James T. Hippel - Bio-Techne Corp. Charles R. Kummeth - Bio-Techne Corp..

Daniel Arias - Citigroup Global Markets, Inc. Puneet Souda - Leerink Partners LLC Dan Leonard - Deutsche Bank Securities, Inc. Emily G. Stent - Robert W. Baird & Co., Inc. Amanda L. Murphy - William Blair & Co. LLC Matthew G. Hewitt - Craig-Hallum Capital Group LLC Tim C. Evans - Wells Fargo Securities LLC.

Good morning and welcome to the Bio-Techne Earnings Conference Call for the Fourth Quarter of Fiscal Year 2017. At this time all participants have been placed in listen-only mode, and the call will be opened for questions following management's prepared remarks. As a reminder, today's call is being recorded.

I would now like to turn the call over to Mr. Jim Hippel, Bio-Techne's Chief Financial Officer..

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 expectations of the company's future results.

The company's 10-K for fiscal year 2017 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 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, www.bio-techne.com. I'll now turn the call over to Chuck..

Thanks, Jim, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. As you saw in our press release, we ended the year on a strong note and I'm very pleased with our fourth quarter results, as well as the execution of our strategic plan all year.

The company delivered 8% organic growth in the quarter and achieved 6% growth organically for all of fiscal year 2017. Our two divisions that primarily serve the life science research market, Biotechnology and Protein Platforms, collectively grew organically by 7% both in Q4 and for the full-year.

And although we can't comment as organic growth here until the acquisition annualizes in August, ACD grew over 50% in Q4 on a standalone basis. By geography, Europe results were outstanding for the year, experiencing double-digit growth that continued into Q4.

With new leadership established last year along with an acquisition of our most loyal distributor in Southern Europe, we embarked on creating a more unified European subsidiary with attention to cross-selling and regional collaboration. It worked. We finished 2017 with double-digit organic growth and a team now of 200-plus strong.

As in Europe, our Asia region also performed very well. In China, growth of our Western brands grew over 30% in Q4 and were up 25% for the full-year. The CFDA crackdown and on cell therapies administered by hospitals due to the Baidu scandal over one-year ago was a drag on our locally produced PrimeGene brand in China results overall.

But for most of fiscal 2018, the worst will be behind us and we should see increased contribution again from this part of the China market, as the CFDA gradually gets through its certifications. As for the rest of APAC, the region overall performed well in fiscal year 2017.

Japan appears to have turned the corner with low single-digit growth for the year, while the rest of APAC experienced double-digit growth. Here in the U.S., we finished the year with mid-single-digit growth for both the quarter and the year.

The academia end markets grew in the low single digits throughout the year, with uncertainty around future NIH funding and the clinical environment creating a drag on new life science research funding decisions.

But the FY 2017 budget finally passed with a modest increase in funding and we'll hopefully see an uptick in new academic projects as we start our new fiscal year 2018. This year we extended our partnership with Fisher Scientific and further expanded how we work together.

They performed very well for us in Q4, especially in academia, and we expect even better results from this strong collaboration going forward. The Biopharma market in the U.S. was stronger for us in Q4 than it was in Q3, which is consistent with the lumpiness we saw throughout the year.

We believe project timing at some of the larger pharma companies is what has been driving the quarterly variability, but Biopharma is still in a long-term uptrend, especially in bioprocessing, and we have been increasing our sales force in North America to capture this upside. Now for a little more color on our Q4 performance by division.

Our Biotech division grew 2% organically in Q4 and finished the full year with 4% organic growth. This division was most impacted by the end market issues in both academia and Biopharma in the U.S. that I just described, and also was impacted by the lower PrimeGene sales in China.

By product, the growth was driven by the sale of antibodies, which has been a strategic focus of ours for the past several years. 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 website now offers over 100 active pathways to better assist researches in finding the readings they need and uses more sophisticated search engine optimization to finalize product selection. The metrics speak for themselves.

We've experienced a significant increase in web traffic, which is critical to the academic catalog sales efforts, double-digit growth in web traffic, and our antibody business in particular really benefiting from improved website metrics.

Looking forward, we see product specific information as a true business tool and we have many new exciting projects to further accelerate our growth by the use of information for management pricing, promotions, channels, et cetera. Big data has found us too. Innovation also continues to fuel long-term growth for our Biotech division.

Last year we introduced over 1,500 new reagent products and had first year product revenue similar to the past year. We are currently 500% better in vitality for new reagent product revenue than we were four years ago. And finally, there is Advanced Cell Diagnostics, the newest part of the Biotech division, which will annualize this August.

The ACD marks Bio-Techne entry into genomics market. More importantly, its innovative and versatile technology has potential to change pathology practices from the current method of using antibodies.

RNA in-situ hybridization transformative technology is facilitating and improving the marketing of gene expression patterns at the single cell level, while retaining the morphological context of a tissue being analyzed. ACD's technology serves both the research and diagnostic markets, expanding Bio-Techne's presence in the clinical lab setting.

ACD had a stellar year in 2017 with over 50% growth in revenue on a standalone basis. This fiscal year we look forward to adding ACD's growth to the corporate organic metrics. Full integration of ACD is ongoing and we anticipate it will be completed in fiscal year 2018.

With revenue growth expected to continue at over 40%, we believe it could become a company division in the coming year. Are there more ACDs in our future? We hope so.

