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spk04: Good morning and welcome to the Biotechna earnings conference call for the fourth quarter of fiscal year 2021. 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 Claire Biotechnics Senior Director, Investor Relations and Corporate Development. Please go ahead, sir.
spk08: Good morning, and thank you 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, as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2020 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 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 Biotechnique Corporation website. at www.bio-techni.com. I will now turn the call over to Dan.
spk07: Thanks, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. With 39% organic growth in the quarter, the fourth quarter closed out a record year for Biotechni, where we achieved 22% organic growth for the full 2021 fiscal year. What a difference a year makes. We ended fiscal 2020 on a much different note. as lockdowns and disruptions to our academic and biopharma customers took hold and changed the way research was being conducted. In the quarters following the initial COVID pandemic spread, there has been a record level of interest in biotechnics' portfolio of reagents, analytical tools, and services that enable researchers to make discoveries and push science forward. With robust research demand from biopharma and markets and expectations for a favorable government research funding environment, we believe a multi-year research tsunami is upon us. Biotechni is incredibly well positioned to ride this wave. For the second quarter in a row, the Q4 growth rate was the best organic growth the company has delivered in over 25 years, both on a year-over-year and over a two-year CAGR basis. The accelerated Q4 growth was broad-based across our end markets and geographies, although most of our customers experienced the worst of the pandemic-induced lockdowns during our fiscal Q4 last year. The growth within our product category was also broad-based and continued to be led by our analytical, instrument platforms, cell and gene therapy solutions, and genomics tissue spatial analysis tools. EMEA had a strong finish to a record year with 25% organic growth for the full fiscal year. Given that our main distribution hub for Europe is in the UK, Brexit was quite a distraction. With multiple supply chain and logistics surprises to conquer between the UK and mainland Europe, the team did an excellent job navigating through this and ensuring the strong demand for European customers was delivered. China is a similar story. As you may recall, China was the first to lock down due to COVID and the first to come out. Thus, China for us is essentially back to business by our fiscal Q4 of last year. So the year-over-year costs for China were tough this year compared to the U.S. and EMEA. Yet, China delivered 30% growth for the quarter and the full fiscal year. We are very close to seeing a $100 million value of revenue in China. If not this coming fiscal year, most certainly the year after. Across the company, we delivered this record quarter with a continued focus on profitability as our operating margin expanded by over 740 basis points year over year. During the quarter, we made progress investing in the human capital necessary to position the company for its next leg of growth, although demand for talent in the life science industry remains very high. Encouragingly, some of the business practices we took for granted in the pre-pandemic world, including business travel, are slowly returning but remain below normal levels. Consistent with our results throughout fiscal 2021, the deferral of these investments accelerated our profitability ramp. Now let's discuss the performance of our growth platform, starting with the protein sciences segment, where organic growth accelerated to 46% in the quarter and 24% for the full fiscal year. During the year, we made great progress with our cell and gene therapy initiative. We opened our GMP protein facility and signed several large customers. Going forward, we'll continue to broaden our GMP portfolio with the planned introduction of GMP-grade recombinant antibodies, cell and expansion media, and other critical reagents. The demand for GMP proteins is likely to expand beyond T-cell-based therapies to include gene-edited natural killer cells and progenitor cells that fill the regenerative medicine therapies workflow. All of these areas are gaining momentum and increasingly relying on our products. As evidence of this growing interest, Catamaran Bio and Biotechnia recently broadened the scope of their collaboration to include the development of novel cell expansion technologies for use in the manufacture of CAR-NK cell therapy products. Additionally, Catamaran secured a broad worldwide license for TC Buster, our gene editing platform, and has integrated the technology into its tailwind platform for CAR-NK cell therapies. Importantly, our cell and gene therapy relationships, such as this example, are having a broader impact throughout the company, driving adoption of our media, assays, instrumentation, antibodies, and other offerings in our portfolio. We are leveraging our digital marketing capabilities to build awareness and the customer funnel for our expanding portfolio of cell and gene therapy workflow solutions. During the quarter, we made enhancements to our website, including promotional videos and additional images to more effectively showcase our complete offering. I would encourage all of you to visit the Cell and Gene Therapy section of Biotechnology's website to view a video providing a virtual tour of our state-of-the-art GMP protein facility. Now, let's discuss the analytical instruments we sell within the Protein Sciences segment. If you would have asked me in the past if we could grow our three main platforms, Simple Western, Jess, Simple Plex, Ella, and Biologics, Maurice, by 30% to 80% all year long, I would have said impossible. So what happened this past year? A number of things. First, these instruments are great tools for productivity. If labs redesigned themselves around working partially from home, it became more important to increase output while in the lab. Our tools are perfect for this and at a great value. Second, proteomics-based applications are on fire. Research in this area is strong, and our tools are not only the best in class, but in some cases, the only type of tool you can purchase that conducts this specific analysis. For example, Simple Western is the only fully automated Western blot solution on the market. The productivity enabled by our Simple Western instrument combined with our growing install base has led to a significant increase in market awareness for this product. In fact, we believe this awareness has reached a critical tipping point as almost 90% of the Simple Western instruments sold in a quarter did not require a demo. SimplePlex