Bio-Techne Corp (TECH) 2016 Q1 法說會逐字稿

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the first quarter fiscal 2016. (Operator instructions.) I would now like to turn the call over to Mr. Jim Hippel, Chief Financial Officer.

Morning, and thank you for joining us. Also on the call this morning is Chuck Kummeth, Chief Executive Officer of Bio-Techne.

Before we begin, let me briefly cover our Safe Harbor statement. [Some of the] remarks made during this conference call may be considered forward-looking statements. The Company's 10-K for fiscal year 2015 identifies certain factors that could cause the Company's actual results to differ materially from those projected in these forward-looking statements made during this call. The Company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K, as well as the Company's other SEC filings, are available on the Company's website within its Investor Relations section.

During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the Company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com.

Also, you will notice in this morning's press release that stock-based compensation expense has been added as an adjustment to the Company's non-GAAP measures. This will be an ongoing adjustment, as stock-based compensation expenses are recognized, to increase transparency of these costs, as well as to reflect net earnings that are more representative of the ongoing cash generated earning of the Company. All comparisons to prior periods reflect this adjustment, as well.

And with that, I will turn the call over to Chuck.

Thank you, Jim, and good morning, everyone. Thanks for joining us today for our first quarter earnings call. This morning, we reported a 4% increase in revenue for the first quarter, with solid organic growth in most of our end markets. Total Company organic growth of 2% for the quarter, mid-single digit organic growth from our biotechnology segment, and 10% organic growth from our protein platform segment, were tempered by the timing of OEM shipments out of our clinical controls segment.

In our biotech business, our biopharma end markets continued to perform very well, with overall organic growth in the high single digits. The Europe biopharma market was particularly strong, seeing a nice rebound even in Germany. Overall, Europe's organic growth was in the mid-single digits, where Germany lead -- Germany leading the way in the low teens.

An increasingly bigger driver of our growth in the [biopharma] market has been our concerted effort to market and win custom reagent and assay solutions for these customers. Our expertise in producing complex bio-active molecules, and our reputation for quality, is increasingly being recognized by our biopharma customers by choosing us to be the supplier of certain reagents rather than produced in-house. Not only do these arrangements contribute to our current growth, but also further deepen our relationships with these customers that should enable a collaboration on projects in the years to come. Many of these products developed are then incorporated into our standard catalog.

Meanwhile, in our academic and governments end markets, we continue to experience our multi-quarter trend to modest organic growth, with first quarter growth in the low single digits. After the release of our new website at the end of Q4 fiscal year 2015, website traffic is increasing. Our work to improve the website experience will be ongoing, especially as it pertains to adding more product content in the form of data, references, and search engine optimization. We believe this is the key to long-term growth in the academic market, especially with antibodies.

When we look at our results in Asia, the story is much the same as it was for Q4. China continued to perform very well in Q1, with organic growth in the mid-teens. Our China for China strategy continues to bear fruit, with our PrimeGene products made and sold in the China domestic market, experiencing growth of nearly 40%.

In the Pac Rim, organic growth, excluding Japan, was in the mid-teens. However, Japan continues to be a drag on the region, with double-digit negative growth. Both the stocking by distributors driven by extreme exchange rate fluctuation and the slower use of research funding by the Japanese government has resulted in a perfect storm for several quarters there now. We thought we would be past this starting fiscal year 2016, but Q1 proved otherwise. We still believe both of these issues are temporary, and we'll see a rebound in fiscal year 2016.

In the meantime, we have made an addition to our leadership team in Q1 that will further the (inaudible) of all of Asia-Pacific. His name is Peter Breloer, and he will be based in Hong Kong. Peter brings more than 20 years' experience in managing the region for other global companies, such as Thermo Fisher Scientific and 3M. With Peter's expertise and leadership, we will be well positioned, together with our local teams, to capture growth in the region, with initial focus on maximizing the growth potential in China, recapturing growth when funding returns in Japan, and eventually establishing a beachhead for growth in India.

