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spk07: Good morning, and welcome to the Biotechni Earnings Conference call for the first quarter of fiscal year 2024. At this time, all participants have been placed in a listen-only mode, and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clare, Biotechni's Vice President and Vesta Relations.
spk11: Good morning and thank you for joining us. On the call with me this morning are Chuck Cometh, Biotechnics Chief Executive Officer, Jim Hippel, Chief Financial Officer, and Kim Kelderman, Chief Operating Officer. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10K for fiscal year 2023 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. 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-technique.com. Separately, we'll be participating in the Stiefel, Stevens, Evercore, and JPMorgan healthcare conferences in the coming months. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Chuck.
spk14: Thanks, Dave, and good morning, everyone. Thank you for joining us for our first quarter conference call. The biotechnology team continues to execute in a challenging environment as we deliver 2% organic growth for the first quarter of fiscal 2024 despite several headwinds that are impacting the broader industry, as well as biotechnology. The sources of these headwinds have remained relatively consistent during recent quarters, including a soft biotech funding environment, inventory destocking from a handful of our OEM customers, as well as broad economic challenges in one of our historically highest-growing geographies, China. While the primary culprits remain the same, the impact of the biopharma funding challenges in the U.S., as well as the evolving macroeconomic environment in China, were higher than our original expectations for the quarter, albeit not as onerous as we saw with many of our peers. Despite these transitory challenges, our growth pillars remain intact and continue to perform well. Specifically, our GMP Proteins business, XODX Prostate, and our Protein Simple franchise all delivered impressive growth in the quarter. Our portfolio remains incredibly well positioned in several high-growth and under-penetrated end markets, and our team will continue to leverage our strategic playbook and strong financial position to gain share, enter adjacent markets, introduce innovative products and solutions, and capitalize on the tremendous opportunity in front of the company. Before we dig deeper into the performance of the quarter, I'd like to personally congratulate Kim Kelderman on his recent appointment as Biotechnology's incoming Chief Executive Officer, effective February 1st, 2024. In the meantime, I will continue to lead Biotechnology as CEO, and work closely with Kim in his new role as Chief Operating Officer until Kim takes the reins as Biotechnics CEO in February. I will continue to support Kim in a senior advisory capacity prior to my retirement from the company and the board on July 1, 2024. Kim has successfully led the diagnostics and genomics segment since joining the company in 2018. During Kim's leadership of the segment, the team gained significant market acceptance and traction with the X or the X prostate test. The revenue of our ACD business the segment portfolio was strengthened through the Asurgen and Lunafor acquisitions and multiple new product introductions and partnerships positioned the business for future growth. Prior to joining Biotechni, Kim ran multiple large businesses at Thermo Fisher Scientific, including most recently leading its genetic analysis business unit. Kim will be taking over an incredibly strong and talented team, as well as a novel portfolio with leadership positions in some of the fastest growing life science tools and diagnostic markets. Jim has been working with me since 2009, so I can assure everyone that I know he is more than ready for this tremendous opportunity, and he is the right person to take biotechnology on our 10-year forward journey to $5-plus billion revenue as a target, as outlined recently at our Investor Day in New York. I'd like to also thank both Will Geist and Jim Hippel, who created an incredibly difficult decision for the board. Jim, an extra thanks, as he too has been with me since 2009 and is the best financial partner I've ever worked with. Separately, I'd like to highlight Biotechni's latest corporate sustainability report, which showcases the continued progress the company is making on its environmental, social, and governance, or ESG, initiatives. The report is available in the corporate and social responsibility section of Biotechni's website. As you will see in the report, Biotechni remains committed to our employees and the communities where we live and work. We are proud of the innovative culture we have built, as well as our commitment to corporate governance and operational integrity. Driving durable, sustainable, and responsive growth remains the cornerstone of our forward strategy. Now let's get into the details of the quarter, starting with an overview of our performance by geography and end market. Europe had a very strong quarter, as the region grew mid-teens overall, including particularly strong performance from our biopharma end market. As a reminder, Europe was the region that was first to experience the effects of the post-COVID slowdown, which continued to a high single-digit decline in the comparable quarter of our last fiscal year. That said, the European biopharm and academic end markets remain stable, and the new leadership team has maintained the positive momentum we experienced in the region over the last three quarters. In North America, we delivered, as expected, mid-single-digit growth, with the performance in the region mirroring the growth rate we experienced in the region last quarter and last fiscal year. It's worth noting that this is the region where we are noticing the most impact from the soft biotech funding environment, as a subset of these customers continue to exhibit a disciplined approach to managing their businesses in the current environment. Now let's discuss the geography that remains at the top of everyone's mind, China. This region declined low teams during the quarter and underperformed our original expectations, with the business climate deteriorating as the quarter progressed. The funding challenges we highlighted in the last earnings call persisted in the quarter, as Chinese government funding for life sciences R&D at hospitals and academic institutions is significantly lower than last year. Given the challenging macroeconomic conditions in China, it remains very difficult to ascertain when R&D funding will stabilize and step back up again. Additionally, private equity and VC funding activity has slowed in the geography, which is creating more cautious near-term spending patterns for cash-dependent biopharma companies in the region. We view the temporary pause in China's growth trajectory as transitory, as the government remains focused on modernizing healthcare in both large metropolitan areas and rural communities. Our portfolio remains extremely well positioned in this geography, as our proteomic research reagents and analytical tools, and increasingly our spatial biology solutions, are the tools researchers rely on to advance scientific discoveries and improve health care. We are as bullish as we have ever been on our long-term opportunities in China, but acknowledge that these headwinds will likely linger in the near term before improving. Now, I'll highlight the growth pillars that will propel our future, starting with those within the protein sciences segment, where organic growth is 2% in the current quarter. During the quarter, we continue to advance our portfolio of cell and gene therapy initiatives, As our portfolio of proteomic reagents and workflow solutions continue to enable our customers to further their therapeutic development work and make continued progress towards the commercialization of these next-generation therapies, collectively our portfolio of cell and gene therapy products and services increased over 25% in the quarter. GMP proteins remain the cornerstone of our cell therapy offering, and Biotechnique continues to benefit from having the broadest menu available, including several proteins that are unique to Biotechnique. This broad offering is a critical selling