Please stand by. We're about to begin. Good day, and welcome to the Bio-Techne Q3 Fiscal 2016 Financial Results Call. Today's call is being recorded. At this time, I would like to turn the call over to David Claire, Investor Relations for Bio-Techne. Please go ahead, sir.

Good morning, and thank you for joining us. On the call with me this morning is Chuck Kummeth, Chief Executive Officer of Bio-Techne; and Jim Hippel, Bio-Techne's Chief Financial 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. Company's 10-K for fiscal year 2015 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measure are available in the company's press release issued this morning on the Bio-Techne Corporation website at www.bio-techne.com. And with that, I will turn the call over to Chuck.

Thank you, Dave, and good morning, everyone. Thank you for joining us for our third quarter conference call. This morning, we reported revenue growth of 15% for the third quarter with the majority of our end markets remaining strong organically, plus a solid contribution from our recent acquisition. I'm extremely pleased with the achievement of 8% organic growth corporate-wide, with our core Biotech business growing 6% organically. In fact, this is Bio-Techne's strongest quarter since I joined the company three years ago, providing evidence that the strategy to reaccelerate Bio-Techne's top line by growing our core business and expanding to adjacent markets continues to gain traction. Protein Platforms increased over 25% organically in the quarter with our commercial reorganization and focused strategy beginning to yield results. I'm also very pleased with our team's operational performance in the quarter with both growth and operating margins exceeding our internal plan, driving operating margins once again above 40%, and contributing to a 14% year-over-year increase in our adjusted net income. In our Biotechnology business, overall, we experienced broad-based growth across the portfolio with proteins, antibodies and assays all contributing to solid performance. I would like to highlight the performance of our antibody portfolio in the quarter, which grew high single-digits overall, including a 20% increase in our Novus Biologicals brand. In the U.S., our biopharma end markets remain strong with revenue increasing mid-teens for the quarter. Our biopharma customers continue to partner with Bio-Techne for the outsourcing of complex molecules with our reputation for ultra-pure, highly bio-reactive reagents driving additional business within our existing biopharma client base and creating opportunities with new customers. Our academia and government end market grew in the low single-digits, similar to the trend we've experienced in recent quarters. We've been experiencing growth in this end market since the…

Yeah. Thank you, Chuck. As in our prior earnings call, I will provide an overview of our Q3 financial performance for the total company and then provide some color on each of our three segments. Starting with the overall third quarter financial performance, adjusted earnings increased 14% year-over-year to $37.6 million, while adjusted EPS was $1.01 a share versus $0.88 in the prior year. The impact of currency translation represented a headwind to EPS of approximately $0.02. GAAP EPS for the quarter was $0.81 compared to $0.65 in the prior year. Q3 reported revenue was $131 million, an increase of 15% year-over-year, with organic revenue increasing 8%. Third quarter reported sales included 7% growth contribution from acquisitions, partially offset by a 1% unfavorable foreign exchange headwind. Please note that the components of Q3 growth do not sum due to rounding. Moving on to the details of the P&L, total company adjusted gross margin was 71.6% in Q3, decreasing 80 basis points from the prior year. Strong volume leverage and productivity gains in our Protein Platforms and Biotech divisions were more than offset by the lower margin Cliniqa acquisition and unfavorable FX impact. Excluding the impact of acquisitions and FX, core gross margins improved 50 basis points year-over-year in the third quarter. Adjusted SG&A in Q3 was 20.7% of revenue, 30 basis points higher than last year. The SG&A increase was driven primarily by investments made to improve our website capabilities and commercial execution, as well as the additional SG&A from the acquisitions made since the beginning of the third quarter of last year. R&D expense in Q3 was 8.6% of revenue, 90 basis points lower than last year, reflecting the volume leverage achieved from Protein Platforms. The resulting adjusted operating margin for Q3 was 42.4%, relatively flat to prior year…

Thank you. We'll go first to Dan Leonard with Leerink Partners.

