Bio-Techne Corporation (TECH) Q3 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter of Fiscal Year 2020. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne’s Senior Director, Investor Relations and Corporate Development.

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 as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company’s 10-K for fiscal year 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 third quarter conference call. This has been an extraordinary quarter. First, I want to thank all the employees, suppliers and partners of Bio-Techne for their exemplary service as we have worked through the COVID-19 pandemic. We are happy to report that we have no coronavirus cases in any of our global sites and implemented proactive safety measures very early in the crisis in February to protect our employees. Our balance sheet is sound with a very strong cash position and low leverage. We have not conducted any restructuring or furloughs to date, easing the minds of our employees and enabling them to focus on serving our life science research customers and clinical diagnostics partners. While COVID-19 negatively impacted our business this quarter, primarily due to the temporary shutdown of academic labs, we are playing a critical role in the global fight to develop tests and cures for the virus. Overall, we were having a very strong Q3 until the virus pandemic had a pronounced impact on our business in mid-March. But even so, we ended the quarter with 6% organic growth. Adjusting for the impact of coronavirus in the quarter, we estimate our organic growth would have been closer to 9%. Our team also delivered incredibly strong operational results in Q3, with adjusted operating margins expanding year-over-year by 130 basis points to 36.5%, ahead of schedule and with strong cash flow. Now I’ll get into some details of the quarter. Starting with our performance by geography, the North American market was very strong with low double-digit growth organically in the quarter. Biopharma growth in the region was over 20%, while academia increased mid-single digit. In general, both end markets were impacted by COVID-19-related shutdowns starting in mid-March, although our academic market experienced a disproportionate negative impact from the virus. The good news is that these are academic labs, not large industrial manufacturing lines. As researchers return to the lab and get back to work, we anticipate utilization of our consumables will snap back very quickly. Overall, biopharma research activity has been less impacted by the virus, with many labs continuing to operate at varying capacities. I don’t believe we are alone in our belief that once this pandemic is under control, life sciences research will likely increase significantly. It appears everyone in society from governments through the private sector now knows what an antibody is; this can only be good for our industry. With current stay-at-home policies, many of our customers are spending much more time – of their time online. Therefore, we continue to focus on our digital marketing efforts that have driven significant increases in website traffic across our brands over the past couple of years. Search engine optimization, continual refinement of our website and digital advertising will remain a growth lever for the company going forward and will be even more important as a differentiator in the current pandemic environment. We have never done more webinars and digital projects to reach out to our customers. For example, we recently held an Exosome Diagnostics webinar for urologists, many of whom are working from home now and had over 100 participants. Moving on to Europe, which was positioned for a sequential recovery until the virus hit, finished the quarter with revenue down from last year by 7%. Here, we had a very strong quarter in Biologics as well as with our Simple Plex platform, which is seeing strong growth in COVID-19-related patient care decisions by monitoring cytokine storm onset and progression. However, this strength was not enough to offset the March shutdowns in academia, which especially impacted our Simple Western, Genomics, assay and reagent businesses in the quarter. It is still uncertain when European labs will begin to open back up, but we’re expecting this to be country-by-country process. So far, in April, our German business is showing signs of an initial recovery, with Italy potentially not far behind. Our largest business is in the U.K., which is likely to be a month or so behind Germany in the recovery process. Finally, we had a surprisingly strong Q3 in Asia. Given the complete shutdown in China in late February, we were prepared for a quarter of negative organic growth in this country, but finished with positive organic growth in the mid-single digits. This fantastic finish reflects the outstanding work done there by the local team. Our employees in China are back to work serving – servicing a research market that has largely turned back on and expecting to revert to their long-term trend of double-digit growth in Q4. The rest of Asia also performed extraordinary well in Q3 with growth in the mid-teens. However, many of these countries, including Japan, Korea and India are currently in varying states of lockdown and expected to remain so for most of Q4. Accordingly, we are expecting double-digit negative growth outside of China in Q4. Before I turn the call over to Jim for the financial review, I would like to provide some more detail on the initiatives that our company is working on to help our customers develop tests and find remedies for COVID-19. I will also provide an update on some of the strategic growth initiatives that will have the largest impact to our company for years to come. Starting with our COVID-19 initiatives, we are experiencing significant demand in ramping production of our proteins and antibodies used in coronavirus research, including reagents that are components in serological assays. Also, we are working with several health care providers in perfecting antibody assays using the traditional ELISA platform that can detect an individual exposure profile to COVID-19, something that many health experts believe will require mass testing before world economies can resume any sort of pre-COVID-19 normalcy. Also, as I mentioned in my commentary regarding Europe, we’ve experienced significant global interest in demand to leverage Ella as an automation tool for the detection and monitoring of COVID-19 patients that are potentially experiencing cytokine release syndrome. This dangerous condition represents a critical and potentially fatal point in disease management. In our Genomics division, we are supplying COVID-19 RNAscope Pro for virus detection in tissue, allowing researchers to confirm the organs that are impacted by this virus. And in Exosome Diagnostics, we have validated and preparing to perform COVID-19 real-time qPCR testing at our labs in both Munich, Germany and Waltham, Massachusetts. Following the implementation of processes and instruments to automate the test, we’ll be capable of processing over 200 samples a day and we can ramp further after