Bio-Techne Corp (TECH) 2023 Q1 法說會逐字稿

Good morning, and welcome to the Bio-Techne Earnings Conference Call for the first quarter of fiscal year 2023. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne.

Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2022 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section.

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

Separately, we will be presenting at the Credit Suisse, Stifel, Stephens and Evercore ISI health care conferences in November. We look forward to connecting with many of you at these upcoming conferences.

I will now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our first quarter conference call.

I'm pleased to report that we started our fiscal '23 with a respectable 7% organic revenue growth on top [of] what was our most challenging year-on-year comp of over 21% organic growth in Q1 of last year. We achieved this growth despite a slower summer for our business in Europe and continued, although improving COVID-related shutdowns in China. With the tough comps and we believe temporary regional challenges that our Protein Sciences segment faced, this was the quarter for our Diagnostics and Genomics segment to shine, and China did with 17% organic growth. In our first quarter, we accelerated our Spatial Biology business to upper teen growth. We continue to drive incredible uptake in doctor and patient usage of our ExoDx Prostate test, and we delivered double-digit growth in our (inaudible) DX and Diagnostic Reagents businesses.

I will dig into the traction and encouraging trends we are seeing across this segment and our broader portfolio later in the call. But first I'd like (inaudible) corporate sustainability report we recently issued, which details the significance progress we continue to make advancing our environmental, social and governance initiatives. The [64-page] report provides insights into Bio-Techne's commitment to growing the organization in a responsible manner while we deliver the products necessary to advance science and ultimately improve health care. Our advancements on the ESG front also led to Bio-Techne's inclusion in the 2022 Forbes list of [best in-state employers] with this latest achievement representing the third recognition from Forbes so far in calendar 2022.

I'd also like to briefly touch on how we are navigating the current global inflationary environment. The team has done an extraordinary job of strategically implementing price increases across portfolio to offset the impact of inflation. We will continue to leverage our pricing power to us at [rising costs], particularly labor going forward. It should also be noted that our operations team has delivered consistently with no supply chain issues this quarter or any in the past days.

Now let's discuss specifics of our quarter, starting with an overview of our performance by geography and end markets. In North America, consistent execution across the portfolio drove low double-digit revenue growth for the quarter, driven by a continued strong biopharma end market.

In Europe, our revenue decreased mid-single digits year-over-year. Here, we experienced an exceptionally slower seasonal summer dip in our consumable run rate business. It seemed like everyone was on vacation in July and August, perhaps making up for the prior 2 COVID years when travel was more restricted. Any case, our run rates in Europe picked up considerably in September as researchers seemingly returned to the labs. However, the strong double-digit growth in September, which, by the way, is continuing in October wasn't enough to overcome the tough Q1 growth comp Europe had last year when they grew a record 20%. While there are potential macro challenges in the current European environment, our portfolio of proteomics research reagents, analytical tools and spatial biology solutions remain core components to the scientific discovery process and position us to effectively navigate any near-term regional instability.

Moving on to China. Despite the lingering impact of ongoing COVID-related lockdowns and academic institutions not returning to the labs, we delivered mid-single-digit organic growth. On top of the COVID challenges, I'd also note that China faced a particularly challenging year-over-year comparison where we grew revenue by over 50% in the region last year. We see China rapidly returning to its historical growth rates as prior year comps normalize. Customers continue to better navigate the sporadic COVID-related government restrictions and the Chinese government continues to emphasize investing in health care.

Our biopharma end market remains healthy, growing upper single digits globally for the quarter and especially stronger in North America with growth in the mid-teens. Sales to our academic end markets increased low single digits year-over-year, but again, we're stronger in North America.

Now let's discuss our growth platform, starting with our Protein Sciences segment, where organic revenue increased 3% for the quarter on a very strong comp from last year, when the segment grew by 26%. Let's begin with our cell and gene therapy business, where our portfolio reagents, instruments, media and technologies, streamline workflows, increased efficiencies and ultimately expand [access] to these next-generation therapies at lower cost to the health care system.

We haven't discussed TcBuster for a while, so I will update you on the significant progress we are experiencing with our nonviral gene editing technology. TcBuster had several advantages over legacy gene editing methods, including its ability to deliver larger gene editing cargo as well as a more predictable gene insertion location, all at a lower cost compared to viral-based gene insertion methods. We continue to educate the market on the advantages of TcBuster, and it's worth noting that we have signed a handful of commercial licenses to support a growing pipeline of cell therapies primarily for T cell and NK cell therapies. In addition to customers testing TcBuster for therapeutic candidates, we also see growing interest in discovery research to take advantage of the technology at lower cost and increased speed, enabling the acceleration of a [candidate] selection. TcBuster is currently being trialed in dozens of unique therapies, and we believe the future is very bright for this technology.

