00:04 Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter of Fiscal Year 2022. At this time, all participants have been placed in listen-only mode and the call will be opened for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. 00:24 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.

00:34 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. 00:42 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. 01:05 The company's 10-K for fiscal year 2021 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 because 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. 01:31 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. 01:50 I will now turn the call over to Chuck.

01:54 Thanks, Dave and good morning, everyone. Thank you for joining us for our third quarter conference call. The Bio-Techne team once again delivered outstanding results across segments and geographies with 17% organic growth, continuing the momentum from the first half of fiscal 2022 into our third quarter. Demand from our biopharma end market remains strong, particularly in cell and gene therapy, where our workflow solutions and GMP proteins continue their fantastic growth trajectory. 02:19 Other notable growth drivers in the quarter included our biologics instruments, as well as our best-in-class portfolio of research reagents and assays. Additionally, our prostate cancer test ExoDx Prostate had a record volume quarter as the urologist offices continued the reopening process and we gained increased mindshare in the benefits of this novel diagnostic offering. 02:42 Once again, this performance was delivered with a focus on profitability, leading to a 130 basis point sequential increase in our adjusted operating margin of 39.6%. On the human capital front, Bio-Techne received two important awards during the third quarter. First, Bio-Techne was selected as one of the 500 mid-sized companies on the Forbes 2022 list of America's Best Employers. Additionally, we were included on the Forbes 2022 list of Best Employers for Diversity. These awards are testament to the epic culture and workplace we've built at Bio-Techne and I am proud of the team for these achievements. 03:15 Awards and recognition like these, as well as targeting employee recruitment and retention strategies are fortifying our efforts to build the team necessary to support our future growth plans. I am pleased to report that we filled several key positions in the company during the quarter, including key business, technical, operational and commercial roles. We are still behind our original hiring plan for the year, but I am encouraged with…

15:52 Thanks, Chuck. Starting with the overall third quarter financial performance. Adjusted EPS was a record $2.14 versus $1.81 year ago, an increase of 19% over last year. Foreign exchange negatively impacted EPS by $0.03. GAAP EPS for the quarter was $1.48 compared to $1.12 in the prior year. Q3 revenue was $290.4 million, an increase of 19% year-over-year on a reported basis and 17% on an organic basis. Acquisitions had a favorable 3% year-over-year impact and foreign exchange translation had an unfavorable impact of 1% to revenue growth. 16:30 From a geographic perspective, China led all geographies growing over 30% followed by the U.S. increasing in the upper teens, and EMEA increasing in the upper-single digits for the quarter. The rest of the world grew in the mid-single digits. By end market biopharma remained very strong growing nearly 20%, while Academia increased mid-single digits year-over-year. 16:51 Moving on to the details of the P&L. Total company adjusted gross margin was 73.2% in the quarter compared to 73% in the prior year. The increase was primarily driven by favorable business mix, partially offset by the impact of foreign exchange. Adjusted SG&A in Q3 was 26.1% of revenue compared to 25.6% in the prior year, while R&D expense in Q3 was 7.5% of revenue compared to 7.0% in the prior year. The increase in SG&A and R&D was due to the acquisition of Asuragen in the fourth quarter of last year, as well as investments made to support our long-term strategic growth. 17:30 The resulting adjusted operating margin for Q3 was 39.6%, a decrease of 80 basis points from the prior year period, but an increase of 130 basis points over Q2. Excluding the impact of the Asuragen acquisition made last April and the impact of foreign exchange, adjusted operating margin…

22:20 Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Dan Arias with Stifel. Please proceed with your question.

23:02 Good morning, guys. Thanks for the questions. Chuck, can you just talk a little bit more about the scale up in GMP proteins, whereas demand highest, how is it evolving and then what you need to do on your end at the end of the year into the end of the year? And then for the outlook there, you've talked pretty consistently about that piece of the business being on this trajectory where revenues can double for a few years, you're tracking ahead of the initial revenue expectations there? So does the outlook for the doubling still hold on what looks like it will be just a higher base for 2022?