continued to streak amazing results in Q4. with our automated multiplexing platform, Ella, delivering over 65% growth in the quarter as demand for neurology, immunotherapy, and cell and gene therapy research applications grow instruments, placements, and utilization within the install base. This result is even more impressive considering the particularly challenging year-over-year comp LSAs when high demand for the system for COVID-related applications drove an almost 100% increase in the same quarter last year. We took several steps to meet ongoing demand for this platform, including additional shifts and are in the initial stages of adding incremental manufacturing capacity to meet forecasted demand. During this quarter, we announced a collaboration with India-based Alzheimer's healthcare provider Narayana at Nathrala for the evaluation of ELA as a diagnostic tool for analyzed LASIK vision correction patients for post-surgery complications. This is another example of the untapped potential of ELA as a clinical diagnostic platform. We also recently announced a collaboration with Progen for the launch of a simpleplex adeno-associated virus, or AAV2, viral titer assay on our ELA platform. AAV2 is commonly used in gene transduction due to its ability to infect a variety of cell types. During the viral vector production process, a series of robust analytical measurements are required to determine the viral titer. Combining the efficiency and the reproducibility of the established AAV2 from the Progen with the convenient workflow and robust performance of the ELLA platform creates an assay with broad dynamic range along with hands-free automation to accelerate cell and gene therapy quality control process. Our biologics portfolio also had a very strong showing with growth over 30% for the quarter and the year. We are excited about the recently announced collaboration with 908 Devices, where our Maurice Biologics platform provides reproducible quantitative analysis of identity, purity, and heterogeneity profiles for therapeutic proteins will be paired with the 908 Devices Zip Chip. For the collaboration, Maurice will enable the measurement of molecules that have a similar charge or isoforms and collect fractions of these isoforms for purification and the preparation on the Zip Chip prior to being introduced to a mass spectrometer, creating a seamless sample prep workflow. Finally, our core portfolio proteomic researcher agents increased over 50% for the quarter and nearly 20% for the fiscal year. During the fiscal year, we expanded our market-leading portfolio of research reagents, including the addition of over 300 new research proteins to our expanding catalog of over 6,000 proteins. For antibodies, BioPharm is increasingly recognizing our capabilities in immuno-oncology targets and immune cell labeling. Now, let's discuss our genomics and diagnostics segment, where the team delivered 22% organic growth in the quarter and 18% for the full fiscal year. Our spatial genomics and tissue pathology business, branded ACD, remained extremely strong, with the team delivering over 60% growth in the quarter. Growth was broad-based within the portfolio and across geographies, with RNAscope remaining strong. Any emerging HyPlex, BaseScope, and microRNA products all gaining traction as new marketing campaigns and deeper account penetration benefited the business. We fortified our RNAscope offering with the introduction of the latest version of our Multiplexing Spatial Genomic Technology, HyPlex V2. This latest iteration of HyPlex adds the ability to visualize up to 12 targets simultaneously in a formalin-fixed paraffin-embedded, or SFPE, samples and continues to offer the plexing of up to 48 targets in fresh or freshly frozen tissue samples available in the legacy version of the assay. SFPE is an important sample type for human samples, especially for studying diseases. And we anticipate demand for HyPlex V2 as a tool for cancer and neuroscience applications, as well as immune oncology studies. Next, our diagnostic reagents business faced large headwinds this past year, with the pandemic dramatically reducing doctor visits, and in turn, diagnostic controls to OEM customers. However, this business successfully overcame these headwinds by supplying COVID-related antibodies to COVID-related test and vaccine manufacturers, realizing eight consecutive quarters of positive growth. With people returning to see their doctor again in a post-vaccinated world, the future is bright for our diagnostic reagents business with a strong product and OEM pipeline. Our exosome diagnostics business unit continues to make progress despite a very soft urology market. During COVID, patients were not leaving the home to do annual checkups or seeing their urologist. This dramatically reduced their level of PSA tests, the tool used by urologists to identify a need to prescribe an exoDx test. for prostate cancer risk analysis and possible biopsy. The market is now recovering. We have staffed up our commercial sales force, and our growth is accelerating. We also made progress on the epi-reimbursement front during the quarter, following our request for reconsideration, our Medicare administrative contractor, National Government Services, or NGS, issued an updated XODX Prostate Local Coverage Decision, or LCD. This updated LCD removed many of the XODX prostate restrictions included in the original LCD, including limitations for test utilization among certain ethnicities, excluding patients with first-degree relatives with prostate cancer, as well as removing the restrictions for patients with a persistently elevated PSA score. The reconsidered LCD became effective on August 1st. Following the removal of these epi usage restrictions, the LCD better reflects the NCCN guidelines and positions the test for improved utilization among the Medicare population. In addition to the XODX prostate test, we continue to advance our pipeline of innovative exosome-based diagnostic tests, including our non-invasive kidney transplant rejection assay, ExoTrue. As a reminder, initial ExoTrue data was published earlier this year in the Journal of the American Society of Neurology, 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 remain on track to launch this noninvasive urine-based assay later in calendar 2021 and have held preliminary discussions with our MAC on the pathway for Medicare reimbursement. Finally, I'd like to highlight the acquisition of a surgeon we made this past quarter, a 15-year-old diagnostics company with strong competencies, great leadership, and domain knowledge in diagnostic regulations. They also bring kidney expertise and electro-oncology diagnostic kits, as well as a strong portfolio of carrier screening diagnostics, like Fragile X, the world's best-in-class test for identifying prenatal intellectual disabilities. During the quarter, a surgeon published the results of a multi-site evaluation study