We continue to penetrate the [burgeon] in cell therapy opportunity with our portfolio of GMP proteins and are seeing continued momentum in the regenerative medicine or regen med market. As a reminder, regen med is a form of cell therapy that leverages stem cells or the derivatives to promote the repair response of diseased, dysfunctional or injured tissues.

Our GMP capabilities expand beyond proteins and include a portfolio of GMP small molecules. These small molecules are key components in the reprogramming, self-renewal storage and differentiation processes that are key to regen med workflows. While our GMP small molecules business is relatively small today, it is growing rapidly, including over 100% for our first quarter and has potential to become a significant contributor to our overall cell and gene therapy business.

Now let's talk about our core portfolio of Proteomic research reagents, including the RUO proteins, antibodies and small molecules that are key components to enabling biopharma and academic scientific discoveries. Collectively, our RUO reagents grew nearly 30% in Q1 last year, again, highlighting how difficult this quarter's comp was. Despite the high hurdle, our RUO reagents were able to grow mid-single digit in Q1 of this year, driven by our digital marketing capabilities.

Moving on to the performance of our Proteomic analytical tools, where we also faced a challenging year-over-year comparison as the business grew over 25% in the same quarter last fiscal year. Overall, the team delivered double-digit growth in North America and China, which was partially offset by a much lower performance in Europe, leading to low single-digit growth for the quarter.

Once again, our biologics platform (inaudible), we continue to see demand from protein therapeutics, gene therapy and CRO, CDMO customers, particularly in North America and China, where combined growth was over 20%. Innovation remains a key factor in the growth of our biologics business. For example, we recently unveiled data demonstrating icIEF fractionalization on the soon-to-be launched Maurice Flex instrument. Fractionalization is a front-end step in mass spectrometry where the sample to be analyzed is separated into mixture components based on differences in their size, charge or other characteristics. The data showed how Maurice Flex addresses the labor intensive and time-consuming challenges of using legacy methods, including ion exchange chromatography for fractionization. Maurice Flex is scheduled for release in early 2023.

In addition to the expanding Maurice capabilities and applications, the platform is also gaining recognition for its environmentally friendly attributes. A recent study in the green analytical chemistry journal highlighted Maurice as an environmentally-friendly method for evaluating the identity and stability of adeno-associated virus or AAV samples for gene therapy development. The study highlights Maurice's low sample and reagent volume requirements in built-in with reservoir is environmentally friendly attributes to the system.

We continue to expand the capabilities of our ProteinSimple line of instruments in cell and gene therapy applications. During the quarter, we added 3 new viral titer assays for the expanding menu of our automated multiplexing ELISA instrument Ella for intact AAV capsid quantification in gene therapy research and development.

Ella's wide dynamic range and high precision [ensures users] to get the high-quality data required to meet regulatory standards for AAV titration through our bioproduction workflows.

Now let's shift to Diagnostics and Genomics segment, where we grew revenue by 17% organically in the quarter. Our Spatial Biology business, branded ACD, accelerated to upper teens growth in the quarter as strong commercial execution and an enhanced marketing strategy generated well-balanced growth in both our biopharma and academic end markets. In addition to a strong performance from the core RNAscope product line, we are seeing increased traction from our BaseScope and [miRNAscope] offerings in cell and gene therapy applications, which grew almost 50% and over 70%, respectively. BaseScope and miRNAscope are rapidly becoming material contributors to our Spatial Biology franchise.

We recently expanded our RNAscope portfolio with the launch of new automated co-detection assays, specifically designed for the Roche Discovery Ultra platform, enabling simultaneous detection of RNA and protein on the same tissue section. These new automated multi-omic assays utilize both RNAscope and BaseScope signal application to deliver best-in-class RNA sensitivity and specificity. When combined with protein detection on Roche's automated platform, researchers will be uniquely enabled to power translational and clinical research studies.

We are also unlocking the cross segments synergies inherent in the broad Bio-Techne product portfolio. As an example, we recently launched the TSA Vivid Fluorophores for highly sensitive fluorescent detection of RNAs and proteins in cells and tissues. Pairing these key fluorescent (inaudible) reagents from our small molecules business with ACD's RNAscope sets a new standard for illuminating RNA biomarkers with industry-leading sensitivity and clarity.

Rounding out Spatial Biology. We also recently filed a patent infringement lawsuit in the United Kingdom to halt the infringement of our patent RNAscope ISH technology by Molecular Instruments Incorporated. We have made significant investments over the years to build our catalog of over 40,000 RNAscope ISH probes, available in over 400 species and remain committed to protecting these investments and defending our intellectual property rights in our Spatial Biology business. And more broadly throughout the portfolio.

