Good morning and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2020. At this time, all participants have been placed in a listen-only mode and the call will be opened for questions following management's prepared remarks. I would now like to turn the call over to Mr. David Clair, Bio-Techne's Senior Director, Corporate Development. Please go ahead.

Good morning and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer and Jim Hippel, Chief Financial 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 2019 identifies certain factors that could cause the Company's actual results to differ materially from those projected in the forward-looking statements made during this call. The Company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K as well as the Company's other SEC filings are available on the Company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the Company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. I'll now turn the call over to Chuck.

Thanks Dave and good morning everyone. Thank you for joining us for our first quarter conference call. We started fiscal 2020 on a strong note with our first quarter organic revenue increasing 13% year-over-year continuing a double-digit organic growth rate we delivered in fiscal 2019. The double-digit growth was broad across our product segments and geographies with proteins, antibodies, simple Western, and RNAscope platforms performing exceptionally well. Also rebounding from last quarter our OEM diagnostics tools business contributed to double-digit growth. As we look at our performance by geography I will start with Europe. In Q1 organic revenue increased over 10% for the quarter. As expected the headwinds we faced last quarter normalized and contributed to the strong performance in the quarter. Recall that the timing of a large order from a European customer was one of the headwinds we experienced in this region last quarter. During Q1 we received this order. Excluding this large order our European growth was in the high single-digits and this is our expectation for the remainder of fiscal 2020. The initiatives the European team have put in place over the past several years continue to positively impact the business creating synergies across divisions and implementing creative ways to make it easier for our customers to do business with us. We believe these efforts create the foundation for continued European growth ahead of our industry peers in quarters to come. That said the popular view regarding Europe is fairly bleak about an economic slowdown there so we will continue to monitor Europe closely for any signs of weakness. With regards to North America organic growth was also north of 10% driven by particular strength in biopharma. There's been a lot of efforts dedicated to our digital market strategies including the continued enhancements we make to…

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 was a $1.06 versus $0.98 one year ago with foreign exchange negatively impacting EPS by $0.25. GAAP EPS for the quarter was $0.37 compared to $0.45 in the prior year. The biggest driver for the decrease in GAAP EPS was the change in fair value or investment in ChemoCentryx which negatively impacted the GAAP reported number by $0.26. Q1 reported revenue was 183.2 million, an increase of 12% year-over-year with organic revenue increasing 13%. First quarter reported sales include a less than 1% growth contribution from acquisitions and a 1% unfavorable impact from foreign exchange translation. By geography the U.S. and Europe both grew north of 10% while China grew nearly 20%. As for the rest of Asia organic growth was in the mid teens. By end market which excludes Asia and our diagnostics division biopharma increased in the low teens while academia increased in the mid single-digits. Moving on to details of the P&L total company adjusted gross margin was 69.5% in the quarter compared to 72% in the prior year. The decrease was due to unfavorable product mix, some factory absorption timing, and to a lesser extent the impact of recent acquisitions and foreign currency headwinds. Going forward we expect adjusted gross margins to be comparable to fiscal 2019. Adjusted SG&A in Q1 was 29% of revenue relatively flat compared to the prior year while volume leverage was offset by additional SG&A expense from acquisitions as well as investments in our core business to support growth. R&D expense in Q1 was 8.8% of revenue, 30 basis points lower than the prior…

[Operator Instructions]. We'll take our first question from Puneet Souda with SVB Leerink.

Thank you. Hi Chuck and Jim. A strong quarter here, just wanted to get a view from you and what are you hearing from your biopharma customers overall as we head into the end of the calendar year, just give us a sense of what the demand flow is looking like and overall what's the expectation here, you commented a little bit about Europe, I would love to get more of a longer term trajectory how are you thinking about Europe and overall business in North America? And then I have a few follow ups.

