Bio-Techne Corp (TECH) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter Fiscal Year 2017. (Operator Instructions) I would now like to turn the call over to Mr. Jim Hippel, Bio-Techne's Chief Financial Officer. Please go ahead, sir.

Good morning, and thank you for joining us. On the call with me 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 comments made during this conference call may be considered forward-looking statements, including beliefs and expectation about the company's future results. The company's 10-K for fiscal year 2016 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section.

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

Now I'll turn the call over to Chuck.

Thanks, Jim, and good morning, everyone. Thank you for joining us for our third quarter conference call. The company delivered 4% organic growth in the third quarter, and we have many highlights to discuss beyond this headline, a number that speaks to the progress of our long-term growth strategy.

Let me remind you that our company provides tools to 2 distinct life science markets. The first and currently the largest market for our portfolio is the life science research market with customers in both academia and biopharma. The majority of our products at service market are for research-use only, but some products also support bio production at large pharma. The products within our Biotech division and Protein Platforms division serve this market.

The second life science market of our -- company provides tools for is the diagnostic market. Not at the patient level, at least not yet, but to the OEM customers that supply diagnostic instruments and kits to doctors' offices and central labs that provide this service for patients. The picks-and-shovels-types tools we provide include the controls and calibrators for these instruments as well as reagents and assays for the kits. Our long-term growth plans for this part of our business are aligned with future diagnostic platforms and kits that our OEM customers are developing, and the pipeline for these new platforms are strong for years into the future.

While the short-term demand depends on the inventory management patterns of our OEM customers who buy our products in bulk for efficiency, I remind you that these 2 different business models provide more clarity on the underlying strength of our performance and traction towards achieving our longer-term strategic growth initiatives that we shared at our Investors Day last September. In Q3, the 2 divisions that sell into the life science research market collectively grew 9% organically. Our Biotech division grew 6% organically while our Protein Platforms division grew 20% organically. And although we can't count it as organic growth until the acquisition annualizes in August, ACD grew nearly 60% in Q3 on a stand-alone basis.

Our strong performance for the quarter was broad-based by region and end markets. Europe's results were outstanding with organic growth over 20%. We experienced continued strength in our biopharma end markets there, but academia also performed very well with organic growth in the high single digits. There is little doubt that we are executing extremely well in Europe. Our subsidiary model is the most advanced there, with the divisional commercial teams working together to consult with customers and provide the right solutions to fit their needs, whether in a form of an instrument or a reagent. This creates revenue synergies across our portfolio and, clearly, is at least part of what is driving our success in Europe. Other factors we believe are contributing to our success there include our continued investments in expanding our direct model, which gives us more intimacy with our customers, and our focus on building relationships with the smaller biotech firms, which are the fastest-growing part of biopharma in Europe right now. Our strategies in Europe have been building in momentum over the past year, and the result speaks for itself.

As in Europe, our Asia region also performed very well. In China, growth of our Western brands approached 30% in Q3. The CFDA crackdown on self-therapies administered by hospitals due to the Baidu scandal 1 year ago continues to be a drag on our locally produced PrimeGene brand and China results overall. We probably have another quarter or 2 of headwind here. But for most of fiscal year '18, the worst will be behind us, and we should see gradual contribution again from this part of the China market as the CFDA gradually get through its certifications. As for the rest of APAC, the overall region continues to perform well. We experienced double-digit growth in Korea in our reagents with our instruments placements throughout the region overall. And for the first time in many years, we experienced growth in Japan this quarter. As we said last quarter, it appears we've reached the bottom there and we'll be looking for modest growth going forward.

Continuing the theme from last quarter, the U.S. is the one region that underperformed compared to our expectations at the beginning of our fiscal year with low single-digit growth in both its biopharma and academia end markets. There is little doubt in our minds that the political headlines and rhetoric over the past 6 months has caused some pause in the pace of funding new life science research projects. Whether it's a tweet on lowering drug prices or a tweet on reducing NIH funding, this would logically impact researchers' decisions on when or which project to pursue until there is more clarity on the regulatory and funding environment. Over time, calmer heads usually prevails, and we believe this period of uncertainty will pass and the importance of life science research in America will continue for many years to come. Our U.S. business had a particularly strong March, and it appears Congressional leaders have just reached a tentative budget agreement for the remainder of the government's fiscal year 2017 that includes a significant increase in NIH funding. So hopefully, some of this uncertainty is already starting to wane.

Now for a little more color on our Q3 performance by division. With 6% organic growth in the quarter, Q3 marked the seventh out of the past 8 quarters that Biotech division has had at least mid-single-digit growth. By product, the growth was broad-based with mid-single-digit growth in both our antibody and assay product categories. Antibodies were again led by double-digit growth in our Novus brand, where our digital marketing campaigns and ongoing website enhancements continue to pay off. Our growth in assays for the quarter was driven by our Luminex products, both in the assays we sell ourselves, as well as the royalties we received from other Luminex and assay suppliers. We use our content in the production of their assays.

