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

Good morning, everyone. My name is Matt Sykes, the life science tools and diagnostics analyst at Goldman Sachs. And today, I have the pleasure of welcoming Jim Hippel, CFO of Bio-Techne and David Clair, Head of IR. Jim, David, thanks for joining me today.

Yes, Matt, thanks for having us. Great to be here. Great to have it not be a typhoon this year.

Yes, exactly. We're going to hold out that everyone can get out okay, but I haven't even been outside yet.

Maybe we just start with your fiscal Q3 results, which was a pretty solid quarter, just given -- particularly given all the macro headwinds we're experiencing today. Can you maybe start with some of the highlights from the quarter, Jim, and some things that you really want investors to kind of walk away from?

Yes. Absolutely. Well, first of all, thanks for recognizing. It was a good quarter because we were very pleased with the quarter, especially in this environment that we're in right now with 6% overall organic growth, and more importantly, our Protein Sciences segment, which is the market -- which is the segment that's most impacted by the end markets that we're talking about mostly today, 7% growth. And what was really encouraging to see was it was very widespread, right? There wasn't any 1 single product line or order or anything like that, that drove that kind of growth. It was -- we had essentially segment comparable growth across our core reagents, across our instrument platforms. So yes, it was very widespread. We saw Asia outside of China come back to life. And if there was 1 area that was more impacted, that drove the growth, it was large pharma, which was also encouraging because large pharma is our largest end market, 30% of our revenue as a company. It was the end market that we had, I'd say, the least visibility and maybe therefore the least confidence in terms of getting back to more normal end market growth as we enter this fiscal year, fiscal year '25. So to see that be so strong, we had double-digit growth essentially across large pharma. So it really carried our Protein Sciences segment. So yes, it was a very, very solid quarter despite a very choppy end market situation.

Great. Got it. Maybe moving on to 1 of the areas that is probably the most choppy is the U.S. academic market. It's obviously become increasingly dynamic. Maybe can you remind us of your revenue from these customers? And what kind of you've been seeing for your U.S. academic customers lately? And I think there's been thoughts of perhaps potentially pull forward before the budgets go away. Obviously, there's been a lot of flux, things were suspended in February. And so just kind of, one, put into context what it means for your business, and two, what are you seeing from that customer base and what are your expectations for the balance of this year.

Yes. I mean, academic has definitely been the choppiest with regards to the noise level with all the indirect cap costs started with that and then piled on with different levels of budget cuts and so forth and withholding NIH outflows, et cetera, et cetera. And again, I can't be more pleased with how we're positioned to handle that kind of volatility in that end market. Starting with just the fact that the majority of our business with academic is our core reagents and our core reagents are sold a little bit every day into the academic market. And they're kind of -- there's just a staple with regards to having those labs open within the academic institutions and how much they're directly tied to true NIH grants and NIH funding, it's really hard to determine. And I can tell you, 11 years, I've sat in the seat here as CFO for Bio-Techne, I've always tried to come up with an algorithm of how our academic business does in the U.S. relative to NIH fund inflows and have yet to come up with one because the beta is actually very, very small. When NIH budgets were double-digit increases during the COVID years, we grew low to mid-single digits. And now in a situation where outflows have been down double digits more recently, et cetera, our reagents growth was relatively flat. I'll take that level of stability considering this environment. So I think we're positioned very well with regards to the academic to handle whatever happens there from an NIH perspective just because I think our correlation with NIH funding is a lot smaller than I think what's perceived out there. It's a core staple. Now with regards to where NIH funding could go and what that means for us, as a reminder, our academic revenue in the U.S. is roughly 12% of our revenue. But again, how much of that is truly from NIH is really hard to determine. We've estimated in the past that may be as high as half of that or 5% or 6%, but based on what we've been seeing here recently from a correlation perspective, I think, it's actually a lot less than that. So I think we're positioned very well to weather that storm and even in a worst-case scenario, it doesn't have a material impact on our overall growth rate of the company.

