Good morning and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2021. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne’s Senior Director, Investor Relations and Corporate Development. Please go ahead, sir.

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 maybe 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 2020 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 maybe 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 will now turn the call over to Chuck.

Thanks, Dave and good morning everyone. Thank you for joining us for our fourth quarter conference call. With 39% organic growth in the quarter, the fourth quarter closed out a record year for Bio-Techne, where we achieved 22% organic growth for the full 2021 fiscal year. What a difference a year makes. We ended fiscal 2020 on a much different note, as lockdowns and disruptions to our academic and biopharma customers took hold and changed the way research was being conducted. In the quarter following the initial COVID pandemic spread, there has been a record level of interest in Bio-Techne’s portfolio of reagents, analytical tools and services that enable researchers to make discoveries and push science forward. With robust research demand from biopharma end markets and expectations for a favorable government research funding environment, we believe a multiyear research tsunami is upon us. Bio-Techne is incredibly well-positioned to ride this wave. For the second quarter in a row, the Q4 growth rate was the best organic growth the company has delivered over 25 years, both on a year-over-year and over a 2-year CAGR basis. The accelerated Q4 growth was broad-based across our end markets and geographies, although most of our customers experienced the worst of the pandemic-induced lockdowns during our fiscal Q4 last year. The growth within our product category was also broad-based and continue to be led by our analytical instrument platforms, cell and gene therapy solutions and genomics tissue spatial analysis tools. EMEA had a strong finish to a record year with 25% organic growth for the full fiscal year. Given that our main distribution hub for Europe is in the UK, Brexit was quite a distraction with multiple supply chain and logistics surprises to conquer between the UK and Mainland Europe. The team did an excellent job…

Thanks, Chuck. I’ll provide an overview of our Q4 fiscal ‘21 financial performance for the total company, provide some additional details on the performance of each of our segments and give some thoughts on the year ahead. Given the anomaly that occurred in Q4 last year with the pandemic-induced customer lockdowns, I will also provide certain growth rates expressed as 2-year CAGRs as these are likely more representative of our midterm underlying growth momentum. Starting with the overall fourth quarter financial performance, adjusted EPS was $1.87 versus $1 a year ago, an increase of 87% over last year, representing a new company record. Foreign exchange positively impacted EPS by $0.08. GAAP EPS for the quarter was $0.37 compared to $1.48 in the prior year. The biggest driver for the decrease in GAAP EPS was unrealized losses on our investment in ChemoCentryx this year compared to unrealized ChemoCentryx gains in the prior year. Q4 revenue was $259 million, an increase of 47% year-over-year on a reported basis, 39% on an organic basis and an organic CAGR of approximately 13% since Q4 of ‘19. Foreign exchange translation had a favorable 4% year-over-year impact and acquisitions also had a favorable 4% impact to revenue growth. For the fiscal year ‘21, revenue was $931 million, an increase of 26% on a reported basis, 22% on an organic basis and an organic CAGR of approximately 13% since fiscal year ‘19. Foreign exchange translation and acquisitions had a favorable year-over-year impact of 3% and 1%, respectively. All geographies had a strong growth in Q4, led by the U.S. growing nearly 60%, which represents a 13% CAGR since Q4 fiscal year ‘19, followed by EMEA with over 35% growth or a 2-year CAGR of 15%, and in China with growth north of 30% for the quarter, representing…

Thank you, sir. [Operator Instructions] And we will take our first question from Dan Arias with Stifel.

Good mornig, guys. Thanks for the question. Jim, I appreciate the color there on the business, did I hear you give an organic growth guidance number for the year for 2022?

What you heard me say was that our CAGR for the past 2 years has been approximately 13% and we expect that kind of momentum to continue into fiscal year ‘22.

We always give it.

Okay, obviously, a lot of room for interpretation or just a range of outcomes for double-digits or just expecting the CAGR to continue. Is there anyway you could comment just on maybe where the Street is? The Street is looking for, I think right around 15%. I hear what you are saying on 13% is the fair assumption that something...