on his AmpliDex PCR SMA Plus kit in the Journal of Molecular Diagnostics, validating his performance in delivering accurate, reliable information to support carrier identification for the diagnosis of spinal muscular atrophy, or SMA. The surgeon's kit simplifies existing methods for identifying relevant variants in the SMN1 and SMN2 genes by identifying all variants in a single reaction. I want to be clear on our direction for diagnostics. It is not our goal to be simply a CLIA lab service model. We prefer to sell kitted products primarily in the oncology, neuroscience, and prenatal markets. These markets have strong growth due to strong needs, as well as good margins and better-than-average reimbursement levels. Since closing the acquisition on April 6th, we have made significant progress with the integration efforts of Asurgen and are in the initial stages of building out the commercial team to increase penetration in the largely untapped EMEA market. We have also begun a coordinated R&D and marketing strategy to identify synergistic projects across the company, especially with exosome diagnostics, as we position our entire diagnostic offering to penetrate high-value markets with kitted and LDT assays. Lastly, I'd like to give an update on the impact of our COVID-19 initiatives. Since the start of the pandemic, biotechnics reagents and instruments have facilitated studies that have allowed a better understanding of the virus, including ACD probes to detect the virus in tissue, sales of bulk diagnostic reagent used in COVID testing applications, as well as pathogen-specific antibodies and proteins to known variants of the COVID virus. COVID was an estimated 3% tailwind to our business in Q4 and approximately 4% tailwind for the year. including revenue from sales of the Cantero IgG antibody serology kit. Encouragingly, there is growing interest in niche markets forming around our COVID serology assay offering, specifically as a tool to identify immunocompromised individuals that may not have the antibody response following vaccination to neutralize the virus. We expect the COVID research and diagnostics will be around for many years, particularly as new viral strains continue to emerge making this tailwind a sustainable new layer of our product portfolio going forward. Wrapping up, we have reached the tipping point in several of our high-growth businesses, including the ACD spatial genomic business and our Protein Simple branded portfolio of proteomic analytical tools, and remain in the early innings of penetrating the nascent cell and gene therapy and liquid biopsy markets that are in front of the company. Layer onto this a strong funding environment for our market-leading catalog of research proteins and antibodies, and the scientific know-how that has been built around them for over the last 40 years, and I believe we are incredibly well positioned to remain one of the most innovative, high-growth, highly profitable life science tools and diagnostic companies going forward. We are closing in on an important milestone, crossing $1 billion in annual revenue, and with our existing portfolio, see a pathway to double that in years to come. On that note, I want to remind everyone that Biotechnique will be hosting an Investor Day event on September 10th in New York City. At the meeting, we plan to dive deeper into all our growth drivers and provide an update on our long-term aspirations. We hope to see everyone there. For that, I'll hand it over to Jim.
spk09: Thanks, Chuck. I'll provide an overview of our Q4 fiscal 21 financial performance for the total company, provide some additional details on the performance of each of our segments, and give some thoughts on the year ahead. Given the anomaly that occurred in Q4 last year with the pandemic-induced customer lockdowns, I will also provide certain growth rates expressed as two-year CAGRs. as these are likely more representative of our midterm underlying growth momentum. Starting with the overall fourth quarter financial performance, adjusted EPS was $1.87 versus $1 a year ago, an increase of 87% over the last year, representing a new company record. Foreign exchange positively impacted EPS by $0.08. Gap EPS for the quarter was $0.37 compared to $1.48 in the prior year. The biggest driver for the decrease in gap UPS was unrealized losses on our investment in chemocentrics this year compared to unrealized chemocentrics gains in the prior year. Q4 revenue was $259 million, an increase of 47% year-over-year on a reported basis, 39% on an organic basis, and an organic CAGR of approximately 13% since Q4 of 2019. Foreign exchange translation had a stable 4% year-over-year impact and acquisitions also had a favorable 4% impact to revenue growth. For the fiscal year 21, revenue was $931 million, an increase of 26% on a reported basis, 22% on an organic basis, and an organic CAGR of approximately 13% since fiscal year 19. Foreign exchange translation and acquisitions had a favorable year-over-year impact of 3% and 1%, respectively. All geographies had strong growth in Q4, led by the U.S. growing nearly 60%, which represents a 13% CAGR since Q4 fiscal year 19, followed by EMEA with over 35% growth, or a two-year CAGR of 15%, and then China with growth north of 30% for the quarter, representing a two-year CAGR in the high 20s. The rest of the world grew almost 30%, or at a 10% two-year CAGR. Q4 of last year was the start of a pandemic in the U.S., with shutdowns severely impacting its geography. While European customers had begun to emerge from the shutdowns, and China was largely reopened in Q4 for fiscal year 20. Hence, the comps in Q4 this year were easier in the U.S. compared to China and Europe. That being said, the two-year CAGRs across the globe are impressive and illustrate that we've emerged from the pandemic even stronger than before it started. By end market, biopharma continues to be very strong, growing nearly 50%, while academia growth was most impacted by the shutdowns last year, growing nearly 60%. The two-year CAGR, we believe, illustrates the real relative strength, with biopharma growth nearly 20% and academic growing approximately 5% per annum over this period. We expect academia to continue to improve as national funding budgets get approved and dispersed throughout the next year. Moving on to the details of the P&L, total company adjusted gross margin was 72.5% in the quarter compared to 69.5% in the prior year. The increase was primarily driven by volume leverage, operational productivity, and favorable product mix. Adjusted SG&A in Q4 was 26.1% of revenue, a 200 basis point decrease compared to the prior year. And R&D expense in Q4 was 8% of revenue, 150 basis points lower than last year. While adjusted SG&A and R&D spend both increased sequentially and compared to the prior year, a tight life science labor market did not allow us to fill all planned headcount additions to the team at the pace we'd originally