We are still hungry for more acquisitions and we have the balance sheet capacity for them, but it is important that we acquire assets at good prices and that we have the infrastructure in place to integrate them into the growing company. Moving on to Protein Platforms.

This division also continued with its growth momentum, marking a sixth quarter in a row of double-digit organic growth. Five out of six of those had growth at 20% or better. Getting our Protein Platforms division back to a 20% organic growth rate has been a difficult, but rewarding achievement for us.

This has come from a combination of good new product introduction and applications, as well as some strong commercial synergies with the Biotech division, which sells the reagents used by the Protein Platforms division's instruments.

When we acquired ProteinSimple, it was primarily for the Simple Western instruments in the Western blot screen, $1 billion dollar opportunity. That opportunity remains, but the division also has strong double-digit growth business in Biologics instruments used in bioprocessing of proteins and Biopharma.

We have some customers with nearly 100 instruments. The Protein Platforms division also manages the Simple Plex technology platform, which came through the CyVek acquisition. It is now growing over 70% per year and its revenues have become material for the Protein Platforms division and the company overall.

We've instrument placements in majority of big pharma accounts and we believe it is on its way to becoming a standard tool using clinical trials, and eventually a potential standard diagnostic platform for point-of-care. Next our Diagnostics division rebounded nicely this quarter with 14% organic growth, finishing the year with 3% growth.

As I have mentioned on prior calls, our OEM customers in this business ordered a large quantities of controls, kits, and bulk reagents at one time and their ordering patterns can vary from quarter-to-quarter, causing large swings in our quarterly revenue growth.

Our growth for the year is more representative of our Diagnostics customers' market condition. Over the long-term, the project pipeline for our Diagnostics division remain very strong with new markets to serve.

We will be expanding our subsidiary model in Europe to include the Diagnostics division and drive new opportunities with customers there, further expanding our sales funnel. And innovation doesn't just reside in our other two divisions.

Notably, in fiscal year 2017 we launched a new product in the Diagnostics division, PARATEST, which is a fecal exam, also called an ova and parasite test, used to diagnose intestinal parasitic infection in companion animals such as dogs and cats. The fragile nature of infecting organisms make sample collection very important.

This is our first foray into the veterinary market and we believe it represents significant opportunity to contribute to our growth. Finally, I'd like to highlight our adjusted operating margin performance for Q4. We were very transparent over the past year about what kind of immediate impact the ACD acquisition was going to have on our margins.

We were equally confident about how our adjusted operating margin would improve in the second half of fiscal year 2017, as ACD continued its revenue ramp and became less dilutive to the overall margin profile.

True to our word, our adjusted operating margin increased sequentially by over 150 basis points over Q3, and that's after Q3 had expanded over 200 basis points from Q2.

Now we can't expect that kind of sequential performance indefinitely, but it is a testament to the wonderful execution by our employees, which manifested on both our top and bottom line in Q4 and entire year of fiscal 2017. Fiscal 2017 was an epic year for the company, ending with 13% overall revenue growth and 6% in organic revenue growth.

We believe we are tracking very close to our strategic plan. The company is diversifying in many adjacent life science areas that will provide accelerated growth and safety for investors, with results from a reliable growth [charter]. Our acquisitions, while fundamental to our growth plans, are now an enabler to meet or exceed our five year targets.

Fiscal 2018 will be a year where we hope to close one or more acquisitions, grow to over 2,000 employees, and exceed $600 million in revenue. This will represent a doubling of our capabilities in the past five years, all while preserving strong operating margins. What really makes this company a great company, though, is its employees.

Now nearly 1,800 strong worldwide, our team has focused a lot of energy on our culture, synergies, and accomplishments to create an enduring company devoted to life science. I want to thank all of our employees for a remarkable year in 2017 and look forward to working with the team as we continue our journey in 2018.

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

Jim?.

Thanks, Chuck. I'll provide an overview of our Q4 financial performance for the total company, and then provide some color on each of our three segments. Starting with the overall fourth quarter financial performance; adjusted EPS increased 18% to $1.09. The impact of foreign exchange fluctuations represent a headwind to EPS of approximately $0.01.

GAAP EPS for the quarter was $0.77, compared to $0.69 in the prior year. Q4 reported revenue was $156.6 million, an increase of 16% year-over-year, with organic revenue increasing 8%. Fourth quarter reported sales include a 9% growth contribution from acquisitions, partially offset by a 1% unfavorable foreign exchange headwind. By geography, the U.S.

grew mid-single digits, with Biopharma growing in the high-single digits and academia in the low single digits. Europe revenues increased over 10% organically, with Biopharma sales growth in the low teens and academia around 10%. As a reminder, the Easter holiday occurred in March of this year versus the month of April last year.

We estimate this negatively impacted Europe's Q4 growth by approximately 3%, making Europe's results for the quarter even more impressive. China's organic growth was in the high single digits in the fourth quarter. But, as Chuck stated, our Western brands grew over 30%, with similar contribution from both our instruments and reagent businesses.

What partially offset this growth was our local PrimeGene brand most impacted by the CFDA shutdown of immunotherapy until it can be certified by the local government agency.

Japan continued to rebound in Q4, with organic growth in the mid-single digits, while the rest of Asia-Pacific region continued to perform well, with growth in the high single digits. Note that all references made to growth rates by region and end market exclude our OEM sales, which mostly occur in our Diagnostics segment.