You have exposure outside of the U.S. to academic and government spend? And do you feel like that could be an offset? I mean, it's obviously potentially an opportunity for them to spend more. But -- and I know it's really early, but just maybe talk about that as a potential offset.

No, great point, Matthew. And I think -- I don't think we're seeing that yet, but I think it's very possible for that to happen, at least somewhat offset that but notwithstanding, our academic markets outside the U.S., which is mainly Europe, has been robust for -- has been outgrowing our U.S. academic market for well over 1 year, 1.5 years now. And this last most recent quarter was no different. We actually grew double digit in academic in Europe. So in Europe, it's very strong, and that's what allows us to keep our academic growth relatively stable overall as a company.

Got it. Another area of focus from investors is tariffs. Maybe give us an update on your tariff exposure and mitigation efforts?

So again, fortunately, we're positioned very well from a manufacturing base perspective in terms of what we manufacture. So both from a sourcing perspective and from an end unit sale perspective, we're fairly well protected from the tariff situations that have been. And that most of our products are made in the U.S. So really, the only issue we have is the risk of any retaliatory tariffs. And the biggest issue there up to this point potentially was always China. And in the quarter, when it was determined that -- and we didn't come as a surprise as it happened during the first run of tariffs during the Trump first administration, but our core reagents were actually ended up being exempt from tariffs, from the retaliatory tariffs that China put on. So the only tariff situation we were dealing with was with our instruments. And again from a sourcing perspective, luckily, almost entirely our sourcing comes from outside of China. So we had no issue there with cost increases. And our instruments, we have more than 1 facility where we make our instruments in outside the country as well. So we're very -- we can very easily ramp up the production of those instruments in those other locations to source China in the future to avoid those tariffs. So I think we were the only company that I saw that come out that said that our -- not only was our tariff exposure very small, but to the extent we had any tariff exposure, we can fully mitigate it within a quarter. And even though the environment around tariffs has softened a bit, which is great to hear, even with China, there's ongoing talks going on yesterday and today. We're not stopping our plans with regards to those mitigation efforts because it's a smart thing to do anyway and it doesn't really cost us much of anything to move some manufacturing around to make sure that we're safe, not only from tariffs today, but any potential tariffs in the future.

Got it. China is about 8% of your revenue. Maybe discuss what you're seeing in this geography and what your expectations are going forward? I mean it seems like for some of the more instrument heavy companies it's stimulus and then really nothing much else. It's stable, but there's not a lot of growth. Maybe talk about your experience in China, particularly on the reagent side and what you're seeing there?

Yes. I mean, I think it's relatively the same story for us. Our reagent side is, it's been stable, although not growing. I think we -- overall, we had negative mid-single-digit growth in China this most recent quarter, but that's kind of what our year-to-date results have been as well. And that was consistent, more or less in the reagents as well as on the instrument side. So that's a little bit below our expectations. We were hoping that China would start to rebound in our Q3 a bit, even ahead of this "stimulus", but with, again, all the saber-rattling that has occurred since the new administration put in place, I think, that's put caution in the wind of the China recovery as well. That all being said, I don't want to get our too ahead of our skis here because we've -- there have been false starts in the past, but we were just -- I was in China personally in December. Other parts of our management team were there very recently in the past couple of months. And I will say, in talking to our customers there, I talked to some biotech customers, I talked to some hospital and research institutions there, and of course, our own team. And unlike a year ago, rather than talking about future pessimism, things getting worse, there's actually a slight tint of optimism in their view with regards to the year ahead. So that's -- it's subtle, but I think it's important. And more importantly, if you're in it for the long term, we're still standing by that the Chinese market will be a very, very important market for tools. I think the fact that we were excluded, at least our reagents were excluded from the tariff retaliatory efforts is a sign that our products are needed and how important they are to China and how important to health care and the continued development of health care is to China in the future. So we get past all the noise that's occurring right now and China gets back on its feet economically, we still think China will be the largest -- the fastest-growing region, major region in the world for life science tools for the decade to come.

