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spk05: Good morning, and welcome to the Biotechnology Earnings Conference Call for the first quarter of fiscal year 2023. At this time, all participants have been placed in listen-only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the call over to David Clare, Biotechni's Vice President, Investor Relations. Please go ahead, sir.
spk08: Good morning, and thank you for joining us. On the call with me this morning are Chuck Cometh, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechni. 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 2022 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. 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 Pages reconciling these measures to most comparable GAP measures are available in the company's press release issued earlier this morning on the Biotechni Corporation website at www.bio-techni.com. Separately, we will be presenting at the Credit Suisse, Stiefel, Stevens, and Evercore ISI healthcare conferences in November. We look forward to connecting with many of you at these upcoming conferences. I will now turn the call over to Chuck.
spk07: Thanks, Dave, and good morning, everyone. Thank you for joining us for our first quarter conference call. I am pleased to report that we started our fiscal 23 with a respectable 7% organic revenue growth on top of what was our most challenging year in your comp of over 21% organic growth in Q1 of last year. We achieved this growth despite a slower summer for our business in Europe and continued, although improving, COVID-related shutdowns in China. With the tough comps and, we believe, temporary regional challenges that our protein sciences segment faced, this was the quarter for our diagnostics and genomics segment to shine, and China did with 17% organic growth. In our first quarter, we accelerated our spatial biology business to upper teen growth. We continued to drive incredible uptake in doctor and patient usage of our XODX prostate test, and we delivered double-digit growth in our genetic DX and diagnostic reagents businesses. I will dig into the traction and encouraging trends we are seeing across this segment in our broader portfolio later in the call. But first, I'd like to highlight the State and Corporate Sustainability Report we recently issued, which details the significant progress we continue to make advancing our environmental, social, and governance initiatives. The 64-page report provides insights into biotechnics' commitment to growing the organization in a responsible manner while we deliver the products necessary to advance science and ultimately improve healthcare. Our advancements on the ESG front also led to biotechnics inclusion in the 2022 Forbes list of best in state employers, with this latest achievement representing the third recognition from Forbes so far in calendar 2022. I'd also like to briefly touch on how we are navigating the current global inflationary environment. The team has done an extraordinary job strategically implementing price increases across portfolio to offset the impact of inflation. We will continue to leverage our pricing power to offset rising costs, particularly labor, going forward. It should also be noted that our operations team has delivered consistently with no supply chain issues this quarter or any in the past eight. Now let's discuss the specifics of our quarter, starting with an overview of our performance by geography and end market. In North America, consistent execution across the portfolio drove low double-digit revenue growth for the quarter, driven by a continued strong biopharma end market. In Europe, our revenue decreased mid-single digits year over year. Here we experienced an exceptionally slower seasonal summer dip in our consumable run rate business. It seemed like everyone was on vacation in July and August, perhaps making up for the prior two COVID years when travel was more restricted. In any case, our run rates in Europe picked up considerably in September as researchers seemingly returned to the labs. However, the strong double-digit growth in September, which, by the way, is continuing in October, wasn't enough to overcome the tough Q1 growth Comp Europe had last year when they grew a record 20%. While there are potential macro challenges in the current European environment, our portfolio of proteomic research reagents, analytical tools, and spatial biology solutions remain core components to the scientific discovery process and position us to effectively navigate any near-term regional instability. Moving on to China, despite the lingering impact of ongoing COVID-related lockdowns and academic institutions not returning to the labs, we delivered mid-single-digit organic growth. On top of the COVID challenges, I'd also note that China faced a particularly challenging year-over-year comparison, where we grew revenue by over 50% in the region last year. We see China rapidly returning to its historical growth rates as prior year comps normalize. Customers continue to better navigate the sporadic COVID-related government restrictions, and the Chinese government continues to emphasize investing in healthcare. Our biopharma end market remains healthy, growing upper single digits globally for the quarter, and especially stronger in North America with growth in the mid-teens. Sales to our academic end markets increased low single digits year over year, but again, we're stronger in North America. Now let's discuss our growth platform, starting with our protein sciences segment, where organic revenue increased 3% for the quarter on a very strong comp from last year, when the segment grew over 26%. Let's begin with our cell and gene therapy business, where our portfolio reagents, instruments, media, and technologies streamline workflows, increase efficiencies, and ultimately expand access to the these next-generation therapies at lower cost to the healthcare system. We haven't discussed TC Buster for a while, so I will update you on the significant