Moving on to our clinical controls division, we completed our acquisition of Cliniqa in early July. Cliniqa specializes in the manufacturing and commercialization of quality controls and calibrators, as well as bulk reagents used in the clinical diagnostic market. Its controls and reagents are used in a wide variety of diagnostic tests for such pathologies as cardiac disease, diabetes, cancer, immunological disorders, therapeutic drug monitoring, urine analysis, and toxicology.

Additionally, with over 165 products with 510(k) clearances from the US FDA, Cliniqa has developed a significant regulatory experience that can be potentially leveraged to expand other Bio-Techne products into the clinical diagnostics market. We're excited to have Cliniqa as part of Bio-Techne to expand our product offerings to our clinical controls and diagnostics customers, virtually the same customers that our existing clinical control business unit are servicing.

With the acquisition of Cliniqa, the clinical controls segment revenue was higher for the quarter compared to last year. Organic revenue, however, was lower due to the timing of OEM shipments. Despite the lower organic revenue in the quarter, our outlook for this business remains as solid as ever. Our legacy hematology controls business grew in the mid-single digits this quarter. We believe this portion of our business, whose products have a short shelf life, best represents end user demand for our clinical controls products.

The blood glucose, blood gas, and now blood chemistry and diagnostic biomarkers, which Cliniqa brings, have much longer shelf lives, which allow OEM customers to buy in bigger bulk quantities. The bulk nature of these sales makes for more volume volatility from quarter to quarter. However, our close relationships with these customers as a critical supplier of these controls gives us visibility into their ordering schedules for up to the next 12 months, and insight into the overall health of this business and its trajectory. Currently, our visibility of these ordering schedules, together with the Q1 performance of our legacy hematology controls, gives us confidence that this division will continue to be at least mid-single digit annual growth over the long term.

Lastly, our protein platform segment ended Q1 with a 26% increase in revenue, growing 10% organically. While the growth of the division was respectable, we still believe it should, and will, get better. As we stated in our Q4 call, there were several setbacks in the fourth quarter mostly related to the integration of CyVek and commercial attrition. While the integration setbacks have been solved, and commercial openings have [been filled], it takes more than a quarter for a largely new commercial team to refill the order pipeline.

We are also using this opportunity with a new sales force and sales leaders to rethink how to best go to market to capture the majority of the western [block] (inaudible) as opposed to focusing on the early adopter that the prior ProteinSimple sales engine was set up to do. This involves how to best generate leads and close sales.

Utilizing the power of the entire R&D Systems commercial team to help generate leads and performing demos to close certain sales are just examples of actions that are being aggressively taken. We just finished our annual strategic planning session with our leadership team. From that, nothing has changed, in our view, of the market potential for these game-changing platform solutions, and the teams are committed as ever to make sure our customers benefit from it for years to come.

Finally, I want to briefly comment on the operating margin performance of the Company in Q1. Jim will provide the details by segment later. But, for the overall Company, the entire operating margin reduction from last year is attributable to the timing of the acquisitions we made last year and, to a lesser extent, FX translation (inaudible). ProteinSimple was acquired at the end of July last year. Being new [to our] business, very little of any quarter's revenue is recognized in the first month of the quarter. Thus, in our Q1 results, this year we recognized an additional month of SG&A and R&D expenses burden in our P&L, with very little revenues to go along with it. We also acquired CyVek in November of fiscal year 2015. As we have made clear in past calls, this is essentially a starter business, with very little revenue contribution that won't likely break even until some time in fiscal year 2017.

And in clinical controls, as just discussed, we completed the acquisition of Cliniqa in July of this fiscal year. Although this business is profitable, it does not yet have the margin contribution of our existing and more established clinical controls businesses. The optics don't look good this quarter, but the underlying trailing 12-month operating performance of these businesses are improving, and will continue to improve as they grow and prosper as part of Bio-Techne.

Now, before I turn the call over to Jim, I want to provide some other color on the other leadership position filled this quarter, mentioned in our press release this morning. As we discussed in prior calls, our overall strategy is to provide game-changing solutions to our customers through innovation. Some of this innovation will come from within, and some will come from acquisitions we make.

But, for any of it to be successful, the culture of the organization must support collaboration with one another, whether in different departments, different business units, different cities, or different countries. The Company has nearly doubled in employees this past two and a half years, and quadrupled the number of locations where our employees reside.