Got it. You talked a little bit about pharma being 1 of your largest end markets. Maybe discuss what you're seeing from this end market? You said you were pleasantly surprised, although visibility was low. Obviously, there's the overhang of potential MFN sector tariffs, very difficult to call, but just your view, particularly given some of the things that you do are more on the earlier side, the research and development, what is your view of the biopharma end market as we move through the rest of the year?

Yes. And it's -- with biopharma, there's pharma, and then there's biotech and combined. So I think the biotech market is very different than the pharma market in terms of how they behave in this environment right now and what -- where the sources of the funds come from, et cetera. Large pharma, in particular, I think, it's the smallest beta of the 3. When you think academic biotech pharma. Pharma they're larger corporations. They're obviously financially sound. They're not going to overreact to headlines. They're going to be much more thoughtful in how they approach things. And they're not going to make major moves until there's certainty as to what moves they need to make. And I think IRA was a good example of that. It was actually -- there was legislation that was passed and then it became law and then, boom, okay, we're going to reset our portfolios. Our long-term R&D portfolio is now under this new kind of IRA pricing in the future, which, by the way, from all intents and purposes, it appears like it wasn't nearly as bad as they had envisioned. So our view going into calendar '25 was that, that reset was mostly behind them in '24. It's a big endeavor. It's expensive. You got to lay off people, et cetera. But then when you got to 2025 that there are increases to R&D budgets, which they still did even last year. It just was spent towards late-stage stuff. It's going to be more widespread along a new baseline. And that's exactly what we started to see even before the calendar '25 start. We started to see that in November and December and all through our first quarter. So I think that thesis is still intact. And I think they're not going to -- even though I believe -- and this is kind of why we took our guidance a bit down in Q4 as it pertains to pharma is that they took their foot maybe off the gas a little bit here recently, not the breaks, but just a little bit off the gas. As you would expect, given the retrofits occurred starting in April and May with regards to pharma, whether it's tariffs, whether it's MFN. But I don't think they're going to overreact. I think they want to see what happens when the dust settles. And the reality is they already did a major repositioning in their portfolio. So I think it will take something very major to have them go back to that well again. At the end of the day, you can only strip your discovery and translational research so far, and you basically jeopardize your future. And you could argue they've kind of done that already. So they may have -- if things do get worse for them, they may have to live with a little bit less profitability near term to make sure that they are viable long term.

Got it. And then just wrapping up on sort of the high-level questions. How is your performance in Q3 and your expectations for Q4 inform you as you head into fiscal '26?

Yes, it's -- I thought last year was a tough environment...

Waiting for David to slap me on the wrist.

Yes, they told me not to answer that question. So I'll vaguely answer it...

Okay. Whatever you can do.

It was -- I thought last year was a tough year to give forward any kind of soft guidance for, but this year has proven to be tougher and I'd say that because at this point in time last year, a lot of things were known. The biotech funding situation was -- it was getting better, we could see in the numbers in terms of the funding. So that was stabilizing. Academic wasn't an issue there at all. And large pharma, the pipeline reset was in full motion. So you could kind of get a sense for when that would end and kind of things get back to normal. We're not as far as long as that right now. We're still in the stage of massive uncertainty as to where all these policies ultimately end up and so in that type of environment, it's very tough to pinpoint exactly if there's going to be a recovery. I fully believe the megatrends are supporting our industry for a decades to come, but exactly when that recovery restarts again. So I think it was starting and now we have to do a restart. And by the way, when it starts, it starts -- it ramps quickly. I mean we saw how quickly we started to come out of it. And I think we'd be talking about double-digit growth this Q4, if it wasn't for what's occurred starting in February, March and April. So I think when it does recover, it will recover quickly. That turning point right now would be very difficult to pinpoint. And normally, I'd say, what am I going to know 2 months from now, I don't know it today. But in this environment you know a lot more 2 days from now than what you know for today. So I'm hopeful that there'll be more known. I don't even -- I'm concerned less about what the outcomes are. I think a lot of the worst-case outcomes are already built in. I just -- I think everyone just wants to know what those outcomes are so that we can now plan our business with that in mind and march forward. And I think once that happens, not only that for us, but for -- more importantly, our customers, they'll feel more confident on their purchases.

