Good day, ladies and gentlemen, and welcome to Repligen Corporation Fourth Quarter and Full Year 2017 Earnings Conference Call. My name is Nichole and I will be your coordinator. [Operator Instructions]. I will now turn the call over to your host for today's call, Sondra Newman, Senior Director of Investor Relations for Repligen. Please go ahead.

Thank you, Nichole, good morning everyone. On today's call, we are reporting our financial results for the fourth quarter and full year 2017 and we’ll be providing financial guidance for the year 2018. Our President and CEO, Tony Hunt will discuss recent business highlights and our CFO, John Snodgrass, will provide financial report. During this call, we'll be making forward-looking statements regarding our business goals and our expectations for the financial performance of the company. So, we remind you, that such statements are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risk factors as 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 SEC. Today's comments reflect management's current views, which could 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 providing non-GAAP results and guidance. Reconciliations of GAAP to adjusted non-GAAP financial measures are included in the press release that we issued this morning, which is posted to our website as well as on sec.gov. Adjusted figures will include the following, revenue growth at constant currency, operating expenses, gross profit and gross margin, operating income and operating margin, net income, 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 non-GAAP measures better enables investors to benchmark Repligen's current results against historical performance and the performance of peers and to evaluate investment opportunity. With that, I'll turn the call over to Tony Hunt for business update.

Thank you, Sondra, and good morning, everyone and welcome to the 2017-year end update. As you saw in our press release this morning we finish the year strong with an excellent fourth quarter in terms of revenue growth and expanding margins and overall another outstanding year for the company. Our performance fully supports our mission to become an industry leader and delivering innovative technology solutions that sets new standards and by processing bioprocessing our market share and filtration in chromatography. Combined with new products and developments and strong order demand coming out of Q4, we're well positioned to deliver robust performance this year. Before jumping into the quarter details in want to spend a few minutes discussing our accomplishments and the strategic priorities set at the beginning of 2017. Execution on our core strategy of accelerating our direct presence and bioprocessing with the focus on single use and flexible solutions has come a long way in the last 12 months. A year ago, we surpassed a 100 million in sales and discussed the importance of continued diversification and expansion of our direct portfolio. We discussed the strategy to drive further adoption of our chromatography and filtration products through technology leadership, our customer first culture and potential M&A. We said 2017 will be a year of execution today I will share some points and how we have delivered on these investments. We accelerated the adoption and sales for direct products which jumped over 60% of total revenue in 2017, up from 48% in 2016. And in 2018 we expect direct sales to reach over 70% of revenue. We completed the integration of TangenX and accelerated the adoption of simple use because of that through our expanded sales force. We guided to revenue to 7 million to 7.5 million and we achieve…

Thank you, Tony and good morning, everyone. Today we are reporting our financial results for the fourth quarter and full year 2017, as well as providing our financial guidance for the year 2018. Unless otherwise mentioned all 2017 and 2018 financial measures discussed reflect adjusted non-GAAP measures. We were reporting fourth quarter 2017 GAAP revenue of $41.6 million, an increase of 63% as reported and 61% in constant currency compared to the fourth quarter of 2016. We experienced a 1.2% tailwind in sales due to foreign currency fluctuation, which most significantly impacted our proteins business. This FX tailwind was primarily driven by strength in the Swedish Krona, versus the US dollar. Our strong fourth quarter of 2017 revenue performance was driven by growth in our direct-to-customer filtration and chromatography businesses. In our filtration business, we continue to gain traction with our single-use ATF systems as well as with our TangenX single-use cassettes which grew 85% on a pro forma basis. We also saw a sequential uptick in Spectrum product sales to $11.8 million for the quarter, which on a pro forma basis represented 19% year-over-year growth. In our chromatography business, growth continues to be driven by OPUS family of pre-packed columns. The continued strength in OPUS is supported by our expanding customer base and deeper penetration within accounts. Our adjusted gross profit for the fourth quarter was $22.5 million an increase of $9 million 67% over the fourth quarter of 2016. Our adjusted gross margin was 57.1% for the fourth quarter of 2017 a 380-basis points improvement versus the comparable 2016 period. Gross margin impacts were in line with our forecast for the quarter, and were driven by strong sales of filtration products on an overall mix, synergies have now owning the Spectrum filter component of our ATF devices and…

[Operator Instructions] Our first question comes from Dan Arias of Citi Group. Please go ahead.

