Bio-Techne Corp

Good morning and welcome to the Biotechnics Conference call for the second quarter of fiscal year 2020. 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. I would now like to turn the call over to Mr. David Clare, Biotechnics Senior Director, Corporate Development.

Good morning and thanks for joining us. On the call with me this morning are Chuck Cummins, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechnics. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2019 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 as a result of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its investor relations section. During the call, non-GAAP financial measures may be used to provide information per performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Biotechnic Corporation website. at www.bio-technique.com. I will now turn the call over to Chuck. Thanks, Dave, and good morning, everyone. Our organic revenue growth in the second quarter increased 6% year-over-year, although adjusting for the impact of certain timing headwinds, our underlying organic growth was closer to our year-to-date growth of approximately 10%. In Q2 of FY19, we experienced some large favorable growth ordered from a handful of BioPharm customers who were launching clinical and or preclinical drug trials. These large orders mostly impacted our protein sciences segment in Europe, and were for reagents, assays, big box instruments, and related royalties that did not repeat again in Q2 of this year. However, our end markets remain strong, with our day-to-day retail reagent Munrate business growing north of 10%. Our genomics RNA reagent Munrate business growing north of 10%. Our genomics R&A school business still growing north of 20%, and China also continues to grow over 20%. Also, our team performed operationally very well in Q2, with adjusted operating margins expanding year-over-year ahead of schedule, and we reported record operating cash flow. I will cover the details for the quarter. Be healthy with organic growth in the mid-single digits. All-time growth in the region was low double-digit, while academia grew mid-single digits. What brought the region's overall growth rate down was the timing of royalties from our few OEM customers. Including a one-time catch-up of royalty payments that benefited the prior year quarter. Excluding the royalties that had an impact, growth in the region was over 10% Q2. Our digital marketing efforts continue to bear fruit, especially for our retail antibody and protein portfolios, with websites driving a double impact across our brands, including over 20% increased traffic to our Novus website year-to-date. We're implementing several initiatives to get customers to spend more time on our website and add items to their shopping carts once they visit us online. Search engine optimization and continual refinement of our website and digital marketing strategy remain a strong lever for growth for the company going forward. Separately, we continue to strengthen our presence at industry trade shows, showcasing our products and technologies at our expanded and redesigned biotechnic booth. We have strong customer interest in our reagents and instrument solutions offerings at the 12 trade shows we attended in Q2. And we have eight additional industry trade shows on the calendar for Q3, including AECR and AEI conferences, taking place in April and May, respectively. These trade shows represent a key part of our marketing strategy and generate significant marketing. In fact, our leads have increased 75% upon the new investment this past year. Moving on to Europe, which was the largest drag on our growth in Q2, down approximately 1% organically from the prior year. Excluding the timing headwinds that impacted Europe, The underlying organic growth in the region was in the mid-single digits, which is the same organic growth rate for the first half of FY20. Not bad, but even lower than what our company has been accustomed to performing during the past couple of years. The team in Europe will be redoubling its efforts in the second half of FY20 on the cross-selling activities of double-digit growth for the better part of the last two years. Our key growth platform is such as Simple Western, Simple Flex, and R&E School in the European market. In addition, we will be supporting the sales effort in Europe with more of the digital solutions practices that have driven the success of double-digit growth we've seen in our North American retail reagent businesses. Thus, we are expecting Europe's sales to go faster in the second half of FY20, with growth rates at the target of a high single-digit level. Finally, we have another good quarter in Asia. China especially continues to perform very well with another quarter of more than 20% growth. The growth was broad-based across our reagent and instrument products. The life sciences industry remains a high priority in China's cyber plan, and we continue to be well-positioned and very under-penetrated in our key global platforms. In the near term, the coronavirus situation will cause some disruption in Q3 with extended days for the Lunar New Year holiday and virtual quarantines in some Chinese cities. Obviously, the longer this virus disrupts their life throughout much of China, the more negative impact it will have on our growth rates for China. In the long term, it is unfortunate that instances such as this outbreak that will likely strengthen China's already firm resolve to promote heavy local investment in the life sciences space for years to come. Now, let's dive a little deeper into the performance of our growth platform, starting with those within the protein sciences segment, which was 4% organically for the quarter. As I've already indicated in my opening comments, protein sciences growth was particularly impacted by a large amount of and only in customer orders in the second quarter of FY19, as well as a significant realtor payment, none of which repeated in the most recent quarter. Depending on the customer and the application, these prior year orders were headed to our reagent instrument and role for revenue streams in Q2. Absent in specific situations, the segments are going to grow from high single digits in Q2, led by our one-rate reagent instrument consumables products growing in the low double digits of quarters. Within Protein Sciences, we recently made a very important influence in biotechnology as a leading tools and solution provider for the production of cell and gene therapies. In January, we announced the creation of a joint venture between Biotechnes, Fresenius-Cabi, and Wilson-Wolf, a consortium that can offer a complete and simplified cell and gene therapy workflow solution. We believe the combination of our collective sales and marketing efforts, enormous depth of talent, technical know-how, and industry knowledge create the potential for significant commercial synergies. By combining the novel engineering solutions offered by Fresenius-Cabi and Wilson-Wolf, With our GMP proteins, polymer B T cell activation, non-viral vectors, and acid technologies, the joint venture is positioned to disrupt the cell and gene therapy products and markets. We are very excited to get this initiative off the ground, and there's already been great interest in the cell and gene therapy community. Over the next year, while this new commercial consortium continues to draw the awareness of our cell and gene therapy solutions and placements of our products in increased clinical trials, we continue to work on our new dedicated GMP protein factory. Construction