Good day, ladies and gentlemen, and welcome to the Repligen Third Quarter of 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note that this call is being recorded. I would now like to turn the call over to your host for today's conference, Sondra Newman, Senior Director of Investor Relations for Repligen. Please go ahead.

Thank you, Chris. Good morning. On today's call, we are reporting our financial results for the third quarter of 2018 and updating our financial guidance for the year. Repligen’s President and CEO, Tony Hunt, will share our business highlights for the quarter and our CFO, Jon Snodgres will provide a financial report. During this call, we will be making forward-looking statements about our business goals and expectations for the financial performance of the Company. As a reminder, these statements are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included 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. Today's comments reflect management's current views which could change 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 non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's website, as well as on sec.gov. Non-GAAP figures will include the following: revenue growth at constant currency, gross profit and gross margin, operating expenses and income tax expense, 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 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. Now I`ll turn the call over to Tony Hunt.

Great. Thank you, Sondra. Good morning, everyone, and welcome to our Q3 earnings call. 2018 continues to be a very positive year for Repligen driven by the strength of our direct filtration and chromatography product lines and reflecting the successful integration of the Spectrum products into our commercial organization. Recall when we guided for the year back in February, we believe that revenue in the second half of 2018 will be stronger than the first half and that is exactly what is playing out. For the third quarter, our sales and orders were up significantly versus prior year and adjusted operating margins came in at 22.8%. We are well positioned for an excellent finish to 2018 and are raising our full year revenue guidance to the range of $191 million to $194 million with overall organic growth guidance of greater than 15%. Strategically, we executed on two external agreements in the quarter. The first with Sartorius Stedim Biotech to integrate our XCell ATF Controller technology into their BIOSTAT STR line of single-use bioreactors. This is an important agreement for both companies and our respective customers. It brings together two leading technologies and provides customers with a single controller interface that can manage all aspects of cell culture growth and process developments to clinical production. Our R&D teams are busy working together towards the mutual end goal of delivering an integrated controller to customers by the end of 2019 or early 2020. Second, we finalized a ten year agreement with Purolite Life Science around exclusive supply of our NGL-Impact A Ligands which will be commercialized on Purolite Life’s agarose beads. Our scale-up and validation work for this high-performance ligand is right on track and Purolite customers have been actively evaluating the end chromatography resins since early Q3. We are hearing positive…

Thank you, Tony, and good morning, everyone. Today, we are reporting our financial results for the third quarter of 2018, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflects non-GAAP measures. As you’ve seen in our press release this morning, we delivered strong financial performance for the third quarter of 2018 and year-to-date and are increasing both top and bottom-line guidance for the full year. Our organic revenue growth in the third quarter grew by 24%. Adjusted operating income grew by 47% and adjusted fully diluted EPS grew by 28%, compared to the third quarter of 2017. Our focus on bringing differentiated new technologies to market and on successfully integrating our sales, field application and service teams were key drivers of this growth allowing us to capitalize on the strong market conditions in our industry. In addition, we continue to execute at a high-level operationally, while making disciplined investments in capacity expansion, system enhancements, and human resources to support our short and long-term growth. Now to provide more color on our overall financial performance. We are reporting third quarter of 2018 GAAP revenue of $49.5 million, an increase of 35% as reported and 36% to constant currency, compared to the third quarter of 2017. Of the 35% reported growth, 24% was organic and 12% was attributed to our August 2017 acquisition of the Spectrum with a one point offset coming from foreign exchange. As Tony mentioned earlier, our direct-to-customer filtration and chromatography franchises continued to perform well with organic growth of greater than 20% for both the quarter and year-to-date. Consistent with the first half of the year, our direct products represented approximately 70% of the company’s total revenue in the third quarter. Regionally, for the third quarter of 2018, Asia,…

[Operator Instructions] Our first question is from Dan Arias of Citigroup. Please go ahead.

Good morning guys. Thanks. Tony, it sounds like things are going pretty well at Spectrum and to your point on back half strength versus 1Q and 2Q that’s historically been the pattern for that business, but I do also think you are hoping to smooth that out a little bit. So can you just talk about how much of what you are seeing in 3Q is a step-up in demand for Spectrum products versus maybe just sort of the inherent fluctuations within the quarters? And then given this, I mean, how do you see the cadence as we start thinking about next year for that business?

Sure. I think, overall, we’ve done a good job of smoothing out revenues through the four quarters. Clearly, the – historically, Spectrum has been stronger in the second half of the year versus the first half of the year. We are going to see that again this year. But I think that delta between H2 versus H1 won’t be as great as what we’ve seen in the past. Overall, I think what we are seeing in the field is, the ability to execute on the overall commercial strategy. So, we integrated not only the Spectrum products, but also the Repligen products into the overall sales force and we took that staged approach and we are sort of Asia in Q1 which is Europe in Q2 which is North America in Q3 and I think that’s really helped us. I said in my remarks that it’s really the breadth and depth of applications that is driving a lot of the growth. Historically, Repligen has really relied on a monoclonal antibody systems as the main application, but I think with the Spectrum business, we are playing the world of vaccines. It’s probably most revenue is coming from vaccines for Spectrum. We are also seeing some nice traction in gene therapy. We are also seeing nice traction in nanoparticles. So, when I look to next year, I think we are pretty confident that the business is going to grow in that 15% plus range for the foreseeable future.

