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

We'll look to get going here. Thanks for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. I have Jim Hippel from Techne with us today.

So Jim, a bunch of different stuff to cover. Maybe we can just start high level as we work our way through the year here for you guys, coming out of fiscal 1Q for you, you guys kind of reset a little bit in terms of the pacing how this year is going to go. Maybe just talk through the expectations for 2Q and then the ramp in the back half and maybe just some of the things to call out that changed a little bit over the course of the last couple of months.

Yes, sure. Happy to. So thanks for having us, by the way. Always good to see you.

Yes, of course.

Maybe I'll start a little bit with the dynamics of Q1 because that even parlays into how we're thinking about Q2 and the rest of the year. So we ended the Q1 with negative 1% growth. We did have 2 of our cell therapy customers, very large customers, who did not purchase any material from us this quarter and likely will not for the remainder of the year, and I'm sure we'll have some questions in more detail around that. So you got to take out those 2 customers to really talk about the real company, the rest of the business. And if you back out that's about 200 basis points of headwind. So the negative 1% really is 1% for the rest of the company in terms of growth. So we'll start there. I'd also say I got to put some end market context in all this, right? So when we -- if we back up another quarter, when we came out of our Q4, which was the June quarter, the go-forward view was one of the murkiest I can remember in a very long time in this industry for 20 years. Because it wasn't so clear where -- especially for academic and biotech and at that point, even pharma, which direction the end markets were going. NIH was still in disarray with threats of 20%, 40% cuts, all that stuff. We had biotech funding that was down 30% year-to-date at the end of June. And pharma, which had been doing well for us and had, from our perspective, essentially recovered because we had 2 quarters in a row of double-digit growth in pharma. We were concerned that, that growth rate might start to come down because of the rhetoric that was coming out in July around [ MF ] pricing and tariff -- 100% tariffs, et cetera. So coming out of our fiscal year '25, the near-term outlook is, well, we don't literally know if things could get -- actually get worse before they even get better, much less when do they start to get better. Fast forward 3 or 4 months, a lot of things can change and a lot of things have better, thank goodness. The first one, most importantly being pharma, which makes up 30% of our revenue, that seemed to have been a storm cloud like a monsoon that came through and left in like a Saturday afternoon. Larger pharma companies stepped up. They put some pricing deals out there on certain drugs. I don't think we're all that painful for them and seemed to appease the administration, and it's been pretty quiet ever since then. So I think everyone feels pretty confident that, that threat has come and went. We saw in the behavior of our customers, too, as well, where in July, before we had our earnings call, we saw a slowdown in our pharma customers. So we kind of saw the correlation from the rhetoric translate into our results. But then again, right after those agreements were made, we saw a bounce right back. And we ended yet again another quarter of double-digit growth in pharma. So white to the brown on that one, it looks like we've dodged a bullet and pharma is still in good shape going forward. If we go to the other extreme and go to academic, what's evolved over the past 4 months, 5 months or so is that the appropriation committee for both houses and Congress have essentially messaged a roughly flat budget for NIH, which is a major improvement from a minus 20, minus 40 that was being batted around before. And we can see the anxiety of our academic customers start to settle down as a result of that. The worst quarter we had in our academic business, U.S. was in the March quarter when all this anxiety started with NIH, and we were down high single digits. In our Q4 June quarter, it was the upper range of being down low mid-single digits. And now in our most recent September quarter, it was down low single digits. So all moving in the right direction and kind of heading towards that flattish, I think, expectation that's now kind of most people have built in. So good news because there seems to be at least some floors developing on where that might go. And a lot -- the floor is a lot higher than where even thought it would be initially. But admittedly, we're not out of the woods yet, right? There still has to be a bill pass. And who knows when that will happen, hopefully, January. And then we got to have -- see how the Trump and [ RFK ] administration actually administers that budget. But at least it's -- there's some green shoots coming out of academic there to at least stabilize the market, if nothing else. And then finally, there's biotech. And for the first 6 months of calendar 2025, our back half of our fiscal '25, we have been at flattish to low single-digit growth in biotech despite the funding being down 30%. We know there's a lag between funding and spending, and no one knows for sure how long or short that lag is, but we know there's one. And we did have concerns that we would start to see some catch-up there with regards to spending following the funding trends. And sure enough, that did happen in our Q1. We had one of the -- unfortunately, one of the worst results in our small biotech that I've seen in 12 years in this company, where we were down high single digits in small biotech. Yet, I feel better about small biotech now than