progress we are experiencing with our non-viral gene editing technology. TC Buster has several advantages over legacy gene editing methods, including its ability to deliver larger gene editing cargo, as well as a more predictable gene insertion location, all at a lower cost compared to viral-based gene insertion methods. We continue to educate the market on the advantages of TC Buster, and it's worth noting that we have signed a handful of commercial licenses to support a growing pipeline of cell therapies, primarily for T-cell and NK cell therapies. In addition, to customers testing TC Buster for therapeutic candidates, we also see growing interest in Discover Research to take advantage of the technology's lower cost and increased speed, enabling the acceleration of a candidate's selection. TC Buster is currently being trialed in dozens of unique therapies, and we believe the future is very bright for this technology. We continue to penetrate the burgeoning cell therapy opportunity with our portfolio of GMP proteins and are seeing continued momentum in the regenerative medicine or RegenMed market. As a reminder, RegenMed is a form of cell therapy that leverages stem cells or their derivatives to promote the repair response of diseased, dysfunctional, or injured tissues. Our GMP capabilities expand beyond proteins and include a portfolio of GMP small molecules. These small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to RegenMed workflows. While our GMP small molecules business is relatively small today, it is growing rapidly, including over 100% for our first quarter, and has potentially become a significant contributor to our overall cell and gene therapy business. Now let's talk about our core portfolio of proteomic research reagents, including the RUO proteins, antibodies, and small molecules that are key components to enabling biopharma and academic scientific discoveries. Collectively, our RUO reagents grew nearly 30% in Q1 last year, again highlighting how difficult this quarter's comp was. Despite the high hurdle, our RUO reagents were able to grow mid-single digit in Q1 for this year, driven by our digital marketing capabilities. Moving on to the performance of our proteomic analytical tools, where we also face a challenging year-over-year comparison, as the business grew over 25% in the same quarter last fiscal year. Overall, the team delivered double-digit growth in North America and China, which was partially offset by much lower performance in Europe, leading to low single-digit growth for the quarter. Once again, our biologics platform, REIS, led the growth. We continued to see demand from protein therapeutics, gene therapy, and CRO CDMO customers, particularly in North America and China, where combined growth was over 20%. Innovation remains a key factor in growth for our biologics business. For example, we recently unveiled data demonstrating ICIEF fractionalization On the soon-to-be-launched MARIS-FLEX instrument, fractionalization is a front-end step in mass spectrometry where the sample to be analyzed is separated into mixture components based on differences in their size, charge, or other characteristics. The data showed how MARIS-FLEX addresses the labor-intensive and time-consuming challenges of using legacy methods, including ion exchange chromatography for fractionalization. MARIS-FLEX is scheduled for release in early 2023. In addition to the expanding Maurice capabilities and applications, the platform is also gaining recognition for its environmentally friendly attributes. A recent study in the Green Analytical Chemistry Journal highlighted Maurice as an environmentally friendly method for evaluating the identity and stability of adeno-associated virus, or AAV, samples for gene therapy development. The study highlights Maurice's low sample and reagent volume requirements in built-in waste reservoir as environmentally friendly attributes to the system. We continue to expand the capabilities of our protein simple line of instruments in cell and gene therapy applications. During the quarter, we added three new viral titer assays for the expanding menu of our automated multiplexing ELISA instrument, ELA, for intact AAV capsid quantification and gene therapy research and development. ELA's wide dynamic range and high precision ensures users get the high-quality data required to meet regulatory standards for AAV titration throughout bioproduction workflows. Now let's shift to the diagnostics and genomics segment where we grew revenue by 17% organically in the quarter. Our spatial biology business, branded ACD, accelerated to upper teens growth in the quarter as strong commercial execution and enhanced marketing strategy generated well-balanced growth in both our biopharma and academic end markets. In addition to a strong performance from the core RNA scope product line, we are seeing increased traction from our BaseScope and MicroRNAscope offerings in cell and gene therapy applications, which grew almost 50% and over 70% respectively. BaseScope and MicroRNAscope are rapidly becoming material contributors to our spatial biology franchise. We recently expanded our RNAscope portfolio with the launch of new automated co-detection assays specifically designed for the Roche Discovery Ultra platform, enabling simultaneous detection of RNA and protein on the same tissue section. These new automated multi-omic assays utilize both RNA scope and base scope signal application to deliver best-in-class RNA sensitivity and specificity. When combined with protein detection on Roche's automated platform, researchers will be uniquely enabled to power translational and clinical research studies. We are also unlocking the cross-segment synergies inherent in the broad biotechnic product portfolio. As an example, we recently launched the TSA vivid fluorophores for highly sensitive fluorescent detection of RNAs and proteins in cells and tissues. Pairing these key fluorescent dye reagents from our small molecules business with ACD's RNAscope sets a new standard