point for customers working across the cell therapy spectrum, especially in regenerative medicine cell therapies, as these tend to require not only several different proteins in their workflow, but also require complex proteins that are very difficult to manufacture, playing right into one of biotechnology's strong suits. Overall, our portfolio of GMP proteins grew nearly 40% in the quarter. We also continue to gain traction with our portfolio of GMP small molecules, Recall that these small molecules are key components in the reprogramming, self-renewal, storage, and differentiation processes that are key to regenerative medicine workflows. This business grew almost 20% in the quarter and is on its way to becoming a significant contributor to our overall cell and gene therapy business. We are in the process of expanding our GMP portfolio to include additional media formulations, gene engineering capabilities, and antibodies, positioning biotechnology to remain a leader in this rapidly growing industry. Additionally, work continues to finalize our aseptic immune cell therapy manufacturing solution, which pairs our GMP proteins, GMP media, and Wilson-Wolf G-Rex in a closed sterile manufacturing solution. Moving on to our protein simple branded portfolio of proteomic analytical tools, here the team delivered 9% organic growth. It's worth noting that excluding China, the portfolio grew an even more impressive 18%, including over 35% growth in Europe. Consumable pull-through from our growing installed base remains very strong and continues to grow on a per-instrument basis, reflecting the high value and productivity gains that these instruments deliver to our biopharma and academic customers. The ProteinSimple performance was led by our SimpliPlex automated multiplexing ELISA instrument, branded as ELA, whose expanding menu of validated assays, including seven launches in Q1, and a growing installed base is driving consumable pull-through on the platform. We recently received ISO 1345 certification of our Wallingford, Connecticut facility quality management system, demonstrating our commitment to producing products for clinical applications. With this important certification in hand, we are now ready to pursue clinical diagnostic opportunities on ELA, opening up a large potential on market for this fast, highly sensitive, and easy to use multiplexing amino acid instrument. Momentum continued in our biologics business as we experienced continued uptake of our Maurice Flex instrument in strong demand for consumables. As a reminder, Maurice Flex's protein charge variant fractionation capabilities position this next-gen instrument as an easy-to-use replacement for legacy mass spectrometry fractionation methods, including ion exchange chromatography. This new application enters Maurice into a new $300 million market, approximately doubling the addressable market opportunity for the instrument. The capabilities of our legacy MARIS instrument as well as the NextGen MARIS-FLEX were recently highlighted by scientists from top pharmaceutical companies at the recent CE Pharm Conference, including a presentation from Pfizer scientists on MARIS-FLEX's capabilities for peak identification of AAV capsid proteins through fractionation. I would note that there are several other MARIS-FLEX collaborations in progress with additional top tier life science companies. Our fully automated Western blot solution, branded as Simple Western, also continued to increase its market share this quarter. The platform's ability to reduce the two-day-long manual and messy Western blotting process into a three-hour push-button, highly reproducible solution continues to drive demand within our biopharma and academic customer bases. We are also seeing robust adoption of Simple Western in cell and gene therapy applications. With the system increasingly being utilized to measure protein expression potency, empty versus full capsid ratio, and for process impurity detection. Revenue from cell and gene therapy applications in Simple Western increased over 25% in the quarter, and now account for almost a quarter of the associated product revenue. Next, I'll highlight the growth pillars within our diagnostics and genomics segment, where organic revenue growth was flat in the current quarter compared to a prior year. mostly due to the timing of large OM orders within our diagnostic reagents business, as well as large lab orders for genetic tests within our molecular diagnostic business. I'll start with our XODX prostate test, where we once again drove significant growth in test volume as the valuable information on whether a man with an indeterminate PSA score should proceed with an invasive and potentially dangerous prostate biopsy continues to resonate with both patients and physicians. XODX prostate volume increased nearly 50% compared to prior quarter, year quarter, while revenue increased in the upper teens. Adjusting for a prior year cash to accrual adjustment, year-over-year revenue growth is approximately in line with our test volume growth. As we highlighted during our recent investor day, applications for our exosome-based diagnostic platform are much broader than our current XODX prostate test. Our pipeline includes single gene mutation tests for monitoring several different cancers, a saliva-based test for the diagnosis of Sjogren's syndrome, a next-generation prostate cancer rule-in test, as well as a colorectal cancer screening test designed for early detection of both colorectal cancer and precancerous polyps. We look forward to sharing additional data on this exciting pipeline in coming quarters. Now let's discuss our spatial biology business, which includes our ACD-branded catalog of over 47,000 unique probes, as well as the Lunafor-branded spatial biology instrument assay and software portfolio. Our spatial biology business increased upper single digits organically for the quarter as our broad portfolio of multi-omic assays continue to play an important role in advancing gene therapy, neuroscience, and cancer research. Within the portfolio, we are experiencing continued momentum in BaseScope, which enables the detection of target sequences down to one nucleotide differences, and MicroRNAscope for the visualization of microRNA and other nucleic acid targets. Base scope and microRNA scope increased almost 20% and 50% respectively, and are experiencing increasing acceptance and traction in gene therapy applications. Integration efforts of our latest acquisition, Lunafor, are off to a great start, and the team is embracing their new home under the biotechnology umbrella. As a reminder, Lunafor is currently commercializing its common instrument, a fully automated, high-throughput, hyperflex platform that does not require the use of conjugated primary antibodies. Comet's high value proposition is resonating with the translational research community, which is driving significant interest in rapid growth in its install base. We continue to make progress developing the first fully automated spatial multi-omic workflow that will leverage Lunafor's common instrument, Inspire antibody panels, as well as ACD's RNA scope high-flex technology to enable protein and RNA detection and visualization on a single slide. In summary, the biotechnology team continues to execute our strategic growth plan in this challenging environment. As you look at our relative performance to many of the life science companies that have reported so far this quarter, I'm especially proud of our team's execution and have even more confidence in the perseverance of our growth platforms. As we highlighted during our recent investor day, our portfolio of proteomic research reagents, cell and gene therapy workflow solutions, analytical tools, Spatial biology products and liquid biopsy diagnostics are aimed squarely at a $27 billion addressable market with amazing long-term growth prospects. Initiatives to cure cancer, neurodegenerative, and other diseases, along with understanding how these diseases develop and evolve, will remain a social priority for the foreseeable future, and biotechnics portfolio will continue to play a critical role in these efforts. I am looking forward to when the transitory headwinds facing our industry subside. allowing the growth of our high-value tools to once again shine through. With that, I'll turn it over to Jim.