that. This lab-developed test will provide rapid and reliable detection of patients with active COVID-19 infections. These are just a few examples of how practically every division of our company has pivoted resources to find innovative solutions for COVID-19 and participate on a global level to help eradicate this horrible virus. We are uniquely positioned to provide reagents and assays for all aspects of COVID-19 research and diagnostics, and our mission thrives in helping solve these types of problems. Next, I will provide an update on two of our important strategic growth platforms, cell and gene therapy as well as Exosome Diagnostics. Starting with cell and gene therapy, we continue to make progress on the construction of our new dedicated GMP protein factory. Construction of the facility remains on track to provide GMP proteins in large-scale to our cell and gene therapy customers by the second half of fiscal 2021. We are very encouraged by initial interest in demand from biopharma customers as we actively market our coming GMP protein production capabilities and capacities. In fact, during the quarter, we executed our first large-scale GMP protein supply agreement. This customer is still making its way through the regulatory approval process for its therapy, making the GMP protein with a revenue likely in fiscal 2021. Many other customers have been engaging us with interest in long-term supply agreements to ensure continuity of supply for their present clinical studies and to meet their future commercial needs. In the meantime, our GMP portfolio has been growing at a rapid pace with a number of immune cytokines being used to grow cells in clinical trials. Also within our cell and gene therapy business, we have begun operationalizing the joint venture with Wilson Wolf and Fresenius Kabi that we announced last quarter. As a reminder, this commercial consortium offers a complete and simplified cell and gene therapy workflow solution using products from all three parties. During Q3, we focused on establishing a unified sales structure, a customer-facing website and point-of-sale and creating impactful marketing collateral, featuring all three parents’ offerings. In addition, the emerging interest in natural killer cell therapies for oncology has been demonstrating some great clinical potential. And the JV is well positioned for the renewed natural killer interest, leveraging our GMP proteins, cloud, media and PC buster platforms for cell genetic engineering of difficult to grow natural killer cells. Now an update on Exosome Diagnostics and the ExoDx prostate test. There were several positive developments in Q3, and there is still much to do to make sure this noninvasive prostate cancer test becomes available to all patients with heightened PSA levels who are contemplating a more expensive, more risky and painful tissue biopsy. Following the final local coverage decision, or LCD, from our Medicare Administrative Contractor or MAC, National Government Services, NGS, we have been billing Medicare for applicable patient tests and are receiving steady reimbursement for tests submitted to this important payer. Recall that our – we are currently preparing for the reconsideration process with our MAC, NGS to get the LCD more accurately mirroring the more inclusive NCCN Guidelines, which will expand the potential market size of the test. Based on our prior experience, we anticipate a public comment period to take place in the summer, followed by a final LCD in the fall. Continuing on the reimbursement front, we announced the receipt of an unlimited 10-year reimbursement contract with General Services Administration or GSA, making the ExoDx prostate test available to more than 140 government entities, including the Veterans Administration health care system. Our conversations with private payer community continue to progress, but many payers want to see a clinical utility study published prior to issuing favorable coverage decisions. We expect such publication in a leading peer-reviewed urology journal within the next couple of months. The clinical utility study shows improved patient compliance to either defer prostate biopsy or proceed with biopsy compared to the control arm when implementing the ExoDx prostate test in clinical practice. Due to this increased compliance to proceed with biopsy, physicians detected 30% more cases of clinically significant or high-grade prostate cancer compared to the standard of care control alarm. Implementing EPI not only saves the health care system money by avoiding unnecessary biopsies but also increases compliance among patients that need biopsies, leading to higher cancer detection rates. We anticipate the clinical utility and economic value shown in this study will resonate with the private payer community, increasing the frequency of our conversations and strengthening the argument for favorable coverage decisions. Currently, the coronavirus pandemic has had an impact on a number of individual-seeking wellness business which in turn has had an impact on the number of PSA tests and ultimately the number of ExoDx prostate tests conducted. We saw this play out during the month of March, and the decline in test has continued into April. We responded by recently launching an at home collection kit for our ExoDx prostate test, enabling men who are sheltering in place and thus unable to see a health care professional to know if a biopsy should be prioritized. The solution was launched with a patient-targeted marketing strategy, including Search Engine Optimization, a Facebook campaign and webinars to drive awareness that patients do not need to go into the urologist’s office to have access to this valuable test. We believe the flexibility of providing a urine sample at the convenience of the patient will be yet another key differentiator of the ExoDx prostate test from the competition. With a pipeline of additional tests, companion diagnostic applications and partnership opportunities, there are multiple avenues to create value with Exosome Diagnostics. We have a few partnerships in place and are in active discussions with several diagnostics and biopharmaceutical companies for potential applications of Exosome Diagnostics technology. In summary, I’m very proud of the way our team executed in our fiscal third quarter, especially considering the global challenges created by COVID-19. The pandemic creates some near-term challenges, but also some near-term opportunities as we deploy reagents to enable vaccine and therapeutic discoveries and diagnostic solutions. Stepping back from the current environment, our pillars for growth are fully in place. We remain in the very early innings of realizing a tremendous liquid biopsy and cell and gene therapy potential opportunities. And our proteomic and genomic and analytical tools remain extremely well positioned in very underpenetrated markets. I firmly believe that the environment for life science research and diagnostics will be even stronger as we emerge from this pandemic, and we have the financial strength and product portfolio to capitalize on these opportunities. With that, I’ll turn the call over to Jim.