Advanced Cell Diagnostics, also part of the Biotech segment, continued in Q3 with fantastic growth nearly 60% on a stand-alone basis. ACD's technology continues to garner fast acceptance from research with over 800 publications to date. For example, as announced in the press release about a week ago, RNAscope in situ hybridization aided CDC researchers in advancing the understanding of Zika pathogenesis, particularly as it relates to newborn children of infected mothers. During this past year, scientists around the world have intensified their research to reduce the impact of the Zika epidemic. RNAscope has been an essential tool in 9 Zika publications. So we're proud to provide solutions that can help explain this complex and devastating virus. As a reminder, ACD products mostly fell into the RUN market today, where there is still plenty of new interest and applications that will allow for strong growth for years to come. But ACD is also currently working on strategies with -- and with partners, Leica, in particular, that will open up ACD's products to a much larger market opportunity as a diagnostic tool. The opportunities still in front of this business give us more enthusiasm about ACD's potential every day.

Moving on to Protein Platforms. This division also continued with its growth momentum, making the fifth quarter in a row of double-digit organic growth, 4 out of 5 of those with growth at 20% or better. The growth is broad-based regionally with our biologics product line continuing to lead the way. Our Simple Plex platform also is rapidly gaining momentum, growing over 75% from last year. This product line has been a prime example of how our divisions fit together strategically and can generate growth from revenue synergies. We have organized a sales team for this platform of assay specialists from the Biotech division and instruments specials from the Protein Platforms division to work with our customers together and demonstrate the benefits of the highly accurate, automated multiplex ELISA platform. I believe the growth rate speaks to how well it's working. Finally, the Simple Western product line contributed to growth as well with yet another record number of Western units sold during the quarter. As we've said before, Protein Platforms is plural, not singular, with a number of instrument platforms with unique IP-protected technology, enabling high-growth margins and the ability for this division to grow double digits for years to come.

Finally, the -- similar to last quarter, our Diagnostics division reported revenue in the quarter that was lower than last year. As I mentioned in my opening comments, this part of our business has a very different customer base than our other 2 divisions. As you had seen so far this fiscal year, quarterly revenues has been quite lumpy with nearly 20% growth in Q1, revenue slightly down in Q2 and now lower by double digits in Q3. Our OEM customers give us indications of up to 12 months in advance as to what their ordering patterns might look like. These were often large orders, sometimes as much as a year's supply at a time. Therefore, when they are released for delivery, they can create large swings in quarterly revenue recognition. Based on our customer indications for deliveries at the end of the last fiscal year, we had planned for a much higher revenue growth in Q1 and Q4 of fiscal year '17 and negative growth in Q2 and Q3. What we didn't plan for is the degree by which some customers have moved out their delivery dates, some even into our fiscal '18, largely to hit their inventory internal management metrics. We have validated this by reaching out to each of them confirming no orders have been canceled. As a result, Q4 won't be as robust as a quarter for our Diagnostics division as we initially planned, but we do expect to see a return to growth nonetheless. The part of our Diagnostics business that had short shelf life and more frequently delivered -- delivery schedules, hematology controls, had a record quarter in Q3 and continues to grow healthy in the mid-single digits. This gives us insight into the end markets our OEM customer serve and further validates what these customers are telling us regarding their internal inventory management practices.

Over the long term, the project pipeline for our Diagnostics division remains very strong with new markets to serve. A recent example of this was the innovative parasitological system we announced 2 months ago, PARATEST. This product is an innovative biodegradable system that could become a new standard, providing highly accurate results in less time than existing tests and can be easily performed in the veterinarian's office without special equipment or training. It's opportunities like these and many more in the horizon that give us confidence that our Diagnostics division will be a solid contributor to company's organic growth for years to come.

Finally, I would like to highlight our adjusted operating margin performance in Q3. We were very transparent over the past several quarters about what kind of immediate impact the ACD acquisition was going to have in our margins. We were equally confident about how our adjusted operating margin would improve in the second half of fiscal '17 as the ACD continues its revenue ramp and became less dilutive to the overall margin profile. True to our word, our adjusted operating margins increased sequentially over 200 basis points from Q2. Many thanks to our employees worldwide for their wonderful execution, which manifested on both our top and bottom line in Q3.

In closing, we head into the final quarter of our fiscal year 2017 well positioned to meet our financial objectives for the year. But more importantly, we should close fiscal year '17 well positioned to hit our long-term growth and profitability aspirations that we presented in our Investor Day last September.

We just finished presenting to our board our annual prioritization process. We use this process to look at all projects across the company, both current and proposed, and evaluate them against one another on criteria such as risk-adjusted financial return, strategic fit and competitive differentiation, just to name a few. These projects serve as the bottoms-up building blocks of how we will achieve our long-term organic financial objectives. This year, we had over 200 projects to evaluate and compare, including a record number of cross-divisional projects to substantiate the strategic fit of the acquisitions we have made to date, which form these divisions. The output of this prioritization process, which will form the basis of our fiscal year '18 operating plan, gives us confidence that we have the innovation and right path forward to attain our long-term financial goals.