anticipated, especially in the more scientific and engineering fields. However, our pace of hiring did increase over the course of Q4, and we plan to make additional progress in fiscal 2022. This investment in critical human capital will position the company for growth going forward. Additionally, Q4 was the first quarter that included a surge in operating costs. The resulting adjusted operating margin for Q4 was 38.5%, an increase of 740 basis points from the prior year, and a 340 basis point improvement from Q4 of the fiscal 19. For the full fiscal year 21, adjusted operating margin was 38.9%, an increase of 560 basis points from fiscal year 20, and a 470 basis point improvement from fiscal year 19. Looking at our numbers below operating income, net interest expense in Q4 was 3 million, decreasing 1.4 million compared to the prior year period. The decrease was due to a continued reduction of our bank debt during fiscal 2021, as well as lower floating rates. Our bank debt on the balance sheet as of the end of Q4 stood at 341.3 million. Other adjusted non-operating expense was $0.7 million for the quarter compared to $0.5 million of income in 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 chemocentrics. Moving further down the P&L, our adjusted effective tax rate in Q4 was 20.3%, a 110 basis point improvement over the prior year, with the improvement primarily driven by geographic mix. Note that the gap-affected tax rate in Q4 was favorably impacted by the discrete timing of stock option exercises. As a reminder, during Q2, we made a strategic investment in China-based MNES, a company focused on providing media as well as custom cell line development and media formulation services to the Chinese biopharmaceutical market. The $316,000 non-controlling interest line item reflects the loss from a portion of MNES we did not own. The impact to other lines of the P&L as a result of consolidating eminence was immaterial in Q4. Turning to cash flow and return of capital, $122 million of cash was generated from operations in the quarter, more than a 170% increase over the prior year. The increase was driven by strong working capital management while meeting our customer commitments on much higher demand. In Q4, our net investment in capital expenditures was $12.8 million. And during Q4, we returned capital to shareholders by way of $12.4 million in dividends. We finished Q4 with 41 million average dilute shares outstanding. Our balance sheet finished Q4 in a very strong position with $231.6 million in cash and short-term available for sale investments and a total leverage ratio well under one-time due date. Next, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q4 reported sales were 192.3 million, with reported revenue increasing 51% compared to the prior year. Organic growth was 46%, with foreign exchange having a stable impact of 5%. The organic CAGR since fourth quarter of fiscal year 19 was approximately 14% per annum. Within this segment, the strong growth was very broad-based in nearly all reagent, assay, and instrument platforms. Looking at two-year CAGRs going back to fourth quarter of fiscal year 19, Standouts in the group would be SimpleFlex with approximately 75% annual growth, Spelling Gene Therapy with approximately 50% annual growth, with the GMP protein component growing well over 100% annually, Biologics with approximately 25% annual growth, and SimpleWestern with approximately 20% annual growth. Operating margin for the protein sciences segment was 46.7%, an increase of 780 basis points year-over-year due primarily to favorable volume leverage, operational productivity, and cost management. Turning to the diagnostics and genomics segment, Q4 reported sales were 67.1 million, with reported revenue increasing 38%. Organic growth for the segment was 22%, with acquisitions contributing 15%, and foreign exchange translation having a favorable 1% impact on revenue. The organic CAGR since the fourth quarter of fiscal year 19 was approximately 11% per annum. The ACD-branded spatial analysis portfolio, together with the exosome diagnostics, led the segment in the quarter with two-year CAGRs of nearly 20% and 70% per annum, respectively. As Chuck mentioned earlier, our diagnostics reagents business did a very nice job executing on bulk COVID-related antibody opportunities to cover for the softness in the general diagnostics market, resulting in a mid-single-digit CAGR over the last two years since the fourth quarter fiscal of 19. Moving on to the diagnostics and genomic segment operating margin at 16.7%, The segment's operating margin improved 430 basis points compared to the prior year. The increase also reflects strong volume leverage, operational productivity, and strong cost management across the segment. In summary, we finished fiscal 21 on a very strong note. Our products are clearly addressing the current needs of the research and clinical communities we serve, providing the proteomic, genomic, and diagnostic tools necessary to drive science forward. With some of the largest opportunities still in front of the company, We believe we are just getting started and are looking forward to updating everyone on our vision for the future during our upcoming investor day. In the more near term, with favorable life science research funding as a tailwind, we expect the organic growth momentum that we've experienced over the last two years to carry on into fiscal year 22. We foresee continued strength across our entire portfolio, with cell and gene therapy, our analytical instrument portfolio, and spatial genomic analysis tools leading the way once again. while poor reagents maintain their market leadership position, and the exosome diagnostic prostate test continues to ramp. We also anticipate a surge and add approximately 3% growth to our top line during fiscal year 22, and begin to be accretive to our organic growth in the fourth quarter. As Chuck and I mentioned in our prior commentary, we have recently made progress in making the investments needed to support our future growth. but have further to go to catch up to our strategic plan and enable the acceleration of growth in the future. Additionally, with our biopharma and academic customers now back to work and increasingly more receptive to in-person interaction, we are expecting the return of pre-pandemic activities, including corporate travel, to normalize as fiscal year 22 progresses. Finally, a surge in the still in the initial stages of profitability and making the investments necessary to fully realize the synergies and global potential of this business. All these considerations taken together, we expect our adjusted operating margin going forward to be sequentially lower compared to our Q4 fiscal 21 results, but returning back to this level in the back half of fiscal year 22. That concludes my prepared comments, and with that, I'll turn the call back over to Leanne to open the line for questions.