Thanks, Chuck. I will provide an overview of our Q3 financial performance for the total company, and provide some additional color on the performance of each of our segments, and give some initial thoughts on potential scenarios for our Q4. Starting with the overall third quarter financial performance. Adjusted EPS was $1.39 versus $1.21 one-year ago, with foreign exchange positively impacting EPS by $0.07. Most of the foreign exchange impact was due to non-operating foreign exchange related to our cash pooling arrangement. GAAP EPS for the quarter was $0.92 compared with $1.15 in the prior year. The biggest driver for the decrease in GAAP EPS was $400,000 in realized and unrealized gains on our investment in ChemoCentryx compared to the $12.3 million in unrealized gains in the prior year. Q3 revenue was $194.7 million, an increase of 5% year-over-year on a reported basis. Organically, revenue increased 6%, with foreign exchange translation having an unfavorable impact of 1% and less than 1% growth contribution from acquisitions. By geography, the U.S. grew in the low double digits, while Europe declined approximately 7% and China grew mid-single digits. As for the rest of Asia, organic growth was in the mid-teens. By end market, which excludes Asia, our Diagnostics division and other OEM customers, biopharma growth was in the low teens, while academic sales decreased by the low-single digits. Moving on to the details of the P&L. Total company adjusted gross margin was 71.5% in the quarter compared to 71.3% in the prior year. The increase was due to volume leverage, partially offset by foreign currency headwinds and, to a lesser extent, the B-MoGen acquisition. Adjusted SG&A in Q3 was 26.8% of revenue, a 90 basis point improvement compared to the prior year, with volume leverage partially offset by investments in our core business to drive near and long-term growth. R&D expense in Q3 was 8.2% of revenue, 20 basis points lower than the prior year, primarily due to volume leverage. The resulting adjusted operating margin for Q3 was 36.5%, an increase of 130 basis points from the prior year period and 310 basis points higher than our second fiscal quarter result. Looking at our numbers below operating income. Net interest expense in Q3 was $4.2 million, decreasing $0.7 million compared to the prior year period. The decrease was due to a substantial reduction of our bank debt during the first half of fiscal 2020. Our bank debt on the balance sheet as of the end of Q3 stood at $420 million. Other adjusted non-operating income was $3 million for the quarter compared to $1.5 million of other expense from Q3 last year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For GAAP reporting, other non-operating income includes realized and unrealized gains from our investment in ChemoCentryx. Moving further down the P&L, our adjusted effective tax rate in Q3 was 21.3%, and we are anticipating Q4’s rate to be closer to our year-to-date adjusted tax rate of 21.6%. Turning to cash flow and return of capital. $49.5 million of cash was generated from operations in the quarter, up 25% over Q3 of last year. We also added to our cash position by monetizing approximately $30 million of our ChemoCentryx investment during the quarter. In Q3, our net investment in capital expenditures was $9.3 million, mostly driven by construction of our new GMP protein factory, which remains on schedule for completion by the end of the calendar year. And during Q3, we returned capital to shareholders with $12.3 million of dividends and approximately $50 million of share buybacks, leaving 39.4 million average diluted shares outstanding at the end of the quarter. Next, I’ll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q3 reported sales were $145.5 million, with reported revenue increasing 6%. Organic growth was also 6%, with foreign exchange having an unfavorable impact of 1% on revenue growth and acquisitions contributing 1% to revenue growth. Growth in the segment was driven by strong demand for protein reagents and both our Biologics and Simple Plex instrument platforms, partially offset by the impacts of COVID-19 customer shutdowns. Operating margin for the Protein Sciences segment was 44.7%, a decrease of 40 basis points year-over-year due to unfavorable foreign exchange and the B-MoGen acquisition. Turning to the Diagnostics and Genomics segment. Q3 reported sales were $49.4 million, an increase of 5% from the prior year. Organically, revenues also grew 5%, with foreign exchange translation having an immaterial impact on revenue. Our Genomic divisions RNAscope contributed solid double-digit growth in the Americas, but this growth was partially offset by COVID-19 customer shutdowns in China as well as Europe. Exosome Diagnostics contributed approximately 3% to the segment’s growth in Q3, with Medicare collections over $1 million following the final lab coverage decision by NGS in December. Moving on to operating margin for the Diagnostics and Genomics segment, at 14.3%, the segment’s operating margin improved from 7.6% reported in the prior year. The increase reflects a near double in operating profit due to less dilution from Exosome Diagnostics, volume leverage from our Genomics division and productivity gains from our diagnostic tools division. As many of you know, it is not our policy to provide specific annual or quarterly guidance, but instead provide some high level color, and how we anticipate our business to perform relative to our longer-term strategic plan. Clearly, the evolving COVID-19 pandemic and related customer impact was not contemplated in our long-term strategic plan nor a shorter-term annual plan. Therefore, I thought it’d be helpful to provide some color on the impact we’ve seen from COVID-19 so far in April and possible scenarios of how it could play out for our Q4. Let me begin with the headwinds we’ve seen so far in April. With most academic institutions shut down in the Americas and Europe and some nonessential research put on pause by biopharma, our run rate in reagent and assay businesses in these geographies has dropped off considerably from prior year levels in the range of minus 20% to minus 40%, depending on the product line and specific regions. Encouragingly, there have been recent talk in both Europe and the U.S. about slowly and systematically opening up universities for professors to conduct their research, even if uncertain about students returning in the fall. Obviously, when it is safe to do so and this talk becomes action, our run rates will gradually improve as researchers return to their labs. Chuck has already mentioned the headwinds we face in Asia outside of China due to reoccurrences of the virus in places like Japan and Singapore as well as the full walk-down in India. However, China is looking like a nice tailwind for us in Q4 with growth rebounding well into the double digits. Other tailwinds for Q4 include our Biologics and Simple Plex instrument product lines. Just as they led our growth in Q3, these platforms have started out just as strong in April, and we expect a high demand for them to continue, especially the Simple Plex platform, which is specific to COVID-19 treatment-related needs. And finally, we should experience some tailwinds from all the other COVID-19 initiatives that Chuck previously discussed. But as many of these products are still currently under development, knowing exactly how much they will contribute to Q4 revenue is difficult to project. All this being said, our best estimate of how these variables will play out, results in a Q4 organic growth being somewhere in the range between minus 10% and minus 20%. Because we do not anticipate that our higher-margin reagent business so – because we do anticipate that our higher-margin reagent business will be more severely impacted by the shutdown. This will likely have a material negative impact on gross margins for the quarter. Our operating margin will likely be further pressured by our operating cost base being relatively flat to prior year on much lower revenues. Right now, we are assuming that we have seen the worst impact from COVID-19 in April, and that conditions will gradually improve from here. And when they do, we will emerge as an even stronger company as we continue down our path of executing on our strategic plans and key growth initiatives. In summary, despite unprecedented conditions created by COVID-19, we delivered 6% organic growth in the third quarter. We are in a position of financial strength with cash and short-term investments in excess of $250 million and a leverage ratio of just 1.4 times. One thing this global pandemic has clearly highlighted is the need for life sciences research, and we believe that global demand for our tools, which enable drug discovery and production, genomic and proteomic analysis and diagnostic solutions will emerge from this pandemic stronger than when it began. Our global teams and product portfolio are positioned to capture that stronger demand in addition to our original growth plans when the virus-related headwinds subside. With that, that concludes my prepared comments, and I will turn the call back over to the operator for the line for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Puneet Souda with Leerink Partners. Please proceed with your question.