Yes. It was interesting because as you pour through some of the Q1 results, you and your peers, like particularly large pharma was off to a nice potential recovery year. It got kind of suspended.

Yes, it did.

Maybe let's move on your core portfolio of research reagents. Maybe give us an update on the performance of your proteins, antibodies and assays and there's obviously been some consolidation in this market over the past couple of years. How has this changed the industry dynamics or competitive landscape in your view?

Yes. Not as much as you might think actually. I mean if you think about some of the larger ones, there was a protein -- I'm sorry, PeproTech that was by bought by Thermo a few years back. There's more recently Abcam that was bought by Danaher. And the reality is that, I think, the way these companies operate under Thermo and under Abcam in terms of commercially isn't that much different. It wasn't like they had -- these companies already had a large existing businesses that they completely synergized with and merged into. And so we haven't seen a dramatic difference in terms of how they go to market and how they compete. They're just as -- there's as strong competitors now as they were before, no better, no worse. And I think, honestly, when it comes to the real tougher competition, it's always been this way. In 11 years I've been at the company, it's more of the smaller companies, particularly in antibodies. And they're not -- they don't have the breadth. So they don't compete with you across your entire portfolio, but they all have their niche, and they all try to take bites out of you in those niches. And that's where we've kind of focused more of our attention on.

Got it. Maybe shifting to instrumentation. It's around 20% of your revenue when you look at the actual equipment plus the consumable pull-through. The capital equipment has been a pretty challenging part of the industry recently. Yet you delivered upper single-digit growth in the third quarter, your fiscal third quarter. What drove the growth in the quarter? And do you think that can be sustained? And what's differentiating you in that instrument market relative to peers?

Yes. So a number of things. So first of all, we're proud to say that we have such strong consumable pull-through in that protein simple franchise that even though for the better part of the last 2 years, our instruments were down like everyone's instruments were down. The platform itself had a nice solid growth because of double-digit consumable pull-through, which just gives us the confidence in our thesis that these instruments are truly used for productivity by our customers. And the other thing that's unique about our instruments, whether there's 3 major platforms, the automated immuno assay platform with Simple Plex. the automated Western blot with Simple Western and then our biologics Maurice platform, which is truly kind of a QC tool in manufacturing. What makes them unique is that there's not -- with -- except maybe 1 of those 3 platforms, there's not any real direct head-to-head competition. They all -- in the case of Simple Plex, there are other companies that have similar platforms, but they're either used downstream from us or maybe upstream for the application, which we think we're in the sweet spot for and capture more of the market -- more of the potential market with. And Simple Western really is no automated solution. You either choose to do it manually or you have our solution. And in the case of our biologics platform, there's only really 1 other formidable competitor and our instrument is just a better instrument, quite frankly. So we're winning on -- we're taking share on new products that go into manufacturing -- new manufacturing lines. And the cost of these instruments are relatively cheap compared to your typical life science tools instruments. And so therefore, they're easier to get through in tighter budgets than they are now. But what's encouraging is in the last 2 quarters, not only has our overall protein Simple franchise, grow nicely, but actual instrument placements have increased 2 quarters in a row now despite these difficult times. So we think that's also a sign, particularly in large pharma that the markets were coming back. And we always believe and still believe that when the markets return to normal, we're going to see our protein simple franchise really light on fire because we think there's a lot of pent-up demand for those instruments. The pipeline is as large as it's ever been. It's just a matter of budgets getting released to execute on it.