23:33 Sure. Well, we launched a two new proteins, which is, it's only two, but we only had two or three before that so, it's a big percentage increase. These of course are -- its a short catalog for doing proteins for GMP as you know. We have 40-ish or so on the market total and most companies our competitors have less than a dozen. So very different RUO. The difference of course as we can make them in, at the gram level even. So, lots and lots at a very, very high quality state and very lot-to-lot consistent. The growth rate while under 100%-ish this quarter, we were over 40 for the category and we are just under 100% for proteins this quarter. We’ve been above 100 every quarter before. We will end the year over 100% probably at the way it looks. And are right around 100 at the very least, I think that's pretty safe. 24:45 And we told you, it would be about that, and it should be about that all year, and next year should be the same again. From that point on, we hope to accelerate as we get into more and more down the road with more clinicals. We get more and more pull-through with GRx with Wilson Wolf, who has a lot more customers than we do and have involved in a lot more clinical. And as we work towards what we call the Holy Grail here, when we can, or we'll be doing media at some point here, along with a very, very high quality version of our proteins that can be supplied within GRx to the customer in a sterile environment, so consider it all like self and closed, a closed loop which would be the only one in the market they can do that, we think. That's a year or so away, but that's what we're after, and that's should really help accelerate even more growth. 25:15 On top of all that, this is all cell and gene therapy, but we're also seeing explosive growth for our GMP proteins in regenerative medicine as well, so we've got a lot of customers that are scaling up around regenerative and that's equally exciting to us. Since another large area, we don't talk much about, but it's growing so much now and we've got so much more activity, we're probably going to start talking about it. So we've got additional growth levers and that might help explain why we've been, well north of 100% growth all year and for the last couple of years to be honest. I think that addresses, most you said.

25:46 Got it. Thank you. And then maybe just on ACD, it looks like there were some sequential deceleration in that business from 2Q levels and you're averaging something in I guess like the high singles for the year, and that's down from at least in my model like 30% plus in 2021. So is the hiring that you did really the key there and once, now that you have the sales reps in and presumably functional in the market. What do you think that the run rate growth can be like going forward there?

26:15 Well, the other -- well, the other two components around from head count, of course, are the comp, super high comp from last year, as well as the academic reopening. So everything's coming together at once, along with a full sales force again. We're only we're only down one. Even one important, so this is not a huge sales force, but we're back to, would say, full strength, and it will come on strong now. We should be back to double-digit or higher here. I think this quarter, we were pretty close to double-digit this quarter anyway, but we're getting there. It's pretty key now that, we got funding kind of out there and open now for academia that come back is going to happen. The comps get much easier going forward, that's also given. And while we are pretty strong, the U.S., it was softer in Europe and Europe is kind of lumpy back and forth and where we see that picking up as well. We're also positioning some more support and more help in Europe to help them and all bodes well, but we still see this is a 15% to 20% growth platform going forward. And we're in the early innings. We have a new team to high level in the team, so all the way to the VP run the Division, Head of R&D is fairly new. And they are just hitting their stride now ready. So that's also going to help.

27:33 Our next question comes from Puneet Souda with SVB Securities. Please proceed with your question.

27:42 Yeah. Hi, Chuck. Thanks for taking the question and congrats on the solid print here. First one, maybe for EU and Jim both when we look at the top line here, you obviously seeing incredible growth here in the Exosome Diagnostics with the recovery, protein segments continues to do well. You mentioned, are you a protein, cell and gene therapy, Maurice, Simple Plex and I mean just across the board portfolio seems to be working. I mean I hear you on the comments, but just help us understand how should we be thinking about the sort of the top line as we go into fiscal year 2023. Is mid-teens that is still the right way to sort of think about this given the acceleration here and potential pickup from cell and gene therapy as well?

28:32 Yeah, all hear. As you know, we don't give quarterly guidance, we give annual targets. And we've given targets all year, that we should be in the mid-teens for the year and I think we're close enough for you guys can see we're going to be in that range for sure. Real question is, can it be 17 and 19 . I think we have to wait in a couple of things. China might have a minor impact in Q4, could cure Q4, but it wouldn't hurt any more of that. Going to next year, its mid-teens and up, and I think it comes off first a strong layer of momentum off our reagents. I mean we're at 20% growth in our proteins and antibodies. We are taking share everywhere. We're in double-digit growth in our assays. 29:02 We're in over 30% growth in our Luminex line. We're number two in Luminex now, whoever thought that would have happened. So we're not going -- out of the park on the core. And as long as that core stays with the momentum we're seeing, which we do, then it's a mid-teens and up and then the accelerator from there of course is how do these smaller segments how do they scale and they've got the higher growth rate cell impact the overall portfolio, so number one again cell and gene therapy and on a $70 million run rate growing at 30%, 40% next year as a category that's going to start having a bigger impact. 29:48 ExoDx is getting really interesting now. So we had a record quarter on tests. We're already seeing a big impact with the Cal Ripken campaign. We didn't really get a fair shake in that being, we went into that rate in the month of…

32:17 That's super helpful, Chuck. Jim, on the op margin obviously really strong in the quarter, almost 40%. Just wanted to understand in terms of near-term China hiring and other initiatives sort of ongoing sort of how should we think about the sustainability of this op margin and just maybe take us through the puts and takes there, in the near term and sort of if you could provide anything on FY ‘23 and how should we think about up margins sort of longer term. Appreciate it. Thank you.

