Bio-Techne Corporation (TECH) Earnings Call Transcript & Summary

Good morning, and welcome. Liza Garcia, the UBS Life Science Tools and Diagnostics analyst. I'm joined today by my co-coverage John Sourbeer as well as Jim Hippel, the CFO of Bio-Techne and David Clair, the IR. Well, thank you guys so much for making the trip out.

Thanks very much.

Really appreciate it. Let's just start the discussion. Let's maybe you get high level, Jim and background with the earnings, obviously you just reported the end of your fiscal 2023. Can you just walk through the variables that you're monitoring and thinking about as you're thinking about how fiscal 2024 can maybe shake out and the growth outlook, particularly maybe thinking also about the second half, obviously, interesting time?

Yes. So I'll make first kind of characterize how we think about our fiscal year '23. I mean if you listen to our earnings call, we kind of use this terminology that we came up with any way the COVID halo that we've experienced the last couple of years, followed by the COVID hangover as we call it this past year, right? And for all the life science tools companies, whether they were directly involved with COVID testing, our COVID vaccine manufacturing or what have you, they all saw a COVID halo lift from the -- indirectly from all the additional money that was flowing into the space because of COVID pandemic and that money being reinvested back in R&D and accelerating programs and taking on newer programs that could be further down the pipeline. So there was a halo effect across, I believe, the entire tool space, and that included us in retrospect maybe you can see the time that in retrospect, was clearly the case. So now with obviously -- and thank goodness, the pandemic hopefully behind us and the vaccines and the testing would be very much moderated now, that money is there's less of it, especially in the biotech space, especially. So clearly, I think there's 3 main -- 3 main -- this isn't just for us. This is the whole industry, right? There's really 3 main areas where this COVID hangover manifests itself. The first one being the lower biotech spending, lower R&D budgets, but lower relative to a lower relative to calendar year '21 and '22? Yes, of course, but still pretty healthy relative to pre-pandemic levels, right? So I call it that what we call it more of a normalization. But nonetheless, a major headwind when comparing to the last 2 years, right? So that's the first major dynamic. And the second way is it medially manifests itself is in destocking and you're hearing that from everybody in the space as well. I think luckily for us, destocking is less of an issue, but still a material a bit, but less of an issue because we're not as heavy into the downstream manufacturing bioprocessing areas where I think that stocking and now destocking took place the most. We're mostly in research. But we do have a segment of our customer base. It's really only a dozen customers or so. but important customers and other life science tools companies just like ourselves, who buy our products, namely our antibodies as a key ingredient into their assays or whatever their tools that they're providing commercially to researchers. We refer to them as OEM customers, but we also for them is license and supply customers restocking our products up because they buy what they need when they need it and they know it's going to be available next day. If you're a manufacturer and you have a supply chain crunch that occurred during COVID, you're buying up everything you can because you're afraid it won't be there regardless of past history. And that's what happened with these handful or so customers of ours, life science peers, customers of ours. And we started to see it happening because many of these customers, we also get royalties off their products. And we get to audit their end unit sales as part of that agreement. And the royalties were continuing to increase and unit sales are coming to increase, but a sudden the purchases of our product just kind of stopped. And we also know because of our supply agreements with them, they can't swap us out with anybody else. So became very apparently back and looked at, hey, during the COVID supply chain countries, they were overbuying at the time we thought they were anticipating even higher growth. But clearly, they were overbuying on purpose because they were concerned about supply. And now in the downdraft, they're winding down those inventories. And so we're seeing customers that didn't buy anything all year from us these handfuls. So for us, it was about a 2% headwind to our overall growth for the back half of the year. I know the other companies -- peer companies are seeing a lot bigger impacts on that because they play more downstream. But nonetheless, that's the second key theme. And the third key theme of the COVID hangover is, of course, China. And in China, from a geographic perspective, regional perspective, has been hit the most with variability in ups and downs and more downs and ups