Got it. Moving to GMP reagents. It's obviously a key part of your cell and gene therapy growth pillar. What are these used for? And what is the split between cell and gene therapy within business?

So we probably haven't done ourselves any favors by referring to it as cell and gene therapy, cell and gene therapy, cell and gene therapy. It's -- devil is always in the details. There's cell therapy and there's gene therapy. And the reality is, is that we -- although some of our instruments are sold as QC tools into the gene therapy space, it's not a material part of our revenue. As you mentioned, the biggest part of our cell therapy revenue comes from our GMP proteins. And within cell therapy there are also 2 major categories. There is your immunocell therapy which is like your T-cell therapy and things of that sort. And then there is our CAR-T cell and then there is regenerative medicine, ISPC, stem cell market. And that's actually the bigger market for us even in the immunotherapy and has been growing even faster. And so those markets continue to do very well. We have 30% growth on a TTM basis. Last quarter it grew about, the company average a little higher than company average, but the reason why we started talking about TTM now is that it pertains to this end market for us. Because of kind where we are at in the maturity curve, in that we have over 550 customers. All those 550 customers, roughly 85 or so are actually in clinical trials and the amount of purchases bought by those 85 dwarf the other 400 or so that are in preclinical. And then within those 85, we have a handful or so that are in late-stage Stage 2, early Stage 3 and those handful are so dwarfed those revenue from the remaining 80 that are in clinical trials. That gives you a sense of how these things scale as the customer progresses and then ultimately, you get to commercial, and that's a home run, and that's kind of where Wilson Wolf is entering right now, by the way. But because we have these -- a handful of customers that have reached that point and they're driving such a large share of our overall GMP protein revenue, it now becomes very lumpy because they buy it when they need it for that clinical trial, which could be once or twice a year. And so that's why we're now talking about that more on a TTM basis. And luckily 2 or 3 years from now as we get more customers into the late-stage clinical trials, that lumpiness will start to smooth out. But lumpiness is often perceived as a bad thing. In this case, it's actually a good thing. It means we're getting customers who are progressing in the later stage clinical trials.

Got it. And Q3 growth did slow a little in the GMP reagent business to sort of upper single digits, still healthy growth. But what was behind that slowdown? And what should we expect going forward? Is this some of the lumpiness that you're talking about?

It's 100% lumpiness. Yes, exactly.

Got it. And you kind of touched on it a little bit, but just kind of want to dig a little bit deeper in terms of your exposure among the phases of drug development. There's obviously a significant uplift in volumes as programs move through later. I'm assuming a lot of what you do, particularly in the GMP phase that you're spec-ed in, but could characterize kind of your exposure to each phase, maybe across your business or across the GMP reagent business?

Well, I think I kind of already did and I just outlined there. I mean I said before, there's a handful of customers that are in later-stage clinicals that dwarf the revenue of the other 75 or so or 80 or so, whatever that number is, that are in earlier stage clinicals and then those dwarf the revenue of the 400 or so that are pre. So that's kind of how you can think about the ramp.

Got it. Okay. And you touched on it before, but just another key part of your cell and gene therapy strategy is Wilson Wolf.

Yes.

Maybe remind us kind of how much of you own the company today, how Wilson Wolf fits in with the business and how has the company actually been performing recently?