32:51 Yeah. So on the real -- near term, I mean we're not only we're coming off of our guidance and target that we started the year with which is that we would end the year at the same, roughly the same adjusted operating margin that we ended fiscal year ;21. We're still on track to do that. Now, I understand that, that would mean from Q3, a sequential decline in operating margin, but however, we are making improvements of -- vast improvements in our hiring, which we talked about. And the ExoTRU that piece of it was a bit of a margin lift that won't reoccur next quarter. So we're basically right on track to do as we said we would do in terms of how we expect to finish this year from a margin perspective. 33:32 FX will be a bit more of a headwind in Q4 that even it was in Q3, but I think we'll overcome that to still hit our year-over-year, roughly flat operating margin for Q4. Looking ahead obviously, we'll give more clarity next quarter as we finish up our operating plans for next year, but it's the same message, we've been saying all along, which is that we expect it to be --there to be incremental slight but incremental margin improvement over the course of the next four or five years of strategic plan and we expect that to start next year – that continue next year.

34:09 Our next question is from Jacob Johnson with Stephens. Please proceed with your question.

34:15 Hey. Good morning. Congrats on nice quarter. Maybe just Chuck, I think you touched on a little bit, but just flush out the point. Just on the Academic end market, it sounds like it picked up a little bit this quarter. And -- but NIH funding finalize, kind of hopefully improves from here. And maybe I mean answering the question for you, but what's your outlook for that end-market as we think about the next couple of quarters?

34:40 Yeah. Well the clarity on NIH funding didn't happen quite in time to really boost U.S. a whole lot. We were ending up in low-single digits. Europe was in teens, actually, so the net-net was mid overall. So that's why I say, looking forward, we're going to see the bigger lift in the U.S. going forward this quarter. And if Europe stays in the mid-teens, we'd be thrilled. So, and I think it's a good story going forward. It's finally starting to break loose. And again, the momentum is there overall, we've got great platforms that have a lot of interest from Academia, so that's just, that's always a fundamentally, you've got to have, you've got a new to the world stuff that they get some excited to do and go after new academic frontiers, which we continue to do in this company, so we have now doubt we'll be fine.

35:30 Okay. And then maybe as a follow-up. Appreciate the details on the Wilson Wolf performance in the quarter. If my math is right, it sounds like if they keep going the way they're going the kind of Phase 1 20% ownership, maybe that could happen in the next year. Can you just talk about the timing of owning a piece of that and then owning the entire company?

35:54 Yeah. The original plan with the be kind of really Q3 next year, but we're ahead of schedule. There is a possible it could be at this calendar year. I mean they are on a $72 million run right now and they're literally getting record breaking sales days like every week. So it's hard to say, I too, I'm trying to pin down John Wilson when it will be and it's hard to pin down, but there is nothing the good news here and they're moving towards -- putting together strong financial execution. So we're seeing all their numbers. We're helping on operationally so read of the integration kind of already occurred to be honest and the team has worked well together for a couple of years and some now with scale ready anyway, so it's -- so we have a good view port in how it's coming and I don't think it will be a year, I think it will be under a year from now.

36:43 Our next question comes from Alex Nowak quick with Craig-Hallum. Please proceed with your question.

36:51 Great. Good morning, everyone. And we talked a little bit about this on the diagnostics business. But I think Diagnostics had a pretty big step up in growth and profitability at least consistent with my expectations. So could you just be a bit more granular on what drove that benefit, ACD sounds good, but consistent Exosome Diagnostics is doing very well. So it's at the base of smaller there. So, and there might have been a one-time item from Thermo Fisher, if I heard you correctly. So just a good -- what's a good revenue run rate here and a good operating margin to assume going forward? Thanks.

37:21 Yeah. We aren't breaking out the revenue of that division if highly competitive we've got a two or three competitors I'm sure even listening right now. So we don't get into that, but we have talked about the test rates, that are 50% up is real. It's still largely we’re being paid via Medicare. We're still working the private payer, but we're getting, we're getting better. It's -- we are very close to going from cash to accrual, that's also going to help probably next quarter is our goal maybe, but we’ll see, but you know, we're getting there and we have a whole new team for surgeon taking the helm there especially commercially, it's really worked wonders. We are seeing record test days again this area too or pre-pandemic every week.