Hi, great, thanks. So Chuck, first of all, congrats on a solid quarter here despite the disruption and it’s good to see the resiliency in China and very tough compares that you had already from last year. So in April, if you could – thanks for the comments, but I wanted to understand how do you view the recovery here for academic and biopharma segments, just sort of given the behavior academic has been impacted more heavily? Any sort of early signs in the latter part of April that you’re seeing here that give you a better picture into May in either of the biopharma segments or the academic segments? Then I have a couple of questions.

Sure. Well, biopharma is still pretty resilient. And I think as we talked about, I think we have some upside even there with a lot of instrumentation that is hotter than ever. Biologics is doing really well. We are starting to see that drift into cell and gene therapy qualification. So we expect that platform to continue to do well. Simple Western is a little bit under pressure because unlike biologics, it’s kind of 50-50 with academia; so a little softer. It’s anyone – yes, when things start opening up. I mean, you’re hearing it already state-by-state, including lawsuits. There’s a lot of fatigue out there. People want to go back to work. And with that, labs will reopen. And I think people are also getting creative with what they can start doing. And then we are seeing more activity online and a lot of webinar activity. And so end of April, maybe not so much material. By May, we’re hoping some. Certainly, in Q1, we expect to see things starting to come back. So we’re hoping this is more of a V versus a long U. And that’s kind of where we’re looking at it.

Puneet, another way to think about it too is we’re gradually opening up the economy to go back to work. A lot of it is going to require social distancing practices while at work. There’s an argument that can be made that in labs, in general, it’s potentially easier for those practices to be put in place, perhaps in other types of industries. So another reason why we think that once the economy does, it starts to gradually reopen up life science research will be one of the earlier phases of that.

Well, I know in our own labs, which is remarkably a lot like every other lab, that we’re pretty social distant anyway. People aren’t just on top of one another in these labs. So I think there’s a good – it’s just going to take time for people to acknowledge that and kind of get into it. But the world is going to be different. There will be masks that work for quite some time, I’m sure, and a lot of different things. But a lot of our people wore that stuff and gloves anyway. So I don’t think there’s been too much issue there. Pretty amazing to see China just kind of turned back on. If there any good data point that if you come back and follow good social distancing, everybody wears a mask, it looks like there’s a good promise that we don’t have a reescalation. So anyone guess over what happens with wave one, two, three over the next coming years. I’m sure there’ll be some of that, too, but we’re very, very optimistic that when this is all done, the paltry $40 billion NIH budget is going to go up dramatically. So it’s a rounding year compared to what’s been lost and what’s been thrown around here for stimulus. So research is going to go up, and we’re perfectly positioned. And by the way, we’re going to be plugging some of this hole too with COVID-19 projects, which we alluded to. I wish we had more positive press release type news to give you, but we’re working on many projects here than some that could really scale. But it’s too early to tell you. If and when we come out with tests, serological or other, you’ll know that it will have the R&D systems brand-new quality behind them. So it won’t – it will be something remarkable and with high sensitivity and specificity, and we’re working on technology platforms around what we’re good at, antibodies and proteins that can be differentiated from everybody out there and who is chasing the stuff. So stay tuned more to come.

Okay. That’s helpful. So following on that, in COVID research, I know it’s tough to quantify this, but do you expect to see any benefit from the $25 billion COVID testing and testing research allocation for the – as part of the coronavirus relief fund? And what’s your expectation here? Just in terms of the portfolio, the breadth of the portfolio that you have, from antibodies to cytokines. I mean, how should we think about what parts of the portfolio are likely to benefit when that NIH – potential NIH increase that could happen in 2021? And so what parts of the portfolio should we expect to benefit from that because there is some expectation that could be directed more towards infectious diseases versus other traditional oncology research and other areas?

Well, it’s anyone’s guess how much will go one way versus the other in infectious diseases, but in terms of our portfolio, all of it. I can’t imagine that there won’t be an amazing interest continuing in the proteins that were developed. We’re selling a lot of proteins that things are going up a lot in a lot of categories that are used in this research, and also with antibodies. And poly through monos, it’s been pretty exciting. We almost can’t keep up in some areas. So we’re working on scalable solutions that can resupport partners for things like serological. For – there’s been a lot of relaxation with the FDA to try and have something work out there and there’s been some negativity around that. But I can guarantee you that we’re on top of this and involved in many fronts and our reagencies are going to do really well. The tools are going to do well. You got to measure this stuff. We are the worldwide leader in ELISA Kits. And ELISA Kit is the best way to do a serologic. It’s the cheapest, it’s fast. Everybody has automation. So we’re a world leader in Luminex with many partners. Luminex is another way to attack a lot of stuff in there. Everyone’s got their flavor of these different partnerships and deals. And it’s just become so vast. And like we talked about here, when do you see a new $1 trillion plus market open up overnight? And it’s – there are a lot of opportunities here, and we get the best of both worlds to chase the new market, but also do something wonderful for society. We’re going to help eradicate this virus. We’re involved on more fronts than we can even tell you. In terms of resources pivoted, virtually over 200 employees have been refocused around these projects in the company. And they may not all work out. We may win in some, lose in others or be a fast follower in others, but a lot of it or more, been around a lot of innovation, a long time. And these things always lead the stuff. And the funding is going to trickle down to touch many parts of our business. There’s no doubt in my mind. It’s hard to quantify right now, but it’s going to be – you got to look beyond Q4 and even Q1. You got to look into next year and the year after, we’re going to be stronger than ever with the base business, and we’re going to have all this incremental new business on top of it. And then we still have our cell and gene therapy and Exosome Diagnostics platform is just starting to ramp. So for us, it’s a better story than ever. As we start looking out one, two, three years, I mean, in our opinion, in Q3. Our Q3 results just kind of make that indicative. We had a pretty darn good quarter.

Yes. Last one, if I could ask on China. That was a surprisingly good quarter given sort of compared to what we were heading into. The shape of resiliency that you’re seeing there currently; what’s your expectation? How long do you think – I mean sort of how long is that sustainable? There are some questions being raised on the recurrence of the virus. Obviously, China was ahead of the curve. So what are you hearing from your team on the ground there?