Moving on to the details of the P&L. Total company adjusted gross margin was 71.8% in Q3, favorable approximately 170 basis points in the prior year due to strong operational productivity and volume leverage offsetting unfavorable product mix. Foreign exchange had a nominal impact on adjusted gross margins year-over-year.

Adjusted SG&A in Q4 was 24.2% of revenue, similar to the prior quarter, about 135 basis points higher than last year. The SG&A increase was driven by the acquisitions made since the beginning of the fiscal year and to a lesser extent strategic investments made in our core businesses to support growth.

R&D expense in Q4 was 8.7% of revenue, approximately the same as the prior year. The resulting adjusted operating margin for Q4 was 38.9%, an increase of 160 basis points over the last quarter and a decrease of approximately 10 basis points over the prior-year period.

Operational productivity and volume leverage came close to offsetting the 220 point negative impact from acquisitions made early in Q1 of fiscal year 2017. Looking our numbers below operating income, net interest expense in Q4 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 to fund the acquisition of ACD last August.

Other non-operating expense for the quarter was $0.4 million compared to $1.9 million in the prior year quarter, with less transactional FX expensed this year driving the variance. Our adjusted effective tax rate in Q4 was 29.7%, an improvement of 180 basis points from the fourth quarter of last year due to geographic mix.

In terms of returning capital, we continue to pay our dividend and paid out $11.9 million in the quarter. Average diluted shares were up less than 0.5% over the year ago period at 37.5 million shares outstanding. Turning to cash flow and the balance sheet.

$54.3 million of cash was generated from operations in the fourth quarter and our investment in capital expenditures was $5.2 million.

Excluding acquisition earn-out payments, which for GAAP purposes are deducted from operating cash flow, our adjusted cash flow from operations for the quarter was $57 million and $158 million for the total year, both new records for the company.

Management view these earn-outs as part of the purchase price paid for acquisitions that's an investment rather than an operational cash expense. Excellent execution on net working capital management, both in the areas of inventory and collection, contributed to our overall cash flow performance.

As for other notable items on our balance sheet, we ended the quarter with $157.7 million of cash and short-term available-for-sale investments. Our long-term debt obligations at the end of Q4 stood at $343.8 million, flat from the end of Q3. Going forward, our capital deployment priorities remain opportunistic M&A, our dividend, and debt pay down.

Now discuss the performance of our three business segments, starting with the Biotechnology segment. Q4 reported sales were $97.2 million, with reported revenue increasing 15%.

Acquisitions contributed 14% to revenue growth; foreign exchange negatively impacted growth by 1%; and organic growth was 2%, with particularly strong growth in antibody sales helping offset tough comp from last year. For the year, Biotech segment achieved 4% organic growth.

Adjusted operating income for the Biotech segment was nearly $4 million higher in Q4 compared to the prior year, while adjusted operating margin was 49.3%, an increase of 140 basis points over Q3 and a decrease of 310 basis points year-over-year.

The decrease in prior year is due to the acquisition of ACD, while the sequential increase reflects the bottom line improvements we see in ACD as it continues to scale.

Excluding the ACD acquisition, adjusted operating margins in the quarter were very healthy, 55.3% for the division, nearly a 300 basis point improvement over prior year, where strong operational productivity more than offset the strategic investments being made to drive future growth.

Turning to Protein Platforms segment, net sales in Q4 were $26.8 million, an organic increase of 24% from the prior year period, with an unfavorable currency translation impact of 2%. Growth for this segment was driven by the Biologics product line, representing the strength of the Biopharma end market, with particular strength in Europe and Asia.

Simple Plex was also a notable contributor with 100% growth in the quarter over last year. Adjusted operating income in Q4 for the Protein Platforms segment was $4.3 million, representing an adjusted operating margin of 16.2%, an increase of 870 basis points from the prior year.

Strong volume leverage and cost productivity, particularly in Simple Plex, drove the year-over-year improvement, partially offset by strategic growth investments made throughout the past year.

Protein Platforms ended the full year with adjusted operating margin of 10.5%, a significant milestone as it continues to march towards even higher double-digit profitability. Moving on to our Diagnostics segment, reported revenue in Q4 was $32.6 million, with reported inorganic growth increasing 14% from the prior year.

The positive trend in shipments from previously delayed OEM orders contribute significantly to the growth this quarter. The underlying market growth of our OEM customers is more represented in the segment's full year growth of 3%.

However, as Chuck discussed previously, there is a strong pipeline of new OEM projects and innovative products, like PARATEST, that we believe will allow this division to outpace market growth in the years to come.

The Diagnostics segment adjusted operating income increased 18% in Q4 and adjusted operating margin was 32.1%, an increase of 70 basis points from the prior year. The increase was driven by the volume leverage partially offset by unfavorable product mix. In summary, we had a solid revenue execution across our end markets globally.

We are relentless in driving operational productivity and we prudently invested back into the business using our prioritization process that will drive the highest returns for growth and allow us to achieve our long-term financial objective.

This was true not only in Q4, but also for the full year of fiscal year 2017, where we ended the year with 6% organic revenue growth. As we look to the year ahead, we expect overall fiscal year 2018 organic revenue growth to be comparable to that of fiscal year 2017.

Diagnostics growth could be a little higher as new projects come online and Protein Platforms growth, albeit still solid double digits, could be a little softer, given the tougher comps and larger base of business going into fiscal year 2018.