Sure. I'll start with the worst of the pack probably Europe and it is kind of wait and see. So even though we started seeing some softness last quarter we had a really, really good quarter with Europe. But it was -- we are a couple knarlies [ph] as we pointed out. I think high single-digits for the full year is probably still the expectation. We could do a little better. We'll see, the instant side of our platforms is the biggest suspect. I think we're very strong in the reagent side and overall looking good. Asia is looking really strong for instruments and I think it's probably part of the buying cycles there as well. But we see really no shift or any anything coming down off especially in China. Things are looking really good and the U.S. is kind of steady as she goes. So we've been pretty, pretty stable in the U.S. and with the good news from NIH funding the piece came out last week and I expect next year should be okay as well on the academic side helping out the biopharma side but pretty steady. I think we tried to put some commentary in and around our search engines and our web and I think we just came off of a very, very strong neuroscience show. We had more leads the first day than we had the entire show last year. So our booth has really come a long way, we've got all our platforms, our brands all showing up together now. It's creating an awful lot of interest in the Web, the Web keeps providing more. So I think that is helping fuel the way for a continuous strength in the U.S. which has been double-digits here for a while. So, that's kind of the way the three regions shake out for the instant side of things and as well as everything else. So, pretty good. I think Jim was right on, I think 10% to 12% is where we kind of peg the year. If we get a really good [indiscernible] launch here we'll see, it could be better but it's probably the range we're looking at to be safe.

Okay, great. On the facility buildout, it is great to see that kicking off but what's the expectation here for gene and cell therapy workflow products two to three years from now and wanted to get a view from you on what are some of the pieces that you would still like to add into this gene and cell therapy workflow to enhance the product offering to the customers?

Sure. So, as you know we're looking forward with our cell and gene therapy workflow to be the non-viral methodology. We expect now -- almost everything in clinical is a viral method. We'll be supplying GMP proteins for that method. So we'll be getting business ready to shoot as we are today and we had a 100% growth in Q1 with our proteins. So we're looking good there. The factory by itself for GMP proteins is we're building it to $140 million plus in five years of productivity. It probably has expansion capabilities, very easily the $200 million of proteins. We probably will take more than five years to get that level of just proteins. So from that respect we kind of look like a mini CDMO but there's the rest of the workflow with the beads and with the B-MoGen technology for gene editing. We have more than one instantiation platform for analysis both in cell imaging with the AC technology as well as our simple plex amino assay for called Casey testing if you will. So all told it's a pretty strong workflow. We still are looking for more areas to fill it out. I think we don't have a leukapheresis instrument to tie it all together. We have certainly relationships that we're working on to try and collaborate to get that part pulled into the workflow. That's probably the most critical piece I think, the box so to speak, the sterile box that ties it all together. The bio reactors of course are important. We have a very strong relationship locally with that and we have more than one and we have a bit of a secret weapon for that whole part of the workflow. We have a product we've had for four or five years called Prodots [ph]. We're able to actually alkalize our proteins into small dry components and they can be shipped within the bioreactor or positioned with that workflow for reconstitution in a sterile environment with no loss of bio activity. So this is really unique to us. We have IP in this area as well and we are getting eyes wide open when our customers in preclinical have seen this approach and they want it. So we think we have a lot of things to offer that nobody else will have for the whole workflow. I think like you kind of implied it's going to take two or three years to get to that point. We're in a bunch of preclinicals now which will then lead to clinicals and it will grow from there but this is a 5 to 10 year kind of strategy and it's going to take a while to get to that level. But hey, whoever thought we're going to be able to more than double our protein business and we've been 30 years at it. So I don't mind taking five years to double it.

That's great, thanks. And if I could just squeeze one more and I wasn't sure if you already provided, what's the revenue expectation around Exosome for the fiscal year and now that you have Medicare and could you talk about the plans for FDA or next steps now that you have breakthrough designation for EPI?