spk04: Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please press star 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. And we will take our first question from Dan Arias with Stifle.
spk10: Morning, guys. Thanks for the questions. Jim, I appreciate the color there on the business. Did I hear you give an organic growth guidance number for the year for 2022?
spk09: What you heard me say was that our CAGR for the past two years has been approximately 13%, and we expect that momentum to continue into fiscal year 22.
spk10: We always give an annual. Okay. Obviously, a lot of room for interpretation or just a range of outcomes for double digits or just expecting the CAGR to continue. Is there any way you could comment just on maybe where the street is? The street's looking for, I think, right around 15%. I hear what you're saying on 13%. Is the fair assumption that something would... Yeah.
spk07: We'll have more commentary yesterday, and we'll get into more specifics and kind of break down where things are at. But right now, it's kind of hard. We typically, you know, we don't give guidance. We give target ranges. And we went many years talking about, you know, 10 to 12 and numbers like that and stuff. We're certainly at 13-ish right now, and it could be much higher. And we certainly are over a five-year target, a range we're guiding higher than that to reach our target. Our stated goal is it has to be. But, you know, we're very bullish right now. It's just kind of hard to put too much more than that. But by September, we will. And it's a good story. As Jim said, the momentum continues. We don't see anything changing. And since we've been beating quarter after quarter, maybe that's a good sign. Yep, that's true.
spk10: Okay, maybe just a high-level question. I mean, obviously, you guys have a portfolio that's pretty well positioned in a bunch of areas, and you're you're growing in certain areas and you're expanding capacity in certain areas. Are we, are you able to sort of parse out for us where in the business or what portion of the business you think growth is most likely to be limited by just your own capacity or you're still ramping capabilities versus what the customer base base might bring in terms of demand?
spk07: Well, you know, first I'd comment, you know, it's one thing to grow double digits and deal with what you need to expand. Cause you know, nobody, nobody does expansion for, you know, ways to double your business very quickly. You know, you're, you go in increments to make sense because you don't want to, you don't want to have your facilities empty. It's a competitive world, right? You start growing at 20 plus percent and the kind of growth we're just seeing, and you get kind of caught on top of that with the shortage and talent is just the whole, the whole economy, life science, the kind of booming right now, funding looking good. You know, it's kind of a race. Um, So we're expanding kind of ahead of it for now, looking for continued and accelerated growth per our last discussion here. And to be frank, we're virtually expanding every business we have. We don't have a single thing we're doing that we're not behind and don't need to expand and invest in. They're all doing great. We also are not behind in it, to your question. We can meet I think we're there in time. We have the capital. We have the talent. We have the consultants. We have the land. We have the buildings. We have the supply chain figured out what we need for instrumentation, but we don't think we're going to get caught behind and throttled in any business that we have. Okay, so can I extend that? Last year, the one that's been the toughest has been SimplePlex, right? Yeah, that's what I was going to ask about. We've been a little under that, but, you know, 65% growth on top of 100%, you know, a year earlier. That's phenomenal. Now, that one, we're going to pretty much blow it out with a new building, new everything this year, and we'll be online in a year. So, I don't predict that we'll be able to, you know, not ship every order that we have, to be honest.
spk02: Okay. Appreciate it. Thank you. Thank you. And that growth rate will be significantly over 13 on that one.
spk04: Thank you. We take our next question from Jacob Johnson with Stevens.
spk01: hey just one quick follow-up not to belabor the 22 outlook the 13 growth number you referenced jim that's an organic figure and you expect that momentum to continue plus the surgeons about a three percent inorganic benefit is that kind of the way to think about it that is correct okay perfect um then maybe for chuck following up on your comment on simpleplex you seem to be finding more and more uses for ella I think I heard you mention neurology, and I think your competitors talking about the opportunity for the use of their instrument and screening and testing for Alzheimer's drugs. Is that maybe an opportunity you could find for Ella?
spk07: Yeah, absolutely. It's fast. It's microfluidic. It has incredible sensitivity. So, yes, we're definitely involved in those kinds of applications. It's a biomarker discovery tool, you know, for patients. you know, for therapy creation, for drug discovery. That's primarily what it's used for. And now we're, you know, it's morphing into all these possible clinical applications, too, which we're working on, as you know. It's probably the biggest sleeper we have. It's probably the biggest sleeper we have in re-identifying all the different adjustable markets and potential things we can do with it. That's why you see the growth rates you see with it. It's just kind of off the charts.
spk01: Got it. If I can just squeeze one more in. Just, Chuck, on the expansion into GMP media and antibodies, is that something you'll implement at your existing GMP facility, or is this something that requires additional capacity? And two, is this something that is contemplated kind of in the $140 million of capacity you brought online for proteins, or is this something that's additive to that opportunity?