spk12: Thanks, Chuck. I'll start with some additional detail on our Q1 financial performance, then give some thoughts on the financial outlook. Starting with the overall first quarter financial performance, adjusted EPS was $0.41 compared to $0.45 in the prior year quarter, a decrease of 9% over the last year. Foreign exchange had an immaterial impact on EPS in the quarter. Gap EPS for the quarter was $0.31 compared to $0.55 in the prior year. Q1 revenue was $276.9 million, an increase of 2% year-over-year on an organic basis and 3% on a reported basis. Foreign exchange translation had an immaterial impact, while acquisitions contributed 1% to reported growth. Moving on to our organic growth by region and end market, in Q1, North America grew mid-single digits, Europe increased mid-teens, and China declined low-teens in the quarter. As Chuck previously mentioned, the soft biotech funding environment remained a drag on our North American business, while Europe saw strong growth but also had a less difficult comp as the region declined high single digits in the comparable quarter last year. For China, the funding environment continued to impact the region. Our long-term enthusiasm on China remains fully intact. Healthcare remains a top priority for the government, and our proteomic reagents, analytical tools, and spatial biology solutions will play a critical role in advancing healthcare in this country. That said, the timing of this recovery remains incrementally more challenging to call at this point. Meanwhile, APAC outside of China increased low single digits overall with government funding constraints in Japan and South Korea. By end market in Q1, both BioPharma and Academia, excluding China, grew upper single digits. However, the BioPharma growth was much larger in Europe, given the less difficult comps. Below revenue on the P&L, total company adjusted gross margin was 71.3% in the quarter, compared to 70.9% in the prior year. The increase was primarily driven by productivity gains and foreign exchange, partially offset by the impact of the William Ford acquisition. Adjusted SG&A in Q1 was 31.3% of revenue compared to 27.3% in the prior year, while R&D expense in Q1 was 8.7% of revenue compared to 8.9% in the prior year. The increase in SG&A was driven primarily by the Room 4 acquisition and to a lesser extent strategic investments to position the business for future growth. The price increases implemented in the first half of fiscal year 23 continue to offset the dollar impact of inflation to operating income, with pricing also largely offsetting the inflationary impact and operating margin in Q1. Adjusted operating margin for Q1 was 31.4%, a decrease of 340 basis points from the prior year period. Excluding the Lunafor acquisition, which closed at the beginning of Q1, adjusted operating margin was 100 basis points lower than the prior year, due to strategic investments, which was partially offset by diligent cost management. Looking at our numbers below operating income, net interest expense in Q1 was $3.9 million, increasing $1 million compared to the prior year period due to higher debt levels, partially offset by higher interest income on cash deposits. Our bank debt on the balance sheet as of the end of Q1 stood at $440 million, an increase of $90 million compared to last quarter, reflecting the Lunafor acquisition, which was partially funded by debt and cash on hand. Other adjusted non-operating income was $1.6 million a quarter, an increase of $0.4 million compared to prior year, primarily reflecting our 20% share of Wilson-Wolfe adjusted net income, partially offset by the foreign exchange impact related to our cash pooling arrangements. Moving further down the P&L, our adjusted effective tax rate in Q1 was 22%, a sequential increase from our Q4 tax rate due to international mix. Turning to cash flow and return of capital, 59.4 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was 13.6 million. Also during Q1, we returned capital to shareholders by way of 12.7 million in dividends. We finished the quarter with 161.9 million average due shares outstanding. Our balance sheet finished Q1 in a strong position with $148.7 million in cash, and our total leverage ratio remained below one times zero. Going forward, M&A remains a top priority for capital allocation. Before we get into the segment results, I'd like to quantify some of the impacts from headwinds we experienced in the quarter compared to our initial expectations for organic growth. A more challenging China funding and macro environment than expected, represented an additional approximately 200 basis points headwind, while older timing in our diagnostics and genomics segment was another unanticipated headwind of approximately 100 basis points. The more cautious spending from our biotech customers, which we primarily experience in the U.S., is more difficult to quantify, but impacted the business nonetheless, especially in the last couple weeks of the quarter. Now I'll discuss the performance of our reporting segment, starting with protein sciences. Q1 reported sales were $204.7 million, with both reported and organic revenue increasing 2% compared to the same period last year. As a reminder, it is our protein sciences segment that has the most exposure to the China geographic region, as well as to the biotech and market. Operating margin for the protein sciences segment was 43.2%, an increase of 20 basis points compared to the prior year quarter, as productivity gains and cost management more than offset the impact from strategic investments. Turning to the Diagnostics and Genomics Summit, Q1 reported sales were $72.8 million, with reported growth increasing 4% compared to the same quarter last year. Organic revenue growth for the summit was flat, with acquisitions having a 3% impact and foreign exchange having a favorable impact of 1%. As Chuck previously mentioned, organic growth was negatively impacted by the timing of certain OEM and lab orders for our diagnostic controls and genetic testing products. However, our exosome diagnostics business remained very strong in the quarter as our fortified marketing message, strong clinical data, and the updated Medicare LCD drove both test