Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2022. At this time, all participants have been placed in a listen-only mode and the call will be opened for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations and Corporate Development. Please go ahead.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results, 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 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. 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. Separately, we will be presenting at the Wells Fargo, Baird and Morgan Stanley Healthcare Conferences in September. We look forward to connecting with many of you at these upcoming conferences. 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. We had a tremendous finish to our fiscal 2022 as our 14% organic growth for the fourth quarter cap of the year where we delivered 17% organic growth for the full fiscal year. In our fiscal 2022, we surpassed an important milestone as we exceeded $1 billion actually 1.1 billion in revenue for the first time in our corporate history. These strong results were delivered in the face of the most challenging comp the company has faced since I joined in 2013 and the impact of a longer than expected COVID-related shutdown in China. I'm extremely proud of the global team strong execution this dynamic environment. Some of the highlights in the quarter include continued strength in our biologics instrument portfolio, we delivered over 30% growth for the seventh consecutive quarter. Ongoing traction with our cell and gene therapy workflow initiatives return to double-digit growth in our spatial biology business, as well as another consecutive record setting quarter for ExoDx prostate tests. We remain incredibly well-positioned and under penetrated some of the fastest growing life science tools and diagnostics markets. In our portfolio, proteomic, genomic and diagnostic products continue to deliver the solutions necessary to drive scientific discoveries and ultimately improve healthcare. Given the inflationary environment we are all dealing with let's briefly discuss how we are successfully navigating these challenges. As a reminder, approximately 80% of our revenue mix is consumables and encouragingly given their biological nature these tend to have more modest raw material costs. Approximately 10% of our sales are instrumentation where we do have higher input costs but still maintain gross margins in line with corporate averages. We have been strategically implementing price increases throughout our portfolio to offset…

Thank you, Chuck. I will provide an overview of our Q4 and fiscal 2022 financial performance for total company provide some additional details on the performance of each of our segments and then give some thoughts on the fiscal year ahead. Starting with the overall fourth quarter financial performance adjusted EPS was $2.05 versus $1.88 one year ago, the increase of 9% over last year. Foreign exchange negatively impacted adjusted EPS by $0.10 or minus 5% in the quarter. GAAP EPS for the quarter was $1.51 compared to $0.37 in the prior year. The biggest driver for the increase in GAAP EPS was unrealized losses on our investments in ChemoCentryx in the prior year. Q4 revenue was 288.2 million an increase of 11% year-over-year on a reported basis and 14% on an organic basis. Foreign exchange translation had an unfavorable impact of 3% to revenue growth. For the full fiscal year 2022 revenue was 1.1 billion, an increase of 19% on a reported basis and 17% on an organic basis. Foreign exchange translation had an unfavorable impact of 1% and acquisitions had a stable impact of 3%. Moving on to the details of the P&L, total company adjusted gross margin was 73.2% in the quarter compared to 72.7% in the prior year. The increase was driven primarily by favorable business mix and productivity gains partially offset by the impact of foreign exchange. Adjusted SG&A in Q4 was 27.8% of revenue, compared to 25.9% in the prior year, while R&D expense in Q4 was 8.1% of revenue compared to 8% in the prior year. The increase in SG&A was due to progress we made in a quarter building the team to position the company for growth going forward, including adding commercial and technical talent. The resulting adjusted operating margin for Q4…

Thank you. [Operator Instructions] Our first question comes from Puneet Souda with SVB Securities. Please proceed.

Yes. Hi. Thanks, Chuck. Jim, thanks for taking the question. So first of all, congrats on a solid print here, despite the China challenges. So maybe Chuck given the transition, I think it's I mean, first of all, it's fair to say that you've done a phenomenal job or in portfolio transformation and the top-line growth, which is in mid-teens and $1.1 billion in operating profile that is reflecting a 40% off margin. So that's, I mean, just great to see across the life science tools industry. So I mean, I wish you want to retiring, but maybe just walk us through, sort of what went into this decision and maybe talk to us about the overall organization today. I mean, you have a target of $2 billion by FY '26. You're pivoting more into cell and gene therapy. So potentially, there's a lot to be excited about. But how are you thinking about the overall organization what needs to happen in order to deliver that target by FY '26?