spk07: No, it's all the same discussion. We have the capability of doing roughly $40 million in revenue at headquarters here. It just would be in smaller lots. We're GMP here, but, you know, it's more primarily research. So, therefore, we built the new facility, which is open now, and we're going to get started, you know, selling out of inventory, qualified lots here in the coming months here. And that is $140 million to $200 million in capacity, depending on which product, you know, mix you have. It's further expandable very quickly, within six months inside the current building, which we haven't used all the space yet, or on site as well.
spk01: Great. Thanks for taking the questions.
spk04: Thank you. We take our next question from Catherine Schulte with BERT.
spk00: Hey, guys. Congrats on the quarter, and thanks for the questions. I guess first, in your core reagent solutions division, just curious what you're seeing in terms of lab activity levels. How has the reopening varied by geography, and do you think there's still improvements to be had out there?
spk07: As we mentioned last quarter, kind of probably... near the end of the quarter, it became apparent that we're probably back to full strength. I think there's confusion over just because people aren't in the lab and maybe doing their analytics and their math and their paper writing at home doesn't mean they're not back. Their experiments are ongoing and they're being productive in the labs. And, you know, so we think we're academically kind of back to full strength. They're just working differently. They're working smarter. They're being a little more biopharma-like. And that would be a comment for both U.S. and Europe. China's, you know, full on has been for quarters. And, you know, we're into the next five-year funding cycle in China. And, you know, the first year, we're actually going into the second year of it here pretty soon. And that's usually a big, big ramp year for China.
spk00: All right. Got it. And I'm just curious if you could just talk through MNA priority areas. You know, you've done a lot on the diagnostic side and cell and gene therapy over the last couple of years. You mentioned in your prepared remarks about proteomics being on fire from a research application area. Are there applications like that where you'd be interested in adding on to your capabilities through M&A?
spk07: Yes. We're hunting all the time. We've probably never spent a quarter with so much activity and so little to show for it, actually. We came in second and third on a lot of deals this quarter. As you know, prices are high, and We can be picky. We've got great numbers. We've got great growth. We've got a great balance sheet, and there's no sense for us to overpay or take too stupid a risk or confuse a street with something too adjacent that people don't understand. So we're being kind of true to our strategic plan, and we're hunting within those guidelines and within the math we want to find. And finding double-digit or ROIC on deals has been very difficult right now. So we'll be patient, and we'll It means we're probably still leaning more towards private deals where we can kind of get something with a management team and investors that understand us and want to come on board versus public auctions, which seem to be still on a friendly mode and going too high.
spk00: Great.
spk07: Thank you. Yeah, we're focused on tools probably more so than diagnostics. I think we've got enough things integrated now in diagnostics, and we see a great plan coming together between Exosome Diagnostics, Asurgent, and even our ACD platform. So there's a lot of growth coming there, and also the Ella application. So we've got quite a franchise forming in diagnostics. We've probably got to start focusing back on tools and core areas, if we can find it. They're just... isn't enough out there, and they're going very high. As you saw, BioLegit went for over $5 billion. I mean, that's unbelievable. You know, we have a comparable antibody business here.
spk02: That tells you something about our valuation. Great. Thanks.
spk04: Thank you. We take our next question from Alex Nowak with Craig Hallam.
spk06: Great. Good morning, everyone. Chuck, going on the diagnostic side, it seemed to be a little bit of a tone shift with the Assuragen acquisition closing, including Biotechnique being more of a kit diagnostics company than a CLIA lab. Did I hear that correctly? And maybe expand on what you plan to push through the Assuragen kittable models. I could include the epi test, the exosome true test, all the exosome tests they have in the pipeline. And then I guess the bigger picture in a couple of years here, do you think biotechnology is going to have both a CLIA lab and a kittable diagnostics model?
spk07: Well, you're a diagnostics guy, so, you know, I know you get it. And, yeah, first of all, you know, they're focused on their panel, right, their kittable panel here with Fragile X SMA and CF, which will be coming out here this fall. That'll be a really kind of, you know, best-in-class, only thing you can get in the world kind of a panel. With that experience, of course we want a kit as much as we can because we have a home kit version of our epi test right now. We're launching that. We're in Europe going through distribution with a kit, and we're expanding that model and probably de-emphasizing the CLIA side over time. But CLIA is certainly very important right now. We're doing the work. But over time, it'll be a mix. I don't think we'll probably totally be ever out of CLIA. I think you need to be in CLIA because that's a good way to start these things. these tests off an LDT, and I think we'll just see how the mix goes. But I think better scale potential, I think better capacitor acceleration exists with kit, kitting if you can get it done. But as you know, it's a bit of art to kit, and you need people that know how to do it, and there's a lot of details to get kitting successful and channel issues, which is what your team are really expert at. So they are, you know, They're definitely drooling over the chance to get at the Exosome portfolio, to be honest. So we're just trying to hold them off until we can integrate completely. We want to make sure that we take care of them fairly as part of the assuring deal first. It's all coming. You're spot on.
spk06: That makes sense. And one just on ExoTrue. Is maybe any update on the commercialization plan there? Is that going to be a direct sales team? Are you going to go through a partner? And then you mentioned the reimbursement on Exit True, and you're currently working through NGS. Any update if you plan on seeking out another lab to go after more of a Moldy XMAC, or just any update on the reimbursement progress there?