remains on track to provide GMP proteins in large scale to our cell and gene therapy customers by the second half of fiscal 2021. Now shifting to our diagnostics and genomics segment, which grew 12% organically during the quarter. Here, the OEM diagnostics tool controls business through mid-single digits overall, with growth in most of its major product categories. As expected, following double-digit growth in Q1, the OEM order timing was less favorable in Q2 than it was last quarter, although new customer wins and product launches are starting to smooth the large-quality swings in this business. Also, our genomics RNA scope continued with its 20%-plus growth trajectory in Q2. The initial Q1 launch of the RNA scope high-flex assay which enables a simultaneous detection of up to 12 RNA targets, and that's nicely in Q2. We are currently developing additional high-flex capabilities to address spatial genomic studies, targeting significant increases from our current fall-flex capabilities. Stay tuned for more product announcements. Now an update on exosome diagnostics and the XODX prostate test. There were several positive developments in Q2, and there is still much to do to make this Make sure this non-invasive prostate cancer test becomes available to all patients over 50 with elevated PSA levels who are contemplating a more expensive, risky, painful, and invasive tissue biopsy. To begin, the final LCD from NGS went into effect December 1. Since then, we have been billing Medicare for applicable patient tests since and are already seeing payments come in. However, the LCD language administered by NGS did not mirror the coverage recommended by the NCFIM guidelines. For example, the final LCD does not allow for Medicare reimbursement for ongoing monitoring, nor does it allow reimbursement for certain ethnicities and men with certain family medical issues. Of course, these populations were included in our clinical studies with outcomes consistent with the overall study. The NCCN recognized these population sets could benefit from the X of the X prostate test, and we are working to make sure NGS does too. Thus, we are currently in the reconsideration process with NGS to mirror the Medicare coverage with the recommendations of the NCCN guidelines. In the meantime, the early rate that tests meet the Medicare criteria is encouraging, and we will continue to work to expand the indication over the coming months. For X or the X profit tests administered to applicable patients, we've been billing Medicare and getting paid. We started receiving Medicare payments on submitted claims as early as late December, and the pace of payment has increased rapidly throughout January. We also made progress on the private payer front in Q2 with four more region-insured special DX profit tests on covered patients. Although the base is still relatively small, our collections from private payers increased by more than 40% sequentially in Q1. However, we still have work to do to get the large national private payer signed up for reimbursement. The national payers are taking our meetings with great interest. They are becoming more aware of the health benefit to our customers and plausible financial benefits to their bottom line by avoiding more costly biases, as well as the unintended infections that can result from them. However, they are being very careful and methodical with regards to green to reimbursed from tests. Before considering reimbursement, many large private payers want to see the results from a clinical utility study published in a peer-reviewed journal. Astrozone Diagnostics performed such a study before our purchase of the company. that was conducted in collaboration with CARES First Blue Cross Blue Shield of Maryland. This study has been submitted for publication with a peer-reviewed journal and should be released before the end of our fiscal year. Separately, we are in the process of submitting our pre-market approval, or P&A filing, to the FDA. Recall that the XODX prostate test received breakthrough device designation from the FDA at the start of the current fiscal year. It is difficult to predict the exact timing of a potential FDA approval, but achievement of this status will decent our competitive mood and allow us to have a higher priority for reimbursement from private payers who classify team-made products as higher quality. Equally important is getting paid for the XODX Profit Test is expanding the awareness of the benefits of XODX and rapidly increasing test counts performed on that location. Since the start of this fiscal year, and while we have waited for Medicare coverage, we have slowed any new commercial investment into sales marketing. Instead, we have focused on retooling our go-to-market strategy and ensuring we have the best commercial talent to execute on that strategy. Even without much new commercial investment, the number of excellent diagnostic prostate tests perform a key to the double-digit sequential Q1 as well as double-digit year-over-year. Going forward, our commercial strategy will include marketing to the patient directly in addition to urology. We want to make sure patients are fully aware of our non-invasive options available to them to assist in the determination of their risk of prostate cancer before deciding whether to proceed with a painful biopsy. We believe the best and most cost-efficient channel for awareness is biopsy. We believe the best and most cost-efficient channel for awareness is via digital marketing and the web. In Q2, we launched a redesigned exosome diagnostics website. The new website features portals for patients and physicians, scientific literature, and information on the benefits of our ExoDx prostate tests. We will be coupling this enhanced website with digital marketing efforts by leveraging the proven effectiveness of our digital solutions team's expertise to increase awareness of patient demand for XOBX. These search engine optimization and digital marketing efforts are in the early innings. We anticipate this campaign, combined with the recent regulatory reimbursement milestones, will favorably impact XOBX test volumes by creating patient demand. We remain on the pathway for growing XOBX volumes and are excited to enable men with ambiguous PSA scores to avoid unnecessary prostate biopsies. With a pipeline of additional tests, companion diagnostic applications and partnership opportunities. There are several different avenues to create value with exosome diagnostics. We have a few partnerships in place and are in discussions with several biopharmaceutical companies for potential companion diagnostic applications of exosome diagnostics technology. We also believe our proprietary exosome-based technology has broader diagnostic applications, including improving the performance of existing and pipeline tests from other diagnostic companies. In summary, fiscal 2020 remains in good shape, We delivered year-to-date organic growth of nearly 10% and are still aiming for double-digit growth for the fiscal year. Our co-reagent portfolio continues to perform very well, while our adjacent proteomic and genomic analytical tools are still ramping in very underpenetrated markets. Meanwhile, our liquid biopsy and cell and gene therapy offerings remain in the very early stages of realizing the potential, with each representing truly transformational opportunities for biotechnics. Our competitive position has never been stronger, and the team is driving toward even better execution in the second half of our fiscal 20. With that, I will turn the call to Jim. Thanks, Chuck. I