Good morning, and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of the Fiscal Year 2019. At this time, all participants have been placed in a listen-only mode and the call will be opened for questions following the management's prepared remarks. I would now like to turn the call over to Jim Hippel. Please go ahead - Jim Hippel, Bio-Techne Chief Financial Officer. Sorry about that. Please go ahead.

No worries. Thank you. Good morning, and thank you all for joining us. On the call with me this morning is Chuck Kummeth, Chief Executive Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2018 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 the most comparable GAAP measures are available in the company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. Before I turn the call over to Chuck, I'd like to remind everyone about our changes in segment reporting for fiscal year 2019 beginning in Q1. We have moved from three segments as reported in prior years to two. These two new segments are our Protein Sciences segment and our Diagnostics and Genomics segment. Our Protein Sciences segment consists of the legacy Protein Platform segment in addition to the legacy Biotechnology segment less legacy Advanced Cell Diagnostics, or ACD. The Diagnostics and Genomics segment consists of the legacy Diagnostics segments in addition to legacy ACD, which we now refer to as the Genomics division. Our most recent acquisition, Exosome Diagnostics, will also be included in the Diagnostic and Genomics segment. With that reminder, I will now turn the call over to Chuck.

Thanks, Jim, and good morning, everyone. Thank you for joining us for our first quarter conference call. I am very pleased to report that we started the year at fiscal year 2019 much how we ended fiscal 2018 on a strong note and in line with our strategic plan. The company delivered 10% organic growth in the quarter led by our Protein Sciences segment with a stellar 14% organic growth. The growth in this segment was very broad in almost every product category in geographic region. The Diagnostics and Genomics segment was weighed down by timing of OEM shipments in Q1 but this was not a surprise to us and we expect the timing to be more favorable the remainder of the year contributing to overall organic growth going forward. This was also an exciting quarter for us on the M&A front where we completed two acquisitions, Quad Technologies and Exosome Diagnostics, to provide new technologies and give the company and its legacy portfolio access to new and fast-growing end markets. In a quarter when most of our major geographies produced outstanding results, it’s hard to call out a favorite, but I will. Europe once again reported double-digit organic growth. While most of our regions reported double-digit growth, what makes this special to me is the consistency of growth we have seen from our European team, averaging double-digit growth there for the last two years. The unified selling model that combines reagents with instruments to sell full solutions to our academic and biopharma customers is most developed in Europe, and it is definitely working. We began to expand this solution-based selling model to the U.S. in calendar year 2018, and we are starting to see similar results with solid double-digit growth here as well in Q1. The academic end markets…

Thanks, Chuck. I will provide an overview of our Q1 financial performance for the total company, as well as provide some color on each of our segments. Starting with the overall first quarter financial performance, adjusted EPS increased 9% to $0.98, while GAAP EPS for the quarter was $0.45 compared to $0.42 in the prior year. Q1 reported revenue was $163 million, an increase of 13% year over year, with organic revenue increasing 10%. First quarter reported sales includes a 4% growth contribution from acquisitions and a 1% unstable impact from foreign exchange translation. By geography, the U.S. grew in the teens, Europe’s organic growth was in the mid-teens, while China grew over 30%. By end-market, BioPharma growth was in the high single digits, while Academia sales growth was in the high teens. Note that all references made to growth rates by region and end-market exclude our OEM sales, which mostly occur in our Diagnostic and Genomics segment and to a lesser extent, in our Protein Sciences segment. Moving on to the details of the P&L, total company adjusted gross margin was essentially flat the prior year at 72% in Q1 while volume leverage and operational productivity negated by the mix from recent acquisitions. Adjusted SG&A in Q1 was 29.1% of revenue, a 170 basis points higher than the prior year where volume leverage was more than offset by the additional SG&A added as a result of acquisition. R&D expense in Q1 was 9.1% of revenue, down 30 basis points from prior year to the volume leverage and timing of projects. The resulting adjusted operating margin for Q1 was 33.9%, a decrease of 140 basis points in the prior-year period. However, as Chuck already mentioned, excluding the impact from recent acquisitions, core adjusted operating margins expanded 200 basis points year-over-year.…

[Operator Instructions] We'll go ahead and take our first question from Dan Arias from Citigroup. Please go ahead.

Chuck, I wanted to spend a few minutes on the Diagnostic and Genomics segment. First on the OEM timing issues, how much revenue fell out of the quarter there and will that be mostly recognized in 2Q, or do you expect that to be recouped over the course of the year? And then on ACD, I think you mentioned 30% growth in the research setting and double digits overall. What specifically was the all-in growth rate for ACD? And then what are you expecting for the all-in growth rate for ACD for the year?

