last year. Organic revenue growth for the assignment was 5%, with acquisitions having a 5% impact and foreign exchange having a favorable impact of 1%. As Kim previously mentioned, organic growth was driven by our spatial biology and molecular diagnostic growth pillars, partially muted by the de-stocking and older timing of our core diagnostic region-only customers. Moving on to the diagnostics and genomic segment operating margin, at 6%, the segment operating margin decrease compared to the prior year's 12.2% due primarily to the impact of room for acquisition. However, Q2 operating margin improved 530 basis points sequentially from Q1, due to improving volume leverage and favorable mix. As we turn the page on Q2 and look ahead to the back half of our fiscal year, there are still reasons to remain cautious, but there are also some reasons or green shoots, as Kim called them, for optimism in the near term. On the macro front, biotech funding has not dramatically started flooding back, nor has the Chinese economy and funding of life science research returned to its pre-COVID strength. But inflation and interest rates are period of stabilize. And according to some analysts reports, biotech funding has already been reduced to a level not seen since 2016. Having recently bended China and Q2, Kim, Chuck and I all witnessed the local economy on the move with crowded streets and restaurants and busy regional airports. And for several years of COVID shutdown, the local economy is starting to bustle once again and likely generating tax revenue for their government. As for biotech, our growth pillars are continuing to shine even these typical macro conditions. We are closely monitoring sequential run rates in our reagents business to help determine where we are at in this bottoming process. It's early in the new quarter, but thus far we are encouraged that the worst may be behind us. This does not mean we expect a quick acceleration of growth. But we do expect that the trend of decelerating growth that has been pervasive throughout this macroeconomic cycle may have subsided. Down cycles like we experienced over the past 18 months or so are never fun. But the resiliency of our growth pillars throughout this cycle has given us even greater confidence that our company will grow at a double digit growth rate when markets normalize in the long-term. As our markets start to normalize and prepare for the inevitable return to growth, we will continue to diligently manage our cost structure and invest in the business for the future. As Kim mentioned in his opening comments, we continue to identify opportunities for efficiencies and by executing on these opportunities. We'll protect and even grow our adjusting operating margins sequentially for the remainder of the fiscal year. That concludes my prepared comments. And with that, I'll turn the call back over to the operator to open the line for questions.

Puneet Soda:

Yeah, hi, guys. Thanks for taking the question. And Chuck, it was really great working with you and good luck ahead. Kim, welcome on board again. It's good to have you in the role leading the company. And Matt, really glad to have you back at Biotech.net as well. So maybe let me ask my question. It's really around the headwinds that have existed for the last few quarters. You have known them. We have seen that across the industry, China, Biopharma. I think the question really here is what changed in the quarter within your assumptions? You were expecting a flat result in this quarter. You ended up down 2%. So maybe just walk us through, is there something in the portfolio? Is it specific to customer orders? Or is there something in the forecasting process that's not working well that yielded this result versus what you were expecting? And then I have a follow-up.

James Hippel:

Yeah, I got Puneet. Good morning. I was the one that called that forecast, so I speak. So I need to speak to it. As we ended the last quarter, we were pretty transparent on the call that in the last couple of weeks, as we closed Q1 in the first few weeks, as we opened Q2, that we've seen a step down in deceleration in our biotech especially, but even a bit in pharma. And so the reality is, and we've talked about this in various conferences throughout, that that trend had continued. And the time of the call, a few weeks doesn't necessarily make a trend. So we took a view on our growth rates decelerating from where they were in Q1. But obviously that trend ended up being longer and deeper than we anticipated. So that's kind of how and why we ended up where we did. That being said, as we look forward, and again, more optimistic view coming out of last quarter and going into this quarter than we did prior quarter in that run rates as we talked about it stabilized in China. And we're just seeing overall stabilization in our business as we enter this quarter relative to how we entered Q2. But I will temper that a bit by saying just like last quarter, a few weeks or even a month doesn't necessarily make a trend either. But we definitely have seen a bit of a momentum shift or at least stabilization from where we are at this point going into this quarter versus last quarter.

James Hippel:

Sure. Well, I would say this. I mean, I talk about that we have a sense that the deceleration is slowing and perhaps stopping. And so what I mean by that is, and I think you've heard this many of our peers already, that kind of expect our Q3 to be somewhat similar to our Q2 in terms of organic growth. Beyond that, it's difficult to call. The whole bottoming process has been difficult to call. But I pretty much agree with what's being set out there by our larger companies who have even greater overall market access that it feels like the first half of the year, '24 will be more difficult than the second half. But we'll obviously get into our planning process here in about three or four months and have more to talk about our fiscal year, '25 following that. But that's pretty much, our view is pretty much consistent with what you're hearing from our peer companies.

Jacob Johnson:

Hey, thanks. Good morning. Maybe just first to unpack the biopharma commentary. The release suggests those kind of headwinds increased in December. Can you just talk to kind of what you saw then? What caused that or what you think caused that? Maybe the evil CFOs, Jim. And then just as we look ahead, kind of what are you seeing from that end market to start the year? Have you seen any kind of change in customer behaviors, the calendar's turned?

Kim Kelderman:

Yeah, let me add to that. You know, obviously, biopharma market has been constrained by lower funding than usual. If not mistaken, we've probably hit the lowest point since 2016. However, our portfolio is well positioned, right? So we have in the quarter the highest quality products that will produce and give you the best results. So you don't have to repeat your experiments, which of course is important in a constrained environment like this. And secondly, our implementation portfolio is to optimize efficiency. So to have fewer people in the laboratory to automate clunky processes, that will give you the efficiencies you need and the reproducibility in your results that you need. So overall, a portfolio is tailored to a constrained environment like this one and I think therefore that we will come out strong once funding normalized.

Jacob Johnson:

Got it. Thanks for all that. And then my follow-up. Kim, you mentioned earlier this year and then on this call again that given the current environment you can look more internally at your footprint and efficiencies. I think there was a restructuring charge in the quarter as well. Can you just elaborate on that statement and kind of what efforts are you taking right now and maybe for Jim how we should think about the impact of those on margins?

Jacob Johnson:

Got it. Thanks for taking the questions. Oh, sorry, go ahead Jim.

Operator:

Thank you. Our next questions come from the line of Dan Arias with Stifel. Please proceed with your questions.

Charles Kummeth:

Yeah Dan, thank you so much for your question. Our antibody business has done quite well. I think it's been running at the low single digits even in this environment. So with the Headwins in Biopharma, we certainly have to make sure that some of our sales force focuses on academic markets and make sure they close deals over there and we get better in that space. Our quality of our antibodies is world renowned and we know that we can compete even at higher prices with other antibody companies and we are really confident that we will be able to continue to do so. Of course, we have had some head-wins in addition from de-stocking where people would have fewer or less antibodies on the shelf. However, we feel confident that that symptom is now towards the end of its face so that we feel that HAT win will abate.

James Hippel:

Yeah, what I'd say is this, Dan, is that we have a high level of confidence given our relative performance of our growth pillars even in this environment that once the market gets back to its long-term four or six, let's call it mid-single-digit growth trajectory, that we will be well into the double-digit growth once our core is back up there and then, of course, the growth pillar is on top of that. So, asking how long it takes to get there is also asking how long it takes for the market, overall market to normalize, and I don't have a crystal ball on that, but assuming it does normalize as we get into the end of calendar year '25 and, hopefully by then, then the answer would be yes.

Patrick Donnelly:

Hey, guys, good morning. Thanks for taking the question and Chuck, a second. My congrats there. You know, maybe Jim, on the near-term, just to recue a piece, we're getting a good amount of questions just in terms of how to think about it. You know, is it flat? Is that the right organic, kind of near over-near number to think about 3C? If you could just help us kind of frame up the near-term, it would be helpful on the organic roadside.

Patrick Donnelly:

Yes, I understand. Okay. And then maybe in China, it sounds like, obviously, Jim, we chatted and you were over there. Maybe just talk about your expectations for the recovery in that region?

Kim Kelderman:

Yeah, Patrick. Well, thanks for the question. What we feel is that, obviously, China is an important country to us, right? Ten percent of our revenues come from there. We have been able to outgrow most of our peers over the last half decade. But that also made it tough over the last couple of quarters where China truly came to a standstill. And we feel that the activity in China is stabilizing. We do not see a clear light at the end of the funnel. Our comparables are going to be a little bit better in the coming quarters, but not for instruments, right? So it's not that we are over that hump. We do think, though, that China is going to be a fast growing market in the future. We do expect that China will have a kind of a bias towards China for China. Therefore, we are building a local GMP facility to serve the local market. And then at the end of the day, we feel that our products with the high quality and the automation aspects will increase efficiency and will continue to find a real good spot in China. And I think that the current pull-through of our consumables shows that the instruments are getting used at a record pace at the moment. As I mentioned, we are long-term believers in China, and we believe that China will get back to normalized funding and use the funds to prioritize health care. So we are very optimistic over time. But if you ask when or what will trigger a V-shaped recovery that I won't be able to answer, we think it will be a slower recovery than usually.

Dan Leonard:

Hi, thank you. I just want to make sure I understand the decline in the protein sciences business. You commented on the antibody trends to Dan Arias, low single-digit growth. But can you speak to the growth rate of core reagents and aggregate, so your antibodies, proteins, ELISA? And how steep was the decline in instrument revenue?

Dan Leonard:

Understood. And Jim, possibly you could comment on the growth rate for the cell and gene therapy portfolio specifically, either just GMP proteins or more holistically as you measure all the touch points you have in that market?

Kim Kelderman:

Okay. Thank you. I can add some information there. I think that, as Jim mentioned, the volume of orders was higher than usual, but we did have a couple of larger orders push out. The thing that we can do as a company is make sure that we have new product introductions and the team is set to add five new GMP proteins to be released in the coming quarters so that we have a broader portfolio that serves more customers, and we'll also increase share of wallets.

Matthew Larew:

Hi. Good morning. I just wanted to go back to the biopharmic comments because obviously you referenced sort of a further deterioration in the quarter, which you had set up on the last call, but on the press release mentioned conservatism from a subset of biotech customers. So I guess if I just think about sources of the Edwin being funding-related versus being perhaps budget-related at biopharma companies that may have commercial assets, but again, we're just going through the budget process. What do you view as more of the gain factor? Are you waiting for turnaround and funding, or is it more just budgets had to get put in place and now there might be more constructive conversations?

Kim Kelderman:

No, I would agree. Okay, fair enough. And then obviously you referenced M&A continuing to be a high priority and looks like some deals are starting to get done.

Kim Kelderman:

Yeah, thanks for the question. To quickly jump on to the Lunaphore acquisition, it's obviously, we are very, very happy with the acquisition itself. The assets, the team is amazing. Integration is going well. And of course, it will give us a fantastic position in the lucrative and fast-growing spatial biology market. As this instrument, the Comet, will give us fully automated capabilities and multi-alcoholic aspects where we can look at proteins and RNA in the same slide and then combining that with the ACD portfolio and our antibodies here in our systems. It's an unbelievable value proposition. We would love to do more of those. So we are always on the lookout. We have interest in looking at filling out our sub-engine therapy portfolios. We would like, if there's opportunities, to strengthen our core. We've talked about the four growth verticals and if we can bolt something on to make those even stronger and get our positions more differentiated, that'd be fantastic. And any opportunity that pulls through our core reagents is really on our list. And as we always maintain the long list, but we will be disciplined in picking opportunities that would meet or exceed our financial expectations over time, which is basically contributing to the financial expectations that we've all set to by technique overall. And whether this would be a small or large or public or private company, we really don't select between that. We are open to any target that fits the mold that I just described.

Catherine Schulte:

Hey guys, thanks for the questions and congrats Chuck on the retirement. Maybe first in pharma and biotech, I think you said down low single digits outside of China. You just talk a little about what you're seeing from emerging biotech versus kind of mid-sized and large customers and how you see those two groups playing out going forward?

Catherine Schulte:

Okay, got it. And then you talked about these decelerating trends, hopefully being behind you here and three-q organic growth, both looking similar to the second quarter. Do you think we could see a return to positive organic growth in 4Q, or is that more likely going to be a fiscal 25 event?

Operator:

Thank you. Our next question has come from the line of Alex Nowak with Craig Hallam. Please proceed with your questions.

James Hippel:

Yeah, thank you for the question. So Wilson Wolf has tremendous progress behind them now in this last year. Overall, the year was hard because the, some of the early stage activities and clinical projects have been canceled. So overall, they're down mid-single digits, but the last quarter and last has been much, much better back in the black, and we do see a progress in the pipeline. We see that there are various clinical studies rolling into next phases, and we even see an approval upcoming where the G-REX is packed in. So overall, we believe that Wilson Wolf will be doing great again, and we know that John Wilson has invested in activities that bolster the adoption of our G-REX and the Wilson Wolf franchise. As we have a very genius deal structure around the Wilson Wolf, and at the latest, it's the end of calendar year 2027 that Wilson Wolf will be fully part of the biotech new family. I'll just add too, with regards to their financial performance, they had a tough calendar year '23 like we all have, but they actually did see significant sequential improvement in their December quarter and are expecting continued sequential improvement from there. So that's encouraging also. Given their, they have even much wider visibility into the cell and gene therapy market than we do.

Kim Kelderman:

Yeah, thank you, and thanks everyone for joining the call. Of course, one last time, thank you Chuck for your leadership over the last decade plus. As you can hear, I'm excited about the long-term position and our prospects as a company. We have a great strategy in place. I'm also very proud of the biotech need team for executing so well in this constrained environment. And I'm absolutely looking forward to navigating these constraints and I'm looking forward to speaking again at our next earnings release.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2024. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations.

Charles Kummeth:

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 delivered 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 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, ExoDx prostate and our Protein Simple franchise all delivered impressive growth in the quarter. Our portfolio remains incredibly well positioned in several high-growth and unpenetrated 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. 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 work closely with Kim in his new role as Chief Operating Officer until Kim takes the reins as Bio-Techne's CEO in February. I will continue to support Kim in a senior advisory capacity prior to my retirement from the company and the Board on July 1, 2024. Kim has successfully led the Diagnostics and Genomics segment since joining the company in 2018. During Kim's leadership of this segment, the team gained significant market acceptance and traction with the ExoDx prostate test, the revenue of our ASV business totaled the segment portfolio was strengthened through the Asuragen and Lunaphore acquisitions and multiple new product introductions and partnerships position the business for future growth. Prior to joining Bio-Techne, Kim ran multiple large businesses at ThermoFisher Scientific including most recently leading its genetic analysis business unit. Kim will be taking over an incredibly strong and talented team as well as a novel portfolio with leadership positions in some of the fastest-growing life science 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. I'd like to also thank both Roll Gus and Jim Hippel, who created an incredibly difficult decision for the Board. Jim and extra thanks, 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 Bio-Techne's latest Corporate Sustainability Report, which showcases the continued progress the company is making in its 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, Biotech 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 a 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 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 the new leadership team has maintained 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 the businesses in the current environment. Now let's discuss the geography remains at the top of everyone's mind, China. 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 the last earnings call persisted in the quarter, as 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, it remains very difficult to ascertain when R&D funding will stabilize and step back up again. 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 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 have ever been on our long-term opportunities in China, but acknowledge 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 make continued 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. GMP proteins remains the cornerstone of our cell therapy offering and Bio-Techne continues to benefit from having the broadest menu available, including several proteins that are unique to Bio-Techne. This broad 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 the workflow, but also require complex proteins that are very difficult to manufacture, playing right into one of biotech strong suits. Overall, our portfolio of GMP proteins grew nearly 40% in the quarter. We also continue to gain traction with our portfolio of GMP small molecules. Recall that these small molecules are key components in the route 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 contributor to our overall cell and gene therapy business. We are in the process of expanding our G&P portfolio to include additional media formulations, gene edit engineering capabilities and antibodies, positioning Bio-Techne to remain a leader in this rapidly growing industry. Additionally, work continues to finalize our aseptic immune cell therapy manufacturing solution, which pairs our GMP proteins, GMP Media and Wilson Wolf G-Rex in a closed sterile manufacturing solution. Moving on to our ProteinSimple branded portfolio or proteomic analytical tools. Here, the team delivered 9% organic growth. It's worth noting that excluding China, the portfolio grew an 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 instruments deliver to our biopharma and academic customers. The ProteinSimple performance was led by our Simple Plex automated multiplexing ELISA instrument branded as Ella, who is expanding menu of validated assays, including 7 launches in Q1 and a growing installed base is driving consumable pull-through on the platform. We've recently received ISO 1345 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 Ella, opening up a large potential market for this fast, highly sensitive and easy-to-use multiplexing immunoassay instruments. Momentum continued in our Biologics business as we experienced continued uptake of our Maurice Flex instrument and strong demand for consumables. As a reminder, Maurice Flex's protein charge variant fractionation capabilities position this next-gen instrument is an easy-to-use replacement for legacy mass spectrometry fractionation, methods, including ion exchange chromatography. This new application enters Maurice into a new $300 million market approximately doubling the addressable market opportunity 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 at 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 in 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's ability to reduce the 2-day long manual and messy western blotting process into a 3-hour push button, highly reproducible 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 right of revenue. Next, I'll highlight the growth pillars within our Diagnostics and Genomics segment, where organic revenue growth was flat in the current quarter compared to prior year. Mostly due to the timing of large OEM orders within our diagnostics reagents business as well as large lab orders for genetic tests within our molecular diagnostic business. I'll start with our ExoDx prostate test, where we once again drove 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. ExoDx prostate volume increased nearly 50% compared to prior quarter, while year quarter, while revenue increased in the upper teens. Adjusting for our prior year cash to accrual adjustment, 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 exosome-based diagnostic platform are much broader than our current ExoDx 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 a colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous polyps. 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 47,000 unique probes as well as the Luna 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-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 the detection of target sequences down to one nucleotide differences and microRNA scope for the visualization of microRNA and other nucleic acid targets. BaseScope and micro RNA scope increased almost 20% and 50%, respectively, and are experiencing increasing acceptance and traction in gene therapy applications. Integration efforts of our latest acquisition, Lunaphore, are off to a great start and the team is embracing their new home under the biotech umbrella. As a reminder, Lunaphore for is currently commercializing its common instrument, a fully automated, high-throughput Hyperflex platform that does not require the use of conjugated primary antibodies. [indiscernible] 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 the first fully automated spatial and multiomic workflow that will leverage Lunaphore's common instruments, Inspire antibody panels as well as ACD's RNAscope Hipple technology to enable protein and RNA detection and visualization on a single slide. In summary, the Bio-Techne 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 have even more confidence in the perseverance of our growth platforms. As we highlighted during our recent Investor Day, our portfolio of proteomic research reagents, cell and gene therapy workflow solutions, analytical tools, spatial biology products and liquid biopsy diagnostics are aimed squarely at a $27 billion vessel market with amazing long-term growth prospects. Initiatives to cure cancer, neurodegenerative and other diseases, along with understanding how these diseases develop and evolve, we remain a social priority for the foreseeable future, and Bio-Techne's 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.

Operator:

[Operator Instructions] Our first question comes from the line of Puneet Souda with SVB Securities. Please proceed with your question.

Charles Kummeth:

Sure, Puneet. So we just came back from China, and we are pretty much saying what everyone else is saying on their call this past week or -- this quarter was disappointing. China definitely is created, they're 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 of the same. The second half, we're hopeful, but there isn't anything -- any real evidence right now that there's that there's going to be any kind of a V recovery or a recovery at all, to be honest. But the team is 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. Now with a bunch of very important KOLs, and they all say 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 is not roll 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 biotech, and we're going to we've got to grind through it, I guess.

Charles Kummeth:

I do want to also emphasize that you take out China, we had a not too bad a quarter, mid- to high single-digit growth, near 20% growth or instruments. All our growth platform is growing -- actually right on plan more or less. They just aren't big enough to cover the company right now. But -- 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 1 more quarter, at least, we're all in a wait and see. So.

Charles Kummeth:

Okay. I'll mention Wilson Wolf, and I'll let Kim discuss TGS. Wilson Wolf is kind of more of the same, very flattish. 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 the de facto standard out there in bioreactors. And John has been focusing a lot on scale ready, the sister business that will also carry our workflow through. That's going extremely well. We have just launched or new versions of our protein to be working towards a sterile type of a bioreactor module, I guess, a bundle. So everything is kind of going okay there. We're 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 they're still making lots of revenue, a meager 75% operating income and pushing forward. So they're using all that income to keep investing and driving faster. So -- and then Kim wants to follow up.

Operator:

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

Charles Kummeth:

No, that's a great question. 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 it. Consumables was even higher, much higher we're knocking on the door of 3,000 instruments out there, which is still under 20% penetration just for the Western blot application alone. And there's a bunch of new applications coming using the instruments, including the diagnostic-related applications. So we're super bullish on our Simple Western platform. It's -- 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 down. I think last year, we're still fighting comps. And last year, we had 50% type growth last couple of years. So we're still kind of working through that. And we're still showing growth right now, 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 where this type of technology. We've got strong IP. No one's ever been able to get close to it. It's automated Westerns, which is a nightmare for people. So it's nothing but a great future.

Daniel Arias:

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 usage in the clinical translational setting is a reasonable expectation in one of the things that you need in order to get back up into that 2-digit number?

Daniel Arias:

Okay. Just really quickly, Kim, is the percentage of revenues from -- in China for your spatial business similar to the overall corporate average?

Daniel Arias:

Okay, thank you.

Operator:

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

Charles Kummeth:

Yes. Jim can cover this.

Unidentified Analyst:

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

Operator:

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

Charles Kummeth:

Yeah. Well, overall for the company, our academic versus biopharma is largely even about the same, but it was lopsided. So it was much stronger for biopharma in Europe okay, than it was in U.S., U.S. was low almost mid-single-digit growth. So that's a much poorer performance than usual for us in the U.S. As Jim said, most of our pain was in the U.S. and then China and it was on the biopharma side. All in, without China, we actually didn't do too bad because academic was not too bad. I mean, probably better than many quarters in the past quarter, to be honest. So we're waiting on that biopharma to come back. And of course, as you mentioned, biotech is part of that biopharma and biotech is still soft out there. The funding environment for biotech, small to medium companies going after their second or third round or trying to get that next way the clinical is going or rejuvenate the clinicals they're in, it's just softer. They're all being very careful because money is tight. It's going to change, but it's going to be a quarter or 2, I think on that part of biopharma. Pharma is just being conservative because they're just being conservative because they just see the wins, the way they're looking, and that can turn on a dime. I'll give you some evidence why that can be very, very quick to move. We actually had a very good quarter on our immunoassay, ELISA, dual sets, high single-digit growth. and that was not the case a quarter or 2 ago. So that could be early evidence of things starting to flip because that's mostly farmer driving most of that business. So ELISA is still more or less a standard for driving testing and clinicals. So.

Charles Kummeth:

Yeah. We went how many -- how many quarters in a row a 25% growth or so. So we're definitely in a lull right now. This is a negative teens quarter coming off of a high teens quarter growth last quarter. But going forward, it's going to be more of the same. I think flattish would be hopeful the next quarter or 2, to be honest. So the second half, our Q4, 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 rejuvenation in any area to actually get back into some growth. But we'll just have to wait and see. We're just going to be cautious and not overpromise. There's not a lot of evidence, but the attitude is very high. Our team is at full strength. We have 0 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 up here with what they usually do in April, and they still haven't done it. But once they do, people start talking favorably again about China. And you got to believe, and we've talked to a lot of people, health care is still number 1 is a priority for China. It looks great. You're in 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.

Thomas Peterson:

Yeah, hi everyone. This is Tom on for Catherine. Wanted to maybe dig into Europe a little bit. Obviously, had a really strong quarter from an organic growth standpoint. I understand that there are some comp dynamics within that number, but kind of flag the region as perhaps a leading indicator of some of the softness. So curious to the kind of what were the drivers here? And if you have anything to flag from a leading indicator standpoint within Europe?

Thomas Peterson:

Great. That's helpful. And then clearly, we talked about a number of headwinds throughout the space that are popping up throughout your reports. But with that in mind, I was wondering if you had any comments on sort of your thoughts around the M&A landscape? I mean what does the funnel look like here? Is there any more willingness among private maybe enter those conversations kind of given where we are from a macro perspective?

Operator:

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

James Hippel:

Yes. I mean, we've been saying how biotech was relatively stable for us after its initial kind of drop in the first part of fiscal year '23. And 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 kind of continued here in October. 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 as we get into the year-end here, there's another round of belt tightening going on across biopharma, especially in biotech. There's some optimism that it's an end of the year belt piping exercise and once we get into calendar year '24, but new budgets get approved at the business level that we'll start to see the pickup in activity. But again, we're a little bit too early to tell at this point.

James Hippel:

That is fair to say, and that's consistent with Q1. I think one of the biggest drivers, too, in terms of the about the second half and so forth in diagnostics and genomics. So our growth would have been better this quarter if there weren't for those timing issues that Kim talked about and so we do see a nice snapback in the diagnostics genomics submit going forward. And 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 before it gets better. 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 a dead count bounce for a while? Or is the funding come back in the early part of calendar year '24. That remains to be seen.

Alexander Nowak:

Okay. Great, good morning, everyone. Kim, I think we're all very excited to work with you in the CEO position. But maybe just expand maybe the whole team here because you expand on the internal search process in that the board considered Will and Jim as well what ultimately led to the decision here?

Alexander Nowak:

Makes total sense. And Kim, there's always been a biotech news that this is a unique combination of biotech products and then call it Diagnostics and Genomics. Would you anticipate with this move here that Bio-Techne is a little bit more diagnostics focus after the transition? Or are you very focused on keeping this truly well-defined high-growth areas?

Operator:

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

Charles Kummeth:

It's a great question, and it's probably a very difficult answer to really answer definitively. You're absolutely right in the last 5 years or so, it's been definitely a drift away from solely relying on government funding and the government plans and the biotech sector has definitely grown in China. And there have been some companies that have come and become real companies like BGI to come to mind that have been very successful. I think private equity, VC money has grown. I think you've got a lot of Chinese American people that are Chinese and decent 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 venture and done quite well. The percentage, I think, though, is hard to difficult at. I think we still -- we're going more and more direct all the time, all of us there, but we still mainly fulfill through just master distributors in China. And so it's a little bit hard to understand where it 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. We have some growing OEM opportunities as well, especially in our DRD segment and there are companies like mine Array and others that have been around a long time and very successful in growing double digit that have taken a bigger and bigger piece of our business and going direct with us. But -- so the government portion is definitely shrinking, but it's still such a major portion of that is going to drive the overall size of the business and the overall, call it, the pulse of the economy over there.

Paul Knight:

Yes. That follow-up on that then to me would be it does appear that the government clearly is behind hospitals and core health care, 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 yes, that would be my last follow-up. Thanks.