will provide an overview of our Q2 financial performance for the total company and provide some additional color in the performance of each of our segments. Starting with the overall second quarter financial performance, adjusted EPS was $1.08 versus $1.06 one year ago, with foreign exchange negatively impacting EPS by 8 cents. Most of the foreign exchange impact was due to transactional effects for invoices and operations headquarters. GAAP EPS for the quarter was $3.02 compared to $0.45 in the prior year. The biggest driver for the increase in GAAP EPS was the $120.5 million combined realized and unrealized gains on our investment in chemocentrics. Q2 revenue was $184.9 million, an increase of 6% year-over-year on a reported and organic basis. Second quarter reported sales includes a 1% growth contribution from acquisitions and a 1% unfavorable impact from foreign exchange translation. By geography, the U.S. grew in the mid-similar digits, while Europe declined low-similar digits, and China grew over 20%. As for the rest of Asia, organic growth was in the low-similar digits. By end market, which excludes Asia, our diagnostics division, and other OEM customers, biopharma growth was in the upper single digits, while academic growth was in the mid-single digits. Moving on to details of the P&L, total company adjusted gross margin was 70.6% in the quarter compared to 70.9% in the prior year. The decrease was due to unfavorable product mix, foreign currency headwinds, and to a lesser extent, recent acquisitions partially offset by productivity gains. For the remainder of fiscal 20, we expect gross margin and fairly consistent with these levels. Adjusted SG&A in Q2 was 28.6% of revenues, a 70 basis point improvement compared to the prior year, with volume leverage and productivity gains partially offset by investments in our core business to drive near and long-term growth. R&D expense in Q2 was 8.9% of revenue, 20 basis points lower than the prior year primarily due to volume leverage. The resulting adjusted operating margin for Q2 was 33.4%, an increase of 90 basis points in the prior year period and 150 basis points higher than our first fiscal quarter result. Looking at our numbers below operating income, net interest expense in Q1 was $4.5 million, decreasing $1 million compared to the prior year period. The decrease was due to a substantial reduction of our bank debt during the quarter. A bank debt on the balance sheet at the end of Q2 stood at $383 million, down from $486 million at the end of Q1 fiscal year 20. Recall that Biotechne has been a long-term shareholder of Chemocentrics, a biotechnology company with a portfolio of novel therapeutics targeting a variety of orphan diseases. In our Q2, Chemocentrics reported several top-line data from its Phase III trial of the Vodka Coupon in Antibody-Associated Vasculitis, or AAV. This favorable data release drew a significant appreciation in our chemo-centric investment, and we monetized approximately $50 million of this gain. During the quarter, we applied these proceeds, as well as a portion of our strong free cash flow, to pay down $103 million of our long-term debt. Other adjusted non-operating expense was $2.5 million for the quarter, compared to $1 million of other income in the prior year quarter, primarily due to the impact in transactional foreign exchange. For JAP reporting, other non-operating expense includes realized and unrealized gains for investment in KinoCentric. Moving further down the P&L, our adjusted effective tax rate in Q2 was 22%, but we expect it to have been fairly consistent the remainder of the year. Turning to cash flow and internal capital, a record $72.5 million of cash was generated from operations in the quarter, driven by strong customer account collections and favorable premium tax payments associated with our realized gain on team of funders. Our Q2 net investment in capital expenditures was $14.6 million, mostly driven by construction of our new JMP protein factory, which is on schedule for completion by the end of the calendar year. $12.2 million of dividends were paid out in the quarter, and average diluted shares to the 39.6 million shares outstanding. Next, I'll discuss the performance of our reporting segments, starting with the protein sciences segment. Q2 reported sales were $141.5 million, with reported revenue increasing 4%. Organic growth was also 4%, with foreign exchange having an unstable impact of 1% on revenue and acquisitions contributing 1% to revenue growth. As Chuck previously described, growth in this segment was negatively impacted by last year's timing of a few large biopharma orders and OEM royalties that did not reoccur in Q2 of the current year. Absent these items, revenue from the thousands of other customers that Protein Science served increased nearly 10%. Operating margin for the Protein Science segment was 43%, a decrease of 50 basis points year-over-year due to unfavorable foreign exchange and the recent demogen acquisition. Turning to diagnostics and genomics segment, Q2 reported sales were $43.8 million, an increase of 12% from the prior year. Organically, revenues also grew 12% from the prior year. Organically, revenues also grew 12%, with foreign exchange translation having a minimal impact on revenue. As Chuck mentioned, our O&M diagnostic tools business increased mid-single digits, and our genomics RNA scope business grew north of 20%. With regards to exosome diagnostics, and I stated in prior calls, revenue from exoDx prostate tests performed continuously recognized on a cash basis. As Chuck mentioned, our favorable local coverage decision from exosome diagnostics Medicare administrative contractor, MGS, became effective for tests performed on or after December 1st. Despite the effect of LCB, we will continue to recognize Medicare revenue on a cash collection basis until we have a sufficient history of claims paid. Chuck provided a thorough update on the progress we have made on EXO-DX test ramp, public and private reimbursement, as well as the continued actions we have taken to accelerate both. While still on a relatively small base, revenues from Exosome were up nearly 60% from last year, and we expect the growth rate to improve from here. Moving on to the operating margin for the diagnostics and genomics segment, at 2.2%, the segment's operating margin improved from a negative 2.7% report in the prior year. The increase reflects favorable volume leverage and productivity gains from both our diagnostics and genomics divisions, as well as slightly less dilution from next-zone diagnostics. In summary, we believe our year-to-date performance on the top line is most representative of how the majority of our business performed in the second quarter. The commercial focus we are taking in Europe could set us up for even better organic growth in the second half of fiscal year 20. However, the situation in China with the coronavirus is a risk factor that we are unable to quantify at this time. That being said, our teams throughout the rest of the world are motivated to maximize their potential in order to achieve double-digit growth for the company's overall fiscal year. On the bottom line, our culture of success-based investing and operational prowess drove our adjusted operating margin in Q2 higher over a prior year ahead of schedule, and it drove a strong quality of earnings with record operating cash flow. We expect our operating margin to continue to increase sequentially from here just as we guided at the beginning of the 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.