Yeah we've done the first submission and they've come back with a long laundry list of questions as expected. So we're not even really able to give a date when it will be finalized for FDA. But under a year for sure, but it's going to be a few months at least for that. So we're in process and the FDA breaks through stuff and gets us that help from them directly that they promise. So they are helping. So we'll see what happens with that. In terms of revenue we're right now are trying to figure out where to reach back to for our first submissions for tests previously done. We're trying to figure out what that date will be, it'll be in months and no longer than a year worth. So we're not prepared to give a number on that but it'll be millions of dollars worth of potential but there's no guarantee. Going forward it's 40% to 50% of the tests and you kind of had that number and that ramps, you kind of guesstimate what we're going to be submitting. And although once we get everything greased here with CMS which I promise will be December 1, that's a 30 days to pay kind of future and then we'll go to accrual next summer probably at that, so after that amount of time frame. Revenue, you've seen the numbers. I mean we need a full year to get to a $30 million total and our run rate is about 50 million and at that point we're probably break even, that's going to be a 12 to 18 months kind of timeframe we think. But it's early and we don't really know yet, we got to see how this does ramp. We got to see how we execute. We've taken a long time here in the last few months to upgrade our marketing and our sales groups and we're still hiring. It takes six to nine months for the new people to get in the groove. We just hired out in New York so we won't be getting a whole lot of traction in New York for probably another three to six months. It all takes longer than you want but we're nearly the only game in town, it works the best of anything out there. We got this thing from start to finish through and yes, in two years or so we will say Telus [ph] is a record. It's still like a long time for us but we'll see how it ramps. But I think getting to a level of revenue that we've talked about is certainly more than just plausible so we're excited to try and feed this beast as we go forward from December 1st.

Okay, thanks Chuck.

And we'll take our next question from Catherine Schulte with Baird.

Hey guys, thanks for the question and congrats on the quarter. First one on that EPI Medicare look back topic. How's your discussions with NGS gone and when do you think you'll find out if you'll get those retrospective payments or not?

You just don't know. There is no precedent as you know, there's no real rule or law around it. It really is up to them what they feel is appropriate and fair. And we have to decide also what day to go back to and we can make it more problematic for us to get anything by the farther back we reach. So we're trying to pick a fair position where there's like notice no dispute, no doubt, and you got to remember when you start out this kind of thing you're starting out with sales people with unclear practices and processes and data and we don't want anything nebulous about what we're asking for. So we're going to pick a safe date where we have from a point where our processes are really clean and perfect and we have great data and great outcomes and so there is no dispute. So we're trying to figure that out but it's going to be an all we think at least six months worth and that should be a few thousand tests. So we'll see. And I hope they're generous.

Okay, and then for the upcoming quarter you have a pretty tough stacked comp in Protein Sciences. What's your view on that segment next quarter and what are you assuming in terms of the calendar year end budget flush there?

Yeah, we're not hearing much right now of budget flush. I mean the news that just came out for looking forward to NIH funding is kind of a record, it looks really good. So we're excited about this coming year of coming forward for academia. As I mentioned in my previous answer I think things are pretty steady as she goes with the rest of the business. We'll see how all our processes drive execution. But it's like you said it's a tough quarter. This is -- we're coming into a quarter with a really good one for us last year and we don't think we're going to let anyone down horribly. But it's going to be a tough quarter. We've got to execute and that's the way this business is. Right, when you're staying -- you want to be sustainable and be double-digit every quarter going forward. They're never easy anymore.

And then last one from me, can you just give us an update on the general environment that you're seeing in China and what are you expecting for growth there for the full year?

Yeah, north of 20% for sure and we're trying to figure out ways to really be at 25%. So I think we'll be between 20% to 25%. Things look pretty good. The fifth year is kind of concluding there. There will be a bit of a budget flush there. I think all the pull forwards and all the trauma drama around tariff I think is behind us even though we don't have a lot of tariff impact anyway. And I think it's steady as you go. We still aren't that big in China. So it's just we're very under penetrated and it's led by institutions, hundreds of them that are more or less led by U.S. Chinese citizens that know our brands and went to school here and grew up with R&D systems in the lab. So we're all over it. And it's been just very stable and very solid since the day I got here over six years ago really. We're up to now 150 people plus in China. It was a dozen when I joined so we're becoming a real company there. I made a comment to some groups last week, when I joined our RMD and our head of HR were the only ones that spoke English too and trying to hire people for a company that's a dozen people and 10ish million dollars it's hard. The multinational grab all the great local talent that are bilingual. And we're now past that, we've crossed that hurdle. We are -- most of our people who are hiring these days are rock stars and they not only speak English they're coming from the multinationals. They've grown up and they've been trained by somebody else and want to come on board because of our under penetration, our growth, our great platforms, the synergies they see, and the EPI culture we're trying to instill in every subsidy we have around the world.