Well, we have our whole team in, and we have our management in, too, including our leaders had to go in and go through quarantine to get back in the country. The country has got very, very strict guidelines to get in. So they’re not letting anybody in without going through quarantine. So that’s a big part of why they’re staying safer probably. Everybody is wearing masks, according to our team. If you’re – China is one of those countries where there’s a lot of lines in and so social distance up to this point was a very small distance. It’s going to change and it is changing. And there’s not been a material resurgence. So if there’s no resurgence, we think it’s, like we said, back to double-digit or higher already this quarter. So nothing but up. If there’s a resurgence and there’s new rules going in place, we’ll have to adjust. But right now, there’s nothing to worry about there. I’m frankly, much more concerned about what happens in India. And Japan and Korea are both a little behind the curve right now as well. So although we had a wonderful Q3, it’s because really, they were just late to the game of the lockdowns. So as they work through their lockdowns this quarter, we’ll have that hit, but hopefully, they’ll have the same coming out that China did. But judging what we’re seeing in Brazil right now, I don’t like seeing that because I think India is really at risk. But – and that’s a big growth platform for not this year per se materially, but looking five years out, so it could put some risk into that. But I think Korea and Japan will be fine after a quarter here. And I think China is moving forward. We don’t see a real hit. Europe is a slower recovery and its country-by-country. We were having an outstanding quarter until this hit. And – but I do think we are on track with a lot of fixing of Europe already, execution-wise, which is in place. And so as they go back to work and labs reopen, I think we’ll be in a much better spot in Europe as well. U.S. has been phenomenal. So – and it remains so. And this is where we’re going to see a lot of our COVID-19 incremental growth this quarter and beyond. So hopefully, we’ll have nothing to show but extra positive news there. So this is almost sadly the event we’re looking for, for Ella. Ella is finally going to see its day. And we’re up – we expect 75% growth in Ella this quarter and probably a double for next year again. So it’s going to become a material platform, finally, when this is all said and done. And our ability to get it through all the FDA-related clearances has become easier, obviously. So...

Our next question comes from the line of Catherine Schulte with Baird. Please proceed with your question.

Hey, guys. Thanks for the question and congrats on a nice quarter. I guess, first, just going back to China. We’ve heard from other companies that academic and government labs have lagged in terms of reopening. Sounds like you are not seeing that, but just curious to hear, what was the low watermark for activity in China? Was that at 1 point down 20% to 40% as well? And what did that path to recovery look like?

It never went negative. And we ended mid-single digit. We were expecting – we do it like everyone, we got a monthly flash. We had a monthly process, and we were expecting maybe minus 2, minus 3. That’s the team was thinking, but it never got down there, and we ended up mid-single digit. I think you’re seeing a difference us versus others and other peers have a lot heavier instrumentation level in their portfolio than we do. We’re also not that big, right? So on the reagents front and the things that can back up to speed quick in lab, that’s kind of us. So it’s a quicker recovery. If you’re dealing in mass spec and HPLC and things like that, it’s going to be slower. So I think you’re seeing some of that. And – but we were on a nice growth level anyway. So I’m not surprised to see this as long as labs are back at work. The kind of research they do with us with a lot of reagents level testing is something that will snap back quickly, which we also expect to see as well following in Europe and U.S. that’s why we made the comments that we did about a fast recovery once labs reopen.

Yes, Catherine, this is Jim, and following on what Chuck just said, and Chuck is correct in saying that never throughout the quarter cumulatively that China ever fall below zero percent growth. However, you actually look at how the quarter played out. January was extremely strong. Just as we finished Q4 very strong in China, that momentum continued into January. It was basically a record January in terms of organic growth for China. And then as you would expect, in February, it was practically a complete shutdown. But by the time we got into early in mid-March, it rapidly started picking up again. And that’s kind of – that was kind of – when it was on, it was on very, very strong, and when it was off, it was not even a trickle.

And like we said before, I think with virtually a one quarter or less than a quarter shutdown, you don’t see a lot of – first, I’m a little confused by some of the instrument players out there with their comments because with one quarter shutdown or less, it shouldn’t have that big of an impact on instrumentation and the way the sales cycle is for those. I can tell you, our instrumentation is come out of the door strong in April because there’s been pent-up demand. Because it’s only been off for a month or two. So these orders were there. And now there’s somebody there to take delivery. And we’re – our bookings are really strong in China right now and all our instrumentations.

Okay, very helpful. And then I appreciate the commentary on your core reagent portfolio trends in April. Any comments on what you’re seeing in the OEM Diagnostics business? Is the COVID-related activity enough to drive growth in that Diagnostic sub-segment? Or are there more meaningful...

Well, we had a great quarter there. And in fact, this is – shouldn’t be unnoticed, the third quarter in a row without being negative. I don’t think that’s ever happened. So as I’ve stated, our lumpiness is starting to dissolve. We’ve got our glucose under control. But there is a lot of our reagents that go into the pipeline for diagnostics, and a lot of it’s headed towards COVID-19 as well. So we’re very strong right now. Hematology is strong. And the Diagnostics, in general, the upstream work that we do at San Marcos is very strong. A lot of large orders. As you know, we ship a lot of IgM and IgG. So they’re – there are a lot of players that want everything we can make. Our issue is now we’re starting to look at our own level of possible serologic than anything else. So we need a lot of the stuff ourselves. And so we’ve never had – we’ve never had this before, but we can’t – we don’t – we can’t make enough. So we’re really focused on that. So yes, I think it’s – the strength in our – we call our Diagnostics Tools division is – will remain strong. So I mean, it’s still not the – margins were very good this quarter. Its one area we do get leverage with scale with that, and we see it continuing. So best it’s been. And the pipeline has never been better. I’ve told you for many quarters it’s been building and we have newer companies coming on board, and we’re getting more visibility. Companies like Mindray in China, very strong customers and getting stronger and stronger. So the business is building. So it’s great.

Okay. Thank you.

Our next question comes from the line of Dan Arias with Stifel. Please proceed with your question.

Good morning, guys. Thanks. Chuck, I just wanted to ask about antibodies. How big is the portfolio in revenue terms these days? And to some of the points that you made, can you just sort of talk through how we should think about the totality of drug discovery efforts and the serology testing activities when it comes to the growth that you’re expecting there – that you saw and that you’re expecting there versus maybe the pre-pandemic average?