First on the one, the quarter for the Diagnostics, the tool side of the business, it was about like last quarter and probably just a little bit better. Looking forward, what fell out was between $1 million and $2 million probably. Looking forward, I think it’ll come back. These are large customers that - they don’t even tell us which quarter. They can move these orders, as you know, as much as a year. I do think we’ll get these things back with some -- with more even. The pipeline, as I mentioned, looks pretty good. And we have some new business in the pipeline that we aren’t prepared to talk about yet. It also looks good looking out two quarters from now. So we’re negotiating on many fronts. Part of that issue too is glucose. You know we have definitely holding our own with glucose. There’s been some price increases as well to deal with some of it. But as you know it’s the category going away over the next five years, so it’s going to be a harvest kind of a mode. So, I think we’re okay with that performance next couple of years, but we do have to replace it. So that’s one issue there. In terms of specifics around ACD, we’re not really going to give as much specifics as we used to. So we mentioned we were at just south of 30% in RUO. It is largely like last quarter, I’d say even a little better as well than last quarter. Looking forward, we see more of the same. Any softness in the overall number is probably still from the lag and the slowness and the pickup on the CDx side with Leica and other potential partners. They do tell us a strong story, though. Leica in particular has half a dozen new tests coming, and they are going to come out anywhere between the next 3 months and 18 months. So we’re actually quite bullish on our partnerships and hoping to solicit more here as well, and there’s more to be had. There's discussions going on as well. So, it’s kind of more of the same, the same kind of rates we had talked about for the Genomics division. Looking forward, I don’t see anything really falling out of place there.

So the forecast on ACD relative to last quarter is unchanged in your mind?

I would say yes.

And then just on Exosome, you talked about a $30 million contribution this year from EPI. Obviously, it sounds like a recognition math changes that. So, I just wanted to clarify what, if anything, you were expecting this year. And then are you able to talk to, A, maybe the bolus of revenues that you think you might realize once you do get Medicare approval, and B, maybe a sense for test volumes that you’re expecting this year, since it sounds like visibility there is better than revenue visibility? Thank you.

So we want to give some clarity and visibility around test volume. We told you how the Q1 went for the calendar year and how the first quarter, which we only realized two months of it – and we’re on a 25% growth clip per month. We’ve gone from 14 reps to 32, who I would say by January 1, all 32 should be fully up to speed and really in the groove. And then you can do your own ratios from there and see how the ramp should be. You move that kind of ramp forward, we are watching and I wouldn’t say throttling, but we’re definitely watching and helping them with their P&L so that we’re not getting too far ahead of our skis on dilution. We came in the quarter just under the predicted spend, so even though we are a little bit light on what would’ve been expected for test volume and then revenue if we could’ve collected it, we are definitely okay on the spend side because we’re watching and kind of tailoring as we go. A move from 7 to 32 reps in six months is a big move. It’s a lot to absorb. As you know, the full plan to get to that number we talked about a quarter ago, $30 million, which we aren’t going to talk about anymore in terms of what that is, because we don’t know as Jim stated, when we really can collect, so it could move into next year even by a quarter. But the test volume is what matters. And I think that that’s a number of 60 reps, and we’ll just have to see how we grow and we want to feed that beast in as smart a way as possible. The leadership we have…

It does. Thank you.

We'll move on to the next question from Puneet Souda from Leerink. Please go ahead.

Wanted to touch first on the Protein Platforms. You saw solid growth there. Ella, I think you commented about 70% growth. Just wanted to get a sense of what was driving that and is there anything unique there? Or is it just the antibodies that are doing well? Just help us understand what’s driving the growth there?

Thanks for the question, Puneet. I’d love to talk about this business all day long. It is just lighting it up. So as you know, we took a gamble on that side of the technology almost five years ago now, and it’s taken a while to get to a point of being material, which it is finally. And you know a 70% growth rate on this business being material, if this continues it’s going to be maybe all we’re talking about in a year or two. The clinicals that it’s involved in are going very, very well. They’re taking lots of cartridges. And these are very, very big pharma companies. We have other initiatives in place. It takes a couple of years to get rolling on these clinicals. We have got half a dozen to a dozen other pharma that are ramping up doing things. So we expect there to be strong growth. And then this Micropoint deal we just did in China, which had TV coverage by the way. It was amazing. This is the company with a founder who was the founder of Mindray, so this is a company and a team that knows what they’re doing. I love this application, because it’s for ubiquitous patient monitoring, going after cytokine storm and a lot of autoimmune different diseases. It’ll be - it’s a high throughput system for an A-rated hospital setting. So once we think that kicks in there, it’ll - and they’re doing all the FDA requirements. They’re covering everything for us over there. We just have to supply cartridges and the instruments. And they’ll rewrap them, and there's no real change to any design, anything. It’s just really an integration, and OEM kind of an agreement. And the numbers are staggering. So we’ll talk more about them once they get started, because it’s an 18-month clinical they have to do. But these guys have a pedigree that gets things done, so we’re pretty impressed, and hoping that'll incite a lot of other interest here in the U.S. as well. So Ella has got a strong future, and we said all along we thought it could become a standard and potentially a point-of-care standard with some - our ability to work. And you know, we’ll see.