Tony in filtration seems like some good momentum there and the single use product, can you just talk about how much of the ATF filtration business that you do in 2018 come from singly use and then may be just put some color around the new customers that you have taken there and the opportunity for new your customer that you see this seems like that’s an important portion to user base right now.

And when you look at 2017, 2017 was a first year that we really had the whole portfolio for single use ATF systems and because these systems are very, very simple to use we have lowered of barrier for adoption and trials, so that’s why we see, we seen such a nice increase in the number of new customers. Now when I look at 2018, we expect that single use will be north of 20% in terms of contribution to ATF revenue for the year. And the new customers as I said are really coming from the simplicity of the technology and just more people are willing to try because now they don’t really need an order plate to do the initial evaluation of an ATF system.

Okay great and then may be on expectations for TangenX and hollow fiber, can you just may be comment on this selling synergies that you see there, I'm curious what if anything think about incremental corporate opportunities in 2018 and then may be in a similar vein , we think about capitalizing on the synergies between Spectrum and some of the other stuff in the portfolio, is there still a sales force investment that you think you make in order to maximize that opportunity or you kind feel like you have the team in place for 2018, just given the comments that you made.

So on TangenX what's nice about that business is that our sales force and look at that as really the combined sales force at this stage, when we go to an account now, we have two opportunities to really solve a problem, right we have the opportunity with hollow fiber technology to solve a problem and we have the opportunity with flat sheet cassettes We didn’t have that neither Spectrum have that in the past, we did not have that in the past, so we're getting some nice winds for the TangenX business, just by having a product portfolio of products. Where we're seeing some nice cross selling, opportunities are with the TFF systems from Spectrum, those TFF systems typically run hollow fiber cartridges but they can easily run [indiscernible] as well. And because the TangenX business didn’t have any systems associated with that portfolio when we acquired it a little over a year ago, it's been a really nice cross selling opportunity for us and we're beginning to push some of the TFF systems from Spectrum into TangenX's install base. The second part of your question which is around the sales force investment, I think we made a lot of progress there. We have 36 sales managers and the way we divided up our sales team now as we move through 2018 is for the most part everybody is a bioprocess account manager and we put in each region bioprocess accounts specialist or sales specialist, or either specialist in filtration or specialist in chromatography, so they will complement the bioprocess account managers that we have in each region. Obviously, we have the luxury now of having 10, 12 more direct sales people in Asia and I think that's going to play a big role for us because up till now we have been really operating on a key account basis, we're going to get more face time in every region because we have really increased the number of sales people in North America, in Europe and in Asia. When I look to investments down, I really think it's going to be around field applications and field service. We have a really nicely growing portfolio of systems at [indiscernible] between our TFF systems from Spectrum and the ATF systems from legacy Repligen [ph] and so together we are really focused now on building a service organization, we started that journey last year, we made some nice progress, but it’s a scenario where we're going to double down on here in 2018 and I think on the field application side, that's a scenario where it's a matter of having one field application specialist per two or three reps and we will build that out as we see the need.

Okay, that's helpful color, maybe if I could just ask one last one, I am sure at this point you had plenty conversations on the topic, so I guess what is your sense for GE's long-term and pension with respect to moving manufacturing in-house is there anything incremental you have heard or considering or is that you kind of pretty much unchanged from the way that you were thinking about at end of the Analyst Day.

Yes, the few is really unchanged, [indiscernible] is moving to business continuity plan, they are going to make their new latent in-house and we expect over the next few years that certain volume will definitely move across into that facility from a manufacturing today at Repligen, so no different than what we said at the Analyst Day.

Our next question comes from Tycho Peterson, of JPMorgan. Please go ahead.

This is, actually, Julia on for Tycho. My first one, I know you guys have been talking about prioritizing, accelerating your penetration in Asia over the next year. So, when do you expect the sales in Asia to ramp up?