Operator:

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

Charles Kummeth:

Yes, it's a good question. the institutions there, 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 Mahjong 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 need. And I think the -- 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 lights on funding happening. So it's shrinking, but it's not gone away. So I mean got to put it in perspective there, I think. I think other companies talked with that, too. There's -- we had 17% growth last quarter. In this quarter, we were down mid-teens. Maybe it will 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 everything is kind of at a standstill waiting on that. So 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 Mahjong waiting for the checks to come in. So it's pretty happy team, too. I mean it's -- if you've gone to China as many times as I have, I'm just always come back pretty energized because they're just such hard-working people, and they're just really enjoy seeing you and they really are authentic and you'll never get more honest questions and honest answers from than you will from the teams in China, your teams or customers or anyone for that matter. So just love it.

Charles Kummeth:

Yes. Well, we do -- we've got a stable of nice businesses here, a good dozen or so platforms, but three of them are three most important. We put most of our energy and our funding, all had great quarters with 50% growth in Exosome, we had double-digit growth nearly 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 -- it isn't just our company stock. It's a lot of in our industry. A year from now, this is all, could be all behind us, and there's going to be a fast flight back to quality earnings, and that's us. We make money, and we operate well. But we are definitely can say that we're in a -- we're definitely in a recession. In fact, the whole world is waiting and talking about rates and interest rates are a big issue, obviously, and waiting for a pivot and whether or not we can hit a soft landing and for the economy. And I'm going to pull out there. I would say, in life sciences, we missed the pit. So in terms of life sciences. It was a hard landing. So we're going to -- but we'll get through it. Disease, neuroscience, cancer. They're not going away on their own. And the big macro trends out there, aging, obesity, things like that are just getting worse, not better. So our time will come again, and the smart investors will be there early. So.

Charles Kummeth:

Well, again, thanks for the quarter. Probably my last full earnings call. This is like number 42 or something like that. Kim will probably take 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. And anyway, we'll see you next quarter. Thanks.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2023. At this time all participants have been placed in 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-Techne's Vice President, Investor Relations.

Chuck Kummeth:

Thanks, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. We finished our fiscal 2023 largely as expected with 5% fourth quarter organic growth nearing the growth we delivered for full fiscal 2023 and capped a year where we successfully navigated a transitory macroeconomic environment. I'm extremely proud of the team's ability to deliver this growth in the face of transitory headwinds, which we refer to as the COVID hangover that we faced for the majority of this past fiscal year. These post-COVID induced headwinds included a softer biotech funding environment, inventory destocking from a subset of our OEM customers and macroeconomic challenges in China. Despite these challenges, the endurance of our key growth platforms was demonstrated yet again in Q4 and double-digit growth in our ProteinSimple branded instrument portfolio, spatial biology ACD platform, cell and gene therapy workflow solutions, and our liquid biopsy exosome platform. Now let's get into the details a bit, starting with an overview of our performance by geography and end market. In North America, we grew mid-single digits for both the quarter and the fiscal year. This may appear underwhelming. However, keep in mind that North America grew over 20% for the quarter and full year in fiscal 2022 driven by our biopharma end markets that was on fire with over 30% growth. With that kind of comp, as you can imagine, North America faced the greatest headwind from lower biotech funding this year. Europe had a great quarter to end the year with low double-digit growth in Q4, finishing the year with growth in the high single digits. This was on top of a comp from last year that was also incredibly strong with growth in the mid-teens for both Q4 and full year fiscal 2022. Now for the region that is on everyone's minds China. China is a region that has faced the most volatility throughout COVID and even now during the COVID hangover, you will recall during our third quarter conference call, we talked about how we saw our business in China come roaring back once everyone there was recovered from the COVID illness and back to work after the Chinese New Year. That strength continued through the first half of Q4 then abruptly stalled when the annual funding of new programs from the Chinese government did not occur as it usually does during the April-May timeframe. Despite this delay in funding, our team in China was still able to execute extremely well and delivered growth in the mid-teens for Q4. However, at this moment, it is still unclear when government funding of new programs in life sciences will resume. History suggests however, they won't be long. And when it returned, we expect the growth to be robust. While COVID and its aftermath have been extremely disruptive to business in China, it has only strengthened the long-term thesis that the pursuit of better healthcare in China will continue to be a top national priority. We are positioned extremely well with our differentiated portfolio to enable China in their pursuit. In the meantime, we will continue to serve our customers in China by providing them the tools to make their research as productive as possible with the funds they have. Now let's discuss our growth platform, starting with our Protein Sciences segment, where we grew 4% in both the quarter and the fiscal year. This growth was delivered on a particularly challenging comparison for both the quarter and fiscal year, where we grew 16% and 19% in the prior year periods, respectively. During the quarter, we advanced our cell and gene therapy initiatives as our reagents, media and analytical workflow solutions continue to aid our customers' progress on therapy, development and clinical trials. Collectively, our portfolio of cell and gene therapy products grew almost 30% in Q4 and are positioned to remain a key growth driver going forward. This strong performance puts an exclamation point on a year where despite a soft biotech funding environment, our cell and gene therapy business increased over 20% for the full year. For GMP proteins, we continue to offer the broadest menu in the market, including GMP proteins for immuno-oncology therapies as well as an industry-leading portfolio for regenerative medicine applications. These proteins are manufactured with a high level of bioactivity, lot-to-lot consistency and purity has become synonymous with our R&D Systems brand of reagents. This unique offering and our reputation as the highest quality producer drove Q4 growth of almost 60% and our third consecutive quarter of record GMP protein revenue. It's worth noting that over 400 cell therapy accounts have used our GMP proteins to date, over 20% more accounts than in the prior year. Additionally, we are in the very early stages of realizing the large cross-selling opportunities that exist within our GMP protein customer base and the broader Bio-Techne portfolio and has strategies in place to drive adoption of RUO reagents, immunoassays, cell culture products, analytical tools and spatial biology solutions throughout these accounts. Factoring in our pending Wilson Wolf acquisition and their roster of approximately 800 customers that we have access to via ScaleReady, this immense cross-selling opportunity becomes even larger. Our GMP portfolio is not unique [indiscernible] proteins as we also offer GMP versions of several reagents within our small molecule portfolio. As a reminder, our small molecules are critical ingredients for cell reprogramming, expansion and differentiation, which represent critical stages in regenerative medicine workflows. High demand for our portfolio of GMP small molecules drove growth of over 250% in the quarter, and we are adding capacity to meet current and anticipated demand for these key bioactive reagents. There are other areas of our vast portfolio of reagents and media that are ripe for GMP offerings, including antibodies, and we will continue to develop and commercialize products to meet growing demand for these key products going forward. Moving on to our catalog of RUO, or research use only reagents, which includes over 6,000 proteins and 400,000 antibody types. As a reminder, researchers rely on these reagents as key inputs for their experiments as these consumable products enable critical functions within the lab, including cell growth and differentiation, disease monitoring, cell imaging, immunoassays, immunohistochemistry, Western blots and other foundational research functions. The majority of our RUO reagent business is a run rate, where researchers order proteins, antibodies and small molecules as needed for their ongoing research. These reagents also serve as content for a handful of OEM customers where they purchase our reagents frequently, antibodies as a key component of their end products, which in turn generate royalties for Bio-Techne. As predicted, we expect that a destocking effect again in Q4 with a handful of these OEM customers as they work their way through excess inventory, stocked out of caution during the COVID induced industry supply chain crunch. We expect this destocking dynamic to gradually wind down over the next six months before normal ordering patterns resume for these customers in the back half of our fiscal 2024. During the quarter, we announced that we prevailed on a claim that one of our competitors, Miltenyi Biosciences, commercialized antibodies that is obtained by reverse engineering two of Bio-Techne's proprietary R&D Systems branded antibodies. Bio-Techne takes great pride in the fact that our proprietary products are the result of our own internally developed intellectual property. We have a long history of selectively sharing our intellectual property with academic and biopharma partners through licensing arrangements, but will vigorously defend our position against any unlawful use of our proprietary discoveries. Continuing with the Protein Sciences segment, let's discuss the performance of our ProteinSimple branded portfolio of instruments and consumables where we delivered low double-digit growth in the quarter. The Q4 performance was led by nearly 20% growth in our fully automated Western blot solution branded as Simple Western. The platform's ability to reduce the two-day long manual messy Western blotting process into a three-hour push button, highly reproducible solution continues to drive demand within our biopharma and academic customer bases. We are also seeing robust adoption of Simple Western and gene therapy applications with the system increasingly being utilized to measure protein expression potency, empty versus full capsid ratio and to detect process impurities. Our biologics business increased upper single digits for the quarter on top of a comp of nearly 40% growth last year as we experienced strong demand and initial sales of our MauriceFlex instrument. As a reminder, MauriceFlex as protein charge variant fractionation capabilities to Maurice's legacy protein identity, charge and purity capabilities, fractionation of the frontend step to mass spectrometry and MauriceFlex resolves the labor-intensive and time-consuming challenges of using legacy fractionation methods, including ion-exchange chromatography. This new application enters Maurice into a new $300 million market, approximately doubling the addressable market opportunity for the instrument. We are very encouraged by the strong initial response to this exciting new instrument. For our Simple Plex automated multiplexing ELISA instrument branded as Ella, we continue to build the menu of assays launching 36 validated Simple Plex assays on the platform during fiscal 2023 including four AAV titer assays for gene therapy and five neuroscience markers. Going forward, neuroscience and cell and gene therapy represent large opportunities for Ella and both remain a focus of application development and menu expansion initiatives. During the quarter, we also made significant progress positioning Ella as a clinical diagnostics platform as we successfully completed the ISO 1345 audit of our Wallingford facility and are waiting to hear back on the results. With this certification in hand, we will be ready to pursue clinical diagnostic opportunities opening a large potential end market for this highly sensitive, easy-to-use and fast multiplexing immunoassay instruments. Now let's discuss our Diagnostics and Genomics segment, where organic revenue increased 10% for the quarter and 8% for the fiscal year. I'll start with our Molecular Diagnostics business, where we once again drove significant growth in our ExoDx prostate test 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. ExoDx prostate volume and associated revenue both increased nearly 70% compared to the prior year quarter capping a breakout year for the test where volume increased by over 70%, revenue increased over 90%, and we surpassed 100,000 ExoDx tests performed to date. The value of our ExoDx prostate test was further solidified with the recent publication in the Prostate Cancer and Prostatic Diseases Journal of interim results from a randomized study of over 1,000 patients designed to show the clinical utility of the test. In the study, patients identified as low risk by the ExoDx prostate test received fewer biopsies, significantly deferred the time to their first biopsy, and we're significantly less likely to be diagnosed in the future with high-grade prostate cancer. The growing acceptance of the test, strong clinical utility data, a Medicare local coverage decision is now reflective of the NCCN guidelines and includes reimbursement for repeat annual testing as well as a fortified sales force and market access team positioned fiscal 2024 to be another record year for our ExoDx prostate test. Now let's discuss our Spatial Biology franchise, which includes our ACD branded portfolio of more than 45,000 probes in over 400 species that enable biomarker imaging at single molecule sensitivity in single cell resolution. Our spatial biology business increased low double digits in both Q4 and the fiscal year. The growing interest and utilization of our ACD technology as the go-to technology for translational spatial biology research applications is apparent in the growing number of publications citing the technology, which increased over 10% during the first half of calendar 2023 and now totaled over 8,000. Within the portfolio, we are experiencing continued momentum in BaseScope, which enables the detection of short RNA target sequences and microRNA scope, which allows for the visualization of ASO, microRNA and siRNA, and other nucleic acid targets as these highly sensitive and specific assays increased over 20% and 30% respectively in Q4. Following the robust growth for both the quarter and the fiscal year, BaseScope and microRNA scope are both becoming increasingly more spatial to our overall spatial biology franchise. Separately, we furthered the partnering strategy for our gold standard RNAscope technology with the release of our of an RNAscope multiomic workflow for the standard Biotools Hyperion Imaging System. We also expanded our growing arsenal of ASR probes with the launch of RNAscope probes for Kappa and Lambda and as analyte specific reagents or ASRs. Kappa and Lambda are important oncology biomarkers for B-cell lymphomas and these ASRs will enable CLIA labs to develop customized tests while maintaining high standards of analytical and clinical performance. Finally, I’d like to officially welcome the Lunaphore team to Bio-Techne. As a reminder, we recently closed the Lunaphore acquisition, which is the 18th acquisition our team is closed during my tenure as CEO. This acquisition strengthens our spatial biology franchise while adding a talented group of innovators to the company. Our strong track record of identifying state-of-the-art platforms and technologies on the cusp of significant market uptake in growth like Lunaphore has been a key driver of our double-digit revenue in total stock return CAGR over the last 10 years. This acquisition builds off of partnership we announced with Lunaphore earlier this year. The two companies partnered to develop the first fully automated multiomics spatial biology platform. This novel offering will be capable of simultaneously interrogating protein and RNA expression at a single cell revolution using a fully automated same slide workflow pairing Lunaphore’s COMET instrument inspire antibody panels with our legacy RNAscope high-plex technology. COMET is early in its initial commercialization, but the system’s end-to-end capabilities that fully automate staining imaging and image pre-processing steps. Use of conjugated antibodies and high throughput design is generating significant interest, market traction and placements. In summary, Q4 concludes the fiscal year where the team successfully navigated several challenges facing the company and the broader life sciences tool industry. While the short-term macro challenges are not over, we are encouraged that they will gradually diminish in the year ahead. Starting with the less challenging comps from the COVID halo [ph] days, less destocking by our OEM customers from the COVID hangover days, and a more stable biotech funding environment going forward. While Q4 was a good quarter for us in China, the funding environment in China will likely be a big challenge for at least the first half of the year. But don’t doubt [ph] China’s resolved for better healthcare and we believe when the funding returns, it will come back strong. As this past year has proven, our stable of growth platforms can persevere in good times as well as challenging ones. We’ll continue to prioritize and focus our execution on these growth platforms which propel this company to accelerated growth and profitability in the years to come. With that, I’ll turn it over to Jim.

Operator:

[Operator Instructions] Our first question comes from Puneet Souda with Leerink Partners.

Chuck Kummeth:

Yes. Thanks, Puneet. Let me start off with some high-level comments around that because your question is going to be repeated about 29 time today, probably. So I think, first of all, we're one of the first companies to kind of come out and talk about the hangover beginning about a year ago, next quarter. And we talked about we'll be coming on the front end a lot sooner and we really are. In fact, this quarter, if China wouldn't have been a surprise, we would have been really ahead of where everyone expected us to be so – by a little bit anyway. So it's really all China. We'll get to that in a minute. North America, stacked up okay about as expected. Europe has actually came in stronger than expected and is turning the corner, but they went south before North America did, so we expected that as well. Behind the scenes, you guys don't know is a lot of work we've done in this off year of doing the homework and getting ready for the come out party, right? So we have hired three senior executives. We have a new leader in Europe. We have a new commercial leader for North America from [indiscernible]. We have a new divisional Senior Vice President for RSD. We have – we are fully done reorganizing Europe commercially and we're – with Peter's guidance, we're kind of relaunching and we're probably already seeing a little bit of what's happening from that with a stronger finish here. North America even coming yet further now with the coming of James Snook we're making a lot of changes, a lot of observations he's made, and those are going to start paying off. We've been at full strength in our other segment for a while. We're actually still short of – it's very aggressive and spatial, as you know, very, very competitive. And we're – we seem like to always be down one rep, but we're only down one rep, we're not down five. We're increasing there. We're increasing inventories and efficiencies, especially in Europe. So this has been – there's lot to talk about on digital side and ERPs and what we're doing on making our customer experience much better. We've made huge improvements there in the last quarter or two as well. All these are really coming – are coming in place, so we're ready for the new wave of growth they hit, which is going to be starting, I think, this coming quarter. We have softened a little bit for this first half, as you noticed Jim's comments, but it's kind of unknown. And we need to wait and see what happens at China. I think China surprised us all a little bit this quarter. It started out really good, by the way. I mean, really good for us and just shut down the second half of the quarter. We do expect government will come around and start funding again, but they haven't yet, so it's hard to get too ahead of things. If they don't, well then it will be more of the same for a while, and that's for everybody. And we had literally results that beat everybody in our field this quarter. So it's all about the forward not what's happened though, right? So we feel really good about where things ended up. As you notice, we met our bottom line. We're operational experts here. We all come from large companies. We know how to operate, and we nailed every, every target we had to nail. But growth is growth, and we can't make markets do what markets won't do. And so we're ready for the coming back party when it's coming and – especially in China, but we're already seeing it in other areas like we commented on. And let's hope Europe continues its progression back. And we're really only all talking about our core here. I mean it's RSD and it's in the instrument side, not the consumables, which are killing it, by the way, not all our instruments, and everything on the other segment, our three major investment platforms, spatial and cell and gene therapy and exosome, all had banner quarters and a banner year, really exceeding expectations on many fronts. So – and that's – by next year, doing more of the same, which it will, maybe even accelerating will start becoming much more material and can offset any headwind we have in our core anymore. So with that, maybe Jim wants to comment on the numbers, but I think it's -- we don't want to cover the same question with everybody. It's kind of just setting the stage for the day. We're really thrilled this quarter, to be honest, especially as we saw more and more of our peers come out with horrendous numbers, we feel really good – and we are – we came out last quarter after a trip to China, who were telling us they'd be a 50% quarter. We told you'd probably be 40% hedging a bit and we ended up around 20%, still better than everybody. But with the government shutting everything down, it just is what it is right now, and it will be a soft quarter, but I think when they turn the lights back on, which will happen probably within a quarter or so more than likely, it's China for God's sake, we're going to be off like a terror, I think, quite simply, and we're ready. And we spent this last year working on our infrastructure. And sometime in the coming quarters, we've got to tell you more about our new expanded website, our one Bio-Techne, where we're getting everything and put in one place for customers to really, really improve their experience and it's already starting to pay off for us. So...

Chuck Kummeth:

We feel really good. As you know, we just pulled off Lunaphore. That was an asset. I came and tell you how many people wanted that asset. We've been working on a long time. As you know, we're very ubiquitous, working with everybody in spatial and we have an open platform kind of a mentality here and Lunaphore is no different, other [indiscernible] work in that platform. But that thing is going to be amazing. And it's going to allow us to actually go after much stronger, not only in research, but on the pathology side without really getting crossing over into areas we don't want to create any conflicts or partners like – and others, so – which are all okay with all this. But we need to figure out a way to automate and get more out of our discovery, our platform, translational down in the under 10 Plex without taking two weeks, 24/7 running assays by hand. We can do all that now, so we need this platform, and it's ready to go. The synergies are amazing. Jim talked about the numbers. They're going to easily be those numbers and we've got a couple of points of dilution here in the coming year as we always do with a bigger acquisition. But this thing is already growing and already heavy in the revenue, and we're not waiting a year or two for this going to take off. It's already happening, and there's a strong future. So that is one area. Other M&A, we're – I don't think we've ever been busier. We're busy on more than a few right now. And as we already said it should be a big M&A year, everyone is staying the same. Smaller companies aren't being able to IPO right now, a lot of funding issues. It's the time for finding partners and new owners, and we're very busy and there's a lot of areas we're still looking to address things like in cell and gene therapy and media and other areas that they're all coming. And there is a lot of proteomics companies. They're all starting to look outside at being acquired, even it's very public, even Abcam is for sale, and I wouldn't have thought that would have happened yet, but there is a lot of surprises out there in the market these days.

Operator:

The next question comes from Patrick Donnelly with Citi.

Chuck Kummeth:

So I'd say over two third of that dilution is driven strictly by the Lunaphore acquisition. The rest has to do with like our continued strategic investments in those growth areas that we've talked about during this call. We see it – if you exclude Lunaphore from our results, we see – similar to this past year, we see our organic margin being – finishing the year better than we did this year. We – it be just the Lunaphore that brings it down below. I think with regards to triggers that could improve on those margins, it's largely a revenue gain. I mean like I mentioned in my opening – in my comments, if revenue increases, the more revenue improvement, the growth improves in the back half of the year, the better there is to get more leverage of our cost base and increase margins. But we're already being very, very prudent on our – definitely on our discretionary spend and extremely selective in prioritizing our strategic spend. But we're not going to not do those strategic investments to sacrifice our growth in the future. But I think the biggest lever for improving margins would be higher revenue growth in the back half of the year.

Chuck Kummeth:

Yes. As we've mentioned in the past, in previous quarters, we've talked about missing double-digit growth by literally a handful of OEM customers. And that's kind of more of the same. It's very lumpy for us. So a lot of our larger OEMs and especially in antibodies areas they were stocking a lot through the COVID supply risk era. And it's already coming down. So that's moving in the right direction. I think we have seen through that period – period, let's call it, two or three quarters ago, we had very strong run rate still and those have softened because of funding overall softened. So we're seeing a bit of a barbell shift here, but not dramatic. So other data point is like Fisher, Fisher is very strong, has been strong all year. So a lot of our channels look good. So it's pretty lumpy. It's very, very targeted. We kind of know by customer exactly where they're at. And as you know, we get – we got a lot of these guys are licensed in a lot of royalties and stuff. So we not only have decent metrics, but we have actual data from them on just how they're doing, what they're buying, what they expect and their outlook. So a brighter year ahead and I think by end of this calendar year, certainly next year, the things will be recovered there in a lot of the OEM areas. So that's the main difference, I think, still.

Chuck Kummeth:

Well, I'm not sure we can say any more than we know and we've been very transparent. We always have been. This quarter started off great in China, ended terribly and it ended much worse for everybody else we know in our industry. I think we're all in this kind of waiting pattern for the government. I think they have their economy shutdown so badly that I don't think they have any money. So – but we do know they're very public about how – what a priority healthcare is. And so I think as they get back on track, and we're told that come October, it's the new school year and all the institutions reopening is when they expect things to start getting better and start seeing an outlay. There have been some initial targeted stimulus areas, but nothing dramatic. This is just really a downtime for China. It's very, very surprising to everybody, but where they are on the scale of 1 to 10 of getting health care across the country, their whole population to where the rest of the world is. They're like a two. So it's the big cities that are really in good shape, but you don't have to go too far out to see a lot of struggle and the government is certainly still on their plan and healthcare is the number one priority, and I don't expect anything will change there. So – we've been here before, wondering about China, and then it comes back like a roaring tiger. So I expect that to be sometime before end of the calendar year here, but –

Chuck Kummeth:

Our team there is very bullish just by the – they didn't sound any alarm. So it's surprised even them. So I think that's also a good sign is that the 200-plus employees, strong team we have in China is really very positive and very, I guess, very – sees a very big future ahead. So…

Jacob Johnson:

Hi. Good morning, everybody. Chuck, I suppose I apologize for attributing to the 29 questions about 2024. But maybe on the instrument side of things, a strong quarter there. Just any thoughts about how we should be thinking about that business into 2024. I guess in particular, you talked about the MauriceFlex being a contributor this quarter, sounds like Ella could move into the clinic maybe next year that could be an opportunity. And then maybe on the bad guy side, China is something we should be looking out for, but just any kind of commentary around the outlook for instruments.

Will Geist:

Yes. Thanks, Chuck, and thanks for the question, Jacob. A couple of things. Chuck already hit on some of the nice indicators for our future, right? As we look at consumables utilization, super strong this last quarter. We also look at service contracts. We know these instruments are being leveraged and used across the industry. So those are real positives. When we look to the future, you hit on one thing, and I'll come back to the ISO 1345 certification of our Ella platform in a second, but as we think kind of these emerging growth applications areas like cell and gene therapy, we launched 35 new application nodes across the Simple Western, excuse me, the ProteinSimple portfolio, so those are for Simple Western more recent platforms. So things like AAV titer, empty-full capsid ratios, potency assays, for example, on Simple Western. Even recently in an FDA approved product, the potency assay – release assay is run on Simple Western. For confidentiality, we can’t share what that is, but it gives you an indicator there of how strong we are. If we look at our applications on Ella, in addition to the cell and gene therapy applications for potency, we’ve got five new neuro applications. We expect that space to take off for us as we fill out the rest of that portfolio. And then finally hitting on Ello with the ISO 1345 certification pending, what we’ve already seen is really strong adoption because the platform just lends itself so well to clinical applications. We’ve already seen nice adoption in laboratory developed tests. We know that 1345 will enable our customers to kind of take their assays, put them on those boxes, and start driving broader clinical adoption.

Chuck Kummeth:

Yes. Yes. The answer fully would take an hour. There’s so much to good news to cover there. We had an exceptional quarter beat everybody I’ve ever noticed in the space quite blow and blew everybody away really. But 60% [ph] growth is pretty good. 30% for the year in proteins. We’ve gone from six products in our St. Paul facility, we’ll be to – we’ll be adding another eight this coming year. So we’re getting way beyond just cell therapies, more on the regenerative side as well. Strength is on all cylinders. We were quoting roughly 250 customers to 300 customers up until this quarter. We’re now over 400 customers. So a lot of that growth is coming from new customers. And yes, there may be a doldrum in the industry now, but when it comes to cell therapies, it’s still much a growing area and we’re growing and taking share and getting more visibility. We’re becoming real after laying track here for five, six years. We are going to be one of the big guys. It’s just going to happen. It’s inevitable. And of course, our partnerships and our coming acquisition will smoke’s [ph] going to help. They’ve still got 100 customers. It is probably the only de facto standard out there for bioreactor and cell therapy that’s helping the new sister company CellReady is being used as well. So we’ve got ScaleReady and CellReady that those platforms are working and it’s driving more business our way for proteins and across our portfolio, a small molecule, not a bad number, 260% growth this quarter. And for the year over 114, we’ve been waiting a long time for our small molecule platform to really take off, and now it finally really is and it’s – there’s no stopping it now. Did that put you to sleep?

Dan Arias:

Good morning guys. Thanks. Chuck, I guess I’m going to apologize too here, just because I really don’t think we’re going to have a company that finishes their fiscal year and doesn’t offer a full year outlook. And obviously, they’re all dealing with a set of challenging circumstances. And Jim, it seems like you’re offering a view on the harder portion of the year to forecast, just given that China is a tough call right now. So I guess, why wouldn’t you be willing to commit to more meaningful acceleration in the second half of the year if you expect some of these issues to resolve themselves in the shorter term rather than the longer term, which is what I think Chuck said there. And the comps are basically the same first half versus second half.