volume and revenue growth. Also, our spatial biology business delivered upper single-digit growth in the quarter with continued growth in RNA scope and strong performances in our base scope and micro- R&A product lines. We are very pleased with the traction Lunafor is having with its comment launch. As Chuck highlighted, initial integration efforts are progressing well. While Lunafor will not be in our organic growth rates for the year, they are executing well on their plan to grow more than 100% for the fiscal year. We continue to expect Lunafor to contribute at least 1.5% to our overall company's reported growth for fiscal 24. Moving on to the diagnostics and genomic segment operating margin at 0.7 percent, the segment's operating margin decreased compared to the prior year's 12.4 percent due primarily to the impact of the Luma4 acquisition, and to a lesser extent, strategic growth investments as well as unfavorable product mix. Before we get to Q&A, I'd like to provide some color on our current thoughts regarding the near-term outlook. As many of our life science tools peers have already mentioned, the macro environment in China continues to weaken, and the biopharma end market is softening, especially in the U.S. While we expect these headwinds to negatively impact our growth in the protein science segment relative to Q1, we also anticipate the timing of OEM and lab orders within our diagnostics and genomics segment to be accretive to growth relative to Q1. Net-net, we are forecasting overall company organic growth to be about flat in Q2. Beyond Q2, the macro environment is too dynamic to provide guidance with any sort of resolve. While the headwinds of OEMD stocking should be behind us in the second half of fiscal year 24, it appears right now that a China and biofuel recovery will not be tailwinds as we once believed. Whatever the macro environment throws at us in the near term, our excellent management team and dedicated employees will continue to drive productivity to protect the bottom line, all while selectively investing in the growth pillars that will accelerate our overall company's growth rate when the market headwinds subside and turn back into tailwinds. And the winds will turn. As Chuck said, society's priority to cure disease is inevitable and endless. Biotechnology is ready now and will be even more so in the future to help our customers fulfill the societal need. That concludes my prepared comments, and I'll turn the call back over to the operator to open the line for questions.
spk07: Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may re-queue and those questions will be addressed, time permitting. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Puneet Sudha with SVB Securities. Please proceed with your question.
spk01: Yeah. Hey, guys. Puneet here from Lyric. Could you maybe just help us clarify? I know a lot of uncertainties right now with China funding and just overall macro, but should we expect a sequential recovery and growth in the second half of this fiscal year? I know you said flat for the next quarter, but should we expect that to continue to step up from that, and what does that mean in terms of the overall growth for the full fiscal year? If Jim could elaborate on that, that'd be super helpful.
spk14: Sure, Puneet. So we just came back from China, and we were pretty much saying what everyone else was saying on their calls here this past week or two. This quarter was disappointing. China definitely has cratered. They're out of money. We did talk about funding returning starting next quarter, last quarter. And there are some glimmers of that, but not enough to be material. So this next quarter is more of the same. The second half, we're hopeful, but there isn't anything, any real evidence right now that there's going to be any kind of a V recovery or a recovery at all, to be honest. But the team's very hopeful. There's energy there. Streets are full. The economy looks great at a consumer commercial level. But I think in terms of government funding for this segment, I think is right now we're kind of a wait and see. Met with a bunch of very important KOLs, and they all said the same thing, that there's a lot of hope and there's a lot of expectations. They don't doubt it's coming, but the government's not real forward on their planning, obviously. So we're all kind of waiting and seeing. But other segments there look better. It's just a downtime for biotech, and we're going to grind through it, I guess.
spk12: And putting it out of this ad, I mean, as Chuck alluded to, there's no sign right now of any kind of V or even U-shaped recovery in this fiscal year, so we're just playing it fairly conservative. You know, the China situation is, as Chuck outlined, the other dynamic we saw was the U.S. market start to soften in the last couple weeks of the quarter, and that has continued in October. So that's reflected in our kind of flattish guidance here for Q2, but what's unknown is whether that trend continues beyond that or whether it stabilizes. So, hence, we're not commenting on the back half of fiscal year 24 at this point.
spk14: I do want to emphasize that, you know, you take out China, we had a not too bad a quarter, you know, mid to high single-digit growth, near 20% growth of instruments. All our growth platforms are growing actually right on plan, more or less. They just aren't big enough to cover the company right now. But, you know, so it won't be too much longer. You know, this kind of stuff won't matter that much. And... I do believe in a couple quarters China will start becoming a better story, but right now, for one more quarter at least, we're all in a wait and see.
spk01: Okay, that's helpful. Then, could you elaborate a bit more on what you're seeing on the Wilson Wolf side of the business, the contribution you're expecting here for cell and gene therapy? and how much, if any, that could contribute to, you know, sort of the second half, you know, growth here in the fiscal second half. And then, I mean, it seems like, you know, a number of unexpected pressures showed up in diagnostics and genomic segment. Maybe just, you know, talk to us a little bit about sort of the timing and recovery in that as well.