Great. Thank you.

We'll take our next question from Alex Nowak with Craig-Hallum Capital Group.

Great, good morning Chuck and Jim, thanks for taking our questions. This is actually Will on for Alex today. Chuck Bio-Techne has built a huge catalog of products and resources for life science researchers, as you move into the GMP grade protein production how can you leverage these existing products and resources to make you successful in the emerging cell and gene therapy area, to ask the question another way is this another leg to the stool that needs to be added or can you leverage pieces of the existing businesses into this new growth area? Thanks.

Well, we don't need a very big catalog because we're talking probably about 10 products. So as you know our problem right now even though we experienced a 100% growth in our GMP protein business we're set up here for research, we are the research leader in the world. We have we have thousands and thousands of products and thousands of just proteins. And so we are spread a mile wide and inch deep and that's the fundamental issue. We have amazing quality with amazing processes here but it's not really GMP qualified because we can't make big enough batches to really operate for a production type environment for a CDMO. Alright, so they've all been through, they love us, they love what they see but you got to be I will make more of it is what we hear. And so we bought this factory, we're building it out, and we will be making what the world's looking for, for the next generation GMP proteins which are -- which is the food that these cell therapies are eating, right, basically and using for it to improve their yields. You look backwards the spec is kind of IL2 and everybody can make IL2. It's not a difficult protein to make. It's one of the first ones discovered and discovered by this company. Looking forward we're looking at much more complicated proteins as the science gets stronger and we're looking at IL7, IL10, IL15 and others that we think will position us as the supplier of choice as you start moving towards more complicated proteins. We're the ones that are going to be we'll make the best and make the highest quality with the best yields with the highest buy activity. So we think the future kind of comes straight at us. It's kind of our solution, the number one protein science manufacturer in the world and that's why we are building this factory. It won't be a large catalog because it really -- it's not the way GMP proteins work for cell therapies. It's more of a select set. So there is going to be much more about what flavor of an IL10 do you provide and what kind of quality, what kind of lab activity, what kind of yield your customers get with their cell therapies with your protein that's the name of the game.

Got it, thanks, appreciate the color. That's interesting. And then just what's the update on the ACD partnerships with LICA [ph] and if you could just talk on the next ACD tests in the pipeline and timing for some launches there, thanks?

Yeah, so we used to talk more about the pipeline and they've kind of guide us against that. So they have a good half a dozen things they're working on. There's a lot of things, a lot of them are smaller orphan like, they're very big unmet needs. The current business -- the HPV test is growing quite well. It's strong double-digit growth, we're very happy with how they're really prioritizing it. So I think our new management team led by Kim Kelderman I think has helped a lot. He comes from running Genomics for Thermo Fisher, has strong relationships industry so he's helped a lot with moving up the food chain so to speak in the Danner organization trying to get more priority on us and that's worked very well. So I think we're looking forward to be hopefully working with them on a number of things. They're not the only game in town; Ventana, Roche is also more and more interested in working on things with us and we're ubiquitous platform. It's a kit technology that can work on multiple instrumentation platforms. So we're working all the issues there so, and it's so far so good. It's still largely an RNAscope RUO based business right now and the diagnostic side is still less than 10% of it and you give us five years five years and it'll be much more than that.

Okay, great, thanks. And then congrats on the final LCD for EPI, I just have one more question, do you have any updated plans to kick this product as well as roll out other Exosome Dx based tests in either a lab or a kit format? Thanks.