However, we expect the biggest difference in fiscal year 2018 will be annualizing ACD and including its growth in our organic metrics, which could be as much as a couple of percentage points on top of the organic growth we reported in fiscal year 2017.

With regard to profitability in fiscal year 2018, we are driving to hold our strong operating margins in the Biotech segment and maintain our operating margins in our OEM driven Diagnostics segment. In Protein Platforms, we expect to continue delivering higher operating margins as the business continue to scale.

While in ACD, we expect it to cross its profitability, albeit modestly, for the first time, despite the heavy investments that will continue to be made to extend its regional growth and the research use only market and penetrate the clinical end market globally.

Contribution mix of these businesses are expected to yield flat year-over-year adjusted operating margins for the total company for most of the year. The exception is the first quarter of fiscal year 2018, where the comparison of prior year include the stub year portion of ACD, as it was purchased August 1 of last year.

The inclusion of August this year will add approximately $3 million of operating costs and very little revenue when compared to last year, thus negatively impacting year-over-year margins during our first quarter. That concludes my prepared comments. And with that, I'll turn the call back over to Christina to open the line for some questions..

Thank you. And we'll take our first question from Dan Arias with Citi..

Hey, good morning. Thank you. Jim, just wanted to start on the outlook for the year. 6% organic for 2018, it seems like it should include 200 basis points or so from ACD as it rolls in.

So if I just look at the rest of the business and the implied 4% organic rate there for the remaining portion of the business, it doesn't really seem like it captures the momentum that you have in areas like PPD, et cetera.

So can you just maybe walk through your thought there, walk through the segments in order to get to the full-year forecast? And then talk to whether that's conservative or not conservative..

Actually I'll start from my comments, Dan. So the comment which you're referring to our core business excluding ACD, so the 6% organic growth that we experienced here in fiscal year 2017 is on par with what we expect with our core business going forward excluding ACD. And then ACD a couple of percentage points of growth on top of that..

So we're not coming off....

Okay..

...our thesis of being an 8% or better, so....

Okay.

So just to clarify, 6% organic for the rest of the business if we were to assume somewhere in the neighborhood of 200 basis points from ACD, you're looking at the 8% range that Chuck just referenced?.

Correct..

Okay. Thanks..

Jim also referenced, there could be some minor shifts up or down. We've got a scale issue that's getting bigger PPD, so it might be a few points off. We've been averaging almost near mid-20s lately. So we're not promising that in PPD. And Diagnostics should be – could be little higher. We've got a pretty good full pipeline of things coming in.

We're expecting a solid year with this entry of the PARATEST, to be honest. So a little bit of shifting, but the overall net-net grew, we're guiding really to – our soft guidance was like last year 6%, total 8%, and that's if ACD stays at 40% or better, which we right now think it should. So....

Yeah, right. I got you. Okay. And so if I could just stay with ACD and Protein Platforms for a minute.

On the ACD portfolio, can you just talk a bit about what the imperatives are to keep that growth near 40%? Do you need additional reps as you try to spread the word of the technology, or is the current sales coverage, I mean, what you think it's needed to be? And then on PPD, is it fair to say that the 15%, 20% growth range is still part of the outlook for 2018?.

Yes and yes. So number one and always, in an acquisition like an ACD – remember, we're finishing our earn-out through the end of this calendar year – it's all about team and team and team. So we need to keep that team, keep them happy, keep them motivated, and keep priming the pump. So we are fuelling them. They are still investing.

They are increasing their head count significantly. It is a commercial model. We've talked a lot about. It is not the – the kid business is not as profitable as our overall proteins business, for example, because you need a lot more commercial activity, because you're dealing with pathologists.

And it's a mix between academic and Biopharma, with I would say the trending towards the Biopharma in terms of momentum. So that thesis is in place. We also don't think we have the same kind of issue in terms of early adopters we did with ProteinSimple around the Western blot. It is much more balanced. It's a huge market.

There are a lot of pathologists out there. They do all kind of – act as a bit of a club, so it's a little more uniform than I think we followed the academia around Western blot as an example.

So we think that thesis stays strong as or better and there is more coming on top of all the purchases in the Diagnostics segment with the Leica relationship, and then we're not done there too. We're also chasing the other big automation players, and we do think we'll have a nice diagnostic standard here over the coming years as well.

Protein Platforms, it's becoming nicely diversified. It's not a one trick pony anymore. It wasn't really purchased for Simple Western. Biologics is actually a larger business. They're all growing double-digit. Biologic growing strong double-digit. Simple Plex is coming up fast. It's 100% growth the last two quarters, 70% or so annualized.

We see that continuing. It will become more material this coming year, and we like that. The Milo platform is starting to pick up some steam as – it was never meant to be a big part of the business, but it is definitely accelerating. So we see a consistent 15% to 20% as well for PPD. It could be better.

It all really depends on how strong bioprocessing stays out there, which everybody thinks it will and biologics remaining strong. I do think that the Simple Western will get better and better over time. It's a tough nut to crack to create a new standard out there around Western blotting. It's a $1 billion opportunity and we do see things accelerating.

I could say – tell you that we did have an increase in our consumables, our attach rate this last quarter or two, and so we like to see that. So there is much more acceptance of the platform, but there's still focus on it..

Okay. Thanks for the help, Chuck..

And we'll take our next question from Puneet Souda..

Yeah, hi, Chuck, Jim, great quarter. Just briefly on – let me touch on China, since ACD is somewhat covered. The PrimeGene brand, help me understand, now you have Western products growing there too, Protein Platforms growing and now PrimeGene is adding in.