spk07: Well, with a surgeon, we have the opportunity to be in their MAC district, so that's being evaluated. We also have a site near Atlanta, so we can be in the Palmetto area, which has the favorable jurisdiction here around CARE-DX. So we're not breaking ice there. That's also a very strong possibility. With the numbers we've shown in our paper, it's best in class. We beat everybody out there by far, as far as I can tell. There's a lot of interest. All the main players are talking to us right now, and there's a potential for a partnership. We won't do a bad partnership, so if you see one, it'll be great terms. Otherwise, we will go it. In my mind, this will be a hell of a lot easier than the prostate test because, again, these are organ transplant centers, and we're not talking about, you know, a channel of 20,000 urologists. We're talking about less than 100 centers that we can deal with in almost like a key account model. We also don't have, you know, the wall to climb over of talking docs out of doing tests like biopsies, right? So it's commercially should be somewhat simpler, especially if it's a great test of great numbers. So we've done surveys with these rejection centers or these transplant centers and they've come back over 90 positive they want to try out the test that they you know they don't they don't see what what they're using today is being perfect by any means and there's a movement for improvement and what they see and understand about the simplicity of uh of a mail-in type uh kittable you know test like we have with urine that they want to try it so we're we're pretty gung-ho i think we had in our commentary we expect to be you know out within a year here so That's great. I also think the max will be easier on us too. This isn't the prostate, the cancer you live with and not die from. The perception is, which is inaccurate. This is a big bad one out there with double the market size. As you know, half of all kidneys fail in 10 years and roughly 30% fail in the first five. It's an awful, awful condition. Finding something that's more upstream like exosomes can provide versus cell-free DNA to really help that primary physician or the doc figure out what's going on before you have trouble is going to be really important to sustaining that organ long-term for the patient.
spk06: Yeah, multi-exosomes are very favorable there.
spk07: Thank you.
spk04: Thank you. We take our next question from Patrick Donnelly with Citi.
spk05: Hey, thanks for taking the questions, guys. Chuck, you know, I know you called out China in the prepared remarks. I think you talked about 30% growth, approaching $100 million a year. You're usually pretty bullish on that. But how are you thinking about 22 set up there? Again, it seems like all things are pointing in the right direction for you guys. But we'd love your take on trends there in the quarter and then, again, expectations for this year.
spk07: Yeah, well, you know, I think Jim was spot on going through the analysis and providing, you know, color on a two-year look back, not just one year. You know, it's just such a goofy year last year. And when you look at all our numbers on two-year pre-pandemic, then you see, I think, still best-in-class results for our industry. And China is no different, you know, so that's a near 30% high 20s, you know, for two years. We see that consistent. We've always kind of said we expect China to be a 25% grower, and I guess we see no reason why not to stay with that game and Even as we get past 100 million, it's only 100 million. So we've got a long way to go in China before we're going to take any victory laps. And the brand is, you know, it's a gold standard brand. There's no letdown there. I think, if anything, we're going to see things accelerate in China around research around our products, to be honest. There is this point of, we've mentioned the word tipping point in our commentary. I love the term because I think it's really accurate to things need to get to a certain size before they get easier to sell. And we've reached that point in a lot of our stable of unicorns here. We've got a dozen different platforms that are all hitting and achieving and getting over that tipping point and becoming almost simpler to accelerate. So China is going to be very good at selling the whole stable, and they have been, and they're going to continue. So I think the numbers will be better going forward.
spk05: That's helpful. And then maybe one on just the GMP order pace. You touched on it a little bit, but how is that trending relative to your expectations? I think last quarter you talked about, you know, plan to sell out inventory by September, October. I think you touched a little bit on it earlier. But we'd love just kind of the ground floor view there and expectations, how we should think about that piece.
spk07: Well, we're closer in landing some more big customers. We'll land another one, another bigger one. You know, I think 145% growth in the corridor coming out of our little headquarters facility, I think, is significant. An amazing execution by the team, to be honest. I don't think we've been over 100 before that. We've been hanging around 100, so that's record growth. We'll start transitioning to the factory here come this fall. We're getting close right now, and there's a lot of excitement. The product looks fabulous. It's pure. The lot-to-lot consistency of the volumes we're going to be able to create are going to be best class in the world. No one's going to be able to compete with us in terms of that. I really, we meet and we say, get online and look at the video. You're going to see this factory and go, wow, that's a deal closer for sure. And people are coming in are amazed and it's, you know, it's going to all come down to testing and, and how fast we can, we can ramp up these bigger customers as they come out the other end. And, you know, there, as you know, hundreds of clinicals, it's going to take a couple of years to get this thing really going. But I mean, be honest, I think we're going to have an amazing, business, but I don't think we'll be alone. I think it's an everybody wins market here for five years, to be honest.
spk05: Okay, gotcha. And maybe one last one for Jim, just on the out margin commentary. I think you said entering 22 would be a little lower than 4Q than the second half getting back to these levels. Can you just talk about, I guess, the Q levers as we get into 22 again, some of the spend coming back, maybe talk about the impact of XO, and then kind of the underlying expansion as well would be great.