Chuck Kummeth:

Let me add a couple things too. And it’s just work backwards from what you guys would love to hear. What would you, you’d like to hear is that we’re back to our 15% or better growth plan coming next quarter. We have a couple things happening in our favor starting in Q1. We start getting really good comps away from these horrible comps. So that’s going to help. By the back end of the fiscal year and Jim is right. We’ll be the only one talking about a full year from now. Everybody’s talking about finishing this calendar year. And we’ve got a beginning of a fiscal year starting now. And by the end of this fiscal year, I expect us to be in the run rates of double digit, if not mid-teens again. But how does that stack up for a year averages? It’s hard to acknowledge right now with this quarter next quarter with especially with China. And China being 10% of our company and coming off 20%, 30% growth, that’s two, three points of growth rate there for the company. So we got to factor that in. Maybe it’s only another quarter of that. Maybe it’s more. If it’s more, it’ll affect the number long term. So we’re looking at all that. We don’t officially give guidance. We give you a range for the coming year and you’re smarter than we are and knowing our numbers up and down and backwards and forwards, you can see. I think our run rates can be where we expect it a year from now, maybe even higher because of our growth platforms seem to be accelerating, not decelerating to become more material. As you know on our five-year goal, we’re two, three years into that now. We talk about these major growth that should be at 50%, they’re running much, much higher than that. If they continue that, it’s going to pick up some of the slack here on the core. But we’re getting better and better in the core. And I think all we need is just the markets to stabilize and then we’re back on track overall. But I do think we’ve got a bit longer in the hangover here in the quarter at least that’s the way to think about it. And we’ll get – we’re about the most transparent company you guys talk to that. And we’ll tell you more next quarter when we see what happens with the one more this quarter. But at least we’re going to have an easy comp this quarter and things will start improving for us dramatically. And we didn’t have a bad quarter the way it was with everybody else being negative, negative, negative, we did post growth quite a bit comparatively, so in fact. So stay tuned. We’ll know more within a quarter, but end of the year run rate should be pretty good we think.

Chuck Kummeth:

It’s larger orders for existing customers and new customers. We’ve expanded the customer list as you – as we mentioned. So that’s one part component growth. The other is that customers that have been with us for two, three years, they’re getting further along in their clinicals and they’re asking for more. We talk about in the past of turning the plankton into minnows and minnows into tuna and tuna into whales. We’re – we’ve only got a handful of tuna and whales and we need, we’ve got 400 customers. So just imagine a day in a couple, two, three, five years where we have dozens of whales. It’s going to be amazing to see.

Dan Leonard:

Hi. Thank you. Could you talk a bit about your end market mix in China between academic and government, biopharma, any difference in trends you’re seeing and what growth rate for China is assumed in the first half of the year in that mid-single digit view for the total company?

Operator:

The next question comes from Catherine Schulte with Baird.

Chuck Kummeth:

Yes, I don’t think we’re moving the game, the data for anything yet. They’re not – they don’t have heavy growth right now either, but they’re flat to I’d say mid-single digit growth last quarter or two. Given that the actual market there has imploded in funding us down. John, actually, this is a good sign. We’re actually taking share. So he’s actually getting more business than he thought compared to what everyone else is dealing with. So there – it’s a good time. So we’re going to get – we’re going to be a lever off of this come next year. As you know, the profitability is way beyond our expectations, which allowed us to do the 20% trigger early. But we’re probably on track for three to four years for the full acquisition, and that would be at 225 or so million dollars revenue or $136 million in EBITDA. Probably the EBITDA one will happen first, again, if things continue the way they are. We’re working more and more with John [ph] on investments and diversifying things to do. But right now he is running at a very, very profitable model. And it’s probably more than it should be for the –probably should have more investment for growth and we’re helping with that. [indiscernible] if you want to comment any more on that as well.

Chuck Kummeth:

Since we’re talking about growth and then in growth in China, other places, we didn’t talk much about EPI, but I don’t want to leave this call, I just maybe shout off the team that our Exosome platform is really killing it right now. We’re getting record test days, virtually weekly. We crossed a 100,000 tests. We have a colorectal program that’s making great progress. We have a multi analyte screening component tests coming that’ll do many, many upstream pre-cancer type tests. And it’s – it builds on top of methylation, so it’ll be – go well above and beyond what other competitors in the field are doing with cell-free DNA. The future for Exosome I think is amazing. And you guys never focus on the great numbers more than where the damage is, but coming quarters, you’re going to be want to talk more about Exosome as you see the numbers. We’re investing more people and we are very close. The list now of tipping over the large private payers is getting very close.

Chuck Kummeth:

Well, I guess just thanks for everyone for attending the call. We always see the call count as we go, and it’s a very big list. We know there’s a lot of competition for your time out there. And we’re glad there’s all the interest in our company and we’ll be back next quarter. Thank you.

Operator:

Good day, and welcome to the Bio-Techne Corp Third Quarter Fiscal 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to David Clair. Please go ahead.

Chuck Kummeth:

Thank you for joining us for our third quarter conference call. As we expected, message in last quarter’s call, our Q3 top-line year-on-year revenue growth was similar to the growth we reported in Q2. While the year-on-year growth rate and tough comps from last year were similar in both quarters, the underlying performance of the business improved quarter-on-quarter when considering the large ExoTRU kidney milestone payment received from Thermo Fisher last year in Q3. The team did a great job this quarter, furthering several of our key growth drivers as physician uptake and utilization of our ExoDx Prostate test accelerated demand for our cell therapy workflow solutions, including GMP proteins remains strong, and our spatial biology business returned to double-digit growth. These growth drivers were partially offset by the continued challenges of COVID in China, lower biotech funding and OEM destocking from supply chain disruption concerns last year. Encouragingly, as we look ahead to finishing this fiscal year and kicking off fiscal year 2024, we see China coming back strong. With COVID now in the rearview mirror, destocking by our OEM customers eventually with unwinding and moving beyond the tough prior year comps from our smaller biotech customers. Before I get into the specifics of the quarter, I’d like to take this opportunity to welcome Peter Schuster as the new leader of our European organization and business. Peter has over 20 years of experience leading commercial organizations, including very relevant experience, successfully growing businesses and leading European-based teams in large life science tools companies. Under Peter’s leadership, we are looking forward to continuing to grow our European presence and delivering the tools the region relies on to enable scientific discoveries. Now an overview of our performance by geography and end market. Starting with Europe, where the team delivered high single-digit growth – order growth in the quarter than the macro environment continued to stabilize and overall research activity increased sequentially within our core biopharma and academic end markets. Our new Dublin warehouse to support Mainland Europe is now fully functional and fulfilling customer orders. With a new leader in place, a new distribution center and an improved ERP system, we are positioned to serve our customers even better in the region. In North America, we also saw sequential improvement with order growth increasing mid-single digits in the quarter. Here, the impact of a lower biotech spend is the greatest and the year-on-year comp is the toughest with over 25% growth in biopharma last year. And finally, there is China, which was a tale of two chapters this quarter. Prior to the Lunar New Year, most people in China were still recovering from COVID and citizens were directed by the government who essentially stay home until after the New Year holiday. Up until this point in the quarter, sales were practically nonexistent in China. But after everyone – everyone was well and came back from holiday, sales accelerated dramatically, and our China team was able to finish the quarter with revenue growth in low single digits. This was on top of a comp where China grew with 30% last year, just through a remarkable effort by our team in China. With COVID now in the rearview mirror for China, we hope for good, we see China’s growth continuing to accelerate from here, perhaps to more than 40% growth next quarter. Now let’s discuss our growth platform, starting with our Protein Sciences segment, where organic revenue increased 5% for the quarter on top of a strong comp from last year when the segment grew 16%. During the quarter, we continued to make progress with our portfolio of cell therapy workflow solutions, including our GMP reagents, specialty cell culture media, along with cell culture matrices and DME, which collectively grew over 20% in our Q3. Our GMP proteins remain in high demand across cell therapy spectrum as biopharma customers developing products for the regenerative medicine and immune cell therapy markets continue to rely on our portfolio over 40 GMP-grade cytokines and growth factors, including several that are only available from Bio-Techne to effectively scale their therapies. Our GMP protein business had its second conceive record breaking quarter, and given our industry-leading menu of highly bioactive lot of lot consistent and peer GMP proteins, we are positioned to remain a leader in this rapidly growing market. In addition to the ongoing progress of expanding the GMP proteins venue, we are manufacturing in our state-of-the-art same fall facility. We are also experiencing significant yield improvements to scale production at this facility. Recall, we originally estimated GMP protein capacity at the facility was $140 million annually, which we increased to over $200 million as we manufactured initial protein batches from this new facility. As the team continues to launch additional GMP proteins, we have been able to achieve product yields as much as 50 times higher compared to legacy methods used to manufacture smaller batches in our headquarters. In fact, these productivity and yield gains have been so significant that we now estimate the capacity of this facility is at least $500 million and potentially higher than $1 billion, depending on the mix of GMP proteins ultimately manufactured from the facility. We also reached a significant milestone in our cell therapy strategy in Q3 with our initial investment in to Wilson Wolf. As a reminder, Wilson Wolf is a manufacturer of the proprietary line of cell production bioreactor called G-Rex, which provide an ideal amount of oxygen and nutrients to effectively scale immune cell therapies. Wilson Wolf and Fresenius Kabi have both have been key partners of our Bio-Techne through the ScaleReady commercial joint venture since 2020. With the three companies collectively offering tools and technologies for cell culture, cell activation, gene editing and cell processing, during the quarter, Wilson Wolf reached its trailing 12-month EBITDA milestone triggering Bio-Techne’s $257 million investment for a 20% ownership stake into Wilson Wolf. We see tremendous synergies with the eventual ownership of Wilson Wolf and are already developing a one-of-a-kind standardized, closed cell and gene therapy manufacturing system that integrates G-Rex Bio-Techne’s GMP proteins and T cell culture media into an FDA-compliant patient-ready off-the-shelf production process that will save end users significant time and money as they pursue meaningful clinical data and eventual commercialization of these novel cell therapies. Following this initial investment, Bio-Techne has the right to acquire the remainder of Wilson Wolf for $1 billion upon its achievement of additional milestones or for 4.4 times trailing 12-month revenue if these milestones are not achieved by December 31, 2027. We look forward to continuing near-term pipeline development work for Wilson Wolf and eventually having this rapidly growing, highly profitable industry standards under Bio-Techne growing umbrella of cell therapy product. Now let’s discuss our portfolio proteomic research reagents, including our RUO proteins, antibodies and small molecules, which collectively grew single-digit low-single-digit in the quarter coming off of a challenging year-over-year comp, where we grew about 20% in Q3 of last year. I’d like to elaborate on the OEM phenomenon we’ve experienced in our year-over-year comps for the past couple of quarters. Recall that a year ago, supply chains were constrained and several companies, including Bio-Techne stocked up on certain components that are critical to meeting customer demand. Bio-Techne has an industry-leading catalog of over 6,000 proteins and over 425,000 different antibody types the researchers around the globe rely on as the basis of the research, enabling scientific discoveries, enabling new therapeutic and diagnostic discoveries to further health care. This same catalog of bioactive reagents also serves as the enabling content for several products from other diagnostic and life science tools companies. Without this content, a number of their assays will not work. Last fiscal year, a handful of these OEM customers stocked our reagents to ensure their ability to continue to meet demand for their products. Best we can tell right now, it will take another quarter or two before this destocking to unwind. After that, these headwinds should become tailwinds as these OEM customers run their normal ordering patterns of our reagents in fiscal 2024. Moving on to the performance of our ProteinSimple branded portfolio of analytical solutions – we delivered low double-digit growth in the quarter as all three of our primary instrument platforms increased in the quarter. The rapid installed base growth we experienced over the last two years continues to drive increased consumable utilization across our ProteinSimple instrument platform at our Simple Western, Simple Plex and Maurice instruments become more ingrained in research workflows. To ease – the ease of use and flexibility offered by our proteomic and analytical tools are leading to expanding applications across the three platforms. These expanding applications, particularly for cell and gene therapy, QA and QC is translating into higher total addressable market opportunities for these platforms as our legacy proteomic analytical tools TAM expands from $2 billion to $3 billion to firmly above $3 billion. Order funnels remain very strong across these three instant platforms, although budget conservatism from a subset of biotech end users has led to an overall lengthening of the order closing cycle. Our Simple Plex branded multiplexing immunoassay system, Ella, led instrument growth increasing by 25% in the quarter. The subpicogram sensitivity and cost advantages offered by this fully automated ELISA platform combined with an expanding menu of over 250 analytes to support therapeutic areas across neuroscience, cell and gene therapy, immunology and cancer continues to resonate with both biopharma and academic customers. This traction and acceptance in both industry and academia is apparent to the growing number of instruments in the field as Ella cross an important milestone in the quarter with over 1,000 instruments now in the field. In neuroscience, Ella’s high level of sensitivity positions it as an ideal intent for biomarker detection and discovery making us the prime area for future menu expansion. We also continue to make progress comparing Ella to penetrate the clinical diagnostic market as our ISO 1345 audit of our Wallingford facility continues to progress. With a growing installed base, a rapidly expanding menu and an untapped clinical diagnostic market opportunity, we continue to see incredibly bright future for Ella. Now let’s discuss our biologics platform, Maurice, which enables protein purity, charge and identity analysis in five minutes in an easy-to-use cartridge-based instruments. Recall that we recently expanded on Maurice’s capabilities with the launch of Maurice Flex, which adds image capillary isoelectric focusing fractionization capabilities to the instrument. Fractionation is a front-end step in mastectomy and Maurice select addresses the labor intensive and time consuming the challenges of using legacy fractionation, methods, including Ion exchange chromatography. This new application enters Maurice into a new $300 million market. Initial biopharma interest in Maurice Flex has been strong, and we had multiple initial instrument placements in the quarter. Our Simple Western platform continues to penetrate the Western blot market as its ability to automate the time-consuming and cumbersome Simple Western blot process with a sample in answered – solution resonates within our biopharma and academic research end markets. Similar to our other platforms, applications for Simple Western are expanding, including quantitative immunoassays for both cell signaling and rare protein detection in complex lysates and rare tissues. Additionally, our biopharma customers are increasingly relying on Simple Western in their gene therapy workflows, as its ability to detect protein-related impurities viral titer and identity information and empty versus full capsid information provide critical QA/QC information for these workflows. Gene therapy remains a nascent but rapidly growing application for Simple Western, and we experienced 30% growth in necessary during Q3. We also partnered with Cell Signalling Technology, or CST, to expand the number of Simple Western validated antibodies for various targets and across multiple disciplines. CST is a leader in the development of antibodies and other related western blotting reagents used to elucidate Cell Signalling pathways that dictates cellular behavior and impact human health. We are excited about the addition of these new antibodies to the Bio-Techne catalog of validated antibodies and are encouraged with the market response following the announcement. Now let’s shift to our Diagnostics and Genomics segment, where organic revenue declined by 2%. Adjusting for the ex vitro milestone payment from Thermal Fisher Scientific that we received in the comparable quarter last year, but did not repeat in the current quarter segment growth was upper single digits. Starting with our molecular diagnostics business, where we continue to experience increased physician adoption and utilization of our ExoDx prostate test leading to over 70% test volume growth for the fifth consecutive quarter and associated revenue increase of 85% in the quarter. We continue to see positive momentum on the key performance indicators we track for ExoDx prostate test, including year-over-year and sequential growth in a number of physicians ordering the test record test volume from physicians new to the ExoDx prostate as well as a record number of doctors ordering more than 25 tests in a quarter. We are pairing this volume momentum with continued progress in strengthening our coverage with private payers, as our recently bolstered market access group continues to improve access to the large national payers, positioning ExoDx prostate for expanded future coverage. The team is doing an excellent job managing a rapid growth in ExoDX prostate test volume and we continue to experience record volumes in our Q4 to date. During the quarter, an expanded local coverage determination from National Government Services, who is our Medicare administrative contractor, covering our Massachusetts based Exosome Diagnostics; CLIA-certified laboratory went into effect. This updated policy now covers the ExoDx Prostate test for men with a prior negative biopsy but who are thought to be at high risk for prostate cancer and are considering a repeat biopsy. Following this update, the LCD now mirrors the National Comprehensive Cancer Network or NCCN guidelines and enables reimbursement for ExoDx Prostate is a monitoring tool in populations with and without a prior prostate biopsy, effectively increasing the total addressable market opportunity by approximately 50% for the test. Our spatial biology business, branded ACD, increased low double digits in the quarter with adoption in our flagship RNA scope assay remains strong. This gold standard RNA in situ hybridization assay enables industry-leading sensitivity and specificity transcriptome analysis while retaining tissue morphology. We furthered this industry-leading capability with the recent introduction of our new exceptionally bright Vivid Fluorophore, enabling customers to easily detect and visualize both abundant RNAs as well as RNAs of very low abundant in a tissue sample. More recent additions to the ACD portfolio are also gaining traction, including BaseScope and micro and RNA scope. As these novel solutions enable visualization and evaluation of therapeutic biodistribution, safety and efficacy of gene therapy delivery vectors and oligonucleotide therapies. BaseScope and MicroRNA scope are both relatively small contributors to our spatial biology business today but are growing rapidly and becoming progressively more accretive to the growth of this business. Continuing with spatial biology, we recently announced an important strategic partnership with Lunaphore for who developed the first fully automated spatial multiomic workflow with same slide HyperFlex detection of protein and RNA biomarkers on Lunaphore’s COMET instrument. This solution will enable users to easily visualize both cell type and their activation space in tissue. Combining COMET’s highly flexible custom antibody panel design with RNAscope’s library of 45,000 catalog probes and our in-house custom probe design capabilities will give customers the ultimate flexibility in achieving their study goals. In summary, our Q3 performance was in line with our expectations. As China growth snapped back and the temporary headwinds created by reagent destocking from a handful of OEM partners subside, we believe we are well positioned to accelerate growth next quarter and beyond. One thing is certain, our portfolio of cell and gene therapy workflow solutions, a best-in-class liquid biopsy platform novel proteomic analytical tools, spatial biology capabilities, all coupled with an industry-leading catalog of bioactive content positions Bio-Techne to remain a leader in some of the most rapidly growing life science tools market. We look forward to continuing to execute our strategic growth plan and deliver on the vast opportunity in front of us. With that, I’ll turn it over to Jim.

Operator:

Thank you very much. [Operator Instructions] And our first question today comes from Puneet Souda of SVB Securities. Please proceed with your question.

Chuck Kummeth:

Sure, Puneet. Thanks. Well, I think first and foremost, I think we’re kind of talking about come back a little more quickly than others are talking about it. We bridge for you the destocking component. And a lot of these stock, and we know the customers, and we know what they’re at, and they’ve been very clear with us. So we know when they’re coming back or more, and it really is in Q1. So there will still be funding pressures for sure. I mean the public information out there on amount of biotech funding reductions are double digit and beyond so it is impactful. But we’re kind of certain and lot of that with surgical work here within our own OEM sector, which was coming back.. Let’s not forget that we were in the mid-teens in our run rate is a supporting biopharma end-to-end academic last quarter. This quarter, we were a low teens still in our run rate business, so for our consumables. So that’s – that’s all speaks very positive current department going forward. We just think it starts getting better. I mean, as you pointed out, we got one more tough quarter, a really tough Q4 comp. We had a blowout last couple of weeks last year Q4, kind of which that would have been in Q1 now. And you’re right in that seven high single-digit number is kind of our range. China is a big factor too. I mean we’ve got – we see China is going back. We were just over there. First time in three and a half years. The team is in great spirit, full spring, being all their customers and things are ramping extremely fast. So, I wasn’t kidding with 40% or better. That should be kind of in the range for us for China. And that gives us a good base across the company to start building on an overall growth rate.

Jim Hippel:

In line with the first quarter.

Chuck Kummeth:

Yes. So we actually made great progress there. As you know, we’ve got a factory that we’re pushing the co-brand in the every month. We have the G-Rex platform, which is already in the standard out there. The last real miss integration of media, we have a couple of different formulations of media that we’re going out with. We’ve been in media forever, but in more regenerative medicine type approaches this is a little more different. So we’re looking at kind of the make versus buy, how to cut it. It’s all about time and scale. So we think within a year here, we are with a cool system. So roughly about a year, and it’s probably a little much right now, it could be sooner. It could be a later sense of how much we want to go it ourselves with our own capital and assets or those partnering.

Chuck Kummeth:

We have IT and we have solutions for how to actually integrate it within G-Rex already. So some real novel solutions that some of them John Wilson itself has been involved in.

Operator:

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

Chuck Kummeth:

Well, it’s a great question. We have a great relationship. We talk every week. The teams are being put together. As I pointed out, one of the key thing was the fact that you want us to take over and do more operations as he’s exploding in growth, he kind of is more of a KOL, I’ll say with all the docs and peracetic and the institutions that’s where you want to more or less live. As, we just put out a big press release last week here of CellReady, so he is building a new company, a CDMO type model, working with assets for marker to trying and build all that more quickly and get your customers more quickly, save a lot of time, a lot of money with start-ups and with professors with their cell ideas, et cetera. And guess what the workflow is it’s going to drive that whole mechanism. It’s scale; it’s our ScaleReady JV workflow. That means our protein, G-Rex of course, use the [indiscernible] hardware as well and work we’ll use all our incidents for Q3. We’ll have our media, we’ll have – or workflow will come in. So that makes us tighter even yes because he wants to make sure that we’re integrating for the future, too, as we build out these new ideas because he’s already kind of understanding that we’re at 20%. This deal is going to happen. So, we’re starting to really focused on what else can go and wrap around the Wilson Wolf franchise to make it even bigger and better, which is all good for us together long term. So if anything, we’re talking more and we have more ideas to the future together to build the next multibillion-dollar venture.

Chuck Kummeth:

Yes, we had a 45% quarter, and I thought of another strong comp last year, 21% or 22% overall for the category. So really strong – it’s still growing. It’s becoming close to material by next year for sure. And I think overall, we just keep accelerating. I think we’re roughly around 200 customers now, and the large ones about I’ve got a couple more, I’d say, larger, they’re all kind of scaling a little more. We’re trying to keep filling the funnel and it’s about turning these minerals into tuna and then into whales, right? So in a couple of years, we hope to have a couple of dozen whales and it won’t take many to really get this factory norm [ph] and so they’re coming.

Operator:

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

Chuck Kummeth:

Yes. Well, we’re thrilled that it’s come back to double digits. It should stay there. We’ll see. There’s a lot of opportunity. And you realize also this is not a category that’s like only biotech or only pharma. There’s a lot of academia with that franchise. So – and our academia has been kind of mid-single-digit area. So it’s one of our hurdle to get over, its keep raising actually being hit. We also have a service component with that business. And that’s been up and down. And it was better this quarter. We got to make sure we keep pounding away on that service. That service element is how we find a lot of new customers. We will start with a service contract, and then we blow them away with the data, making then they come on board and they start ordering probes and go from there. So it all works together. Akoya is very different than the Lunaphore model. The Lunaphore model, that program is for co-detection protein and RNA together on a single slide, still single morphology whereas the Akoya is all RNA only. So they’re a little bit different. We’ve been pretty clear about being a bit foot from a high level than Ventana, Leica all the way down to the lower automation with these guys. And we even play with NanoString and others in the middle trying to support them. The more they do in discovery, the more roll our way in translational later. So it’s all good. I just came from the ALDA conference and the theme was spatial and it was a record turnout by about 40% more people, spatial is hot. And there’s more common. There’s a lot more innovation. There’s more companies coming, there’s more ideas. And we’re thrilled to one of the leaders, and we’re working with all the leaders in hardware and automation. And as, we’ve got some multiplexing capability coming and now with co-detection as well that, that’s going to be – it’s going to fill a big gap out there for what people are looking for identifying what they’re really after in their tissues.

Chuck Kummeth:

Yes. You should know it, $100 million kind of run rate business right now. We’ve always talked about it being a $300 million-plus business, but that’s with discovery, but also with pathology. Having Lunaphore and having other relationships allows us to really give pathologists more what they’re looking for. So they’re not working on a single slide under a scope with one analyze at a time here is difficult. And let’s not forget, we’ve launched a whole set of new dye fluorescence, fluorophores. We call Vivid, and they are really lighting up the slides, and they’re getting a lot of great acceptance as well. You start adding where we’re going with translational riding the heels of all the discovery guys and with these new players helping us automation-wise, getting into pathology, five years to 10 years out, this is well beyond $300 million. This is a double-digit growth rate needs to be, got to be when it isn’t. We make changes here. It’s been as high as 30-plus percent on some quarters and – and we hope to be in double digits going forward. So it’s – there’s academic. There’s funding issues this year. It’s been a little bit lumpy. We’re double digits this quarter. I think it looks pretty solid. We’re excited about the relationship. I think we’re quite a few months away here yet I’m actually having revenue on a platform like that, but it’s all coming, so.

Chuck Kummeth:

Yes. It’s still 14 months away, if you’re stuck with me for three or four more quarters, and I will not be joining a band. We’ve not heard me saying [ph]. But – there is – obviously, I’ve done my job with grooming, I think three excellent internal candidates. All could carry the water here for quite a while, I think. The Board is looking outside as well. We have a fiduciary responsibility. And the fundamental reason of taking the time and looking broad is that we’re – under my watch for 10 years, we’ve, I guess we’ve increased the sales here 400% or 500% something like that in the next 10 years, we want another 400%, 500%. We’re up 6x, 7x, 8x in valuation in 10 years and another 10 years, if you want to be up another five times, six times, seven times, eight times in valuation. That puts us at needing somebody to run a $60 billion market cap company at $5 billion, $6 billion in revenue. That’s the goal. That’s the plan, and that’s where we’re operating for. And I will remain on the Board hopefully. Board willing, so I’m not totally missing so.

Dan Leonard:

Hi, good morning. Thank you for the time. Chuck, can you elaborate further on the visibility you have into the OEM destocking dynamic?

Dan Leonard:

And then a follow-up question for Jim. I want to make sure I understood your summary comments appropriately. Did you say that Bio-Techne would return to double-digit growth in fiscal 2024?

Chuck Kummeth:

Let me put a little ribbon on that. So, I mentioned our run rate – we watch our run rate and how we’re doing digitally with our catalogs. We are funded first and foremost, the catalog business for life sciences across the board, biopharma down through academia. And that’s remaining in teen tells us that things are okay. Then you look for other holes and we bridge it for you. This OEM thing is going to come and go, you pull that back, we’re back to normality. And on top of that, you have these growth programs. Our three top growth areas all hedged spectacular quarters. Spatial had double-digit, 45% GMP protein, 20%-plus in cell and gene therapy overall and Exosome at 87%. They’re not material enough right now to carry the average. But by next year, there are going to be a lot more material and they’re going to carry the average. So all the stuff fundamental coming back on top of these growth programs, we don’t give guidance, but we won’t be very happy here if we’re not a double-digit growth and so.

Patrick Donnelly:

Hey guys. Thanks for taking the questions. Chuck, maybe dive a little deeper on China. I guess encouraging to hear that 40% number thrown around for this quarter. Can you just talk a little bit about the trends you saw maybe in March and then into April, it’s not only a really nice recovery post the Lunar New Year. And then what – how do you kind of think about the go forward there? Looking back to maybe the last time this happened with the COVID lockdown, is there this big pent-up demand and it’s one quarter of really good growth? Or do you see real durability as we work our way into fiscal 2024 here, where it should be a nice stretch in China.