Now let's discuss our Molecular Diagnostics business, starting with the significant progress in our Exosome Diagnostics business. Test [following in] our ExoDx Prostate or EPI test increased over [7%], while associated revenue grew by 100% in the quarter. Importantly, a favorable doctor retention trends and steady increases in the ordering physician base sets the stage for continued robust ExoDx Prostate growth going forward. I am extremely pleased with the traction we are seeing in ExoDx Prostate and believe our fiscal 2023 will be the breakout year for this test.

Exosome Diagnostics also announced initial data on a novel noninvasive saliva-based profiling assay leveraging Exosomes to diagnose and monitor individuals with Sjögren's Syndrome. Sjögren's Syndrome is an autoimmune disease that is often undiagnosed and misdiagnosed with an estimated 4 million Americans currently living with condition, but 2.5 million undiagnosed. Symptoms of Sjögren's Syndrome can mimic other autoimmune diseases, allergies, drug side effects and menopause making diagnosis particularly challenging, leading to an average diagnosis time of 3 years and creating a need for a noninvasive accurate molecular test. We are looking forward to providing future updates for this exciting pipeline assay.

A recent proof-of-concept study for a novel Exosome-based platform capable of monitoring spaceflight associated neuro-ocular syndrome or SANS in astronauts was published in npj Microgravity [for nature] publication. In addition to potentially providing a needed tool to assist SANS in astronauts that are going on longer missions as well as commercial space passengers. The study showcases the potential power of Exosomes for the diagnosis of neurological conditions.

[In Molecular] Diagnostics, Asuragen had another great quarter as demand for its portfolio of genetic carrier screening kits [and] expansion in the Europe drove growth of almost 25% for the quarter. In addition to the ongoing geographic expansion, Asuragen has a rich product pipeline, positioning the business for continued growth going forward.

Finally, our Diagnostics Reagents business continued its [streak] of consistent growth quarters. The return of patients to the doctor's office is driving demand for hematology, coagulation and clinical chemistry tests, which is driving demand for our clinical [controls] reagents. These improving underlying diagnostic trends combined with market share gains and increased wallet share at existing customers led to a low double-digit growth in the quarter and sets the stage for a sustainable growth in our Diagnostic Reagents business forward.

In summary, we continue to execute our growth strategy and remain on track to deliver our long-term financial targets. Our portfolio of proteomic research reagents and analytical tools are critical components of scientific research. Our key to unlocking the full promise of the proteomic revolution currently underway and are positioned to enable the [oncoming biowave] of cell and gene therapy. [Layer on] to this, the portfolio of Diagnostics and Genomics solutions include our leading platforms in spatial biology and liquid biopsy, and I believe we are getting started unlocking the full potential value of this business.

With that, I'll turn it over to Jim.

Thanks, Chuck.

I will provide an overview of our Q1 financial performance for the total company, provide some additional details on the performance of each of our segments and give some thoughts on the remainder of the fiscal year.

Starting with the overall first quarter financial performance. Adjusted EPS was $1.78 versus $1.83 one year ago, a decrease of 3% over last year. Foreign exchange negatively impacted EPS by $0.12 or minus 7% in the quarter. GAAP EPS for the quarter was $2.21 compared to $1.69 in the prior year. The biggest driver for the increase in GAAP EPS was realized gains on the sale of our investments in ChemoCentryx and Eminence during the quarter.

Q1 revenue was $269.7 million, an increase of 5% year-over-year on a reported basis and 7% on an organic basis. Foreign exchange translation had an unfavorable impact of 3% and acquisitions had a favorable impact of 1% to revenue growth.

Given the tough comp we faced this quarter versus the prior year, I will point out that our 2-year organic growth CAGR for Q1 was approximately 13%, right in line with the early part of the 5-year plan our leadership team presented at our Investor Day in New York City a little over a year ago.

Moving on to the details of the P&L. Total company adjusted gross margin was 70.9% in the quarter compared to 71.2% in the prior year. The decrease was primarily driven by unfavorable foreign exchange impact, partially offset by productivity gains. Adjusted SG&A in Q4 was 27.3% of revenue compared to 25.1% in the prior year, while R&D expense in Q1 was 8.9% of revenue compared to 8.3% in the prior year. The increase in SG&A and R&D (inaudible) wage inflation and progress made in the second half of fiscal year '22 in building the team to support ongoing strategic growth investments.

Speaking of inflation, the business has implemented strategic price increases during the quarter to offset the dollar impact of inflation on operating income. However, the dollar-for-dollar offset did have a negative impact on operating margin.

Adjusted operating margin for Q1 was 34.8%, a decrease of 300 basis points from the prior year period. The pricing inflation dynamic decreased adjusted operating margin by 120 basis points. Negative foreign [change] decreased margin by another 110 basis points, while carryover of second half fiscal year '22 investments drove the remainder of the margin dilution for the quarter.