spk09: Yeah, I mean, some of the factors on the margin, first of all, is the acquisition of a surgeon, right? So for three out of the four quarters next year, it will be diluted to overall margins to the tune of, you know, 70 to 100 basis points. So that's kind of a big headwind inherent right there. Of course, you know, we talked about, you know, getting back in front of customers and business travel somewhat returning. You know, that's a pretty hefty number in itself in terms of a headwind year over year, assuming that that activity ramps back up. With regards to your comment on XO, I mean, XO will become less dilutive going forward but still be dilutive. But as we continue our growth trajectory, you know, despite those headwinds in the near term, and, you know, let me back up for a second. We did hire pretty successfully here towards the end of Q4, so not necessarily represented in our fiscal year 21 run rate, much less even the Q4 one, to be honest with you. And that will provide some headwind that you're not currently seeing. All those factors combined, we see in the near term the margin dipping slightly, but again, because as we continue to grow the back half of the year with the leverage we get from that growth, we see it normalizing back to Q4 levels by the end of the year.
spk02: Totally agree. Great. Thanks, guys.
spk04: Thank you. And as a reminder, please press star 1 to ask a question. We take our next question from Paul Knight with KBank Capital.
spk03: Hey, guys. It's Mike on for Paul. Just following up on Patrick's question, you know, on the operating margin line, I guess, you know, it sounds like the diagnosing genomics is going to take most of the impact with the estrogen. So, I'm guessing, you know, protein sciences kind of maintains the level that you saw in 2021. Can you kind of just talk to the dynamics between those two a little bit deeper? Thanks.
spk07: Yeah, I'll start and you can finish. I think That's right on. Clearly, our investment portfolio is the one scaling, and it's going to help the overall mix, but our core continues to scale and continues to find leverage, too. I was quite frankly amazed at just how well we execute this year in our core. In the past, this hasn't been the kind of business model where you get as much leverage as other manufacturing models I've been involved with, but we have found incredible productivity internally, and we have found more scale leverage than I thought possible. It's been helped, in fact, by, I think, as we talked about, the hiring needed and headcount shortages. I think we're a little in there. We're catching up fast. We started last quarter in travel court and helped everyone. But the fact remains, even on growth margins, we're really strong, and we're finding leverage. I think it'll continue. We're all pretty well Six Sigma trained here, and PPI from Thermo and every other flavor of this productivity. you know, therapy you want to do, and we use them all here. We've even talked about coining our own version, the biotechnology version, because we do it, and we target and task our teams with productivity every year, and they find it, and I see it going forward, and maybe Jim wants to comment further.
spk09: Yeah, in terms of how that margin might look like by segment, actually, right now we think it might be slightly the opposite in terms of the impact. Protein Sciences already has a very high operating margin, And a lot of the hiring that we're behind on to accelerate growth in cell and gene therapy and other areas, as well as the instrument portfolio, will be in that protein science segment. So they'll be more heavily impacted by the actual investments that we need to make. You're correct in that the diagnostics or the genomics segment will be impacted by the surgeon acquisition. But, again, they have the lowest overall operating margin, and that's where we've gotten the most expansion in the past with leverage, and we expect that to continue and, frankly, overcome the surge in headwinds in that segment. So that's kind of how we see it playing out as of right now.
spk07: And don't forget that that's an 80-plus percent growth margin, you know, kidding kind of model, which we understand. And so as that scales, that'll reach up and won't asymptote until near 40%. And we're, you know, we're in the high teens right now, so we've got a ways to go. It's come up 1,000 points in a year, but, you know, it's just starting to stride. And it's on a roughly, you know, $90 million run rate. So we always said it'd be probably at $40 million. It's above $200 million or so. And I don't see any reason to change that tone right now.
spk03: Great. Very helpful. And then, you know, Chuck, just on the Shurgen, it looks like it came in a little bit ahead of expectations of what you were guiding back in Q3. Yeah. Can you kind of unpack some of the trends you saw with the business there? Was that just organic growth within a surge? And was it, you know, some synergies playing out being underneath the biotechnology umbrella or some, you know, maybe easy comparables back in 2020?
spk07: Yeah, we're not breaking down division numbers anymore for competitive reasons. I would say it's more or less on track. It wasn't really too much ahead. We've given them a lot of homework. And if anything, keeping them corralled and focused on their business and not Not over-integrating with Expo too fast, I think, has been the challenge. They just know so much. They're so experienced. I can't also tell you how good this integration has been. Out of 17 acquisitions, this has been the easiest. These guys, 15-year-old company, they all came. It was a spinoff of a bigger company, as you know. And so their financials are all auditable. It's just been marvelous, this team. They're all keepers, and we're working hard on doing that. Going forward, I think, We bought them. We've done a lot of acquisitions, been pretty good and sometimes clever in reaching some things just before that inflection point up. And these guys are no different. They've been working on this SMA and cystic fibrosis for a while, and they're launching. So over the coming year as they launch, yeah, I would expect there to be some accelerated growth. That's what we're hoping for. That's why we bought them, among other things.
spk03: Great. Thanks for the time, guys.
spk04: Thank you. And as we have no further questions in the queue, I would like to turn the call back over for any additional and closing remarks.
spk07: Okay. Well, thanks, everyone. It was a year we're all happy behind us in a lot of ways, but business-wise, we're quite happy with the results and that we're able to execute and provide the world with a lot of badly needed things this past year with the problems we've all faced. We're We're ready to go in the future. We're investing. We're catching up in terms of headcount. The numbers look pretty good. The momentum, as Jim has said, is stable, and we see no reason to change our tone. And we'll give you more transparency when you all show up in New York and attend. So thanks a lot. Bye.
spk04: Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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