Patrick Donnelly:

Okay. That sounds good. And then, Jim, maybe on the margins, I think you kind of framed up 4Q looking similar to 3Q. As we work our way into 2024, is that kind of the right number to think about building off of? And can you just remind us any moving pieces that work our way into next year. Obviously, some of the headwinds hit margins as well as we work our way, hopefully back to that double-digit growth number you Chuck talked about, should be some nice leverage in the model, but maybe just frame up the margin piece exiting out of 4Q here.

Operator:

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

Chuck Kummeth:

Sure. Well, as we’ve taken on. I wouldn’t say conservative, but a careful approach to their expansion and growth. We’ve had a dilution level that we’ve been able to live with the last four years or five years, whatever it’s been now. And I would say that dilution level is down by 30%, 40% when it was because we’re investing. We’re at full strength or near to it, so we’ve almost doubled that sales force. We’ve added a new team for the experienced team to really go after five of the larger private payers. We had to get big enough to attract the right players and people and talent to do this. But I would say the size of the business is up headcount-wise, roughly 30%, 40%, maybe even a little more from a year or two ago. And – and we talked about we’re at the breakeven point. And we talked in past to finding some records that what we called it. We bought it thinking to be $30 million in revenue and then found off to top value being more like $60 million or $70 million of revenue to be a breakeven point. This team and under Lynn think it’s much better than that. So we got another year or so, 1.5 years. I think we’re adding to a breakeven point of profitability. And then maybe we will or maybe we won’t. We will decide to invest harder and stay at the levels we’re at dilution levels we’re at. I mean that thing we’ll put ads on TV for the prostate test yet. But I think this team is starting to accelerate even more. And we’re – we hit 11,000 tests last quarters, which is pretty remarkable. As you know, we’ve got the full into the guidelines now into our reimbursement equation. That means we can go back after patients that had their first test done or had a biopsy and have it again and use this for surveillance – in the entire period before last quarter, I think we had 15 tests done, that were a repeat. In the last quarter, we had over 240. So we’re going back after the surveillance patients, which is an added – which really is an added TAM, right? So that’s one thing you’re seeing, I think the growth even accelerate. And I don’t even think we get a tipping point yet. I tell the team, I’m looking for something north of 100% growth. And I think that day will come, so.

Jim Hippel:

So I would say that. This is Jim I’d say, the OEM headwind is almost exactly the same for Q4 as it is for Q3 that’s what we’re predicting as of right now. As are the general biotech softness headwinds still are with us until we get past the last year, very tough comps. As Chuck pointed out, the comp for Protein Sciences was the same in Q4 as there was in Q3 last year. So they’re book equally difficult comp. And yes – and so yes, China will be better. You won’t have the ExoTRU, but at the end of the day, I think the overall headwinds facing Protein Sciences segment are the same in Q4 as they were in Q3 and with the exception of China. But – and we expect Diagnostics and Genomics to be better because they don’t have the ExoTRU in it next year. But again, it’s only in total about 25% of our business. So the incremental China and the lack of ExoTRU is what, gets to the overall company growth rate from, call it, 3% to hopefully north of 7%.

Justin Bowers:

Hey, good morning. Just want to follow-up on some of the last couple of questions. One, on the OEM, is that headwind that you’re talking about in the back half? Is that – is that sort of like the full year headwind as well? And then just taking a step back, if we go to pre-COVID, is the business in the sales cycle to that similar to the run rate business? Or is there some seasonality and lumpiness to that business?

Justin Bowers:

Sorry, for the OEM channel.

Jim Hippel:

I mean obviously at some point, they start to run out of inventory. So we’re trying to model that again when we think that will happen, and we do think at some point in the first half of fiscal 2024, along with their sales continue – as long as they continue to have sales they’re going to need to restock and for more inventory.

Operator:

Our next question comes from Alex Nowak with Craig-Hallum. Please proceed with your question.

Chuck Kummeth:

It’s mostly macro, but I’d say we’ve not been happy with academia to last year. It’s more or less low to mid-single digits. Europe is up and down a little bit, but China was like a big zero practically. So that’s a big impact. APAC wasn’t strong either. So that this quarter, which is timing and then missing stimulus in Korea and Japan. So those things kind of weigh into that. When you add all that back in, I think things are fine Alex. No real issue there. I would say on product categories, what I’m most worried about kind of what I’ve always most worried about. It’s alliances. So that’s why we bought SimplePlex. We’re big in Luminex. We’ve got an assay portfolio that is together. It’s high single-digit growth and hopefully you’ve acted back to double-digit here soon when it all comes, but allies up and down low, mid, high single digits. That’s kind of where it lies, and it’s still a big part of our business. So it’s kind of that.

Chuck Kummeth:

I wouldn’t really update that yet because we were ahead of the game here less than a year ago from the accelerated growth that we had, we are more or less ahead everybody expected. Yes, this year, we’ve given some back. And yes, we still got a few years to go. We need cell and gene therapy to light it up. We need spatial to keep going in double digit. And we need Exosome to remain in this high growth accelerated level it is. So they become material enough to help us get there. But we are growing faster than we need over the aggregate. The aggregate number in both Exosome as well as cell and gene therapy to hit that number, it’s 50% growth in roughly that area, and we’re about there and in the protein stuff, and we’re well exceeding that in cell and gene therapy or in Exosome. Spatial needs to be solid double digit as well. I’d say we’re a little behind. We need to be there. But we have new things coming as well. So it’s too soon to say it’s going to be 1.9 or 1.95, it could easily right now still be 2.1. And Wilson Wolf that whole area is a big kicker, icing on the cake, right? So and lot of the stuff takes 10 years out. We’re just doing a lot of things are going to take a while to develop, but that they really hit their stride three, four years out. So.

Chuck Kummeth:

Well, great. Thanks, everyone, for attending. I’m glad that we kind of put the expectation set last quarter and a little better on the bottom line. And I think they were in great shape looking forward in this quarter. The team is in great shape. We were to go in the energy side, and we’ll talk to you then. Thank you.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Second Quarter of Fiscal Year 2023. 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. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations.

Chuck Kummeth:

Thanks, Dave, and good morning, everyone. Thank you for joining us for our second quarter conference call. In our second quarter of fiscal 2023, we delivered 4% organic growth on top of a challenging year-on-year comp, where we grew 17% in Q2 of last year. One year ago, the life sciences industry was in the midst of an incredibly strong biotech funding environment, spurred by COVID-related vaccine and therapeutic development that drove high equity valuations for smaller firms. It's been well documented that this funding environment has slowed in recent quarters, returning to pre-COVID levels. In Q2, we did experience a divergence in ordering patterns from our biotech end-market versus our larger pharma customer base, which is still very strong. This divergence was seen in certain large bulk reagent orders, which did not repeat this year, and the delay of instrument orders, as conservation of cash becomes more of a priority for our biotech customers. Encouragingly, the underlying research activity that accelerated during the past strong funding environment continues, which is evident in the strength of our bio-pharma research reagent run rate business, continued cell and gene therapy growth and strong utilization trends within our proteomic and analytical tools. Also, the order funnel for our protein and analytical instruments remains full, and we continue to experience record uptake of our ExoDx Prostate test. I will provide additional details on each of these growth drivers later in the call. Before we discuss the results, I'd first like to welcome Shane Bohnen to the leadership team of our new Senior Vice President, General Counsel effective March 3. Shane will be transitioning into this new role from Brenda Furlow who has served as Executive Vice President and General Counsel for the past nine years. The contributions Brenda has made to the company over the last nine years are immeasurable, including establishing Bio-Techne's legal and compliance functions and leading our corporate sustainability initiatives. I wish Brenda the very best in her retirement. Now let's get into the specifics of the quarter, starting with an overview of our performance by geography and end market. In Europe, we drove mid-single digit revenue growth in the quarter, recovering nicely sequentially from the growth rates experienced in Q1. As a reminder, Europe grew in the mid-teens last year on the wave of stronger biotech funding. We see more stability in European end markets as the year progresses and concerns around high energy prices and severe recession have tempered. The team is also nearly finished implementing a new Dublin warehouse to support Mainland Europe and a new ERP system that has been implemented with minimal disruption to our operation. North America is where we saw the biggest impact of lower biotech spend in Q2. However, North America was still able to grow low single digits on top of a prior year comp that experienced greater than 30% growth in bio-pharma and over 20% growth overall. The multiyear growth rates in North America are still double digit and in line with our long-term goals. The consumable run rate business and instrument order book also suggests that underlying research activity is still robust, and this should become more evident as we pass the remainder of last fiscal year's high biotech comps. Moving on to China. I want to first acknowledge the tremendous dedication and resilience of our team there. Following multiple lockdowns, our team has continued to supply the Chinese research market with the proteomic research reagents, analytical tools and spatial biology solutions to enable scientific discoveries in this geography. Now following a change in COVID management strategy by the Chinese government, COVID is spreading rapidly in the country, including within our China team, which is over 90% infected at one point. Thankfully, this does not appear to be a particularly virulent strain and our impacted team members are typically back to the office within five to 10 days. Despite the disruption caused by the rapid spread of COVID, our team in China was still able to produce mid-single digit growth in Q2. After the waves of COVID subside in China, most likely in our fiscal Q4, we believe a full re-opening of our end markets will accelerate faster compared to the government's prior zero-COVID strategy. Positioning Bio-Techne for a sustainable return to our historic 20-plus percent growth rate in this region. Given the proven pent-up demand in past shutdowns in 2020 and the pending RMB1.7 trillion government stimulus, we see a strong Q4 looking ahead. Now let's discuss our growth platform, starting with our Protein Sciences segment, where organic revenue increased 2% for the quarter on top of a strong comp from last year when the segment grew 19%. During the quarter, we continued to gain traction with our portfolio of cell and gene therapy workflow solutions despite a challenging year-on-year comp where we grew our cell and gene therapy business over 80% organically in Q2 of last year and within that, our GMP protein is over 185%. We still grew our cell and gene therapy portfolio over almost 20% in the quarter. Specific to our GMP proteins business, the commercial team did an excellent job growing business with existing customers as well as adding additional accounts during the quarter, culminating in a record quarter for our GMP protein business. The roadmap to adding additional GMP proteins to the menu produced in our state-of-the-art St. Paul manufacturing facility remains on track with plans in place to almost double in the number produced in this facility in the coming months. It's worth noting that GMP protein sales are driving cross-selling activity throughout our portfolio as this growing list of customers are also frequently purchasing additional items, including RUO media, proteins and small molecules. Speaking of small molecules, our GMP small molecules remain key components in the regenerative medicine cell therapy fields as they enable the reprogramming, self-renewal, storage and differentiation processes that are key to these workflows. Our leadership position in regenerative medicine workflow is driving substantial growth in our GMP small molecule business as well as specialty cell culture media, matrices in our portfolio of 19 GMP proteins that are focused to regenerative medicine, including 11 GMP proteins that are only available from Bio-Techne. The growth is so profound in our GMP small molecules that we are drastically expanding our manufacturing capacity in Bristol, UK. Now let's discuss our core portfolio of proteomic research reagents, including the RUO proteins, antibodies and small molecules that are key components to enabling biopharma and academic scientific discoveries. Collectively, our RUO reagents grew in the low teens in Q2 of last year, driven in part by a strong contribution from bulk reagent orders from biotech customers, some of which did not repeat during the quarter. We are very encouraged that excluding these large orders, the performance of our run rate research reagent business remains very healthy, especially in the US. We continue to expand our catalog of research reagents, which now includes over 6,000 proteins, 425,000 antibody variations in a growing small molecule portfolio. For example, during the quarter, we expanded the small molecule portfolio with the launch of our MitoBrilliant fluorescent dyes, enabling the fluorescent labeling and tracking of mitochondria in live and fixed cells. Initial reception to the launch was very strong with the initial production lot of these dyes selling out in the quarter. These dyes, when used with our new RNAscope Plus, small RNA for co-detection gives extremely high resolution at a single cell level and high detects short base RNA. Moving on to the performance of our ProteinSimple branded analytical tools, where the team delivered low single-digit growth in the quarter. Here, we faced a particularly strong year-on-year comp of nearly 30% in the second quarter of prior year, driven by strong adoption among vaccine and monoclonal antibody therapeutic manufacturers for Maurice in the prior period. The rapid installed base growth we delivered over the past few years is leading to a strong consumer growth, as our portfolio of biologics, fully automated Western blots and multiplex immunoassay solutions become fully ingrained in our biopharma and academic customers processes. We are very encouraged that the order funnel across all three of our instrument platforms remains very full, including a record level for our Maurice Biologics instrument, although the biotech funding environment has a length in the closing cycle. Simple Western lead instrument growth as the system's ability to automate the cumbersome and time-consuming Western blots process with a sample in and anther out solution continues to resonate with our biopharma and academic research end markets. Simple Western is turning out to be much more than an automated Western blot replacement with the system's ability to identify and quantify proteins in complex samples like lysates, leading to its use of the quantitative immunoassay platform. This expanded application for the system is driving usage in targeted protein degradation in drug tolerant studies, intracellular signaling the applications and is an alternative to customerized development. We are actively implementing marketing strategies to educate the market on these additional applications. On January 24, we officially launched our next-generation biologics platform, Maurice Flex at the WCBA Conference. As a reminder, we have seen tremendous adoption of the Maurice, since its launch in 2016. With the system's ability to provide protein purity charge and identity in five minutes in an easy-to-use cartridge-based instrument driving robust demand for the platform. Maurice Flex expands on these capabilities, adding icIEF fractionalization capabilities to instrument. Fractionalization is a front-end step in mass spectrometry, where the sample to be analyzed is separated into mixture components based on differences in their size, charge or other characteristics. MauriceFlex addresses the labor-intensive and time-consuming challenges of using legacy fractionation methods, including ion exchange chromatography. This new application allows us to expand Maurice into a new $300 million market. Now for an update on our SimplePlex branded multiplexing immunoassay system Ella. Ella’s ease-of-use sub-picogram sensitivity, smaller footprint and cost advantages continue to draw increased attention from bio-pharma and academic researchers. As our installed base of Ella systems continues to grow, now nearing 1,000 placements and utilization trends remain robust, we opened a new state-of-the-art product innovation and manufacturing facility to meet current and forecasted cartridge demand. This new facility adds laboratory, manufacturing and clean room space and increases cartridge capacity to 500,000 cartridges per year. We also successfully completed the initial ISO 1345 audit of our Wallingford, Connecticut facility as we prepare Ella to make inroads into the large and nascent clinical diagnostics opportunities that exist for the platform. ICL is possibly our largest instrument platform someday. No other tool works so well across both biomarker discovery and diagnostics. Rounding out our instrument platforms, let's now discuss Namocell, our single cell separation and dispensing platform. Recall that we closed on the Namocell acquisition in July of 2022, and we are pleased with growing interest in this novel technology as well as the progress we have made integrating the team and the business. During the quarter, a single-cell cloning workflow publication using the Namocell single-cell isolation and dispensing platform was featured in nature protocols. The study outlines a robust and scale workflow that maximize cell viability for cloning Human Pluripotent Stem Cells, or HPSC using Namocell’s low-pressure microfluidic technology, which ensures gentle and rapid dispensing of cells. We are in the early stages of realizing the potential of the Namocell platform and see a bright future for this technology, having shipped over 100 instruments to-date. Now let's shift to Diagnostics and Genomics segment where we grew revenue by 7% organically in the quarter. Let's start with a discussion of our molecular diagnostics business and the continued adoption of our ExoDx prostate cancer test. During the quarter, the team delivered the fourth consecutive quarter of record test volume as the number of tests reformed increased over 70% and revenue grew over 110% in the quarter. The combination of a strengthened marketing message to the urology community that emphasizes ExoDx is a tool to identify not only the right patients for prostate biopsy, but also drive patient adherence to biopsy recommendations, a four to five and expanded commercial team as well as the favorable impact of our reconsidered local coverage decision, LCD, with our Medicare contractor has driven sustained momentum in the business. We are seeing strong trends across the key performance indicators we track for the ExoDx prostate test, including the number of ordering doctors, the average number of tests ordered per doctor and the number of new doctors over in which all set records in the quarter. We also hired a veteran reimbursement executive with a redesigned game plan to drive favorable coverage decisions within the private payer community. With less than 20% penetration of urologists in the US, who have used the test at least once and the potential to expand the usage of our test among current doctors by 5x, we are positioned to continue the strong growth in this business for the remainder of fiscal 2023 and for the years beyond. Continuing with molecular diagnostics. Asuragen branded genetic carrier screening and oncology kits continue to grow double-digit. During the quarter, Asuragen announced a partnership with Oxford Nanopore Technologies to develop assays designed to deliver more accurate and reliable options for reproductive health and carrier screening. The collaboration combines Asuragen's long-range PCR and Oxford Nanopore's any-read length sequencing capabilities in a single workflow to identify genetic sequence variance in both hard to decipher genes and conventional genes using a single sequencing system. Our spatial biology business, branded ACD, grew mid-single digits in the quarter as a softer biotech market provided some headwinds similar to Protein Sciences. Our professional assay service business had a strong quarter as revenue increased nearly 20% year-on-year. Historically, accounts leveraging ACD's pharma assay services capabilities for biomarker discovery eventually transition into product customers, making strength in the service business a proxy for future product demand. We recently expanded our ACD portfolio with the launch of RNAscope Plus small RNA, enabling the simultaneous fluorescent detection of small regulatory RNA using our new Vivid dyes, including microRNA together with three target RNAs or RNA biomarkers in the same tissue section at single cell and sub-cellular resolution. RNAscope Plus provides gene therapy researchers with a valuable new tool to quantify changes in gene expression and cellular function in response to the introduction of regulatory RNAs, which is essential for optimization efficiency and safety. I would note, RNAscope Plus was initially offered through spatial biology's professional assay services where it saw an overwhelmingly positive customer response. Lastly, we experienced low single-digit growth in our diagnostic reagents and controls business as order timing among a handful of customers impacted the quarter. Looking at this business on a trailing 12-month basis, growth remains in the mid-single digits. With patients returning to their physicians, demand for diagnostic testing is increasing. This favorable macro environment, plus a strong pipeline of additional products positions our diagnostic reagents and controls for future growth. In summary, despite the temporary challenges created by the current biotech funding environment and the COVID impact in China, our team continues to successfully navigate this dynamic environment and grow the business. The long-term tailwinds supporting proteomic scientific research, cell and gene therapies, spatial biology and liquid biopsies remain firmly intact, and our portfolio is ideally suited to capitalize on these opportunities as they shape the future of life science research and health care. The team to execute our strategy is in place at full strength, and we remain well-positioned and more optimistic than ever to deliver on our long-term targets. With that, I'll turn the call over to Jim.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Puneet Souda with SVB Securities. Please proceed with your question.

Chuck Kummeth:

Okay. I'll try to cover that in less than 20 minutes. Thanks, Puneet. As the quarter finished, we are a little ejected. It's my 40th quarter, and it's been a few years since we've seen a growth rate like this. But as we look back into the data, man, we saw some amazing things. One, our run rate business, most of our business, both -- here in Europe was double-digit. Very strong end markets there, academia about the same, no real issues there. Biotech funding, we've -- as I mentioned last, we started digging in more and more about just how much are we becoming more of a front-end research company supporting our customers as we mitigated from academia to bio-pharma. But within that bio-pharma, how much is really biotech. And with that biotech, how much are really new biotech and start-ups and fresh research and leading-edge stuff. And it's about 30% is the number. About 20-some of most of our businesses has been in instruments, it's about 40%. And then -- and I think that's it's a funding issue right now. And as we dig in more, it's going to wash through, but there is definitely a growth being prudent. Their funding is solid right now, but they're trying to make things last. If you're further along in clinical, as you're probably okay, because it's committed. And if you're doing -- if you're a startup, there's actually funding. If you're kind of out there, but looking for your second round, it's tough right now, and it's just the way it is. So that long -- that's driven a lot of potential growth in OEM and a lot of larger orders as people are -- were starting these clinicals and doing special things with us. And there are a lot of one-off comps. Literally, it's a handful of deals that bring us back to like double-digit growth. It's kind of incredible. Now, talking about bio-pharma, the pharma side with you, that's just more about overall conservatism in general and the overhang of COVID, like vaccine makers, just the gravies over here, right? So it's just kind of a normalization, not long term, just kind of renormalizing and just, again, a little longer out for things and waiting things. And we get that vindicated to by looking at our funnel instruments. It's larger than it's ever been. Our instrument funnel is tremendous. It's just the conversion rate has slowed down a lot, as getting capital has been -- has gotten tighter for teams looking to buy instruments in our segments. And we see that flowing through as well. China will explode in Q4. I think, it may be a little better this quarter. We actually had mid-single-digit growth. I don't know how. There wasn't anybody working in the whole quarter, practically, but we still had growth. It will come back with a roar, I think, and we've seen that before. And we also have the government stimulus hitting and should be kicking in by Q4. The tenders are going out now, we've had that vindicated. So it should be a one-two punch there for China by Q4. I think that may cover most of your questions. Did I miss any?

Jim Hippel:

Yes, they are still intact. And, yes, the math would suggest that likely not hit double-digit growth for the year this year, even if we hit double-digit growth for Q4. But as I mentioned in my opening comments, if you look at it from a multi-year CAGR, we're still in the low teens and would probably end of the year still in the low teens on a multi-year basis. And that's essentially on track to where we said we'd be at this point in our five-year journey. So the mid-year -- the mid-teens is the average over five years, but again, as the cell and gene therapy continues to ramp and become more material for our business, particularly the GMP proteins, as well as the Exosome becomes more material to our business and continues at those kind of growth rates, and as Chuck alluded to, that we're still barely scratching the surface of the potential there, that's what kicks us into the mid- to higher teens growth rates later on in our five-year plan. So as far as we see it, we're still on track.

Jacob Johnson:

Hey. Thanks. Good morning. Maybe kind of first question, kind of dovetailing Jim and Chuck on what Jim was just talking about. You're still targeting this $2 billion of revenue by FY 2026. I do think in your new deck, maybe you moderated some of your expected growth for instruments and on the spatial side. Can we just touch on kind of your latest thoughts on the path to $2 billion by FY 2026, once we get beyond some of these kind of near-term dynamics that you discussed? Thanks.

Jacob Johnson:

Got it. Thanks for that Chuck. And then just the other big picture question. I heard Jim mention that I think M&A is the number one priority on the capital allocation side. So, I think that speaks to appetite. But maybe just kind of any thoughts on where seller expectations are in the current environment and any areas of interest?

Operator:

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

Chuck Kummeth:

Yeah, there's a little bit of overlap, even in this – in the area we'd call OEMs. So we've got a lot of customers like 180 customers now for gene proteins, but only a handful that are really sizable and they're a little bit lumpy still. We have some year-on-year comps in the area, they are tough as well. Even there, we still had a pretty good quarter, I'd say. And going forward, I think it is going to accelerate. We added another product to the same St. Paul were its fixed. We'll more than double that in the coming year. We have the largest menu for regenerative medicine, and we're moving with most of those over the St. Paul facility in the coming year or two as well. And we're number one there. We're playing catch-up still in the CAR T area, but it's growing strong. It's still kind of, I think, going to be a double kind of year, maybe just a hair under this year, but it won't be too far off, we don't think. And next year should start lighting up as we land a few more larger accounts and we get some things further up in the clinicals to get more volume going. We call it turning minerals in the tunes and tunes in the whales. So we have a whole pipeline of how we move these customers forward. More of indication, we had a few of these customers are fairly sizable, and they went to zero, because their funding is tight right now. So they're going to probably come back online next year, we think, as they get more funding, but they've had some stalls in some of their clinicals. These are small to mid-range biotechs that were kind of hot last year and not so hot this year. They're customers. We're also seeing that with Wilson Wolf as well. It's definitely slowed down, seeing the same thing. Area isn't anybody who has a business that's really in the CAR T, in the biotech side in clinical, I can't say the same thing. It's just honest to God, true. There are things have slowed down. There is less funding and there are less clinical starting, and that's just reality. I don't think it's long term. I think it's just a blip for this year, but it's a reality.

Chuck Kummeth :

Well, the OEM side of things was bad enough and just on a handful of deals where it took our antibody and our protein business to near to about flat. And that's a short-term blip. We need mid-level, mid-digit growth in that category. We've had way higher than that for the last two years, and in fact, double digit, so I'm not too worried about that. It's more an issue about the back end and making sure that both cell and gene therapy and exosome as a platform can get to 45% to 50% growth in that range. That's what's got to happen. Everything else is within the air bars easily to hit there, but we've got to get to that level. And then we've got a couple more years to get to that point. I don't think we're shook about it. Things can only grow so fast, and we're kind of growing pretty fast.

Operator:

Our next question comes from Dan Leonard with Credit Suisse. Please proceed with your question.

Chuck Kummeth :

No, it's a very insightful question. And I didn't bring it up on the call, but it is more late-breaking news, but we definitely had turnover in our sales force in the biologic platform area. As you know, a lot of instrumentation, things that were not in pretty hot still, larger metal things. And there's been a lot of attrition, and we lost a fair number of people. We're at full strength again, but there's definitely a component there. On spatial, we've come all the way back, I think, really down to one. Overall, we're riding our attrition to kind of stay leaner here as we ride through it. You saw our margins are held pretty well. We're on track. Part of that is that we've just not replaced everything through attrition. We had a pretty big spend plan for this year for this plan to hit these double-digit targets and they're not there. So we pulled back like any good operator would. I think we'll end up the year up 100 to 200 people, but not the 300 to 400. I think the salespeople is the biggest risk. I think there is a productivity hit we probably took in the last quarter or two off of 1,000 people turning over last year, a full third of the company that is probably unappreciated. And that will also level out going forward. But we're watching that very carefully. We're working it hard. We're changing. We've done a lot of market upgrades as wage inflation is a big hit. I mean, I think we've done a remarkable bottom line considering all the wage inflation we've actually had to absorb this past year. And we're on fighting it like everybody else. But we have a great portfolio, a lot of great sexy new products in our road map, and we're still in the business of helping people and helping people develop drugs, and that interests a lot of people to come on board. Demographically, we're a much younger company now than were three, four, five years ago and that makes you want to have more changes too. ESG is very important to us here. We have a lot of different new groups and clubs and dealing with different levels of diversity. The company has never been more focused on that. We're over 50% female in our management. We're 25% Chinese. So we've got a -- award this year for our diversity and stuff. So we're focused on all that. But youth and diversity are key in managing. That is a key to attrition, I think.

Chuck Kummeth:

I had a meeting on that, just asking those very same questions with the leadership in Asia. And, yes, tenders are going out and there is discussion. So it looks like it's very real. It's about a two-month process so I don't think we'll see much of that here in Q3. It's a Q4 activity. We kind of have them at over 100% to plan in Q4. Of course, they're trying to negotiate that. But I think it's well over 100%. If there's a reality around this RMB1.7 trillion stimulus, which is really instrument driven, then it will be real. I think there's pent-up demand already. We're already -- we had mid-single-digit growth the last quarter with nobody working. So I think it will be a quick comeback story. We have data on that, right? This happened two years ago as well after the COVID quarter, and I think it will be similar. And government is very focused on prioritizing healthcare. I mean that's what the stimulus is for. I don't think anything changes there. People just got to get back to work. Kind of tough to read right now, too, because they're just coming off a new year now, right? So they just come back to work, I think, this week even so. And we're coming back fast. I mean, we had the whole office. 90% of our people are sick at the same time. Like within a two-week period, they all got hit, that was actually similar anywhere in Shanghai.