As stated in the fourth quarter fiscal year '22 earnings call, we expect Q1 to be a low point for adjusted operating margins for the year. Going forward, we expect adjusted operating margins to expand sequentially, ending the fourth quarter of fiscal year '23, approximately 100 basis points higher than the fourth quarter of fiscal year '22. For the full year fiscal year '23, our expectation for adjusted operating margins to be approximately 150 basis points lower than the full year fiscal year '22 remains unchanged.

Looking at our numbers below operating income. Net interest expense in Q1 was $3 million, decreasing $0.1 million compared to the prior year period. Our bank debt on the balance sheet as of the end of Q1 stood at $264.7 million, an increase of $8.8 million compared to where we finished last fiscal year. During the quarter, we drew down approximately $100 million on [our credits] to fund the Namocell acquisition, which was partially offset by applying the proceeds of our ChemoCentryx investment sale to our debt balance.

Other adjusted nonoperating income was $1.2 million for the quarter, unchanged from the prior year, primarily reflecting the foreign exchange impact related to our cash pooling arrangements. For GAAP reporting, other nonoperating income includes realized gains from the sale of our investment in ChemoCentryx and Eminence. Moving further down the P&L, our adjusted effective tax rate in Q1 was 21%.

Turning to cash flow and return of capital. $56.1 million of cash was generated from operations in the quarter, and our net investment in capital expenditures was $9.6 million. Also during Q1, we returned capital to shareholders by way of $19.6 million in stock buybacks and $12.5 million in dividends. We finished the quarter with 40.5 million average diluted shares outstanding.

Our balance sheet finished Q1 in a very strong position with $203.1 million in cash and short-term available-for-sale investments. Our net leverage ratio remains well below 1x TTM EBITDA. During the quarter, we replaced our previous debt financing with a new $1 billion line of credit facility with a 5-year term. Our corp dev team has been very active investigating external investment opportunities and this new increased debt facility emphasizes the continued importance M&A will have in our capital allocation strategy.

Next, I'll discuss the performance of our reporting segments, starting with the Protein Sciences segment. Q1 reported sales were $199.9 million, with reported revenue increasing 1%. Organic growth for the segment was 3% with foreign exchange having an unfavorable impact of 3% and acquisitions contributing 1%. Given the tough year-over-year comps that Chuck pointed out for this segment, I will highlight that the 2-year organic growth CAGR for this segment is greater than 14%, and the longer-term historical 5-year CAGR is approximately 12%. Operating margin for the Protein Sciences segment was 43.0%, a decrease of 270 basis points year-over-year with productivity gains more than offset by the impact of foreign exchange, price versus inflation dynamics, the fiscal year '22 carryover of strategic investments to support future growth and the Namocell acquisition.

Turning to the Diagnostics and Genomics segment. Q1 reported sales were $69.9 million, with reported revenue increasing 50%. Organic growth for the segment was 17%, with foreign exchange having an unfavorable 2% impact. As you heard from Chuck earlier, the double-digit growth was broad-based throughout the segment with Spatial Biology accelerating a high-teens organic growth and our Exosome Diagnostic Prostate test really now in hyper growth mode with the Medicare reimbursement and COVID headwinds behind it.

Moving on to the Diagnostics and Genomics segment operating margin at 12.4%. The segment's operating margin increased 20 basis points compared to the prior year. The increase reflects the favorable impact of volume leverage, partially offset by the impact of foreign exchange and price versus inflation dynamics.

Looking ahead, our markets remain healthy, and our momentum in capturing share in these markets is in line with our 5-year plan. As we get past the recent regional challenges in Europe and in China, we are keeping a watchful eye on any potential short-term macro challenges that could impact our trajectory to our long-term goal. With confidence in our nimble and experienced team who has a track record of successfully navigating dynamic environment. With the toughest comp of the year now in our rearview mirror, we anticipate a return to double-digit organic growth for the remainder of the fiscal year.

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

(Operator Instructions) We have a first question from the line of Puneet Souda with SVB Securities.

Jim, Chuck, so first one is really -- I mean, I appreciate that you had tough comps in the quarter for Protein Sciences, but it was still meaningfully below our number and the Street number. So I mean, I think the key question that we're getting here is how should we think about Protein Sciences in the second quarter here. How much of this was really sort of pull forward of demand versus actual weakening of demand as you talked about Europe and China. And -- because I can't recall a time when you had 3% organic growth in this segment. So maybe just walk us through what you see now? And how should we think about the next quarter and for the full year?

Sure. Thanks, Puneet. Yes, I'll give some comments, but I do remember when I joined, it was negative. So I remember plenty of quarters below mid-single digit, by the way. It's just been a while. We are totally on our plan for 5 years, and we have been ahead of schedule, and our models are mid-single digit in our core anyway. So don't forget that. But I will cut to the chase right now. September was strong, October is remaining strong. We're basically double digit across the board, if not high teens. So things look good.