spk14: Okay. I'll mention Wolf Wolf, and I'll let Kim discuss DGS. You know, Wilson Wolf is kind of more of the same, very flattish. We've not lost any customers. We're kind of grinding forward with them, too. They've got 800-plus customers. We've got 400 overall with our protein side, but they are kind of the de facto standard out there in bioreactors. And, you know, John's been focusing a lot on ScaleReady, you know, the sister business that will also carry our workflow through. That's going extremely well. We have just launched a you know, our new versions of our protein to be working towards a sterile type of a bioreactor module, I guess, a bundle. So everything's kind of going okay there. We're just kind of, you know, waiting for the overall uptick, but we're not losing ground. It's just kind of treading water right now, which means, you know, they're still making lots of revenue, a meager 75% operating income and, you know, pushing forward. So they're using all that income to keep investing and driving faster. And then Kim wants to follow.
spk08: Yeah, Puneet, thanks for the question. So obviously larger companies have been optimizing their inventories. And for us, that mainly impacted the DRD organization as they mainly sell into the larger IVD companies. It also affected MDD a little bit, specifically in the genetic testing portfolio, which is the legacy of Shurgen. They sell into the laboratory space and the larger laboratory space. And of course, these laboratories also want to optimize their inventories, specifically going into the end of the calendar year. But we see those as temporal, and we think that we're at the back end of the destocking phase.
spk07: Our next question comes from the line of Dan Arias with Stiefel. Please proceed with your question.
spk05: Hi, guys. Thanks for the questions. Chuck, simple western growth stepped up nicely this quarter, particularly given the eastern environment that we're in. What do you think drove that, and do you see that as sustainable? What do you think a reasonable growth rate for that portion of the portfolio might be this year?
spk14: No, that's a great question. I think we're kind of Back to original type thinking on Simple Western, I think we had roughly 9% growth or something like that with it. Consumables was even higher, much higher. We're knocking on the door of 3,000 instruments out there, which is still under 20% penetration just for the Western blot application alone. And there's a bunch of new applications coming using the instrument, including diagnostic-related applications. We're super bullish on our Simple Western platform. We're in early innings yet. So I still think the long-term growth rate for this, talk like a decade, is like a 15% kegger for a decade. It's going to go up and down. Last year, we're still fighting comps. And last year, we had 50% type growth last couple of years. So we're still kind of working through that. And we're still showing growth right now, strong growth and double-digit growth in consumables. So long-term, I think it's going to bounce around 10% to 30%. But it's going to be an average of 15%, I think. This is the only game in town where this type of technology has got strong IP. No one's ever been able to get close to it. It's automated Westerns, which is a nightmare for people. So it's nothing but a great future.
spk12: Yeah, Dan, I'll just add to that. As Chuck just ended with, I think it speaks to the productivity nature of the instrument. We've been saying all along it's an amazing productivity tool. And in this time of tightening budgets and concerns about funding, that's what's driving the consumables growth there. So it truly is. you know, the productivity tool, we've been saying it all along.
spk05: Yep. Okay. And then maybe just on ACD, 9% growth, I think you said during the quarter, do you think that can get back up into the double digit range? And then along those lines, can you just touch on where you are now, just in terms of the need for additional commercial scale up there? And then whether you think usage in the clinical translational setting is a a reasonable expectation and one of the things that you need in order to get back up into that two-digit number.
spk08: Yeah, Dan, this is Kim. Thanks for the question. Absolutely. I think it was mainly APEC slowing us down a little bit this quarter. By fixing just that or normalizing, we will be back in the double digits. That's the entitlement for not only the end markets, but also our unique solution with the RNAscope portfolio of products, think about Luna 4 is going to give this business a boost as well, right? And we will definitely have more pull through on the Luna 4 boxes, the comments specifically. And then last but not least, our clinical business has been outpacing the overall product portfolio already, and it's becoming more than 10% of our revenues portion. So I think the undoubtedly answer is yes, it will be back in double digits.
spk05: Okay. Just really quickly, Kim, is the percentage of revenues in China for your spatial business similar to the overall corporate average?
spk08: No, it's much lower. Okay. Thank you. Thank you.
spk07: Our next question comes from the line of Jacob Johnson with Stevens. Please proceed with your question.
spk00: Hi, good morning. This is Hannah on for Jacob. Thanks for taking my questions. If the macro remains a headwind well into 2024, how does this impact your view on organic investment? Will you try to manage profitability or does this change your approach to organic investment?
spk14: Yeah, Jim can cover this.
spk12: Yeah, the short answer is no. I mean, we are putting in productivity measures in place. We have been anticipating this throughout the quarter and we continue to do that. We are, of course, pacing our investments accordingly, but our intention is to hold the margin guidance that we gave out earlier in the year and manage our productivity to that while still investing in our growth platforms. So that's what we're paid to do is manage the support of the business given the current environment while still investing for the future. That's what we intend to do.
spk00: Thanks. And then can you talk about the outlook in proteins and antibodies for the remainder of the year? Do you expect any of the bulk orders to be coming back?
spk14: Yeah, I'll cover that. I just had a meeting yesterday with the team, and bulks are on the rise. So that's a very good early indicator that OEM business will be returning. Destocking, as Jim said, is kind of largely behind us. We're starting to see discussion on orders now and some very large orders. So I think we're turning the corner on that. I think our run rate business is hopefully kind of bottomed here. We'll start positioning that out. I mean, we had probably the worst quarter in 10 years with Fisher this last quarter, and we see that kind of flattening as well. I mean, they talked about it in their call as well, and the segment that lives in, it couldn't have been very great. But, you know, these labs are running out of stuff, and they've got to start buying again, and we're starting to see the first inklings of that. So we think run rate will start improving some, And I think our retail overall will start improving. Remember now, that's not a majority of our revenue. So it takes all these things together to give us in the double-digit growth. But they all matter. And this part here, I'm kind of bullish looking forward, finally.