I did 4 months ago because what has also transpired is the funding levels for biotech has increased each month, every single month since July, August, September, all the way through November, the last 2 months being very high, where that year-to-date funding has gone from minus 30% now to minus 13%. And it shouldn't be a surprise. These are -- it's a high beta, high-risk tolerance kind of investing environment. And you're all in when things look good and you get skittish when things look bad. And those investors look at pharma because that's their eventual exit. And now that looks better. And not only that, but pharma is picking up some of their M&A. They're doing a lot of licensing activity. So it all helps biotech. And the stabilization in academic, I think, also helps biotech because that's their future innovation. So it's not necessarily surprising that for biotech to stabilize and improve and the funding to start to come back in the market, you need to see the cloud start to dissipate in those 2 end markets. So it all goes hand in hand. So we think it's enough at least to stabilize in the biotech market for now and not have it get any worse from here. But in terms of it improving from here, back to that leg, we're only 4 or 5 months in of funding improvement. We need to see more of that. But assuming that continues, the likelihood of us seeing that in our numbers may not be until the start of our first quarter of fiscal year '27, which is the back half of calendar 2026. It could happen sooner? Yes. But our base case is we don't really see it until then. So that's kind of how the end markets shape up as the year has progressed, the calendar year has progressed. So now to your question, which is what does that mean for the future? And as I said before, we did on an adjusted basis, adjusting those 2 customers out, we did plus 1% this quarter. The headwinds from those 2 customers double next quarter from 200 basis points to 400 basis points. But right now, we're predicting roughly the same overall growth rate. So call it minus 1%. But what that really means is if you add back the 400 basis points, ex those 2 customers, we're improving from 1 to 3. So what's driving that forecasted improvement? Not the end markets because our base case is that pharma is already at normal, stays normal and that biotech and pharma kind of stay where they're at, but don't materially improve until we get to the back half of 2026. But what does improve is our relative performance, led by our ProteinSimple franchise and our Spatial franchise. We have a long history now over a decade history with ProteinSimple to know that ProteinSimple often leads us into a recovery. They help keep us as a company in the black throughout the entire downturn over the last 3 years. We've never had a down quarter in ProteinSimple. And we also have data that demonstrates that during normal markets, they far outgrow the market, which we kind of internally compare to our core reagents. During a down market, that spread -- they still outperform, but that spread narrows quite a bit. And during a stabilized market, it's somewhere in between in terms of that spread. We believe we're in the -- we're at the turning point of a declining market into a stabilizing market. And therefore, we expect ProteinSimple and our spatial biology to perform better relative to the market more in a stabilized market than they would in a declining market. Now we have some current data to support that. This isn't all just kind of history and algorithms because we saw in -- we've seen steady progression of ProteinSimple throughout the quarter and Q1 into October. And with regards to spatial, it was notable because we had our only down quarter in spatial in Q4. It was down low single digits, and it was flat in Q1. But more importantly, in Q1, when you peel the onion back layer, our reagents flipped from being negative to positive. And our instrument comment, although the revenue was still down, the bookings increased double digit. And we've seen that momentum continue into October. So at least so far, that thesis is alive and working. And so we think it's -- those 2 businesses outperforming even more in a stabilized market will give us that extra couple of points of growth in Q2. Now as we get into the back half of the year, I'm not suggesting that we're going to take any more share. I'm not suggesting at this point that the markets are going to improve until the back half of 2026. It's really a math equation where our comps become easier. We start to lap the academic comps that hit us hard starting in February. We haven't talked about this much, but our Diagnostics business, which is a combination now of our legacy diagnostic controls and calibrators, combined with our growth vector of a surge and laboratory kits powered by the Exosome technology, that diagnostics business for us has been performing very well throughout all of this. And in fact, in Q1, we grew mid-single digits on top of a mid-teen comp last year. And for the year last year, they were high single-digit growth combined, but they were teens growth in the front half and minimal growth in the back half. So very lumpy business. These customers buy once or twice a year, and it's never in the same quarter every year. And last year, it was very front-loaded. This year, our customers are telling us it's going to be much more even throughout the year. So that becomes easier comp for us as well. So it's -- what I'm saying is that the incremental improvement that we expect to see throughout the remainder of the year, partially driven by our own relative performance as a portfolio driven, but also the math of easier [indiscernible] which means that any earlier improvement in end markets is actually upside. So a long-winded answer. We answered 4 questions that one answer...