38:11 Got it. Understood. And then, Chuck, you just, it sounds like in the freight remarks you mentioned inflation, but also the ability to push through pricing. So did I hear you correctly that you are in fact, pushing some price increases through on the core kits and reagents business and this is -- how much headroom do you have there before that worry about competition?

38:30 Well, net-net, I always been big on price, it's just in my DNA and we've put in place processes and structure here years ago and went after kind of an annual 1% net year kind of target and we're well above that this year. And we had to be focused on obviously costs are going up, but we've got wage inflation to cover. And as Jim pointed out in his numbers, we more than covered, but we need to cover with price to give us a strong margins. I don't think there is an upside beyond the steady state we're at right now but if inflation continues to happen, well then, we'll continue to raise prices like everybody else. We've offset a lot to of efficiencies and productivity as well. It's just can be -- we can pass everything on. But there has been a good mix and we've been doing really well with it. Well north of the 1% probably 2-ish or better.

39:25 I appreciate the update. Thanks.

39:29 Our next question comes from Catherine Schulte with Baird. Please proceed with your question.

39:37 Hey, guys. Congrats on the quarter and thanks for the questions. I guess first on China, anyway to help us think about the magnitude of the impact of lockdowns for your fiscal fourth quarter. What are you seeing now from customers and how do you expect that unfold over the next couple of months?

39:55 Yeah. We've had a few meetings with our team obviously and they are actually very bullish about this quarter yet. They were the same way when we look at the pandemic and China was first kind of, staying to the jaws of that and we are all very concerned and then they came roaring back next quarter beyond any of our belief and we were, we were -- we outpaced all of our peers, I believe back then. We expect the same, there will be -- they may be shut down right now on a lot of sites but demand will be pent up. It doesn't affect anything but run rate reagents. I mean the instruments and stuff and there is no issue with the orders of there, the bookings are there. We're stacking up bookings right now and we've got a lot of orders to fulfill once they unlock. 40:39 I know there is petitions to the government to be in the first wave of companies that come out of lockdown. I know we're on that list, along with many of our peers in our industry because we're all considered highly valuable to the economy there into the -- the government. There literally can do research there. If they don't have R&D systems based protein. So we'll be ready to go and I can't imagine is being more than a one quarter blip. And I can't imagine being more than it's hard to say what the material impact of be maybe nothing, maybe a couple of points. We don't know enough yet. 41:11 Now if the lockdown continues and go with another quarter or two, but then I think we'll off to have more discussion, but right now we're not seeing any of that. No one is predicting any of that. The government there seems to be working very hard to trying to unlock even sections of the city, institution-by-institution even if it comes to that. So they really are engaged with the private and public sectors together there. It appears to us, but from our teams point of view. So I think everyone's going to an impact, but in terms of looking at who has a least might impact of that will be to top of that list like usual.

41:47 Okay. Got it . And then on the Thermo ExoTRU partnership, what are they doing from a development standpoint for that test and you have a sense for when we could see Medicare coverage?

42:01 Yeah. We will all take it through their MAC. They'll finish and do the another study. We have one-off that we've got a great paper good data, but they don't want to beef it up with another outcome dataset and they'll use that to try and get their approval through with their MAC. We have kind of rough that that obviously there we got -- you've got a present out there and they're jurisdictional ready. So it's going to be a lot easier process to get qualified than it would be for us going through NGS. So we think it shows a year off commercialization if we were going to do it ourselves. 42:31 Along with that they've got, they've got a juggernaut of a business unit with that division and Thermo Fisher with a channel and sales force and technical team and regulatory army everybody -- they're all raring to go and there, like I said, they're pushing us. So this is fantastic. I think it's roughly a year from now, maybe for guessing I don't know. They'll go as fast as they can and whatever they do it will beat us by a long -- long way as I'm sure. And it allows us to, work on the next one. So we're already working on a couple more and whether we partner with them or somebody else or do it ourselves remains we've seen. I know that Thermal has two other organ rejection tests, they like us to work on for them. So the pipeline is growing. We have more projects than we have people to work on.

43:22 Our next question comes from Patrick Donnelly with Citi. Please proceed with your question.

43:30 Hey. Thanks for taking the questions. Chuck, maybe just on Europe, you put up another kind of nice high-single-digit there. Any change in demand from what's happening there on the geopolitical side, any shift in funding or anything that you're seeing on the Academic side. Just wondering kind of what the outlook is on the Europe please?