for illuminating RNA biomarkers with industry-leading sensitivity and clarity. Rounding out spatial biology, we also recently filed a patent infringement lawsuit in the United Kingdom to halt the infringement of our patented RNAscope ISH technology by Molecular Instruments Incorporated. We've made significant investments over the years to build our catalog of over 40,000 RNA-scope ISH probes available in over 400 species and remain committed to protecting these investments and defending our intellectual property rights in our spatial biology business and more broadly throughout the portfolio. Now let's discuss our molecular diagnostics business, starting with the significant progress in our exosome diagnostics business. Test volume in our exoDX prostate, or epi, test increased over 70%. while associated revenue grew over 100% in the quarter. Importantly, a favorable doctor retention trends and steady increases in the ordering physician base sets, the stage for continued robust exoDx prostate growth going forward. I am extremely pleased with the traction. We are seeing an exoDx prostate and believe our fiscal 2023 will be the breakout year for this test. Exosome Diagnostics also announced initial data on a novel non-invasive saliva-based profiling assay leveraging exosomes to diagnose and monitor individuals with Sjogren's syndrome. Sjogren's syndrome is an autoimmunity disease that is often undiagnosed and misdiagnosed with an estimated 4 million Americans currently living with the condition, but 2.5 million undiagnosed. Symptoms of Sjogren's syndrome can mimic other autoimmune diseases, allergies, drug side effects, and menopause, making diagnosis particularly challenging, leading to an average diagnosis time of three years, and creating a need for a non-invasive accurate molecular test. We are looking forward to providing future updates for this exciting pipeline assay. A recent proof-of-concept study for a novel exosome-based platform capable of monitoring spaceflight-associated neuroocular syndrome, or SANS, in astronauts was published in NPGA Microgravity or Nature publication. In addition to potentially providing a needed tool to assist fans and astronauts that are going on longer missions, as well as commercial space passengers, the study showcases the potential power of exosomes for the diagnosis of neurological conditions. Continuing with molecular diagnostics, the surgeon had another great quarter. Its demand for its portfolio of genetic carrier screening kits and expansion in Europe drove growth of almost 25% for the quarter. In addition to the ongoing geographic expansion, the surgeon has a rich product pipeline positioning the business for continued growth going forward. Finally, our diagnostic reagents business continued its streak of consistent growth quarters. The return of patients to the doctor's office is driving demand for hematology, coagulation, and clinical chemistry tests, which is driving demand for our clinical controls and reagents. These improving underlying diagnostic trends combined with market share gains and increased wall share at existing customers led to a low double-digit growth in the quarter and sets the stage for a sustainable growth in our diagnostic reagents business going forward. In summary, we continue to execute our growth strategy and remain on track to deliver our long-term financial targets. Our portfolio of proteomic research reagents and analytical tools are critical components of scientific research, our key to unlocking the full promise of the proteomic revolution currently underway, and our position to enable the oncoming bio-waves of cell and gene therapies. Later on to this, a portfolio of diagnostics and genomic solutions that include our leading platforms in spatial biology and liquid biopsy, and I believe we are just getting started in locking the full potential value of this business. With that, I'll turn it over to Jim.
spk10: Thanks, Chuck. I will provide an overview of our Q1 financial performance for the total company, provide some additional details on the performance of each of our segments, and give some thoughts on the remainder of the fiscal year. Starting with the overall first quarter financial performance, adjusted EPS was $1.78 versus $1.83 one year ago, a decrease of 3% over last year. Foreign exchange negatively impacted EPS by 12 cents or minus 7% in the quarter. Gap EPS for the quarter was $2.21 compared to $1.69 in the prior year. The biggest driver for the increase in gap EPS was realized gains in the sale of our investments in chemocentrics. and eminence during the quarter. Q1 revenue was $269.7 million, an increase of 5% year-over-year on a reported basis and 7% on an organic basis. Foreign exchange translation had an unfavorable impact of 3%, and acquisitions had a favorable impact of 1% to revenue growth. Given the tough comp we faced this quarter versus the prior year, I will point out that our two-year organic growth CAGR for Q1 was approximately 13%, right in line with the early part of the five-year plan our leadership team presented at our Investor Day in New York City a little over a year ago. Moving on to the details of the P&L, total company adjusted gross margin was 70.9% in the quarter compared to 71.2% in the prior year. The decrease was primarily driven by unfavorable foreign exchange impact, partially offset by productivity gains. Adjusted SG&A in Q4 was 27.3% of revenue compared to 25.1% in the prior year, while R&D expense in Q1 was 8.9% of revenue compared to 8.3% in the prior year. The increase in SG&A and R&D was driven by wage inflation and progress made in the second half of fiscal year 22 in building the team to support ongoing strategic growth investments. Speaking of inflation, the businesses implemented strategic price increases during the quarter to offset the dollar impact of inflation to operating income. However, the dollar-for-dollar offset did have a negative impact on operating margin. Adjusted operating margin for Q1 was 34.8%, a decrease of 300 basis