Help us just to understand, I mean, how should we think about China in the context of the guidance that you've already given out?.

Well, we'll see China improving. The R&D Systems brand, the core brands have always remained strong, but the "China for China" strategy was in a large part due to PrimeGene because we'd already bought it. And with that CFDA crackdown, we went from some material base business in China to virtually zero.

That's coming back now, and it's out of our numbers going forward the next quarter. So you'll see overall organic rates improving significantly for the whole China business, but they're going to remain above 20%, 25% in our core brands, and I still hope to actually improve them even further, given the other things we're doing there.

And bringing more Diagnostics division products in as well, more and more governance there, expanding into more territories. We're expanding into Beijing. So we're – it's still an expanding model as a business unit. And I would say we're not even halfway through what we're going to do with China, so....

Okay. Got it.

And in terms of the iCE platform that you mentioned, having a growth there in Biologics, obviously, so in the QA/QC platform, could you give us a sense of – we have heard Biologics' weakness is from some of the other competitors in the space, so just trying to reconcile and trying to understand where you're seeing growth specifically in that segment.

And if you could elaborate a little bit also on how the academic segment of the Western platform continues to grow and how much of a tail do you have there longer term?.

Well, first focusing on bioprocessing and Biologics. We've been watching our other peers announcing and we're really mystified as well, because we're seeing amazing strength yet in the Biologics space.

It could be a lot due to the – we still are seeing a lot of momentum and taking share with our latest platform in the iCE category, with the Maurice platform. And I think that's a big part of it. As I mentioned, we have some customers with as many as 100 instruments.

So it is the only part of our business in the company to actually – it actually supports production in Biopharma. So there is a lot of big scale potential. So as these large companies decide to change out their old platforms, and then stay with the spec of our platform, there's a lot of big upside and we're seeing that.

So it's very, very strong double-digit growth. And we've tempered that as much as I say we can here looking forward, but we don't see any real negativity yet.

And we are hearing there's a softening in other places as well, but we've not seen it here and I do think it's probably a testimony to the strong share-taking ability of the Maurice platform, because it could handle charge and size, and so it's a direct competitor to some other big guys out there.

First time we've had that and it's just really good product..

Okay. Great..

And in terms of Western, I think I mentioned already. It's a slower ramp. We're getting there. It's double digits and what I like – I think the biggest thing to watch, and we watch is the consumable's attach rate. So it's becoming more and more [used] that we sold them, because remember we're still selling a lot in the academia, as well as Biopharma.

In those academia, those are the ones you got to watch, make sure they are using them. So that's happening. We like the improvement and we are double-digit growth. The West is – I don't have the fun fact number, but we're well north of, I think, 600 or so placements. So on our way to a first 1,000 here probably this coming year easily..

Okay. Thanks. And just if I could squeeze in one last one on academics. You pointed out this is low single-digit. Again, being in lab in my past life, just I would assume that, look, consumable orders would go first and the heavy equipment would come a little bit later.

So I'm just sort of surprised that you haven't seen the pull through that some of the larger competitors are already seeing from NIH improvement.

So help us understand what happened – what's the dynamic there and what's your thought on 2018 here, fiscal year 2018?.

Yeah, I don't think we're saying that. So we were mid-single digits for the year. It was a little softer this quarter, but it bounces around a bit. We're actually seeing some strong growth. I think we are seeing some triple [through] from NIH. I think other companies have mentioned it now, even Thermo.

We also had a best quarter in probably six, seven quarters of Fisher. So that's also looking pretty nice. So I'm pretty bullish overall really. I think what you're – we try to mention that the offset from PrimeGene and some of the OEMs and the timing there also kind of negates from the overall Biotech number.

Clearly, you are going to see that kind of bounce around, but we're still bullish on mid-single-digit growth this coming year in the segment. That's all we need. I remember, four years ago coming into this company, we were double-digit negative in academia and shrinking quickly for a lot of reasons, and that's been corrected for years now.

And low single-digit overall academia has all ever been our growth and the remaining high single-digit Biopharma, and we're seeing the mix continue in that kind of range..

Okay. Thanks, guys. Good..

Yeah, Puneet. This is Jim. Just one more thing I'll mention, because others obviously listen to lot of our peer calls as well and let me make sure you parcel out and look at the academic growth is whether talking about on a global basis or whether talking about on a U.S. basis. On a global basis, we are solid single mid-digits.

Europe is performing very well in academia for us. U.S. is a little bit softer. But I know some of our peers talk about it on a global basis, not necessarily on U.S. basis, so just something to keep in mind..

Got it, guys. Thanks for the details. Good quarter. Thanks..

We'll take our next question from Dan Leonard with Deutsche Bank..

Thank you and hello.

First off on ACD, Chuck or Jim, can you characterize the level of visibility you have into your 40-plus percent growth expectation for ACD in fiscal 2018?.

Well, the visibility is as much as – they're in an earn-out, but we definitely govern them and there is a lot of process. They are increasing their head count significantly in their commercial, which is really where the increased sales come from, and then we're really ramping with Leice, the Diagnostics platform.

So it is still largely a research business model with probably the bigger growth, probably next year, not this year, coming off of Diagnostics.

So a lot of growth all the way through going forward, because again this is $1 billion space, and we see the market is a tighter market than like Western blot, because we're really going after pathologists as a class of customers, and the take-up is very strong. I would say it's – we had a 60% quarter last quarter.