43:50 No, it's been Europe is Europe, if you get one bad year for [indiscernible] no matter what goes on and in this country by country and it sets Europe as well. I think on the shift coming out of Brexit, we're working and opening another warehouse site in export site out of Ireland, which is going to help us with the Mainland. We have pushed employees out the UK because of Brexit back into their home countries. So we have now operating offices in Germany, Italy, and France and we're beefing up all those sites. Our project is strongest as to out of Italy, because they know we did an acquisition with our largest distributor in Europe at the time a few years ago. 44:30 The leadership is solid. We're bringing in more. We have probably tripled in size, since I've been here and get into a bit of a tipping point there in general. Funding is pretty stable. Execution, I think is issue for us, especially in things like spatial biology and no issue I don't think on our core reagents in assays. I think it's just steady she goes it's another reason we've been so strong overall as a company. Europe has been very stable there. I'd say instrumentation, we probably are little behind there compared to U.S. And there's probably some upside there. As you know that selling proposition is highly technical and there is one place we're beefing up because you have to have FAS out in the field along with your sales reps and work at that way, longer sales cycle to of course and -- but that's kind of where we're focused on and where we're trying to improve the situation. It's been double digit. This year has been more mid to high-single digit. I think the next year, hopefully get back to be good solid double digit will see it will, it will come down execution more than is the markets. I think the markets are there.

45:37 Okay. That's helpful. And maybe on the capital allocation side obviously Wilson Wolf will keep an eye on, but can you just talk about general capacity outside of that appetite what the pipeline looks like for you guys priorities on that front?

45:52 Well, you know hang tight. We're always working deals and they range from small to mid-size . We don't really have any monsters things going high. The whole world kind of waiting on a new evaluation level before things are going to price. Things that are helping the IPO front is kind of dead. So there is probably more interest at the private level and smaller company founder is trying to exit. So we're hopeful, we're still looking at the same kinds of things, things and cell and gene therapy and our cell sorting other areas like that there's, there are four or five categories were very interested in. We have, as Jim pointed out, we're about net debt zero. So we've got capacity and then some. We have an LLC that still pretty rich for us to go into -- should we want to and it comes down to finding the targets and getting them at the right prices. So we have a decent ROIC with them. So, but it has not -- it's as good as -- it's not, it's not gotten any worse. I mean our pipelines as full as ever and we're pretty active right now so we'll see.

46:58 Our next question is with Paul Knight from KeyBanc. Please proceed with your question.

47:06 Chuck, how did you get pricing put through in Q1 orders, we see more pricing hit in the subsequent quarters?

47:16 Well, like everybody, you've got pricing on a catalog or you can do it want you want and you got a lot of OEM business and supply agreement, you've got hit certain calendar dates and there is usually in an annual event. We hit a lot of those in January 1 and took advantage as best we could, both probably be able do some more come July 1. In the meantime, on the run rate side of our business, we were always pricing and repricing as we go. As you know, we've got a lot of, a lot of products, we're the only ones in the world. And so we can do we want. And so we have a little more flexibility there than some of the areas where we're more of a commodity, where we have to, we have to compete. And we have to fight because we have to be a full catalog. So it's always a complicated balanced portfolio, kind of thing and like I said in the past we've kind of shot for a 1% net kind of year-on-year and this year it's probably double that we're shooting for and so far so good we're doing -- the team is doing pretty well. 48:11 I got to pay for all these mid-year wage increases and a higher annual merit rate features that's coming our way. Areas like IT and others are, we're not talking about 10%, 20% pricing wage increases can be as much as 50%. So it's an interesting time for the war on talent. And so, but I'm proud of the team and the finance team in particular and the marketing teams, they've really done well with this and you can see by our IR results. We're covering it and then some.

48:43 And then, Chuck, a common discussion right now in the market is of course around early stage biotechnology funding, do you see that or do you see that rolling out as a risk in the future here?

48:57 We get asked that a lot and quite frankly, we're baffled. So we are not seeing -- if anything, it's a strong area for us. So no issue, where it's coming from.

49:13 Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to turn the call back over to Chuck for closing remarks.

49:20 Well, thanks everybody for participating. It was a great quarter. Two quarters in a row for us at 17%. We have got a good quarter yet to come here and finishing off an outstanding year and we think we're on track with our strategic plan and look forward to telling you more about that next quarter. Thank you.

49:42 This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.