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad, and if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that's star 1 to ask a question. We'll now take our first question from Puneet Suda with SBB Leerink. Please go ahead.

Yeah, hi, Chuck. Thanks. So my first question is, I mean, look, I appreciate the biopharma comparisons that were tough in Europe, but you commented about some recovery here in the quarter. Could you elaborate a little bit on that? And what's your expectation for continued improvement here in Europe? And what's your outlook given the last sort of two-plus years of strong growth in that geography?

Sure. I'll give kind of a long answer because I'm sure everyone wants to hear more about Europe and anything else. We kind of messaged last quarter, things are softening, and it didn't disappoint on that for sure. But it was really kind of a lumpy mess. No, there's not really any one distinct thing that's kind of off. Some things are up and some things are down. Our biggest issue by country is Germany. The U.K. is kind of flat. Germany is pretty hard down. It's a lot of timing, a lot of biopharma. A big comp off on genomics because of the big order timing issue there we mentioned. In the instrument, which is the biggest areas, we had a huge comp from last year in Simple Western. So it came in kind of flattish. So without that growth, it was hard to pick up. We already knew we were kind of up and down in biologics. Biologics didn't have a horrible quarter, but not great. And this is probably the area we're seeing the most comeback already this quarter in biologics. It's pretty good already. Simple Western's got tough comps going forward, but I think as under-penetrated as we are, we're pretty bullish on it still going forward. And SimplePlex is also a big timing issue with a major order. We had another timing issue this quarter as well with SimplePlex, but I think the growth rate, especially instruments, is very encouraging, and we're really focusing now on getting more consumables to drive behind those instruments. All in all, there is definitely a snapback coming there off a pretty weak core condition side. On the reagent side, it's really kind of a difference between academia and biopharma and one up, one down. We're relatively okay, really, in terms of our reagents. Everything is fine there, but this is another area we've been in the past up and down on our assays. And lives are definitely down in Europe right now. So, again, these biofarm projects are kind of in a slump right now. And for us, that's just kind of a weaker period. We have focused a lot on understanding do we have a real competition here or not. And we have focused a lot on understanding do we have a real competition here or not. And, you know, we have Abcam coming out after us. And eBio certainly has a line of products. And others are toying with it, too. And it's not really what you'd say is a growing market. And you have multiplexing, you know, really taking all the new growth. So that's kind of up and down, but we don't see a huge impact, to be honest. They've got their piece. We've got our piece. So it's just kind of overall kind of mediocre for right now for the timing on that. And that's a big chunk of our overall, you know, sales in the agency. So that doesn't matter. It's actually in that ASD right now as a division, but it also took down that division numbers. But that, too, I think will recover. And, again, we had this. huge uh... one-timers on royalties and uh... you know we have when we start putting these royalty situations in place uh... two three years ago you know we have the uh... the ability to do uh... third-party audits and last year we went through all these audit cycles and there were some big misses and some big payments and those audits of course aren't reoccurring this year so you know that that add back is a big number all by itself so so all in all that kind of explains your explains the the recovery we're seeing you know uh... so far you know in uh... instruments and we'll see what happens. December was a fantastic month, you know, in Europe. It was really more of October, November. And we'll see if we can continue.

Okay. If I could ask on Exosome DX, I didn't catch the contribution in the quarter if you provided that. When do you think you'll have an answer on the reconsideration for the first one-time use of the test? And And, Chuck, I was hoping if you could maybe take a step back and give us a view of what are your priorities now, given this acquisition, you know, now two years into this acquisition. And just if you could remind me, what are you thinking in terms of any permits this year?

Yeah, okay. Well, as I mentioned, we're using the time.

getting our website ready, creating patient demand, and staying in our guide rails really for dilution, and we were really ahead of the game there, to be honest. We had some payments for Medicare come in even in December, even though we had the LCD in December 1, so that was a really good precedent. We had put in place the TRF policy, the doctor signing, and that That signature process has been very positive. And, of course, with that, Medicare can be paid when they've been paying. And it's been ramping very quickly. We were expecting revenues this quarter in Medicare to be maybe as high as even a million dollars from nothing last quarter. So we're seeing a great ramp. It kind of is expected. So we'll see what happens. Going forward, the priorities, of course, are as we ramp, we'll invest. We want to drive this patient demand. It's really important because, you know, it's going to take a while for reconsideration. We're going to need these other levers. That reconsideration process, remember, we're talking NGS. This isn't the most friendly of all the MACs, and it's a next summer activity. And we have to make the agenda for the meeting and everything else. We feel pretty good about it, but, you know, again, they don't tell you anything. We've submitted all they've given us is that they wish we'd had the utility service data. along with the entity guidelines, you know, two studies, which we were told was enough. So the utility study's done, it's been done, and we're now getting it published. And with that, we'll knock two birds in the bush with one stone, one being the reconsideration process and the second being the national insurers. And what I'll add on the margin of front need is that, as it pertains to S1 Dynoptics, as we see the correct cash collections start to ramp here, as Chuck mentioned, we're already seeing them ramp here in January, The cost will not be ramping at the same rate the revenue is, so we should see less and less dilution going forward, although not profitable yet, seeing less and less dilution going forward from our system diagnostics, and that's probably why we have confidence in our operating margin continuing to increase sequentially from here over all the companies.

Okay. And if I could ask you, Jim, you provided a long-term view at the last investor day back in late in 2018. You were expecting $1.2 billion in revenue by fiscal year 23, mid-teens organic growth, 40% off margin. Is that still in the line of sight given some of the near-term challenges with Exosome and the European shortfall that you're seeing largely because of comparisons? So just help us understand any changes in the sort of long-term outlook here.

There is no change in the long-term outlook. We just got through with our annual refresh of our five-year outlook strategy, internal strategy plan, and if anything else, a five-year outlook strategy, internal strategy plan, and if anything else, it gave us even more confidence in those numbers looking outwards. So one core doesn't make a trend. They're very specific. identify items that cause some of the bumps in the road we saw in Q2. But in terms of the underlying markets, we feel like they're very strong. Our run rate and our reagents, like I said, for the other literally 100,000 customers we serve are still very, very sound and going the right way. And then the upside potential with both exosome and cell and gene therapy is still very large, particularly in the out years of, you know, two, three, eight years out. So let me address it specifically around that. So we will be back in New York this fall giving a, you know, another update, which we do every other year. And the new five-year plan will have a number like one and a half billion at 1.2. Now, if we look back a year to 1.2, we certainly have lost a year to talk about exosome diagnostics. And that was in the number for the 1.2, but we didn't have any cell and gene therapy in those numbers. And there'll be some cell and gene therapy by 2023 as well. But all in, for 2024, five years out, we're at one and a half because, you know, there's a strong cell and gene therapy component, and we still are on that message of 150 million or more, hopefully, with exosome diagnostics. So those two growth drivers are still intact. And, of course, everything else has to be evolving. We have never promised more than mid-single-digit growth in our core, and we've been doing maturely better than that. So there is... There is some hedge in that for us, so we still feel very bullish about that kind of number, looking at four and then five years.

Okay, got it. Great. Thank you.

Remember, there's no acquisitions in that. That's organic, and it's likely we're going to do more stuff.

Okay, thanks.

I find your question has been answered. You may remove yourself from the queue by pressing star 2. Once again, if you'd like to ask a question, please press star one. We'll now take our next question from Dan Arias with Stiefel. Please go ahead.

Good morning, guys. Thank you. Chuck, just to clarify on the timing-related items that I think got you for four points or so, is that a revenue bolus that you fully expect to capture in the second half of the year?