with regards to the whole COVID pandemic and now even the hangover that follows. I think similar to other companies, the overall Chinese economy is struggling right now with the aftermath of COVID. But within life sciences space, I think both in the short and longer term, it's actually less impacted than maybe other areas because it's still such a critical area for the Chinese government from a long-term thinking perspective or health care is still relatively speaking, very far behind the West. And they know what is, and they've been very public about wanting to continue to invest there heavily to increase the health care of their people. The long term, I think, is still a great picture for us -- story for us. But similar to the destocking situation, maybe here, a lot of our peer companies in China, they played more heavily in downstream activities of bioprocessing, CMOs, CMOs in China to actually do most of the business for American customers, by the way. And those are the ones that are pulling out of China are cutting off programs in China. So again, I think they're suffering really bad right now as a result of that, our peer companies who supply those customers. Our customer base is different. We're more heavily bent towards research. And the research that's being done is by largely research institutions that are hospitals, government-owned or government at least funded in some sort and don't have the same destocking issues that you might have in China. They're not -- their customers aren't U.S. companies, their customers or Chinese researchers. So it's more of a China for China play. So that all being said, we're not seeing the very severe declines that some of our peers are seeing. But what did surprise us in China because, of course, you had the rolling shutdowns in the first half of the year and when people aren't in their labs, they're not buying the product. And then you had in January -- December, January, everyone got sick when they lifted the -- lifted the quarantines. And so literally, there was no one in the lab to even do any work. And then we saw in the second half of our Q3, so call it the late February, March time frame. They just came rolling back because they were on came back from the Chinese New Year, they were healthy, they were wanted to get back to the research, and we received over 50% growth, which is why we said in our earnings call, we think China have a 40% quarter. We were hedging in a bit, right? And then about halfway through the quarter, call it, mid-May into June, it just kind of fell off the cliff again. And there hasn't really been any refund that talks about this publicly, but everyone is in the industry there in China understands this. that the Chinese government funding cycle is usually in the April, May time frame, and it just didn't happen without any little announcement as to why, it just didn't happen. And so it's believes being postponed because of the overall general economic malaise that's going on there, whether they're trying to increase their offers after all the spending they did on testing and quarantines and things of that sort. So it's not a matter we believe, of if, it's a matter of when that comes back and comes back and be very strong. But that's been a headwind for us like it has for other companies all year in fiscal year '23. When we exited Q3 of this quarter going into Q4, we trialing back. So we thought that would be a nice tailwind for us as we got into '24. And that no longer looks to be the case. In fact, it could be even yet a headwind. You could actually have a at least for the first half of fiscal year '24, not through the years or a worse year than we even had in fiscal year '23 for China. But the other parts of the business are continuing the headwinds are starting to go away. So like the destocking, for example, that major piece for us. We know from these handful of customers, there's still probably some inventory to get through here in Q1 and Q2. And -- but we think the headwind will be maybe half of what it was in the last 2 quarters. And then by the time we get to our second half of fiscal year '24, we believe that they'll have to start buying from us again, the inventory level would be too low. So that could turn into a slight tailwind for us. And then -- and then kind of going back to China, just to finish off that story. I mean right now, what we're hopeful for is that if you look at China, when they -- outside their regular funding schedule, when do they put stimulus back in the economy or in life sciences. In life sciences, it tends to happen either sometime after the summer vacations like an October time frame and [ academics ] come back to work or more often now it happens after the Chinese New Year when everyone is on vacation and they come back to work. So we're hopeful that that's the worst-case scenario that the pause is not until then. And that would mean at least in our last quarter of the year, if not the last half of the year will come back strong in China, but we can't predict that. We just don't know.