This quarter is still over 50%, and overall sort of a 6% year. We're not seeing any slowdown yet. We're just saying we're not promising more than 40%. We're not seeing an acceleration either. I think the take-up is about as good as we can feed the beast, so to speak, with additional commercial resources.

And you can go too fast in this, and we're trying to caution and we're involved really at all levels, and with leadership and with compensation. And this is a Silicon Valley based business unit, of course, so you've got to mind too, there are other companies out there that buy for talent, as you know. So it's what we do.

We're operators, so we're operating..

Okay. That's helpful. And then my follow-up question, Chuck. Can you elaborate on what changed with the Fisher relationship? It seemed like the performance changed, your tone changed, and something – it sounds like you've got an extension to that relationship now as well..

Well, Fisher is a complicated animal, and we know it well, obviously, from our background, and the leadership are good friends of us here personally as well, so we're all trying.

Of course, so you're talking about a model that has dozens and dozens of reps in the field and how do we support them the right way, how to keep them focused on academia versus Biopharma, where we're already strong, how to keep their technical specialists really up-to-date and trained as they have turnover.

These have all been issues the last couple of years. And I would say we really dug in hard. I think I mentioned this last quarter, we were digging hard on those issues, especially training, and it's kind of paid off. They had a solid upper mid-single-digit growth quarter for us, and I hope it continues.

We are extending the relationship, but of course, there are metrics they must meet to continue that, and they are, if anything, drifting towards being more of a competitor with their acquisitions via Thermo Fisher, so it's something we have to watch.

It's not as carefree and friendly as it was four years ago when they didn't own and they didn't own Life Tech, of course.

So it is what it is, but we firsthand know that the firewall there is real and that they take it very seriously, and we believe in them and we are – we do have processes in place where reps must work together in the field and support each other and that works and it is working, and I think that's been one of the improvements in the quarter, things that have improved.

Overall, at a high level, they're just more attention and focused. They don't want to lose us. We've become a pretty big customer of theirs overall, and I'd like to see it continuing work, plain and simple. We would like to focus more on Biopharma and really let them focus on academia for us, because they've got the army we don't..

No, understood, thanks for all the color..

And we'll take our next question from Catherine Schulte with Robert W. Baird..

Hey, guys. Thanks for the question. This is actually Emily on for Catherine.

So turning a little bit more towards the antibody markets, how would you characterize the current competitive landscape within antibodies, and how has this changed since Santa Cruz antibodies came off the market last December?.

It's a great question. I was hoping that somebody would ask this one. So we've had – we had a really great year and quarter in antibodies. We attribute a lot of it to – most of it to our website overhaul, where we're getting double-digit traffic increases.

This is largely a search engine kind of a model, and when you're dealing with couple hundred thousand products like we are, it's important really to be careful. Novus has double-digit growth, and Europe even stronger. It's doing well on all cylinders. It's been a wonderful acquisition. The team has been wonderful.

They've been the leadership champions of our website overhaul. And they are really infiltrating a lot of the overall governance, and our overall antibody category is doing well. I think we've taken a little bit of that Santa Cruz opportunity.

I think it's hard to not see the two of us being in the single digit growth rates as a category and double-digit in a lot of regions like Europe. We're not the only one after that share.

Everybody has a program, as you saw Abcam did report and I think that's probably one of the – you take our [riba] monoclonals, that's probably the most average looking report they've done in years and, in fact, they were no better than us. So we're very happy with our progress as an antibody supplier. As you know, it's a very, very big market.

It's just also very, very fragmented and we're still looking at strategies, assets, other combinations of instant platforms and work streams to give us an edge. We are probably the leading manufacturer of antibodies that actually provides full solutions that has instruments to go with the platform.

I think you'll see other competitors there try to copy that, so it's working, and we're all in on antibodies, what can I say. And then we think we're perfectly positioned. I mean, the future – there is a lot coming on on immunotherapeutics using antibodies and we're also posting IP now.

You can start looking that up, where we're starting to discover antibodies around certain binding ligands and the potential molecule. So we're – we've got a lot of discovery going as well in turning around antibodies. So more to come on that..

Okay. Great. Thanks. That's very helpful. And then turning more towards M&A, so I know in the past you've traditionally averaged about three deals a year. I haven't really seen one this year other than ACD.

Going forward, are you still targeting deals related to Diagnostics, China, and Europe?.

Yes, yes, and yes. So we didn't have any less activity. We just didn't have as much to show for it. As everyone will attest to, deals – it's a pretty hot market, deals are not cheap right now and we're just very rigorous on our process.

So if we don't find a way – a path through synergies to get to a double-digit return on that capital within five years, we usually walk. It's getting harder and harder to do. We do focus more on the private entity more than a public entity. We're not really in the processes of – more and more deals go into process.

So that doesn't say that we aren't – we're focused on looking at lot of things. We made comments that we'd do probably one to three this year. I feel very confident we'll do one to three this year.

And, yes, we did go whole year without acquisitions and a couple of years ago the questions were a lot about, are we doing too many and do we know what we're doing. And so, yes, we even know how to take a pause and focus on integration.

And look at the operations, look at the margin, look at what we've done, I mean, the results are there, they're showing it. We had two wonderful quarters in a row of some really great productivity and is showing that we're really finding that integration – synergies that we're looking for. So, more to come. We are on track for our strat plan.