To help us create a culture that nurtures collaboration, we've hired a new VP of Human Resources, Transformation, and Integration, who is experienced in change management. I mentioned this on the prior call, but want to give it further mention here as a position we've [ultimately filled] in Q1. His name is Struan Robertson. He has relocated his family to Minneapolis from the UK to join our executive team.

Prior to joining Bio-Techne, Struan ran his own global consulting business, with a focus on helping companies and individuals manage change. I have worked with Struan for over a decade, and have come to appreciate his very unique skills and abilities. As I said in the last quarter's call, the [promised] success of Bio-Techne will be directly related to how fast we can get businesses and teams working together, collaborating on leads and complete solutions that are comprised of both reagents and instruments in our strategic markets. Focusing on managing change, culture, and collaboration will accelerate our time to success. We are very excited to have Struan as part of the team. He will make us all better.

With Peter and Struan on board, our Executive Leadership team is now complete. Many that have joined Bio-Techne come from much larger organizations and had much bigger jobs in terms of revenue responsibility, but they are here because they see the potential, the promise, and excitement of building an epic company that enables epic [science].

With that, I will turn the call over to Jim for more detail on the financials before we open the line up for Q&A. Jim?

Thank you, Chuck. As on our prior earnings calls, I will provide an overview of our Q1 financial performance for the total company, and then provide some color on each of our three segments.

As mentioned in this morning's press release, there has been a slight modification of our segment reporting beginning this quarter. This modification is the movement of the Company's BiosPacific business from the biotech segment into the clinical controls segment. The recent acquisition of Cliniqa and its commonality of customer end markets with BiosPacific influenced this management and reporting change. All comparisons to prior periods will reflect the new reporting structure as if it existed in the prior reporting periods.

So, starting with the overall financial performance for the first quarter, adjusted earnings was down approximately 10% [from] prior year at $29.4 million, while adjusted EPS was $0.79 a share versus $0.88 in the prior year. The impact of currency translation was a headwind to EPS by about $0.03. Under GAAP, EPS for the quarter was $0.61 compared to $0.64 in the prior year.

On the top line, Q1 reported sales were $112.4 million, an increase of 4% year-over-year, with organic growth at 2%. First quarter sales include approximately 6% growth from acquisitions and a negative 4% impact from foreign exchange.

Moving on to the details of the P&L, total Company adjusted gross margin came in at 70.6% in Q1, down 150 basis points from the prior year. Approximately one-third of this decrease is due to the impact of currency translation, and the remaining decrease is due to the product mix change associated with the acquisitions that have occurred since last year. Excluding the impact of acquisitions and FX, core gross margins modestly improved year-over-year in the first quarter.

Adjusted SG&A in Q1 was 23.2% of revenue, and R&D was 10.1% of revenue, 360 basis points and 160 basis points higher than last year respectively. The increases in these operating expenses were driven by the acquisitions made since the beginning of the first quarter [of] last year. The amount of increased adjusted operating expense for the quarter due to organic net investment was under $1 million. The resulting adjusted operating margin for Q1 was 37.3%. Adjusted operating margins, excluding the impact of acquisitions and FX, were approximately flat compared to Q1 of last year.

Looking at our numbers below operating income, net interest expense in Q1 was $0.4 million compared to $0.1 million of net interest expense last year, [the increase] the result of drawdown on our line of credit that was partially used to fund the acquisition of Cliniqa in July. [Further] (inaudible) P&L adjusted over non-operating income for the quarter was $1.2 million compared to $0.5 million of non-operating expense in the prior year quarter. The improvement on this line is due to favorable transactional currency exchange fluctuation. Our adjusted effective tax rate in Q1 was 30.9%, up 20 basis points from the first quarter of last year due to acquisition mix.

In terms of returning capital, we continue to pay our dividend, and paid out $11.9 million in the quarter. Average diluted shares were up less than 200,000 shares in the first quarter at 37.3 million shares outstanding, representing less than 1% dilution from last year as a result of stock option grants.