OEM China.

So China, destocking and back to the biotech where I started with biotech funding. So biotech funding for us, I mean, it's been growing, just not growing at the rate it has been. And even though the spend that we know their budgets are smaller, we're still growing, now not like we were, but we believe we're taking share. And so that's good. And it's been very stable for us. So we think that stable growth will continue. But it remains to be seen whether -- how much -- when the biotech increases will start to happen again. So we think we'll continue to take share and grow at that same rate we have been for fiscal year '23, in the fiscal year '24 to improve in the biotech space, we need to see their budgets start to increase again. And there's some green shoots out there, but our base case right now is that it doesn't improve at least patent to the back half of this -- call it, the first half of calendar year '24. So long-worded answer, but that's kind of how we saw the dynamics play out in '23. Bottom line for '24 is aside from China, not getting worse, possibly getting better China worse than the first half, potentially way better than the second half will see.

Great. A really great color. Just sticking on the theme of China since we've been talking about it already. How do you -- can you just kind of level as the higher instrument mix that you kind of have in your China business and how that impacts the region and how you think about the growth there?

One of the reason why we think the first half for us in China will be slightly worse than what it had was for fiscal year '23 because in fiscal year '23, much of the impact for us in China was people not getting into the labs, they're all quarantines and so forth. But they can get in their labs even 5 days a quarter, it's enough times in place an order on an instrument, whereas as consumables, they got to be at the lab, every day to that a lab, they're not buying our consumables. So our consumables was actually more severely impacted by the fiscal year '23 ups and downs and our instruments less so. We think with what's happening there now, it's a bit of a flip because people are at work, they are going their labs, they're just doing very basic research with the funds they have. And as long as they're in their lab, they're buying our reagents. But what they are holding off on are there the instrument purchases. So that is where the kind of the flip is going to be. And because instruments for us, if you look, the instruments and the consumables those instruments pull through Globally, it's around 20% of our business. But in China, it's around 50% of our business. So because of the higher concentration of the mix of instruments in China, we think this next 6 months will have a more severe impact on us than it did in fiscal year '23.

Great. All right. Let's talk about pharma. Can you maybe kind of talk to us a little bit about your exposures and just kind of remind us how you think about like large or small mall kind of pharma exposures? And obviously, you talked about the green shoots kind of how -- just dive a little bit more into conversations with customers and the puts and takes there that you're having and kind of how you're thinking about that?

Yes. We don't think about pharma in terms of small molecule, large molecule, quite frankly, we kind of play on that whole space. I mean which kind of gets to -- we participate in whatever modality pharma is working on, which gets to cell and gene therapy because we believe that's the next very large modality for health care, particularly around oncology and regenerative medicine. So -- and so we're participating very strongly there, obviously, and it's a big growth opportunity for us. So it's not that for us, our goal is to help pharma along whatever path they're going on, and we enable them in whatever modality the science takes them on. So trauma has been very strong for us throughout the cola period. They've been strong for us throughout the COVID hangover period. We don't see any signs yet of finally like dramatically slowing down. But we're not always concerned about it because even where pharma might prioritize and they've announced the prioritized making certain cuts here or there, they're still focusing their efforts heavily in cell and gene therapy. And that's where we're even positioning ourselves to win for the last 5 years and laying track there. And I think we're seeing that pay off because we grew over 20% for the year and nearly 30% for the quarter within our cell and gene therapy portfolio in a year when budgets are supposedly contracting at least in biotech.

All right. Yes. Let's move over to cell and gene therapy because, obviously, an area of interest for you. I guess let's start with kind of broadly kind of how you're thinking about the growth trajectory for cell and gene? You have the Wilson Wolf acquisition? And how do -- how should -- how do you dimension kind of the opportunity set for Bio-Techne and how it's positioned? Obviously, cell therapy, as you mentioned quite a number of times, but recreate to kind of get how you're thinking about this market.

Yes. You mentioned the small molecule, large molecule, I think there's one opportunity this company missed 20 years ago was they could have -- we could have gotten more entrenched into the supply of the actual clinicals and manufacturing in those drug modalities because at the end of the day, we are approaching an antibody maker. And again, the sleep management team wasn't here 20 years ago, so we didn't make those decisions. But we're looking back on it with a lost opportunity. The beautiful part about life sciences, it's always evolving. There's always a new modality now it's cell and gene therapy. So this is why we see this as the next opportunity for us to truly scale, you got to get beyond just pure research. And I think what allows for a potential for that within the cell and gene tape for companies like ours more so maybe than in the past, is that these therapies aren't necessary, maybe was get the terminology, but not in vitro. There the tools, the protein, the media, the growing up of cells is all done outside the body. And so it doesn't have the regulatory -- the same regulatory oversight, so to speak, or thresholds as it was if it was in vitro. And so don't -- it's going to be GMP and all that, but it allows it gives that the pharma companies more confidence to, call it, outsource that out more because it's not their core capability. They don't have to have as much control of it because it doesn't have the same regulatory hassle, so to speak. So again, that's why I think it feeds right into our wheelhouse of -- on a reagent side with regards to what's needed to roll up these cells, the media and the proteins is what we do. With the Wilson Wolf, we believe quite firmly that they have the best-in-class bioreactor to actually where all this magic happens in this container. And why -- first and foremost, in my mind, why it's the best and will be the leaders because it's scalable. It all gets back to being scalable. So this modality of these therapies to become something more than just a niche thing for that person who has nothing else left to do, but die or at the scale it's going to become less expensive and not even less expensive because you can make the argument that chemo is more expensive than even these expensive therapies. It's got to be producible in high quantities. And with the methodologies that have been out there so far today, they're just not scalable. When you have to tie a patient up to an instrument for 3 weeks in an ICU or have you, it's not scalable. And so that has been our whole strategy on cell and gene therapy is how do we come up with a solution with partners and now buying companies that enable a solution that you can produce this in scale for thousands and thousands of patients in a very quick turnaround time period. And that's what the worlds most bio [indiscernible] it helps the key piece of that availability.