Thank you. So I just want to delve into the Protein Platforms performance a bit more. Can you talk more about the components of the growth there? I know you said it was broad-based, so maybe offer some color about how much of the strength was Maurice versus Simple Western, and any color on the consumable trends as opposed to the instrument revenue trends, would be helpful.

Yeah, well, Maurice has a strong take-up here as the beginning platform, but it's still not material to the overall performance. Performance of the division really is still around Simple Western. We worked hard to get the commercial team really back into place and up to speed, and focusing on lead generations and productivity and cross selling with our R&D Systems commercial force, and that's all bearing fruit. We really thought – we're near the 60 kind of number of instruments per quarter, and that's up from the 40s or so a year ago. So, it's pretty good growth there overall. The Simple Plex is also ramping and is close to plan. Still a small business, but not a startup anymore. It's starting to bear fruit. The revenue component in Simple Plex will be stronger in consumables, the assays being a strong component because it's a closed system. We remain at about a 25% consumable rate on the rest of the biologics platform. So, really, growth is really kind of across all the platforms, with the biggest component being Simple Western. Biologics has always been a strong platform, and even the existing product platforms are still selling well and Maurice is a new category, so almost the same size in general as Simple Western, but the acceleration of Simple Western outpaces biologics, of course. We could have a surprise going forward. Maurice is exceeding our expectations, but we are still banking on the fact that Simple Western will outdo it. It's a much larger market opportunity.

Got it. That's all helpful. And then my follow-up question, can you give us an update on how you're looking at Japan?

Well, the same way everybody else is, with a lot of prayers. So, they're – we've been hearing that they're aimed at new consortium of funding pharma. The government is starting to release funds. We're starting to see early, I guess, data from that. It's as much an issue of easy comps as anything, probably, but it's still early. I just – we don't – we're not banking on any strong, fast recovery in Japan, to be honest, and I don't think anyone else is talking about it either. I don't think we're worse off than anybody else, it's just a matter of waiting on funding. We're still growing. Actually, our team just came back from Protein Platforms division and they had a positive report on some uptake in Japan. But in general, it's kind of steady as she goes and just not enough happening, waiting on funding.

Got it. Thanks, Chuck.

We'll go next to Jeff Elliott with Robert Baird. Jeff T. Elliott - Robert W. Baird & Co., Inc. (Broker): Thanks for the question. Jim, can you just verify, did you have any change in selling days in the quarter? I get the Easter impact, but were you kind of same year-over-year in terms of the number of days in the quarter.

Yeah. We didn't have any drastic change due to any kind of 4-4-5 calendar because we operate on a normalized typical calendar. However, admittedly, there was an extra day with leap year. So leap year was the extra day in February, did provide an extra day of revenue there. It may have had a 1% or so lift. It's hard to say exactly. Jeff T. Elliott - Robert W. Baird & Co., Inc. (Broker): Okay. So pretty minor, though. And just, moving over to – I guess, sticking with Jim, I guess, looking at the segment margins, given the moving pieces with Cliniqa and some of the, I guess, deals, I guess, can you just help us think about the segment margins maybe in the next couple of quarters? How should we think about modeling those?

Yeah. From a segment margin perspective, I would say that with regards to our Biotech and Clinical Controls divisions, fairly steady margins from what we've seen. It's more around Protein Platforms that we can continue to see some expansion there with the margin pull-through – with the net revenue pull-through. So like we saw from not only year-over-year, but quarter-over-quarter perspective with Protein Platforms, we saw some nice – very nice margin expansion there with the additional revenue. And as they continue to recover on the top line, we should see some continued leverage on their cost base. So I'd say steady – Chuck put it as steady as she goes in two of our three segments with some increasing margin pull-through in Protein Platforms. But also, keep in mind, the overall mix, with that reacceleration of Protein Platforms' revenue, the overall mix will be a bit of a headwind due to the low margin overall of PPD versus our Biotech division. Jeff T. Elliott - Robert W. Baird & Co., Inc. (Broker): Okay.