No, that was very helpful. Definitely want to dive into all that. Why don't we cover the 2 customers first, and then we can dive in. So maybe just give a little bit of context. You have these 2 large iPSC customers, stem cell customers. What does the concentration look like in terms of how large they are on a relative basis? How long will this impact linger? Maybe we can start there and obviously have a few more questions about it.

Sure. So these 2 customers are definitely outliers and outliers in a very positive way. And we've had all kinds of questions why you have these 2 outliers and why are they outliers? The 2 simple reasons I can give for this is, number one, the disease states that they're going after are very large, very large populations. So that means a lot more product that's needed to support trials. And it means when they knock on wood, they go commercial, there'll be huge commercial customers as well. The other reason is because of the type you mentioned iPSC. So as a reminder, our cell therapy franchise, I just generalize and say it's cell therapy or even overgeneralize and say, cell and gene, but it's really a cell therapy franchise. And there's 2 major components to it. There's the immunotherapy CAR-T side of things, which is largely used for fighting cancers. But there's also the iPSC or stem cell or another word for is regenerative medicine therapies that essentially grow up stem cells, but they all involve the growing up of cells, and they all require cytokines to do that, our cytokines. And we're a top 3 player in the immunotherapy CAR-T space, but we are by far the #1 player in the regen space. And part of the reasons for that is because the -- both the quantity in terms of the number of types of proteins that are used to grow up cells in regen men are a lot more, a lot higher than they are in immunotherapy and the complexity of those particular proteins are also way more complex. In fact, in some cases, we think we're the only ones that know how to make them. So that's why we by far become the #1 player in that space, which is why if you're a regen therapy customer, you're more than likely to be buying our proteins, and that's how we have these 2 customers. And they use a lot more proteins in the growing up of those cells. So that's higher content per dose. That's why these are such outliers. Within our 700 customers, these 2 do make up -- recently have made up as much as 35%, 40% of our GMP revenue.

Okay. And I guess in terms of how this played out, right, that big of a customer, presumably you have a very close relationship. You have some visibility into what they want to order and then apparently do not want to order. I guess what happened in terms of them this air pocket forming seemingly quite quickly? And then when does -- to your point, when it flips commercial, it should be super interesting for you guys, what is the visibility to that happen? Maybe we start with what happened coming in and then what could ramp?