You are exactly correct. We're really hot Q4 coming in at [14] versus consensus of [11], definitely had some pull forwards there. We've done some studying and we had probably -- we had a lot of price increases in July 1, there's definitely some of that. I think also to point out, on the instrument side, we are not too far off. It's just more of a weakness in Europe, cautiousness around purchasing. But we've also dug into what's going on because our bookings and our funnel is very strong. It's actually the strongest funnel we've ever had, but it's taken longer to get through the booking cycle. And signatures are coming more cautious (inaudible) last quarter, especially.

And we were a bit robbed, we think. We think we've not had any supply chain issues the last couple of years, and we've been pretty steady Eddie and very good growth. And a lot of other instruments and makers and a lot of other higher capital or higher signature purchases have been -- have had more supply issues. And we think there's been a little bit of a bubble of pent-up demand in some of the areas, and I think we just maybe lost out a little bit on priority and some of the purchases this quarter that we were coming to.

We don't see a lot of issues against price, and we don't see any issues really from September on. We definitely had a softer quarter in Europe and some of it was a vacation for us. We do live in a little different world. We don't have direct comps, competitors [whether] it's kind of pieces here and there. And we have a large segment in biotech as well, and there's definitely some on the mid-range biotech, there's definitely been softness, especially in Europe on signatures and conservatism overall.

Going forward, looks pretty strong. You heard the news from Jim there. We're more concerned about that. We're more concerned about our long-term outlook, which we don't think has changed a bit. And (inaudible) some highlights there. We'll let you dig in deeper now.

Okay. Great. So on the small biotech side, I'm wondering if you're seeing anything there, any sort of weakening of demand, I appreciate your comments about the current -- I mean the September and October. And Jim, if I could ask you about the low to mid-teens that you had talked about in the prior quarter about fiscal year '23. What could keep that on the lower end versus the higher end? Maybe just walk us through potential upsides and potential things that we need to watch out where it would be lower?

Yes. So I guess the first thing to address the biotech. We're seeing performance in our smaller biotechs pretty -- relative to our larger pharma. We're not seeing much differentiation. For us, when you look at the smaller purchase that we call our run rate business just lower dollar value, which is probably 80% of the purchases come through. The growth in Q2 and continuing here in October continues to be like mid-teens growth, particularly here in the U.S. So back to Chuck's earlier point, it's really the larger bulk purchases that were -- had a tougher comp, and we're more, call it, soft this quarter and probably face more competition with some of the supply chain breaks that were occurring in the larger dollar instrument purchases in terms of competing for dollars.

With regards to looking forward, I mean, I think Europe is still the biggest question mark. We're seeing a strong performance here early in October, but obviously, the macro picture there is a bit cloudy for everyone, and that's something we're keeping our eyes on that could -- that would be the one [play] that could deter us from achieving double digit, if anything.

Okay. That's great. And then last one, if I could squeeze in. On Wilson Wolf, I didn't hear an update. Just if you could provide an update on when do you think that options agreement could materialize?

We're still looking at near the end of Q3 in that range, so. I would say, overall, our cell and gene therapy and our GMP proteins, we didn't have a 50-plus percent quarter like we've been doing as things have leveled off is very lumpy still. We don't have a lot of large, large customers, and there is some timing in some of that. And Wilson Wolf has seen some of that as well, as well as issues around clinicals in finding patients. So things have softened a little, but -- still more or less on track for what our schedule was for them.

They're -- although the improvement is in their EBITDA, their EBITDA is north of 70%. So they're doing really well. And as volume, they're getting good scale. So a lot of good news there, too. And -- we're investing into more sales reps. We're calling our surge team that are helping more out the [whole scale] ready team from a proteins point of view because we're going to be adding more and more proteins to our factory. Factory -- the remainder of this year, the fiscal year, we're going to add 6 more products. So by far will be the largest menu out there in GMP proteins for both regen and cell and gene therapy. So that's all a really good story yet, and we just want to focus on what we thought you guys really want to focus on this quarter. So no issues there.

We have next question from the line of Dan Arias with Stifel.

Chuck, how do you see ACD growth [tracking] across the quarters this year? And what should we pencil in for the impact of the partnership that you have with Akoya? And then on the hiring side, do you feel like the commercial team will be fully staffed out and sort of in the position that you want it to be to start calendar '23.

More or less, yes. We're down 2 heads, which is about normal. We always -- there's still attrition in our business along with everybody else's. But we're pretty much the 95% full strength and have been for this quarter. We promised a succession of improving a quarter since we kind of turned this around 3, 4 quarters ago, and it's -- we didn't -- they didn't [dim] off at all. They had a tremendous quarter, 17% growth.