When you start doing the math, when you start doing your math on CCD, you're going to see the strong component tradition here from Cliniqa. We had a huge quarter for them. It didn't count organically, but it's there in the numbers and it's big. It is a lumpier business and we're going to go to a TTM kind of number. It won't sustain at that run rate this quarter. It's going to be up and down just to realize that. That would be – you're going to – $29.9 million is not a typical quarter for this segment. Jeff T. Elliott - Robert W. Baird & Co., Inc. (Broker): Got it. Okay. Thanks, guys. That's helpful. Nice quarter.

And we'll go next to Amanda Murphy with William Blair. Amanda L. Murphy - William Blair & Co. LLC: Hi. Good morning. Just a couple of quick ones. So, first, I don't think you mentioned the Fisher distribution agreement specifically, I guess how that's gone this quarter. I know it's kind of been a little bit back and forth in terms of how much contribution it's had, so wondering if it was helpful and how you're thinking about it long term.

Well, we're still low single-digits in academia, which is still way better than it used to be. I think it's kind of steady as she goes there. I would say the Fisher performance as a component of that was marginally better than last quarter; still not as good as it was in the first early quarters in our relationship. Now, we are starting to hit some size issues here. It's becoming a larger and larger percentage share of our channel in the academia sector. I think if you compare it to their results overall, and we study their results and we talk to them, I'd say we came in under where they were at in their own performance. So, we're working through that. All-in-all, though, better than last quarter, so we're optimistic. And it is still a crucial element to our channel strategy and helping us keep our costs down in our commercial organization, and the attitude is good, cross-selling is good, teams get along. So, we're hanging in there with that. And it would be nice to see them break it out and do at least as well as they talk about their entire segment as a company at Thermo, but we have not yet achieved that. Amanda L. Murphy - William Blair & Co. LLC: Is there any specific driver of that slowdown or is it just a function of kind of being early in the relationship and working through, and as you said, just similar size?

No, it's not only that. I think we had some great preliminary results for five quarters, six quarters in a row, really. And I think what changed was a couple – the dynamics within their own company as they integrated life tech. One, you've added a lot of the portfolio. They've got a much bigger bag to sell, and it opened up opportunities internally, I think, for a lot of their rock star salespeople and their technical people. So, they've had more internal turnovers. So, people are jumping from the Fisher side to the Thermo Fisher division. And so we're having to train and retrain and get a more – more of a rhythm going with their sales force. I think as a bigger issue, it's how much is in the bag and staying current with their technical workforce. Our portfolio is – it doesn't sell itself. It's very complicated technical reagents, and we trained their entire technical sales force from the beginning and we've got to keep the pace with that. And I think that's probably why it's been a little bit different the last couple of quarters, but it's coming back. We've identified the issues there, and they are very supportive and we're working on that, so... Amanda L. Murphy - William Blair & Co. LLC: Got it.

It is a big company and it's firing in all cylinders, as you saw their report, so they've got lots of opportunities for people and people are moving around. Amanda L. Murphy - William Blair & Co. LLC: Makes sense. And then just one, I guess, broader question. I think in the past, you've said that based on your current book of business, that you could see a revenue run rate closer to $750 million if you include potential synergies that you might be able to drive. And so, I guess, my question is, is that still the case? And then secondly, you talked about the pipeline that you have being fairly strong. And when you first came on board, you outlined a plan of inorganic and organic growth. So, given what you have in the pipeline, do you still see that, those targets as being achievable?