Great. Well, it's intervention scale. Let's talk about the GMP facility. I think you significantly expanded kind of what you think that facility is capable of producing in terms of annual revenue...

Yes, how you fill it up.

Let's talk a little bit about how kind of you went from a gives a sub-$150 million kind of target to now potentially maybe reaching $1 billion. So it would be great to kind of understand the learnings there.

Yes. I mean we're learning as we go. And we never we never had a reason to produce proteins at this kind of scale. And we're a leader in producing proteins. But traditionally, we put research, which is a beaker the size of that right, that's your quality. So the truth is, I think our team is just -- they're the world's best in making proteins, but they've never done at the scale. So they did their algorithms to try to figure out what they thought the yield might be at certain scale, but they never had really actually done it and put in practice. And they were, I think, conservative and rightfully so in terms of our initial estimates, and scientists tend to be conservative anyway, right? And -- but I think they're even shocked themselves with regards to the mass if you look every time they do a run, the yield improvements they're receiving and the bottom line is just a -- it's definitely tweaking the process for making it a massive leader containers from as opposed to milliliter test tubes or what have you. And the amount of yield that they're able to attain, it still is extremely high quality. It has been even surprising for them. And so as we -- learning -- every one of the manufacturing process, they learn more and more how to get more yield out of the process. And so it seems like every 6 months, that number keeps going up. And to your point, now it's to I think -- depending on the mix of proteins because some proteins yield higher yield than others, but it could be as much as $1 billion as we get out of factory, which we would say, it will last a very long time because I love that factor 5 years on, that's going to happen.

Can you just remind us how much you spent building the facility?

Yes. All in, it was around $55 million, something like that.

Okay. Quite a.

Yes. But honestly, from an ROI perspective, best investment, an internal investments usually are your best investments anyway, but you've put that in perspective for you, I mean, I don't know, 3, 4 years ago, I think we were doing like $5 million a year of GMP proteins out of our existing RUO facility, and now the run rate is near 50%. And the margin is like 90% contribution margin. So $55 million was a pretty new year investment for what that will be in the future.

Certainly. All right. I guess kind of maybe just circling I'll do one more, and then I'll -- I'm John will have some special questions. Just academic, it's your second largest end market, just so that we're kind of rounding out behind pharma. How should we think about -- you did talk a little bit about China, but current dynamics across geographies, how you're feeling about that market and growth? And how you're feeling about the funding environment?

I mean we feel good about academic. It's because it doesn't have that whole -- the manufacturing downstream potential. It hasn't been our major emphasis we've been emphasizing more and more towards the biopharma side. But academic real research still starts there and then it goes to biotech and then it goes to the pharma. So you got to have a foothold in academic. And what's interesting is even during the double-digit increases in NIH budgets that occurred through the COVID pandemic, and in our space because we monitor all of our peers. No one was bragging about massive growth in academic. It's not a mid-single-digit growth kind of -- and that's kind of where we were, right? And now there's all this concern discussion around what budgets go down or flat, which they could, how that always starts out low and then usually end up giving some increase. But nonetheless, not the increase we've seen in the past. I can't prove this, but what's interesting this past quarter was the best academic quarter we've had in -- throughout the whole COVID period in the U.S. Now it's been strong in Europe now for several quarters and actually almost the whole year. because of the Horizon program going on there that still has a ways to go, which is great. But in the U.S., we had the best quarter this most recent quarter, and that's when all this concern around funding is happening. So it seems kind of like illogical. But I have a per in my theory only really, but is that at the end of the day, yes, NIH budgets were increased dramatically during COVID, why, to fight COVID. So -- and that's not where we play. We don't play in strongly infectious diseases. So as long as those budgets don't decrease by double digits year-over-year, and they stay at a relative level, where is that money going to be spent in the future? Probably not in COVID, it's going to be redirected back in the spaces where it traditionally went like oncology and neurology, things where we do play very strong. And maybe we're starting to see the start of that now already. I don't know. But the bottom line, we've always said this, NIH funding levels have not always been a very good barometer of how actually it's much more important where that funding is being spent on is being spent on than the absolute level. clearly, higher levels overall raised the water for everybody and lower levels can lower it. But for us, it's more important and where that money is being spent.