Turning to cash flow on the balance sheet, $31.8 million of cash was generated from operations in the first quarter, and our investment in capital expenditures was $6.1 million. We ended the year with $83 million of cash and short-term available for sale investment, down $24 million sequentially from the end of Q4 of fiscal year 2015. Our long-term debt obligations at the end of Q1 stood at $164.4 million, an increase of $52.4 million from the end of Q4. Both the decrease in our cash position and the increase in our debt obligation were driven by the acquisition of Cliniqa this quarter.

That wraps up my comments on the total Company performance for the first quarter. Now, I'll discuss the performance of our three business segments, starting with the biotechnology segment. Q1 reported sales were $75.7 million, with organic growth of 4%. Foreign exchange impacted reported sales growth negatively by approximately 5%. By geography, both the US and Europe increased in the mid-single digits organically, with biopharma sales continuing to be strong, with growth in the high single digits, and [actually] (inaudible) growing modestly in the low single digits.

China experienced solid organic growth in the mid-teens, while the Pacific Rim was down 8% year-over-year. As Chuck noted earlier, excluding Japan, the Pacific Rim grew approximately in the mid-teens. Adjusted operating income for the biotech segment increased 3% in Q1 compared to the prior year, and adjusted operating margin was 51.9%, a decline of 100 basis points year-over-year. Foreign exchange currency translation impacted adjusted operating income negatively by 7%, and operating margin negatively by 150 basis points. Thus, without the impact of FX, adjusted operating income growth for the quarter was commensurate with organic revenue growth.

Turning now to clinical controls, segment sales in Q1 were $20.4 million, with reported growth of 7% over last year. The acquisition of Cliniqa accounted for 18% of the growth, while organic revenue declined 11%. As Chuck has discussed, the decline in organic revenue was due to the timing of OEM shipment schedules, and therefore we believe is not [indicative] of the current market conditions or future revenue growth expectations for this division.

Adjusted operating income for this segment increased 23% in Q1, and adjusted operating margin was 23.1%, a decrease of 890 basis points from the prior year. The decrease in adjusted operating income was directly attributable to the loss contribution margin on lower product sales. Meanwhile, the lower adjusted operating margin was attributable approximately 50-50 to lower volume leverage on fixed cost and the acquisition of Cliniqa, which currently has a lower margin profile than our organic businesses. Naturally, we expect these margins to improve substantially when larger OEM orders are shipped later in the year.

Moving on to our protein platform segment, where net sales in Q1 were $16.3 million, and reported growth was 26%. Revenue from acquisitions, which for ProteinSimple was the month of July and for CyVek was the entire quarter, accounted for approximately 21% of the growth. The negative impact of FX translation declined revenues by 5%, and the organic growth was 10%.

Organic growth in the quarter was driven by the biologics pipeline, as well as by consumable sales within the Simple Western product line. Adjusted operating profit for Q1 was negative $1.2 million compared to positive $2.6 million one year ago. As Chuck explained earlier, the additional month we owned ProteinSimple this year, that being July, had relatively small sales, as many instrument businesses do in the first month of a quarter. But, the month of July still had the full SG&A and R&D expense run rate as the following. Also, the operating expenses at CyVek were not in our figures last year at all in Q1 since its acquisition was picked up last November. Thus, ProteinSimple's July results, together with CyVek's Q1 results, added $2 million of revenue for the quarter year-over-year, but decreased adjusted operating income by approximately $3.9 million.

The first quarter of the fiscal year is historically the lowest revenue quarter of the year for this business. Thus, we expect protein platforms to be profitable for the full year, as revenue increases sequentially in following quarters.

That concludes my prepared comments, and with that, I'll turn the call back over to [Tina] to open the line up for some questions.

(Operator instructions.) Dan Leonard, Leerink.

Thank you. So, first off, on your operating margin, you've talked in the past, excluding further acquisitions, that you expect this business to be about a 40% operating margin business. I just want to clarify, does that expectation now include or exclude stock comp?

It excluded it before, and then it excludes it now.

Got it, so it's a cash number.

Correct.

Okay. And then, my follow-up question, Chuck, can you give us maybe a little bit more color about how we should think about the cadence of the protein platforms business throughout the year?

