Good day, ladies and gentlemen, and welcome to Repligen Corporation’s First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Ms. Sondra Newman, Senior Director of Investor Relations. Ma’am, you may begin.

Thank you, Chelsey, and good morning, everyone The purpose of today’s call is to report our financial results for the first quarter of 2017 to provide financial guidance for the year and to discuss recent business highlights. Joining me today are Tony Hunt, President and CEO; and Jon Snodgres, our CFO. On this call, we will be making forward-looking statements regarding our business goals and our expectations for the financial performance of the company. We caution you that such statements are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risk factors is discussed in our annual report on Form 10-K, the current report on Form 8-K, which we filed today, and other filings that we make with the Securities and Exchange Commission. The forward-looking statements in today’s discussion reflect management’s current views and may become obsolete as a result of new information, future events or otherwise. The company does not obligate or commit itself to update forward-looking statements, except as required by law. During this call, we will be presenting our financial results for the first quarter of 2017 and providing guidance for 2017 on an adjusted or non-GAAP basis only. Reconciliations of GAAP to adjusted financial measures are included in our press release that we issued this morning, which is now posted to Repligen’s website as well as on SEC.gov. Our adjusted figures will include the following: revenue growth at constant currency, adjusted gross profit and gross margin, adjusted operating income, adjusted net income, adjusted fully diluted earnings per share, EBITDA and adjusted EBITDA. While these adjusted financial measures should not be viewed as an alternative to GAAP measures, the company believes that the use of these non-GAAP measures better enables investors to benchmark Repligen’s current results against historical performance and the performance of peers and to evaluate investment opportunities. With that, let me turn the call over to Tony Hunt for a business update.

Thank you, Sondra. Good morning, everybody, and welcome to our Q1 earnings call. As reported this morning, Repligen is off to a strong start in 2017, with top line revenue growth of 22% or 24% at constant currency, and with our organic growth coming in north of 10%. Our chromatography and filtration businesses were the major drivers of growth in the quarter, with our two acquisitions of Atoll and TangenX from 2016, contributing significantly to the overall success. As our commercial team gains more experience with these products, I’m especially excited about the expanded applications, new customers and cross-selling opportunities these products bring to Repligen. I’m also encouraged by the improving trends for our Protein A ligands business, which has a challenging year in 2016. Overall, our outlook for 2017 remains positive and we’re reaffirming our full-year revenue guidance and increasing our EPS guidance today. Before moving on to additional details for the quarter, I want to spend a few moments walking you through the progress we’ve made on two of our three – on two of our key strategic priorities for the year, namely market traction for the two acquisitions we made in 2016, and the expansion of our commercial organization. So let’s start with the market traction for acquisitions. We acquired the Atoll business back in April of last year to expand our market share in pre-packed columns for high-throughout process development applications. This acquisition presented an opportunity to address new markets and customers beyond our large-scale OPUS portfolio. A year later, I’m happy to report that our commercial team has made some significant inroads. The Atoll portfolio of robo [ph] many on validation columns, which now carry the OPUS brand name, delivered strong double-digit growth year-over-year and has opened new doors to cross-selling our production scale OPUS…

Thank you, Tony, and good morning, everyone. Today, we are reporting our financial results for the first quarter of 2017, as well as updating our financial guidance for the year. As a reminder, we will be discussing our results and projections using non-GAAP financial measures with respect to our performance. We use these non-GAAP indicators for financial and operational decision-making and as a means to evaluate our performance. As we indicated in our year-end 2016 earnings call on February 22, 2017, we are now excluding non-cash intangible amortization expenses and related income tax effects from our adjusted financials. As we believe, these changes enable us to more appropriately reflect the true operating performance of our company. Our GAAP to non-GAAP reconciliations, including these adjustments for intangible amortization and related income tax effects are included in that GAAP to non-GAAP reconciliation tables in today’s earnings press release. Unless otherwise mentioned, all 2017 financial measures discussed will be adjusted non-GAAP. Now moving to our financial results. We’re reporting first quarter 2017 revenue of $30.6 million, an increase of 22% as reported and 24% in constant currency compared to the first quarter of 2016. As Tony mentioned, our strong first quarter of 2017 revenue performance was driven by growth in our chromatography and filtration product lines, which benefited from the acquisitions we made in 2016. We were also encouraged by the performance of our Proteins business, where we reported modest growth in the quarter, despite very challenging comparable figures in Q1 2016. From a regional perspective, our Chromatography and Filtration businesses delivered very strong growth in all three regions of North America, Europe, and Asia Pacific. As previously highlighted, we experienced a 2% net headwind in sales due to foreign currency fluctuation most significantly in our Proteins business, driven by weakness in both…

[Operator Instructions] Thank you. And our first question comes from the line of Brandon Couillard with Jefferies. Your line is now open

Thanks. Good morning.

Good morning, Brandon.

Good morning.

Tony, could you just give us a sense of your view of the macro landscape in bioprocessing geographically? Any variations that you’ve seen regionally?