So first of all, start off because we're -- I'm sure we're on a microphone here. No offense to our customers. Of course, we love our customers, and we love these 2 customers very much. But -- and we respect the fact that by their very nature and what they're trying to do, they're very secretive. -- and about everything. And we get that, and we respect that. And we try to manage around that as best we can. And we knew before -- we knew by the end of our last fiscal year that these 2 had gotten Fast Track designation. What we didn't know was what that actually meant in terms of its application and more specifically, what it meant for us. There's no -- always we need to understand it. There's no boiler point for -- or you're fast track, that means XYZ. It just means you're going to get some special attention from the FDA to do whatever it takes to get your -- either trials faster and/or through the approval process faster. And that could take on all different kinds of forms. So we didn't know. And these customers were reluctant to tell us much about what it would mean. And given they didn't tell us much, we didn't necessarily think it was going to impact the because it can mean that once they get past their Phase III, then they'll speed up the approval process. They could be as simple as that. Well, it was until we got whatever it was, halfway through the first quarter, we're like there was no orders coming in. And so we basically like you need it -- this is important to our -- this is material to our company. We need to know at least are you going to buy stuff or not? And if you're not, why not? So at the end of the day, they did give us the information, which we've now shared publicly, which is that they were fast tracked, which we already knew. But for them, what that meant is that they -- in essence, I'm oversimplifying it, but in essence, they were able to skip a phase of their trial. And the material they bought from us in fiscal year '25 was going to be used for their Phase II trial, which was going to be ongoing now. And the material they were going to buy from us in fiscal year '26 was going to be for their Phase III trial next year. Well, now they no longer need to do, call it, that Phase II. So the material they bought for Phase II can now be used for Phase III. So skip a year. Now we were going to hit this, and we will with all -- as many customers -- I hope we hit this with all of our customers, that means we're being successful in terms of this chasm. Once they get their Phase III approval, there is a natural chasm. We see it in biologic drugs where it could be 18 months to 3 years from the time Phase III results are published and the actual approval and commercialization. Not only is there a paperwork and all that to the pure approval, but then you have to get the manufacturing processes documented, those approved, all that fun stuff. So anyways, but going back to this most current year, we said, okay, so does that means you're not going to buy anything from us next quarter. That's correct. What about after that? -- we can't say for sure. Well, if that is the reason they're not buying from us, then they're not buying anything the rest of the year. So that's our base case as they're not buying anything from us for the rest of the year. We've been told definitively well, obviously, now in history, but Q1, no and Q2, no. So that's what's baked into our forward view with regards to the rest of this fiscal year. Now with regards to commercialization, all that, we're in uncharted territory here. I mean, let's face it, there's only a handful of actual cell therapies that are actually commercialized. So not enough to make -- have any statistical relevance really. And there's been 0 IAC. These will be the first 2 that we know we've got -- Google checked it, AI checked it. We're pretty sure these are the first 2. So you kind of got to go back to the biologics, take a look at what's kind of normal if this is going to follow that path. And what's normal is 18 months to 3 years from the time Phase III results are published to commercial launch. Now given this is fast track, I would expect this to be much closer to 18 months than the 3 years. And could it be faster? Sure, it could be. We've heard that there's instances where the FDA will actually work in parallel with you during Phase III before the Phase III results are even known, start to work the paperwork trail for approval. So it could be faster. But our base case is not knowing or having information for anyone else is that it will be 18 months, which would put us somewhere in the fiscal year '28 time period for us to start to see the commercial launch. Now the next question is, well, then how fast is the launch and how big does it get? And given the -- we know what disease states they are, we know what the population sets are, we can run that math. And when we run that math on a per dose basis, it's kind of 2 points we look at. There's what I would call full maturation, which can take 10, 15 years. It's different for every drug. And then there's kind of midpoint, which is more in the horizon of LRP 5-year kind of model. Depending on whether this uptick is linear or J curve or upside down J curve, bottom line is in a mature state, these could be $80 million to $100 million customers each and halfway point, which is probably closer to most investors' time horizon here, if you're thinking 5 years out, could be as much as $40 million to $50 million, so very, very sizable revenues from just 2 customers.

Yes, absolutely. So to your point, it sounds like at the peak, they were combined 40% of GMP. Is that?

At one point, one given quarter, they were.