With that, I will turn the call over to Jim, who will provide more details on our financial performance for the quarter. Jim?

Thanks, Chuck. I will provide an overview of our Q3 financial performance for the total company and then provide some color on each of our 3 segments.

Starting with the overall third quarter financial performance. Adjusted EPS decreased 4% to $0.97. The impact of foreign exchange fluctuations represented a headwind to EPS of approximately $0.01. GAAP EPS for the quarter was $0.57 compared to $0.81 in the prior year. Biggest driver for the lower GAAP earnings are noncash purchase accounting costs and continued consideration revaluation associated with recent acquisitions.

Q3 reported revenue was $144 million, an increase of 10% year-over-year with organic revenue increasing 4%. Third quarter reported sales included an 8% growth contribution from acquisitions, partially offset by a 2% unfavorable foreign exchange headwind.

By geography, the U.S. grew low single digits with growth comparable in both biopharma and academia. Europe grew over 20% organically, with biopharma sales growth over 30% and high single-digit growth in academia. As a reminder, the Easter holiday occurred in March of this year versus the month of April last year. We estimate this contributed approximately 3% to Europe's growth in Q3 due to the extra selling days there. China's organic growth was in the low teens in the third quarter. But as Chuck stated, our Western brands grew nearly 30% with similar contribution from both our instrument and reagent businesses. What partially offset this growth was our local PrimeGene brand most impacted by the CFDA shutdown of immunotherapies until they can be certified at a local government agency. Japan continue to prove in Q3 with organic growth in the mid-single digits while the rest of the Asia Pac region continue to perform very well, led by South Korea with growth in the high teens. Note that all references made to growth rates by region and end market exclude our OEM sales, which mostly occur in our Diagnostic segment.

Moving on to the details of the P&L. Total company adjusted gross margin was 70.8% in Q3, similar to last quarter but down approximately 80 basis points from the prior year due to unfavorable mix. Foreign exchange had a nominal impact on adjusted gross margins year-over-year. Adjusted SG&A in Q3 was 23.9% of revenue, down nearly 200 basis points from prior quarter but 325 basis points higher than last year. The SG&A increase was driven by the acquisitions made since the beginning of the fiscal year and strategic investments made in our core businesses to support growth. R&D expense in Q3 was 9.6% of revenue, 50 basis points less than prior quarter and 100 basis points higher than last year, mostly due to the acquisition of ACD in Q1. The resulting net -- adjusted operating margin for Q3 was 37.3%, an increase of 210 basis points over last quarter and a decrease of approximately 500 basis points from the prior year period. Recent acquisitions contributed 300 points to the decrease, with remainder largely attributable to unfavorable mix and strategic investments made throughout the past year.

Looking at our numbers below operating income. Net interest expense in Q3 was nearly $2 million compared to $0.4 million of net interest expense last year. The higher interest expense is due to a $400 million line of credit, which was opened in Q1 to replace our previous $150 million line of credit as well as fund the acquisition of ACD last August. Other nonoperating expense for the quarter was $0.3 million compared to $0.7 million in the prior year quarter with less transactional FX expense this year driving the variance. Our adjusted effective tax rate in Q3 was 29.2%, an improvement of 180 basis points from the third quarter of last year due to geographic mix with growth in Europe and Asia outpacing growth in the U.S. where tax rates are the highest. 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 1% over the year-ago period at 37.5 million shares outstanding.

Turning to cash flow and the balance sheet. $24.4 million of cash was generated from operations in the third quarter, and our investment in capital expenditures was $4 million. ACD hit its first earnout milestone as of December 31, 2016, and its former shareholders earned their additional payout of $25 million. For GAAP purposes, $8.8 million of this earnout is recorded as cash paid from operations. Management views this earnout as part of the purchase price paid for ACD, thus, an investment rather than operational cash expense. Excluding the earnout, the company's adjusted cash flow from operations was $33.2 million. As for other notable items on our balance sheet, we ended the quarter with $113.6 million of cash and short-term available-for-sale investments. Our long-term debt obligations at the end of Q3 stood at $343.6 million, relatively flat from the end of Q2. Going forward, our capital deployment priorities remain opportunistic M&A, our dividend and debt paydown.

Now to discuss the performance of our 3 business segments, starting with the Biotechnology segment. Q3 reported sales were $94.5 million with reported revenue increasing 16%. Acquisitions contributed 12% to revenue growth. Foreign exchange negatively impacted growth by 2%, and organic growth was 6%. Organic growth was broad-based in all major product lines, but particularly strong in antibodies and assays. Adjusted operating income for the Biotech segment was relatively flat in Q3 compared to the prior year. Adjusted operating margin was 47.9%, a decrease of 760 basis points year-over-year, largely driven by the ACD acquisition, but also due to negative mix and strategic investments made throughout the past year. Excluding the ACD acquisition, adjusted operating margin was still a very healthy 53.3% for the division.