Yes. Well, as you know, we make and sell over 50,000 reagents, and over half of those are antibodies. And then we redistribute and source another couple of hundred thousand or more. There’s a long tail, though, as you can imagine, and we have a lot of heavy runners. And like I just mentioned, we saw a lot of bulk orders in IgM to some of the big eyes out there in Diagnostics, always have. This gives us the ability to do things for ourselves, should we want to. And so we have been under attack by many partners who want to work with us to have our world-class quality reagents into their tests. Here’s the issue. Anybody in their kitchen can make 20 assays and get through a decent qualification and make it look like they have something. It’s a much bigger deal when you’ve got to figure out a way to make 5 million tests a week. We can do that. So we’re working on scaling that. We don’t give out still the numbers of our actual component of a division like that, but it’s still roughly in just around one-third or so of that division. And you’ve – we’ve been talking about the growth rates. Our growth rates in antibodies have been very strong, double-digit up until recently, and we’ve been taking share really everywhere across the world. We’ve been attributing that to our strong digital campaign and our digital processes and websites coming together and being able to do a lot more SEO and et cetera, and AdWords payment and such; so all these have worked a lot for us. But that’s kind of across the portfolio. So right now, the focus is on how to how to scale a handful of these that are in super high demand because these are the winners of the world looking for these very scalable tests. The trick is can you scale them? Can you make them in a bulk form, in a cell line, and which means you’ve got to be looking at monos probably. And we’re one of the few companies in the world that can really do this. And that when we say we can do it, we can do it. So stay tuned.

Okay. So if we assume that you are one of few that can manufacture and scale the way that you’re talking about, would the benefit to be derived in 2Q be greater than it was in 1Q? And should we think about that growth rate being above the – I think you said low-double digits or maybe just double digits that you’ve seen in previous quarters? I guess I’m trying to understand what has taken place for some of these companies versus what might come in 2Q?

It’s going to be a mix. Well, still the vast amount of our portfolio that’s for research, right? And with academic labs down starting – so we had that hit. It wasn’t so bad in Q3, but Q4, we’ve talked about where it’s going to be. So will the new antibody work for all these tests offset the gap from academic research in general? It’s hard to guess. Some of these are massive opportunities. It’s going to depend if we get the deal or not. And if we get it, we’ll be talking about it. If we don’t, we’ll be – we probably won’t be able to make that gap up in a quarter. But if you look out a year, I think we’ll have – we’ll be back in full strength and double-digit on antibody. And I think we’ll have some portion of all this new world going ahead as well. So I expect our antibody business to be thriving in a year from now. It’s really hard to pin down how much, but got to be a couple of points better than we were doing up until this quarter, I would think, at least. And it could be multiples of that if we get some of these opportunities land in our favor.

Got it. Okay. Maybe just on Exosome. Jim, I’m sure you’re prioritizing the sales and marketing activities right now. So what are you thinking about when it comes to investment in sales force expansion and promotion? Are you able to stay the course on what you’ve been trying to do there? And then maybe somewhat along those lines, appreciate the heads-up on the publication on ExoDx that’s on its way. Is there anything in terms of a head-to-head study versus other tests that might be in the works? Thanks.

Yes. With regards to the investments on the commercial side, I mean, clearly, as – right now, we’re definitely focusing on the digital marketing aspects of it, as Chuck talked about in his script. I mean, reality is mostly urologists are at home right now. And so – and we’re actually encouraging because we’re getting actually some very good response rates from them on webinars and hits to our websites and questions and so forth. So it would be nice if we could actually turn this a bit to our advantage and be able to have more contact with them and more education of our product with them during this time when they’re not, frankly, going into their doctor’s office. And so then – until then we’ll see as they start to come back in the office as the restrictions start to get lifted, and we’ll – that’s what we need from a sales force going forward from there. But there’s no immediate plan.

Talk about the quarter-to-quarter sequential improvement in the dilution because we are making money. We’re kind of watching our investment that’s working.

Yes. Yes. I mean, obviously, this is the most meaningful revenue we’ve had with Exosome this quarter so far to date. And our dilution with regards to the Exosome business is a lot less this quarter than it has been. That all being said, if you exclude Exosome from our results, we still would be over 40% operating margin in the rest of the company. So...

And I’ll add to that and then cover the utility study. We could invest harder, but now more than ever, there’s no need. I mentioned about a very successful webinar of 100. We’ve actually had – since the last few days, multiple webinars with over 100 urologists. So they’re all tuning in. And this home study is really going to be helpful. I mean, and the Exact Sciences is a good example of what you can do with a home application. But we started this out with a very small set of KOLs to get a launch, get it going and kind of work the kinks out. It’s had already remarkable success. We’re expanding it immediately. So I think this is great. And all our competition out there, you either have to do a blood sample or a DRE, so you can’t do those at home. So we have clearly now a real differentiatable solution. So that’s all going pretty well. And we’re still focused on partnerships and talking to multiple entities. One deal we do have done we will be announcing soon and hopefully some more coming as well. And then there’s a long term platform. We are in the midst of the clinical study for the bladder. Things have slowed down with patients, obviously, with electable things not being pushed out. And kidney rejection is moving forward as well, but we’re still negotiating, looking at partnerships on the blood side. We have validated tests for lung and breast and a lot of interest, but these things take time. So it’s a platform that’s going to get there, whether it’s really there and as a home run in one, two, three years or it takes 10, I don’t know, but it’s all going in the right direction. The utility study has been done for a while, and it’s nothing more we can do. It’s in their hands and they’re making the pretty pictures and getting it ready for print. And it’s supposed to be within the month, but we said two months are better in the transcript today, but we expect it to come out in May. Its 1,000 patients, so it’s a good study and it has an amazing control element to it as well. So it’s going to get a lot of notice. So it’s going to have an impact. And we, of course, have pre-released it to the – a lot of the payers. And they’re impressed, but of course, they want to see it in formal print before they can make any coverage decision. So it’s all going in the right direction, expect that to happen this quarter as well. And onward and forward, we’ll keep grinding.

Our next question comes from the line of Dan Leonard with Wells Fargo. Please proceed with your question.

Thank you. So first question, appreciate the color on April trends for the reagent business. Is it possible you can quantify April result revenue trends for the total company? Just so we could assess like how much of an improvement do we need to assume May and June to get to that, call it, negative 10% to negative 20% number for the June quarter?