Chuck Kummeth:

So in customers, too. So it's going to snap back pretty fast, we think, unless there's some new variant. But I asked questions about that too. About when do they expect the second wave and they don't really expect one for a while. According to the people we talk to, everyone's already got it.

Catherine Schulte:

Hey guys, thanks for the questions. I guess first, Jim, just circling back, you said adjusted for China and RUO region bulk ordering organic growth would have been double digits. Can you just quantify the bulk ordering portion? It seems like China is maybe a two-point headwind in bulk orders, four points or maybe a little bit more. Is that the right -- about the right ballpark? And then can you just quantify any bulk purchasing activity in the third or fourth quarter of last year, just as we think about comps heading into the back half of the year?

Catherine Schulte:

Okay. Got it. And then can you just talk to the rebound in Europe. On your last earnings call, you talked about September being up double digits and that strength continuing into October. So can you just walk through how things unfolded throughout the rest of the quarter?

Operator:

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

Jim Hippel:

Yes, I mean as we've talked about the last couple of quarters. We were behind in our investment -- investments and hiring for the most of fiscal year 2022 and even really fiscal year 2021. And we made great progress in catching up in those investments and catching up on that head count in Q4 in particular. And that's been a reason for our margin drag. One of the reasons for our margin drag in the first half of the year. And I think we've also been fairly public about this in the past where -- not just us, but everyone was dealing with retention issues for the last year and a half. And when you took about 3,000 employees that we ended the year at a relatively still at today, roughly a 1,000 of those employees have been hired in the last year because of both new hires but also replacements of loss folks. So, that's a huge, huge influx of new people in the organization that need to get up to speed and frankly, get productive. And so we're really focusing on getting the productivity of those folks we hired last year. And so that's really the focus of this year, which is why there's not a lot of new hiring happening nor needed. That being said, there are strategic investments we're making, particularly around our Molecular Diagnostics division to support the amazing growth we're seeing in our prostate test there. And there's a few other R&D programs that were slowing down just a bit, just to catch up from all the hiring we did last year, but nothing that's going to have any issue with our long-term growth plans.

Jim Hippel:

No, that's a great point, Chuck. We are actively reallocating resources towards those higher growth platform. So it's our prioritization process at work real-time. And as that relates to margins and by holding our overall cost base, we're relatively neutral, maybe a slight uptick throughout the year, but relatively neutral for the remainder of the year. Anyone who follows our business knows that our second half is. From a revenue perspective, seasonality-wise is much stronger than our first half, simply because our customers are at the bench more days than they are in the first half of the year without all the vacation interruption. That additional revenue on top of that same cost base should allow our margins to continue to expand sequentially.

Patrick Donnelly:

Yeah. Got you Chuck, and then maybe one on Wilson Wolf. Can you just refresh us in terms of the milestones and timing there? Has anything changed as your conviction and going forward with that change and all?

Operator:

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

Chuck Kummeth:

I think stimulus in the US, or anything related to that is here and gone. I think the OEM comments are more about consumables and the instruments are slow to basically of just prudent conservatism buying biotech and biopharma and funding in general. So it fits more funding on the instrument side and the conservatism and OEM is more on the consumable side. Well, in China, China is just they're not at work. They'll be screaming back here very soon. I'm not worried.

Chuck Kummeth :

It will be this whole calendar year. They're intending it for that. They're intending it for health care. They're intending it to be in hardware more than anything else. And we play big there. We're about productivity and hardware. So we've got more platforms than ever. So we're going to share in that as well. I mean just to put that into scope, it's 1.7, if that's the real number, that's way bigger than our entire NIH budget. So it's going to be good. It would be good for everybody.

Chuck Kummeth :

All right. Well, thanks, everyone. We'll see at the end of next quarter. I think we were as transparent as we can be. We've been doing this a long time together as a team, and we'll always be transparent. Things still look really good here. We don't see any change in our thesis. And anyway, I see the future is bright, we think. So we'll talk to you soon. Thank you.

Operator:

Good morning and welcome to the Bio-Techne earnings conference call for the first quarter of fiscal year 2023. At this time, all participants have been placed in listen-only mode. 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. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to David Clair, Bio-Techne’s Vice President, Investor Relations. Please go ahead, sir.

Chuck Kummeth:

Thanks Dave and good morning everyone. Thank you for joining us for our first quarter conference call. I am pleased to report that we started our fiscal ’23 with a respectable 7% organic revenue growth on top of what was our most challenging year-on-year comp of over 21% organic growth in Q1 of last year. We achieved this growth despite a slower summer for our business in Europe and continued, although improving, COVID-related shutdowns in China. With the tough comps and, we believe, temporary regional challenges that our protein sciences segment faced, this was the quarter for our diagnostics and genomics segments to shine, and shine it did with 17% organic growth. In our first quarter, we accelerated our spatial biology business to upper teens growth. We continue to drive incredible uptake in doctor and patient usage of our ExomeDx prostate test, and we delivered double-digit growth in our genetic Dx and diagnostic reagents businesses. I will dig into the traction and encouraging trends we are seeing across the segment in our broader portfolio later in the call. But first, I’d like to highlight the corporate sustainability report we recently issued, which details the significant progress we continue to make advancing our environmental, social and governance initiatives. The 64-page report provides insights into Bio-Techne’s commitment to growing the organization in a responsible manner while we deliver the products necessary to advance science and ultimately improve healthcare. Our advancements on the ESG front also led to Bio-Techne’s inclusion in the 2022 Forbes list of Best in State Employers, with this latest achievement representing the third recognition from Forbes so far in calendar 2022. I’d also like to briefly touch on how we are navigating the current global inflationary environment. The team has done an extraordinary job strategically implementing price increases across the portfolio to offset the impact of inflation. We will continue to leverage our pricing power to offset rising costs, particularly labor, going forward. It should also be noted that our operations team has delivered consistently with no supply chain issues this quarter or any in the past days. Now let’s discuss the specifics of our quarter, starting with an overview of our performance by geography and end markets. In North America, consistent execution across the portfolio drove low double digit revenue growth for the quarter, driven by a continued strong bio-pharma end market. In Europe, our revenue decreased mid single digits year-over-year. Here, we experienced an exceptionally slower seasonal summer dip in our consumable run rate business. It seemed like everyone was on vacation in July and August, perhaps making up for the prior two COVID years when travel was more restricted. In any case, our run rates in Europe picked up considerably in September as researchers seemingly returned to the labs; however, the strong double-digit growth in September, which by the way is continuing in October, wasn’t enough to overcome the tough Q1 growth comp year last year when they grew a record 20%. While there are potential macro challenges in the current European environment, our portfolio of proteomic research reagents, analytical tools and spatial biology solutions remain core components to the scientific discovery process and position us to effectively navigate any near term regional instability. Moving on to China, despite the lingering impact of ongoing COVID-related lockdowns and academic institutions not returning to the labs, we delivered mid single digit organic growth. On top of the COVID challenges, I’d also note that China faced a particularly challenging year-over-year comparison where we grew revenue by over 50% in the region last year. We see China rapidly returning to its historical growth rates as prior year comps normalize, customers continue to better navigate the sporadic COVID-related government restrictions, and the Chinese government continues to emphasize investing in healthcare. Our bio-pharma end market remains healthy, growing upper single digits globally for the quarter and especially stronger in North America, with growth in the mid teens. Sales to our academic end markets increased low single digits year-over-year but again were stronger in North America. Now let’s discuss our growth platforms, starting with our protein sciences segment where organic revenue increased 3% for the quarter on a very strong comp from last year, when the segment grew over 26%. Let’s begin with our cell and gene therapy business, where our portfolio of reagents, instruments, media and technologies streamlined workflows, increased efficiencies, and ultimately expanded access to these next generation therapies at lower costs to the healthcare system. We haven’t discussed TcBuster for a while, so I will update you on the significant progress we are experiencing with our non-viral gene editing technology. TcBuster has several advantages over legacy gene editing methods, including its ability to deliver larger gene editing cargo as well as a more predictable gene insertion location, all at a lower cost compared to viral base gene insertion methods. We continue to educate the market on the advantages of TcBuster, and it’s worth noting that we have signed a handful of commercial licenses to support a growing pipeline of cell therapies, primarily for T-cell and NK cell therapies. In addition to customers testing TcBuster for therapeutic candidates, we also see growing interest in discovery research to take advantage of the technology’s lower cost and increased speed, enabling the acceleration of candidate selection. TcBuster is currently being trialed in dozens of unique therapies, and we believe the future is very bright for this technology. We continue to penetrate the burgeoning cell therapy opportunity with our portfolio of GMP proteins and are seeing continued momentum in the regenerative medicine, or regen med market. As a reminder, regen med is a form of cell therapy that leverages stem cells or their derivatives to promote the repair response of diseased, dysfunctional or injured tissues. Our GMP capabilities expand beyond proteins and include a portfolio of GMP small molecules. These small molecules are key components in the reprogramming, self renewal, storage and differentiation processes that are key to regen med workflows. While our GMP small molecules business is relatively small today, it is growing rapidly, including over 100% for our first quarter, and has the potential to become a significant contributor to our overall cell and gene therapy business. Now let’s talk about our core portfolio of proteomic research reagents, including the RUO proteins, antibodies and small molecules that are key components to enabling bio-pharma and academic scientific discoveries. Collectively, our RUO reagents grew nearly 30% in Q1 last year, again highlighting how difficult this quarter’s comp was. Despite the high hurdle, our RUO reagents were able to grow mid single digits in Q1 for this year, driven by our digital marketing capabilities. Moving onto the performance of our proteomic analytical tools, where we also faced a challenging year-over-year comparison as the business grew over 25% in the same quarter last fiscal year. Overall, the team delivered double-digit growth in North America and China, which was partially offset by much lower performance in Europe leading to low single digit growth for the quarter. Once again, our biologics platform, Maurice, led the growth. We continued to see demand from protein therapeutics, gene therapy, and CRO CDMO customers particularly in North America and China, with a combined growth of over 20%. Innovation remains a key factor in the growth of our biologics business; for example, we recently unveiled data demonstrating icIEF fractionation on the soon to be launched Maurice Flex instrument. Fractionation is a front-end step in mass spectrometry where the sample to be analyzed is separated into mixture components based on differences in their size, charge, or other characteristics. The data showed how Maurice Flex addresses the labor intensive and time consuming challenges of using legacy methods, including ion exchange chromatography for fractionation. Maurice Flex is scheduled for release in early 2023. In addition to the expanding Maurice capabilities and applications, the platform is also gaining recognition for its environmentally friendly attributes. A recent study in the Green Analytical Chemistry Journal highlighted Maurice as an environmentally friendly method for evaluating the identity and stability of adeno-associated virus, or AAV samples for gene therapy development. The study highlights Maurice’s low sample and reagent volume requirements and built-in waster reservoir as environmentally attributes of the system. We continue to expand the capabilities of our ProteinSimple line of instruments in cell and gene therapy applications. During the quarter, we added three new viral titer assays for the expanding menu of our automated multiplexing ELISA instrument, Ella, for intact AAV captive quantification and gene therapy research and development. Ella’s wide dynamic range and high precision ensures users get the high quality data required to meet regulatory standards for AA titration throughout bio-protection workflows. Now let’s shift to the diagnostics and genomics segment, where we grew revenue by 17% organically in the quarter. Our spatial biology business, branded ACD, accelerated to upper teens growth in the quarter as strong commercial execution and an enhanced marketing strategy generated well-balanced growth in both our bio-pharma and academic end markets. In addition to a strong performance from the core RNAscope product line, we are seeing increased traction from our BaseScope and miRNAscope offerings in cell and gene therapy applications, which grew almost 50% and over 70% respectively. BaseScope and miRNAscope are rapidly becoming material contributors to our spatial biology franchise. We recently expanded our RNAscope portfolio with the launch of new automated co-detection assays specifically designed for the Roche Discovery Ultra platform, enabling simultaneous detection of RNA and protein on the same tissue section. These new automated multiomic assays utilize both RNAscope and BaseScope signal applications to deliver best-in-class RNA sensitivity and specificity. When combined with protein detection on Roche’s automated platform, researchers will be uniquely enabled to power translational and clinical research studies. We are also unlocking the cross-segment synergies inherent in the broad Bio-Techne product portfolio. As an example, we recently launched the TSA Vivid flourophores for highly sensitive fluorescent detection of RNAs and proteins in cells and tissues. Pairing these key fluorescent dye reagents from our small molecules business with ACD’s RNAscope sets a new standard for illuminating RNA biomarkers with industry-leading sensitivity and clarity. Rounding out spatial biology, we also recently filed a patent infringement lawsuit in the United Kingdom to halt infringement of our patented RNAscope ISH technology by a Molecular Instrument Incorporated. We have made significant investments over the years to build our catalog of over 40,000 RNAscope ISH probes available in over 400 species and remain committed to protecting these investments and defending our intellectual property rights in our spatial biology business and more broadly throughout the portfolio. Now let’s discuss our molecular diagnostics business, starting with the significant progress in our exosome diagnostics business. Test volume in our ExoDx Prostate, or EPI test increased over 70% while associated revenue grew over 100% in the quarter. Importantly, a favorable doctor retention trend and steady increases in the ordering physician base sets the stage for continued robust ExoDx Prostate growth going forward. I am extremely pleased with the traction we are seeing in ExoDx Prostate and believe our fiscal 2023 will be the breakout year for this test. Exosome diagnostics also announced initial data on a novel non-invasive saliva-based profiling assay leveraging exosomes to diagnose and monitor individuals with Sjögren's syndrome. Sjögren's syndrome is an autoimmune disease that is often undiagnosed and misdiagnosed with an estimated 4 million Americans currently living with the condition, but 2.5 million undiagnosed. Symptoms of Sjögren's syndrome can mimic other autoimmune diseases, allergies, drug side effects, and menopause, making diagnosis particularly challenging, leading to an average diagnosis time of three years and creating the need for a non-invasive accurate molecular test. We are looking forward to providing future updates for this exciting pipeline assay. A recent proof of concept study for a novel exosome-based platform capable of monitoring space flight associated neuro-ocular syndrome, or SANS, in astronauts was published in npj Microgravity, or Nature publication. In addition to potentially providing a needed tool to assist SANS in astronauts that are going on longer missions, as well as commercial space passengers, the study showcases the potential power of exosomes for the diagnosis of neurological conditions. Continuing with molecular diagnostics, Asuragen had another great quarter as demand for its portfolio of genetic carrier screening kits and expansion into Europe drove growth of almost 25% for the quarter. In addition to the ongoing geographic expansion, Asuragen has a rich product pipeline positioning the business for continued growth going forward. Finally, our diagnostics reagents business continued its streak of consistent growth quarters. The return of patients to the doctor’s office is driving demand for hematology, coagulation, and clinical chemistry tests which is driving demand for our clinical controls and reagents. These improving underlying diagnostic trends combined with market share gains and increased wallet share at existing customers led to a low double-digit growth in the quarter and sets the stage for sustainable growth in our diagnostic reagents business going forward. In summary, we continue to execute our growth strategy and remain on track to deliver our long term financial targets. Our portfolio of proteomic research reagents and analytical tools are critical components of scientific research, are key to unlocking the full promise of the proteomic revolution currently underway, and are positioned to enable the oncoming bio-wave of cell and gene therapies. Layer on to this a portfolio of diagnostics and genomic solutions that include our leading platforms in spatial biology and liquid biopsy and I believe we are just getting started unlocking the full potential value of this business. With that, I’ll turn it over to Jim.

Operator:

[Operator instructions] We have our first question from the line of Puneet Souda with SVB Securities. Please go ahead.

Chuck Kummeth:

Sure, thanks Puneet. I’ll give some comments, but I do remember when I joined it was negative, so I remember plenty of quarters below mid single digits, by the way. It’s just been a while. We are totally on our plan for five years and we had been ahead of schedule, and our models are mid single digit in our core anyway, so don’t forget that. I will cut to the chase right now about September was strong, October is remaining strong. We’re basically double-digit across the board, if not high teens, so things look good. You are exactly correct - we were really hot Q4, coming in at 14 versus consensus of 11. Definitely had some pull forwards there. We’ve done some studying and we had probably--you know, we had a lot of price increases July 1, there was definitely some of that. I think also to point out on the instruments side, we’re not too far off, it’s just more of weakness in Europe, cautiousness around purchasing. But we’ve also dug into what’s going on because our bookings and our funnel is very strong. It’s actually the strongest funnel we’ve ever had, but it’s taken longer to get through the booking cycle and signatures are coming more cautious, this last quarter especially. We were a bit robbed, we think. You know, we have not had any supply chain issues the last couple years and we’ve been pretty steady-eddy and very good growth, and a lot of other instrument makers and a lot of other higher capital or higher signature purchases have been--have had more supply issues, and we think there’s been a little bit of a bubble of pent-up demand in some areas, and I think we just maybe lost out a little bit on priority in some of the purchases this quarter, is what we’re coming to. We don’t see a lot of issues against price and we don’t see any issues, really, from September on. We definitely had a softer quarter in Europe and some of it was vacation for us. We do live in a little different world - we don’t have direct competitors, it’s kind of pieces here and there, and we have a large segment in biotech as well and there is definitely some on the midrange biotech, there’s definitely been softness, especially in Europe on signatures and conservatism overall. Going forward looks pretty strong. You heard the news from Jim there - we’re more concerned about that, we’re more concerned about our long term outlook, which we don’t think has changed a bit, and that’s some highlights there. We’ll let you dig in deeper now.

Jim Hippel:

Yes, so I guess the first thing, to address the biotech, we’re seeing performance in our smaller biotechs relative to our larger pharma. We’re not seeing much differentiation. For us, when you look at the smaller purchase, what we call a run rate business which is lower dollar value, which is probably 80% of the purchases coming through, the growth in Q2 and continuing here in October continues to be mid-teens growth, particularly here in the U.S. Back to Chuck’s earlier point, it’s really the larger bulk purchases that had tougher comps and were more, call it soft this quarter and probably faced more competition with some of the supply chain breaks that were occurring in the larger dollar instrument purchases in terms of competing for dollars. With regards to looking forward, I think Europe is still the biggest question mark. We’re seeing strong performance here early in October, but obviously the macro picture there is a bit cloudy for everyone, and that’s something we’re keeping our eyes on that could--you know, that would be the one flag that could deter us from achieving double digit, if anything.

Chuck Kummeth:

I think we’re still looking at near the end of Q3, in that range, so. I would say overall, I know our cell and gene therapy and our gene proteins, we didn’t have a 50%-plus quarter like we’d been doing. Things have leveled out. It is very lumpy still - we don’t have a lot of large, large customers, and there was some timing in some of that, and Wilson Wolf has seen some of that as well, as well as issues around clinical and finding patients, so things have softened a little but still more or less on track for what our schedule was for them. Although the improvement is in their EBITDA, their EBITDA is north of 70%, so they’re doing really well and as there’s volume, they’re getting good scale, so. So a lot of good news there too, but we’re investing into more sales reps - we’re calling it our surge team. They are helping more out, the whole scale ready team, from a proteins point of view because we’re going to be adding more and more proteins to our factory. The factory the remainder of this year, the fiscal year, we’re going to add six more products, which by far will be the largest menu out there in GMP proteins for both regen and cell and gene therapy, so that’s all a really good story. We just wanted to focus on what we thought you guys really wanted to focus on this quarter, so no issues there.

Operator:

Thank you. We have the next question from the line of Dan Arias with Stifel. Please go ahead.

Chuck Kummeth:

More or less, yes. We’re down two heads, which is about normal. There’s still attrition in our business, along with everybody else’s, but we’re pretty much at 95% full strength and have been for this quarter. We promised a succession of improving quarters since we kind of turned this around three, four quarters ago, and they didn’t come off that at all. They had a tremendous quarter at 17% growth. I would say Akoya is still more in the future. We’re kind of waiting on them at this point, but we’re ready to go. You saw our other announcements. We’re really going after this front end for mass spec. It’s a big TAM out there and we talk about--you know, LC mass spec and GS mass spec, you know, it’s one term out there, but there are different ways to be a front end on mass spec, which is a massive opportunity and we’re taking more and more share all the time, so we’re focused on that as well. But you know, SPD is good, and we’re going after it eventually, more pathology with automation, and they’re not the only game in town at Akoya. We’re working with more than just them, but we are solidified with them on a deal and the partnership is going very well, and we’re kind of waiting on them to get to the point where we can start making revenue together and getting something out of it, so.

Chuck Kummeth:

Yes, well overall in consumables for ASD, we were mid-20s for growth in the U.S., just so you know, so a very strong consumables and similar double-digit growth overall with SimplePlex in the U.S. It’s more of an issue around Europe and just some of the normal lumpiness we see with the instruments on the large orders around these big clinical with SimplePlex, but very solid. We’re knocking on the door of getting near 2,000 machines in the field, and those things chew cartridges like crazy, right, so we see a big, bright future and get ready, clinical stuff is right around the corner. We have very little in clinical yet - it’s all coming, a lot of interest. Still one of the biggest [indiscernible].

Chuck Kummeth:

Maybe in Europe potentially, and there is certainly one large customer in Europe that we’re waiting to turn on again for the next set of clinicals. If that doesn’t develop, there might be a bit of a headwind, but in general North America is steady-eddy. It’s more about Europe in your question. Overall, that is still--it’s okay, I think.

Operator:

Thank you. We have the next question from the line of Dan Leonard with Credit Suisse. Please go ahead.

Jim Hippel:

Yes, if you look at our year-over-year comps, first of all, the comps become less of a hurdle year over year as we progress through the year, including next quarter. We’re hopeful that the regional headwinds we faced, mainly in China as well as in Europe for the first two months of the quarter, this quarter will continue to improve. We have a lot of confidence in that with China and so far here in October, we’re seeing more confidence in that with regards to Europe. Had those two regions not underperformed relative to the U.S. and to their historical performance, relative performance, we probably would be talking about double-digit growth in Q1 as opposed to something below that, even with the tough comp.

Dan Leonard:

Can you elaborate further on how you’re thinking about European macro headwinds? That does seem to be a point of confusion with folks I speak to, given your end market mix.

Dan Leonard:

Appreciate that color, Chuck. Thank you.

Dan Leonard:

Understood, thank you.

Anna :

Hi, it’s Anna on for Jacob. Good morning. Can you just update us on the EPI test? I think you’re close to getting reimbursement for annual testing and use of the surveillance [indiscernible]. Where do you stand on the business development effort around this?

Anna:

You talk about exosome as a platform that could be a billion revenue unicorn. Now that you’ve partnered off ExoTru, what are you working on next there?

Anna:

Thanks Chuck.

Alex Nowak:

Great, good morning everyone. I wanted to expand on that softness in bulk purchasing that you mentioned, Chuck. I know you just spoke to Dan about the European summer vacations, but do you think any of the weakness there in the bulk purchase side is just related to just being less dollars out there for biotech projects? I know one of your peers this morning in biotech manufacturing reported--they cited some short term cash sensitivity decisions by biotech customers, so just more detail what you’re hearing out there in the field around dollars.

Jim Hippel:

I’ll just add, Chuck, we’re hearing from our commercial teams, it’s not so much--it’s not that we’re losing any kind of bulk orders or instrument orders, it’s more about delay in getting them through the system.

Chuck Kummeth:

Yes, great question. I had a long career at 3M which had a lot of operations management in a low growth company, so I know how to pull triggers on and off, and I know how to deal with things when they slow down or whatever. Attrition has been more or less a nightmare for us and everybody, and so we are still full steam ahead. Part of our margin impact has been the catch-up in hiring, and so we’re still looking at doing that, so we’re really hiring hard in SVD, hiring still in China. China is lighting it up again. Namocell, our new acquisition, we’ve almost doubled their headcount in the six months we’ve owned them, but in other areas that we’re maybe looking softer to antibodies [indiscernible] we talked about this quarter, we’re looking at mission critical needs and replacements and looking at as we expand. As businesses grow, they need people. If they’re not growing, they’re going to need less people. We are still on a track--we added 300 people net last year, I’d be shocked if we didn’t add 300 net this year, to be honest, so. We’ve got a cautious outlook in some areas. We’re looking at all the areas that we manage - we have five divisions and we have roughly a dozen or so business units. As you know, a couple are super important to us - cell and gene therapy, exosomes, and so those are kind of what they need is what they get. Even Asuragen, growing near 25%, lighting it up in Europe, needing people, we’re adding people. I’m more concerned about losing great people and getting behind all this attrition. It is getting better, as you commented and you asked about, much better. People are coming back to work, too, so people are wanting to come back to work finally.

Operator:

Thank you. We have the next question from the line of Catherine Schulte with Baird. Please go ahead.

Chuck Kummeth:

Yes, well, we were roughly 12 or more full points ahead of last quarter in growth, so we’re on our trek back. We expect mid teens, in that range for this quarter, and on our way back to 25 end of the year as a run rate level. Kind of expecting the year to be roughly 20-ish or so, even with the soft dig-out here from the China lockdowns. It’s still sporadic; in fact, we’ve got meetings this week where I was trying to get my head of Asia in. He was in Shanghai and he couldn’t get out because he couldn’t get through Canada, through visa issues, so. We just heard Disney locked people in their resort and they won’t let them go because there’s an outbreak or something, so it’s going to be almost building by building, block by block is the way it’s been described to us. It’s not city-wide and it’s not over yet, but I would say it’s drifting slowly towards opening overall. We don’t see Shanghai locking down again, which would hurt our warehouse, so we think we’re still open for business across China. We talked about the steady improvement in China and we’re on track, if not better than on track for this quarter and beyond.

Chuck Kummeth:

We have not enough whales, a few tunas, and way too many plankton in our customer list, so we’ve got 150 customers that only a handful are really large ones, and obviously the there’s a timing issue, they’re spotty in their orders for their clinicals and such. We are adding people and driving the pipeline and just getting out there, doing more with Wilson Wolfe and our scale ready team to try and get our stuff pulled in, focusing as much on regenerative medicine as we are in cell and gene therapy, because we are the leader in regen medicine for reagents whereas we aren’t in cell and gene therapy, and we have a lot of buy-in there. A lot of the new products going out are for regen med, so we’ll have the largest portfolio. We do now, but we’ll have the largest in St. Paul as well by the end of the year, we think, of menu items. We’re sampling a lot. People are astounded at the lot to lot consistency in what we have, but end of the day, it’s not the big ticket item for doing a clinical. The reagents are important, they’re critical, but you’re going to have to show more than just price and things to work your way in, and whereas we’re in the pole position in regen but we’re not in cell and gene therapy, so we’re still fighting some big competitors out there with Celgene, [indiscernible] and others, but we’re holding our own and growing nicely and it’s coming, so.