I think, man, they keep doing what we're doing, so we had a hell of a year 17% growth, we'll be giving our usual, mild range guidance here for the coming year. And it's start with the double-digit for sure. As you know, by the end of our cycle 2026, we're going to be at a 17% for sure, right, we need to be there to hit the 2 billion and we're more confident of ever doing that. The team is, over the last almost 10 years I've been here, we've been building it. And with the retirement of [indiscernible], last year, we picked up guys who has extremely strong domain knowledge in all the hot areas that we're getting into cell and gene therapy in particular. So the bench is set. Of course, Jim is here, Jim's 10 years younger than me. So, got a long runway to go here with some solid candidates internally, as well as the board will do their fiduciary duty, and they'll look externally as well. They've already talked about that. And we're doing a two-year glide path here. So there's nothing overnight till by the time, I'm out of here. And I intend to be on the Board and going forward from then we'll be close to our 2 billion hopefully anyway. So I'm more worried about and thinking about that the person replacing me, when I'm doing my tenure, it'll be a 500% growth 5x from when I started then person replacing me has to have that kind of runway so we can take it from one half billion or more to between 7.5 billion and 10 billion and the pawns we're in as, we're low in share in all the markets we serve, we see no problem making this a fantastic company going forward and an even stronger leader in the life science tools and diagnostic market so.

That's great. And then just wanted to check on Wilson both that was nearing a run rate of your potential target timeline for acquisition. Maybe you just update us the with the business there. And with that, maybe Jim can also talk sort of what sort of leverage ratio once you have that deal closed? And sort of -- how should we think about the leverage ratio and your cash position and how does that change any M&A prospects for you, or as you look at targets out there, given the current valuations?

Well, we've never been in a stronger position for cash and for our debt level. So we're definitely hunting. But we fully expect to consummate the first tranche of our deal before end of the calendar year here, that takes the 20%. So for $250 million, less the upfront option that we gave them. So they're on track, the growth is steady, 700 to 800 customers, de facto standard, nothing is impeding that. And we have also $100 million or so for Namocell as well. And Jim can talk about our leverage going forward, but we're certainly going to get a little more cash and but we're sitting in a great spot to do it. And then I've mentioned before, this is going to be an excellent year for M&A. It's already taken off pretty strong because you look at our peers across the world here.

Yes, Puneet, I'll just add, I mean, we've got -- powder is not an issue. We're setting up pretty much net debt zero, as of the end of June 30. We just did an MSL acquisition. And assuming we do, some will hear by the end of the calendar year, and with the operating cash flow we regenerate in the meantime, we'll still probably be at or less a one time to turn. And as we've said before, we're very comfortable going up to North of three for the right deals, so powder will not be the issue.

Our next question comes from Jacob Johnson with Stephens. Please proceed.

Hey, thanks. Good morning and Chuck congrats on all you've accomplished over the last couple of years and on the retirement announcement that I think you're still stuck with us for another seven quarters. On the biopharma end market, Jim mentioned you guys are keeping an eye on Sunday. And can you just talk about, are you see any signs of a slowdown from activity in the end market doesn’t sound like it. This biopharma was strong, but just any thoughts there? And then as we think about your portfolio, if we continue to see financing, be sluggish, just kind of talk about how you view that maybe impacting some of your key segments.

Yes, sure. We finished the quarter very strong and as we've mentioned, in the past, we haven't seen too much degradation in any of our markets. We finished in the U.S. biopharma around 30% growth and academia keeps trickling, north and our near high single digit growth for the quarter in the U.S. better than that, in Europe again, teens. But we are looking forward, it's kind of hard to answer because looking now from July. July is kind of soft for us anyway, as for everyone, and it kind of gets -- it's different year-on-year. I do think that this is a year where a lot of people are tired and traveling and taking off for the first time. So I think we're seeing some of that. What we'll see right now, we see strong continuing momentum in biopharma, you are specifically asking about biotech. We'll see. But I think most of the markets are still doing fine that you've seen our peers pay and make the same kinds of statements. But it's hard to really make the statement going into July and August. Anyhow some of our areas, especially like exosome, this is one there, it’s the softest time of the year for them anyway, so things like that, but we'll know more in about a month or so. And we're not too concerned yet. I mean, things are kind of like we usually see about this time of year.

The only thing I would add there, Jacob is, keeping in mind that our core business is reagents and relatively low dollar instrumentation that adds the productivity. So if there is any kind of slowdown in biotech, usually it's the high capital expenditure items that we'll see at first and as long as they continue do their experiments, they're going to still need our reagents and in our value add low cost instrumentation. So the risk I think is lower for us.

Yes.

Our next question comes from Dan Arias with Stifel. Please proceed.

Good morning, guys. Thanks for the questions. Chuck may be on ACD. Good to see a return of double-digit growth there. I have you at right around 10% growth for the year. The long-term CAGR that you outlined at the Analyst Day is mid 20. So for that portfolio, how do you think fiscal 23 growth fits into the trajectory there? And then relatedly, Jim, how much of the hiring that you've highlighted as necessary for that business? Have you been able to complete at this point?