spk07: Our next question comes from the line of Patrick Donnelly with Citi. Please proceed with your question.
spk04: Hey, guys. Thanks for taking the questions. Maybe first, just on the biopharma performance in the quarter, can you just talk about what you saw across the customer set and how things progressed throughout the quarter, the linear performance? And then maybe just disaggregate between the trends, smaller biotech versus mid and large pharma. A few peers suggested things maybe deteriorated as the quarter went. So curious what you guys saw.
spk14: Yeah. Well, overall for the company, our academic versus biopharma was largely even, about the same. But it was lopsided. So it was much stronger biopharma in Europe than it was in the U.S. The U.S. was low, almost mid-single-digit growth. So that's a much poorer performance than usual for us in the U.S. As Jim said, most of our pain was in the U.S. and then China, and it was on the biopharma side. All in, without China, we actually didn't do too bad because academic was not too bad. I mean, probably better than many quarters, the past quarter, to be honest. So... So we're waiting on that biopharma to come back. And of course, as you mentioned, biotech is part of that biopharma. And biotech is still soft out there. The funding environment for biotech, small to medium, companies going after their second or third round or trying to get that next wave of clinicals going or rejuvenate the clinicals they're in, it's just softer. They're all being very careful because money's tight. It's going to change, but it's going to be a quarter or two, I think, on that part of biopharma. Pharma is just being conservative because they're just being conservative, because they just see the winds the way they're looking, and that can turn on a dime. I'll give you some evidence why that can be very quick to move. We actually had a very good quarter on our amino assay, ELISA, dual sets, high single-digit growth, and that was not the case a quarter or two ago. So that could be early evidence of things starting to flip because that's mostly pharma driving most of that business. So ELIZA is still more or less the standard for driving testing and clinicals.
spk04: Okay. That's helpful, Chuck. Thanks. And then maybe just to follow up on China, I guess what do you guys need to see to get a little more constructive in that market? Obviously, the prior guide, you're talking maybe a little bit about a second half recovery scenario. Curious what you're baking in at this point in terms of the year for China and if there's any visibility into a level of improvement. Thank you, guys.
spk14: Yeah, you know, we went how many quarters in a row at 25% growth or so. So, you know, we're definitely in a lull right now. This is a negative teens quarter coming off of a high teens quarter growth last quarter. But going forward, it's going to be more of the same. I think, you know, Flattish would be hopeful the next quarter or two, to be honest. So the second half, our Q4, you know, who knows? I mean, it wouldn't take, we're not that big in China, right, overall. So it wouldn't take that much or that many orders or, you know, rejuvenation in any area to actually get back into some growth. But we'll just have to wait and see. We're just, you know, we're just going to be cautious and not over promise. There's not a lot of evidence. But the attitude is very high. Our team is at full strength. We have zero attrition. Talked to a lot of customers personally here a couple weeks ago, and actually they're fairly bullish as well. We're just waiting for the government to start, you know, loosening up here with what they usually do in April, and they still haven't done it. But once they do, you know, people start talking favorably again about China. And you've got to believe, and we've talked to a lot of people, health care, is still number one as a priority for China. You know, it looks great, you know, when you're in the middle of Shanghai. You don't have to go too far outside the city, and you start seeing why the government is still concerned about health care.
spk07: Our next question comes from the line of Catherine Schulte with Baird. Please proceed with your question.
spk02: Yeah, hi, everyone. This is Tom on for Catherine. I wanted to maybe... dig into Europe a little bit. Obviously, had a really strong quarter from an organic growth standpoint. Understand that there's some comp dynamics within that number, but kind of flag the region as, you know, perhaps leading indicator of some of the softness. So curious to see, you know, kind of what were the drivers here and if you have anything to flag from a leading indicator standpoint within Europe.
spk14: Sure. Well, first, as you mentioned, the comps were quite easy. So that helped a lot. But, you know, 15% organic growth is 15% organic growth. That's a great quarter to have that. At least we're not talking about a negative Europe right now. So we're two or three quarters into a real recovery for us in Europe. So that's also part of the story. We have a new management team in place. They have done some reorganization a couple quarters ago. And quite frankly, it's working. We're getting more synergies. We're getting more cross-selling. We're nearly at full strength. We've invested more salespeople, as an example, in the Nordic regions. The new leader is German. Germany should be our biggest subsidiary in Europe, and it's not. And he's correcting that. There's already been great evidence that we're going to have a strong future, I think, in Germany with him at the helm. And I guess wait and see. But right now I'm not focused too much on Europe for a change. Things are going pretty well.
spk02: Great. That's helpful. And then, you know, clearly we talked about a number of headwinds throughout the space, you know, that are popping up throughout peer reports, you know, but with that in mind, you know, I was wondering if you had any comments or your thoughts around the M&A landscape. I mean, what does the funnel look like here? Is there any more willingness among privates to, you know, maybe enter those conversations kind of given where we are from a macro perspective?