Sure. Okay. And I guess the next logical question is, are there more of these that could pop up? Do you have any other customers this large in terms of concentration? Are there others in a similar -- whether it's Phase III, whatever it may be? I guess, how do you approach that?

So as much as these causes kind of short and intermediate term heartache and headaches, I wish we had a whole bunch of more like these ever on docket. These truly are some outliers just given the disease states they're going after. We do have 698 other customers. We have 85 of those that are in clinical trials. We have roughly 2 dozen of those that are in Phase II, Phase III. But they follow the more normal trend of what we'd expect to see, which is when they're full commercialization at full potential between $5 million to $15 million a year each. And when they're maxed out in their clinical trials, they're sub-$1 million, but still very large relative to your typical RUO customer. Said another way, there's enough of them out there. We don't anticipate any of them, whether they fall off for some reason or they hit this chasm because they're successful, it being that material to have us be talking about it at a conference like this. But I kind of hope I'm wrong, and I hope there is. But as of right now, we don't see it.

Okay. Understood. Okay. That all makes sense. So maybe moving on from the 2 customers. It does sound like, again, on the end market side, you are feeling better about most of the pieces. Maybe we can start with biotech, to your point, the funding has picked up. It's certainly looking better, whether it's the indexes, the secondaries, maybe some IPOs at some point. Maybe dive in a little bit. You touched on it a little bit earlier, but just in terms of what lag you typically see, obviously, again, the downturn probably hit you guys a little bit last quarter. How quickly could this pick things up on the biotech side for you? Are you having more constructive conversations? What are the expectations for that market for you guys?

Well, I'm not going to be able to give you an answer that's as precise as anyone wants to hear, including myself because the reality is it's customer-specific in terms of how fast this money translates into spend. It really is. And we've seen some customers where it just instantly shoots through them. And we've seen other customers where you're like, are you ever going to spend the money, it goes on forever. And we've tried to come up with some averages. And I guess if -- we have to -- at some point, we have to come up with our own base case. So our base case is somewhere between 2 and 3 quarters is the lag. But we've seen examples where it's happening much faster, and we've seen examples where it's taken a quarter or 2 longer than that, which is why we're careful in kind of saying not even picking a specific quarter, but to say, hey, fiscal year -- sometime in fiscal year '27, we feel like as long as it doesn't go backwards from here, there should be a lot of tailwind from funding to support a biotech recovery.

Okay. And then pharma, similarly, it sounds like the conversations there are a little more constructive. That regulatory overhang seems to be removed. What do those discussions look like with customers? And how is the sentiment around that end market for you?

Yes. It's -- the conversations are fine. I mean you got to remember relative to, say, a Thermo or Danaher, we're still a relatively small company and kind of like it that way because we kind of play on the radar a little bit, too, right? We don't get -- we don't talk to big purchasing agents and so forth. Our customer at pharma is usually the researcher on the bench. So it's almost a consumer model more than a B2C. So I share with you only because I don't have a lot of additional insight to say what the executive of pharma companies are thinking about their business. So I rely a lot on what they're saying publicly, what we're hearing from our peer companies who do have some of those conversations. And then I try to triangulate that with what we're seeing from a behavior perspective because at least the one insight we do have is being in a 80%, 90% consumables business, we see their activity every day. And so we can kind of correlate that with what we're hearing externally. And what I'd say is that what we're hearing and seeing is very consistent with what I think you're hearing both from them, those customers, but also from our peer companies that do business with them also. And -- and that is -- I mean, they're all doing very well. I mean, even during the IRA year 2024, for the most part, pharma increased their R&D spend mid-single digit. It was just how they were -- where they were increasing it is what caused a dislocation in the tool space that supports R&D because most of that was going towards very late-stage, high derisk as they were reallocating their more discovery-based programs. And our prediction back at the end of 2024, which I think some people thought we were a bit crazy for saying this, but was that this is going to be mostly behind them. It wasn't that they didn't spend any money, they did. It's not like they're not making any money, they are. And when this reallocation of the portfolio is complete post-COVID, they'll now take their increases and spend that more pro ratably. And I think that's exactly what we've seen all through calendar 2025. And I don't see anything slowing that down. And if you want to get even more to make more theoretical about it and long term about it, it's no secret that there are some significant patent cliffs coming for many large pharma companies. So they're going to have to bolster their discovery pipeline to fill that gap down the road. And whether that's internally or whether that's investing more and buying more biotech companies, I'm not so sure we care because it's all good for the industry one way or the other.