Yes. I can cover both because it's not much change from last quarter in hiring. So we're at full strength, we're literally and we're hiring more. I promised a return and we were there. There's been new leadership for going on six months, leadership is fantastic. And we're back in the teens and will drift away back to North of 20 here. It's only 10 for the year, because of the a year ago, a couple of soft quarters, which we had to make changes. And we lost a lot of people on the sales front, which we recovered from. We've done other things initiatives, like I've mentioned in the past, like giving equity to our salespeople, that's also helped a lot. This is a very technical sale. So these people we have in the field in this area are very, very strong in their domain knowledge. So it's not an overnight replacement situation. But we've been there for a quarter now at full strength and results are showing themselves. So same thing in Europe, I'd say Europe is a little behind the U.S. And there is a service component to this business too. That's a longer sales cycle. And so we're busy trying to get that back on track as well, in which we're seeing strong improvement. So our thesis is 24%, I think we are having the $2 billion model. And we think we're there. Remember, we're still on discoveries, this is translational, from discovery to translational, we've got automation coming out, like we got new products coming. And we haven't done much to crack pathology. And there's a lot of pathology in our future, this platform as well. So we stand behind our guns here saying this is a $300 million kind of business, it should be and to hit 300 million is north of 24%. So we were pretty bullish on this platform. It is the largest spatial business out there right now. It continues to be. So we understand where the target but we're addressing that and we're trying to get out there and be more be louder about the leader that we are. I don’t know if you want to add any more, Jim.

No. I think, it’s well said.

Our next question comes from Catherine Schulte with Baird. Please proceed.

Hi, guys. Thanks for the questions. And I will echo the earlier comments about [indiscernible] but glad we get a little bit longer with you. Was hoping you could give a little more color on what you're seeing in China. I think after the initial COVID lockdowns, you saw some stocking once customers returned to the bench. So is that something you're expecting to happen in your fiscal first quarter?

Coming off the COVID, the super weak quarter, we had this amazing surge is all that occurred, all that restocking and redoing experiments. And it kind of surprised everyone in the industry how fast China came back. And we had a record year and last year, we're still north of 20. For the year, we see looking forward, this is still a 25% growth engine, even though now we're north of $100 million in base. I think there'll be some stocking here. I don't think we're out of the woods here on turning it all back on. There are a lot of academic institutions that are not coming back online until after the elections in October. So there's going to be a continual lift in China. And we're very bullish, we don't see any concerns there, it's just -- was a soft quarter for us. We all knew would be. It can't be shut down for two months out of three and not have an impact. And yet, we are still near flat. The snap back is coming back pretty well. And of course, our warehouse was in Shanghai. So that affected all of China for us. And so as long as we keep our warehouse open here, I think that's good news for the rest of how we serve China for the rest of the country. So we will build our way back. Letting off the hook for another very strong plan for this coming year. And they're very bullish on it.

Great. And I was hoping we could talk a little more about the Namocell acquisition, what are the growth rates and margins there and how do you expect those to trend over the next few years?

Yes. This is a fantastic asset. We've been talking to this team for four years kind of a really we are waiting until they had their two laser system in the market. Now they are, it's selling like hotcakes. I mean, you can talk about growth rates, it's a three digit number, it's a really good number. They are definitely already in instrument counts that are significant. And as you know, this is a kind of a best-in-class solution for cell isolation and cell sorting, which affect a lot of markets, not just cell and gene therapy, but a lot of different applications. And it picks away at slow cytometry as well. And they have ideas in the drawing board about if it going really dead center at that market as well. So it’s a fantastic team, smart people, good IP, already off and running in China. As a matter of fact, retention is fantastic, integration is ongoing and started. And again, we've been friendlies for years. So I think we kind of came into this kind of hit the ground running in terms of integration. It's a strong application based on strong science and IP. And it just kind of fits our thesis, so it’s the investments that we pick up. And we've been excited to get this and we have been waiting, and we're thrilled to have that team on board, and you'll see this be a major platform for us in the coming years.

[Operator Instructions] Our next question comes from Alex Nowak with Craig-Hallum Capital Group. Please proceed.

Great. Good morning, everyone. I'm just hoping we could speak to the expectations to the overall growth range in the new fiscal year, as we talked about in the Q&A session. We got a couple of crosscurrents. We got China kind of coming back online, maybe not full strength, but it's recovering, maybe a more questionable funding environment for the life science projects. And then you still got this high growth cell gene therapy business. So just how you thinking about growth throughout this year, the cadence throughout this year?