points from the prior year period. The pricing inflation dynamic decreased adjusted operating margin by 120 basis points, negative foreign exchange decreased margin by another 110 basis points, while carryover of second half fiscal year 22 investments drove the remainder of the margin dilution for the quarter. As stated in the fourth quarter fiscal year 22 earnings call, we expect Q1 to be the low point for adjusted operating margins for the year. Going forward, we expect adjusted operating margins to expand sequentially, ending the fourth quarter of fiscal year 23 approximately 100 basis points higher than the fourth quarter of fiscal year 22. For the full year fiscal year 23, our expectation for adjusted operating margins to be approximately 150 basis points lower than the full year fiscal year 22 remains unchanged. Looking at our numbers below operating income, net interest expense in Q1 was 3 million, decreasing 0.1 million compared to the prior year period. Our bank debt on the balance sheet at the end of Q1 stood at $264.7 million, an increase of $8.8 million compared to where we finished last fiscal year. During the quarter, we drew down approximately $100 million on our line of credit to fund a NAMA cell acquisition, which was partially offset by applying the proceeds of our chemo-centric investment sale to our debt balance. Other adjusted non-operating income was $1.2 million for the quarter, unchanged from the prior year. primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For GAAP reporting, other non-operating income includes realized gains from the sale of our investments in Chemocentrics and MS. Moving further down the P&L, our adjusted effective tax rate in Q1 was 21%. Turning to cash flow and return of capital, 56.1 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was 9.6 million. Also during Q1, we returned capital to shareholders by way of $19.6 million in stock buybacks and $12.5 million in dividends. We finished the quarter with $40.5 million average dividend shares outstanding. Our balance sheet finished Q1 in a very strong position with $203.1 million in cash and short-term available for sale investments. Our net leverage ratio remains well below one times TTM EBITDA. During the quarter, we replaced our previous debt financing with a new $1 billion line of credit facility with a five-year term. Our corp dev team has been very active investigating external investment opportunities, and this new increased debt facility emphasizes the continued importance M&A will have in our capital allocation strategy. Next, I'll discuss the performance of our reporting segments, starting with the protein sciences segment. Q1 reported sales were $199.9 million, with reported revenue increasing 1%. Organic growth for the segment was 3%, with foreign exchange having unfavorable impact of 3%, and acquisitions contributing 1%. Given the tough year-over-year comps that Chuck pointed out for this segment, I will highlight that the two-year organic growth CAGR for this segment is greater than 14%, and the longer-term historical five-year CAGR is approximately 12%. Operating margin for the protein scientist segment was 43.0 percent, a decrease of 270 basis points year-over-year, with productivity gains more than offset by the impact of foreign exchange, price versus inflation dynamics, the fiscal year 22 carryover of strategic investments to support future growth, and the NAMA cell acquisition. Turning to the diagnostics and genomics segment, Q1 reported sales were 69.9 million, with reported revenue increasing 15%. Organic growth of the segment was 17%, with foreign exchange having an unfavorable 2% impact. As you heard from Chuck earlier, the double-digit growth was broad-based throughout the segment, with spatial biology accelerating to high teens organic growth, and our exosome diagnostic prostate test really now in hypergrowth mode, with the Medicare reimbursement and COVID headwinds behind it. Moving on to the diagnostics and genomic Segment operating margin at 12.4%. The segment's operating margin increased 20 basis points compared to the prior year. The increase reflects the favorable impact of volume leverage, partially offset by the impact of foreign exchange and price versus inflation dynamics. Looking ahead, our end markets remain healthy, and our momentum in capturing share in these markets is in line with our five-year plan. As we get past the recent regional challenges in Europe and in China, We are keeping a watchful eye on any potential short-term macro challenges that can impact our trajectory to our long-term goals, with confidence in our nimble and experienced team who has a track record of successfully navigating dynamic environments. With the toughest comp of the year now in our rear-view mirror, we anticipate a return to double-digit organic growth for the remainder of the fiscal year.
spk09: That concludes my prepared comments, and with that, I'll turn the call back over to the operator to open the line for questions.
spk13: Thank you.
spk05: At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, please limit your question to one and a follow-up. One moment, please, while we poll for questions. We have a first question from the line of Puneet Sardar with SVB Securities. Please go ahead.
spk11: Hi, Jim. Chuck, thanks for taking the question. So first one is really, I mean, I appreciate that you had, you know, tough comps in the quarter for Protein Sciences. but it was still meaningfully below our number and the street number. So, I mean, I think the key question that we're getting here is, you know, how should we think about protein sciences in the second quarter here? How much of this was really sort of pulled forward of demand versus actual weakening of demand as you talked about Europe and China? And because I can't recall a time when you had, you know, 3% organic growth in this segment, so maybe you should walk us through you know, what you see now and how should we think about, you know, the next quarter and for the full year?