Operator:

Thank you. We have our next question from the line of Patrick Donnelly with Citi. Please go ahead.

Chuck Kummeth:

Some was high teens. I think I said double digit to mid teens, maybe there was a high teen or two. Primarily it is around all the different platforms we have in PSS. They are having a good October and still focused more on the U.S. We’re still collecting data here for Europe. Europe is improving, but how could it not improve, so. So yes, strong, proteins for sure, antibodies for sure, assays for sure.

Jim Hippel:

Yes, and it’s really going to be volume leverage that will allow us to continue to expand our margin on a go-forward basis. I think we’ll still have the same headwinds around FX and around that price inflation dynamic, even though we’re covering inflation dollar for dollar. But the investments--you know, as Chuck mentioned earlier, we caught up in a big way in the second half of fiscal year ’22, particularly in Q4 with our growth investments, and so it’s much more surgical in terms of the investments going forward as opposed to hire everyone you can kind of mentality, as it was the past couple years. With the growth investments moderating and the volume ramping as we sequentially go through the year, you can expect that leverage to drop to the bottom line and margins to expand.

Operator:

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I’d like to turn the call back over to Chuck Kummeth, CEO for closing remarks. Over to you, sir.

Operator:

Thank you. Ladies and gentlemen, this concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2022. 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-Techne's Vice President, Investor Relations and Corporate Development. Please go ahead.

Chuck Kummeth:

Thanks, Dave and good morning, everyone. Thank you for joining us for our fourth quarter conference call. We had a tremendous finish to our fiscal 2022 as our 14% organic growth for the fourth quarter cap of the year where we delivered 17% organic growth for the full fiscal year. In our fiscal 2022, we surpassed an important milestone as we exceeded $1 billion actually 1.1 billion in revenue for the first time in our corporate history. These strong results were delivered in the face of the most challenging comp the company has faced since I joined in 2013 and the impact of a longer than expected COVID-related shutdown in China. I'm extremely proud of the global team strong execution this dynamic environment. Some of the highlights in the quarter include continued strength in our biologics instrument portfolio, we delivered over 30% growth for the seventh consecutive quarter. Ongoing traction with our cell and gene therapy workflow initiatives return to double-digit growth in our spatial biology business, as well as another consecutive record setting quarter for ExoDx prostate tests. We remain incredibly well-positioned and under penetrated some of the fastest growing life science tools and diagnostics markets. In our portfolio, proteomic, genomic and diagnostic products continue to deliver the solutions necessary to drive scientific discoveries and ultimately improve healthcare. Given the inflationary environment we are all dealing with let's briefly discuss how we are successfully navigating these challenges. As a reminder, approximately 80% of our revenue mix is consumables and encouragingly given their biological nature these tend to have more modest raw material costs. Approximately 10% of our sales are instrumentation where we do have higher input costs but still maintain gross margins in line with corporate averages. We have been strategically implementing price increases throughout our portfolio to offset our exposure to rising costs, including labor, and will continue to pull this lever going forward. Speaking of labor, we made significant progress in our human capital initiatives in the quarter. encouragingly, we are seeing signs of an improving labor market is some of the headwinds we faced in recent quarters to attract and retain talent appear to be subsiding. In fiscal 2022, we added over 400 individuals to the team and have grown to over 3000 Bio-Techne team members. These net headcount additions were across the organization as we strengthen the commercial, technical and corporate team at all levels. We will continue to hire as we execute our strategic growth initiatives going forward. And I'm very encouraged with the recent progress on this front. Now let's discuss the specifics of our performance this quarter, starting with our geographies and end markets. From a global perspective, we experienced robust growth across geographies with the exception of China, our North American revenue grew in the upper teens for both the quarter and our fiscal year. In Europe, we finished on a very strong note because we grew in the mid-teens for both the quarter and the fiscal year. For China, first I'd like to recognize the relentless efforts of the team. Our China base being successfully petitioned to be one of the initial companies permitted to return to work, as our products were deemed to be critical to the country. Once we were allowed back in our Shanghai based warehouse that serves as a distribution hub to all of our China base customers, our dedicated team literally lived to the facility. To ensure we were able to begin supplying the research community with proteomic reagents, analytical tools and spatial biology products. These COVID-related lockdowns lasted longer than expected in several large cities. Overall, organic revenue in China declined low-single digits for the quarter. These important Chinese market started the reopening process in June and we saw a nice bounce back in revenue especially in our research reagents business. The strong June performance is encouraging and we look forward to returning to our historical growth trajectory in this geography. Once again, our biopharma end market remain very strong growing over 20% globally for both the quarter and the fiscal 2022. Sales in our academic end market increased in the upper single digits for the quarter, and the mid-single digits for the fiscal year. We are seeing signs of continued improvement in our U.S. academic end market. As research budget clarity, and increased NIH outlays are benefiting spending on our research reagents, proteomic analytical tools, and spatial biology solutions. Now let's discuss our growth platform starting with our protein sciences segment where we grew organically by 16% for the quarter, and 19% for the fiscal year. During the quarter, we advanced our cell and gene therapy initiatives. As our reagents media technology and workflow solutions continue to deliver the necessary solutions to progress therapy development and clinical trials. Before we get into the numbers, I'd like to highlight an emerging cell therapy application called regenerative medicine that is garnering significant investment in clinical trial activity, which in turn is driving growth in our technologies and products enabling these workflows. This background, regenerative medicine or regen med, leverages stem cells or their derivatives to promote the repair response of disease dysfunctional or injured tissues. Stem cells are unique as they can be induced to differentiate into any cell type. For example, muscle, heart, pancreatic, nerve and blood cells. This functionality has found robust BioPharma activity to use stem cells as a treatment and potential cure for many diseases and chronic conditions including diabetes, tissue repair, spinal cord injury, chronic wound healing and others. This increased activity is sparking demand across our portfolio of cell therapy products and technologies including reagents, assays, media, instruments and spatial value products. Our portfolio GMP proteins includes 19 cytokines, including 11 that are only available from biotechniques that are key to scaling these regen meds activities. Disinterest in regen med is also acting as a significant tailwind for our matrix products, as these provides structural support for cells and play an important role in establishing tissue organization by influencing cell adhesion, proliferation, migration and differentiation. Our portfolio of matrix products increased over 110% in the quarter and are quickly becoming significant contributors to our burgeoning cell and gene therapy business. Specifically for our GMP protein business during the quarter, we transitioned two additional GMP proteins to our state-of-the-art GMP protein dedicated manufacturing facility. Following these latest launches, we are now manufacturing five GMP proteins in this new facility at the scale and capacity necessary to meet current forecasted demand. Overall, our portfolio of cell and gene therapy products, technologies and solutions increased over 50% for fiscal 2022. Now let's discuss the performance of our research reagent portfolio including our broad catalog of RUO proteins and antibodies. Once again, our brand reputation targeted new product introductions, marketing strategy and execution road above market growth as our research reagents increased low teens for the quarter and mid teens for fiscal 2022. During the fiscal year, we added approximately 1000 new R&D systems branded proteins, antibodies and small molecules, including research reagent strengthening our core portfolio and immunology, immune oncology and targeted protein degradation. Shifting to our proteomic analytical tools where the team delivered mid-teens growth for the quarter and high teens growth for the fiscal year. Once again, our biologics platform Maurice lead the way increasing were 35% in the quarter. This marks the seventh consecutive quarter of above 30% growth this platform as we continue to see strong demand for protein therapeutics, gene therapy and CRO, CDMO customers. We recently dramatically improved Maurice's speed with the launch of the turbo, the SDS cartridge. This new cartridge delivers a full 100% throughput increase compared to legacy cartridges, enabling higher speed and high-resolution analysis of protein size and purity across all stages of bioprocess development as well as regulated areas including quality control. Separately, a multi-company study published in the Journal of electro freezes showed excellent comparability of Maurice to its predecessor instrument ICE3. As background, we launched Maurice in 2016 as the next generation system in our ICE instrument portfolio. Multiple biopharma companies have requested comparability data between ICE3 and Maurice prior to upgrading, and we anticipate this study will help these customers eventually transition to Maurice which offers ease-of-use and increased functionality compared to the legacy system. Our Simple Western portfolio of automated western blot solutions continues to gain share, as the ease-of-use reproducibility and speed compared to manual methods resonates with both biopharma and academic end users. This growing awareness and utilization of Simple Western is evident when looking at the number of publications citing simple Western data. As of the end of the quarter, there were over 1600 cumulative publications fighting our Simple Western technology, representing an increase of 12% during the first half of calendar 2022. We view publications as a leading indicator for the growing acceptance of this technology and believe we are positioned for continued growth going forward. Our Simple Western business increased in the mid-teens for the quarter, and in the high-teens for the fiscal year. We continued to experience strong demand for a simple flex automated aminoassay platform Ella from cell and gene therapy customers as our recent assay additions for AV characterization, [indiscernible] 293 host cell proteins and perforin drive adoption in both process development and QC release. In fact, we increased the number of CGT customers selling gene therapy that is leveraging Ella in their workflow by over 65% during the fiscal year and anticipate growing interest from additional accounts as we continue to expand our relevant menu offering. During the quarter, we announced the latest addition to our family of instruments and consumables with the acquisition of Namocell, a leading cell sorting and dispensing company with two instruments currently in the market. Namocell's proprietary instruments and consumables addressed several high growth markets including cell and gene therapy, cell engineering, cell line development, single cell genomics, antibody discovery, synthetic biology and rare cell isolation. While Namocell's business is relatively small today, it is growing quickly, and we are excited to have this technology and talented team under the biotech umbrella. We closed this acquisition on July 1, and initial integration work is progressing nicely. Lastly, our amino acid kit business finished the year on a very strong note as this business grew low double digits for both the quarter and the fiscal year. In addition to healthy demand for ELISA kits, we are increasingly being recognized as the partner of choice for developing Luminex assays for our partners to run this lab designate test or LDT. For example, we recently announced an agreement as the exclusive manufacturer of Nanogens Biosciences oncuria bladder cancer diagnostic panel. This Luminix based multiplex panel combines biotechniques high quality reagents and over 40 years of industry leading immunoassay experience with nanogens, diagnostic experience to create a powerful solution to advanced bladder cancer treatment strategies. Next, let's discuss our diagnostics and genomic segments where we grew revenue organically by 8% in the quarter and 10% for the full fiscal year. Our spatial biology business branded ACD remains the largest global spatial biology business as our highly sensitive biomarker identification technology with single cell detection resolution and quantification capabilities continues to enable the transition from discovery to translational research. Spatial biology returned to double-digit growth in the quarter as an improving academic market and the impact of our fortified leadership in North American commercial teams fostered a challenging year-over-year comp and the impact of the China shutdown. During the quarter, we achieved a significant milestone for our facial biology businesses our market leading portfolio across 40,000 unique RNA scope in situ hybridization probes in over 400 species. We also announced the launch of our CE-IVD RNAscope ISH probe high risk HPV assay for use in patients with head neck cancer to aid in the identification of high-risk Human Papilloma Virus HPV, for use on the automated Leica biosystems BOND III stainer with our sales territories occupied leadership team in place to drive this business forward and expectations for the U.S. academic market to continue to improve. We are expecting steady improvement in our spatial biology growth rates in the coming quarters. Moving on to our molecular diagnostics division. Let's start with a significant progress our X Zone diagnostics business delivered in the quarter. The ExoDx prostate or EPI tests continued to benefit from increasing traffic, the physician office for initial or follow up visits, which in turn, drove improving diagnostic testing volumes including PSA tests, which is a prerequisite for EPI test. This improving physician office environment combined with our digital and traditional marketing initiatives drove almost 70% year-over-year ExoDX prostate test volume growth, as testing levels broke a quarterly volume record for the second quarter in a row. The Exosome diagnostics team had a strong presence at the American Urological Association or AUA conference in May, including the presentation of two posters, as well as six in Lewis Scientific presentations. This was also a great forum to highlight our ongoing partnership with former Baltimore Orioles player “Iron Man, Cal Ripken, Jr, who remains an ambassador and advocate for the ExoDx prostate test, which was a part of Cal [indiscernible] prostate cancer journey. Separately, our Medicare Administrative Contractor, National Government Services held a public meeting following our request for reconsideration of our local coverage decision also known as a LCD. As a reminder, we have made significant progress getting the existing LCD to align with a National Comprehensive Cancer Network or NCCN guidelines. Although a few key differences remain, most importantly if the current LCD does not reimburse for repeat usage of our ExoDX prostate test or for patients who previously had a negative prostate biopsy. If successful, the reconsidered LCD would remove these limitations enabling the use of our ExoDX prostate test as a surveillance tool. We encouraged following the opening meeting, and are looking forward to the issuance of the final LCD. Continuing electrodiagnostic, Asuragen had a great quarter as demand for its portfolio of genetic carrier screening kits, or electro diagnostic controls as well as initial traction in Europe drove growth of over 25% in the quarter. In addition to the ongoing geographic expansion, Asuragen has a rich product pipeline positioned the business for continued growth going forward. Finally, our diagnostics reagents business continues to trend a steady growth in the quarter. The return of patients the doctor's office is sparking demand for hematology and clinical chemistry tests, which is driving demand for our clinical controls and reagents, improving patient office visit trends a full pipeline and opportunities for additional share gains within our OEM partners set the stage for sustainable growth in our diagnostic reagents business going forward. Most of you probably saw the press release issued this morning announcing the plan leadership transmission coming in two years. Following the conclusion of our fiscal 2024, I plan to retire is the CEO of Bio-Techne, and intend to continue to serve as a member of the Board of Directors. During my tenure, the Board and I have built an incredibly strong bench of talented results driven leaders that could serve as potential internal replacements. Over the same timeframe Bio-Techne has grown into a leading life science tools and diagnostics company. And I have no doubt that our accelerating organic growth profile in sector leading profitability will attract extremely high caliber external candidates as well. The board's search for a potential replacement has already begun and we will update you when there is news to share. One thing is certain, with a team now over 3000 strong in a product portfolio, directly aimed at some of the hottest areas of scientific research and diagnostics Bio-Techne is positioned to continue to execute our strategic plan during the next two years under my leadership and beyond. With that, I'll pass the call over to Jim.

Operator:

Thank you. [Operator Instructions] Our first question comes from Puneet Souda with SVB Securities. Please proceed.

Chuck Kummeth:

I think, man, they keep doing what we're doing, so we had a hell of a year 17% growth, we'll be giving our usual, mild range guidance here for the coming year. And it's start with the double-digit for sure. As you know, by the end of our cycle 2026, we're going to be at a 17% for sure, right, we need to be there to hit the 2 billion and we're more confident of ever doing that. The team is, over the last almost 10 years I've been here, we've been building it. And with the retirement of [indiscernible], last year, we picked up guys who has extremely strong domain knowledge in all the hot areas that we're getting into cell and gene therapy in particular. So the bench is set. Of course, Jim is here, Jim's 10 years younger than me. So, got a long runway to go here with some solid candidates internally, as well as the board will do their fiduciary duty, and they'll look externally as well. They've already talked about that. And we're doing a two-year glide path here. So there's nothing overnight till by the time, I'm out of here. And I intend to be on the Board and going forward from then we'll be close to our 2 billion hopefully anyway. So I'm more worried about and thinking about that the person replacing me, when I'm doing my tenure, it'll be a 500% growth 5x from when I started then person replacing me has to have that kind of runway so we can take it from one half billion or more to between 7.5 billion and 10 billion and the pawns we're in as, we're low in share in all the markets we serve, we see no problem making this a fantastic company going forward and an even stronger leader in the life science tools and diagnostic market so.

Chuck Kummeth:

Well, we've never been in a stronger position for cash and for our debt level. So we're definitely hunting. But we fully expect to consummate the first tranche of our deal before end of the calendar year here, that takes the 20%. So for $250 million, less the upfront option that we gave them. So they're on track, the growth is steady, 700 to 800 customers, de facto standard, nothing is impeding that. And we have also $100 million or so for Namocell as well. And Jim can talk about our leverage going forward, but we're certainly going to get a little more cash and but we're sitting in a great spot to do it. And then I've mentioned before, this is going to be an excellent year for M&A. It's already taken off pretty strong because you look at our peers across the world here.

Operator:

Our next question comes from Jacob Johnson with Stephens. Please proceed.

Chuck Kummeth:

Yes, sure. We finished the quarter very strong and as we've mentioned, in the past, we haven't seen too much degradation in any of our markets. We finished in the U.S. biopharma around 30% growth and academia keeps trickling, north and our near high single digit growth for the quarter in the U.S. better than that, in Europe again, teens. But we are looking forward, it's kind of hard to answer because looking now from July. July is kind of soft for us anyway, as for everyone, and it kind of gets -- it's different year-on-year. I do think that this is a year where a lot of people are tired and traveling and taking off for the first time. So I think we're seeing some of that. What we'll see right now, we see strong continuing momentum in biopharma, you are specifically asking about biotech. We'll see. But I think most of the markets are still doing fine that you've seen our peers pay and make the same kinds of statements. But it's hard to really make the statement going into July and August. Anyhow some of our areas, especially like exosome, this is one there, it’s the softest time of the year for them anyway, so things like that, but we'll know more in about a month or so. And we're not too concerned yet. I mean, things are kind of like we usually see about this time of year.

Chuck Kummeth:

Yes.

Dan Arias:

Good morning, guys. Thanks for the questions. Chuck may be on ACD. Good to see a return of double-digit growth there. I have you at right around 10% growth for the year. The long-term CAGR that you outlined at the Analyst Day is mid 20. So for that portfolio, how do you think fiscal 23 growth fits into the trajectory there? And then relatedly, Jim, how much of the hiring that you've highlighted as necessary for that business? Have you been able to complete at this point?

Jim Hippel:

No. I think, it’s well said.

Catherine Schulte:

Hi, guys. Thanks for the questions. And I will echo the earlier comments about [indiscernible] but glad we get a little bit longer with you. Was hoping you could give a little more color on what you're seeing in China. I think after the initial COVID lockdowns, you saw some stocking once customers returned to the bench. So is that something you're expecting to happen in your fiscal first quarter?

Catherine Schulte:

Great. And I was hoping we could talk a little more about the Namocell acquisition, what are the growth rates and margins there and how do you expect those to trend over the next few years?

Operator:

[Operator Instructions] Our next question comes from Alex Nowak with Craig-Hallum Capital Group. Please proceed.

Chuck Kummeth:

Yes. So the plan this year is kind of like last year, we'll start out a little softer and very strong, just like we did. Comps, it’s still a tough comps for us in Q1, and then they get a little better for us going forward. But not that much better. This is an aggressive business, and we're a double-digit player now, we expect to continue. We as you know, Alex, we don't give real guidance, least we don't get quarterly. But we do think that our range of this coming year is something probably 11 and 12-ish percent to up to mid-teens in that range. And we'll keep you posted as we do better. But as you mentioned, with China's still being a little a little softer as we go forward to fully turns on, which is really more like Q2, and other situations out there, we'll see. But we have other things that are counteracting these possible slowing, I mean, [exo] [ph] was lighting up, you guys aren't asking about light in the exo. But it was in a tremendous quarter with 70% test growth, 40% organic growth and over 7000 tests. We are just killing it. And it's their time and it's going to be taken off. We're going to an accrual methodology pretty soon here as well, if not this coming quarter. It's time that the reconsideration is going to really allow us to double the TAM for us. We've got 75,000 tests that have occurred out there in the past that are all waiting for a reoccurrence. And so there's a lot of upside there. We just talked about spatial. Spatial is back in the in the groove. And it's already $100 million business in that range. So it's material. And as long as our core stays where it is, and proteomics is still strong, biopharma, it's 30% kind of growth rates, we see an amazing double-digit year ahead of us and we're not going to get more bullish than mid-teens at this point, but we never do.

Chuck Kummeth:

Well, we're getting pretty darn close to a complete closed workflow. There's not much left that we need. I would say cryopreservation will be one area. There are some more cell analysis type tools and I guess, call them like QC areas and stuff where the process that might make sense. Obviously, we need to capitalize on scale ready and with getting Wilson Wolf under the 10 tier that'll take care of our bioreactor needs, but it may not be the only one. There may be a place for bags out there and there certainly is the going upstream into the bio processing side of all this, which we really haven't done yet. But as we grow we're going to probably naturally trend that direction, starting first with our proteins and all the things we'll be doing in bulk for customers, right. And I think then the instrumentation, we're counting on the Q, out of [indiscernible] with our scale ready JV. And if that doesn't work long-term, we'll have to either acquire that or do something different. But we then obviously have to have an instrument for [indiscernible] freezes to make the system complete. And right now they've been a fantastic partner. And they're, I wouldn't say as strong as Wilson Wolf, it’s stronger than us right now in proteins. They've been out there a while, and they've got a lot of traction with that platform. And we think we're ready to explore this thing as there is a market, creates itself, which is really the limiting factor right now, as well as this market really come into being and it's coming more every year.

Patrick Donnelly:

Hey, guys, thanks for taking the questions. Jim, maybe one for you on the guidance. Just on the margin, side, talking about kind of that exit rate of 100 bps expansion in 4Q. Can you just talk about how we should think about the ramp throughout the year. And then just the key levers, both directions between pricing, supply chain inflation, some of the exos stuff, Chuck mentioned the accrual side. So maybe just talk about the moving pieces there and how we should think about margins throughout 23.

Patrick Donnelly:

Yes. That's helpful. And then, Chuck, maybe just a quick one on kind of the capital allocation strategy, given the announcement this morning and congrats on the two years. In the next two years, any, is there any reason you guys wouldn't do deals because you're leaving, or what's kind of the way to think about kind of this in between period on the capital allocation set?

Operator:

Our next question comes from Paul Knight with KeyBanc. Please proceed.

Chuck Kummeth:

Yes, sure. Well, it's going back six, seven years now. But we did that deal pretty quickly it was on the eve of an IPO and we snatched it. And it was a $50 million business back then not making money. And today, it's a $250 million business making over 30% margins. And it's an instrument business, it's got great IP, we have other things we can add to the platform, we think, and we have runway across all three major platforms, as we've talked about, a lot, I mean, everything from the Ella platform, which we're completing within a year of 510(k) process, the 1345, a brand new facilities, manufacturer they can more than triple the output. So that'll be a sleeper that'll be in pretty much point of care diagnostics in five years, as well as the discovery it's in now, which is crazy growth. But Western is still an amazing platform with way more ahead of it than behind it. And biologics just keep surprising us. I mean, seven quarters in a row over 30% growth. And protein purity, capsid testing, HPLC share taking this thing has got lots of runway, as well, more than we ever thought. So, I look at it and I leave in two years, or I move on to the other board positions and stuff and thinking about here, it's going to be 400-ish, kind of million dollar business unit. And there's no reason why this can't be a billion-dollar unit someday. And it'll have other instruments will add to the platform over time to I'm sure that so. If it was fun out right now, obviously, it'd be really valuable. So I think we paid 300 million for it. So it's been an amazing return, and probably the biggest chunk of our overall value creation over the last 9.5 years, I've been here, which is roughly 2 billion to -- I think today, we're in the 15 billion-ish range. We were 20. But we're all seeing a little setback there. But we're very positive, because we see as the market finally, I guess, bottoms with conviction that there is the Fed done, et cetera, et cetera, there'll be a flow to quality first, and you don't find better quality in an asset than ours.

Chuck Kummeth:

Yes. As you recall, we've been very, very bold in our statements about what we want to be and we don't want to be in diagnostics across the board. We don't really -- don't want to be in infectious diseases in these low-end things that hard to make money and lots of competition, no barriers to entry. But we're a company that's focused on oncology, curing cancer from a research sense, as well as neuroscience, and diagnostics that fit in those realms, because they leverage our assay expertise, 40 years’ worth of experience, that's where we want to flow. The Asuragen team, really came on and helped us immensely. This team is amazing, and they've just lit it up, there. It was the right idea to put this business unit in charge of professionals that have over a decade of experience in diagnostics. And I'm not going to say we won't pick up other assets, but if we do, they're probably going to be, closely related in an areas where there are good returns, no need for heavy difficult science, which usually means going after solid tumor or something in oncology, the difficult areas. And we'll see, there's lots of opportunity here. And we'll never say never. Right now we're kind of focused on, it's a new division with the merging of Asuragen with Exosome. And the growth has been wonderful. And it's lighting up, it's accelerating. And so we're going to ride that horse here for a while and we'll see what happens. But we're still focused on making that a major, major platform for the company. And then I've told you guys more than once you see look out five to 10 years. This is one of the few things we can say in our company, it should be a billion dollars or more. Mr. Kummeth, there are no further questions at this time. Please continue with your presentation or closing remarks.

Operator:

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day everyone.

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David Clair:

00:34 Good morning, and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. 00:42 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, as well as the potential impact of the COVID-19 pandemic on our operations and financial results. 01:05 The company's 10-K for fiscal year 2021 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. 01:31 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 Bio-Techne Corporation website at www.bio-techne.com. 01:50 I will now turn the call over to Chuck.