Turning to Protein Platforms segment. Net sales in Q3 were $23.6 million, an organic increase of 20% from the prior year period with recent acquisitions contributing 1% to growth and unfavorable currency translation roughly offsetting the impact from acquisitions. Growth for the segment was broad-based in most major regions and product lines with particular contribution from our biologics product line. Adjusted operating income in Q3 for the Protein Platforms segment was $3.3 million, representing an adjusted operating margin of 13.8%, an increase of 570 basis points from the prior year. Strong volume leverage drove the year-over-year improvement, partially offset by strategic growth investments made throughout the past year and favorable FX.

Moving on to our Diagnostic segment. Reported revenue in Q3 was $26 million with reported in organic growth decreasing 13% from the prior year. Solid growth in blood and glucose-based controls was more than offset by the timing of OEM shipments from the diagnostic assay and reagent product lines. The Diagnostics segment adjusted operating income decreased 37% in Q3, and adjusted operating margin was 23.1%, a decrease of 850 basis points from the prior year. The lower adjusted operating margin was attributable to lower sales volume and unfavorable mix.

In summary, we had solid revenue execution across our biopharma and academic end markets globally and managed our cost to reflect the timing realities we faced with our OEM customers in Diagnostics. We end the third quarter year-to-date with a solid mid-single-digit organic growth rate, and we expect to finish fiscal year 2017 on that same trajectory, keeping in mind the slight headwinds we face in Q4 with the timing of Easter, particularly on our business in Europe, as well as more typical year-over-year comps for both our Biotech and Protein Platforms divisions and the comps we had in Q3. With regards to profitability, we expect our adjusted operating margin to end the fiscal year at a rate similar to how we ended Q3 and our adjusted effective tax rate to revert back towards historical norms along with the geographic mix.

That concludes my prepared comments. And with that, I'll turn the call back over to Rebecca to open the line for some questions.

(Operator Instructions) And your first question will come from Dan Arias with Citi.

Chuck, on the timing issues in Diagnostics, can you just help us with how much of what you're seeing a delay on might fall into fiscal '18 rather than 4Q? And then to that point, how do you think you finish the year in Diagnostics?

Well, I think's going to be probably low single digits, at best, for finish. It all depends. It's -- we're roughly about $3 million or so off. It's really all on a couple of very, very, very large accounts, and they're not somebody we can have a lot of influence on. They'll do what they do. But they're not -- we've not lost them. They just pushed them out. They're on a working capital crunch, and it is what it is. Our pipeline, especially in -- where most of the pain is, our San Marcos unit, is really, really strong. I mean, the reasons -- some of the reasons we bought this company are coming to bear next year with some really nice diagnostics platforms coming out. So probably low single digit this year, and I do still think our thesis of mid to upper single digits next year on is still sound actually. And if we get all those orders back, I mean, they should be at top of that really. So hopefully, it'll be a really good Q1 and Q2 so -- from what they're telling us no, so.

Right, okay. And then within the biopharma segment, it sounds like Europe was the driver there. So I guess what are you expecting in terms of U.S. customers from here? And then overall, for pharma, are you still expecting a step-up in your fiscal 4Q? I think that was the way you're thinking about things last time around.

Well, we're expecting Europe to continue. We'll see the French election and further Brexit stuff happening, but I -- we're really executing well. We're firing on all cylinders there. And couple of years ago, we were in a bit of a timing mishap with a lot of our biopharma. That's -- we're still in a good timing cycle. That could change going forward. At some point, I'm sure it will. But we don't see them in the short-term horizon. It's looking very, very strong. And I think in the U.S., I think given the news yesterday, I think we'll start seeing some improvements there too. We're still seeing growth. It's just a -- needs to be mid-single digit, and it was low this quarter. But looking forward, I think we're back to mid-single digit. Again, we have some timing issues too. I talked about it last quarter. We've got a lot of large company OEM-type business and custom work we do and -- similar to what we had faced in Germany and Europe 2 years ago, we are seeing this year. And that kind of corrects itself next year for biopharma here in the U.S. So -- and academia, we continue to further reduce our risk with academia. We're at -- we've taken the company from 40% overall globally to roughly 25% in academia. In the U.S. component, academia is only 15% of global results now. So -- but we further reduced the risk there, and that's going to also a help, although we -- I think we see academia bouncing back a bit here too. So -- and given the NIH information yesterday, it should be hopefully a nice 6% or so pop on top of the budget increase before. And we have yet to see, really, a lot of that even flow through at all yet. So maybe the [bang] will be over.

Yes, hopefully so. And then if I could sneak one more in for Jim. Jim, on the operating margins, they were down year-over-year, but as you said, up sequentially. So as you guys move to your next fiscal year, can you just touch on, from an organic standpoint, how you feel about 2017 sort of being the trough year at the EBIT margin line? I mean, I know deals can always influence that. But ex any M&A, where is the confidence that from '17, you'll begin to move higher as ACD scales, et cetera?