Yes, [solely] a ramp in the north direction, hopefully, here. So, we had, as we talked the last quarter, certainly a setback with the commercial organization. We lost roughly 50% of the sales force in the transition and in integration. Probably about half of that was expected, and startups in Silicon Valley, people move on, and there's all that to think about. But, we definitely had some turnover. There's a lot [that] we drove, as well. We've definitely changed our sales force. We have a new leader, and, well, new overall operations leadership I've talked about before. So, we're kind of back at full strength. We need a quarter or so to get back at it.

We -- much better job of leveraging the organization. For instance, using the organization here, R&D Systems, since we have a large customer base and a loyal following and our quality, and there's a lot of help and collaboration can be done together, so there's more and more of that being put into the model for how we go to market. It's already off to a pretty good start this quarter. I don't think it's going to take more than one quarter, maybe two, to get kind of back to where we think we should be.

And this is mostly in the [Western block], probably. Biologics has been strong. It's continued strong, [with no issues], as we've seen so far. So, I think we should be ramping again. This was still a better quarter than last quarter, so we're on the way back, I think. Obviously we want to get back to 20% or better kind of growth rates quarter-on-quarter, and that's our goal. And we do think that will be achieved by year-end.

That's helpful. Thank you.

Amy Zhang, Alger. (Operator instructions.) Jeff Elliott, Robert W. Baird.

Yes, good morning, guys, and thanks for all the color on the segment, the moving pieces there. But, I guess can you give additional color on the margin progression by segment through the rest of the year? I think a lot of us have kind of struggled to model the first quarter, but how should we think about the margins progression through the rest of the year?

I'll let Jim handle that one, ready to go on this one.

Yes. Hi, Jeff. So, if you look at it by segment, the way I would think about it is our overall biotech segment, I think the margins where we're at today is consistent with where you kind of expect them, going forward. They can go 100 basis points up, perhaps, but in that range. But, there were no material (inaudible) in biotech [division], going forward.

From a [CCD] perspective, clearly when we have some of those [big] OEM shipments come through, that will have a nice pull-through and leverage on margin. So, I basically would say that our margin profile in that business should eventually creep up to the upper 20s. It won't hit 30 because Cliniqa has a lower margin profile than our [other] businesses did historically, but I'd say upper 20s for the year is kind of our expectation.

Jumping to protein platforms, again, the first quarter in the instrument business being typically the lowest quarter, we should get some nice leverage pull-through on that, going forward, and operating margin expectations would be in the mid-single digits, I'd say.

Okay, yes, that's helpful. And then, just on the revenue side, given the shift in revenue between the segments, I guess can you give us an update on how we should think about kind of the organic growth by segment over the next few quarters?

Well, organic growth I guess by biotech, we've kind of been where we thought we expected to be, [about] the mid-single digits. We'll continue in that range for biotech. There are other possible upsides, but I really don't want to get into them now. They're (inaudible) new deals, new things we're working on, new products and new directions in strategy. But, mid-single digits, kind of there.

I think on, again, mid-single digits is where we'll be at, and we'll remain. We may drift slightly higher single digits in the clinical controls, and that's going to take the [pop-back] with the OEM shipments [being through that]. That's starting to hit [already], just missed by a few days a couple of big ones, to be honest, this quarter. So, I expect that to be kind of what we've said all along.

And the biggest unknown, of course, is protein platforms, and as Jim just mentioned, it's [above quarter] comeback here, and if the sales force really gets back in gear, if we can get back to them, the 20s are better on the Simple Western platform I think, then we're back where we think we need to be, mid-teens to near 20% overall. Should be very possible. Should be -- it's what we expect.

We had a quarter last year at 30%, so, I mean, it's just so early in the cycle for this business yet, this Company, that it's hard to say exactly what it'll be. We expect 20% or better. I mean, we're even shooting for more, but we've got to get the team in place to get it done. It's a great platform. It's great technology. Before, this business didn't even provide demos. It was just sole kind of early adopter kind of driven as a strategy, and we have to change that policy.

I think with more leverage with assays and reagents people involved, and different types of models and demos, and demo [allows] you can put in place, and the leverage we have from having 20 different sites helping, not just a couple worldwide, we think we're going to have very good success.