Yeah, I think in terms of where we are today, we have made -- 2017 was a very good year for us in Asia for Repligen and for Spectrum, so I expect that will see a ramp up in 2018 and further acceleration in 2019 and 2020. So, it's just a matter of getting everyone on the sales force trained on all the products we are doing in that Q1, so fully expect that will start to see an impact this year.

And is that already factored into your guidance? Or is -- does that represent an upside to number?

I think for this year, we factored most of that in obviously as you train essentially a new sales team there are going to be other opportunities that will emerge and we'll assess that and give an update my guess is quite timely we get to the Q2 earnings call in August, that's probably going to be good time to follow up and give some insight into how we are doing in Asia.

Okay, great. And then my next question, you guys have been talking about the opportunity to build out service as a business. So, could you just maybe elaborate on that a little bit? What is the progress that you've made so far and how big is the opportunity?

Yeah so, the service strategy really started a little over a year ago. We built out of service department here at Repligen really focused on the ATF portfolio with the addition now of the Spectrum products, there is a fairly broad portfolio of systems there, there is a need to really ramp up on our service organization and that something that we're focusing on here in Q1. My expectation is that when we get into the second half of this year, we will have a larger service group and we will be able to really generate revenues for the whole portfolio of systems that we have today.

And what would be the margin implication of this -- the service component? Would that be accretive or -- to the overall business or...?

We haven't really run the calculations on the margins for the service yet, because we really need to dig through exactly what we're going to do with this Spectrum portfolio, right now there is not a whole lot of service associated with the service revenues we will see it with Spectrum portfolio and we believe that something that we're going to execute on. So again, I think that another quarter we will be able to give a little bit more guidance on margins.

I would just add into that, the part sourcing fees, we should make the margins on, the labor rates will be a little bit lower margin overall typical of a global service business.

Got it. And then my last one on OPUS. Could you maybe break down how much was the process development versus production scale products in the quarter? And I know you guys talked about your market share in OPUS growing to 40% now, so that's pretty impressive. What is the long-term target that you think can drive towards? And do you, kind of, see your competitors trying to make similar move in terms of padding the columns and the resins and just in general, how do you maintain your pricing in the prepacked column business?

Okay in terms of OPUS large sales versus like process development products. The large-scale products is really what we're referring to in the script this morning, 40% growth year-over-year that’s all large scale. In terms of OPUS PD which is our small-scale process development portfolio, that had an exceptional year as well. We didn’t call out what they percentage growth but I believe it was pretty similar to the large-scale OPUS somewhere close to 40%. Again, the customer is a little different on the OPUS PD side, where we really focusing on customers who are either doing small scale clarification, validation study some scale down by our current studies, they tend to be the customers that we focus on and then large scale it's really the clinical manufacturing and commercial manufacturing customers. So again, I think large scale OPUS clearly another strong year, hence our decision to continue to invest in that portfolio products and in capacity. In terms of market share our goal obviously is to continue to take the lion's share of this market and we make huge progress in the last four to five years, we've years now where we either grown 50% to 100%, last year 40% plus. So, we still think there is lot of runway for our products, we're excited about bringing new OPUS products to the market, we think that will solidify our technology and market leadership position and our goal is definitely over the next two, three years get up north of 50% and 60% share in the overall market.

And just add, I think to add to your question. We saw roughly 80% as a large column 20% of the revenues comes from smaller columns directionally and that moves quarter-to-quarter but that's a good approximation for you.

Our next question comes from Amanda Murphy of William Blair. Please go ahead.

Thanks, good morning. Just a question on organic growth in the quarter, I think we were coming are backing into your kind of mid-single-digits. I was just wondering if it was directionally accurate and I am assuming if so that, if there was a sequential decline and that was related to proteins business. Obviously, you are giving the guidance for next year so we should expect an acceleration but, just trying to make sure that that was an accurate statement?