spk07: Sure. Thanks, Puneet. Yeah, I'll give some comments, but I do remember when I joined, it was negative. So I remember plenty of quarters below mid-single digit, by the way. It's just been a while. We're totally on our plan for five years and, you know, we've been ahead of schedule and our models are mid-single digit in our core anyway. So don't forget that. But I will cut to the chase right now about, you know, September was strong. October is remaining strong. We're basically double-digit across the board, if not high teens. So things look good. You are exactly correct. You know, we were really hot Q4 coming in at, you know, 14 versus consensus of 11. Definitely had some pull forwards there. We've done some studying, and, you know, we had probably, you know, we had a lot of price increases July 1. There was definitely some of that. I think also to point out, you know, on the instrument side, we're not too far off. It's just more of a weakness in Europe, cautiousness around purchasing. But we've also dug into what's going on because our bookings, you know, and our funnel is very strong. It's actually the strongest funnel we've ever had. But it's taken longer to get through the booking cycle. And signatures are coming more cautious this last quarter especially. And we're a bit robbed, we think. We think, you know, we've not had any supply chain issues the last, you know, couple years. And we've been pretty steady eddy and very good growth. And a lot of other instrument makers and a lot of other higher capital or higher signature purchases have had more supply issues. And we think there's been a little bit of a bubble of pent-up demand in some of the areas, and I think we just maybe lost out a little bit on priority in some of the purchases this quarter is what we're coming to. We don't see a lot of issues against price, and we don't see any issues really from September on. We definitely had a softer supply. quarter in Europe, and some of it was vacation for us. We do live in a little different world. We don't have direct comps, competitors, where there's kind of pieces here and there. And we have a large segment in biotech as well, and there's definitely some on the mid-range biotech. There's definitely been softness, especially in Europe on signatures and conservatism overall. Going forward, looks pretty strong. You heard the news from Jim there. We're more concerned about that. We're more concerned about our long-term outlook, which we don't think has changed a bit. And, you know, that's some highlights there. We'll let you dig in deeper now.
spk11: Okay, great. So, on the small biotech side, I'm wondering if you're seeing anything there, any sort of, you know, weakening of demand. Appreciate your comments about the current, you know, I mean, the September and October changes. You know, and Jim, if I could ask you about the low to mid teens that you had talked about in the prior quarter about fiscal year 23, what could keep that on the lower end versus the higher end? Maybe just walk us through, you know, potential upsides and, you know, potential things that we need to watch out on, you know, where it could be lower.
spk10: Yeah, so I guess first thing to do, address the biotech, we're seeing performance in our smaller biotechs pretty relative to our larger pharma. We're not seeing much differentiation. For us, when you look at the smaller purchase, we call our run rate business, which is lower dollar value, which is probably 80% of the purchases come through. The growth in Q2 and continuing here in October continues to be like mid-teens growth, particularly here in the U.S., So back to Chuck's earlier point, it's really the larger bulk purchases that had tougher comp and were more, call it, soft this quarter and probably faced more competition with some of the supply chain breaks that were occurring in the larger dollar instrument purchases in terms of competing for dollars. With regards to looking forward, I mean, I think Europe is still the biggest question mark. We're seeing strong performance here early in October, but obviously the macro picture there is a bit cloudy for everyone, and that's something we're keeping our eyes on that could, you know, that would be the one flag that could deter us from achieving double-digit, if anything.
spk11: Okay, that's great. And then last one, if I could squeeze in. On Wilson-Wolf, I didn't hear an update. Just if you could provide an update, and when do you think, you know, that options agreement could materialize?
spk07: I think we're still looking at the near the end of Q3. in that range. I would say overall, our cell and gene therapy and our GMP proteins, we didn't have a 50-plus percent quarter like we've been doing. Things have leveled off. It is very lumpy still. We don't have a lot of large, large customers, and there is some timing in some of that. And Wilson-Wolf has seen some of that as well, as well as issues around clinicals and finding patients. So things have softened a little, but still more or less on track for what our schedule was for them. although the improvement is in their EBITDA. Their EBITDA is north of 70%, so they're doing really well. And as volume, they're getting good scale. So a lot of good news there, too. And we're investing into more sales reps. We're calling our surge team. They're helping more out the whole scale-ready team from a proteins point of view because we're going to be adding more and more proteins to our factory. In fact, we've arranged it this year. Fiscally, we're going to add six more products. So by far, we'll be the largest – largest menu out there in GMP proteins for both Regen and cell and gene therapy. So that's all a really good story yet, and we just wanted to focus on what we thought you guys really want to focus on this quarter, so no issues there.
spk09: Got it. Thanks. Thanks, guys.
spk05: Thank you. We have next question from the line of Dan Arias with Stifel. Please go ahead.
spk01: Hi, good morning, guys. Chuck, how do you see ACD growth tracking across the quarters this year? And what should we pencil in for the impact of the partnership that you have with Akoya? And then on the hiring side, do you feel like the commercial team will be fully staffed out and sort of in the position that you want it to be to start calendar 23?
spk07: More or less, yes. We're down two heads, which is about normal. There's still attrition in our business along with everybody else's, but we're pretty much to 95% full strength and have been for this quarter. We promised a succession of improving a quarter since we kind of turned this around three, four quarters ago, and they didn't come off that at all. They had a tremendous quarter, 17% growth. I would say Akoya is still more in the future. You know, we're kind of waiting on them at this point, but we're ready to go. You saw our other announcements. We're really going after this front end for mass spec. It's a big TAM out there, and, you know, we talk about, you know, LC mass spec and GS, you know, mass spec, you know, like it's one term out there. But, you know, there are different ways to be a front end on mass spec, which is a massive opportunity, and we're taking more and more share all the time. So we're focused on that as well. But, you know, SPD is good. And we're going after, eventually, more pathology with automation. And they're not the only game in town. We're working with more than just them. But we are, you know, solidified with them on a deal. And partnership's going very well. And kind of waiting on them to get to the point where we can start making revenue together and getting something out of it.