Yes. We will have more commentary at the Investor Day. And we will get into more specifics and kind of break down where things are at. But right now, it’s kind of hard. And we typically – we don’t give guidance. We give target ranges. And we went many years talking about 10 to 12 and numbers like that and stuff. We’re certainly at 13ish right now, and it could be much higher, and we certainly are over a 5-year target, a range we’re guiding higher than that and to reach our stated goal as it has to be, but we’re very bullish right now. It’s just kind of hard to put too much more than that. But by September, we will. I mean it’s a good story, but as Jim said, the momentum continues. We don’t see anything changing. And since we’ve been beating quarter after quarter, maybe that’s a good sign.

Yes, that’s true. Okay. Maybe just a high level question, I mean, obviously, you guys have a portfolio that’s pretty well-positioned in a bunch of areas and you’re growing in certain areas and you’re expanding capacity in certain areas. Are we – are you able to sort of parse out for us where in the business or what portion of the business you think growth is most likely to be limited by just your own capacity or you’re still ramping capabilities versus what the customer base might bring in terms of demand?

Well, first, I comment – it’s one thing to grow double digits and deal with which you need to expand because nobody does expansion for ways to double your business very quickly. You go in increments, so it makes sense. You don’t want to have your facilities empty. It’s a competitive world, right? You start growing at 20% plus and the kind of growth rate you’re seeing and you get kind of caught. On top of that with the shortage and talent is just the whole economy or life sciences kind of kind of booming right now, funding looking good. It’s kind of a race. So we’re kind of – we’re expanding and kind of ahead of it for now, looking for continued and accelerated growth per our last discussion here. And to be frank, we’re virtually expanding every business we have. We don’t have a single thing we’re doing that we’re not behind and don’t need to expand and invest in. They are all doing great. We also are not behind to your question, we can meet. I think we’re there in time. We have the capital, we have the talent, we have the consultants, we have the land, and we have the buildings. We have the supply chain figured off what we need for instantiation, but we don’t think we’re going to get caught behind and throttle in any business that we have. Last year, the one that’s been the toughest has been Simple Plex, right? We have been...

Yes, that’s what I was going to talk about.

Certainly a little under that. But 65% growth on top of 100% a year earlier, that’s phenomenal. Now that one, we’re going to pretty much blow it out with the new building, new everything this year, and we will be online in a year. So I don’t predict that we will be able to not ship every order that we have, to be honest.

Okay. Appreciate it. Thank you.

And that growth rate will take only over 13% on that one.

Thank you. We take our next question from Jacob Johnson with Stephens.

Hi, just one quick follow-up, not to belabor the ‘22 outlook. The 13% growth number you referenced, Jim, that’s an organic figure and you expect that momentum to continue plus Asuragen is about a 3% inorganic benefit. Is that kind of the way to think about it?

That is correct.

Okay, perfect. And maybe for Chuck, following up on your comment on Simple Plex, you seem to be finding more and more uses for Ella. I think I heard you mention neurology. And I think your competitors talking about the opportunity for the use of their instrument and screening and testing for Alzheimer’s drugs. Is that maybe an opportunity you could find for Ella?

Yes, absolutely. It’s fast. It’s microfluidic. It has incredible sensitivity. So yes, we’re definitely involved in those kinds of applications. It’s a biomarker discovery tool for therapy creation, for drug discovery. It’s primarily what’s used for. And now we’re – it’s morphing into all these possible clinical applications too, which we’re working on, as you know. So probably the biggest sleeper we have there. It’s probably the biggest sleeper we have at really identifying all the different addressable markets and potential things we can do with it. So that’s why you see the growth rates you see with it. It’s just kind of off the charts.

Got it. If I can just squeeze one more in, just, Chuck, on the expansion in the GMP median antibodies. Is that something you’ll implement at your existing GMP facility or is this something that requires additional capacity? And two, is this something that is contemplated kind of in the $140 million of capacity you brought online for proteins or is this something that’s added into that opportunity?