Yes. So the plan this year is kind of like last year, we'll start out a little softer and very strong, just like we did. Comps, it’s still a tough comps for us in Q1, and then they get a little better for us going forward. But not that much better. This is an aggressive business, and we're a double-digit player now, we expect to continue. We as you know, Alex, we don't give real guidance, least we don't get quarterly. But we do think that our range of this coming year is something probably 11 and 12-ish percent to up to mid-teens in that range. And we'll keep you posted as we do better. But as you mentioned, with China's still being a little a little softer as we go forward to fully turns on, which is really more like Q2, and other situations out there, we'll see. But we have other things that are counteracting these possible slowing, I mean, [exo] [ph] was lighting up, you guys aren't asking about light in the exo. But it was in a tremendous quarter with 70% test growth, 40% organic growth and over 7000 tests. We are just killing it. And it's their time and it's going to be taken off. We're going to an accrual methodology pretty soon here as well, if not this coming quarter. It's time that the reconsideration is going to really allow us to double the TAM for us. We've got 75,000 tests that have occurred out there in the past that are all waiting for a reoccurrence. And so there's a lot of upside there. We just talked about spatial. Spatial is back in the in the groove. And it's already $100 million business in that range. So it's material. And as long as our core stays where it is, and proteomics is still strong, biopharma, it's 30% kind of growth rates, we see an amazing double-digit year ahead of us and we're not going to get more bullish than mid-teens at this point, but we never do.

Okay. Understood. That's helpful. And then going back to Namocell. I think in hindsight here, Techne was just clearly lacking in cell separation system. I think that's critical for cell and gene therapy, and as you outlined for other areas, too. But now as you survey the cell and gene therapy space, just what other tools What other products out there could be useful to kind of tuck into the bag and combine with the rest of the portfolio?

Well, we're getting pretty darn close to a complete closed workflow. There's not much left that we need. I would say cryopreservation will be one area. There are some more cell analysis type tools and I guess, call them like QC areas and stuff where the process that might make sense. Obviously, we need to capitalize on scale ready and with getting Wilson Wolf under the 10 tier that'll take care of our bioreactor needs, but it may not be the only one. There may be a place for bags out there and there certainly is the going upstream into the bio processing side of all this, which we really haven't done yet. But as we grow we're going to probably naturally trend that direction, starting first with our proteins and all the things we'll be doing in bulk for customers, right. And I think then the instrumentation, we're counting on the Q, out of [indiscernible] with our scale ready JV. And if that doesn't work long-term, we'll have to either acquire that or do something different. But we then obviously have to have an instrument for [indiscernible] freezes to make the system complete. And right now they've been a fantastic partner. And they're, I wouldn't say as strong as Wilson Wolf, it’s stronger than us right now in proteins. They've been out there a while, and they've got a lot of traction with that platform. And we think we're ready to explore this thing as there is a market, creates itself, which is really the limiting factor right now, as well as this market really come into being and it's coming more every year.

Our next question comes from Patrick Donnelly with Citi. Please proceed.

Hey, guys, thanks for taking the questions. Jim, maybe one for you on the guidance. Just on the margin, side, talking about kind of that exit rate of 100 bps expansion in 4Q. Can you just talk about how we should think about the ramp throughout the year. And then just the key levers, both directions between pricing, supply chain inflation, some of the exos stuff, Chuck mentioned the accrual side. So maybe just talk about the moving pieces there and how we should think about margins throughout 23.

Sure. So they mentioned, roughly 150 basis points for the full year kind of declined, driven almost entirely by FX and the Namocell acquisition. And if we're going to exit the year with 100 basis points of expansion that would suggest that we're going to have worse than 150 basis points contraction in the early part of the year, it’s because the FX headwinds are more severe when you look in the first half of the year, and they are in the back half of the year, as well as, as Chuck mentioned in his opening comments, we had a very successful quarter in Q4 with regards to getting staff back up and holding on to our key people. And that will have a carryover impact, particularly in the first half of the year, where we were way behind in our investments last year. So a combination of that carryover impact of getting fully staffed, in addition to the FX will be more severe in the back half of the year. But then as our operational productivity improves throughout the year, that's where we expect to get back to expansion before we exit the year. Hopefully that helps.

Yes. That's helpful. And then, Chuck, maybe just a quick one on kind of the capital allocation strategy, given the announcement this morning and congrats on the two years. In the next two years, any, is there any reason you guys wouldn't do deals because you're leaving, or what's kind of the way to think about kind of this in between period on the capital allocation set?