spk01: Yeah. Okay. And then maybe on SimplePlex, as we think about this post-COVID phase that hopefully we stay in here, How are you thinking about average pull-through for the installed base and how that might look this year? I mean, you guys obviously placed a ton of those systems during COVID. So when it just comes to this overall comp issue that we're talking about here, I'm curious how you think utilization and recurring revenue streams compare as we come off the peak.
spk07: Yeah. Well, overall in consumables for ASD, we were mid-20s for growth in the U.S., just so you know. So we're very strong consumables in the similar double-digit growth you know, overall with SimplePlex in the U.S. It's more of an issue around Europe and just some of the normal lumpiness we see, you know, with the instruments on the large orders around these big clinicals with SimplePlex, but very solid. You know, we're knocking on the door, getting near 2,000 machines in the field, and those things chew cartridges like crazy, right? So we see a big, bright future, and get ready. Clinical stuff's right around the corner. You know, we have very little in clinical yet. It's all coming. A lot of interest. Still one of the biggest sleepers we see.
spk01: Do you see utilization as a headwind this year? Is that one of the areas where you think there's a headwind when you just think about how much those systems might have been run last year and potentially running less this year?
spk07: Maybe in Europe, potentially. And there is certainly one large customer in Europe that we're waiting to turn out again through the next set of clinicals. If that doesn't develop, there might be a bit of a headwind. But in general, North America is steady-eddy. It's more about the Europe on your question. Overall, it's still okay. I think. Thank you, Joe.
spk13: Thank you. We have next question from the line of Dan Leonard with Credit Suisse.
spk05: Please go ahead.
spk06: Thank you. So I wanted to start off, Jim, can I confirm that you said you believe you'll deliver double digit growth for the balance of the year. And if that's the case, that would imply a bigger sequential step up in Q2 than you typically achieve. So you can, can you talk through the drivers?
spk10: Yeah. I mean, if you look at our year over year comps, first of all, the comps become less of a hurdle year over year as we progress through the year, including next quarter. And, you know, we're hopeful and that the, The regional headwinds we face, namely in China as well as in Europe for the first two months of this quarter, will continue to improve. We have a lot of confidence in that with China, and so far here in October we're seeing more confidence with that with regards to Europe. Had those two regions not underperformed relative to the U.S. and to their historical relative performance, we probably would be talking about double-digit growth in Q1 as opposed to something below that, even with a tough comp. Yeah, especially with the pull-forwards.
spk06: And can you elaborate further on how you're thinking about European macro headwinds? That does seem to be a point of confusion with folks I speak to, given your end-market mix.
spk07: Yeah, sure. Well, we're seeing cautiousness, and we do see some lumpiness, as I mentioned already, anyway. We definitely had a weaker than normal July and August across the board. I mean, everywhere. So it's not a systemic issue. And September came back gangbusters, but not enough to cover what we saw in July, you know, in August. And I would say, well, that's great, but then October better be hot. And October, you know, is also looking okay so far. But, you know, there is definite cautiousness. Our teams over there are having issues. We've sent over some more help. in the field. You know, we were, I would say, in the seventh or so inning of kind of correcting Europe anyway, if you remember. We weren't that happy with Europe before all this, so I don't think we're through that. And we're focused a lot on our new platforms over there and things like SPD, which had really gone soft in the previous year and now are coming back alive. So we'll see. Instruments and where I talked about time for signature, it's delayed longer than we're usual in our funnel. and we're trying to, you know, get to that. I think it really has been an issue of competing for dollars with other suppliers having finally enough inventory to support things, and I think we're maybe pushed down a little bit this quarter. Our funnel is massive. It's the best it's ever been, both here and the U.S., so, you know, and our teams, believe me, we've had some, you know, very detailed, we call QBRs, our quarterly business reviews, and, you know, And they're adamant that the funnel and the pipeline looks great. Demand is solid. And it's just taken longer to get to capital signatures. Appreciate that color. There's also, as I mentioned, too, I mean, we definitely had some simple plex, you know, a lot of our clinicals are very large cartridge buys, and there's some timing issues in there. And, you know, like I said, if these bounce back like we think, you know, they come on and they come off and they come back on, they're due more or less. That'll help as well. Understood.
spk06: Thank you.
spk05: Thank you. We have next question from the line of Jacob Johnson with Stevens. Please go ahead.
spk04: Hi, it's Hannah for Jacob. Good morning. Can you just update us on the epi test? I think you're close to getting reimbursement for annual testing and use of the surveillance tool soon. Where do you stand on the business development effort around this?