Well, we’re hoping it’s the bottom of the quarter. So you can take that as you may and get to your minus 10%, 20% we gave. It’s hard to give you much more than that, Dan, right now.

The other reason for that Dan is because one of those tailwinds I mentioned is what we’re seeing in our instruments portfolio, specifically in Biologics and Simple Plex. It’s based off of order rates that we’re seeing so far in April. But we’re very cautious about getting overly optimistic about that because the reality is the order flow of instruments is much more heavier in the back half of the quarter than it is in the first half. So even though the year-over-year improvement is very, very strong, it’s off a very low number to begin with. And so that’s why we hesitate to give those numbers out specifically.

I can tell you though. We expected 75% growth in the Ella platform is only that because we can’t make any more. We’re going to have over 150% growth in instruments this quarter alone in that platform. It’s a complicated cartridge, as you know, and it’s just – it’s – we just can’t make anymore. We can’t scale it more quickly than that, but it’s going to keep growing at those kind of levels, I think, quarter-on-quarter now, hopefully, so. One good success story, I mean a year from now; it will be a very material part of that division.

Appreciate that. And then just a follow-up. Chuck, could you elaborate a bit on your comments regarding the first supply agreement in cell and gene therapy. Was that something that that you had in the funnel prior to committing to the new facility and partnership? Or is that something materialized post you putting a shovel on the ground? Any further color would be appreciated. Thank you.

Yes. Well, there have been dozens of pre-clinicals and valuations. We’re selling a lot of GMP proteins now. Unfortunately, they’re very small lots because they’re basically in our research facility. That’s why we’re building a GMP factory. So we’re testing and looking at equal – equality programs or things in clinicals right now on many, many fronts. This one is one that’s been in the mix for a while, and it was the first one to come up, but there’s many more close behind it. Now that said, just because they get a supply agreement in place, doesn’t mean that we’re ready to go to the races here with volume. It’s going to take time to finish their Phase IIIs and get ramped and there’s timing. So it’s a one – that’s one quarter to four or five quarters until you can start seeing anything come out of at the other end. But like I said, I think there’s such a stigma around the whole viral vector side of all this stuff, and people are – they’re scared about these 18-month lead times you’re seeing on these approaches and cell therapies that we expect there’s going to be a continuation of people coming to us early like this company did before they’re done with their clinicals to try and get a supply agreement in place, do the test and make sure they like what they see and try to make sure they know they’re going to get something without waiting a year or two to get access to supply. So it’s still kind of a J-curve. We don’t expect our cell and gene therapy business to be at that $300 million level as a potential division for five years out. And it’s a J-curve to get there, but the best part of that – the front end of that, the biggest part of the growth of assets will be GMP protein as we feel so. I can tell you the JV the stuff does funnel through that, and they have over 100 customers that are evaluating. Everything from the de novo instrument through PC [ph] buster, through our cloud, so there’s a lot of activity. This thing is going to happen.

Our next question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.

Hey, thanks. A really strong margins in the Diagnostics and Genomics segment. Jim, I think you alluded this, it sounds like it was a little bit less dilution from Exosome. But could you give us some more color on margins in that segment? And is this the 14% margin level this quarter? Mean, should we think of this as kind of a new floor for the segment going forward? Or were there some benefits that helped you in the quarter?

No, there really wasn’t any real one-time benefits. If there was any that it can be variable, it would be in our diagnostic tools. They had large order flows from customers, and some of those orders are more profitable than others. So they did have some favorable mix in addition to their productivity measures they put in place. But I do believe mid-teens going forward is something we should be expecting from this segment. All three parts of that segment, Exosomes, Genomics division as well as our Diagnostic Tools had expanding margins year-over-year.

As you know, we’ve been waiting many, many years to get back into Sysmex, and that’s when working out now. So before I arrived, I think it’s eight, nine years ago, they lost a big lawsuit here with them, and there was IP involved. And that IP has expired all this past year, and so we’re after it and they’re after it with us. And we’re growing that account, which is one of the biggest accounts in the world in this area for controls, and then the pipeline is full of others as well. So this division is never – in my mind, never looked better in terms of a potential evening out and leveling the growth.

And Jake, this is Jim again. Let me just clarify my statement. I’d say on a normalized basis going forward, that should be the floor we should expect going forward in Q4, unfortunately, I do believe will be an exception to that just because of the volume drop off is going to be significant in both segments, we believe, at this point in time.

I think the big takeaway is that we’re hoping for more of a V versus a long-standing U here, okay, in recovery. So we’ve got to all watch the level of resurgence. And if these lockdowns come up, if fatigue does really take over and states open up and labs reopen under – maybe under new ways to work and stuff, we’re going to get a lot more business quickly. And we’ll just have to watch and see what happens with the virus after that. So hopefully, these antivirals come on strong as they look like they are reaching the news now and a year from now when people know there is a vaccine, it possibly can help. I think it will take an extra year for people to trust the vaccine, but it’s a year out to be back to normal in business, but I think we’ve got new stuff coming that layers on top. But I think also the added investment into research already being talked about is going to – we’re going to get a bunch of it. We’re going to have to. I mean, there’s no way for us not to. We’re just too much everywhere.

That’s very helpful. And Chuck, you touched on digital marketing efforts a couple of times. It sounds like they’ve helped in this COVID environment. How is the effort progressing to implement that in Europe?

Well, you saw our great results on OpEx this quarter. There’s only one area we’re overspent, and that’s that area. So we keep doing a lot of data analytics and seeing what we’re getting for our digital investments. And we continue to get more than 10:1, $10 to $1 on investment and basically in revenue. So every dollar we invest in the digital platform, we’re getting back 10 or better in revenue. So I’ve told the team, keep doing it, keep spending, keep buying AdWords, keep working on SEO, keep getting into our customers’ laptops and computer environments as they’re searching, and it’s going to lead to more business, and it’s so far working. It’s just as important in Europe as it is the U.S. I think Asia is a little different. Much more local language involved there. But we’re also expanding now in Europe to make sure we have a German version of everything we’re doing as well as others, and that’s also going to help. And that’s early days for that, but that’s more upside, I think.

Our next question comes from the line of Patrick Donnelly with Citi. Please proceed with your question.