And then briefly on China, just wanted to get a sense, it seems like it’s fairly low in terms of any tariff impact now, but what’s your view? Obviously, you have a lot more reagents versus hardware. So how should we - any sense that you’re getting in China that reagents could face similar tariffs in the longer term? Or any sense there? What’s your outlook for the fiscal year here in China, given the growth profile that you’re already getting?

Well, this is probably the best growth we’ve seen in a couple of years, at least, maybe longer. I’m not sure. It’s solid in the 30s percent. And we really grew on all fronts. The PrimeGene business really has come back really strong, everything from its OEM component to the China to China component. The CFDA Baidu scandal thing’s behind us and hospitals are buying. So they’ve got their certificates, so things seem to be ramping well there. We’re getting involved in more potential GMP-grade demand products that are going into oncology and different solutions in China. Not so different than the rest of the world chasing cell therapy and looking for GMP-grade everything. We are all going to be riding this GMP-grade set of reagents very soon and I predict a shortage probably in five years if we don’t all start capitalizing towards it. What’s great for us is we’re picking up share because these little guys that can’t afford, they were biting our ankles three, four, five years ago. They’re going to disappear because they can’t make the investment and the requirements are now getting much more stringent. There’s been an outcry for quality validated antibodies that’s been heard. And us top five, or six, or seven suppliers have heard those cries in delivering validated antibodies, and a lot of those little guys are going away. So in terms of China, it all flows well there for China as well. The instrument business is flowing quite well there. There’s a lot of need for it. There may have been a few machines where some people afraid the tariffs might hit them later. There could’ve been some of that, not a lot. In general, our products, especially the reagents and the tools, they go into programs that are really government-funded. The government’s not stupid there. They know that if they’re raising tariffs on products that they’re into buying, they’re going to end up paying more for, it is kind of silly, so we’re not really affected by too much. We’ve been kind of omitted from all that. It could happen but there aren’t any local suppliers. We’ll pass it on and the government will just have to pay more. So that’s the way it’ll be. So far there’s been no impact and our demand has improved, our growth has improved, our results have improved. And we have now knocking on 150 employees in China and this is the best time we’ve seen in China in a couple years, so.

And just last one on Academia. Just wanted to get your view on the full fiscal year with Asia's looking good. What sort of growth rate should we be sort of modeling here going into the year?

Low double-digit like it’s been. We won’t see any change.

We’ll move on to our next question from Catherine Schulte from Baird. Please go ahead.

Congrats on the quarter and thanks for the questions. Just going off of Puneet’s last question, just curious if you could talk about end market performance within protein sciences? What did you see in pharma versus in the government and so on?

Pretty balanced. Double-digit in here, both categories. Academic, it’s a little higher than biopharma here in the U.S. But in that area, that’s probably including the services side. I’d say it’s pretty balanced here in the U.S., too. If you’re talking just protein science, it’s pretty balanced. Low double-digit.

And then on the M&A front, how would you characterize your appetite as we stand today and where within your portfolio would you most like to add? And then with the recent pullback in the market, does that increase your interest in public assets? Or are you going to remain more on the private side?