spk07: Yeah, we got it. more or less the long laundry list of reconsideration items over the last two years. We've got everything we wanted back to match the NCC guidelines, but one issue, and that's the negative biopsy. So we're really good to go, and that more or less doubles the TAM. So the numbers are going up dramatically. Jim pointed out the numbers. We're seeing hyper growth now. So we're adding reps. We've added, I'm not giving numbers, but we added 25% more reps this last two quarters. So we're on We're on fire. The new leadership team there over the last six months or so has been amazing. We've done everything from changing our message to lining up with Cal Ripken Jr. again. A lot of shows. We are just ready to publish the next two-and-a-half-year outcome study, which is like 1,000 patients. That's the big event waiting for the rest of the big guys out there in insurance. We've got Humana, but we're after United and the rest of the Blues and all these. We're knocking on the door. It's coming.
spk04: You talk about ExoZone as a platform that could be a billion revenue unicorn. Now that you've partnered off ExoTrue, what are you working on next there?
spk07: About six things. Multivariable. There's a bunch of things I won't get into, but we can on one-on-one. We've got a strong hopper. One reason we did license off the Exitru because we have a strong hopper of things also to work on. We can't work on them all and launch them all ourselves. So where we have strong interest in a good channel partner that has strength in their area like Thermo does, you know, with Exitru, you know, we're going to do that. But we have a lot of stuff coming. So, you know, Sjogren's is just the tip of the iceberg. But it's a great example of things we can launch, you know, and get out there. So the statements from the Billion Dollar Platform is about, you know, five to ten years out when there's at least a dozen different indications out there which we think we'll have. So they won't all be done by us. They'll be a mix of partnerships and some driven by us. It's the future of liquid biopsy. So write it down. You can look back 10 years and say we said so.
spk13: Thanks, John.
spk05: Thank you. We have next question from the line of Alex Novak with Craig Hallam. Please go ahead.
spk12: Great. Good morning, everyone. I wanted to expand on that softness in bulk purchasing that you mentioned, Chuck. And I just spoke to Dan about the European summer vacations. But do you think any of the weaknesses there on the bulk purchase side is just related to just being less dollars out there for biotech projects? I know one of your peers this morning in biotech manufacturing reported they cited some short-term cash sensitivity decisions by biotech customers. So just more detail what you're hearing out there in the field around dollars. Yeah.
spk07: Well, we separate our run rate into, we call, you know, larger orders and smaller orders. And our large orders are something over $10,000. And those are either pharma-related larger orders or larger biotech orders or bulks. And the bulks are on a special volume curve, so not a pricing impact. So that doesn't explain that. But everything else but the bulks, I think what you just said is a very possible issue that's happened. We are seeing... slowness to purchase and some pushouts on a lot of these orders and being told such that the demand's not going away, but they're watching their dollars. And there's a kind of a cash crunch right now. And I think we have, it probably, it's uncomfortable to tell us that maybe we were deprioritized versus getting in an instrument that they couldn't get for the last nine months because of supply chain issues from somebody else or whatever. We've had no issues and everybody knows we're steady and we can deliver and our on-time delivery records are at record levels. And And we're unique out there. We've never had one supply chain issue through this whole COVID myth, you know, to speak of. So of anything material, we sell. So the team has done outstanding.
spk10: And I just add, Chuck, we're hearing from our commercial teams. It's not so much – it's not that we're losing any kind of bulk orders or instrument orders. It's more about delay and getting them through the system. Yeah. Yeah.
spk12: Okay, understood. That's helpful. And then maybe just thinking of taking that commentary and then applying it to the expense growth that you're expecting for the year. Just how do you think about hiring? And then also, has the employment market eased up here a bit, or is it still pretty tight for talent?
spk07: Yeah, great question. You know, I have a long career at 3M, which had a lot of operations management in a low-growth company. Yeah. So I know how to pull triggers on and off, and I know how to deal with things when they slow down or whatever. Attrition has been more or less a nightmare for us and everybody. And so, you know, we are still full steam ahead. You know, part of our margin impact, you know, has been the catch-up in hiring. And so we're still looking at doing that. So we're really, you know, hiring hard in SBD, hiring still in China. China is lighting it up again. Namacel, our new acquisition, we've almost doubled their headcount in the six months we've owned them. But, you know, in other areas alike, we're maybe looking softer to antibodies or proteins. We talked with this quarter. We're looking at, you know, mission-critical needs and replacements and looking at as we expand. And so, you know, as businesses grow, they need people. If they're not growing, they're going to need less people. We are still on a track. We added 300 people net last year. I'd be shocked if we didn't add 300 net this year, to be honest. So we've got a cautious outlook in some areas. We're We're looking at all the areas that we manage. We have five divisions, and we have roughly a dozen or so business units. As you know, a couple are super important to us, cell and gene therapy, exosomes, and so those are kind of what they need is what they get. Even a surgeon growing near 25%, lighting it up in Europe, needing people, we're adding people. I'm more concerned about losing great people and getting behind all this attrition. And it is getting better, as you commented and you asked about, much better. People are coming back to work, too. So people are wanting to come back to work, finally.
spk09: That is good, too. Thanks.
spk05: Thank you. We have next question from the lineup. Catherine Schultz with Baird. Please go ahead.