Jeff, one thing I would add is that that double-digit kind of growth rate, I frankly wouldn't model that expectation until second half of the year.

Yes. We were flat last quarter, [10] this quarter. There's almost a line there at two points.

Got it. And just one quick last one from me on the Japan business. I guess what gives you confidence that that's going to see some recoveries? Is it just what you're seeing on the government funding side, or is there something else there?

Really good question, and we've dug into that hard. [As you probably know], overall [pattern] (inaudible) rate and take out Japan, it looks great, the best quarter we've had in a while, even, for Pac Rim. So, that tells you how negative Japan was. We've already had Peter in there digging in. He has strong contacts as well, obviously, with his experience.

This whole [AMID] thing, the consolidation of their three organizations that act like an NIH does here, are coming out, and they're supposed to be bearing fruit with releasing the funding, going forward this next quarter, and maybe the second quarter after this is [going to] really start happening. That gives us confidence. Too, there aren't any incumbent suppliers there. Everybody has to import in, so they're running out of stuff. There was a de-stocking issue, [at least certainly] happened for two or three quarters with the massive change in the currency. But, that's going to change, and that's going to correct itself.

And we see some of that already, but it's definitely taken longer than we thought. It's Japan. It always takes us longer than we think in Japan. My whole career has had this issue with Japan, every business I've been in. So, we have to wait it out. It will recover. They actually have a very strong funding cycle coming, we think, so it's just a matter of them being able to use it, we think. I've noticed [on other calls already,] other peer companies, they're not talking a lot about Japan other than saying it's not very good. I think their numbers reflect it, probably like ours.

Drew Jones, Stephens Incorporated.

Thanks. Good morning, guys.

Morning.

PrimeGene, you guys have obviously been pretty strong there for the past year when some other tools companies have struggled. Can you walk us through the confidence on why that's going to be sustained? And should we expect an acceleration back up to the 20% level?

Sure, I'll give you some color on that. In the last quarter, we had a really great quarter in China, 35%, as you remember. So, these things do bounce around a little bit. We ended up mid-teens. We have some shifting in our portfolio, as well. We supply a lot of products over there, with lots of different sources, not even just our own. The PrimeGene piece is doing better than plan. It's doing wonderful. Now, another quarter of 40%-plus growth for China.

Jim and I were just there a month ago or so, and we finished the new factory. It's a GMP-ready site. It's gorgeous. It is going -- their audit's already happening at that site. People are blown away, and it's going to continue to be like an R&D Systems kind of branded kind of organization there, with quality being foremost, although as PrimeGene China -- for China. People get it. And we see no letup in that growth rate for that part of the business.

Other part of PrimeGene is kind of OEM related, and that's also been picking up. So, we're very close to our acquisition model. We're right on -- we're right spot on I think with PrimeGene, going forward. The management's still all there. We haven't lost a single person. We've actually just brought on one new scientist, very high level, very accredited, and we're building it out. And that's now the kind of site and organization, and everything that's really going to attract even more talent.

And then, on the acquisition front, has there been enough multiple contraction over the past couple of months where there are some areas that you thought were out of reach that maybe are in play now?

This is another area. I think this question's come up in a lot of our peer calls, and it's too early, right? I mean, people have to let things settle. We're really happy that the valuations are come down a little bit, and if they sit here, it'll change thinking, but I think one or two quarters usually is enough for this kind of -- this kind of market memory to really integrate into our prices offered and prices accepted for acquisitions.

But, over time, maybe. There's still a lot of deals out there. We've got a lot -- we've got a strong product deal hopper, and we're still hunting. But, we're going to be always cautious in how we go at these, and there's got to be synergies. And they have to be validated, both cost and sales, and there's more to come. But, we're not disappointed in the discounts we're seeing right now, so hopefully they stick for a while.

Thanks, guys.

Amanda Murphy, William Blair.

Hey, good morning, guys. I've got a (inaudible) question on ProteinSimple. So, in terms of the attrition that you saw, you talked about having some of that be expected. And obviously you've had some sales leadership changes there. But, is there anything else that we should be aware of? I don't know if there's anything on the competitive landscape that's brewing in terms of maybe people leaving to go there, or whatnot. Is there anything else that might be driving any kind of attrition?