Yeah. So, our strat plan is trying to get to $1 billion in five years. I think we're still within the range of that possibility. It wasn't – it's always been more of an ideal. It's not a forecast or anything, of course. I think we backed off to $750 million number a little over a year ago when FX kind of went crazy on us here, Europe especially, really talking more of a steady state around $650 million or so if we did no other deals, and then getting up into the low 40%s, the margin area. I think we are on track for that. There's no issue, but we are going to do deals. Our pipeline remains very strong. We've been in some actions we haven't – one as of late, we spent a lot of time on the Affymetrix deal. We really wanted that. Clearly, we were outbid by a heavyweight that wanted it badly and had a lot more synergies than we could offer. But we're always working on many at the same time and we currently are as well. They are probably leaning a little more toward the private side, and we'll try to do a few things without attracting the big guys, but there's a lot of opportunities. We have strong cash flow. We've got a great team. We've got – we're working together on some deals where the teams do get along, so it's just about making the numbers work and making investors happy and all that stuff. But our pipeline remains on the order of 100 different targets from small to large, so... Amanda L. Murphy - William Blair & Co. LLC: Got it. Very helpful. Thank you.

We'll go next to Matt Hewitt with Craig-Hallum Capital Group.

Good morning. Congratulations on the strong quarter. A couple of questions from me. First, so if I'm understanding, in the Clinical Controls segment, you had some benefit with timing on shipments in the third quarter. Just trying to calibrate what that means for Q4. Is it – are you expecting something similar to Q2 at $25 million, $26 million or something similar to the year ago period with maybe a few basis points of growth so that would be closer to $21 million?

Yeah, Matt, well – we're not going to give a specific guidance by segment. I think what I would share with you is that it is lumpy and it's – so, in fact, we had strong orders out of Cliniqa, which doesn't count organically, but I mean, out of our legacy chemistry-based controls business, which, in fact, is organic. And going forward, it could be lumpy as well. But again, at a high level, what we will share is that we expect our overall company revenues to be similar in Q3 – or Q4 and Q3. The mix between the business units could change a little bit. I think it will change somewhat in the sense that PPD overall revenue will be likely a lower percentage that's a negative mix impact. That's what we'll share.

Okay.

And we will also – hematology component has been and have been, and remains and will remain steady as she goes at 5%-ish growth rates, very much a run rate...

Okay. All right. Thanks. And then, Chuck, maybe a question for you. When you came on board, there was a lot of heavy lifting on the investment side, there was a lot of internal investments that need to be made. Where do you think you are in that stage? What stage do you think you are in those heavy investments? Do you see that tailing off? Obviously, investing for growth will be necessary, but from some of those initial investments, where do we sit and how does that play out over the next year or two years?

That's a great question. I think – I'd say we're about in the seventh inning on that. The investments kind of come in two categories for me. One is they're really operational and they're really needed for productivity or they're capital, right? And we have built out three different buildings already here on my watch, and at the most, we have one more to do here, internally here and locally in headquarters that we're playing around with in terms of ability to kind of rework our total work streams. I mean, you've been here, right? This place is like a honeycomb. It's like – changing around and making improvements is like working a Rubik's cube. So, you need to start with a big enough blank sheet of paper or space to try and redo everything and clean it up. So, we're in the middle of that. We're doing a lot of lean things. As you saw, our margins improved again. We had absolutely phenomenal productivity again in this – in the Biotech sector. But software around email, computers all being replaced, LMS system, and we're ready to pull the trigger on phase one of our ERP system in July. That's all on track, which is fairly expensive. We've got a lot of – and the team, the executive team is pretty much in place. I don't see a lot of new additions going forward. The stock and equity-based compensation is all in place for the top 100 people. There's not a big need to further do that right now, unless there's need through acquisitions of new team members that way. So I think we're in a good place there. We have capital needs going forward, I think, with the phase two and three of ERP. There's continued investment, I'd say a steady-state on the website development, nothing more, but nothing less. We've made improvements there. So that will be a same as she goes going forward. We are putting in place another – putting in place Hyperion for consolidation. We've gone from 6 sites to 21 sites, and poor Jim is tired of consolidating the spreadsheets on napkins, so we're getting a – the real system he's used to using from his days at Thermo and most of the world uses, and things like that you have to do. But really the – you said it well. The heavy lifting, I think, is really behind us. We're going through a – our – my third round of roundtables. I've probably done over 30 different meetings with groups of employees on the last three months, four months, and they're noticing it. They're very appreciative and they get it. They see where we're going and they see it.