Great. Thanks for taking the question, guys. Maybe just on the current quarter, did you see any pull forward activity on the consumable side, just with labs preparing for potential supply chain disruption as the results came in pretty solidly? Just trying to figure out if there’s anything onetime portfolio stocking put?

Yes. There may have been a little bit in January in China, getting ahead of things, but it was probably more for the New Year than it was, it seemed they have a pandemic coming. I don’t think we’ve seen or talked about any of that. Not noticed any. No. I think if we are looking at a V here, not a U, I do think that we’ll have a quick snapback, and those orders, for instance, won’t go away. But if labs are shut down all year, then I think there is a bigger impact on larger orders and capital investments like that. But right now, we don’t see it, to be honest.

Okay. And then the kind of the V you’re talking about, are you broadly expecting that across the end markets? Or are you kind of feeling like each end market could be a little different in terms of labs coming back online, the ability to order right away, et cetera?

Yes. Biopharma is steeper V, clearly. But we have less lab shutdown. They’re all working at least partially, right? They’re all – everyone else are staged and shifting. So there’s a little less activity, but they’re all open. Academia is going to be about once they come on so it’s going to be slower. And it’s going to be university-to-university, state-by-state. We’ve got very extensive plans out with all our sites of how we reopen, how we work locally with – within their states and their state guidelines, which are going to be all over the map, as you realize, so.

Our next question comes from the line of Paul Knight with Janney Montgomery Scott. Please proceed with your question.

Hey, Chuck, are you seeing the start of any stimulus like the NIH is getting $1.5 billion? Are you seeing that in the discussions with those clients or customers academically? Or – and when would you expect it to hit if you do see those monies starting to develop?

I think it’s early. Like everybody else, we buy the research to know where the grand money is going. And so we’ll be chasing that like everybody else. But as you know, we sell everywhere. So we’re going to get our piece of it. And we talked the last two, three, four years, it’s been roughly a 6% to 7%, 8% kind of increase annually in NIH, it’s been good times for the last few years, right? And we’ve talked about that adding a point to our organic growth because of that. So you can do the math yourself, but if we have this kind of influx, I think you can go on those kinds of ratios, I think. And yes, we’re going to be involved. And yes, we’re going to get a piece of it. And – but I do think it’s still early.

Chuck, do you think that with your ProteinSimple platform that – where are we with the customer penetration? And do you think in, I guess, this shutdown period that people will come back and maybe ramp up their transition to ProteinSimple faster? I mean, is there a possibility of that, but the first question really is your penetration now versus traditional Western blot. So – and can you think you can pick it up when they have time to plan the operations a little time while in this quiet period?

Yes. The only reason that platform was down was because they’re truly half in academia. So we’re still under 15% penetrated, we think. So when things are all back online, I think we’re back to double-digit growth of that. And it’s been consistent. I think it’ll remain consistent. Biologics has been a really nice come around here, and we talked about a couple of quarters ago, that being more and more interest in using the platform, in cell and gene therapy and QC-related activity, and that’s happening. And it’s happening everywhere, including Europe. So that’s really good to see. And that we have a higher penetration obviously, and we’re not the only game in town going after biologics, right? So – and then Simple Plex is – there’s lots of different flavors of doing multiplexing type of assays. Ours, of course, is highly sensitive, very fast because it’s microfluidic. It’s one of the few platforms that can do a panel in an hour and give you really good results for a problem like a cytokine storm problem. You aren’t going to wheel lock a Quanterix into a hospital as easily. So we’re winning all that business because of the ease of use, the fast speed of the results. It’s the size of a bread box, very reasonable in price and a pretty big menu for panels and the ability for us to make custom panels for anybody very quickly. So it’s all about making those cartridges and be able to scale up those panels and that business has been a rocket ride last couple of years. And now from this quarter on, we can’t make enough. So we’ll see. A big drawback has always been that it’s still a research-type instrument. And we’ve never really geared it for diagnostics and for being at the patient and be clinical, but now that’s changing and people are doing that for us because it works so well and they just – they want it. So they’re doing it. Italy is a good example.

Our final question comes from the line of Alex Nowak with Craig-Hallum. Please proceed with your question.

Very good morning everyone. Chuck, pre-COVID you had some challenges in Europe. Just ignoring COVID for right now, where are you at with reworking that business? And would you expect in two to three quarters coming out of COVID, that geography would be back to double-digit growth?

Great question. Pre-COVID, we were ready to talk about the nice recovery in Europe, which was on track, especially in biologics and this hit and Europe is just shut down. Heck, they’re even on vacation today, after all this. So it is what it is. We have made changes. I think I made those comments in the last quarter. So we’re early on the changes commercial we made – and I’m hopeful. We’re just not that big yet in Europe. There’s things we can do, and recovery is going to happen there, on that front – on the execution front. And then again, a lot of the opportunities, Italy is a good example. We’ve got a lot of growth, a lot of work going in Italy, especially when they exhausted their health care system, and they needed testing. So the LS platform is perfect for that because it can measure analytes that spike early in the cycle. So there’s a lot of opportunity there, and we’ll get more. And it’s – we’ll see probably next quarter and quarter after if our decisions bear fruit or not, but they were starting to, through February, so.

Okay. Understood. And then private companies are having some hard time finding access to capital during this time. That might mean some better valuations on the private side. So should we expect Bio-Techne to be a bit more aggressive with M&A over the next several months to several quarters?

We’re always looking for a deal, Alex. So we’re always hunting. We’re working on some right now. They’re smaller, but they’re good ones. We’ll see. I expect some things to get cheaper after all this is kind of done, and there’s some denial that leaves the system, but we’ll see.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Well, thanks. Thanks, everybody, for coming online. Again, I want to thank all our employees and partners that was – we’ve never worked harder, I can tell you that, and we’ve got a great team in place that all come with great resumes. They know how to work through a crisis like this. We’re doing all the right things. We’re working very ethically as well. We’re trying to solve these problems and help as much as we are trying to make new business. So look forward to a better quarter and a quarter out. This quarter, we’ll see how it turns out. It’s a wide range, but everyone is given a wide range. And I think you know the drill there. So everyone stay safe, and we’ll do the best we can, and we’ll talk to you next quarter. Bye.

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.