I would say Akoya is still more in the future. We're kind of waiting on them at this point, but we're ready to go. You saw our other announcements -- we're really going after this front end for mass spec. It's a big TAM out there and we talk about LC mass spec and [GS] mass spec, like it's a one term out there, but there are different ways to be a front end on mass spec, which is a massive opportunity, and we're taking more and more share all the time. So we're focused on that as well. But [SBD] is good. And we're going after evidentially more pathology with automation, and they're not the only game in town (inaudible). We're working with more than just them but we are solidified with them on a deal and partnership is going very well and kind of waiting on them to get a point where we can start making revenue together and getting something out of it. So.

Yes. Okay. And then maybe on Simple Plex, as we think about this post-COVID phase, and hopefully, we stay in here, how are you thinking about average pull-through for the installed base and how that might look this year? I mean, you guys obviously placed a ton of those systems during COVID. So when it just comes to this overall comp issue that we're talking about here, I'm curious how you think utilization and recurring revenue streams compare as we come off the peak.

Yes. Well, overall in consumables for ASD, we were mid-20s for growth in the U.S., just so you know. So with very strong consumables in the similar double-digit growth overall with Simple Plex in the U.S. It's more of an issue around Europe and just some of the normal lumpiness we see with the instruments on the large orders around the clinicals of Simple Plex, but very solid. We're knocking the door of getting near 2,000 machines in the field. And those things, 2 cartridges like crazy, right? So we see a big bright future and get ready clinical stuff right around the corner. We have very little in clinical yet, it's all coming. A lot of interest. Still one of the biggest...

Do you see utilization as a headwind this year? Is that one of the areas where you think there's a headwind when you just think about how much of those systems might have been run last year and potentially running less...

Maybe Europe, potentially, and there is certainly one large customer in Europe that are waiting to turn out again through the next set of clinicals. If that doesn't develop, there might be a bit of a headwind. But in general, North America is steady Eddie. It's more about the Europe in your question. Overall, (inaudible) it's okay, I think.

We have next question from the line of Dan Leonard with Credit Suisse.

So I wanted to start off, Jim, can I confirm that you said you believe you'll deliver double-digit growth for the balance of the year. And if that's the case, that would imply a bigger sequential step up in Q2 than you typically achieve. So can you talk through the drivers?

Yes. I mean if you look at our year-over-year comps, first of all, the comps become less of a hurdle year-over-year as we progress through the year, including next quarter. And we're hopeful that the regional headwinds we faced, namely in China as well as in Europe for the first 2 months of the quarter -- of this quarter will continue to improve. We have a lot of confidence in that with China. And so far here in October, we have seen more confidence with that with regards to Europe. Had those 2 regions not underperformed relative to the U.S. and to their historical performance, relative performance, we probably would be talking about double-digit growth in Q1 as it puts something below that, even with a tough comp.

Yes. Especially with the pull forwards.

And can you elaborate further on how you're thinking about European macro headwinds -- that does seem to be a point of confusion with folks I speak to, given your end market mix.

Yes, sure. Well, we're seeing cautiousness, and we do see some lumpiness, as I mentioned already anyway. We definitely had a weaker than normal July and August across the board, I mean everywhere. So it's not a systemic issue. And September came back (inaudible), but not enough to cover what we saw in July, in August. And I would say, well, that's great, but then October better be hot, in October is also looking okay so far. But it's -- they're definitely cautious. Our teams over there are having issues. We've sent over some more help in the field.

We were, I would say, in the seventh or so inning of kind of correcting Europe anyway, if you remember, we weren't that happy with Europe before all this. So I don't think we're through that. And we're focused a lot on our new platforms over there and things like [SBD], which had really gone soft in the previous year and now are coming back alive. So we'll see.

Instrument and where I talked about time for signature, it's delayed longer than more usual in our funnel. And we're trying to get to that. I think it really has been an issue of competing for dollars with other suppliers having finally enough inventory to supply to support things, and I think we maybe pushed down a little bit this quarter. Our funnel is massive. It's the best it's ever been, both here and the U.S.

So -- and our teams and believe me, we've had some very detailed, we call QBRs, our quarterly business reviews and they're adamant that the funnel and the pipeline looks great. Demand is solid and it's just taken longer to get capital signatures.

Appreciate that color.

There's also, as I mentioned too, I mean, we definitely had some Simple Plex a lot of our clinicals are very large cartridge [buys], and there are some timing issues in there. And like I said, if these bounce back like we think. They come on and they come off they come back on, they'll do more or less, that will help as well. So.

We have next question from the line of Jacob Johnson with Stephens.

It's [Anna] on for Jacob. Can you just update us on the EPI test? I think you're close to getting reimbursement for annual testing and use of the surveillance tool soon. Where do you stand on the business development effort around this?