I think, really, nothing has changed from what we've communicated for the past year in terms of the margin profile, and I think this quarter proved it out. We did expect -- we do expect fiscal year '17 to be the trough because of recent acquisition of ACD. We expected the first half, and more specifically, the second quarter, to be the trough within the year, and that has occurred. And therefore, our thesis going forward continues to be gradually expanding margins as ACD continues to ramp. We continue to ramp also with Protein Platforms and hold our solid margins in the Biotech segment. The only reason -- the only thing that will keep it from accelerating faster than maybe what it did the most recent quarter is, again, the offsetting mix. As Protein Platforms continue to grow faster than the overall company, there'll be some offsetting mix there. But overall, a gradual increase in operating margins going forward, and nothing has waned our confidence in that.

Next, we'll hear from Dan Leonard with Deutsche Bank.

Appreciate the dispersion in China between the Western products and PrimeGene, but can you give us the overall growth rate for the business in China incorporating both of those variables?

It's low teens.

It'll start reaccelerating back. We actually have acceleration in our core brands. We're near 30%. So as the other stuff comes back online here through PrimeGene, our local brands, in our China for China, we hope to be at a net over 20% or better maybe after next quarter. This quarter could still be teens or better. But after that, it should be a solid 20-plus percent again, which we did for 10 quarters in a row, so.

Okay, that's helpful. And Chuck, are you contemplating any changes in your go-to-market strategy in the U.S., whether it'd be distribution, more sales people or anything on that front after a couple of quarters where the growth rate has been a little bit lower than you'd like?

Very insightful question. When you look at results like this and have been for a while, and we're not alone, I think, others are talking about the same kind of situation, we got to figure out how much is related to funding and panic and things like that versus reality. We still are working with Fisher, of course. We also work third party with other distribution. We're looking at other potential partners as well, and we continue to expand our local direct sales force. So we've actually moved it up considerably. We need to look at that because as we further, actually, model the model like we did in Europe, getting the commercial groups working together across divisions, it calls out for more specialists and more assay specialists, as an example, more people that understand our immunotherapeutic contributions, our reagents, and that's going to help us overall with growth. So it's attuning towards the collaboration between divisions is where the investments will be, and it's kind of doubling down on working more with distributions as well, just more on the -- I would say on the -- how we promote and how our products are on their systems, et cetera. And then on top of all that, we continue to further improve our website. So we're making that better and better, and that's how we really [source] support academia primarily. So that's also been improving our -- I guess our levels of people being online are up over double digit, low teens at this point year-on-year. So we like what we see there as well. So I think it's -- the funding issue is kind of worked through and some of the timing issues with OEM that kind of bleed into every thing else in the U.S. business. I think you'll -- we'll see a natural improvement come next year.

From Leerink Partners, we'll go to Puneet Souda.

So first, on the ACD. Could you update us on the progress towards the clinic? You highlighted couple of examples, but overall, these are [RUO] products moving towards the clinics. So 60% growth in the quarter, do you think that sort of level continues as you reach into the clinical markets? And can you give us a sense of spend there a bit also and how it's tracking? It seems like there's improvement in operating margins. But could you give us specifically on ACD?

Sure. Well, our thesis is -- when we bought it was 50% or better, and we think that'll hold true. So they're well ahead now in terms of meeting their end-of-calendar-year milestones for earnout. We paid off -- we're going to be paying off the one from this last -- end of calendar year. So they're doing really well. Their commercial investments are on track. Really, all their market investment's on track. We're starting to integrate them into our commercial activities, as an example. Europe, this summer, will include that team. We're already working on the groups in Europe, and we have a team in Milan as well as their group is in Milan, so there's growth there. Asia is also starting to pick up, especially in China. We're starting to add some people. We're still leaving them a lot of freedom being there's an earnout. But the collaboration integration is actually well ahead of schedule, to be honest. Continuing the 60%, I don't -- we don't want to lay that down. It is wonderful that they're at that level. We mentioned the publication count's over 800. It is -- it's very, very quickly being adopted. I think the nice thing about that business, and unlike the instrument business, is the, even though we're doing well in Protein Platforms, that's much more lumpy, much more end of quarter. It is just a nice constant run rate business we're seeing. We're seeing that almost mimic some of our other reagent businesses that are very safe and very, very well distributed across customer, our large customer base. So Yuling, who runs this business for us, who was the founder of the company, is still very excited and isn't taking his foot off the pedal at all at this point. So I think we got a strong year ahead there. And then I think -- and we're proving as they scale, because this is -- it is an 80% gross margin business. And while although it's a higher cost commercial model than like our protein or antibody business, it's still very good. It will [last] and [tote out] near 40% long term. It'll be a couple of years to get there, but we've talked about them being profitable next year some time. We're probably moving that up a quarter or 2, so.