Yes, okay. And maybe just to the point on the forecast, overall for the business, I am wondering, can you compare current visibility to levels prior, maybe outside of the GE-related stuff. I mean, as you line of sight, any different than it used to be now versus past periods as you have around in that portfolio and a more extensive conversation, base are they pretty similar and it’s just at the near term looks pretty good.

Yes, we look at our direct portfolio. I think our near-term view – I think if you look out over one or two quarters, I think we have a really good sense of where the opportunities are. We’ve really had an exceptional quarter in Q3 in terms of the order load right across all our businesses. And so, I think that gives us a lot of confidence about the year and obviously leading indicators going into next year are very positive.

Okay. If I can just sneak one more in for Jon. Jon, can you just remind us on how the collective gross margins on the new products that you are introducing are ramping on in the next six months compared to the corporate average? I mean, you had some interesting things going on there. Should that stuff be accretive to the aggregate?

Yes, so, I’ll probably take that one. And I think in general, the new products that we’ve launched; obviously, OPUS 80 is probably going to be higher than the corporate average simply because we are not really taking any resin. We are not procuring any resins for those columns - those columns; the customers are delivering the resins to us. So I think that’s very positive. I think the Spectrum products that have been launched; they are going to fall in line with the overall Spectrum margins which are slightly above our overall corporate. And then, the new controllers, it’s early stages yet. So, I think, it’s going to fall right in the range of – for our ATF business. So I don’t think they are going to be better than what we have except for maybe OPUS 80, just simply because we are not doing the resin component, but I think they are in line with what we would expect for those businesses.

And I would add to that, as well, the new Navigo tied with Protein in the NGL impact should be nicely in line with where we achieve margins in the past.

Appreciated. Thank you.

Thank you. The next question is from Brandon Couillard of Jefferies. Please go ahead.

Thanks, good morning.

Good morning.

Tony, on the OPUS 80, any early feedback that you can share with us about the interest in that product since of the pull through in terms of other parts of the process development portfolio and perhaps number of units you expect to ship for that product this year?

Yes, I think the number of units this year is going to be, it’s definitely a small number. It ramps up pretty similar to what we saw with OPUS 60. Normally, it’s the second year after the launch that you start to see the volume beginning to pick up. So we are seeing nothing different with OPUS 80 than we saw with OPUS 60 or OPUS 45 a number of years ago. I think the big difference now, Brandon is, that people are viewing OPUS 80 as a validation that Repligen products can scale all the way through to Phase 3 or commercial. So, having OPUS 80 in the portfolio has really opened up doors to companies that maybe in the past haven’t really considered pre-pack columns as a way they could scale with. And so, we are really seeing a very nice pickup in demand for basically, all the products really from 10 to 30 centimeters and 45s and 60s. And I think part of that is the fact that we can really talk about the whole portfolio and bring a customer all the way through – in the non-MAB application definitely through to commercial and then MABS through to Phase 3. So, I think that’s where we are seeing the pickup.

And one more, could you elaborate little bit on the strength in the Proteins business in the quarter north of 20%. Do you feel like, the underlying market can support something better than kind of the mid-single-digit growth outlook that you’ve been talking about for that OEM business and particularly how much visibility you have there?

Yes, I think, we had a relatively easy comp year-on-year. So, I think part of the growth in Proteins and obviously the question is more related to ligands is really coming from the fact that, Q3 last year was very light. And so, I think it was a good quarter. I think as we look at the full year, we are beginning to have some visibility now into Q4. Q4 is lighter than and reaching what we were expecting. So, we think at this stage, it will be very similar to what we had a year ago. And overall, I think the business is – Proteins business is probably going to be relatively flat for the year. And we will see, obviously there is still a couple of months to go. We will be able to update people a little bit more when we get into the February call.

Okay, thank you.

Thank you very much. The next question is from Paul Knight of Janney Montgomery and Scott. Please go ahead.

Okay. Hi, Tony. The protein, A can you talk about, it was obviously a great quarter. It seems like we’ve resumed growth there. Is it – where are we with the predictability of that product line?

Yes, I think, similar to the commentary to Brandon, I think the challenge that we have, I think with that business more than anything else is really around the lumpiness. And so, if you look at 2017, it was first half strong, second half weak. This year, we’ve had three solid quarters in a row with obviously tougher comps versus prior year, but obviously Q3 was an easier comp. As I said, I think the Q4 is somewhat light. But we have a couple of months to go and we’ll see how that plays out. I think the more important thing for us is, we’ve put a strategy in place now for our proteins business. So, all the work we did already during the year around securing the Navigo deal by putting the Purolite collaboration in play. I think that sets us up over the next two or three years that we are going to be able to get some significant growth coming from those investments that we’ve made.