Yes, we got it. So more or less, the long laundry list of reconsideration items over the last 2 years, we've got everything we wanted back to match the [NCCN] guidelines but one issue, and that's the negative biopsy. So we're really good to go, and that more or less doubles the TAM. So the numbers are going up dramatically. Jim pointed out the numbers, we're seeing hyper growth now. So adding reps we've added -- I'm not giving numbers, but we added 25% more reps this last 2 quarters. So we're on fire.

The new leadership team there over the last 6 months or so has been amazing. We've done everything from changing our message to lining up with Cal Ripken, Jr. again. A lot of shows that we are just ready to publish the next -- the 2.5-year outcome study, which is like 1,000 patients. That's the big event waiting for, for the rest of the big guys out there in insurance. We've got [Humana], but we're after united and the rest of the blues and all these in there. We're knocking on the door where it's coming. So.

And you talked about Exosome as a platform that could be $1 billion revenue unicorn. Now that you've partnered off ExoTRU, what are you working on next there?

About 6 things. Multivariable. There's a bunch of things I won't get into, but we can on one-on-one. So we've got a strong [hop]. For one reason we did license off the ExoTRU because we have a [stronger] things also to work on. We can't work on them all and launch them all ourselves. So where we have strong interest in a good channel partner that has strength in their area like Thermo does with ExoTRU, we're going to do that. But we have a lot of stuff coming. So Sjögren's is just a tip of the iceberg. But it's a great example of things we can launch and get out there. So the statements from the $1 billion platform is about 5 to 10 years out, when there's at least a dozen different indications out there, which we think we'll have. So -- they won't all be done by us. There'll be a mix of partnerships and some driven by us. So -- it's the future of liquid biopsy. So write it down. You can look back 10 years and say we said so.

We have next question from the line of Alex Nowak with Craig-Hallum.

I wanted to expand on that softness in bulk purchasing that you mentioned, Chuck. And I just spoke to Dan about the European summer vacations. But do you think any of the weakness there in the bulk purchase side is just related to just being less dollars out there for biotech projects? I know one of your peers this morning about the manufacturing reported, they cited some short-term cash sensitivity decision to biotech customers. So just more detail what you're hearing out there in the field around [dollars]?

Well, we separate our run rate into we call larger orders and smaller orders. And our large orders are something over $10,000. And those are either summer-related larger orders or larger biotech orders or bulks. And the bulks are on a special volume curve. So not a pricing impact, but -- so that doesn't explain that. But everything else about the bulks, I think what you just said is very possible, an issue that's happened. We are seeing slowness to purchase. And some push out on a lot of these orders and being told such that the demand is not going away, but they're being -- they're watching their dollars and there's a kind of a cash crunch right now.

And I think we have -- probably it's -- (inaudible) tell us that maybe we were deprioritized versus getting the (inaudible) that they couldn't get to the last 9 months because of supply chain issues from somebody else or whatever. We've had no issues. And everybody knows we're steady and we can deliver and our on-time delivery records are at record levels. And we're unique out there. We've never had one supply chain issue through this whole COVID mess to speak of. So if anything material we sell. So (inaudible) has been outstanding.

And I'd just add, Chuck, we're hearing from our commercial teams. It's not so much -- it's not that we're losing any kind of bulk orders or instrument orders. It's more about delay in getting them through the system. So.

Okay. Understood. That's helpful. And then maybe just taking that commentary and then applying the expense growth that you're expecting for the year. Just how are you thinking about hiring? And then also has the employment market eased up here a bit? Or is it still pretty tight for talent?

Yes, great question. I have a long career at 3M and which had a lot of operations management in a low growth company. So I know how to pull triggers on and off, and I know how to deal with things when they slow down or whatever. Attrition has been more or less a nightmare for us and everybody. And so we are still full steam ahead. Part of our margin impact has been the catch-up in hiring. And so we're still looking at doing that.

So we're really hiring hard in SBD, hiring still in China. China is lighting it up again. Namocell, our new acquisition, we've almost doubled their headcount in the 6 months we've owned them. But in other areas like we're maybe looking softer [antibodies] or proteins as we talk with this quarter. We're looking at mission-critical needs and replacements and looking at as we expand this.

So as businesses grow, they need people. If they're not growing, they're going to need less people. We are still on a track. We added 300 people net last year. I'd be shocked if we didn't add 300 net this year, to be honest.

So we've got a cautious outlook in some areas. We're looking at all the areas that we manage. We have 5 divisions, and we have roughly a dozen or so business units. As you know, a couple are super important to us, cell and gene therapy, Exosomes. And so those are kind of what they need is what they get. Even Asuragen growing [here] 25%, lighting it up in Europe, meeting people or adding people.

So I'm more concerned about losing great people and getting behind all this attrition, and it is getting better, as you commented and you asked about -- much better. People are coming back to work, too. So people are wanting to come back to work finally. So.