Great. John, I'm sure you have some questions on that.

Sure. Yes, maybe I wanted to start off on the spatial market. I think you kind of framed it as maybe 15% to 20% industry growth in to maybe a $2 billion TAM. If you look at some of the companies, the imagers out there, even some of the other consulting reports, maybe pointing to higher growth. I guess, where do you see where you're playing the market and maybe start there, just high-level overview of the spatial market?

Maybe we're just being conservative. I mean, to some extent, right? I mean, because I think we came out in the early days of ACD saying 20% to 30%, and it's been growing closer to 15% to 20% for us. It's like anything else, when you have a nascent market that's brand new and emerging, it has fits and starts and for gain broader acceptance. I would say this, and we look at more about this at our Investor Day because we're building up that story right now as we speak. So I'm not going to quantitate it right now, but that was a key reason for our Lunaphore acquisition was to truly enable the kind of higher growth rates that we think we should expect from our spatial franchise because we think we should actually not grow as fast but faster than the actual spatial franchise given our technology. But the biggest limiting factor, I believe, on our -- as well as our ACD franchise has done or scope franchise is done. What the biggest headwind, if you want to say, to even more accelerated growth has been the lack of automation. It's a very slow process, particularly when we do more than 1 target, 100% manual. So this Lunaphore platform, I mean, it's like a night and day comparison in terms of the speed. And so we think that really will be a huge, huge impetus to accelerating our growth from here.

I think -- if I could just add one thing. We actually play in the translational space, a lot of the other players out there on the discovery side, so slightly different.

Well, and that's a great point, Dave, because that's one of our views is that the accelerated growth is still yet to come because we're downstream from all that discovery and it has to start there before it gets in the translational. So if the growth is starting to really take off the discovery side, to me, that's a very good sign of what's to come for the translation of where we play.

And you mentioned the Lunaphore acquisition I think previously, Bio-Techne had partnerships with multiple other like Akoya out there. Just -- I think the Akoya partnership there was a press release earlier this week that ended down with the acquisition. I guess, can you just talk about maybe the change in strategy now that you brought in a platform here?

Yes. I wouldn't say it's early a change in strategy. We still want to be able to be used on as many different instruments as possible. it really gets down to what's the right tool for the right job. And there is no instrument that does at the end of offer every application that you may want to use, say, RNA scope. With regards to Akoya specifically, the Lunaphore instrument that we were partnering with them as well because the reality is we hadn't with both Akoya and with Lunaphore, we actually started later with Lunaphore, we found them later. But we still had perfected our RNA scope for use that it works as well in the instrument as it does on an annual basis. We're still working on that. But when we found Lunaphore and not only quickly reached the level of sophistication we did with Akoya that even surpassed it in a very short period of time. We have a very, very high level of confidence that Lunaphore instrument will work the best with our with our RNA scope application. And frankly, the right tool for the right job is very close for Akoya as it is for Lunaphore. So we kind of had to pick one to put our resources on. We didn't -- we couldn't put leases on both. And then when we bought Lunaphore, that made that choice even more obvious. So that's the dynamic is different -- that's a slight difference between, say, Akoya and any other partnerships we may have with other insure makers as Akoya was just very, very close to being in the job for the right job for the right tool as Lunaphore, but we think Lunaphore is the better tool. Other instruments have applications for ACD 2, but maybe different applications.

Appreciate it. I'll turn it back to Liza.

Great. All right. I guess, talk a little bit about the other piece that kind of have been highlighting, which is with biopsy. So I guess you guys have been kind of one of the companies that have really talked about Exosome and kind of the value there. So maybe when you have the ExoTRU platform. Can you just talk a little bit first about kind of how you approached it and thinking about Exosome kind of versus like maybe ctDNA and what kind of led you to the strategy that you've adopted?