No, it’s all the same discussion. We have the capability of doing a roughly $40 million in revenue at headquarters. It just would be in smaller lots. We’re GMP here, but it’s primarily research. So therefore, we built the new facility which is open now, and we’re going to get started selling out of inventory, qualified lots here in the coming months here. And that is $140 million to $200 million in capacity depending on which product mix you have. It’s further expandable very quickly within 6 months inside the current building, which we haven’t used out space yet or on site as well, so…

Great. Thanks for taking the questions.

Thank you. We take our next question from Catherine Schulte with Baird.

Hi guys. Congrats on the quarter and thanks for the question. I guess, first, in your core Reagent Solutions Division, just curious what you’re seeing in terms of lab activity levels, how has the reopening varied by geography? And do you think there is still improvements to be had out there?

Well, as we mentioned last quarter, kind of probably near the end of the quarter, but it became apparent that we’re probably back to full strength. I think there is confusion over just because people aren’t in the lab and maybe doing their analytics and their math and their paper writing at home, it doesn’t mean they are not bad. Their experiments are ongoing and they are being productive in the labs. And so we think we’re academically kind of back to full strength. They are just working differently. They are working smarter. They are being a little more biopharma like. And that would be a comment for both U.S. and Europe. China is full on, has been for quarters. And we’re into the next 5-year funding cycle in China. And the first year, we’re actually going into the second year at pretty soon, and that’s usually a big ramp year for China.

Alright. Got it. And I was curious if you could just talk through M&A priority areas. You’ve done a lot on the diagnostic side and cell and gene therapy over the last couple of years. And you mentioned in your prepared remarks about proteomics being on fire from a research application area. Are there applications like that where you’d be interested in adding on to your capabilities through M&A?

Yes, we’re hunting all the time. We’ve probably never spent the quarter with so much activity and so little to show for it actually. We were – we came in second and third on a lot of deals in this quarter. So as you know, prices are high and we can be picky. We’ve got great numbers. We’ve got great growth. We’ve got a great balance sheet, and there is no sense for us to overpay or take too stupid a risk or confuse the Street with something too adjacent that people don’t understand. So we’re being kind of true to our strategic plan, and we’re hunting within those guidelines and within the math we want to find. And finding double-digit ROIC on deals have been very difficult right now. So we will be patient, and it means we’re probably still lean more towards private deals where we can kind of get something with a management team and investors that understand this and want to come on board versus public auctions, which are – seem to be still in a friendly mode and going too high. Yes. We are focused on tools probably more so than diagnostics. I think we’ve got enough things integrated now in diagnostics, and we see a great plan coming together between Exosome diagnostics, Asuragen and even our ACD platform. So there is a lot of growth coming there and also the Ella application. So we’ve got quite a franchise forming and diagnostics that you’ve probably got to start focusing back on tools and core areas if we can find it. They are just isn’t enough out there and they are going very high, as you saw BioLegend went for over $5 billion. I mean, that’s unbelievable. We have a comparable antibody business here that tells you something about our valuation.

Great, thanks.

Thank you. We take our next question from Alex Nowak with Craig-Hallum.

Great. Good morning everyone. Chuck, going on the diagnostics side, it seemed to be a little bit of a tone shift with the Asuragen acquisition closing, including Bio-Techne being more of a kit diagnostics company than a clear lab. Did I hear that correctly? And maybe expand on what you plan to push through the Asuragen kittable model that could include the EPI test, the Exosome TRU test that all the Exosome test they have in the pipeline? And then I guess the bigger picture in a couple of years here, do you think Bio-Techne’s going to have both a CLIA lab and a kittable diagnostics model?