Jim Hippel:

15:52 Thanks, Chuck. Starting with the overall third quarter financial performance. Adjusted EPS was a record $2.14 versus $1.81 year ago, an increase of 19% over last year. Foreign exchange negatively impacted EPS by $0.03. GAAP EPS for the quarter was $1.48 compared to $1.12 in the prior year. Q3 revenue was $290.4 million, an increase of 19% year-over-year on a reported basis and 17% on an organic basis. Acquisitions had a favorable 3% year-over-year impact and foreign exchange translation had an unfavorable impact of 1% to revenue growth. 16:30 From a geographic perspective, China led all geographies growing over 30% followed by the U.S. increasing in the upper teens, and EMEA increasing in the upper-single digits for the quarter. The rest of the world grew in the mid-single digits. By end market biopharma remained very strong growing nearly 20%, while Academia increased mid-single digits year-over-year. 16:51 Moving on to the details of the P&L. Total company adjusted gross margin was 73.2% in the quarter compared to 73% in the prior year. The increase was primarily driven by favorable business mix, partially offset by the impact of foreign exchange. Adjusted SG&A in Q3 was 26.1% of revenue compared to 25.6% in the prior year, while R&D expense in Q3 was 7.5% of revenue compared to 7.0% in the prior year. The increase in SG&A and R&D was due to the acquisition of Asuragen in the fourth quarter of last year, as well as investments made to support our long-term strategic growth. 17:30 The resulting adjusted operating margin for Q3 was 39.6%, a decrease of 80 basis points from the prior year period, but an increase of 130 basis points over Q2. Excluding the impact of the Asuragen acquisition made last April and the impact of foreign exchange, adjusted operating margin was in line with the prior year. Looking at our numbers below operating income. Net interest expense in Q3 was $2.2 million, decreasing $0.2 million compared to the prior year period. The decrease was due to a continued reduction of our bank debt. 18:00 Our bank debt and the balance sheet as of the end of Q3 stood at $259 million. Other adjusted net operating expense was $1.1 million for the quarter compared to $4.3 million expense for the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For GAAP reporting, other non-operating income includes unrealized losses from our investment in ChemoCentryx. 18:27 Moving further down the P&L, our adjusted effective tax rate in Q3 was 21.2%. Turning to cash flow and return of capital $73.1 million of cash was generated from operations in the quarter and our net investment in capital expenditures was $15.1 million. Also during Q3 return capital to shareholders by a way of $60.8 million in stock buybacks and $12.5 million in dividends. We finished the quarter with $41 million average diluted shares outstanding. Our balance sheet finished Q3 in a very strong position with $231.2 million in cash and short-term available for sale investments keeping our net debt position negligible. 19:07 Next, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q3 reported sales were $213.2 million with reported revenue increasing 15%. Organic growth for this segment was 16% with foreign exchange having unfavorable impact of 1%. Within the segment, the growth was very broad-based in nearly all reagent assay and instrument platforms. As Chuck mentioned, cell and gene therapy increase over 40%, our RUO proteomics research reagents grew nearly 20% and our ProteinSimple branded instruments and consumables increased in the mid-teens on very tough comps. 19:42 Operating margin for the Protein Sciences segment was 45.4%, a decrease of 250 basis points year-over-year with favorable volume leverage more than offset by strategic investments to support future growth and to a lesser extent the impact of foreign exchange. 19:59 Turning to the Diagnostics and Genomics segment. Q3 reported sales were $77.7 million with reported revenue increasing 34%. Organic growth for the segment was 19% and the Asuragen acquisition from last year contributed 15% to growth. Within this segment, the Diagnostics Reagents business increased mid-single digits and the ACD branded spatial biology portfolio delivered upper-single digit growth in the quarter. With increased clarity on academic funding and a sales force as it approaching fully staffed, we anticipate improved growth rates in our Spatial Biology segment going forward. 20:34 For Exosome Diagnostics, revenue growth accelerated as prostate cancer test counts -- as prostate cancer test counts increased over 50% compared to the prior year period, representing a quarterly test volume record. We are encouraged with the volume trend and anticipate continued improvement as our marketing strategy and value proposition resonates with physicians and patients. As Chuck mentioned, we earned initial milestone payment related to the ExoTRU kidney rejection test track -- technology transfer to Thermo Fisher Scientific, in which the financial details of our agreement were not disclosed. 21:08 Moving on to the Diagnostics and Genomics segment. Operating margin at 25% -- 25.0%. The segment's operating margin increased 710 (ph) basis points compared to the prior year. The increase reflects the favorable impact of volume leverage and product mix including the milestone payment for ExoTRU. 21:27 In summary, the growth momentum across our business remains consistently strong. Using the fiscal year ‘19 as a pre-COVID baseline, the company's revenue growth CAGR excluding the impact of acquisitions, FX and milestone payments has been in the low to mid-teens every quarter for the past 7. As Chuck stated in his closing comments, we believe that we are still in the early stages of the initial stages of a proteomics revolution and is ahead of us in the life sciences industry. And our best-in-class research tools and cell and gene therapy enablers are positioned to be leaders in this revolution for years to come. Layer onto this in emerging Diagnostics and Genomics portfolio that remains in the early stages of realizing its true potential and we are incredibly well positioned to deliver long-term strategic growth objectives. 22:15 That concludes my prepared comments. And with that, I'll turn the call back over to Maria to open the line for questions.

Dan Arias:

23:02 Good morning, guys. Thanks for the questions. Chuck, can you just talk a little bit more about the scale up in GMP proteins, whereas demand highest, how is it evolving and then what you need to do on your end at the end of the year into the end of the year? And then for the outlook there, you've talked pretty consistently about that piece of the business being on this trajectory where revenues can double for a few years, you're tracking ahead of the initial revenue expectations there? So does the outlook for the doubling still hold on what looks like it will be just a higher base for 2022?

Dan Arias:

25:46 Got it. Thank you. And then maybe just on ACD, it looks like there were some sequential deceleration in that business from 2Q levels and you're averaging something in I guess like the high singles for the year, and that's down from at least in my model like 30% plus in 2021. So is the hiring that you did really the key there and once, now that you have the sales reps in and presumably functional in the market. What do you think that the run rate growth can be like going forward there?

Operator:

27:33 Our next question comes from Puneet Souda with SVB Securities. Please proceed with your question.

Chuck Kummeth:

28:32 Yeah, all hear. As you know, we don't give quarterly guidance, we give annual targets. And we've given targets all year, that we should be in the mid-teens for the year and I think we're close enough for you guys can see we're going to be in that range for sure. Real question is, can it be 17 and 19 . I think we have to wait in a couple of things. China might have a minor impact in Q4, could cure Q4, but it wouldn't hurt any more of that. Going to next year, its mid-teens and up, and I think it comes off first a strong layer of momentum off our reagents. I mean we're at 20% growth in our proteins and antibodies. We are taking share everywhere. We're in double-digit growth in our assays. 29:02 We're in over 30% growth in our Luminex line. We're number two in Luminex now, whoever thought that would have happened. So we're not going -- out of the park on the core. And as long as that core stays with the momentum we're seeing, which we do, then it's a mid-teens and up and then the accelerator from there of course is how do these smaller segments how do they scale and they've got the higher growth rate cell impact the overall portfolio, so number one again cell and gene therapy and on a $70 million run rate growing at 30%, 40% next year as a category that's going to start having a bigger impact. 29:48 ExoDx is getting really interesting now. So we had a record quarter on tests. We're already seeing a big impact with the Cal Ripken campaign. We didn't really get a fair shake in that being, we went into that rate in the month of the pandemic, and it's been amazing interest. I can't wait to get AAU myself and meet Cal and we're going to do some things together there and we're expecting a big year going forward. 30:10 And ExoTRU, we are working on the next thing now because we've got a great partner. We worked hard. This partner is actually blown our socks off. They’re almost doing a great job. They are ahead of our skies, they are pushing us to get the Tech transfer done quicker than we thought they would. They paid us, it a good number. We didn't lay it out. We've got more deals to do, so we didn't want to talk about those numbers, but we had solid -- with solid result without the extra payment to be honest. Anyway, so I think that's the future. I think it's all about staying with the momentum in the core, solid execution which we're doing, what's also helping this whole baseline momentum in our core is our digital backbone and it’s just keeps getting better and better. 30:52 We've got our one Bio-Techne needs site up and running. We had something like 80%, 90% attraction rate to that website as we start migrating a lot of smaller sites into the ones, so we can have one-stop shopping experience for customers which you’ve been asking for years. That's all coming together great . We are doing a great job measuring our customers online and helping them with their purchasing decisions in real time and that's working. Our [indiscernible] spend continues to grow and continues to give us fabulous payback. So already all parts of run the company along with the innovation side are really doing well. 31:32 As you know, we've a Tech Council that we've -- we put all these top scientists of all our divisions together. They’ve virtually every month and working on new platforms together. And there is an incredible pipeline. That we do have an extensive prioritization process here we just concluded that process takes us three or four months, it helps us roll into our budget plan for next year. And we analyzed 400 different work streams in this company, of which we knew figured out where the draw line and we've never had a bigger pipeline of new to the world innovation in this past year, things are -- now we're reaching the size of a company where we're really getting a good a collaborative impact across the company. So we're pretty we're pretty jazzed here.

Jim Hippel:

32:51 Yeah. So on the real -- near term, I mean we're not only we're coming off of our guidance and target that we started the year with which is that we would end the year at the same, roughly the same adjusted operating margin that we ended fiscal year ;21. We're still on track to do that. Now, I understand that, that would mean from Q3, a sequential decline in operating margin, but however, we are making improvements of -- vast improvements in our hiring, which we talked about. And the ExoTRU that piece of it was a bit of a margin lift that won't reoccur next quarter. So we're basically right on track to do as we said we would do in terms of how we expect to finish this year from a margin perspective. 33:32 FX will be a bit more of a headwind in Q4 that even it was in Q3, but I think we'll overcome that to still hit our year-over-year, roughly flat operating margin for Q4. Looking ahead obviously, we'll give more clarity next quarter as we finish up our operating plans for next year, but it's the same message, we've been saying all along, which is that we expect it to be --there to be incremental slight but incremental margin improvement over the course of the next four or five years of strategic plan and we expect that to start next year – that continue next year.

Jacob Johnson:

34:15 Hey. Good morning. Congrats on nice quarter. Maybe just Chuck, I think you touched on a little bit, but just flush out the point. Just on the Academic end market, it sounds like it picked up a little bit this quarter. And -- but NIH funding finalize, kind of hopefully improves from here. And maybe I mean answering the question for you, but what's your outlook for that end-market as we think about the next couple of quarters?

Jacob Johnson:

35:30 Okay. And then maybe as a follow-up. Appreciate the details on the Wilson Wolf performance in the quarter. If my math is right, it sounds like if they keep going the way they're going the kind of Phase 1 20% ownership, maybe that could happen in the next year. Can you just talk about the timing of owning a piece of that and then owning the entire company?

Operator:

36:43 Our next question comes from Alex Nowak quick with Craig-Hallum. Please proceed with your question.

Chuck Kummeth:

37:21 Yeah. We aren't breaking out the revenue of that division if highly competitive we've got a two or three competitors I'm sure even listening right now. So we don't get into that, but we have talked about the test rates, that are 50% up is real. It's still largely we’re being paid via Medicare. We're still working the private payer, but we're getting, we're getting better. It's -- we are very close to going from cash to accrual, that's also going to help probably next quarter is our goal maybe, but we’ll see, but you know, we're getting there and we have a whole new team for surgeon taking the helm there especially commercially, it's really worked wonders. We are seeing record test days again this area too or pre-pandemic every week.

Chuck Kummeth:

38:30 Well, net-net, I always been big on price, it's just in my DNA and we've put in place processes and structure here years ago and went after kind of an annual 1% net year kind of target and we're well above that this year. And we had to be focused on obviously costs are going up, but we've got wage inflation to cover. And as Jim pointed out in his numbers, we more than covered, but we need to cover with price to give us a strong margins. I don't think there is an upside beyond the steady state we're at right now but if inflation continues to happen, well then, we'll continue to raise prices like everybody else. We've offset a lot to of efficiencies and productivity as well. It's just can be -- we can pass everything on. But there has been a good mix and we've been doing really well with it. Well north of the 1% probably 2-ish or better.

Operator:

39:29 Our next question comes from Catherine Schulte with Baird. Please proceed with your question.

Chuck Kummeth:

39:55 Yeah. We've had a few meetings with our team obviously and they are actually very bullish about this quarter yet. They were the same way when we look at the pandemic and China was first kind of, staying to the jaws of that and we are all very concerned and then they came roaring back next quarter beyond any of our belief and we were, we were -- we outpaced all of our peers, I believe back then. We expect the same, there will be -- they may be shut down right now on a lot of sites but demand will be pent up. It doesn't affect anything but run rate reagents. I mean the instruments and stuff and there is no issue with the orders of there, the bookings are there. We're stacking up bookings right now and we've got a lot of orders to fulfill once they unlock. 40:39 I know there is petitions to the government to be in the first wave of companies that come out of lockdown. I know we're on that list, along with many of our peers in our industry because we're all considered highly valuable to the economy there into the -- the government. There literally can do research there. If they don't have R&D systems based protein. So we'll be ready to go and I can't imagine is being more than a one quarter blip. And I can't imagine being more than it's hard to say what the material impact of be maybe nothing, maybe a couple of points. We don't know enough yet. 41:11 Now if the lockdown continues and go with another quarter or two, but then I think we'll off to have more discussion, but right now we're not seeing any of that. No one is predicting any of that. The government there seems to be working very hard to trying to unlock even sections of the city, institution-by-institution even if it comes to that. So they really are engaged with the private and public sectors together there. It appears to us, but from our teams point of view. So I think everyone's going to an impact, but in terms of looking at who has a least might impact of that will be to top of that list like usual.

Chuck Kummeth:

42:01 Yeah. We will all take it through their MAC. They'll finish and do the another study. We have one-off that we've got a great paper good data, but they don't want to beef it up with another outcome dataset and they'll use that to try and get their approval through with their MAC. We have kind of rough that that obviously there we got -- you've got a present out there and they're jurisdictional ready. So it's going to be a lot easier process to get qualified than it would be for us going through NGS. So we think it shows a year off commercialization if we were going to do it ourselves. 42:31 Along with that they've got, they've got a juggernaut of a business unit with that division and Thermo Fisher with a channel and sales force and technical team and regulatory army everybody -- they're all raring to go and there, like I said, they're pushing us. So this is fantastic. I think it's roughly a year from now, maybe for guessing I don't know. They'll go as fast as they can and whatever they do it will beat us by a long -- long way as I'm sure. And it allows us to, work on the next one. So we're already working on a couple more and whether we partner with them or somebody else or do it ourselves remains we've seen. I know that Thermal has two other organ rejection tests, they like us to work on for them. So the pipeline is growing. We have more projects than we have people to work on.

Patrick Donnelly:

43:30 Hey. Thanks for taking the questions. Chuck, maybe just on Europe, you put up another kind of nice high-single-digit there. Any change in demand from what's happening there on the geopolitical side, any shift in funding or anything that you're seeing on the Academic side. Just wondering kind of what the outlook is on the Europe please?

Patrick Donnelly:

45:37 Okay. That's helpful. And maybe on the capital allocation side obviously Wilson Wolf will keep an eye on, but can you just talk about general capacity outside of that appetite what the pipeline looks like for you guys priorities on that front?

Operator:

46:58 Our next question is with Paul Knight from KeyBanc. Please proceed with your question.

Chuck Kummeth:

47:16 Well, like everybody, you've got pricing on a catalog or you can do it want you want and you got a lot of OEM business and supply agreement, you've got hit certain calendar dates and there is usually in an annual event. We hit a lot of those in January 1 and took advantage as best we could, both probably be able do some more come July 1. In the meantime, on the run rate side of our business, we were always pricing and repricing as we go. As you know, we've got a lot of, a lot of products, we're the only ones in the world. And so we can do we want. And so we have a little more flexibility there than some of the areas where we're more of a commodity, where we have to, we have to compete. And we have to fight because we have to be a full catalog. So it's always a complicated balanced portfolio, kind of thing and like I said in the past we've kind of shot for a 1% net kind of year-on-year and this year it's probably double that we're shooting for and so far so good we're doing -- the team is doing pretty well. 48:11 I got to pay for all these mid-year wage increases and a higher annual merit rate features that's coming our way. Areas like IT and others are, we're not talking about 10%, 20% pricing wage increases can be as much as 50%. So it's an interesting time for the war on talent. And so, but I'm proud of the team and the finance team in particular and the marketing teams, they've really done well with this and you can see by our IR results. We're covering it and then some.

Chuck Kummeth:

48:57 We get asked that a lot and quite frankly, we're baffled. So we are not seeing -- if anything, it's a strong area for us. So no issue, where it's coming from.

Chuck Kummeth:

49:20 Well, thanks everybody for participating. It was a great quarter. Two quarters in a row for us at 17%. We have got a good quarter yet to come here and finishing off an outstanding year and we think we're on track with our strategic plan and look forward to telling you more about that next quarter. Thank you.

Operator:

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Second Quarter of Fiscal Year 2022. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Senior Director, Investor Relations and Corporate Development.

Chuck Kummeth:

Thanks, Dave and good morning, everyone. Thank you for joining us for our second quarter conference call. The Bio-Techne team once again executed our global growth strategy at a high level, continuing the momentum from last quarter and the last fiscal year. We crossed an important milestone during Q2 as our trailing 12-month revenue exceeded $1 billion for the first time in the company's 44-year history. Our 17% second quarter growth rate reflects continued robust demand for our portfolio of high-quality products and unique analytical solutions, especially within the biopharma end user base. Within biopharma, our positioning with self and gene therapy customers continues to accelerate, with this end market growing north of 80% and our GMP proteins grew over 180%. Our portfolio of innovative reagents, tools and solutions remain incredibly well positioned to enable the biologics revolution currently underway as transformative technologies like cell and gene therapy, facial biology, and genetic and proteomic biomarkers drive research discoveries, the emergence of transformative diagnostics and therapies and ultimately impact better patient care and outcomes. I'm extremely proud of our team of scientists that continue to develop innovative technologies necessary to advance and enable next-generation diagnostics and therapeutics. This performance in Q2 was once again delivered with a focus on driving profitability as our adjusted operating margin increased 50 basis points sequentially to 38.3%. While the demand for human capital remains high and the pace of our own hiring to meet current customer demand and support our future growth programs remains challenging, we continue to make progress in adding talented people to our organization at all levels in each of our businesses. During the quarter, we filled several key open positions within our technical and commercial organizations. We are utilizing referral bonuses, career fairs as well as leveraging industry awards like our recent recognition in Inc. Magazine's inaugural list of best led companies to attract and retain talent. At the most senior level in our company, I'm very pleased to have Will Geist and Brenda Everson join our leadership team. Will is our new President of Protein Sciences and most recently served as Chief Operating Officer for Quanterix. Prior to that, Will held multiple leadership positions running large business units for Thermo Fisher Scientific. Will’s transitioning into his new role from Dave Enzer who will be retiring in Q3. Brenda is our new Senior Vice President of Human Resources, with extensive experience successfully leading HR functions at large organizations, including 18 years at Apple. Brenda will be transitioning into renew role from Struan Robertson, who will also be retiring in Q3. The contributions of both Dave and Struan have made to the dynamic growth and culture of Bio-Techne over the past eight years have been immeasurable. And I wish him all the best in the retirement. It is largely due to the legacy created by Dave and Struan and the remainder of Bio-Techne's 2,700 strong employees that has enabled our company to attract such great talent to lead our businesses on to a decade of success. Now let's get to some of the specifics around Bio-Techne's spectacular business performance for the quarter, starting with our regions and end markets. We once again experienced global strength across the portfolio. China led all territories where the team delivered yet another quarter of organic growth above 20%. Close behind with the US growth also north of 20% and Europe was in the mid-teens. As I mentioned earlier, this growth was driven by a very strong BioPharma market as it has been for many quarters, and we don't see that momentum slowing down. Similar to Q1, academic growth was significantly lower than BioPharma, where Omicron-induced do shutdowns occurred over the holidays and lack of funding clarity impacted larger bulk orders. However, our daily run rate reagent demand from academic customers was strong for most of the quarter, indicating a healthy underlying academic research environment. We anticipate this relative low and academic growth will gradually accelerate the remainder of the calendar year as the Omicron peaks the size and the spending budget is finally passed in Congress. Now let's discuss the performance of our growth platforms, starting with Protein Sciences, where we delivered organic growth of 19% in the quarter. As I mentioned in my opening comments, we continue to experience broad acceptance of our innovative tools, reagents and analytical solutions to improve the efficiencies within the cell and gene therapy workflow. During the quarter, we initiated commercial availability of GMP proteins, manufactured in our state-of-the-art GMP protein manufacturing site and are now actively shipping to our customers from this facility. We will continue to expand the number of GMP proteins manufactured in this facility, focusing first on scaling the GMP proteins with the highest anticipated demand within our catalog of over 30 GMP protein. However, our cell and gene therapy business extends far beyond GMP proteins and includes serum and media for cell growth. Our non-viral gene editing technology as well as our cloud polymer-B-cell separation technology. In addition to uptake with our cell, our core cell and gene therapy products, we are experiencing a halo effect on several other Bio-Techne product lines, including our proteomic analytical tools and spatial biology franchises. We also continue to explore external opportunities to expand our cell and gene therapy offering in addition to our organic efforts. In December, we struck an agreement with St. Paul, Minnesota-based Wilson Wolf for a future investment and eventual acquisition of this rapidly growing company. As background, Wilson Wolf manufactures a GRx product line, a leading single-use cell culture device, which has enjoyed rapid adoption and is quickly becoming the cell and gene therapy industry standard for. bioreactors Wilson Wolf is a very synergistic fit with Bio-Techne with GRx cell culture devices requiring GMP proteins is a key input to scale immune cell growth. Terms of the agreement include the right to make a 20% ownership investment upon Wilson Wolf for each $92 million in trailing 12-month revenue or $55 million in EBITDA. This is followed by an agreement to fully acquire the company upon achieving $226 million in revenue or $136 million in EBITDA for an additional $1 billion, representing a total acquisition price of $1.26 billion. If these milestones are not reached by the end of calendar year 2027, Bio-Techne has the right to purchase Wilson Wolf at a set multiple of 4.4 times trailing 12-month revenue. As a reminder, Wilson Wolf along with Fresenius Kabi, are already biotech partners in a scale-ready cell and gene therapy joint venture. Today, Wilson Wolf annualized revenue is greater than $50 million and growing rapidly. We are looking forward to them hitting their milestones and eventually becoming official members of the Bio-Techne team. With all the excitement around cell and gene therapy opportunities, we haven't taken our eyes off the ball of the core of our company, RUO proteins and antibodies. Our core research use only protein antibody businesses continued to perform extremely well, growing double-digits in the quarter. Our broad catalog of RUO proteins is widely recognized as the industry-leading portfolio with our R&D Systems brand delivering the highest level of quality, bioactivity and lot-to-lot consistency. In fact, we created a category of research use cytokines more than 35 years ago and have amassed a catalog of over 6,000 proteins over this time frame, including several hundred that are exclusive to Bio-Techne. Our in-house expertise and broad offering in both proteins antibodies creates opportunities for Bio-Techne to participate broadly in emerging applications, including high-throughput proteomics and the development of engineered proteins and positions us to possibly expand into adjacent opportunities, including mRNA and plasma DNA manufacturing. Moving on to our proteomic analytical tools, where the team once again delivered robust growth across our portfolio of novel instruments and leading immunoassay solutions, our ProteinSimple branded instrument portfolio increased 25% as Biologics, Simple Western and Simple Plex all grew north of 20% in the quarter. Biologics once again led the way, growing over 30% year-over-year. Recall our biologics instruments, namely our Maurice platform, enable the identification, purity testing and charge analysis of proteins and bioprocessing. Maurice is also gaining traction in cell and gene therapy applications with its ability to characterize capsid proteins enabling AAV serotype identity and stability testing. Our fully automated Western blotting solution, Simple Western continues to gain acceptance within the research community as its ability to convert the messy, cumbersome and unreliable process of a manual western blood into a three-hour highly accurate push button process and continues to resonate, particularly with our biopharma customers. Simple Western is also gaining significant traction for cell and gene therapy applications with stem cell therapy, regenerative medicine, gene-modified cell therapy and gene therapy customers all using Simple Western for viral vector identification, purity testing, an empty versus full capsid detection. The recent launch of the stellar NIR/IR detection models for our just Simple Western system is a great example of enhancements we continue to deliver on this platform. Stellar fluorescence modules enable the detection of low abundance proteins and the multiplexing of multiple targets, including multicolor immunoassays alongside total protein staining within the same detection lane. Following the commercial availability of Stellar modules, just now offers low picogram sensitivity in both chemical luminescence and fluorescence channels. For Simple Plex, for Ella, we are also experiencing increased demand in the cell and gene therapy applications with the instrument increasingly being used to detect wholesale-related impurities. The Ella assay development road map remains very full with additional neurological biomarkers, cell and gene therapy, bioprocessing and immuno-oncology assays in the pipeline, layer the untapped clinical opportunity onto this rich assay pipeline, and we believe Ella remains in the early stages of reaching its potential. Now let's discuss the Diagnostics and Genomics segment, where organic revenue increased 6% for the quarter. Our spatial biology business, branded ACD, increased 10% in the quarter. While this growth is not up to our long-term expectations, it was a nice improvement over Q1, which was impacted by key open commercial positions, a higher exposure to a softer academic market and a tougher year-over-year comp. All those same headwinds remain in Q2. However, we did make progress in filling some of the open commercial positions and expect for continued progress in growth rates as new commercial team members on board and the academic environment improves. As a reminder, over recent quarters, we have expanded our spatial biology portfolio beyond RNA scope, adding kits for the visualization and quantification of DNA, microRNA, short RNA targets as well as higher plexing RNA capabilities. We are also very encouraged with the continued market traction we are experiencing with base school, a kit for the detection of short RNA targets, 50 to 300 basis, enabling the detection of splice variance to circular RNA and gene fusion. Our menu of probes is now greater than 50,000 targets over many species and publications that have almost crossed 5500, demonstrating the growing interest in this platform. Cell and gene therapy has also been a new market for our spatial biology business with ACD being used to track genes of interest in the cellular environment and determine the quantity of gene uptake in therapeutic cells. We recently announced a nonexclusive partnership with fellow spatial biology company, Akoya Biosciences, pairing our RNA scope HiPlex V2 assay for RNA imaging with Akoya's protein imaging assays to run on Akoya's phenocyclar fusion system. This single cell spatial multiomic workflow has potential to accelerate scientific understanding of human health and complex diseases like cancer, unlock new biomarker diagnostic signatures, improve patient stratification and ultimately improve treatment outcomes. We are excited about the automation of the RNAscope HiPlex V2 assay enabled by the Akoya partnership. Moving on to other parts of our diagnostics and genomics portfolio within our molecular diagnostics division. Our ExoDx prostate cancer test continued to make progress in the quarter, as patients returning to the doctors for routine checkups or followers, led to a strong improvement in diagnostic testing volumes. Q2 test volumes for ExoDx prostate cancer test returned to pre-pandemic volumes and have continued to increase year-over-year by strong double digits as we begin Q3. In addition to the ExoDx prostate test, we continue to advance our pipeline of innovative exosome-based diagnostic tests, including our noninvasive kidney transplant rejection assay, ExoTRU Kidney. As a reminder, ExoTRU is a noninvasive multigene urine-based liquid biopsy assay that provides critical, allograft health information to assist clinician decision-making in managing kidney transplant patients in optimizing patient care. We continue to work a dual pathway for the ExoTRU commercial launch, focusing on discussions with potential commercial partners and taking steps to prepare for potential commercialization on our own. With regards to the products with from the legacy surgeon business, our leading portfolio of genetic and oncology molecular diagnostic products, including our kits for FMR1 and BCR-ABL continue to gain market traction. During the quarter, we strengthened our genetic kit offering with the launch of the AMPODEX-PCRC-CFTR kit. Cystic fibrosis is a life-limiting autosomal recessive disease caused by variants in the CFTR gene. This research-use-only kit provides broader coverage of the diverse US population than any other commercially available targeted CFTR testing assay. Finally, our Diagnostics Reagents business delivered its tenth consecutive quarter of growth, with organic revenue increasing in the upper single digits. The pandemic-related headwinds that impacted this business in recent quarters continue to diminish, and we are experiencing a reacceleration in the chemistry, blood gas and hematology control product lines. Improving doctor office visit trends and the resulting diagnostic test volumes, combined with new product launches and additional penetration within existing OEM customers, position this business for sustainable growth going forward. In conclusion, the favorable trends we experienced in recent quarters continued in our Q2 as execution from the global team, favorable end market conditions and robust demand for our portfolio proteomic research reagents, analytical tools and molecular diagnostic products remain strong. Our cell and gene therapy initiatives are resonating with our biopharma customers. There's increasing demand for our GMP proteins, cell culture and media products are translating into demand across our portfolio, particularly for our protein simple branded proteomic and analytical solutions. We have our sights firmly focused on hitting our $2 billion 2026 revenue target and following the signing of the Wilson Wolf purchase agreement, I'm even more confident in our ability to deliver and potentially exceed this goal. With that, I'll hand the call over to Jim.