Well, a high level than that, I'll going back to the early days of Chuck's tenure here. I mean we talked about that, hey, we want to really scale this company and exponentially grow it. You've got to be more than just pure research, right? So where you go? You go more downstream into the biopharma drug clinicals and manufacturing kind of way. And from an assay perspective, you go more downstream into an -- and every diagnostic is in a day is an assay. And so you go out of research and go more downstream into the clinic and ultimately have a diagnostic. And so that was kind of to with our assay franchise, the path was let's go downstream closer to the patient where there's more scale. And with our core reagents, it was let's go closer to the manufacturing process of making drugs, and that's kind of a big, big picture. And we're doing that with cell and gene therapy in biopharma. So now with diagnostics, it was more about, okay, if we're going to go down that path. We've always said we're not a commodity-based company. That's why we pride ourselves and being differentiated, have a high profitability as a result of that. So we're not going to go with a me-too product or head-to-head with someone who's very well established. It's got to be something that's now the world. And when new liquid biopsy was kind of, you think, the next generation for diagnostics are going somewhere to sell gene therapy is for drug therapies. But we're looking at all these different cell-free DNA and certainly tumor cell players and tater was nothing that jumped office that really felt like they had truly figured out. And maybe serendipity, we found this company Exosome. And we must have worked with them for over 1.5 years, so we understand their technology. And just at the end of the day, our top scientists said, this is the one. This is the technology that can truly, truly win. And we can get into all what's happened between now and the regulatory or anything else, that we were probably a little bit unprepared for that we warned a lot on going forward. But to this date, nothing has changed from whatever it was 5 years ago or when we -- 4, 5 years when we bought them with regards to the fundamental technology, we still believe is absolutely the most superior. And simplistically, from my layman's perspective, I understand it and why that is, is because when it comes to using Exosome as a modality for fine biomarkers, there's just many, many more of them. I mean like exponentially more than in your bodily fluids and there are a cell-free DNA or circulating tumor cells. So they're easy to find. Once you find them, they're easier to interrogate because they haven't been eaten up by enzymes and things like that, that are also flowing around in your fluids because they're protected by that Exosome, I call them bubble, but dead cell. And then once you do interrogate them and you find the biomarker you're looking for, you have a much better probability of understanding precisely what organ or what part of the body that came from because that protective bubble, as I call it, that's around the DNA and RNA is essentially made from the same protein as the originating cell. So leg up there as well. So those 3 things alone, you would argue are good enough to say, hey, the err technology. But there's actually one more factor that to me blow it all away, and that gets back to early detection. And why is it a better modality for early detection because Exosome are released from ourself and the time it's born, all through its life and then as is dying. Whereas cell-free DNA are excreted from diet. So by -- just by pure biology, by looking for your biomarkers within your Exosome, you're going to find whatever you're looking for sooner and allow for the chance for earlier detection.

Great. I know I mentioned ExoTRU, and we'll get to that, But ExoDX prostate. So I think you've gotten past 100,000 tests at this point. So I mean how should we think about the -- how are you thinking about the adoption curve going forward, indication expansion? Can you kind of frame for us how you're thinking about the growth opportunity there?