Yes. Yes. And then the other end market, obviously, academic government, you touched a little bit on as well. Pretty roller coaster ride, let's call it, this year in terms of how big the cuts were and how tight those budgets got. Where are we now? Again, to your point, hopefully, there's a budget in January, there was a shutdown. Did the shutdown track as you expected in terms of the guide? And then yes, when do you see those dollars start to loosen up a little bit?

Well, I'll start with the shutdown. There's like shutdown like every other year, it seems like it's not -- are not a shutdown. I've never paid attention to a shutdown in the 12 years I've been at this company until this one just because there was so much angst on NIH in general. And I wasted a lot of time paying attention to it because nothing changed. I mean it's not -- it didn't get any better or worse when the shutdown was announced, and it didn't get any better or worse from a run rate perspective after it was over. So it's very temporary. At the end of the day, we talk about academic and government, it's really academic. And the only reason why government is even thrown in there is because a portion of the funding does come from NIH. Of course, we all know that. And yes, the government was shut down. So a little bit of business we might do with the government went to 0, but it was a knit -- if you're an academic institution, you still got the same budget you had before the shutdown, you're still doing your experiments. That's why I don't think you see -- and even in 30 days, even though it was the longest or whatever it was, the longest in history, it's not long enough to cause a stop in research at the academic institution.

Sure. Okay. I'd love to dive into a few different product verticals. I mean you mentioned ProteinSimple as maybe the leading indicator. It seems like that's picking up a little bit. What are you guys seeing in that business? And what's the right way to think about that, to your point, as maybe leading the business out of a little bit of challenges here?

Yes. I mean, so we've had not had a declining quarter in our ProteinSimple franchise, as I mentioned before, throughout this entire downturn. But it's not because our instrument sales haven't suffered. They have like anything -- any instrument maker has to relies on CapEx. But it's the consumables, it's the cartridges that have kept that business in the black. We've had most quarters in the past 2 years have been double-digit growth. We've had some as high as 20% growth in a very, very tough end market environment. And what it does is just further convinces of our thesis that these instruments are doing what we said they would do, which is provide productivity to our customers. They are using them like crazy when their budgets are tight. They've been using them so much for so long. We believe there's probably -- hit a capacity problem with needing more instruments. So we do believe when the CapEx budgets start to flow back, and we think that already is starting, that our instruments will have a high priority and they're not a very high-cost instrument either. So it's easier to make room for those than it might be for some other very high-end instruments. One more space. So yes, consumables -- I was going to say about that...

Sorry, we can come back to it. So that's helpful. And then I guess the other part, you mentioned COMET with the spatial side. It seems like those placements are going well. What are you seeing there? And then what do we -- what's the right way to think about the utilization? I mean, we -- I think we hover around 40,000, 45,000 pull-through per instrument. But what are you guys seeing there on the box side and then as well on the pull-through?