There was a one-off, the timing issues you're talking about, or what? Yeah. Yeah. Well, one was a big component was royalty true-ups that aren't going to happen again. We're on track with our steady-state kind of royalty payments and probably improving as our licensees' businesses grow, we get more. The other big component, of course, was the OEM orders and stuff we talked about, and those are behind us, and I think some of this timing as well, and I think that will correct itself. But all in, you know, those one-offs around the order being roughly $6 million. So it's my gist that it's, you know, over 3% all by itself.

Yeah. Well, maybe just to that point, I was just thinking about the instrument performance during the quarter, but then also what you think you might have in terms of improvement in the back half for Europe. does that translate to the 15% to 20% growth rate that you've talked about and that you've been in for the protein simple business that's embedded in protein sciences? Do you still think you can finish the year in that range?

I do 15 anyway. I mean, we've been promising from talking, guiding to 15 for the last three or four years. We've been doing about 20. So this is certainly, I think there is some component of us going more direct in Europe. and going after those accounts directly and probably having a couple of years of more business. Now we have to focus much more on commercial execution, cross-selling, expanding our subsidiaries, fixing Germany. You know, Germany is definitely too lumpy. We've got to get more critical mass there. It's smaller than the UK in size of business, and that shouldn't be. We essentially have a sales office there and not enough critical mass. So there are things we're working on. As you remember, I lived in Europe for years of my career, and they're getting a lot more help at these points. But, you know, there are a lot of great things, too. We worked hard to get genomics, you know, back on track in Europe, and it is. And that's one example. Eliza's lumpy, and it'll be fine, I think. Our SimplePlex and our other assay technologies are really doing okay. I think they'll continue to provide extra growth in Europe. The 32x8 assay is an example. It's a great assay with advanced multiplexing that can really take on the other multiplexing competitors, and that's in early days of getting launched here and getting going. That's another example. All in all, we still feel pretty good about the whole portfolio. Southern Europe, France. France is just doing great. Since the acquisition of a distributor in France and creating a real subsidiary, we've had near double-digit growth. No loss there. The issue has really been around the UK and Germany, which I think we can deal with. Did I get all your questions? Yes.

You did. A couple of quarters ago, you were talking about how you were looking forward to getting more analysts on the call, so maybe I'll take the opportunity to ask one more for you if I can. Just on the OEM business overall, how do you think visibility changes there, if at all, or is that just the nature of the beast for the foreseeable future? And then maybe just a big-picture question on that point. Obviously, you're moving the biotechnology portfolio in some new directions, particularly So as you do that, how important are these OEM components to the overall business? Do you think there's a potential for some strategic actions if you thought that any of it was becoming less core or non-core?

Yeah, we studied some of that. First of all, we had a 15% growth quarter last quarter in that business, and usually you guys are expecting like a negative quarter after one like that, which has always been the case. And here we are with positive growth again. So we talked about things smoothing out, and they are. The pipeline is getting better. We have a big new account, you know, like Sysmex is an example that is getting us more and more business. We're doing some very strategic things with them. We're very bullish. And across the board, I think it looks pretty good. Glucose, you know, the pain of large behind us and fairly well contained, although it's, you know, it's rough and flattish for the future, and it's mainly in price increases holding things okay, but it's becoming a smaller part of the overall. But, you know, we feel okay. But in the end, this is, you know, roughly a 30% out margin business, and on the market, should we sell it? You know, it's a 12 to 15 kind of multiple, and we've tested this, and it's hard to get beyond that And here we are with our multiple. So we're being paid for that business in our portfolio 30 times plus. It's hard to make it up by just spinning it off and selling it, unless it becomes a drain on opportunity cost or strategic or something. And it just isn't. It's not a hard business. We have one salesperson. These business leaders kind of do their own thing. It's a very key account-driven process and business. The customers are all mammoths. They're literally on two hands. So it's just not that big of a brain drain here at the company. And yet it's a 30% out margin business, and now it's growing fairly well, and we see more things we can do with it. And there are synergies because we are providing diagnostic tools. It's extremely sticky. You know, the San Marcos unit of that business, you know, has participants in over 185 10Ks. It's stacked in. So the worst thing about it is the orders are all lumpy and large and to the big guys out there, and we're working on smoothening that out and getting more of their wall share. It's probably never been better. It's one of the good things of this quarter with that business, actually.

Okay. Okay. I appreciate that. Thanks for the comment, Chuck.

We'll now take our next question from Catherine Schultz with Baird. Please go ahead.

Hi, guys. This is actually Tom. I'm for Catherine. Wanting to know if you could provide any update on how Quad's doing relative to the deal model and maybe some comments on how many clinical trials it's been and what has been the customer feedback so far.

Yeah, well, the whole consortium, the whole JV has been already a really big success. We had, you know, at the latest trade show that's been showing us off, we've had immense demand and interest from We're involved in an awful lot of, you know, over a dozen preclinicals. We are being looked at every day by more. One of our partners has been involved in over 100 prequalifications. So, you know, this stuff's going to happen. The trouble is it's just going to take a while. The viral vector process is the process of record, and ours is non-viral, and we're moving that direction, and we're going to have a piece of it. You know, it's going to be an everybody wins market is, these valuations of these Aldebarans of the world have shown for a while, so we're pretty pumped. Quad is on track, and we have released products. We have new products on the drawing board. We can modify the size and hold consistent size with our bead technology, and we're coming up with a new way to use this technology. We have a tech council approach in the company where we have a Scientists of all divisions meet and huddle often, and we're coming up with a whole different new set of ideas around different arrays, assays, et cetera, as well. It's cool stuff. A lot of interest. It was never going to be the big winner in cell and gene therapy as a possible division someday. We've always talked about it being in the 50 or so million therapy as a possible division someday. We've always talked about it being in the 50 or so million dollar range five years out, and we see that. very, very doable and possibly a lot more if we find other applications for it.

Okay. And I know that, you know, you guys have said, you know, you're not really able to quantify the coronavirus at this point, but are you seeing any sort of early disruption thus far, any sort of qualitative comments on, you know, what parts of the business could or could not be impacted by a more significant slowdown or something that's more prolonged?