Yes, that's another great question. [That's who] we're asking here, so what else we have to be worried about. It's a Silicon Valley company. I can tell you we talked, and it was brought up actually two quarters ago about the issue. [We had a running buffer], and it affected overall product quality, and maybe gave some scare to the market over how ready-for-action is this platform.

That's all been fully resolved now for over a quarter, so I think that's all behind us. We don't see any issue around that. We don't see any issue [on] roadmap. The roadmap on all the platforms we have are solid, on track. There's more announcements coming. The development team is 100% intact. It's been intact. Nothing's changed, run by Bob Gavin, who's been there since the beginning of this company, and it's going extremely well.

I don't see any other real gotchas or risk outside of the commercial risk right now, and I think even there we feel really, really good. Getting the team back to full strength with a 50% reduction over a six-month period is not a small task. Now, it's not a big company. The overall commercial organization is about 100 people. We're talking about 25 to 30 reps overall. Everything else is supporting, and those are all back.

We're also shifting around a little bit the way the organization's structured. So, you have reps and you have technical service-type people and support people, and some of that varies by kind of the phase you're in in the product cycle. And if you want to go to more of a demo-driven cycle and more support, you change it. So, we've done some of those changes which we think are [going to] have an immediate impact. Had a good October, so we'll see how it goes.

Got it. Okay, thanks. And then, obviously the question du jour this earnings season is around kind of purchasing patterns out of some of the smaller biotech names, and you talked about that segment generally being pretty strong. But, I don't think you had a ton of exposure, because it was (inaudible) the companies. But, can you just kind of refresh our memory there and what you're seeing, just going forward, on some of the smaller biotech companies, R&D-type spending patterns?

[I'm not] sure I'm understanding your question. You're asking about the spending patterns in smaller biotech companies [that] we're seeing with respect to our own spending?

Yes, just, I mean, obviously given the volatility, there's just some concern that ultimately that would impact what types of dollars biotech companies are spending. And I don't think you guys have specifically a ton of exposure to those types of names, but I just wanted to clarify that and (inaudible).

There's not any real red flags coming [to us], or (inaudible) warnings from our customer base, or market signals to give us any cause there yet.

Okay. And then, just last one on the OEM shipments, I think you said we should see -- you (inaudible) a sense of when we should see those come through the P&L. Are those going to be primarily in the next quarter, or should we think about that as more of a protracted dynamic?

They're nice, transparent answers. Some missed by a couple days this quarter, so we've had to teach our brand-new young acquisition what it's like to be in a public company. You don't miss your orders by two days and miss a quarter. So, they're in.

Now, will it continue? We've got some more work to do there. But, overall, as we try to give transparency, where in the past we've talked about hematology and our controls as being so stable and such a stable grower, now it's going to be lumpier because there's much more OEM percentages in the business. So, I think it'll be a little more volatile, but still, overall, I think much less volatile in, like, an (inaudible) business, by far.

At the end of this quarter, will we shift any more OEM to the next quarter? I hope not. So, hopefully we'll be able to catch a quarter with that. But, I want to make it very clear, the outlook with Cliniqa, what they told us, what we bought it for, we modeled it for, what they have in their pipeline is all right on track. And in fact, they finished their business last year, their [40%] organic growth rate, and we think they'll be 10% or better that clip this year. So, it should be helpful.

But, it's going to take us a little while to get their margin status to where we'd like it (inaudible). Jim talked about it being a little less. There's some work to do. And maybe long-term as it scales, it maybe won't have quite the same margins of our hematology controls. But, it's a solid business with good potential to remain at double-digit growth.

Little more specific, Amanda, on the quarterly (inaudible), I mean, right now, the way the schedule looks at that second quarter and the fourth quarter will be stronger than the first and the third. But, that's always (inaudible) change, too.

And the more [instant] things we bring in, it'll be more and more like that, obviously.

And the OEM lumpiness dynamic, that's purely driven by Cliniqa?

Yes, Cliniqa as well as our legacy bionostics business.

Oh, okay, yes. Okay, thanks very much.