Not quite the contrary, this is going to be a good year for shopping. We're out there hunting pretty hard. And we're in the middle of summer right now. We always are. And we'll see what happens. But over thinking two years, I mean the kind of cashflow we have I mean, our EBITDA, two years out is going to be well north of 500, probably 600-ish. And we're going to have plenty to work with, as Jim mentioned earlier, the powder is strong. So I think we're looking for bigger deals. And this may be a good year to pick up a lot of tuck-in mom and pops, that are -- we're thinking IPO and they can't now and stuff so we're looking around those angles too. But we're open to any and all ideas, I guess, anything that makes sense for shareholders and makes our company a stronger company. We're five divisions across two segments. I've always said that once we're at a $5 million kind of revenue, right? This will be a 10-division company, all synergistically connected, across these 10 divisions and in the science being all life sciences. So we see no change in our thesis and we've never been more bullish about, our capital allocation and is primarily M&A. Don't look at us as thinking about major buybacks or dividend increases. It's M&A first.

Our next question comes from Paul Knight with KeyBanc. Please proceed.

Hi, Chuck. Congratulations on the change, it sounds like it'll be a while, so that's fabulous for you. The ProteinSimple was one of the earlier acquisitions you did looking back on it and looking forward what are your thoughts on ProteinSimple in terms of share they have today and runway ahead on that particular business that you obviously very instrumental in getting kind of back and growing and transforming that part of the market.

Yes, sure. Well, it's going back six, seven years now. But we did that deal pretty quickly it was on the eve of an IPO and we snatched it. And it was a $50 million business back then not making money. And today, it's a $250 million business making over 30% margins. And it's an instrument business, it's got great IP, we have other things we can add to the platform, we think, and we have runway across all three major platforms, as we've talked about, a lot, I mean, everything from the Ella platform, which we're completing within a year of 510(k) process, the 1345, a brand new facilities, manufacturer they can more than triple the output. So that'll be a sleeper that'll be in pretty much point of care diagnostics in five years, as well as the discovery it's in now, which is crazy growth. But Western is still an amazing platform with way more ahead of it than behind it. And biologics just keep surprising us. I mean, seven quarters in a row over 30% growth. And protein purity, capsid testing, HPLC share taking this thing has got lots of runway, as well, more than we ever thought. So, I look at it and I leave in two years, or I move on to the other board positions and stuff and thinking about here, it's going to be 400-ish, kind of million dollar business unit. And there's no reason why this can't be a billion-dollar unit someday. And it'll have other instruments will add to the platform over time to I'm sure that so. If it was fun out right now, obviously, it'd be really valuable. So I think we paid 300 million for it. So it's been an amazing return, and probably the biggest chunk of our overall value creation over the last 9.5 years, I've been here, which is roughly 2 billion to -- I think today, we're in the 15 billion-ish range. We were 20. But we're all seeing a little setback there. But we're very positive, because we see as the market finally, I guess, bottoms with conviction that there is the Fed done, et cetera, et cetera, there'll be a flow to quality first, and you don't find better quality in an asset than ours.

Yes. And my last question, Chuck, would be like on exosome diagnostics, that seems to be getting traction, would you be an acquirer of diagnostic assets in the future? Or what are your thoughts on the DX sector?

Yes. As you recall, we've been very, very bold in our statements about what we want to be and we don't want to be in diagnostics across the board. We don't really -- don't want to be in infectious diseases in these low-end things that hard to make money and lots of competition, no barriers to entry. But we're a company that's focused on oncology, curing cancer from a research sense, as well as neuroscience, and diagnostics that fit in those realms, because they leverage our assay expertise, 40 years’ worth of experience, that's where we want to flow. The Asuragen team, really came on and helped us immensely. This team is amazing, and they've just lit it up, there. It was the right idea to put this business unit in charge of professionals that have over a decade of experience in diagnostics. And I'm not going to say we won't pick up other assets, but if we do, they're probably going to be, closely related in an areas where there are good returns, no need for heavy difficult science, which usually means going after solid tumor or something in oncology, the difficult areas. And we'll see, there's lots of opportunity here. And we'll never say never. Right now we're kind of focused on, it's a new division with the merging of Asuragen with Exosome. And the growth has been wonderful. And it's lighting up, it's accelerating. And so we're going to ride that horse here for a while and we'll see what happens. But we're still focused on making that a major, major platform for the company. And then I've told you guys more than once you see look out five to 10 years. This is one of the few things we can say in our company, it should be a billion dollars or more. Mr. Kummeth, there are no further questions at this time. Please continue with your presentation or closing remarks.

While we're on the hour. Anyway, thanks for the questions and it was a great quarter and end to a great year, the best ever for us and we hope to give you an even better one this coming year. So talk to you soon. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day everyone.