Yes, I would say that Q1 hasn’t been any different than what we have observed in prior years. So 2016 in terms of strength in North America and Europe, obviously, we’ve had a couple of good years in Asia, in particular in China. Again, when we looked at our numbers for Q1, we were on track to what we thought we would do in Asia. But in general, we still see outsourcing going on at many of the large pharma companies to the big CMOs, so that’s still pretty consistent. I think when you look out our demand for key chromatography and flirtation products, demand is still very strong. And I think, as we – as I said earlier, even the ligands business, which was challenging in 2016 just seeing the sequential quarter-on-quarter growth and observing also the increased forecast also gives us a good indication that the Protein A resin market is still very strong.

Thanks. And a question for Jon. Could you give us – break out the M&A contribution of revenues in the quarter? It feels like the stacked organic revenue growth trend decelerated somewhat in the first quarter. I’m not quite sure why that would be the case?

Actually, we are not giving out specifics on the revenue contributions from the acquisition, specifically. But as Tony mentioned, organic growth above 10% for the quarter and you have the general range for the year for our TangenX business is $7 million $7.5 million. So I think you can pretty closely back into that number as well as the Atoll, where you know that was $3 million to $3.5 million for three quarters last year, you should be able to get very close to the numbers.

Okay. And if I think about the revenue guidance for the year, I mean, if I just take out the first quarter revenue rate and annualize that, I mean, that would put us already to the midpoint in guidance. And given what seemed like a somewhat better protein experience in the first quarter and easier comps over the back of the year, should we interpret that just as the abundance of conservatism? How do we think about the balance of the year from here?

Yes. Obviously, we had a very good first quarter, we’re one quarter in. We clearly have good visibility to where we are and for the first-half of the year. I think when we get to the Q2 earnings call, we’ll have a much better sense of where the second-half of the year is going. But we can say across the Board, we are really happy with the order loads that we are you seeing for OPUS that large system orders that we are seeing that are teeing up for the second-half of this year for ATF. We’re off to a good start with TangenX. And yes, we’re probably a little conservative, but I think we believe we’re still right in that range.

Typically, Brandon, we’ll see a little bit of a lull in the third quarter as well in terms of normal linearity. So that can also play an effect there.

Super. Thank you.

Thank you. And our next question comes from the line of Matt Tiampo with Craig-Hallum. Your line is now open.

Good morning, gentlemen. Congrats on a good quarter. Start off with one for – I guess, for Jon. On the incremental SG&A step-up in the quarter sort of sequentially compared to Q4, can you give us a sense for what in that increase was TangenX? And what is the commercial adds they made in Q1? And then, you know…

Yes, I think the information – sure, the information we’re giving out is at about 40% of the increase on a year-over-year basis. On a non-GAAP perspective, it’s actually coming from TangenX and the Atoll acquisitions, which weren’t there before, so 40% of the $1.8 million on a non-GAAP basis. The – in terms of the commercial organization, about 50% of that $1.8 million is related really to commercial headcount and additions that we made in that area to, obviously, bolster our long-term growth prospects. And then there is about another 10% dating back again to Q1 of the prior year, that’s related to just ongoing growth in general business expenses that we’ve incurred. So we are really putting our money in the right places really trying to support and push long-term growth.

Yes, maybe one other comment, Matt. I would say that, when you think about 2016, we added in field applications, people and we also built out a service group. So even though we didn’t add a lot of sales heads in 2016, we did add – build out a service group and field applications people. And then here in Q1, we’ve added in a number of folks into the – onto the sales team. So that’s really how that commercial split looks.

Great. And then, in terms of capacity, it sounds like your capacity for OPUS, it sounds like you’re sort of taking a breather here in terms of additional adds, at least, that was sort of my takeaway from your commentary. How should we read into that? Do you think you’re in front of sort of your production needs for the moment? And when do you think you might need to continue to add suites?

Yes. I think we are in really good shape with respect to seven production suites. You’d have to go back to a year ago and you would have heard us talking about the fact that we had two production suites, so we’ve gone from two to seven in 12 months. And I think we’ve put ourselves in a good position now as demand continues to be very robust. But we have a lot more flexibility in terms of lead times and in terms of certain customers that want rapid response on the column. So having the seven suites gives us that level of flexibility. And I think you’re right. We’re going to run it through the next couple of quarters and see exactly what the demand is before we make any more decisions on building out any more suites.

Great. Thanks, guys.

Thank you. And our next question comes from the line of Paul Knight with Janney. Your line is now open.

Hi, Tony. Could you talk about the Protein A market a little bit? You are seeing maybe a little more growth now and in the rest of the year. Is it customers drawing down inventory? Is it new capacity coming online from your customers? What’s the dynamic going on with Protein A?