We do think without any acquisitions, we'll be at that 41% in the couple more years out. And we won't be there next quarter, so don't add 2 points on for next quarter. As Jim mentioned, it's going to be up and down and the overall mix component for next year is roughly flattish. But the trend is there, it's real and we know what we're doing on this.

But all likelihood, we will do acquisitions and so we will take a step back if we can do the dilution, and then we'll keep grinding on like we do – we know how to do. Again, this is a team of people who are all very experienced operators and we like doing it, so....

Great. Thanks so much..

We'll take our next question from Amanda Murphy with William Blair..

Hi. Good morning. I just had a couple of questions on some of the end market dynamics you already talked about. I guess one was on the academic side in the U.S., so clearly seeing a little bit better there as you talked about. It sounds like we're also seeing some people starting to look forward to 2018 and what may go on there.

So I was just curious what you're hearing from customers in terms of their willingness to spend this year versus uncertainty next year. Go ahead, sorry. Go ahead..

Go ahead. I just don't want to stack up too many questions, I won't be able to answer them all..

No, no, no. Go ahead. Yeah..

So I'm going to start this, and I'm going to let Jim take this because he's actually just been kind of rolling through our numbers, because there's always been a lot of focus on what do we really have in academic versus Biopharma and U.S. versus the world, and what are the trends and how are we mitigating that academic risk.

And so we have a fresh set of numbers so to speak. I would say the coming year, I think things look pretty good for NIH funding from what we hear, and what we've seen, and I don't think we've seen everything really come through. There's still kind of a trepidation out there over – politically. So I think we're not even midway into that.

Other companies have talked about that. This is the first quarter I'm really seeing people actually talking about they're seeing some stuff flowing through. I think it will be okay that part. Biopharma is still for us, I think, might be a little unique.

We do have some timing issues, because a big part of our business in our core, of course, is ELISA kit and assay related and those can go up and down versus the timing of products in Biopharma. We're very strong in that timing cycle in Europe, still we see that continuing.

And we hope when we're coming out of that weaker cycle here in the U.S., as Jim mentioned, but there is no proof as of yet, which is what we think is probably going to happen. And with that, Jim can follow up and give some metrics..

Yeah. I mean, really now and I'll add – we've mentioned this point before is that the academic portion of our business that's strictly U.S. related on a global basis, total company revenue basis, it's about 15% of our total revenues. So it has become a much smaller peak dynamic for us.

And, yeah, I think we're hearing from our commercial teams out in the field is that the mood is not as negative as it perhaps was in terms of pessimistic about what future funding might look like. I haven't seen it come through yet in big dollars or orders.

But one of the items we look at are some of the smaller customers we have that are truly government agencies as opposed to academic institutions that perhaps take longer to see the funds or get the grants approved. And those specific government agencies did see a nice uptick this last quarter.

So we're hoping that's kind of a forecast for what we'll see in broader academic going forward. I cut you off, so keep going..

I was going to ask about the CFDA, just any sense of when we might see some relief on that front..

We're seeing relief already. It's – as I mentioned last quarter, we were over there.

We met with them actually, and kind of got a good view on just how they look at this, how serious is it, how are they dealing with it, what's their manpower like to deal because there's a lot of hospitals in China that were in the business of immunotherapeutics, and then in selling online, even and advertising for it. So they're grinding through it.

They increased their resources to dealing with it. And they are starting to trickle out now and so certifications are happening, so our business is coming back. But it's going to take couple of years. It's not going to be over anytime soon.

I think the biggest issue for us is it will be annualized – the hit will be annualized out of our numbers here going forward. And with the strong growth in rest of our business, we'll start seeing good growth rate numbers, and then we'll pick up that piece.

We're also focusing PrimeGene on more than just that category for China, there is lot other areas to focus on as a fighter brand there for customers and many customers don't want to [roll] the full cost and quality of R&D Systems brand, and then there is an OEM component to the business global that we use that factory for and it is a GMP factory.

It's a beautiful factory and we're going to work on keeping it full. So there is really three components to – when you're building that business back, where immunotherapeutics locally changes one of them, okay..

Got it. And can I just ask one more on op margin? So, obviously, you put up a pretty nice improvement in ACD. I was just wondering if you could get a little more detail around kind of what you're doing there, and then I don't think you said what your thoughts were on that front for 2018 just more broadly for the company around op margin..

Yeah, there is lot of timing, there is lot of productivity. We had really strong cash flow on operations here. So a lot of things contributed this quarter. We were nicely surprised it did as well as it did, but there is good reasons.

The productivity is not slowing down here, even though we are a pretty profitable business in this area, everyone knows how lean this business has been historically and we're improving a lot of systems. I'll give you an example, this coming year, we don't have a LIMS system here.

We don't include any LIMS and that could provide a lot more productivity even further taking out a lot of paper process here. So there is more to come. We're really on track for our thesis to getting back to 41% in a no-acquisitions forward scenario. How we get there is going to be a little up and down.

It won't be straight up, and Jim mentioned that in his comments, and he can comment further here on the mix for this coming year and make sure you guys are all clear on how that mix looks..

Yeah. I mean, we said all this year that the immediate impact of ACD is going to be quite severe to our margins, and then we clawed ourselves back throughout the back half of the year, which we did.

And now going forward from here, it's kind of – a lot is in our base line and so ACD is still going to require a lot of investment to fuel 40% type kind of growth. That doesn't just happen without a lot of investment typically in the commercial resource side. They've got a lot of runway ahead of them geographically and expanding their markets.