Okay, great, and great for that. So in terms of ProteinSimple, the segment came in, obviously, very strong compared to our estimates. Could you describe the growth you're seeing in the QA/QC platform end of the business versus the Ella and Wes, if you could parse that out, compare it to the downstream products including iCE?

Well, we don't give details on each category. We had strong growth in every platform we sell there, and there's roughly 4 major platforms, not counting the imaging legacy platforms, which is not growing, which is a stable, if not declining, probably still flat or better in China, but overall, it's a declining segment. But everything else is flying and is led off with biological. I'll tell you biologics is the lead. And Simple Plex, by percentage, is actually more of a -- it's a smaller base, but it's really growing fast now. And the cartridge adoption rate that we talked about is hitting all our models, so it's doing very well. Simple Western, we're roughly 75% or so. Wes is 25% now, and we see it continuing. Big box is probably saturating, probably slowing down, but being picked up by the Wes. So the overall category is still growing very nicely. And we talked about there was a 1% increase in there due to acquisitions. That's Zephyrus. That's the Milo platform, and it's starting to ramp. But that's obviously a smaller platform and with a single-cell Western blot category. And we're seeing that start to pick up now too. It's starting to go. We're into the near double-digit instrument placements per quarter, so we're getting there.

Next, we'll hear from Catherine Schulte with Robert W. Baird.

And back on Protein Platforms, can you remind us the split between academe and government on pharma and what you saw from each of those end markets?

They're roughly equal. We serve both about the same, and the growth is broad-based. I would say on -- the biologics is much more attuned towards the biopharma, obviously, and that's where the biggest growth was. So as a split, we probably have more growth on biopharma over academia, whereas we had really good growth in the Simple Western on all fronts, especially academia. So they do serve a little bit different markets. And we like the biologics platform as a segment because it supports production. It's really the only category in our company that actually is all about production to biopharma, and it's really lighting up. It's doing very, very well.

And just to reiterate a little more. The way I think about that, Catherine, is our biologics product line is basically 100% biopharma. Our Simple Western product line is -- it's closer to 50-50 between the 2, biopharma and academic.

Okay. And then can you give some color on the M&A pipeline and environment and what kind of asset or vertical would be most attractive to you?

Well, we're hunting on all fronts. We definitely suffer the risk of going on an entire year without deal here come August. We've -- we're always working on 2, 3, 4 at a time, and we still are to this day. We've had a couple get away recently or -- more work needed evidently, but we're still hunting. I think we're still very interested in areas of leveraging Diagnostics, similar to what we did with our Astute investment recently or with ACD. We look at all the ACDs we can find. We're hunting in China, really in a lot of categories, even our core, just for scale, if nothing else. We continue to be hunting in Europe for the same thing. There are some opportunities there we're seeing forming. In terms of new platform areas, I think additional areas around single cell, around flow or any work stream that the scientists do and handle and use our reagents and understanding our brands is fair game for us. That's our model. And we picked off a few, but there's a lot more to pick off, right, so.

From William Blair, Amanda Murphy.

So I just had a few follow-ups here. So I guess first, on the omnibus agreement. So obviously, that's a good thing. I just was curious how quickly that -- if I see that going to the P&L, just based on historical information there.

I'm sorry, Amanda. We couldn't understand the first part of your question.

Okay, let me start over. So I just had a follow-up on omnibus budget piece of the commentary. So obviously, it's a good thing if that actually goes through. But I just was curious how quickly we might see that come through the P&L, just based on your historical experience. And then just to the -- another part of that, obviously, you've seen a lot of strength in Europe in an -- from an academic perspective, at least recently. Has that -- I guess, could we see -- or when we will see that same dynamic in the U.S., if it's -- that base has increased?

Well, I guess that's -- that is the big question everyone's going to start -- wondering about starting from yesterday. I mean, the last real budget increase was a good one, 6.5% over a year ago, and we're not sure we saw that flow through before we started seeing the panic, given the administration and tweets and such. There was a Cures Act, which really hadn't seen that extra bit flow through. Now we have this, which is really supposed to be just through the rest of this fiscal budget, which could be a pretty good pop if panic releases or if there's an assumption that's it a "use it or lose it" budget or something. It's too soon to know, I guess. I haven't seen any real clarity on that. In a sense, it's the same kind of 6.5% or so from the previous budget a year or so ago. We had done the math, and as you'll remember, and we thought it flowed through to roughly a 1% add to our organic growth in the U.S. But we could say that's probably entitlement again, and maybe we haven't seen it all from before, so hopefully, 1% to 2% of addition. So if we're mid-single digits, so it should give us a safe low to mid -- or high mid-single-digit area. That's what we're kind of hoping for. We had 7 quarters like in a row of 5% or 6%. Then we had last quarter at 2%, and now we're back at 6%. Just to stay really safe at a 6% or 7% and given this would be -- would really make me happy, and that's kind of our goal, so. And we're going after them from a number of different tactics and strategies we talked about, distribution, website, the assays we're doing. They're all kind of working. But we're offset -- this year, we're kind of offset by a lot of the OEM timing. So I think that's the bigger handle, I think, for next year. We see OEM and custom kind of swinging back as projects come back online with the -- some of our bigger accounts. I think we'll get that wind in our sail, along with, hopefully, this budget influx. So it should be a good year.