Operator:

[Operator Instructions] Our first question comes from the line of Puneet Souda with SVB Leerink. Please proceed with your question.

Jim Hippel:

We more or less expect the hiring to continue at the pace that it has been. But how that translates into adjusted operating margin? We said at the beginning of the year that we expected to end the year in Q4 at the same relative operating margin that we ended Q4 of last fiscal year, and we still see that as being the case. So that's really only about 50 basis points higher from where we ended Q2. So we see a continued gradual towards that mark.

Chuck Kummeth:

I'll take that, Puneet. So up to this point, we've been doing buybacks for stock option dilution, which is minor. And we've done 16, 17 acquisitions the last eight years, but we've never gone beyond two times leverage. We've never been able to. We've never done well in the public auctions, and we tend to do them with things more private and which tends to be more smaller. Currently, valuations still remain quite high, and they might be getting cheaper, but we'll wait a few months for settling until we even know that. But today, they're very high. So we thought that was - given the status of our stock price, we feel very undervalued. We thought it was probably appropriate our Board, especially to make that message and since we have an extra 2 or 2.5 that we never use anyway. So we've got - as Jim pointed out, we're net debt zero. It's time to act and do something here and put some leverage to work.

Chuck Kummeth:

It's really important you guys understand that we're not changing our priority on our capital plan, still M& A. We - but us going to 3.5, 4 times leverage is probably not a high - not likely. So we've got room here. It's still number one though.

Chuck Kummeth:

Well, we think we're years ahead for starters. That entity hasn't been very up to date with their work, and they're like fourth or fifth on the list out there. So that's one issue. They don't have a lot of assets in place. Their expansion has been real slow. I mean, they've been trying to be sold for the last two years, they haven't been doing much. We have hundreds of proteins they can't even make. We think over time the drift in GMP proteins would be like - like the drift has been in RUO proteins and towards quality, lot consistency, bioactivity, et cetera. I think we'll be uniquely positioned in, say, 5, 10 years to probably have again, proteins that nobody else can even make more than likely. We're going to go well beyond the IL-10s and IL-15s, we think as this industry matures and people get smarter and use these proteins for different things. We just think that we're in the best position we have been. We've been at this for four years or five years now. And you can - I think the move on the Wilson Wolf even more than strengthens that because we'll be able to position full solutions to the industry, bioreactors that have proteins already embedded sterilely. So we're going to have novel innovative concepts to actually improve the whole cell and gene therapy workflow. And again, a new landlord for these guys, it's not going to help them. So they have no domain knowledge in the space beginning. So they all have money to help them with, but again, there are years behind us, we feel.

Chuck Kummeth:

Thanks.

Dan Arias:

Good morning, guys. Thanks for the question. Chuck, on GMP proteins and to your last point on scaling there, I'm just curious how many proteins that you make are driving the bulk of the demand? Is there like an 80-20 rule that we should think about? Or is it more diverse than that? And then relatedly, when you think about what's important over the next 12 months or so for growth, is it more a critical factor related to just scaling up the ones that you make now? Or is it expanding the menu? I mean, I'm sure it's both, but I'm just sort of looking for each one is a bigger lever on growth this year?

Dan Arias:

Yes. Okay, I appreciate that. And then maybe just on ACD. Can you just help us with how you see that business trending across the year? I mean, you had been pretty confident in a rebound. Last quarter, which I guess you saw a little bit of, but this quarter was slightly softer than what we were looking for, what I think you were looking for. So, number one, how much of what you saw in the quarter was related to sales force versus market factors? And then two, can you maybe help us with the landing zone for growth this year, just given that list in our model, this is kind of like one of the wing segments?

Operator:

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

Chuck Kummeth:

We're working on expanding our Atlanta facility for BME right now. We have exploding growth there, primarily because the market leader is kind of tripped recently and so we're finding out of business. So, we're expanding on that now. But yes, regular GMP media will be putting into the current GMP factory now proteins. We're going to probably do GMP antibodies and GMP media there. And probably in parallel, probably a little bit some here, some at the headquarters, but over the next year, we'll be getting all that online. We see that as a natural adjacency to GMP proteins and part of the workflow. So - and we're being asked. Customers are asking, why can't you do this, too? So - and we are selling some. It's just like we were doing GMP proteins in the last few years. We're doing all this in our research facility and kind of make do GMP type of quarters, we have to scale itself. So, the way to scale is to put it in our GMP factory where we have the room.

Chuck Kummeth:

Do you think in terms of M&A?

Chuck Kummeth:

I mean I think every - humans are human. Nobody is going to take their current price of where it is today versus a month ago and say that's our value. I doubt anyone will, no matter what size of the company. So things have to settle out. And probably acquirers aren't going to be that, that mean anyway. They're probably going to wait as well, knowing it's probably foolish even try and just upset the target. But if interest rates go up, it affects your check treasury yield, it affects the DCS out there. The model they all come down, our too, if this is the new world that your shaving 10 points off their multiple, then we'll deal with it. But we'll deal with it effectively like we always have. During Trump, there was 2.5%, 3% interest rates, and we were carrying at times of 40 multiple. There is a flight to quality too. I mean we're a company that makes money, double-digit growth, stable unicorns. It's just - we're hoping that this will end up being a winner in all this when things do settle. Right now, I think we're all still in a bit of a don't-catch-a-falling-knife kind of scenario, right? So - but we know there's a lot of interest. There's a lot of - we get a lot of reasons our company for people to be interested and we'll be ready to capitalize and M&A as well. And believe me, I'm looking forward to acquiring things at a little better price tag as well. So Jim, do you want to add anything else?

Chuck Kummeth:

To be honest, you actually had some inbound inquiries from potential targets that said they were more into an IPO and they've called back.

Patrick Donnelly:

Thanks for taking the question. Chuck, maybe just to expand on some of the kind demand questions earlier on things like GMP. Obviously, people keep a pretty close eye on general biopharma funding and you kind of mentioned the IPO market, areas like that. Curious how you're feeling about kind of the sustainability of the demand, obviously, at your Analyst Day, talked about a few years of really strong growth from some of those high-growth more biologic areas. So just curious, if conversations have changed at all? Or do you still feel really confident sustainability of strength from some of those markets?

Patrick Donnelly:

Yes.

Patrick Donnelly:

Okay. That's helpful. Yes. And then speaking maybe a sustainable growth. China has been a great spot for you guys, again, over 20% again this quarter in spite of maybe some minor dislocations with things like the rolling blackouts. Can you just talk about the strength there? And then again, expectations for that to continue as we go throughout this year and even next?

Patrick Donnelly:

Okay. That's helpful. Maybe just a quick last one on Exo. You mentioned prostate at pre-pandemic level volumes, that's certainly encouraging. Can you just talk through, I guess, the catalyst set there over the next quarters in terms of payers coming on board and continuing to ramp the reimbursement side, what we should...

Patrick Donnelly:

All right. Thanks Chuck. Look forward to some of those announcements.

Catherine Schulte:

Thanks for the questions. I guess, first on your comments on the academic end market. Can you just quantify the impact Omicron has had on customer activity levels? And any regional differences that you're seeing there?

Catherine Schulte:

Okay, got it. And then with Will taking over the Protein Sciences segment, any changes in strategy or opportunities that you see there with the change in leadership?

Catherine Schulte:

Okay. Thank you.

Operator:

Thank you. Our next question comes from the line of Alex Nowak with Craig-Hallum Capital Group. Please proceed with your question.

Chuck Kummeth:

I think, by far, the biggest risk is you've got John Wilson, who is more of an R&D scientist type of KOL collaborator than an operations guy. So, him not finding a partnership somewhere, getting beyond $100 million of these guys tend to run a trouble growing the company beyond that level. So they're right down the street, they're already integrated because of scale ready JV already. So I've known him for over a decade, and tried buying first time Thermo Fisher 14 years ago. We've been friends ever since. I think this thing is with a customer base of 800, he has, I think, over 20 customers that have already - already over $1 million of annual purchases. There isn't anything out there even remotely close to his level of clinical integration, I don't think, anywhere from anybody. So this is the de facto standard of the future. Are there new ways to do this? Are there going to be copycats? Are there going to be copy cats? Are there going to be people doing crazy new things with bags and stuff? Sure. But the beautiful thing about GRx and it's the way it works, and it's hard wall surface. It's really, really gentle on T cells and NK cells like it. So there are a lot of people chasing this technology with bioreactors that simply aren't going to be - they're going to work very well for T cells and for NK cells, just in fact being. So John learned this years ago. And so he's got a head start. We're not going to let them fail for sure. And - it's a marvelous business. It's growing like crazy. He's got a great team. They work with our great team here. And I've been waiting years for this, to be honest. So we're ecstatic.

Chuck Kummeth:

Well, it's China. We have a lot of cash in China. We took a swing. We know media is going to be big. We looked at two other entities, and we walked away from. We didn't think the management was stable. We picked this one. Guess what? The management wasn't stable. So it's at a point where we're definitely going to do the write-down. We got it more than covered, it's really immaterial. It's not all a loss. There's liquidation. There's assets. We've got a nice spot in the business park there. So there's - there's way to regroup. But at this point, all we can say is that we're just taking the next step of the responsible thing we need to do with the impairment, and then we'll go from there and let you know more later as we see what our options are with that small assets.

Chuck Kummeth:

As a reminder, Alex, our results that we report for China don't include anything from Eminence, right? So it has a material impact on our growth in China.

Unidentified Analyst:

Hi, Chuck, just following up on the Wilson Wolf., I mean, in your due diligence, do you think that the current operations there that they have the capacity and then the kind of expertise to reach that $100 million level?

Unidentified Analyst:

And then just, I guess, following up on a couple of the questions around GMP proteins. Are customers coming to you knowing exactly what they want, whether it's IL-2, IL-5 or what other IL protein there is?

Unidentified Analyst:

Or is it more of a consultative process? And given your experience in the industry and your work with other customers in this space, are you really driving customers to the best protein for their process?

Operator:

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Kummeth for any final comments.

Operator:

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Good morning and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2022. At this time all participants have been placed in listen-only mode and the call will be open for questions followed by managements prepared remarks. During our Q&A session, please limit yourself to one question and one follow up. I would now like to turn the call over to David Clair, Bio-Techne's Senior Director, Investor Relations and Corporate Development.

Chuck Kummeth:

Thanks, Dave and good morning everyone. Thank you for joining us for our first quarter conference call. The Bio-Techne team kicked off our fiscal 2022 on a very strong note, as we continued the momentum we experienced during our last fiscal year. Our first quarter 21% organic growth rate reflects broad strength across geographies and ongoing penetration and demand for our proteomic research reagents, diagnostic reagents, analytical tools and services especially within our biopharma end market. The standouts in the quarter included our instrument portfolio, namely our Biologics, Simple Western and Simple Plex offerings, broad strength across our research reagents, and triple digit growth for our burgeoning GMP protein business. Not only were these significant growth drivers for the quarter, but these platforms as well as our spatial biology and molecular diagnostics portfolio remain at the forefront of under penetrated high growth markets to position the company for future growth. I'm very proud of the global team's execution and the company is off to a great start as we march forward to the longer term targets we provided during our recent Investor Day event. We deliver this strong Q1 revenue performance with a continued focus on profitability with an adjusted operating margin of 37.8%. During the quarter, we made progress hiring to our growth plan. Although the tight labor market remained a constraint to us building a team at our desired pace. We anticipate making continued progress with our hiring plans as fiscal 2022 unfolds, supplementing the commercial and technical teams that will enable execution of our long-term growth plan. From a geographic perspective, we experienced robust growth across all geographies. China especially was a standout where the team delivered record organic growth of over 50% in the quarter. The government authorities there are strongly encouraging the development of therapies in the areas of stem cells, organoids, regenerative medicine, and immunology. All areas that have a strong need for our reagents and analytical solutions. For the first time this quarter our business in China annualized at over $100 million in revenue. While this is an important milestone, we believe we remain in the early innings of realizing our potential in this important geography. Turning to our end market. Demand for our unique high quality products and solutions continues to be very strong for our biopharma end users with revenue growth increasing approximately 25%. Performance within our academic end markets also remain solid overall delivering organic growth in the mid-single digits. Now let's discuss the performance of our growth platform starting with the Protein Sciences segment where we delivered organic growth of 26% in the quarter. We made significant progress with our cell and gene therapy initiatives as growing awareness and demand for our portfolio of workflow solutions led to over 60% organic growth in the quarter. We are nearing completion of the qualification process for initial lots of GMP grade proteins out of our state of the art GMP protein manufacturing facility in Saint Paul, Minnesota, and anticipate commercial orders to be shipped from the facility in the coming weeks. As a reminder, GMP proteins are critical ingredients for growing both autologous and allogeneic cell therapies and we anticipate increasing demand going forward as the rich pipeline of therapies make their way through the regulatory approval process. Our GMP protein business increased over 160% in a quarter. And with our new GMP manufacturing facility open for business, we are well positioned to meet the anticipated growing demand for these critical reagents. Continuing in cell gene therapy, we added to our portfolio especially cell culture products with the launch of ExCellerate iPSC Expansion Medium, a new medium for the expansion and maintenance of induced pluripotent stem cells or iPSCs for use in both research and translational workflows. The ExCellerate iPSC Expansion Medium builds on Bio-Techne's portfolio products and services in regenerative medicine and fits seamlessly into our offerings for stem cell workflows, including cell isolation, reprogramming, genome engineering, cell expansion, differentiation and characterization. Importantly, ExCellerate iPSC Expansion Medium is manufactured without using components derived from animals or humans, making it ideally suited for use in translational research to produce iPSC based cell and gene therapies. This latest offering builds on our growing portfolio especially cell culture products addressing customer needs across natural killer or an NK, T cell and B cell media. Momentum in our core research use only protein and antibody businesses also continues to be very strong, with growth in the low 20s in the quarter. We believe that continued success in our core is a reflection of our best in class development of a new high quality relevant reagents that address our customers' current research needs, while making them increasingly aware of our capabilities through our strategic digital marketing efforts. Moving on now to our proteomic analytical tools, where we continue to see strong demand across our portfolio of cost effective productivity solutions. In Q1 our instruments and related consumable pull through grew over 30%. Reflective of a very strong biopharma environment, our Biologics instruments led the way growing nearly 50%. These analytical tools, namely our Maurice instrument, enable the reproducible and quantitative analysis of therapeutic protein identity, purity, homogeneity, with ease of use fast results, and reproducibility all qualities that continue to represent a compelling proposition for new and existing CROs, CDMOs large pharma accounts and we are now also seeing adoption in cell and gene therapy quality control applications. Demand for our Simple Western instruments also continues to be strong with over 20% growth compared to the prior year. Encouragingly, we are seeing significant lead generation for Abby and sold several of these systems during its first full quarter on the market. As a reminder, Abby is a lower cost fully automated chemiluminescence western platform that we introduced in April to further penetrate Simple Western technology into our academic customer base. Separately, we saw real robust adoption, of Simple Western within cell and gene therapy market and view this is a significant and largely untapped opportunity for this technology going forward. Our Simple Plex multiplexing amino acid system Ella, also had a strong quarter growing over 20%. This result is especially impressive given the challenging year-over-year comparison where Simple Plex increased more than 75% in the prior year period. We are experiencing a significant uptick in Ella accounts using or evaluating the platform for neuro degenerative applications specifically for neurofilament light chain or neuro NFL and neurofilament heavy chain or NFL detection in serum and plasma. Ella continues to be the platform of choice for customers requiring excellent sensitivity and assay speed. Now let's discuss our diagnostics and genomic segment where organic revenue increased 6% in the quarter. Our spatial biology business branded ACD increased mid-single digits in the quarter as continued demand from our biopharma customers, especially CROs was partially offset by lower reorder rates from our academic customers. I would note our ACD business and especially in the academia market faced a challenging comp in the prior year when the business increased over 30%. Within biopharma, the emergence of gene therapy and RNA interface or RNAI therapeutics has created a shift toward an animal model based projects, driving larger order sizes and increasing custom probe design projects making for a little more lumpiness in our spatial biology business. Our menu of process is now approaching 50,000 targets over many species and publications have crossed over 4500 demonstrating the continued academic interest in the platform. Next, our diagnostics reagents business delivered its ninth consecutive quarter of growth, with organic revenue increasing in the upper single digits. Encouragingly, the pandemic related headwinds that impacted his business in recent quarters are starting to diminish and we are experiencing a reacceleration in the chemistry, glucose and hematology controls product lines. The diminishing headwinds combined with new product launches, and additional penetration within existing OEM customers, we believe are just at the beginning of accelerated growth in this business. During our Investor Day, we highlighted some organizational changes within our diagnostics and genomics segment, designed to fully realize across developmental opportunities and synergies within our liquid biopsy and molecular products businesses. The new molecular diagnostics division is a combination of our Exosome Diagnostics business, and the recent Asuragen acquisition and is being led by Matt McManus, the former CEO of the legacy Asuragen business. This new division structure includes an Exosome center of excellence as the Exosome based liquid biopsy innovation engine, developing lab developed test, companion diagnostics as well as kitted Exosome based diagnostic products. We will leverage the established Asuragen channel as well as our two CLIA labs to commercialize these products. Our ExoDx prostate cancer test continues to make progress despite ongoing challenges with the urology market. During COVID patients were not leaving their home to do annual checkups or seeing urologists. This dramatically reduced the volume of PSA test the primary tool used by urologists to identify the appropriate patients for our ExoDx test for prostate cancer risk analysis and potential biopsy. With patients' beginning to return to their doctors for routine checkups or follow ups, the diagnostic market is continuing to recover and encouragingly our Q1 ExoDx volume was the highest since the onset of the pandemic and continues to show improvement early in Q2. I would also note that our sales reps are increasingly getting in person meetings and hosting educational and awareness events with the physician community, which we expect to be a strong impetus to testifying going forward. We also made progress on ExoDx reimbursement front during the quarter. We added to contracts with multiple regional payers expanding both a network of private payers reimbursing for ExoDx and men with covered access to test. We are very excited about the opportunity to present at an overview of the science and publication supporting ExoDx to 600 medical directors and policy decision makers this week during NAMCP's 2021 Live Fall Managed Care Forum. The confirmed audience includes representatives from the largest national and regional payers. Events like this are an excellent opportunity to drive awareness and acceptance and eventually reimbursement of this important test among the private payer community. Our recent publication of a pooled analysis of over 1200 patients in the journal of prostate cancer and prostatic diseases demonstrated ExoDx's ability to discriminate between high grade, low grade and benign prostate cancer. Using ExoDx's validated 15.6 cutoff score would have avoided 23% of all prostate biopsies and 30% of unnecessary biopsies with a negative predictive value of 90%. We have a pipeline of additional studies and anticipate a steady cadence of publications to drive reimbursement and adoption going forward. In addition to the ExoDx prostate tests, we continue to advance our pipeline of innovative Exosome based diagnostic tests including our non-invasive kidney transplant rejection assay Exo TRU Kidney. As a reminder, initial Exo TRU Kidney data was published earlier this year in the Journal of the American Society of Nephrology, showing a negative predictive value of 93.3%, and a positive predictive value of 86.2%, which we view as best in class performance versus the competition. We are preparing additional studies for publication on Exo TRU assay performance, and remain on track to launch this non-invasive urine based assay later in our fiscal year. With regards to the products from the legacy Asuragen business, we continue to gain market traction with our leading portfolio of genetic and oncology molecular diagnostic products, including our kits for FMR1 and Bcr-Abl. This business is largely US centric today and we see significant potential for these products outside the US and have taken initial steps to position the business to penetrate the European markets. In addition to the geographic expansion, this business has a very full pipeline, including the expected launches of a cystic fibrosis or CFTR kit as well as a hard to do panel, which combines carrier screening assays for FMR1, SMA1 and 2 and CFTR in one user friendly kit. To conclude my opening comments, our fiscal '22 is off to a great start. Our end markets remain strong, and our portfolio of differentiated proteomic tools reagents and electrodiagnostic products are meeting the needs of our customers in growing and under penetrated markets. Our cell and gene therapy initiatives continue to gain acceptance from biopharma customers, and the deepening relationships with these end users are driving adoption of our proteins, media, assays instrumentation, antibodies and other offerings in our portfolio. During our recent Investor Day in New York City, our leadership team and I laid out the vision and strategy to bring Bio-Techne from 1 billion revenue company it is today to a target of $2 billion over the next five years. Our first quarter end we are off to a great start in this journey, and I'm excited to share our progress as we realize this vision over the many quarters to come. With that I'll hand the call over to Jim.

Operator:

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Puneet Souda of SVB Leerink. Please proceed with your question.

Chuck Kummeth:

Yeah, we've been pretty clear in the past that their growth rate for next couple of years is probably at 100% level. So we're ahead of that. But we're still - as of today, we're actually open for business. The factory has an inventory of lot qualified material, products and we've been gaining more and more, I guess, customers. You saw the slides in the investor deck talk about the potential domain of customers, we're got a couple dozen already. And we're getting a lot of help from our scale ready partners to dramatically increase that. So we're getting more scale for existing customers, and we're getting more customers. So therefore the lift. We're well over a $20 million run rate, which is really just the beginning right Puneet, so kind of we're on track. We're ready to start transitioning as much as we can of our orders into the new factory. As you know, we have the largest catalogue out there for GMP proteins, but we know we're only set up for a handful right now in the new factory, and in the majority of businesses really in under 10 type of product versus the 50 or so we have in our catalogue. We still - a lot of capacity back at headquarters, it's just in small lots. So we are ready to go on the bigger lots for a few of the more important products that are being asked for being put into clinicals, et cetera. And I see the growth rates to be largely consistent with our guidance and I think it'll continue.

Chuck Kummeth:

We're as bullish as ever on this platform, you got to remember, the comp was amazing they were coming off of, and then we had - the lumpiness primarily in the service area. But we do a lot of custom work. And that part was - just balances, it's just kind of ebbs and flows. So that combined with - as you know, we're a couple 100 people right in our hiring plan, just like the rest of the world. I mean, we added 275 people last quarter, and we lost 240, we're net 35 ahead, which is even better than average out there. So it's been really crazy, especially in the Bay area, and guess where ACD lives in the Bay area. So we are we are shorter there than most other business units. We are also the largest spatial business out there. So we're a target as well, especially for our reps and we're definitely shorthanded in our reps, we've put additional focus on it now. And we're correcting that. But those are the kind of the one, two and three issues of why this was mid-single digit growth and why it wasn't 15 to 20. It's - there's no issue, it's all there. It's actually looks better than ever. DNA scope is coming on. We have X-Plex coming on. We are working forward with other partnership ideas with automation. We're stronger than ever with Leica. We're getting going with Antenna. The leadership changes we made year, year and a half ago, have done pretty well. And it's more an issue of comps, lumpiness, especially in services, and probably a handful of sales reps short in some key areas that we need to get refilled. But we'll do we'll do that. That's kind of nature of the beast in SPD. It's a hot area, spatial and generally, so a lot of movement right now. So we'll win, don't worry.

Chuck Kummeth:

We're not saying it over and boat. So inventory. So that's a good thing. We ship it in. We can sell as much there as they can. We can ship as much in as they need to sell. The growth rate - forever we've talked about - my goal of getting this growth rate in China over 25%. And being told consistently, it's just impossible to grow more than that in China. It's hard. And we've been roughly about 25% over the years here and today is just to remind you it's my is my 35th earnings call for this company. So we're just ecstatic that we just knock it out of the park and all cylinders are now instrumentation is just flying. Big part of it. But it's also in our regions. So we're on all cylinders. We are increasing our inventory levels. We are looking at shipment schedules. We're giving them all the help they need. We didn't have any supply issues last quarter and we're trying to work on that going forward. Everyone's talking about supply chain problems. We haven't had any to date, knock on wood we won't have in the future, but we're trying to be as careful as we can. I would just say it's broad based. And this is one year, we had great growth for SPD by the way. It was a strong growth there. It's just small, but it's a good sign of the future. I would love to see us be safely at 25% or better in China, which we've always said 20 to 25. And for this year 25, or better, looks pretty good now, when you start out at 50, over 50.

Chuck Kummeth:

I don't think I've seen any peer so far, having numbers this great as good in China. So we're definitely in the right areas. And we're taking sharing antibodies, which is great to see.

Operator:

Our next question is from Dan Arias with Stifel. Please proceed with your question.

Chuck Kummeth:

You're right, Dan. And by the way, congrats. I think your predictions for our quarter are like within 1%. So we should be using you more often on our staff maybe, but -

Chuck Kummeth:

Yeah. Simple Flex is the lumpiness of the bunch. Now we have $12,000 a pull through per instrument on Simple Western, we have roughly 15 on Biologics, it's 50 on Simple Plex, it's huge. This is a closed system, we made the cartridge for the customer and less, it's an open cartridge, which some customers use especially to start to figure out their assay. So that that makes it lumpier by definition. We actually had over 50% growth in instruments this quarter. So we're well on track for instrument deployment. And with that kind of pull through, it's all about getting boxes out there. So we're very bullish. It's just coming off a huge comp from last year is one thing. So we studied all that. We're sitting pretty good. I think, in a lot of the use of large studies. And so some of the instruments - some of the cartridge orders get very large and then that's what makes it somewhat lumpy. So we could have, a complete turnaround in cartridges next quarter, and then all of sudden, we're you know, back to 50%, 60% growth. It didn't really help us much in the instrument front. Because we've been right against the rail of trying to finish out our orders every quarter. And this quarter wasn't much different, because instrument growth was still 50%. We're having to build a whole new factory just down the road from Arad. We will be done in a year with that. So that's off and running. We did take cartridge manufacturing up last year. And then we've got a couple 100 a week, I think this last quarter of forgiveness of which will hopefully fill back up but it's still very strong year-on-year. So I think all things aside, it's still full steam ahead. It's a $50 million plus run rate or better now and probably over more than half the size of Quanterix. And we're gaining traction on them and others out there.

Jim Hippel:

That is correct.

Jim Hippel:

Thanks, Dan.

Jacob Johnson:

Hey, good morning. Maybe chuck on the cell and gene therapy side, I think you've been clear that that end markets an opportunity for you and a lot of initiatives there. But it seems like yourself, and maybe some others saw some pickup in activity from that end market this quarter. Is there something that's changed in the end market? Or was the kind of performance you put up this quarter, just a function of kind of your internal efforts and GMP?