I was before. So as I say, what substantiates what I'm saying also about the pent-up demand is our funnel for interest in instruments is the highest it's ever been. And customers are just saying, we and then we're ready. So that's also what gives us added confidence there. With regards to spatial and COMET, so COMET is our most expensive instrument, it's a higher dollar instrument. So it's even arguably more sensitive to CapEx budgets. Also, spatial in general, of our entire portfolio of spatial has got by far the highest exposure to academic and smaller biotech because it's a newer technology and that tends to get adopted earlier first there and then move up to pharma. So our spatial overall franchise and anyone involved in spatial has been probably hit the hardest by these downturns in academic and biotech. And I think we've done relatively very well considering. With regards to the instrument specifically, though, yes, the revenue was down this most recent quarter. But as I mentioned earlier, the bookings were up double digit. The excitement around the instrument is still kind of -- it's off the charts. There really is no other instrument on the market that can -- whether it's multiomic capabilities, the plexing, the speed, the pure automation, hands-off automation that's truly automated from end-to-end without any manual steps in between. There's just nothing in the market that can beat it. And again, the pipeline for that continues to grow large as well. So again, it's a matter of the money coming back. And I think the bookings improving the way they did in Q1 is a very strong sign of that. And it's a big reason why we think spatial will lead -- together with ProteinSimple will lead us into a recovery.

Yes. And on the pull-through side, I mean, are you guys seeing any utilization trends? Any numbers you want to throw out?

Yes. Yes. So that's the reason we're excited about this instrument because of the pull-through opportunity. So already today, on a run rate basis, we're getting about $45,000 a year pull-through on just the chips that are needed to run the instrument, consumable chips kind of similar to our cartridges and ProteinSimple. What hasn't even really started yet is the pull-through of our reagents, both our reagents on the RNA scope side for RNA detection, but also for the antibodies for the protein detection. It is an open system, so it can use anyone's antibodies. But we are feverishly developing panels of antibodies for all different types of applications, of course, picking the most popular ones first, so that customers don't have to monkey around and try to figure out which antibodies will work or not work when we can demonstrate we got a panel that's been proven to work and they'll buy ours. That's just getting started. And we think that will double the pull-through to up to $90,000 a year. But more importantly, the margins on that stuff is some of our more profitable products in our portfolio. So it's exactly why we bought this -- [indiscernible], this common instrument because we love the whole blender and juice model, and this is at the pinnacle of that.

Yes. And to your point on margins, I mean, initially, obviously, this was pretty dilutive. I guess where are we on the margin ramp overall to your point? Obviously, the consumables, that's where the margins really jump. But where are we on the margin trajectory of this business so far?

Well, it's not a margin trajectory right now. It's still a loss trajectory and how does that loss become first breakeven, then we can talk about margin. But we're probably still 18 months to a year perhaps away from breakeven. But again, to put that all in context, when we bought ProteinSimple 12 years ago, it was a $50 million business, and it was just under breakeven at $50 million in revenue. And now it's a 30% plus operating margin business. Our ACB company that we bought, which is our RNA scope business for RNA detection was roughly a $25 million business, was also not profitable when we bought it at $25 million, and that is between 25% and 30% operating margin today and growing. So what I can tell you, I won't tell you the exact size, but right now, when we bought Lunaphore, COMET which just launched. So it's still smaller than both of those companies. So it's still in its very infant stages. And so that's why we're not concerned about the lack of profitability at this point. And the opportunity for profitability arguably is higher or even higher than those 2 platforms, if nothing else, because of the pull-through of those very high reagents.

Sure. Okay. That's helpful. And then maybe the GMP business, obviously, we talked a little bit about it earlier. But the GMP side, I guess, how do you think about the growth trajectory here? Clearly, some noise near term. But maybe remind us how large that business is and what the right way to think about the, let's call it, normalized growth is for this business?

I like GMP proteins ex these 2 customers...

Yes, I guess so.