spk03: Hey, guys. Thanks for the questions. First, moving on China, how much of an impact did lockdowns have in the quarter? Are you seeing any impacts from the recent lockdowns that have happened? And how do you view that outlook for this upcoming quarter and for the full year?
spk07: Yeah, well, we were roughly 12 or more full points ahead of last quarter in growth. So we're on our track back. We expect mid-teens in that range for this quarter and on our way back to 25 end of the year at a run rate level. Kind of expecting the year to be roughly 20-ish or so, even with the soft dig out here from the China lockdown. It's still sporadic. In fact, we've got meetings this week where I was trying to get my head of Asia in. He's in Shanghai, and he couldn't get out because he couldn't get through Canada through a visa issue. So we just heard Disney. lock people in there, in their resort, and they won't let them go because there's an outbreak or something. So it's going to be almost building by building, block by block is the way it's been described to us. It's not as a citywide, and it's not over yet. But I would say it's drifting slowly towards opening overall. And we don't see Shanghai locking down again, which would hurt our warehouse. So we think we're still open for business across China. So I think we talked about the steady improvement in China, and we're on track, if not better than on track, for this quarter and beyond.
spk03: Got it. And then on GMP reagents, you talked about adding additional proteins by the end of the year. Can you just give us a status update on customers signing on and filling that capacity?
spk07: We have not enough whales, a few tunas, and way too many plankton. in our, in our, in our customer list. So we've, we've got 150 customers, but only a handful of really large ones. And they're, and obviously they're, they're, the timing issue, they're spotty in their orders for their, you know, for their, their clinicals and such. So we're adding people and driving the pipeline and, uh, you know, just getting out there, doing more with Wilson Wolf and our scale ready team to try and get our stuff pulled in. Um, Focusing as much on regenerative medicine as we are in cell and gene therapy, because we are the leader in regenerative medicine for agents, whereas we aren't in cell and gene therapy. And we have a lot of buy-in there, and a lot of the new products going are for regen meds. So we'll have the largest portfolio. We do now, but we'll have the largest in St. Paul as well by the end of the year, we think, of menu items. We're sampling a lot. People are astounded at the lot-to-lot consistency in what we have. But at the end of the day, you know, it's not the big-ticket item for doing a clinical reagent. They're important. They're critical. But, you know, you're going to have to show more than just price and things to, you know, to work your way in. Whereas we're in a great – we're in the pole position of Regen, but we're not in Celgene therapy. So we're still fighting some big competitors out there with, you know, Celgene, Meltani, and others. But we're holding our own and growing nicely, and it's coming. Okay.
spk13: Great. Thank you. Thank you. We have next question from the line of Patrick Donnelly with Citi.
spk05: Please go ahead.
spk00: Hey, guys. Thank you for taking the questions. Chuck, maybe one for you, another one for you, I should say, on kind of the quarterly cadence. I think you flagged October. I think I heard a high teens in there. Was that specific to protein sciences? And I guess what you see in there in terms of that kind of sharp recovery. Was it just some push out? I know you mentioned the vacation issue in Europe. Was Europe kind of coming back? Maybe just talk about that kind of high teens comment in terms of October. Some are high teens.
spk07: I think I said double digits to mid-teens. Maybe there's a high teen there too, and it primarily is around all the different platforms we have in PSS. They are having a good October and still focus more on the U.S. We're still collecting data here for Europe, but Europe is improving, but how could it not improve? So, yeah, strong. Proteins, for sure. Antibodies, for sure. Assays, for sure.
spk00: Okay, that's helpful. And then, Jim, maybe on the margin side, you know, in spite of the top line being a little softer, you guys manage expenses pretty well. It sounds like we passed a little bit of price to offset. Can you just talk about, I guess, kind of the margin cadence as we work our way through the year here? Obviously, the guy that's holding, but maybe just the levers you have and kind of what you pulled there in the quarter and kind of how we should think about the bill for it.
spk10: Yeah, and it's really going to be volume leverage that will allow us to continue to expand our margin on a go-forward basis. I think we'll still have the same headwinds around FX and around that price inflation dynamic, even though we're covering inflation dollar for dollar. But the investments, as Chuck mentioned earlier, we caught up in a big way in the second half of fiscal year 22, particularly in Q4, with our growth investments. And so where it's much more surgical in terms of the investments going forward as opposed to hire everyone you can kind of mentality as it was the past couple years. So with the growth in investments moderating and the volume ramping as we sequentially go through the year, we expect that leverage to drop through the bottom line and margins to expand.
spk09: Helpful. Thank you, guys.
spk05: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back over to Chuck Comet, CEO, for closing remarks. Over to you, sir.
spk07: Okay. Well, thank you. It is interesting that we have a double-digit quarter in our diagnostic reagents division, but there are no questions. So we've had so many quarters and years of negative growth. This thing is lighting it up as well, and small molecule is just on fire, especially in the GMP format for us. But The only thing we didn't cover too much, but more good news there. With that, I'll end the call and look forward to the one-on-one's rest of the day and talk to you next quarter, and we're looking forward to it. Thank you.
spk05: Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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