I was also going to ask, just given your commentary on the distribution side, so -- particularly with Fisher. It seems like that agreement has really gotten some traction. And is that -- if you -- based on that, and maybe if you find some more -- maybe if you see some amplification in terms of the budget [coming through] versus historical or am I kind of reaching there?

Yes, you're probably reaching. I'm not sure how any of that would influence on any more productivity out of Fisher. I think -- and we've talked about -- Fisher had a great start with us, and we did some homework with them the last couple of years. I think the -- when they've -- since they've increased their bag, so to speak, with the Life Tech and other products, that's been an issue there for us. But they continue to be loyal with us. We obviously know them all very well, personally, and we continue to work on programs together. And we're still contractually obligated, and nothing's changed there. And you got to adjust with the market and the conditions and what's going on. And they continue to do so, and we continue to push that as well. Nothing different in their other high-content partners, like the BD or other -- I'm sure are asking as well, so.

All right, okay. And then just last one for me on -- you talked about strength in antibodies. And this may be hard to tease out, but maybe even qualitatively, could you help us understand -- you've obviously laid out the opportunity for revenue synergies across all the business. I just was curious if you can give us a context there of how that's going, if there's -- I don't know if you could give...

Yes. We'll give you some, but we don't go into too much detail. We -- I would say all of the acquisitions we've done, Novus is certainly one of the ones performing the best. They're really back, performing even better than they were before the acquisition. They're in the solid teens for growth rates, both here and in Europe. It's largely [sourced]. And we have an amazing website driving the product as well, I think, in terms of allowing proof writing content online to better compete with our competitors who have been doing it longer than we have. I think we're also catching up and making ground. In terms of where it is a bit by model, as I mentioned, the retail kind of piece of that we drive, it's really growing extremely well. It's low teens. The OEM side is soft this year because of timing of projects. So that's something that would fall in that bucket. And a lot of the R&D Systems-branded antibodies also and the ability to create proteins from that, that competency we have are in that area, we see that kind of rebounding here. And I think we see no softness coming with Novus. So I think antibodies are looking very good going forward. And I will also mention, as we mentioned a couple of quarters ago even 3 now, when we launched our ERP site, it was a bit of a "all hands on deck" for a quarter or 2. And people who knew our systems and new how things got done internally, and guess what, a lot of the people we had that were doing custom design work were actually called into action to help with ERPs. So we had a -- we're definitely softer a couple of quarters ago, and that's -- that pipeline is really now filled again for customs. So that's why we think things look pretty good going forward in the next year in that area. So all-in, net-net, we have a great antibody number, but it is in pieces. And the thing to remember, I think, is Novus is -- continues to accelerate. And I think the way we promote and advertise and drive the marketing -- digital marketing around our antibody platforms, it gets better and better, and we're definitely, I think, at this point, taking some share in some categories.

Next, we'll hear from Matt Hewitt with Craig-Hallum Capital Group.

Couple of questions. First, Q4 a year ago, you held a big sales meeting in Barcelona and really were focused on driving some cross-selling opportunities between the Biotech and Protein Platform segments. I'm curious, looking back almost a year, how has that program aided those 2 divisions?

Well, I think our results speak for themselves. We're in the 30% growth in Protein Platforms and solid double digits in the core business for a net overall above 20%. I've been doing business for 25-plus years, and I've never had a quarter this good in Europe, to be honest, in anything I've ever managed, here or Thermo or 3M. So I think the execution is amazing, and I -- we can actually point to a lot of things that are making it work. One is exactly what you said, the designs, the collaboration, the process we put in place at the European sales in the last summer are working. The teams are working together across divisions and also in terms of a reagent selling versus Fas for instruments. It is team selling. We have a -- we don't rely on a Fisher partner or something similar in Europe. It's just completely direct model, and we've invested there. So we have a very good and a large-enough sales force, and we're -- we've built it up by country. We've made some investments also in the past year in some countries and regions that we didn't have great strengths. So there was, call it, some low-hanging fruit to pick up, and then acquisition of Space, our Italian distributor who had been with us for 20 years. 85% of what they sold was our stuff anyway. So that owner is our Southern European managing director reporting in to our Head of Europe, and he's been helping on getting things really going in Spain and Eastern Europe. And so we're getting extra incremental growth there from just his leadership and his knowledge of the company and portfolio. That's just kind of working well that way. It's Europe, it won't be forever. But right now, things are doing -- are going quite well. And then we just happen to have the OEM biopharma timing wind in our sail right now. And it's -- we're 1.5 years into that, and that'll likely switch in a year or 2 from now as well, I'm sure. But Brexit could have an impact. We have not really seen any real fallout from that yet. If there ends up being sanctions imposed on the U.K., we are ready with strategies to really move and get more versatile in Greater Europe, if we need to. We've got other inventory sites and hubs to work with, including Southern Europe, as an example. So I think we're in good shape. The meeting this year is going to be in Dublin, and it's going to include the ACD team as well. So we're getting ready to integrate all that, and that'll just be more growth to pile on here this coming year. So we're really excited about ACD becoming part of the team in Europe and going after the growth that they've, really, just hardly got started on so far, so.