Yeah. Well, you know, this is my 28th quarter as CEO here, and I don't think we've had a quarter under 20% in China. I'm sure this next quarter probably will if everybody continues to stay home. Nobody knows where this is going now. The incidence rate is moving more of a linear trajectory than an exponential, and that's probably to a large effect if people are quarantined, so it's going to ride its way out. But I think we're a long way from anyone claiming victory. This is under control. There's a lot of risk, so... I'm pretty sure everyone will get a hall pass next quarter in China. I think there is a benefit to us. These kinds of events, these X factors, usually create a stimulus to research, and we are already seeing interest and growth in some areas that we typically don't because of this. It's just one of those unfortunate things. You know, probably not as good as being in the respirator and masking business right now, but, you know, there's going to be a handle for all – everybody in the fighting disease business. But this quarter is going to be a tough one, probably more than likely. Too early to say, but our instant business, I think, will probably not suffer. And I should say also, we had an exceptional start to the quarter in China in general. So that's going to give us a little bit of hedge there. But instruments probably won't suffer because, you know, that's not a run rate business. But there are run rate businesses. You know, if you're using proteins and antibodies at the bench, but you're not at the bench, you're home and kicking the kitchen, you know, those businesses are going to suffer for this quarter. But it's a short-term thing. We're not worried about it.

Got it. Thanks, guys.

We'll now take our next question. Jacob Johnson with Stevens. Please go ahead.

Hey, thanks for taking the question. On the recently announced JV with Wilson Wolf and Arsenios Gabi, can you outline or give us some more details on how this partnership will work? unless you disclose what your ownership interest is, and then, you know, if you'd like to just sort of any potential financial impact from it as we look at over the next couple of years.

Yeah, sure. This has been nearly two years in the making. As you can imagine, a freeway JV is not easy to negotiate. And these are some powerhouse companies. I mean, Perfenius, you know, of course, is a big one. And dealing with... them has been challenging, but good. The CABI group within Fresenius is five, six years into this. Their Lobos platform, their leukophoresis instrument is becoming a pseudo potential standard already. As I mentioned, it's already been tested in, I think, over 100 accounts. They're ahead of the rest of us really in this consortium, so we really wanted to link up with them. And one of the big gaps of our total workflow, we have a lot of boxes checked off in our workflow, but having that box that ties it all together is a really important step. And there aren't too many out there. There's only a few. So we think this is the best one in the market. The design came off of the early leader with Miltini, and I think major improvements to the solution have been designed and proven. So we think it's great. Of course, Wolf and Wolf's been around a long time. early innovator in cell factories and cell biofuel processing, a brand and a company and a leader that punches well above his weight. I spent time at Thermo. We all know John Wilson in the industry, and he's right here in Minneapolis. Our teams are very close. We've been friends for many years, and this is going to go great. It's not a textbook JV in any way, so it isn't like we're losing the revenue. This is all going to be kind of off and they're in their own garage somewhere working away. This is really more of a marketing kind of consortium, a collaboration. We all put in equal funding to drive the entity, and we all keep our revenue. We all drive our part of the business when it comes back home. There are a lot of things in the contract of how we stay married and long time frames and milestones to hit. And there are certainly scenarios of possible exits and trying to cover all your bases for all this if you're not happy and how to do mediation, all your bases for all this if you're not happy and how to do mediation. It's a very complicated contract for that, but that's what these contracts are always the way they are for JVs. It's all about the solving the what-ifs and the small percentage outcomes that are negative. So nothing's been negative. It's been fantastic. The leaders all get along really great. This has been driven and is the brainchild, really, of Dave Enzer, one of our presidents, and a lot of focus in this. The CEO of the entity is a person from Kabi, an extremely bright young man who we have a lot of faith in. I think we are prepared to talk about what we're going to input in. I think it's around $3 million, and that's an annual number to put in for investment to drive our piece. It could change next year or the after. I want to see how the business is, but it's by no means intended to be any kind of a sinkhole for cost or anything, so it's very containable. We are already selling, of course, and things are ramping, and I would say I would say the other twins are selling more than us right now, and it could dramatically shift over three, four, five years out if things like GMP proteins and such become scalable, which we think they will. There are kind of front-end versus back-end parts to the business, and even though we're driving the full workflow of being a non-viral approach, and we are going to sell GMP proteins to everybody, including the viral vector approach, and we have a ton of interest you know, factory and getting allocation, et cetera. And, you know, we're open for business.

Got it. That's helpful. And then just the last question for me, you paid down some debt in the quarter. The balance sheet seems like it's a really great spot. I'd just be interested in what you're seeing in your M&A pipeline right now.

Yeah. Well, I sure wish I could take credit for being so insightful around chemo centrics, but the investment was made here about 20 years ago. And, uh, We have a lot of faith in Tom Shaw, and they've had a lot of success recently, and I don't think we're done with it yet. So we did monetize some. But, you know, on top of that, we almost matched that monetization with great collections and the cash flow. And, you know, we took $100 million off. We've been averaging around $20 or so million a quarter, and we're at $120 for, you know, halfway into the year already. So we're essentially a year ahead of our schedule. We're now right around $1.25 for leverage. So we have a lot of very good – balance sheet and liquidity for doing more deals? Should we find them? We're going to stay on path with kind of the level of drawdowns that we've indicated earlier. Jim, you want to comment further? Yeah, no, I think you said that well. In terms of the M&A pipeline, it's robust as it's always been. It's more about finding the right deals at the right price. And right now, the ones that are of greater interest tend to be smaller in nature like they have been more recently. So But as you point out, our ground sheet is in the best shape it's been in a long time, so should a bigger deal make itself available, we obviously have to participate. And we are hunting, and we're involved in deals that are probably smaller right now, but nothing's changed there. We're always in the hunt, and as prolific as we've been in acquisitions, believe me, everybody lets us know what's coming up and what's potentially in the game for us to take a look at. But we're pretty focused right now. We've got a lot of homework to do. I think we definitely see genomics kind of back on track from a couple years ago when it went a little bit sideways on us. We're feeling really good about it. The HyPlex roadmap is phenomenal, and we're going to have a DNA probe product coming out soon. So I've never been more bullish about the ACD technology platform in the genomics division as I am now. And, of course, it's been tough, but everyone told us it would be tough to get into diagnostics, and liquid biopsy is no different, and we've never been better shaped than we are now, and there's also a lot of partnership interest as well. We're definitely not going to try to own this whole thing, so we are developing partnerships and companion diagnostics opportunities as well as other liquid biopsy solutions that maybe we can help their end-all recipe, so to speak. So a lot of interest, and we're going to grow this thing. And we will get reconsideration, or we'll go to another MAC. We'll do something to keep growing. The pipeline of new stuff is extensive. So we've got to stay focused on that, and more than trying to find another leg in the stool than the big acquisition, so to speak.