spk14: Yeah, well, it's, We've never been busier, to be honest. I said all year it's going to be a great year in M&A. We've landed Lunafor. I just came back from Alda where I'm on the board, and I've never received more confidence about a deal in my entire tenure here than this Lunafor deal. It seems like everybody wanted it. So it's going to be a marvelous platform, and it has lots of applications. And did we mention the growth year on year? This thing is exploding. It's going to be a wonderful asset. And Kim personally closed that deal. We've been involved in others. We just saw O-Link. We were there. We know a lot about O-Link. We sell them a lot of products, and they're a good partner, and we look forward to continuing our partnership on many fronts with Thermo Fisher, with O-Link as well. It's been a great relationship with Thermo, and we don't see any problems there, but we'd sure like to pick up a few more assets like that. There are lots of them out there. You mentioned private. This is definitely a year to be looking at smaller deals, private deals, deals in the core even that funding is tight. And we're seeing multiples kind of picking up. The price tags in these latest deals have been pretty good. And that gives hope for owners. And they pick up the phone. So I'm still expecting a pretty good coming year here for M&A. We have lots of purchasing power for our size. We'll try to use it, and I'll be gone soon, but I'm sure Jim and Kim and the team here will continue the mission on that.
spk07: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Matt LaRue with William Blair. Please proceed with your question.
spk09: Hi, good morning. Chuck, something you, or actually maybe Jim called it out in his comments was, the headwind around biotech funding, and I think you said that hurt especially in the last couple weeks of the quarter. And so given that biotech funding has been under pressure for some time, just curious if there was anything that you picked up on in the last couple weeks or have noticed since on that front.
spk12: Yeah, I mean, we've been saying how biotech was relatively stable for us after its initial kind of drop in the first part of fiscal year 23, and that The stabilization was pretty consistent up until, like I said, the last couple weeks. We saw the running rates drop off. We saw some larger deals not close, and that kind of continued here in October. I don't have a good answer as to why that's the case, except to say that all of our peers are pretty much saying the same thing. So it appears like as we get into the year end here, there's another round of belt tightening going on across biopharma, especially in biotech. There's some optimism that it's an end-of-the-year belt-tightening exercise, and once we get into the county or 24, but new budgets get approved at the business level, that we'll start to see, you know, a pickup in activity. But again, we're a little bit too early to tell at this point.
spk09: Okay, and then sort of aggregating your comments, it sounds like, you know, we should be thinking about China continuing down in this low teens as we're as we're modeling now, but obviously growth in the business X China. That's fair to say, even though you're not actually providing guidance.
spk12: That is fair to say, and that's consistent with Q1. I think one of the biggest drivers, too, in terms of the second half and so forth is diagnostics and genomics. Our growth would have been better this quarter if it weren't for those timing issues that Kim talked about. And so we do see a nice snapback in the diagnostic genomic segment going forward. And to reiterate what I said earlier, you know, in the near term, protein sciences can still be very challenged by China. China's going to get worse before it gets better. The view from our teams out in China we just visited is that Q2 is hopefully the bottom. The question is, is it a dead count bounce for a while, or does the funding come back in the early part of calendar year 24? That remains to be seen.
spk07: Our next question comes from the line of Alex Nowak with Craig Hallam. Please proceed with your question.
spk10: Okay, great. Good morning, everyone. Kim, I think we're all very excited to work with you in the CEO position, but maybe just expand, maybe the whole team here, could you expand on the internal search process? The board considered Will and Jim as well. What ultimately led to the decision here?
spk14: Well, I can't speak for the board, but we did announce very early I went through that quite carefully. I mean, it's going on a year and a half ago. I think it was very clear why we announced it. One, which is uncommon, was to give enough time to be very thoughtful in the process, look at leading executives that might have non-competes to work through. I think the board went through an extensive and exhaustive list doing their fiduciary duty. I do know that there was more than a half a dozen external on the list at one point, but I think To say more or less what Bob had said at a meeting recently was there just didn't seem to be that big a difference in what they thought the experience levels and the abilities of the externals versus our three top-notch internal candidates, which I spent the last decade, and in some cases longer, from two different companies. And so why take the risk externally was their point of view. And I do think it was a tough decision, as I mentioned. You know, Kim's thrilled. Jim and Will, I'm sure, you know, are happy for Kim, but they're still here, and we've been a good team with very little politics for many years together, and both here and Thermo Fisher, where we all came from, and I see no reason why it won't continue. We've got a lot of work to do. Our stock is down like everybody else's in this industry, and so there's a lot of potential upside. We see a path to a $5 billion revenue company in 10 years, and my guess is the stock will be much higher then. So they'll probably stick around.
spk10: Makes total sense. And, Kim, there's always been, at Biotechnics, this unique combination of, you know, biotech products and then called diagnostics and genomics. Would you anticipate with this move here that Biotechnics is going to lean a little bit more diagnostics-focused after the transition, or are you very focused on keeping this, you know, truly well-defined high growth areas.
spk08: Absolutely. So the latter. There's no internal bias to either one. I think we have defined our core growth platforms, our true growth platforms, our vertical markets that we're focused on. And I'm going to love all of them equally. And on top of that, some of them have higher potential than others, and we're going to invest in the true growth platforms. And that's going to be the best ones for the company as well as for the shareholders.
spk07: Our next question comes from the line of Paul Knight with KeyBank. Please proceed with your question.
spk03: Yeah, thanks very much. Chuck, you know, you're a longtime China expert. When you look at the funding, what portion is the government funding and what portion is this biotech private sector demand that I guess developed in the last five years? So what's kind of the proportion of this kind of funding discussion you're seeing or your perspective would be super interesting?