Well, you’re a diagnostics guy. So I know you get it. And yes, first of all, they are focused on their panel, right? Their panel here, what’s Fragile X SMA and CF, which will be coming out here this fall. That will be a really kind of a best-in-class only thing you can get in the world kind of a panel. With that experience, of course, we want to kit as much as we can because we have a home kit version of our EPI test right now. We’re launching that. We’re in Europe, going through distribution with a kit. And we’re expanding that model and probably deemphasizing the CLIA side over time. But CLIA is certainly important right now, we’re doing the work. But over time, it will be a mix. I don’t think, we probably totally ever out of CLIA. I think you need to be in CLIA because that’s the way a good way to start these things, these tests of an LDT. And I think we will just see how the mix goes, but I think better scale potential. I think better faster acceleration exists with kitting if you can get it done. But as you know, it’s a bit of an art to kit. And you need people who know how to do it, and there is a lot of details to get kitting successful and then channel issues, at which Asuragen team are really expert at. So they are definitely grueling over the chance to get at the Exosome portfolio, to be honest. So we’re just trying to hold them off until we can integrate completely. We want to make sure that we take care of them fairly as part of the Asuragen deal first. It’s all coming, spot on.

No, that makes sense. And one just on ExoTRU, maybe any update on the commercialization plan there that could be a direct sales team, you’re going to go through a partner. And then you mentioned the reimbursement on ExoTRU and you’re currently working through NGS. Any update if you plan on seeking out in the lab to go after more of a MolDX MAC or just any update on the reimbursement progress there?

Well, with Asuragen, we have the opportunity to be in their MAC district. So that’s being evaluated. We also have a site near Atlanta, so we can be in the Palmetto area, which has the favorable jurisdiction here around CareDx. So that’s – so we’re not breaking ice there. That’s also a very strong possibility. There is – with the numbers we’ve shown in our papers, it’s best-in-class, we beat everybody out there by far as far as I can tell. There is a lot of interest. All the main players are talking to us right now, and there is a potential for a partnership. We won’t do a bad partnership. So if you see one, it will be great terms. Otherwise, we will go it. In my mind, this will be a hell a lot easier than the prostate test because, again, these are organ transplant centers, and we’re not talking about a channel of 20,000 urologists. We’re talking about less than 100 centers that we can deal with in almost like a key account model. We also don’t have the wall to climb over of talking docs out of doing test like biopsies, right? So it’s commercially should be somewhat simpler, especially to the great test a great number. So we’ve done surveys with these rejection centers or these transplant centers. And they have come back over 90% positive. They want to try out the test, but they don’t see what they are using today is being perfect by any means, and there is a more room for improvement. And what they have seen understand about the simplicity of a mail and type kittable test like we have with urine that they want to try it. So we’re pretty gun hole. I think we had in our commentary, we expect to be out within a year here.

No, that’s great.

I also think – I think the MAC will be easier on us too. This isn’t the like prostate, the cancer you live with and not die from, like a perception is, which is inaccurate. This is a big bad one out there with double the market size. And as you know, half of all kidneys fail in 10 years and roughly 30% fail on the first 5. So it’s an awful, awful condition. So finding something that’s more upstream like exosomes can provide versus cell-free DNA could really help that primary physician or that the docs figure out what’s going on before you have trouble. It is going to be really important to sustaining that thing or that organ long-term for the patient.

Yes. Multi-exosome is very favorable there. Thank you.

Thank you. We take our next question from Patrick Donnelly with Citi.

Hi, thanks for taking the question guys. Chuck, I know you called out China in the prepared remarks. I think you talked about 30% growth, approaching $100 million a year. You’re usually pretty bullish on that, but how are you thinking about ‘22 setup there? Again, it seems like all things are pointing in the right direction for you guys, but would love your take on trends there in the quarter and then again the expectations for this year.