Yes. Well, okay, we talked about including these 2 customers. We've talked about it that it's roughly a $60 million run rate business, which is part of a larger $8 million cell therapy business because we also sell small molecules, we sell media and things of that sort. What it does -- that $80 million does not include and probably just because it is hard to measure, and therefore, we don't -- we think we know, but we're not going to say numbers that we can't measure 100%. But our RNA scope business in spatial as well as our ProteinSimple franchise, specifically both Maurice and Ella, Simple Plex and Simple Western are also heavily used in both cell and gene therapy for QC/QA monitoring. We have a sense, I'm not going to say it out loud, but it's material. And the reason why we can't measure it precisely is because they don't often tell us what they're using the instruments for us. So we try to gauge it by the type of cartridges they're buying, and we look to see what the kind of things they're working on that we know of that they publish and it's how we kind of triangulate this, but we know there's a lot of usage of these instruments for -- which is exciting, too, because that means it will be used once they go commercial as well for QCQA. But that gives you a sense of the size and materiality for our business. In terms of -- with these 2 customers being on a chasm here for a while, it's going to reduce the size of the business temporarily for sure. But we still expect the business to grow 20% off a new baseline admittedly, but off a new baseline. And then once these 2 customers go commercial, then 20% becomes by far the floor and it can only go up from there. And why do we feel so good about the cell therapy? I mean I get a sense talking to investors and stuff I read in the press and so forth, there's a down right now in cell therapy, at least more than I've seen before, and I'm not exactly sure why. But I think part of it is because it's all relative. There was such a euphoria around cell therapy, especially during the COVID days when there was -- everyone was flush of cash and you're throwing money at every good idea. And cell therapy was a very exciting space and there was a lot of good ideas and people are just throwing money at it. And so maybe the rate of new clinical trials growth is still growing, but maybe it's slowing, and that's causing some people some pause. But what we see is that the quality of what is coming into those funnels is much greater than it's ever been. So when the -- everyone is flushed with cash, anyone with half a brain and half an idea can get funding. And now you in tough funding environment, you got to have a pretty high hurdle of scientific relevance, and it's still growing despite that. And another example of that is our customer base. So it was just a year ago, we had 550 customers, and now we have 700 customers. Admittedly, a large part of that -- one of the reasons for that is because we've gone through a program shared with Wilson Wolf to offer at very, very strong discounted pricing grants, we call them grants to academic and even some small biotech, kind of going off of the whole NIH play that it's tough to get money from the government, but maybe you can get money from us for your cell therapy program. And they have actually to submit a grant to us. And our scientific -- we have a lot of good scientists. They look at it and they say, hey, this is viable, we'll do it. It costs us very, very little because this is a very high-margin product. We lock them in on our early-stage development. If they have success in their early stage, they need their next batch of proteins, now they're going to pay for it, but it's sticky, they're going to buy it from us. But why I even mentioned this is because the fact that we had a number of grants that we were going to give out, and we had -- we were oversubscribed by 2x. So that tells me that the interest for cell therapy among the scientific community is still extremely high. It's just about the funding. And when the funding starts to work its way back, that's one of the first places it's going to go.

Yes. So is it fair to think of the GMP piece is once you annualize these 2 large customers, which I guess would be fiscal 1Q next year, it gets back to growing at 20%...

Absolutely. That's our expectation.

Yes. And then maybe a quick one. I know we're right at time. Just on the margin side, -- what's the right way to think about the margin progression this year, to your point, 2Q is maybe with these customers declining a little bit and then presumably ramping to some level of growth in the second half. What is the margin cadence? And how are you guys thinking about the expense side?

Yes. I think we more or less messaged that we think the margin expansion will be very similar next quarter to this quarter. There's some pluses and ups and downs. But it's not -- at the end of the day, we're saying our top line overall is going to be about the same anyway. So it kind of makes sense that the margin expansion will be roughly the same. And then that margin expansion should increase enough to get us to an overall at least 100 basis point improvement for the year. So that means a higher than 100 basis point in the back half of the year. But we talked about -- I gave you some rationale as to why we think the second half revenue will be stronger organic growth-wise than the first half. And naturally, with that higher organic growth comes a very strong pull-through that allows for those margins to continue to expand.

Okay. Sounds good, Jim. Thank you so much.

Okay. Thank you. Appreciate it.