Got it. Thanks for taking the question.

Once again, if you'd like to ask a question, please press star 1. And to remove yourself from the queue, please press star 2. We'll now take our next question from Dan Leonard with Wells Fargo. Please go ahead.

Thank you. So you're coming up here against your toughest comp in the prior year period of 15% growth in March. Your toughest comp in the prior year period of 15% growth in March 19. Is there anything you'd flag that was maybe one time or lumpy in that prior year number that we should be cognizant of as we're modeling the forward period here?

Yeah. I've been waiting for you, Dan, and I'm really sorry about you coming back online now this quarter, but an insightful question. And I mentioned in my comments that we do have one more timing issue coming up in that genomic space, as well as maybe potentially another one in the in the simpleplex. As you know, these clinicals that go around simpleplex are large cartridge orders, and they're kind of lumpy. So we do have some in that number. Nothing like the $6 million, though. So probably about half of that $2 to $3 million is probably something we have to overcome. So yeah, it's going to be a tough quarter. I think we were like 14% last year, this quarter. So it's a tough comp. And then we're not going to get much help out of China, obviously. So I think you can add up all the results of all that. Nice recovery so far in instruments in Europe. We're all over giving them more help on areas like Germany. I think that's been improved. Genomics is, if anything, getting better. I think we're in great shape looking forward there. So we've just got to, you know, there's always one-offs. You've got to find more one-offs. That's what you've got to tell your team, you know. It is a reason, but it's a poor excuse for not showing growth, right? So we've got to find more big deals. We've got to find more OEMs. We've got to find more key contractors like Sysmex. It's a great example. We have very little Sysmex business, but it's coming on strong for us as an example.

Okay, that's helpful, Collar. And then my follow-up for Jim. Jim, it sounds like from your comments around gross margin that you're expecting full-year gross margin might decline about 100 bps year-on-year. If that's so, what's the driver of that? And then secondarily, do you still expect that EBIT margins could be about flat year-on-year?

Yeah, so in terms of gross margin, yeah, it would be. It's a combination of MIPS and FX. That's about the two biggest drivers in that order. That's having the overall year-over-year gross margin be slightly down. But, you know, as we guided in the early part, at the start of the year, we guided it would probably be roughly flat operating margins for a full fiscal year. And given our first half performance here, we're actually ahead of that plan. I'm not going to go as far as to sit here and guarantee that we'll be increasing margins at the end of the day year over year, but the flat year over year is definitely looking much more easily attainable and hopefully there's upside. I want to say one more thing on that, too. I mean, it hasn't come up much, but, you know, the revenue looking like it is, you add that to that transactional FX, you know, we're essentially on consensus. I mean, the operating excellence, you know, of our businesses and our ability to look midway in this quarter and, you know, start to do the right things that good operational leaders do because we have a very experienced team running these divisions and running these units. We actually did an exceptional job. And that's why we have the margin result that we did. And I feel confident we're going to be right on track, as Jim says, to our goals and the guidance we gave for annuals for our margins year-end. I think the revenue is harder than the bottom line. You can't always predict the top line, but you can predict how you're going to finish the bottom line. And we're doing a pretty good job, I think, of managing our costs.

Okay. Appreciate that. Thank you.

We'll now take our next question from Patrick Donnelly with Citi. Please go ahead.

Great. Thanks, guys. Chuck, maybe just to follow up on the M&A questions, I guess what areas make the most sense to add to inorganically? I know you guys obviously talked a lot about areas like cell and gene therapy. I mean, how far downstream will you go on that front? Just curious, kind of, what areas do you think make sense to bolt on?

Well, you know, there's There's that famous Da Vinci caricature that everybody tries to use in cell and gene therapy and all the different pieces of that workflow, which are a good dozen or more. And with our JV consortium, we've got most of the boxes checked. But there are some areas that I think we could do more to help differentiate that the world is searching for. I think spatial-based genomics. Single-cell genomics in a spatial capacity is a big area. There's still a lot of innovation happening there. A lot of small companies are making a lot of progress. We're looking at a lot of ideas there. I think reporter systems in another area. The major parts of the workforce, I think, are covered, but there are some things that could help us differentiate as well. And, of course, we don't have a viral vector approach. I mean, we could always go more towards where the mainstream is right now, too. Should we find an opportunity that makes sense? And then we're going to be partnering with a lot of these CROs, CDMOs, and a lot of fronts, so that could lead to opportunities. I think that covers the M&A direction. I think opportunities. I think that covers the M&A direction. I think, you know, I still don't see us expanding our priority beyond where we are into, say, NASDAQ or HPLC or you know, NMR, things like that. That's not us. There's a lot of competition, you know, and it's hard to really be the kind of margin that we'd like to be in to go that direction. But again, close to spatial measurements, you know, single cell analysis, next generation flow, you know, these solutions that use antibodies with their synergies with us all make sense. So we're always hunting those directions. We're always on the hunt for expanding our portfolios. They're smaller, but we have the arrangement for an NFL. We have wholesale applications now. There are new niche ELISA areas out there that are chunky in nature to expand our assay portfolio. Those all make sense. Smaller antibody companies, should they be there for sale at the right price? There's a few in Europe we like, as an example, are always interesting to us.

Um, you know, That's helpful. And then maybe just a quick one on ACD. You kind of mentioned you got that right size. What's the right growth number going forward? Is it kind of 20% and what are the key drivers there? I know you have things like DNA probes coming out, but who's talked through the drivers and the right, right growth level there.