So that's going to require lot of investment. We do expect it will be profitable. It will be modestly profitable.

But when you see where the heavy growth is coming from, which is on the ACD side, to a lesser extent, there's still solid growth on our Protein Platforms segment, they still have by far the lowest operating margin profile of our three segments.

And thus you have a negative mix headwind when you blend it all together, and that's what we expect to see going forward at least for the immediate year..

Yeah. Okay. Thank you..

Thanks. You're welcome..

We'll take our next question from Matt Hewitt with Craig-Hallum..

Good morning. Congratulations on a strong quarter and just one question from me..

Okay, Matt..

Just wanted to circle back to your comments earlier regarding Maurice in Europe. It sounds like you've been taking share there.

I'm just curious, and I don't even know if you have these type of metrics, but where do you think you are today from a market share perspective and how should we think about that over the next couple of years as you continue to drive growth there?.

Yeah. So a couple of things. We've asked the same questions, because buying into the company, we thought the Western blot process is $1 billion, $1.5 billion kind of opportunity, and the Biologics market was roughly $0.5 billion kind of opportunity, which we had a significant share with the iCE platform already.

We do think it is significantly more than $0.5 billion opportunity, and it isn't just looking forward. You got to remember Biopharma, when they lock in and spec a process introduction, they don't like to change it, right. So, you're always buying with looking forward versus what can you switch looking backwards.

And we're getting some pretty good pickup overall, because the platform is so strong functionally, and it's just a good value, a good value overall with the consumables and everything else. So we're getting share there as well. So the way I look forward I think is that it should stay strong double-digit here, I think, for a couple of years.

We'll, of course, have new versions of the platform coming out. It is right now the biggest part of the Protein Platforms division. It was about in that – close to that when we bought the company really, but we just didn't see such a strong uptick.

We saw a good move forward, because it was the first new platform in five years in that category of iCE, but it's just been doing well. And I got to mention too that, we're seeing a lot of strong pickup in Asia because of biosimilars, so we're starting to get spec'ed in a lot of processes we are involved in.

The big example is the big Samsung factory, of course. And we are focused on other areas, China and India. Then growth in Europe has also been strong double-digit and so nice surprises there. And we are similarly taking share from our largest competitor, which is a much larger company than us and well-known in space. So I hope it continues.

We think it will for at least a year or two..

Great. Thank you..

Your next question comes from Tim Evans from Wells Fargo..

Hey, thank you. Just wanted to clarify some of the math on the outlook. Jim, if I think of ACD growing north of 40% next year, if I'm doing my math right, that would actually contribute pretty close to 3% to the consolidated top line.

Are you just maybe baking in a little bit of conservatism there or am I thinking about that wrong?.

I haven't done the exact math, but the math I showed does show much closer to 2% than 3%. So....

Okay..

I can run through the detail with you later offline, but I do show 2%..

Okay..

I don't think our math shows that..

Oh, okay. All right. Maybe I have it wrong. And then looking at the – you talked about maybe a little bit softer growth in Protein. So if I – just back of the envelope, if I call that something like mid-teens and I call ACD 40%, I'd be looking at the rest of the business something at like 4%, I think.

Is that how you're thinking about it and is that what you kind of see as kind of the longer-term trajectory for the rest of the business?.

It's a backward thing. So we're – as a category, it's a mid-single-digit growth, so that's 4% to 6%. Just as a temper for this coming quarter, Q1, we were an 8% quarter last year in this area. We've been as low as 2% twice this past year, two quarters ago and this quarter. So it's a 4% to 6% kind of net, and this is with strong antibodies.

We had a roughly flattish year in immunoassay as we talked about because a lot of the timing issue the big pharma you think could bounce back. And then, Protein, pretty stable, but pretty stable in that 4-ish range. And we're by far the leading share maker of the proteins, and we're focusing much more on upstream.

The hardest to make, where we can raise prices, really go after that quality and that name brand of R&D Systems that we're known for. And you got to offset all that erosion at the commodity level. The products have been around for 20 years and we do have competition, because the stuff is profitable and is largely trade secrets.

So it's really all about our defense strategy and working upstream is best we can. So I will tell you that the new products that we are generating within proteins are roughly near 10% type of grower, nearly double-digit, but there is offset at the low end, right, at the commodity level, where the competition sits some cases one-third our price.

So it's a difficult strategy to pull off to try and get a net of 5%, 6% when you have that kind of fragmentation within your portfolio. And yet we have to figure out the way to do it. We are working – obviously, this is a big part that we focus on with Fisher, of course.

We are also working with how to deal with the special pricing, special arrangements, special deals with academia in general. We are working on how to scale a big pharma, of course, on agreements that go beyond proteins to try and put more in the bag.

So all these things matter, of course, and we hope is a net of 4-ish, 5-ish in proteins and as a category within Biotech division mid-single-digit. But I think fairly safe, I mean, we're much more controlled with them than were a few years ago..

Okay. That's very helpful. Thank you..

And it appears....

There is time for one more question..

There are no further questions at this time..

Okay. Well, thank you all for attending. It was a great quarter ending a great year for us. We were equally as excited about this coming year and we're down here midway into the first quarter. So we're back on top of that, and we'll talk to you again soon. Thank you..

This concludes today's call. Thank you for your participation. You may now disconnect..