That's – go ahead. That's great. Thank you very much. That's a really good update. Thank you.

We'll go next to William March with Janney Montgomery Scott.

Hey, guys, it's Bill March on for Paul Knight. How are you guys doing?

Good.

Good.

First question, maybe if you could – you saw mid-double digit growth in the biopharma segment, what's driving the growth from that end market?

Okay. Well, a couple of things. When we worked hard at getting our core back in place, I mean, we certainly took some arrows over ProteinSimple a few quarters ago. But the harder part of this company turning around and getting it going has been getting this core because it is just so fragmented, as you know. We still don't have really any reagent products over 2 million, and we still have customer base is 1% or less in general. We typically have done a lot of prioritization since I've come here around what we're going to make and why, instead of just throwing 2,000 or more new products at the wall and see what sticks every year. We're substantially down from that now, somewhere around 1,500, but a lot quicker time to revenue. A lot more focus on the marking end of it and why there is going to be quick take-up. And part of that has been the trend, I think, in CRO. There's been a lot of custom in the industry and Abcam reported, won a lot of custom going on as well. We're seeing it, too. So we're getting on the Biotech pharma side. We're getting a lot of requests because we're a quality producer, we've got great scientists and we were, in some cases, the only game in town for the things we make. And they're coming more and more for special things. We try to put as much of that into the catalogue as possible. It doesn't all go. If it doesn't go, it's always still a recurring revenue stream with that partner. And the thing I like, it's immediate sales. You're not waiting at all. So we've had a dramatic improvement in our vitality index. If you remember though, our first year here, we reported about $2.4 million in first year sales. Last year, we reported $5.8 million. This year, we're probably well over $10 million, we're thinking. So it's been a dramatic improvement in the core, but also from custom and everything else, and it's largely Biotech pharma, which has been driving this double digit growth rate when you start adding the numbers up.

Great. And then...

And what's interesting, much more visible, too, are the websites helping there. We're – I could go on and on about our tradeshow strategies and investments there, the booth redesigns, the comprehensive look we have around our family of brands. We just came back from ACR and the response was unbelievable. We had a record number of leads and pretty much across the board, customers are saying, yeah, we know who Bio-Techne is now and we're – and we like doing business with you. We like the path you are on with all the different segments because you're becoming more and more of a one-stop shop for us, so.

Great. And then secondly, in terms of end markets, maybe on the academic side, what are you seeing from that end market in terms of with the new NIH budget and maybe what you see for the rest of the calendar year? Thanks.

Yeah, we're seeing kind of what everyone else is reporting on. I don't think we've seen too much of a take-up yet from that extra funding and spending. Maybe a little bit, but we're not really seeing a lot of evidence. We're – like everyone thinks, it's going to be really occurring mostly in the second half of the calendar year here. And we're hopeful. It should be – we've talked about what it should give us. When you roll it all through, when you go through our analytics with our customers, it should be about a 1% overall improvement for us. Is it there yet or not? Well, we had a record quarter, maybe a little bit there. It's hard to start separating the stuff under 1% like that, so...

Understood. Thanks, guys. Have a good day.

At least we're moving in the right direction. At least we're not contracting. We're going to – we're in an expansion timeframe for a while, we think. So that's good.

Great. Thank you.

And that will conclude our question-and-answer session. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Well, very proud of our team. It was a great quarter. I'm sure hope it continues. We see a lot of – we see a very bright future here. People are having fun, and we'll talk to you again next quarter. Thank you.

That does conclude today's conference. We thank you for your participation. You may now disconnect.