Well, we'll get the FDA breakthrough status and that'll help us -- or give us more freedom to do a lot of things plus create a lot more credibility with the private payers and such. But we don't see any real need to kick it out at this point. It could be that someday but there is plenty of uncharted territory for us right now to not worry about that. And yet remember we're also working now on taking in patients and starting the studies around the bladder indication and we've got kidney rejection rate to go and we have validated test ready to go to clinical with somebody who wants to work with us on the blood side for lung and for breast. So we've got a strong pipeline with this platform that we don't have to go after anybody addressing kitable version of it right now. There is enough to do.

Great, thank you.

And we'll take our next question from Paul Knight from Janney. We're unable to hear you please check your mute function.

Hey Chuck, Paul Knight.

Hey Paul, how are you doing.

Good, could you talk about your GMP production facility expansion specifically timing but also will this be a footprint where you can add additional capacity around it once the initial investment is made?

Yeah and as I mentioned earlier some of that answer but to expand on it it's a 50,000 square foot facility. We bought a building so that we could save a year from doing a Greenfield somewhere else, that was the main reason we bought one. We bought it in St Paul proper. It was an absolute awesome facility for the way it's laid out for us. So we really just got to fill it with our stuff which is most of the money as you know. The stuff is expensive to put in there with the large reactors, all the sterile piping, the in and out rooms, the clean rooms, it looks like a small pharma factory, right. It's a bio processing factory is what it is. It is ready to go on Phase 1 to roughly $140 million of the capacity at today's kind of pricing goals. And with expansion easily the 200 million if we need to there's plenty of room still and that 50,000 that was not utilized. We will be doing other things too, there's possibly other reagents we can work on there, some antibodies possibly there. There is stuff we're looking at but there's also some room on the site land wise so we can build out if we need to. So this thing could be really big for us and we don't have to worry about buying another one for quite some time.

And then regarding protein simple your 1600 placements, is your pull through going up, could you talk about where you think you are in market penetration as well?

Well we are 10% less than penetration we feel. We have seen that no matter what's going on with the instruments or whatever it being simple western it has just been knocking on the park quarter after quarter. I think it's because we have more than crossed that chasm and it's still very under penetrated. We are bringing back into the fold a lot of big pharma customers that have walked away from a Western blot as a process and in the you are going back with us again because this works so well. It's so fast, it's so reliable. So we're actually expanding the market again I think. 1600 is a good number but it's roughly, if you look at it as I compare to what imagers are out there it's less than 10% of installed imagers in the world. So we think there's a long way to go. We are still in good split between biopharma and academia. I think we're not done until we really see people leaving college with this is how they learned how to do Western blots. When this is the methodology that's taught in schools and becomes a standard we'll know that our job is done and we're a few years off from that.

Okay, thank you.

We have no competition with this Paul. It's the only automated Western blot platform out there and we see nothing on the horizon.

You have to keep adding to the library with your antibody probes.

You mean in terms of Western…

Yeah, so we're always adding right. So we add roughly 1500 a year, it is split up between antibodies, assays, and proteins each and every year. So we're the company people look to for the newest, hardest to make bio active proteins. We've always been the ELIZA leader and we still crank out new ELIZAs every year. We are pushing the envelope another assay especially multiplexing so we're trying to extend that category as multiplexing becomes more and more of a standard. And antibodies we supply a lot through Novus. We have in our catalogue over 300,000. We make over 20,000 ourselves but as you know antibodies come in all different applications and from western to flow to whatever and we're the largest catalog in the world. We're not the largest provider but we're in the top five. And we've seen double-digit growth for quite a few quarters now and we're enjoying it and we think it's going to continue.

Thank you.

We have no further questions at this time. I would like to turn the conference back over to Chuck Kummeth for any concluding remarks.

Well as our analysts move around from different companies we're expecting a few more analysts coming back online in the next quarter or two so that'll be good. But we've enjoyed all your questions and we're here today and rest of the day tomorrow for other calls and one on ones and reach out to David Clair if you have other questions you have but other than that we'll check in with all of you again next quarter. Thank you.

And once again ladies and gentlemen that does conclude today's conference. We appreciate your participation today.