Great. And then just one more. A couple of different times, you've mentioned some of the investments that you've made into the sales and marketing teams. Do you have a headcount number for your team, sales team this year versus maybe in the year-ago period or just to give us a size or how much that's grown maybe?

I'll give you a couple of examples, and then -- I'm only giving you this because it speaks to how we've really worked on productivity, helped pay for these investments, as we've mentioned, over the last 4 years. When I joined 4 years ago, we had 0 sales people in the field in the U.S. We had 7 inside sales. We now have 12 people in the U.S. and we still have about 8 to 10 inside sales. That's actually in the core of BTD. We had roughly 8 people in China total. We now have over 100, half are PrimeGene and manufacturing, but we're at 15 to 20, because you have to cover China kind of province by province, city by city. Europe is about doubled overall, and we're probably -- -- all-in commercially, probably in the 50s range between all divisions with marketing. We have roughly 200 people in Europe now overall, and we were about 80 4 years ago. And to sum it altogether, commercially, globally right now, sales and marketing all 3 divisions globally, we're roughly at about a 200-person headcount, which is a metric we watch and I like to watch personally. So we've come a long way. We're investing. We're investing huge, and we're paying for it with productivity and growth, so.

And your final question comes from Paul Knight with Janney Montgomery.

This is Carolina Ibanez-Ventoso on for Paul Knight. Could you comment a little bit more on the drivers of these trends you alluded to in antibodies in -- on your Novus brand?

Well, your question is about the strength in antibody within Novus.

Yes. So if you can allude to the drivers like -- of that strength, yes.

When we kind of began this model 4 years ago, we had R&D Systems brand, and the brand is pretty well-known brand but very narrow. We had roughly 15,000 to 20,000 products, which may sound like a lot of products, but when you get to antibodies, it's not. Our nearest competitor, Abcam, was around 170,000 at that point, and I don't think they've change much since then. When we picked up Novus, we added over 200,000 new antibodies, all from -- mostly from [sourcing] and they also had, I think, in GENX and a couple of things that they made their own. So they made 4,000 or 5,000 antibodies themselves. So we're well over 20,000 antibodies now that we actually make and manufacture ourselves, and we source well over 200,000-plus on top of that. So that gives a very wide diverse set of products and supporting everything from Western blot to IAC to all the different work streams that use antibodies and from all the known makers, of which we provide some of those brands, but we also use Novus brand as well as R&D Systems brands. This is very much -- this part is very much like an Abcam, who actually source and [maybe] the same suppliers, to be honest. And I think on top of having the convenience and choice of our portfolio of our customer, I think the website and the tools we put in place to help sell these to customers has really vastly improved. Novus had a great site, and together, we've really improved it overall, in the R&D Systems websites and our overall company website and access models. And that also helped a lot. In addition, we picked up ProteinSimple. We have the Simple Western platform. So we actually went to the work of a couple thousand -- certifying a couple thousand different antibodies, doing the work ahead of time on the dilution levels and how to dial in these products so that you aren't wasting sample or antibody. So customers know what they buy, they can get to work right away. It's very productive. That's helped drive some growth. I mean, there's a lot of tactics, but the overall, I think, is Novus, Novus brand, the breadth, the better website, the better access, that we follow customer metrics, we follow NPS. Our NPS metrics have been going up continually. We have, in R&D Systems, well over 70% NPS, which is your Net Promoter Score. All these things matter, and you got to keep working to make customers happy and -- especially in academia. And as you know, it's a very, very distributed model so it's hard to drive overall. But hey, we'll take the results. It's kind of working well.

And then in the sense of the end markets, are you seeing that the -- good response across pharma, academia? Or is more weighted in one versus the other?

If your question is about how we're now -- our market, our end markets are weighted, and I made commons earlier. Go ahead.

Yes -- no, no. For -- like staying on antibodies, you were commenting in -- on different (inaudible).

I would say antibodies are probably a little more towards the academia than the biopharma, whereas both sections are much more the other way, is, overall, we've definitely reduced the dependence on academia, and we're down to roughly 25% globally. A lot of that shift is the mix of the instrument business and things coming in. I -- but the U.S. component is down at about 15%, and it is probably pretty much it always has been, roughly the equal kind of split, we think, between I would say, the assays, the antibodies and proteins, so.

And at this time, I would like to turn the call back over to management for any additional or concluding remarks.

Okay. Well, thanks for all the great questions. We're very excited about this quarter, and we look forward to speaking with all of you again this coming quarter.

Thanks. Bye.

And that does conclude today's presentation. We do thank everyone for your participation.