We’ll probably remain more on the private side. We’re just a titch over two times on leverage. We definitely have some capacity but we did five deals this last year and we’re integrating. We have enough on our plate. We know how important it is to get Exosome Diagnostics right. We are definitely at the inflection growth area where we need to really take Genomics division to the next level. It’s a $60 million, $70 million run-rate business as we’ve talked about last quarter. It’s growing in the numbers we’ve told you. And so that still needs attention. We have new leadership there as well. We’re expanding in Europe and we’re just getting off the ground with that in Asia. We have the Atlanta Biologics we don’t talk much about but it is a media business, a serum business. We’ve got ideas to expand it globally and rebranding it with R&D systems. It takes some work. We have some smaller ones as well that don’t take a lot of work. But somebody has to be assigned to it so it’s always something. So we’re a little busy right now. So where are we interested? We still run a process. Frank’s still pretty busy here. We run a meeting every two weeks. Our hopper’s still over 100. It’s definitely more private than public. I don’t see a lot of prices going down an awful lot for the private especially the sizes we look at. Where we’re most interested is probably still working through this flywheel for cell therapies. There’s a lot more positions in the wheel that we don’t have. We’ve got a lot of positions. We’re definitely a player now. We love that. We’re getting a lot more interest because of it. We’re getting more critical mass. But there are certain other areas. A wonderful bio-reactor solution came into sight. We’d be looking at it. We’re still looking at things in single-cell areas. There’s interest levels, areas we’re looking at still. There’s quality control. There’s pieces of that cell therapy work flow that – there are some nice, small companies that have formed and are growing and riding that wave. The numbers – you know as well as I do the numbers predicted in CAR-T and in cell therapies in general the next five years are staggering. So I do think it’s going to be an everybody-wins market if you just get in. So it’s a matter of getting land at this point.

We'll go ahead and take our next question from Patrick Donnelly from Goldman Sachs. Please go ahead.

Maybe just one on ACD, the clinical opportunity there. I know you mentioned Leica maybe taking a little bit longer to pick up than you expected. Can you just talk through the opportunity there, again acknowledging it’s early? And then also, I know you guys aren’t exclusive with Leica, so is there opportunities to expand to other partners? Any thoughts there would be great.

So Leica is our first partner and our primary partner, but we’re not exclusive and we are working with Entana and there’s some things going on there. And we’ve got some notes, Jim’s looking up a few notes here as well. I like the menu and what they’re forward in Leica. They are trying very hard, they seem very serious. We are definitely also working with Entana and we’re working with some others as well. We’re not going to name them right now, but there’s strong interest. As we get critical mass, I think there’s going to be interest. This tissue biopsy technology really works. And the market understands what in situ hybridization is because it’s been around a while, it’s just never had a solution that worked this well before. So as we transition from really research, where people get trained and publications will happen and critical mass will happen and awareness growth. It’ll grow more and more towards a pathologist I think and CDx - companion diagnostic capabilities - is where there’s going to be the next wave of attraction. I don’t think it’s overnight, this stuff takes time, but the scale is big. I mean these are billion dollar markets to get into these areas. And so we just have to be patient and patient we will be.

And then maybe staying on ACD, just since the payout occurred - I know there’s always risk of increased employee attrition, people leaving, any pull forward on the revenues hit the mouth - can you just talk to what you’ve been seeing since then? Clearly the underlying trends seem pretty healthy. But just curious on the inside what you guys are seeing there.

On ACD?

Yes.

Which we call Genomics division now. Yeah. So the leader left recently. We brought in and we talked about it probably four months ago or so. Kim came in. Kim was running Genomics, pretty much all of Genomics except for Ion Torrent I think from Thermo Fisher. He’s worked for me before. I know him from my Thermo days. He came via BD. He has an outstanding track record. This guy is a leader. I think he knows virus safe languages. He’s a super good global leader. He’s a team player and he’s got his hands personally on this. He actually lives just across the bridge from where the office is. So it’s not a big operation yet in terms of what Kim’s experience is, so it’s kind of child’s play for him really. He has that along with the Diagnostics division as well. In terms of right now what we’re working on? We want to make sure that the team stays intact. It has been. We have – the company’s Chief Medical Officer is Rob Monroe, who is from that business unit. All the scientists are still intact. We have retention packages in for all key people, of course, that’s going to run out a few years. These segments have never been better. So I think we’re in a good place. If you want to work for a great company and be part of an exploding division, this is a good place to come. Tissue biopsy is going to be a big deal in a lot of areas and we have a close cousin now, a technology platform with a lipid biopsy, with Exosome of course as well, which we’ll be doing things together in the future, but not yet. There is certainly competitive forces, being they’re in Newark and it’s the Bay area, but I think we’re doing okay with that so far.

And if I could just sneak one last one in, just on Europe. It continues to be a standout there with mid-teens growth. Can you just talk about the durability of double-digit growth there? Any key markets you’re looking at that have really driven the outperformance that you feel good about over the next year or so?