spk14: It's a great question, and it's probably a very difficult answer to really answer definitively. You're absolutely right. In the last five years or so, it's been definitely a drift away from solely relying on government funding and government plans. And the biotech sector has definitely grown in China. And there have been some companies that have come, you know, and become real companies, you know, like BGI, when they come to mind, that have been very successful. I think private equity, VC money has grown. I think you've got a lot of Chinese, American people that are Chinese in descent have gone home and taken with them business principles and business models from America, and it's gone quite well. We have some great friends there. We know some. There have been some great track records of some Chinese firms that have been doing venture and done quite well. The percentage, I think, though, is hard to get at. I think we still, you know, we're going more and more direct all the time, all of us there, but we still mainly fulfill through just master distributors in China. And so it's a little bit hard to understand, you know, where it already is coming from. There's a run rate component as well, and I think that is largely driven by institutions which are largely government funded. We have some growing OEM opportunities as well. especially in our DRD segment. And there are companies like MineRay and others that have been around a long time, very successful and growing double-digit, that have taken a bigger and bigger piece of our business and going direct with us. So the government portion is definitely shrinking, but it's still such a major portion that it's going to drive the overall size of the business and the overall pulse of the economy over there.
spk12: Paul, I would add if I could that perhaps unlike the U.S., the government funding in China has more of an indirect impact on VC funding than it does in the U.S. I think VC funding in the U.S. is irrespective of what NIH funding does. But in China, the VC funding often will follow or accentuate what the government does. So that's why following the government money is really the lead, we believe, on the direction of where it's where our space is going there.
spk14: Yeah. Yeah.
spk03: You know, that follow-up on that then to me would be, it does appear that the government, you know, clearly is behind hospitals and core healthcare. Some numbers across the industry show improvement there. But do you think the government still is behind fundamentally picking up R&D to create that biotech sector? So, Yeah, that would be my last follow-up. Thanks.
spk14: I think they're very bullish on that. I think that's something they definitely want. China wants to be in a leadership position as best they can in biotech and life sciences and not be in a predicament like they are in semiconductor, for sure.
spk07: Our next question comes from the line of Justin Bowers with Deutsche Bank. Please proceed with your questions.
spk13: Hi, good morning, everyone. So just sticking with the topic du jour, you talked about next quarter being potentially the trough for China and somewhat of a philosophical question, but if we exclude hope and return of government funding and just think about the infrastructure that's in place now and what's needed to sustain the business is two Q sort of like a good reflection of the run rate and, you know, just taking a step back. I mean, you guys are outperforming peers a little bit in that market. Um, you know, summer down 30, 40, 50%, right. And, you know, there's only so many quarters. You can have those sorts of drawdowns before you start, you know, cutting into the bone. So just any, any thoughts on that?
spk14: Yeah, that's a good, a good question. Um, The institutions there, we had a good comment from our leader in APAC this week, and he said, well, they're not really into cutting people. They're just sitting around playing Mahjong, waiting for money to come in. But the teams are there, but you're right. They've got to get work done, and they are labs, and they've got run rate needs, and I think it's about growth. It's about future growth. It's about money for new programs, but there is a certain level of keep the lights on funding happening. It's shrinking, but it's not gone away. You've got to put it in perspective there, I think. I think other companies talk about that, too. We had 17% growth last quarter. This quarter, we're down mid-teens. Maybe it'll end up being flat, but it isn't like there's no money, no funding. People aren't working or going to work. They're going to work, and they're doing work, but there isn't funding for new programs right now. So everything's kind of at a standstill waiting on that. So that's really the tone going forward. Don't know of any real layoffs. We have our full team right now, and there isn't much attrition. I don't think they're that kind of an economy anyway, but they are playing a lot of Meijong, waiting for the checks to come in. So it's a pretty happy team, too. I mean, if you've gone to China as many times as I have, I'm just always... come back pretty energized because they're just such hardworking people and they just really enjoy seeing you and they really are authentic and you'll never get more honest questions and honest answers than you will from the teams in China, your teams or customers or anyone for that matter. So just love it.
spk13: Got it. And then just one follow-up and sort of ending on a more positive note. Within the Protein Simple franchise, you talk about a lot of runway left where, where have you had the most success? Um, which sort of, you know, accounts or which end markets and penetrating and where do you think there's, there's more sort of education that needs to happen around adoption of the platform and still, you know, 15% growth going forward is highly attractive and the comps that you put up this quarter as well. So, yeah.
spk14: Well, we've got a stable of nice businesses here, a good dozen or so platforms. Three of them are three most important. We put most of our energy and our funding. All had great quarters with 50% growth in exosome. We had double-digit growth nearly in spatial. We had solid growth in cell and gene therapy, 40% in GMP proteins. We're going to more than double the number of proteins that come out of the factory this coming year. We're building a new factory in China for GMP proteins because the demand there is actually accelerating as well. So yeah, I think now is the time to be thinking ahead and not be short-term thinking. And it isn't just our company stock. It's a lot of them in our industry. A year from now, this could be all behind us. And there's going to be a fast flight back to quality earnings. And that's us. We make money. And we operate well. But we can say that we're definitely in a recession. In fact, the whole world is waiting and talking about rates. And interest rates are a big issue, obviously, and waiting for a pivot and whether or not we can hit a soft landing for the economy. And I'm an old pole vaulter. I would say in life sciences, we missed the pit in terms of life sciences. It was a hard landing. But we'll get through it. Disease, neuroscience, cancer, they're not going away on their own. And, you know, the big macro, you know, trends out there, aging, obesity, things like that are just getting worse, not better. So, you know, our time will come again and smart investors will be there early.
spk07: Thank you. We have reached the end of the question and answer session. Mr. Cometh, I would now like to turn the floor back over to you for closing comments.
spk14: Well, again, thanks for the quarter. Probably my last full earnings call. This is like number 42 or something like that. Kim will probably take more of a lead next quarter, and I'll be around for a couple more or so. But we're all pretty energized here and still having a good time. And we love what we do, and we love the science. And anyway, we'll see you next quarter. Thanks.
spk07: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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