Just with the test we have now, the upside is still -- I mean, we've really even touched surface. To put that in perspective for you, we have maybe 15% of all urologists have actually even know about our test and have tried it once. So there's still an 85% market to go after there. But as importantly, of the 15% of urologists that have used it at least once, we monitor how often they're using them and the rate of adoption actually into their practice and their workflow. And like anything else that goes up over time as they get more comfortable with it and they understand how to use it in their diagnosis. The average is around 6 tests per doctor per quarter. So 6 doctors -- 6 tests per doctor per quarter. But our doctors who've been with us for at least a couple of years, many of them are up to over 25 tests per quarter. So there's a 4 to 5x increase in just utilization from our existing on average from our existing base, not to mention the 85% we have even gone off there. So we're still scratching the surface. And -- the story is very much resonating. I think one of the key things was when the test was originally launched, it was launched as a way to prevent biopsies, which was a great marketing message for the patient, but it's not the patient doesn't have control over describing the test that doctor does. And we've done a lot of studies. There have been a lot of publications on this where we've proved out that there's so many patients who are revised by their doctor to get a biopsy and never show up for it because it's so invasive and on and on and on. So they just don't -- they don't even shop for it. And there's a lot of good studies out there that show that in something like more patients will return for their biopsy, recommended biopsy, if they have the Exo test, tell them they have a higher epi score. So it's actually now a tool that to get patients who should have the test to take the test, and that's really resonating with doctors now they understand, it's not just about taking business away from them, but to truly help them make the right decisions for the patient. While at the same time actually make -- helping them make some money at it, too, in terms of getting the right patients and for the right procedures. So that's helped a ton. Of course, we got all the NCCN guidelines now through Medicare, so we can actually now have recurring tests now. So it's meant to be a monitoring test anyway, so we can now have repeat tests. And then getting back to the core of the test itself. It's not reliant on anything else. It's a stand-alone test means it's much more scientifically pure. It doesn't have like PSA as a part of the test. And more importantly for the patient, it's not -- there's nothing about it that's a basics. Yes, just a few -- a couple of that are out there that we know are nice 1 taking share from you acquired DREs and things like that. And the other piece of this is that you can take the test from home. So you can -- in fact, I think almost half of our tests now are being done from when the doctors prescribes it. Before we had to take home kit, it was a pain because you have to be the first draw of the day. So you had to reschedule another appointment to come in and patients wouldn't show up for their second appointment. Now the doctor can just give them the kit, they can go home, be in a cup, send it in and it's done. So that has helped the uptake a lot in terms of getting the patients to follow through with it.

Interesting. I guess, have you guys disclosed kind of the adoption with the at-home versus kind of the increase that you're seeing by having that optionality?

It's hard to say how much the fact that it's gone -- the fact that at-home has gone from 0 to like nearly 50%, it definitely helps. There's no question.

What about ExoTRU in the transplant monitoring platform? Can you talk a little bit about your strategy? You've got a partnership? And kind of, obviously, this test is a little bit different than I think maybe some other ones, right, that's urine-based. Maybe just kind of walk us through and then kind of your strategy as well and how you're thinking about tackling this market?

So it is urine based. And so these transplant centers, there's only a few of them. So if patients live far away, they would have to drive hundreds of miles perhaps to have a test in a traditional way would they actually take a biopsy. So you just got a brand-new kidney and going to take a piece out of it. I mean it doesn't make sense, right? So if you have a noninvasive way such as urine to do that, not only can you -- not only does not damage the new kidney, but it can be done from hundreds of miles away and mailed in or what have you. Just like I explained the Exosome platform the test has demonstrated, it's got earlier detection of something going wrong, but also is able to decipher what is truly or better -- and a better job of discipline, what is truly something to go on with kidney that's related to the transplant itself versus something else that could be causing the inflammation or what have you. So it's just a better job overall doing the job of what it's supposed to do, which is a kidney work you're not working as opposed to false alarms and things like that. And obviously, the thermal team evaluated quite heavily and they believe so, which is leaving it as well, which is why they've taken on the cost of taking it through the trials and so forth, and they have the channel for it. So I think the ExoTRU is a good example of 1 of our 3 key strategies are with Exosome. And that is for new the world test for new indications, our strategy will be to partner with those that already have an existing channel because it's expensive. As we know from diagnostic companies to build up channels of sales teams and marketing anything else for all these different types of doctors. So we [ had a lot of most ] notice. I have a lot of money because they try to do that. We're not going to try to do that. And I think our technology speaks for itself. The ExoTRU deal was a good deal -- a good way to show that, hey, everyone else believes in this 2, we had 3 or 4 companies all bidding to have access to this, the hell just have to be the one-to-one. So the technology, I think, is becoming more and more proven than accepted. And so we'll partner with every new indication we have for those who already have the -- made the investments on the commercial side. Of course, our strategy with our urology practice that will continue since we've already built that up. So to the extent there are any new indications or new next-generation prostate tests that are more rural in as opposed to rule out, we already have that channel build out for that. And then the third strategy around Exosome is really to leverage our surgeon acquisition. So a surgeon does the, tell me the word again?

Carrier screening.