Yeah, so overall for the year we had 9% organic and our filtration and chromatography products were around 19% and that actually mirrors where Q4 was pretty closely. So, I think your number is on the low side, we were closer to the high end of the range single-digit range. So, we were pleased with the performance given that we knew going into the quarter that the proteins business was going to be light and even though we did see a little bit of increase in orders in Q4 overall the performance was really strong given what we are dealing with under the proteins business.

Yes, okay, it makes sense. And then - that's actually I know it's becoming a smaller part of your business but again on the protein side, I guess even I think you had thought maybe we would see an increase in or you have seen more positive signs around proteins coming into this quarter as well. So just in terms of how you are thinking about guidance for that part of the business in 2018, do you feel pretty comfortable and I know others have said that the overall market is looking better in 2018 versus 2017. But wanted to get a sense of your comfort level there?

Yeah so on the market side, completely agree, 2017 was a tough year for the bioprocessing industry, I think Repligen did really well in the year, our direct businesses really did not see that slowdown because we obviously grew close to 20% organically last year. As we move into this year, clearly the market is improving, we saw that in Q4 in terms of our order load, our order load was strong I think that's very similar to what many of our peers witnessed as well. And then I think on the protein side, we are working through as we said it in November, we are working through the inventory burn up, which is not necessary the ligands and it's probably more the resin reduction at our key accounts. And we are working through that in Q1 and we expect that as we go to the year that the overall proteins business ligands growth factors is going to strengthen.

Got it. And then just last one, obviously you have talked about the strength in OPUS side of the business in the pre-packed columns. And you have got this kind of [main] advantage because you're -- you can have these customs solution, just curious like given the strength there, what are you seeing from a competitive standpoint is anyone -- are you seeing any change in the larger player's willingness to sort of be able to be more willing to pack other resins or that type of things, just curious there, what are you seeing on the competitive side?

On the competitive side, really there are two competitors in pre-packed columns that one is GE and the other is [indiscernible] GE did in 2017, bring to market an equivalent 45-centimeter diameter column to what we do, so there is some competition there. We haven't seen any change in strategy at any of the other players in terms of willingness to pack other resins beyond their own internal resins, I think that that will change but at least we've haven't seen any indication from our customers or from our sales teams that that’s changing. You know, look this is a great business, we expect competition, we believe that, we really created this market over the last five years with technology innovation and as I said at Analyst Day, we're completely committed to bringing additional larger columns into the market place and other services that I think will continue to differentiate Repligen in this space over the next few years. And when we look at the competition, yes GE and [indiscernible] are our competitors but we really believe that the major players here are self-packed columns done by the customer themselves, so we're really trying to convince customers to move away from glass columns to pre-pack columns and that’s where the majority of our focus is.

Our next question comes from Drew Jones of Stephens. Please go ahead.

Good morning this is James Rutherford on for Drew. Just to start, digging in a little on Spectrum growth, just given the strong performance since you acquired the business, well above 50% growth and then just thinking about the cross-sell opportunities, the investments you are making in operation. I just kind wondering if there a reason that growth wouldn’t continue to track north of that 15% through 2018 and then I guess is there something unique about the last couple of quarters of growth that would not repeat through 2018.

With Spectrum historically they’ve had a stronger second half of the year than the first half of the year, so if you remember they had about 7% growth in H1 of 2017. And clearly, we had 24% growth in second half, so essentially, they finished the year probably close to 14%, 15% in that range. So right inline where you would expect the business to finish. Obviously second half opened much stronger. Same thing in 2016, I don’t the exact percentages but the first half of the year was lighter than the second half of the year. And so, it’s a trend that we're trying to really get our arms around and as we go through this year, we do think there are some obviously upsides and so if you think about the $47 million to $50 million guidance on revenue, the $47 million is 15%. So, we're expecting that we can at least hit 15 or may be achieve a few more million dollars on top of that.

Okay that’s all, now the revenue is only kind seasonally stronger than second half but the growth, likely would be as well case for 2017. So, on single use clearly, you're having a good momentum there and 20% revenue in the quarter, but just stepping back a little, do you think there is an opportunity for single use to find a place in commercial production, if so when that might kind take place.