Yes. So Wilson Wolf, they have a product called the G-Rex, which is basically a disposable bioreactor up the size of a laptop. And in cell therapy, particularly in immuno cell therapy, it's all about after you reengineer the cells, you've taken out of the body, you've got to now take those reengineered cells and grow them in the billions before you put them back in the body to make sure they can take effect. That all happens in this bioreactor and the food and the regulators of that food intake is essentially the media and the GMP proteins that are all put into that bioreactor. So all the magic happens in that space. And most, if not all of the other solutions out there for cell therapy, that bioreactor is more of a traditional type bioreactor, a very large piece of equipment, expensive, takes up a lot of space, thus not very scalable. And Wilson Wolf G-Rex is this very portable, again, laptop size, you can fit 10, 20 of these in a cabinet a size of -- that would be just 1 of a normal-sized bioreactor. So the potential to scale is much greater, which is very important if these ever become mainstream therapies. And also the cost point becomes a lot less because the price of this little bioreactor is a lot less than a traditional bioreactor. And because what it contains is basically our ingredients, that's where the marriage happens. And we've a tool called ProPak we just recently released, which is a tool that basically snaps on to the G-Rex that has already a predetermined amount of our reagents in it. So you don't have to fuss with guessing how much to put in and when to put in, it automatically feeds it. So we're making it even easier to use our reagents with the G-Rex. As you mentioned, we've already purchased roughly 20% of the company. We have a buyout target in place where they hit certain metrics, it's roughly $226 million in revenue TTM or $136 million of EBITDA TTM. We would buy the remaining 80% for $1 billion, which is still a pretty good ratio. And if they don't hit that target within now by the end of calendar 2027, then we're obligated to buy and Wilson Wolf is obligated to sell the remaining 80% at 4.4x trailing revenue. And remember, this is right now a 70% EBITDA business. It'll probably be 60% under a public company requirement, but nonetheless, it will be a great, great acquisition for us. It mirrors extremely -- we're already co-marketing our products together. But once we're on the same hood, that will be even easier to make those synergistic sales and it's 1 of those rare acquisitions that's not only going to be accretive to growth because they have been growing in the mid-20s on a TTM basis, partly because they have -- there's 7 cell therapies that are currently approved, they're in 5 of them. But as you go from a transition from Phase III to commercial, there's a bit of a lull, it takes about 1 year, 1.5 years to get through all the manufacturing process with the FDA. So that's kind of why their growth rates were subdued this past year, even though mid-20s is not bad. But now they have -- at least 3 of those 5 are going online this year and just those 3 alone will accelerate double-digit growth even if the rest of the portfolio is flat, which is probably not going to happen. So again, a massive accretion to growth, great accretion even to our EBITDA percentage, which is extremely difficult to find at a very, very fantastic valuation. So we're very excited about it.

Got it. Maybe shifting over to Spatial Biology and Diagnostics. Maybe just give us an update on your spatial biology business. Where is your portfolio currently focused? And how is the COMET platform been performing in the current environment?

So when you think about spatial, there's like -- as there is in any of our end markets, there's kind of 3 key phases. There's discovery, which then the output discovered is translational, when you find your few select targets of interest to actually make from that either a diagnosis, a diagnostic or a therapy from. And when you do that, now it goes in the clinic, right? And where our focus has been from day 1 with our acquisition of ACD and it's been now 7, 8 years ago, has been on that translational space. And because of that focus and because we got just the ultimate solution in our ACD reagents in terms of single cell resolution and specificity for RNA targets, I think, we are the biggest player in that space. And because of that, we also are very well positioned as our customers move from translational ultimately into the clinic to follow that journey with them. And in some cases, we've even like jump started that because roughly 10% of our revenue in spatial is already coming from the clinic with our partners in Ventana and Leica. So we're already there. I think we're 1 of the few spatial companies that can actually say that we already have solutions in clinic and proven that work in the clinic. With over $120 million of revenue of reagents, we are, I think, the largest player in pure spatial as well. And that business is also knocking on the door of 30% EBITDA. So I think we are the only spatial business that actually is very profitable, right? Now we more recently, about 2 years ago now added an instrument to the portfolio, COMET to the acquisition of Lunaphore, which is basically an automated solution for spatial in the translational space. We think -- we bought it because we're fully convinced it's the best tool in the market, whether it's the fastest, it can look at the most targets, easiest to use, all those things, but also, and as importantly, it's the only tool out there that can truly do multi-omic spatial detection on the same tissue on the same run on the same screen. So it can find both RNA targets of interest and protein targets of interest in the same run. And the beautiful part about it is, again, the pull through. Not only does it have its own chips that are dedicated to the instrument, but obviously, it pulls through our RNA scope from ACD reagents and it also pulls in a lot of antibodies for protein detection. So it's 1 of the most synergistic instruments we have with regards to pulling through our reagents.