Thank you, Carrier screening. The carrier screening, but also some oncology screening within the lab reference labs and hospitals and doing quite well with a stand-alone company, by the way, and a great management team. They're now running Exosome. And they've added a third leg to the strategy, which is take those tests that already exist from the market that are used for monitoring post cancer treatment to make sure there's not a reoccurrence, whether it's in lung or other. And we know the Exosome technology is superior to other technologies out there for early detection and more accurate detection. So let's just roll out new tests that use that technology. The coverage will be easier to get because you just got to show that equivalent or better -- and the channel is already there with storage and channel into the hospitals into the reference labs. And so that's kind of a third-pronged strategy of how to get Exosome tests to market faster and cheaper.

Great. All right. One more portfolio, one and then Maurice Flex the instrument, you talked about last quarter traction gaining. Can you kind of a, just remind us kind of exactly why you would use Maurice Flex? And then who the earlier adopters have been and what customer set this is and where you've been seeing kind of the traction?

Yes. It's a little bit above all my technical wheelhouse, to be honest with you. But I know that it did not find the purity identity of a given protein from a QC process there's a downstream analysis that's also -- that uses mass spec for further analysis of that. So it's really about where in that particular workflow where Maurice is more upstream in that process and mass spec is kind of at the back end downstream, a step in between that, which is often used by ion-exchange is to fractionalize these proteins that they're more readable, I guess, by the mass spec. And so that's what this Maurice instrument is adding that capability so that they no longer have to go from this step to that step before you get to your mass spec, you can just go right from the Maurice into the mass spec.

So you're actually taking out the LC component of the.

For certain applications, yes.

Yes. Okay. And what customer group have you seen the most traction? Or has it been pretty broad?

Well, first, it's brand new. But the uptake of any new biologic instruments, so we had the ICE and the Maurice and then Maurice Flex. In just a quarter, it's had the fastest uptake in one quarter of any interment we have. So I think there's generally a lot of excitement about it, yes.

Great. All right. Since we have you here, maybe we will end with a financial question and your 40% operating margin target Obviously, profitability is one of the highest in the industry. Can you talk us through kind of the puts and takes to getting to that number and how you think about kind of getting there in a couple of years? Great to kind of.

Well, we have our Investor Day in a couple of weeks, and we're going to talk about targets. We're going to talk about what our targets were, how we see them today and then about new targets in the future. So I'll get in more details then. But what I'd say is this, is that things that I think we're all very proud of is you look back -- I talk a bit the revenue growth for us, and I'll talk about the margins. You go back to fiscal year '20, which was just before the code really hit hard. I look at the size of our business then versus the size of our business today and it's almost all been organic because we've done very few acquisitions during the COVID period and the ones we've done have been small. Our business is over 50% bigger than it was just 3 years ago. And I think why we're so proud of that is because perhaps unlike other companies who were also a lot bigger, but now are shrinking, we're not shrinking. So we're still growing. So my point is that growth has been very sticky. And so they become our new baseline, whereas everyone in using the industry seems to be on to talk about not uncoated baseline versus a coated baseline, et cetera. We're not doing that. We don't have to. So we're extremely proud of that and it gives you a sense of coming off a year of COVID hangover and still having a business that's 50% bigger than it was 3 years ago and still growing on top of that why we're so excited about the future going forward. From a profitability perspective, I went back and look 3 years ago, our margins were in the low 30s. And they were 36% or so this past year. So if we add 100 basis points every year on top of that. And that's despite some acquisitions we made, which we did Namocell, which was hit by 100 basis points and FX over the same time period has been a big headwind to our margins, and we still have -- we'll expand margins by 300 basis points in 3 years with those headwinds. So I think it gives you a sense of just how scalable our margins are with volume growth. Now we'll see that perhaps to track a bit with new acquisitions, maybe a bit more. But my point is that it's everything we organically and inorganically, we talk about profitable growth, that's core to us. So really how fast we get to 40%, depending more on our internal investment decision, not because we have to do something drastically different to get there. And we'll make the right call to manage that absolute margin -- short-term margin profile with long-term growth prospects every year. And so it's not like we have 40% plateaued all over walls, we do everything we can to get because honestly, we proved during COVID. There was actually a couple of quarters in COVID, we hit 40% because we weren't traveling as an example. So we could hit 40% tomorrow if we wanted to, but there's obviously a strong balance between that and investing for the future. And our teams still have way more ideas than we are willing to give them money for to invest and grow this company, so that's exciting.

Yes. Really good review, hopefully to the Analyst Day, and I really appreciate you guys coming. Thanks so much. Really good conversation.

Yes. Thank you very much as well. All right.

Thank you.