Yes. So I – so if you’d go back to 2016, clearly, the challenge we had last year was customers at the biopharm level drawing down inventory. Our customers also doing the same thing, so we clearly had that challenge in 2016. Our view as we’ve gone through 2017, and we mentioned this back in February, that it was encouraging that forecast had increased in Q1. And it’s also encouraging, here, we are in May that we’ve seen an increase as well as we’ve gone here into Q2. So if you look out the market and the number of drugs that are getting approved, we believe right now that the inventory issues that we experienced a year ago for our Protein A ligands that’s probably close to being behind us. And I think when we get into that August call, we’ll have a little better visibility to the second-half of the year and be able to comment a little bit more in terms of what we think the long-term growth is in 2017, and it’s 2018 for Protein A ligands.

And Tony, Sartorius has been a little more careful on their guidance. And my impression of Sartorius is that, they’re involved in the actual capacity build in the industry. Does that – what is your view on, is capacity build slowing down in the industry? And should that affect you at all, or not on the impact on year-over-year businesses?

Yes, I think, companies like Sartorius and other big players have obviously a much bigger portfolio of products and a much bigger number, right, in terms of revenue. Our products that we have when I look at the direct-to-customer products that we sell like the ATF, TangenX portfolio and the OPUS columns, you look at those products and they really are platform products now at accounts. And we haven’t seen for those two product lines any real slowdown in demand, and we see the expansion still going on. So – but we haven’t observed it. I mean, we’ll say that when we looked at the ATF business, it’s interesting in terms of the capital equipment, purchasing and the timing of that. So in 2015, Q4 was a really strong quarter for us, last year it was Q3. We think as we look at this year, probably capital equipment, purchases for ATF are probably going to be stronger again, in the second-half of the year versus the first-half of the year, it’s really timing. So we’re not seeing any slowdown in terms of people requesting quotes and putting orders in for large systems that are going into late-stage clinical or commercial processes.

Okay. Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Steve Schwartz with First Analysis. Your line is now open.

Good morning, everyone.

Hi, Steve.

Tony, in your prepared remarks, you talked about hiring on additional salespeople. At this point, are the salespeople you re getting experienced people who are having nearly immediate effectiveness within the industry, or is there a ramp time for them to become effective? And is it different now from when you first started doing the build out over, say, if we looked back a year ago?

Yes. So we’re – what I see is almost like a Phase two of our commercial expansion. The first phase was really just getting to critical mass. And if you went back to 2014, we had three sales – actual salespeople out in the field for Repligen. But by the end of last year, we had really around 11. So we’ve added in four more, so we’re up around 14, 15 at this stage. But what we are hiring is experienced salespeople, typically people with more than five years, but a lot of times people with 15 years experience. There’s always a ramp, right? So what we are doing just to be clear is we looked at our growth in North America and Europe, and clearly it’s very strong. And we could see the size of the territories for each of the reps, and what we’ve really done is split the territories up for basically four reps. And by doing that, we now put a little bit more focus in a specific territory. So there is an immediate impact in that, you have two people covering a territory that used to be covered by one. But in terms of new account development, there’s always a ramp-up on stuff like that. It takes a while for a rep to get up and – up to speed. And so we’d expect that second-half of this year, we’d begin to see an impact from hiring the reps, but probably more importantly, 2018 we’re going to see the bigger impact.

So 2018, okay. And you did say that you added five in the first quarter, five here in the second, and there’s four...

It’s five total.

five total. Okay.

Yes four total.

Okay. The four for EU and Asia, those are pending?

Pending, yes.

Okay. And then, Jon, in your prepared remarks when you discussed gross margin, you talked about a higher OPUS sales in the mix?

Yes.

And that being positive, is that positive mix a result of more column packing service work, or was it related to actual equipment sales?

Yes. Sure, I mentioned that the change in year-over-year margin was impacted by the percentage of OPUS and the overall product mix, which is correct. Typically, OPUS margins are a little bit lower than some of the other margins in the – some of the other product margins in the portfolio. So typically, growth in OPUS will bring down margins a little bit. That said, we are working on internal programs to really improve our mix within the OPUS columns themselves, their material sourcing programs and things of that nature, and other efficiency programs in the business really to bring the margin back up here in the second-half of the year. And I did mention that we had about $224,000 worth of TangenX inventory step-up charges that hit us for about 0.7% in overall gross margin – negative gross margin impact that won’t be there in the remaining part of the year. So we are optimistic about our ability to recover margins back up to those levels that we’ve guided for the year.

All right. Okay, great. Thanks. And then one last question. Tony, you’d mentioned 500 large-scale systems shipping in 2017? And I think that you were referring to OPUS, is that right?

Yes. So we’ll ship close to 500 columns this year, large-scale columns.

And these are the 45 and 60 centimeter?

No, it covers all our columns that go into clinical trial production, so GMP.

Okay. How does that compare to 2016, just as a raw number of systems?

Significant increase. We haven’t given out numbers for 2016. But you can imagine we had two production suites for the first-half of 2016, now we have seven. So we’re really raising and and I think it represents the leadership we have in the marketplace with the products.

Yes. Okay, great. Thank you.

Thank you. And I’m showing no further questions at this time.. I would now like to turn the call back to Tony Hunt for any closing remarks.

And I would like to thank everybody for joining us today, and look forward to bringing everybody up to speed at our August call on our Q2 results. So thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone have a great day.