We study the situation best we can. Europe is Europe. And I’m not sure anyone gets three to five years of prosperity in Europe without a hiccup. But we’ve had a couple at least here. I think the next big risk would be some surprised that happen around a hard Brexit. I’m not even convinced a hard Brexit will occur. But if it does, we studied what it does to us and it doesn’t do anything material to us whatsoever. So we think we’re all right. Again, we have the kind of products and tools in place that customers want, and these customers are in large part very academic or biotech company-related and they’ll get it if they need it. If we end up having to do something around prices because of some arrangements with the EU or the U.K., we’ll deal with it. But our model right now suggests that we don’t have anything material to worry about there. Funding of course is on a country by country basis in Europe and remains pretty strong across the board. I think we’re still living off of the nice balance we’ve gotten here from going fully all-Europe with subsidiaries across all the countries in Europe buying out our distributors and keeping their teams excited, and they’re on board. They all stayed on board, the leaders of these businesses. And expanding and taking share locally in these countries. So right now it looks pretty good. I think we’re trying to crack and get more into Eastern Europe. I ran with a good idea for a while. And we still look at other areas as well. Israel’s a strong area for us. I think Russia eventually will be good. Not yet, though. But those are all going to be a gravy layer. The main thing for us to get right is to continue seeing strength in UK and Germany. Germany and U.K. are roughly the same size and Germany should be bigger, so we would say there’s still more share to get in Germany, to be honest. France has come up nicely, mainly because of we bought Eurosome, which is located in France, so now we have a French subsidiary and it allows us to actually again get a little more, a little deeper into the country. Italy is also a little surprising, but again this is where we bought out space and really our Southern European operations, our leadership all come from that entity. And so of course Italy gets taken care of, and there’s always been strong research in Italy. So that’s all looking pretty good. So outside of a scare like a new Greece or Italy runs into trouble with going back to the lira or something, who knows, these all cause short-term hops in Europe, but you guys will see it before we see it. Right now, it’s looking good.

We’ll move onto our next question from Dan Leonard from Deutsche Bank. Please go ahead.

So hoping - appreciate the color on broad-based strength and Protein Sciences, but hoping you could offer some color on the biologics product lines, not Atlanta, but the capital area - Electro free products that rebounded last quarter, or a couple of quarters that had a pickup?

It’s improved. But the comps have been strong still. I mean this last quarter was still a 30-plus percent come. And we did okay, and it’s obviously reflected in our numbers. So looking forward I think we see improvements. But this isn’t a unique solution where we have kind of the whole market to ourselves, like we do with Western blotting. This is the one we are competing with other technologies, everything from iron exchange, which is still a primary solution used in production, which we fight every day. These large customers, the development team fights the manufacturing team on what should be used in production. We’ve been winning with our iCE platform but there has been a tough fight. We definitely had some softness a couple of quarters ago. Some of it related to some of that but also related to the fact that we don’t have the Empower limb system integrated, where a lot of manufacturing sites require Empower out of Waters. We are in full-blown development of that now, and we’ll have that - we are six months into it actually. We hope to have it released by next summer. And just the messaging of that has helped the platform, to be honest. These guys don’t make knee-jerk decisions, right? They’re specifying platforms for their production QC for new generations and for the long term, so this is helping improve the category. We still - I think we’re still not has happy as we’d like to see on the size side. Charge, we’re okay but on size, which was the new Maurice platform, I think there’s still more share to get. And then we’re also looking at expanding, getting more application help, and helping drive against those competitive forces. And so far, so good, Dan. The numbers have improved there, so we’ll see how it goes. I don’t think we’re back in the days of 40% growth anymore with that platform, but double-digit is certainly realistic.

And just an operating expense question for Jim. Jim, I was surprised that R&D expenses didn’t tick-up more sequentially given you had two months of Exosome. Was there anything timing related or does Exosome just have fewer folks working in R&D than I thought?

No, there was some timing items. In fact, some of the same folks who work on development of cartridges for Simple Plex, for new cartridges, as well as in our own facility here in Minneapolis, some of the folks that work on new protein development, they ebb and flow between development and operations when there’s certainly demand flows. And this quarter in particular, particularly on the Simple Plex side, there was high demand to get cartridges to customers, and so there was a shift from those resources developing new cartridges to producing cartridges for sale. And we expect that shift will - they caught up essentially with that backlog and we expect that shift will move back to more R&D and expense in the forward quarters.

So this is an area we do some activity basic on and they’re coded between research versus manufacturing. And this was a heavy manufacturing quarter and you saw by the numbers you gave you on Simple Plex, it’s just exploding. So we’re going to be hiring more and probably expanding there, and more probably more on the R&D side. So that’ll level out. We still stay committed to I think our levels of investment that we’ve always been.

[Operator Instructions] We have no further questions at this time. I would like to turn it back over to you.

Okay. Well, we’re about on the hour anyway, so that’s fine. Thank you, everybody, for the great call and the great questions. And, of course, we'll be following up with most of you on one-on-ones after this, and I look forward to talking to you all again next quarter. Thank you.

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