Absolutely, I think with the launch of the single use ATF 10, product line really at the end of Q2 into Q3 of last year, ATF10s are used in production. So, for sure, we're in late stage, I'm not 100% sure if we got any single use 10s in commercial processes but fully expect that that will happen.

Okay excellent and then last question, just can you share your expectations for adjusted EBITDA in 2018?

Sure, we are looking at about $46 million to $48 million for adjusted EBITDA for 2018.

Our next question comes from Matt Hewitt, of Craig Hallum. Please go ahead.

Good morning, just a couple of questions for me. First one, you have been investing a fair amount into R&D and you mentioned some of that was related to Spectrum here in the fourth quarter, but how should we be thinking about cadence of new product launches in 2018 and will there be any timing related payments that could create some variability in that segment or the operating expense line in 2018?

Yes, I think our R&D spend in 2018 is not too dissimilar to 2017, on a percent basis, so it's around 6%, we have a number of products that we are teaming up to launch. And I think one of the real benefits of the deals that we have done and actually I will say for all the deals we have done over the last few years, so if you take TangenX and you take Spectrum and you take what we are doing internally with the ATF product line and with the OPUS product line, I think you should expect to see a steady stream of new product launches over the next one to two years and that it should -- I think what we are look on a look at as we go through 2018, and as we move into 2019, how much of an increase are we going to put in R&D especially as we get a better handle on all the opportunities we have to bring new products to market.

And that in terms of the linearity of spend you asked about, it will be slightly higher at least we expect it to be in the first half of the year versus the second half, that gives you an indication.

I know, that's great. Thank you. And then maybe one other question, regarding the tax rate, how should we be thinking about that beyond 2018 and 19% does that tick up going forward to the 21% that many companies are moving to or is there another reason why it would stay down a little bit lower as we get past this year? Thank you.

Yes, from a non-GAAP perspective, again we're forecasting 19%. I think as we move forward, and continue to be more profitable in the international locations particularly in Asia and such, we should see a slight uptick in the overall tax rate.

Our next question comes from Brandon Couillard of Jefferies. Please go ahead.

This is Christian on for Brandon. Thank you for taking the questions. Just a quick on the 2018 outlook, is there anything you would call out in terms of pacing of core growth in 2018, maybe first half relative to second half.

Yes, we would, look at our year and say that's when we look at the whole portfolio between our proteins business, our filtration and chromatography business and with the seasonality that we observed over the last couple of years with Spectrum that the second half of the year will be slightly stronger than the first half.

Got it. And Tony, in your prepared remarks you had talked about, five strategic objectives in 2018 with the fifth being M&A, so to that end, would you comment at all on M&A pipeline and do you think at this point that you have maybe internal capacity resources to digest another deal given everything going on in the Spectrum? Thanks.

Yeah, on the M&A front, clearly the last two years have been pretty busy for Repligen in terms of the deals that we have done, clearly Spectrum is a transformative deal and you're right, a lot of people within the organization are very focused on it. I will say that we continue to have a very active pipeline of opportunities and I think that our strategy continues to be the same which is find great technologies, whether they are transformative or tuck-ins really just depends on the type of companies but we have an active pipeline and it is part of our strategy over the next couple of years. We expect that we will do more M&As and obviously I think the other part is that with the rich pipeline that we have in R&D that we should see organic growth being driven by some of the products we are going to launch as well.

Our next question comes from Paul Knight of Janney. Please go ahead.

Hi Tony, can you talk to Purolite are they, they already up and running, I think they are going to be a customer of yours, any color there.

Sure, Purolite, they are a customer today. I think they are in the process of building their larger facility, I don’t have an exact date but I believe it will come online this year, but again I think they are one of the emerging players in the ligands and Protein A resins among the Protein A resin market and expect that they will continue to be player over the next few years for sure.

And you know the GE talks up their MabSelect like PrismA a lot is that technology using your ligands or is that in house and the other follow on to that is in the advancement of protein A or others saying your product isn’t necessary, I mean any color you could add to that?