Yeah, the right number is 20%. Of course we're going to push them for more, but the number for you is 20%. And, uh, I feel really bullish because RNA scope is still way underpenetrated. We are still building our relationship with Leica, and the numbers are getting dramatically better. We are working with Ventana as well at this point. We are looking at other lower-end, you know, instant partnerships or a way to do things to try and go after that lower-level, mid-level hospital or pathologist, you know, that really wants to, move from the IHC antibody world to molecular pathology. I think there's a big opportunity there. So we have a lot of interest in that. Our newly designed Bay Scope application is finding growth. The DNA scope will come out end of this fiscal year, which we know there's a ton of interest in. This HyPlex is just getting off the ground, and we just filed IP, as we've been talking about, for a quarter or so on a new extension to that HyPlex technology that's going to get us into the multiples of 12 into targets. you start looking at an assay kit-based approach that can give you single cell revolution for 40 to 100 different targets at a time, that becomes really, really interesting to a lot of big companies out there in this space. So that's all coming. So I feel very good about 20% plus going forward for years. Appreciate that. And if we slip, we'll make changes because it should be that.

Well, that's your next question from Alex Nowak. That's Craig Callum, Partners Group, Capital Group. Excuse me. Please go ahead.

Great. Good morning, everyone. Just to follow up to a couple of questions on here, just taking into account the European weakness here, the one-time order time in the coronavirus in China, is double-digit organic growth here possible over the next two quarters, or should we be expecting something more in the line of a high single-digit number?

Well, as you know, Alex, we don't give guidance. We were still on track for 10% or better for the year. We have been guiding over the years saying an 8 to 12 kind of range we want to be in, and we kind of moved that guidance this year to maybe 10 to 12. But, you know, your comments may be prudent that it may be an 8 to 12 for this quarter, given these headwinds we're looking at. I mean, the China alone, if we're 2025 moving to say 10 or 15 because of the virus, you know, you can do your own math, but I'm just going to shave a point. you know, I would think, off of the potential we could do this quarter. Everyone's in the same boat. But, you know, and it's a tough comp for us. It's the toughest we've ever had. But, you know, overall, the business looks pretty good in most categories, and Europe's coming back pretty well. Our interest in business is a good uptick. We mentioned North America is pretty strong. Hell, we've got 75% year-over-year lead increases. Our... Our marketing, our commercial engine is just so much better than it was a couple of years ago. And we're spending on more AdWords. We're getting a $10 to one investment on SEO. So I'm telling this team, keep spending until you hit an asymptote. And we haven't found it yet. So it's one reason we're seeing double-digit growth in both proteins and antibodies across the board, especially in North America. We've got to get more of that going in the core in Europe, which we will. Asia is doing great. Japan's in a good spot. India is accelerating high double digits. And China will take a blip here, but it'll just be a blip for a quarter. And China will take a blip here, but it'll just be a blip for a quarter, I'm sure.

Okay, understood. And then just to go back on Europe here, understanding the issues in the quarter and one time, But you have mentioned a softer environment in Europe now for a couple quarters. I'm just curious why next quarter, why should it turn and start to become actually a better geography for you?

Well, some of it's one-off. Some of it's serendipity. Some of it's, you know, the way these timing on these projects are. We're just seeing an uptick, you know, in these platforms again. I think there's still a risk. We're not out of the woods, I don't think, in Germany overall. I don't think we're out of the woods yet in ELISA in Europe. Our other areas, like dual sets and those products, are doing pretty well. We are definitely selling an awful lot of bulk, and that usually kind of comes and goes in cycles. I think the biggest thing is we have to get down to basics with our sales force, country by country, going off of and building off of the acquisitions we did, and then we started working, getting people to work together and train them and teach them what biotechnology is and doing the cross-selling. I'm not happy yet. I think there was more gold found. picking off low-hanging fruit from going direct from depending on distributors than it was about true cross-selling good growth. And we're also, I think, weak in our inside sales, weaker than we are in the U.S., and we're going to need to beat stuff. Inside sales for our model is very important. You can depend on your web, and that's great. But when you're selling over a quarter million different SKUs, and it's a catalog business, You've really got to have a strong inside sales group as well, and we need to work on that also in Europe. So there's a lot of levers we're pulling, but there's a lot of levers we're going to add and pull harder on, and that's why I have a little more renewed faith that we can get Europe going again. Now, you know, Europe, this is a bad quarter, and we've messaged it for a quarter or two, as you mentioned. I think the couple of years we were at 15% to 20% growth, I think that's going to be a reach. But getting this back, as Jim said, the high center of growth where Europe should be, is, I think, very, very, you know, possible and should happen. It may take a quarter to get there, but I think this quarter is going to be a good shot.

Okay, understood. That's helpful. And then just real quick, you mentioned progress around partnerships with Exosome. You know, if any of these programs are successful, when should we expect to see the second Exosome diagnostic test launch onto the market? And then just any update around plans to get the epi test?

Yeah, we're not really focused on kidding per se right now. We are going after FDA approval, but not as a standalone, non-doctor associated kit. It won't be in TV any time in the future, okay, for one thing. The demand we're creating around direct marketing and the web and SEO is going to be pretty dramatic. I think it's going to help a lot. We are moving on. getting patients and starting the studies for both bladder as well as kidney rejection. And of course, they're off urine, so it's not that hard for us to do. And we're working on partnership ideas to get going on the plasma side. So with both the lung and the breast indications, which are validated, we think they work and they're ready for clinical. So I think you're looking at a couple of years, maybe under two years for for the urine-based ones, depending how they go. Again, you have to get studies written and get included, and it'll depend on the timing of that. Probably picking a better MAC wouldn't hurt, a little quicker MAC. So there's some decisions to make, but one half to two years is the short answer for you. But if you look out five years, we're going to have a half a dozen things and hopefully half a dozen partnerships as well.

Understood. Thank you.

We'll now take our next question from Paul Knight with Jenny. Please go ahead.

Paul, are you there?

Mr. Knight, your line is open. Mr. Knight, if you'd like to ask a question, your line is open.

Well, we can get a one-on-one call later, too.

That seems to be all the questions we have. I'd now like to turn it back to our speakers for any additional or closing remarks.

Well, thanks. We went over our first time we've ever done that, so we appreciate all the interest. Overall, a decent quarter, not as good as we'd hoped, but I think we have our hands on all the right levers, and I think things are fine for our year end. So all good going forward. The team is pretty energized. Just a lot of great stuff happening here, a lot of great science, and we're excited about it. So look forward to telling you more this next quarter. So see you then. Excited about it. So look forward to telling you more this next quarter. So see you then.

This concludes today's call. Thank you for your participation. You may now disconnect.