Yes. Well, I think Jim was spot on going through the analysis and providing color on a 2-year look back, not just 1 year. It’s just such a goofy year last year. And when you look at all our numbers on 2-year pre-pandemic, then you see, I think, still best-in-class results for our industry. And China is no different. So that’s a near 30% high 20s for 2 years. We see that consistent. We’ve always kind of said we expect China to be a 25% grower. And I guess we see no reason why not to stay with that game. And even as we get past $100 million, it’s only $100 million. So we’ve got a long way to go in China before we’re going to take any victory laps. And the brand is a gold standard brand. There is no let down there. I think if anything, we’re going to see things accelerate in China around research around our products, to be honest. There is this point of – we mentioned that we’re tipping points in our commentary. I love the term because I think it’s really accurate. Things need to get to a certain size before they get easier to sell. And we’ve reached that point in a lot of our stable of unicorns here. We’ve got a dozen different platforms that are all hitting and achieving and getting over that tipping point and becoming almost simpler to accelerate. So China is going to be very good at selling the whole stable and they have been and they are going to continue. So I think the numbers will be better going forward.

That’s helpful. And then maybe one on just the GMP order pace, you touched on it a little bit, but how is that trending relative to your expectation? I think last quarter you talked about plan to sell out inventory by September, October. I think you touched a little bit on it earlier, but would love just kind of a ground floor view there and expectations, how we should think about that piece?

Well, we’re closer and landing some more big customers, we land another one, another bigger one. I think 145% growth in the quarter coming out of our little headquarters facility, I think, is an amazing execution by the team to be honest. I don’t think we’ve been over 100 before that, just we’ve hanging on 100, so that’s like record growth. We will start transitioning to the factory here come this fall. We’re just – we’re getting close right now, and there is a lot of excitement. The product looks fabulous. It’s peer. It’s the lot-to-lot consistency at the volumes we’re going to be able to create are going to be best class in the world. No one is going to be able to compete with us in terms of that. So I really – we mean when we say get online and look at the video, you’re going to see this factory and go, that’s a deal closure for sure. And people who are coming in are amazed, and it’s going to all come down to [indiscernible] testing and how fast we can ramp these bigger customers as they come off the other end. And there, as you know, hundreds of clinical. It’s going to take a couple of years to get this thing really going. But I mean, to be honest, I think we’re going to have an amazing business, but I don’t think we will be alone. I think it’s an everybody wins market here for 5 years, to be honest, so…

Okay, got it. And maybe one last one for Jim, just on the op margin commentary. I think you said entering ‘22 will be a little lower than 4Q than the second half getting back to these levels. Can you just talk about, I guess, the key levers as we get into ‘22 again, some of the spend coming back? Maybe talk about the impact of exo and then kind of the underlying expansion as well would be great?

Yes. I mean some of the factors on the margin. First of all is the acquisition of Asuragen, right? So for three out of the four quarters next year, it will be dilutive to overall margins to the tune of 70 to 100 basis points. So that’s kind of a big headwind inherent right there. Of course, we even talked about getting back in front of customers and business travels somewhat returning. That’s a pretty hefty number in itself in terms of a headwind year-over-year, assuming that that activity ramps back up. With regards to your comment on exo, I mean exo will become less dilutive going forward but still be dilutive. But as we continue our growth trajectory, despite those headwinds in the near-term, and let me back up for a second. We did hire pretty successful here in the – towards the end of Q4. So not necessarily representative in our fiscal year ‘21 run rate much less even the Q4 one, to be honest with you. And that will provide some headwind that you’re not currently seeing. So all those factors combined, we see in the near-term the margin dipping slightly. But again, because as we continue to grow the back half of the year with the leverage we get from that growth, we see it normalizing back to Q4 level by the end of the year.

Great. Thanks guys.

Thank you. [Operator Instructions] We take our next question from Paul Knight with KeyBanc Capital.

Hey, guys. It’s Mike on for Paul. Just following up on Patrick’s question on the operating margin line, I guess it sounds like the diagnostic genomics is going to take most of the impact with Asuragen. So I’m guessing Protein Sciences kind of maintains the level that you saw in 2021. Can you kind of just talk to the dynamics between those two a little bit deeper? Thanks.