Got it. Maybe shifting more towards financial, maybe walk us through your outlook for Q4. What are the assumptions behind your top line and operating margin expectations for the quarter?

Yes. So on the top line, we basically were expecting more of the same from Q3 in terms of Q3 was already a tough market for our U.S. academic and that obviously hasn't changed much. And our run rates haven't changed much either. So it's still -- we're holding up very well, all considering, but pretty much the same as what we saw in Q3. Biotech, the smaller biotech end market, same thing. That's not come back like we thought it would because capital markets are still very uncertain in terms of the future, and they're always concerned where the next dollar is going to come from. So they're a bit -- they've slowed down a bit as well, and we see that continuing in this quarter. The biggest change in our guidance from how we ended Q3 versus Q4 because we did 6% growth and now we're guiding to low single digit for Q4 it's really around large pharma. And it's really just a level of kind of just makes sense in some conservatism in the sense that we saw pharma in April come off the gas a little bit, not put the brakes on but come off the gas and by the way that -- we see this on a daily basis because 70% of our business we can see every day coming through our orders. And you saw that happen right away in April, guess what it coincided exactly with when the tariffs were announced and the targeting around pharma, et cetera. So it kind of makes sense that again, these large pharma companies aren't going to overreact, but they're not going to keep the pedal to the metal in that type of situation. So that's what we started to see in April and we just basically are predicting that to continue through the quarter until there's more certainty around what this all means for pharma at the end of the day. And so we saw the growth rates go from double digit down to kind of mid-single digit, and they've been holding there fairly nicely. You blend that all together, it basically takes us to low single digits. That's the top line. On the bottom line, we did call out -- we had a very nice margin performance in Q3. We had almost 200 basis points of margin expansion. But unfortunately, we had to call down Q4 to basically be down somewhere between 100 and 150 basis points year-over-year. And the main reason for that is, again the tariffs. So even we talked about being relatively immune to tariffs and especially going forward in our quick mitigation strategies we still were impacted at least for half the quarter on the reagents and for most of the quarter on the instruments until we get this all transitioned to all of our factories globally and that's causing us some headwind this quarter, but it is a 1 quarter event, we think only. So that was the main driver of the margin.

Got it. And for my last question, just more on capital allocation. You announced a $500 million share repurchase plan during earnings. Does this signal any shift in priorities in terms of capital allocation? And in that sense, how are you thinking about M&A strategy moving forward?

The short answer is no, it does not shift. If you think long term in life science tools, it's such an innovative space to think you can innovate completely on your own and be viable 10 years from now, it's not -- that's not the way the game is played. So you've got to have M&A as part of your strategy going -- a long-term strategy, and it will continue to be for us. The M&A market for us tends to be more private companies. And for the first time in a long time, we're starting to see some valuation conversations make a little more sense. So we're encouraged that you'll see more activity from us there in the coming year. Yes, at the end of the day, we bought back some stock the last couple of quarters because we think we are very much undervalued. And rather than have cash build up on the balance sheet, put that cash to work in our own company when it's as cheap as it is. And the authorization, well, we use the rest of our authorization. It's a good housekeeping to always have an authorization in place. So we basically renewed that authorization. We bumped it up by another $100 million. And yes, while the stock continues to be what we believe is severely undervalued, rather than having cash build up on the balance sheet, if we bought it last 2 quarters, you can imagine and we think about it right now. So it's not necessarily a strategic shift. It's more of a tactical shift.

Understood. Jim, David, thank you very much. Appreciate it.

Yes, thank you.

Thanks, Matt.