We have next question from the line of Catherine Schulte with Baird.

First on China. How much of an impact did lockdowns have in the quarter? Are you seeing any impacts from the recent lockdowns that have happened? And how do you view that outlook for this upcoming quarter and for the full year?

Yes. Well, we were roughly 12 or more full points ahead of last quarter in growth. So we're on our track back. We expect mid-teens in that range for this quarter and on our way back to [25%] end of the year at a run rate level.

Kind of expecting the year to be roughly 20-ish or so even with the soft dig out here from a China lockdown. It's still sporadic. In fact, we've got meetings this week. I was trying to get my head of Asia in, he's in Shanghai. He couldn't get out because he couldn't get through Canada [through] a visa issue. So we just heard Disney locked people in there in their resort and they can't -- they won't let them go because the (inaudible) something it's going to be almost building by building, block by block is the way it's been described to us. It's not -- it's a citywide and it's not over yet. But I would say it's drifting slowly towards opening overall. And I don't -- we don't see Shanghai locking down again which would hurt our warehouse. So we think we're still open for business across China. So I think we talked about the steady improvement in China, and we're on track, if not better than on track for this quarter and beyond.

Got it. And then on GMP reagents, you talked about adding some additional proteins by the end of the year. Can you just give us a status update on customers signing on and filling that capacity?

We have not enough whales, a few tunas and way too many plankton in our customer list. So we've got 150 customers, but only a handful of really large ones. And there -- and obviously, the timing issue. They're spotty in their orders for their clinicals and such.

So we're adding people and driving the pipeline and just getting out there, doing more with Wilson Wolf and our scale ready team to try and get our stuff pulled in. Focusing as much on regenerative medicine as we are in cell and gene therapy because we are the leader in regen medicine for [reagents], whereas we aren't in cell and gene therapy. And we have a lot of buy in there and a lot of the new products going are for regen med. So we'll have the largest portfolio. We do now, but we'll have the largest in [St. Paul] as well by the end of the year, we think, so of menu items.

We're sampling a lot. People are astounded at the lot-to-lot consistency in what we have. But at the end of the day, it's not the big-ticket item for doing a clinical and the reagents are important. They're critical, but you're going to have to show more than just price and things to work your way in and whereas we're in a great -- we're in the pole position of Regen, but we're not in cell and gene therapy. So we're still fighting some big competitors out there with Celgene, (inaudible) and others. So -- but we're holding our own and growing nicely, and it's coming, though.

We have next question from the line of Patrick Donnelly with Citi.

Chuck, maybe one for you -- another one for you, I should say, on kind of the quarterly cadence. I think you flagged October. I think I heard a high teens in there. Was that specific to Protein Sciences? And I guess what you're seeing there in terms of that kind of sharp recovery, was there just some push out? I know you mentioned the vacation issue in Europe with your Europe kind of coming back. Maybe just talk about that kind of high teens comment in terms of October, where you saw it?

I think I said double digit to mid-teens and maybe there's a high teen [there] too. And it primarily is around all the different platforms we have in PSS. So they are having a good October and still focus more on the U.S. We're still collecting data here for Europe, but Europe is improving, but how could it not improve? So yes, strong. Proteins for sure, antibodies for sure, assays for sure.

Okay. That's helpful. And then, Jim, maybe on the margin side, in spite of the top line being a little softer, you guys managed expenses pretty well. It sounds like maybe passed a little bit of price to offset. Can you just talk about, I guess, kind of the margin cadence as we work our way through the year here. Obviously, the guidance is holding, but maybe just the levers you have and kind of what you pulled there in the quarter and how we should think about [roll] forward?

Yes. I mean it's really going to be volume leverage that will allow us to continue to expand our margin on a roll forward basis. I think we'll still have the same headwinds around FX and around that price inflation dynamic, even though we're covering inflation dollar-for-dollar. But with -- the investments, we -- as Chuck mentioned earlier, we caught up in a big wave in the second half of fiscal year '22, particularly in Q4 with our growth investments.

And so we're -- it's much more surgical in terms of the investments going forward as opposed to hire-everyone-you-can kind of mentality as it was the past couple of years. So with the growth in investments moderating and the volume ramping have you sequentially go through the year, we expect that leverage to drop through the bottom line and margins to expand.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back over to Chuck Kummeth, CEO, for closing remarks. Over to you, sir.

Okay. Well, thank you. It is interesting that we have a double-digit quarter in our Diagnostic Reagents division, but there are no questions. So we had so many quarters and years of negative growth. This thing is lighting it up as well and small molecule is just on fire, especially in the GMP format for us. But the only thing we didn't cover too much, but more good news there.

With that, I'll end the call and look forward to the one-on-ones rest of the day and talk to you next quarter, and we're looking forward to it. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.