Yes, I’ll start and Jim can finish. I think that’s right on. And clearly, our investment portfolio to when scaling it, it’s going to help the overall mix. But our core continues to scale and continues to find leverage too. I would, quite frankly, amazed at how well we execute this year on our core. In the past, this hasn’t been the kind of business model where you get as much leverage as other manufacturing models I’ve been involved with. But we have found incredible productivity internally, and we have found more scale leverage than I thought possible. It’s been helped, in fact, by, I think, as we talked about the hiring needed and the headcount shortages. I think we’re a little lean there. We’re catching up fast, started last quarter and travel, of course, has helped everyone. But the fact remains, even on gross margin is really strong, and we’re finding leverage. I think it will continue. We’re all pretty well Six Sigma trained here and PPI from Thermo and every other flavor of this productivity therapy you want to do, and we use them all here. We’ve even talked about coining our own version, the Bio-Techne version because we do it, and we target and task our teams of productivity every year, and they find it. And I see it going forward. And maybe Jim wants to comment for that.

Yes. In terms of how that margin might look like by segment, actually, right now, we think it might be slightly the opposite in terms of the impact. Protein Sciences already had a very high operating margin. And a lot of the hiring that we’re behind on to accelerate growth in cell and gene therapy in other areas as well as the instrument portfolio will be in that Protein Science segment. So they’ll be more heavily impacted by the actual investments that we need to make. You’re correct in that the diagnostics genomics segment will be impacted by the Asuragen acquisition. But again, they have the lowest overall operating margin and that’s where we’ve gotten the most expansion in the past with leverage, and we expect that to continue and, frankly, overcome the Asuragen headwinds in that segment. So that’s kind of how we see it playing out as of right now.

Don’t forget that that’s an 80% plus gross margin kitting kind of model, which we understand. And so as that scales, that will reach up and won’t add some to until near 40%, and we’re in the high teens right now. So we’ve got a ways to go. Come up 1,000 points in a year, but it’s just starting to stride and it’s on roughly a $90 million run rate. So we always said it’d be probably at $40 million to about $200 million or so. And I don’t see any reason to change that tone right now.

Great. Very helpful. And then, Chuck, just on Asuragen, it looks like it came in a little bit ahead of expectations of what you were guiding back in Q3. So can you kind of unpack some of the trends you saw with the business there? Was that just organic growth within Asuragen? Was it some synergies playing out being underneath the Bio-Techne umbrella or some maybe easy comparables back in 2020?

Yes. We’re not breaking down division numbers anymore for competitive reasons I would say it’s more or less on track. It wasn’t really too much ahead. We’ve given them a lot of homework. And if anything, keeping them and focused on their business and not over integrating with Exo too fast, I think, has been the challenge. They just know so much. They are so experienced. I can’t also tell you how good this integration has been out of 17 acquisitions. This has been the easiest, these guys, a 15-year-old company. They all came and there was a spin-off of a bigger company, as you know. And so their financials are all auditable. It’s just been more or less this team. They are all keepers, and we’re working hard on doing that. Going forward, I think we bought them like we’ve done a lot of acquisitions, been pretty good and sometimes clever in reaching some things just before that inflection point up. And these guys are no different. They have been working on this SMA and cystic fibrosis for a while and they are launching. So over the coming years as they launch, yes, I would expect there’ll be some accelerated growth. That’s what we’re hoping for. It’s where we bought them, among other things.

Great. Thanks for the time guys.

Thank you. And as we have no further questions in the queue, I would like to turn the call back over for any additional and closing remarks.

Okay. Well, thanks, everyone. It was a year we’re all behind us in a lot of ways. But business-wise, we’re quite happy with the results and that we’re able to execute and provide the world with a lot of badly needed things this past year with the problems we’ve all faced. We’re ready to go in the future. We are investing. We are catching up in terms of headcount, the numbers look pretty good. The momentum, as Jim has said, is stable, and we see no reason to change our tone. And we will give you more transparency when you all show up in New York and attend. So thanks a lot. Bye.

Thank you. That would conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.