For the same kinds of reasons, big, giant customers, big OEM orders, and again (inaudible) pharma is when they're [going to] -- taking orders, right?

Got it. Thank you.

(Operator instructions.) Paul Knight, Janney Montgomery.

Hi, Chuck, how are you?

Great, Paul, how you doing?

Good. I don't need to press star-one. I'll just press one in the future. You had mentioned, Jim, the talk around the gross margin impact from these OEM -- I'm sorry, from the ProteinSimple costs and shipments, et cetera. You mentioned that there's a gross margin impact number. What was that, both from diagnostics and from ProteinSimple?

What I can maybe help you with is that currently, the protein platform segment, on a gross margin basis, is (inaudible) margins by over 300 basis points, the acquisition did.

Okay.

Protein platforms. And then, for our clinical controls division, the gross margin impact of the acquisition was actually pretty nil, actually slightly positive impact on the gross margins. But, on the operating margins, it was almost over 400 basis point hit.

Okay. Very helpful, thank you. And then, where do you think you are on your online capabilities right now? Abcam has been doing this strategy a long time. I know you've been building that capability up. Are you in the first inning, the third inning? What's your comfort level with this go-to-market strategy?

[When we] started talking about our need two years ago to really get back in the game with a website that gives the customer experience that's something better than it was. I'd say we're probably a decade behind, a good 10 years behind Abcam, because they've had an army in it for a long time.

In the two years we've come a long way. I'd say we're probably only six years behind. We caught up two extra years, probably. They're a long ways ahead. And it's not in the amount of products. We actually have more products, but they've spent a long time getting data, references, citations online, and we're going as fast as we can. We actually think our website, our search capability, is probably the best out there right now. It's just a matter of now backing up those bones with the right content. And that'll take time. And with the Novus Group here and there and the overall doubling of our IT group that handle all this, we're in acceleration mode.

But, inning-wise, if we're talking baseball, it's probably third inning, fourth inning, at best. So, the best is yet to come. And we've seen results. I mean, the academia is definitely improving. And it isn't all just from Fisher, which didn't have the greatest quarter, by the way, for us. But, it's helping, and it's noticeable. And I've mentioned our traffic is up. The website's had immediate effects there, and it's early yet, but I'm hoping it's still really early, yes.

And then, lastly, the level of contribution from acquired revenue in the remainder of the year, what's your round number on that?

[That to come?]

Right, inclusion of future numbers.

Yes. Are you referring to Cliniqa?

Yes.

Well, what we'll tell you about Cliniqa is that Cliniqa, when we acquired it, it was roughly the size of Novus, so that's kind of the baseline you can think about in terms of the year.

Okay. Thank you very much, guys.

Matt Hewitt, Craig-Hallum Capital.

Morning, gentlemen, just a couple questions. First, can you quantify or give us a ballpark for the OEM shipments that push from Q1 to Q2? I mean, are we talking about a couple million dollars, or was it even more than that?

They were [probably] 2% organic. We probably would have been in the -- where we should have been, in the four to five, we wouldn't have missed all these. So, we're talking a couple million or a little less.

Okay. And then, with those hitting here, it sounds like a majority, anyway, in Q2. Is that simply on top of kind of how we had modeled Q2, or does the push-off to Q2, and then you see some delays in the reorders in Q2, so it -- actually not an additive situation?

Yes. Well, I'll just say in general that our profile right now for our CC division has a higher spike in revenue in Q2 and in Q4.

Okay, all right, and then one last one. As far as the new antibody, saw the press release the other day. You're up to 1,000 there. How should we be thinking about how the sales of those antibodies will ramp? I mean, is it much like your old model, I mean, almost an annuity-based stream, or is it going to be a little lumpier with those products?

I think it'll be slow and steady, like we're known for.

Okay, great. Thanks, guys.

There are no questions in queue at this time. (Operator instructions.) There are no questions in queue.

All right. Well, thank you, everyone, for attending. It should be an interesting quarter, going forward, and we'll be talking, I'm sure, throughout the day here, as well. Thank you.

Thank you. Ladies and gentlemen, this completes your conference call. You may all disconnect, and have a great day.