On the PrismA, that’s really the announcement that happened back in September, so essentially GE will make that the ligand for the PrismA resin internally and through an OEM partner as well, so we're not involved in that. And I think we have gone through that a number of times. The impact of that ligand on overall revenue for Repligen is really small based on the forecasts. And I think may be the piece that I think we've spent fair amount of time all taking about this is really the longer-term impact, fairly GE have a business continuity strategy and as I said a little earlier, we expect that some volume will go across over the next few years as they ramp up their manufacturing in Sweden.

And then last the ATF technology seems to be, it appears to increase productivity by a large factor, what's the penetration rate of bioreactors of ATF, I mean last I remember it was slow but what’s the addressable market, is all bioreactors could use it or is it half and then where you would penetration today.

So, the ATF technology is really being used in continuous manufacturing or in perfusion, and perfusion is probably 20% to 30% of the market versus fed-batch 70% of the market. So, the vast majority of bioreactors are operating in a fed-batch note. So, they typically would not use ATF technology. So, we're really the market leader in perfusion or continuous manufacturing in that segment. I think we're well penetrated, I don’t have an exact number and I think where we're beginning to make some progress is within the fed-batch marketplace, there is this whole process called seed train where you go from a very small by reacted to the production, bioreactor over the course of let's say 10, 12 days and so what we are doing there is using ATF technology and what's called the n-1 application. So, you're concentrating the cells in a smaller bioreactor and you are not giving that into the large production vessel and eliminating one of the steps in the process. So that's really where we are making some in roads in the fed-batch and manufacturing space is really in the seed train application. So, ATF single-use has really helped us because it allows customers to immediately evaluate the technology without worrying about on their capital expenditures that they have to do and I think that's really one of the benefits of what we have been able to do by launching the single-use portfolio.

[Operator instructions]. Our next question comes from Steve Schwartz of First Analysis. Please go ahead.

My one question is just, really, around some help in bridging your 2018 guidance. Organically, you're looking for revenue growth at 10% to 14%. You're guiding up on gross margin. But if we look at the EPS versus $0.69 you reported for '17, you're really only on the top end looking for 4% EPS growth. You do call out the $1.2 million additional tax and that's about $0.03, but beyond your comment about R&D, I'm just wondering why EPS growth is a little higher for 2018?

Sure, I think I can help you with that Steve. If you look at the tax that's going to be your primary driver you can see from a non-GAAP basis in 2017 we only incurred about $1.6 million of tax expense and then if you look at the 19% of PDT, rate that we gave in our guidance, obviously that's going to add a significant amount more of tax somewhere in the range of $5 million to $6 million more.

Okay, got it. And then you're adjusting -- you made changes to your non-GAAP adjustments, the expenses that are now included in that. And it looks like it added -- it was a benefit of about $0.05 in 2016. What -- how did that work out for 2017? Because if I kind of add up what you reported for first 3 quarters, close to $0.20 in the fourth quarter, it's not obvious to me that there was, in fact, a benefit from the non-GAAP accounting?

I think there was a benefit from the non-GAAP accounting. If you look - you take Spectrum or TangenX acquisitions for an example, we capitalize pretty significant pieces of intangible assets, that we amortize obviously through the years and those items are non-GAAP and we take deal costs out of the equation as well from a non-GAAP perspective. So, it's definitely helping from a GAAP to non-GAAP basis.

Okay. So, for example, in the first 3 quarters of 2017, you reported non-GAAP EPS was $0.50. And then today you announced that you're adjusting how you calculate non-GAAP EPS. What is the first 3-quarter EPS tally now, today, after those adjustments in the non-GAAP accounting? It would be higher than the $0.50 you previously reported?

Steve I'm not sure that we’ve made a change to our non-GAAP, so I think we're all looking at each other and trying to understand better your question.

So, may be offline Steve we can cover that in little bit more detail but we haven't changed our accounting.

Okay. I thought I read in the press release that you were changing, and certainly, what you reported for the fourth quarter last year was a penny lower than what you're reporting as the comparable quarter this year. So -- but certainly we can take it offline.

This concludes our question and answer session. I would like to turn the conference back over to Tony Hunt for any closing marks.

I'd just like to thank everybody for joining us this morning and look forward to catching up with you in a few more months and we will report on our Q1 results okay, thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.