And lastly, with Purolite, potential customers I guess, doing runs. How long in your experience does it take for that Purolite partnership to turn into revenue, Tony?

Yes, definitely, we will see some revenue this year and definitely next year will be even more. But I think when you look at it from the adoption cycle for protein A, resins, it’s going to be a few years. So, I would say, it’s really, we are really talking 2020, 2021 before you can start to see some significant adoption. And part of this comes down to the success of the ligand and the success of the resin in the marketplace and as I said in my remarks, at least the early feedback is that, the product is performing well and we will see how it plays out over the next few years.

Okay. Thanks.

Thank you.

Thank you. The next question is from Matt Hewitt of Craig-Hallum Capital Group. Please go ahead.

Good morning. Congratulations on the strong quarter. I just wanted to follow-up on a couple – I guess, kind of expand on a couple other earlier questions. First, given the strength as you’ve seen this year and now raising the guidance again, how should we be thinking a little bit more towards the longer-term corporate growth targets? And I think historically it’s been 10% to 15%. But given all the investment of some of the traction you are seeing with some of the newer products, has that maybe gone up a little bit? Should we be thinking 12 to 17 or how should we be thinking about that longer-term?

Yes, I think in general, obviously, we are through three quarters this year. So there is still a fair amount of work to be done to get to the finish-line in 2018. As I said it minutes ago, I think the leading indicators going into next year are very positive. I think long-term, growth for Repligen is still that 10% to 15% organic. I will say that I think the investments we are making in new products should be able to drive it up to the mid to the high-end of that range. But obviously, there is a lot of work to be done to get us there. So, I think if you look at our performance over the last few years, the markets were down considerably last year, but we still performed very well. And I think, again this year where the environment is very positive, I still think we are performing above where our peers are. So, I think we are very, very positive about the long-term growth for the company. But as I said, little bit more work to be done this year before we start to guide a little bit on 2019.

Okay. Thank you. And then, I guess, kind of following up on the protein business a little bit. I realize there is some puts and takes last year, weaker second half or third quarter in particular, but as we look at that, I guess, the market more broadly, would you say that that market is fairly stable or are you seeing some pockets of growth that you maybe could take advantage of over the next three to five years?

Yes, I think in general, I definitely the market is stable. I think we are really dealing with a pretty lumpy business. I think there is a lot of inventory management that continues to go on. But overall, I think it’s a healthy market. I think as I’ve said, over the last year. We fully expect as GE brings our facility online the volume is going to move into that facility. And so, as we look at our strategy for the future, in terms of where we got increased volume, it’s going to be coming from the collaborations we’ve put in place and obviously it’s a continued traction that we got with the customers we have today.

Okay. Great. Thank you.

Thank you. Our next question is from Tycho Peterson. Please go ahead.

Hey, thanks. Tony, wondering if you could just spend a minute on Asia. You called it out a couple times in your prepared comments and I know this will be the focus in the first quarter for the Spectrum integration. Could you maybe just talk to some of the traction you are seeing there? How much is China versus other markets?

Yes, I would say that, China, Korea and India are doing pretty well for us. And for sure, the majority of the revenue that we are seeing is coming from our filtration portfolio. We’ve had really good traction with our ATF products with a number of customers doing the N-1 short-term perfusion and obviously, a lot of the biosimilar processes are using the perfusion processes. So we’ve really benefited in China with ATF, Korea with ATF and then, when we look at our cassette business, the flat sheet cassette business, having that broader sales force in Asia, we’ve really benefited and remember, when we acquired the TangenX business, it was predominantly North America only and to really have this broader sales force, we’ve been really able to push that product into many applications in India, Korea and China. And then, I think, we are beginning to see, we saw a nice pick up this quarter on our OPUS products. It’s just been a little slower in terms of gaining overall traction in those regions. But we are making progress. But I would say the majority is coming from the broader sales force with the filtration portfolio in those three countries.

And then, maybe just following up on one of the questions earlier on visibility, I mean, as we think about vaccines and gene therapy and some of these newer markets, how should we think about kind of current capacity supply demand dynamics and what it really takes to penetrate these markets for you guys?

Yes, it’s really being present right having the sales team calling on the right accounts knowing exactly who they need to talk to. I think we are in a really good position. If you look at our portfolio, and you take something like gene therapy, probably the main – there is probably two parts to gene therapy where we have really good traction. One is in – on the plasmid side and the other is on the viral vector side. In the area of viral vectors, customers are typically working with viruses like AAV. They have to be purified. So, OPUS comps are being used there. They’ve also looked at using ATF in an N-1 application for viral vectors. And then our flat sheet cassettes and hollow fiber filters, some customers really like to use flat sheet cassettes for doing the concentration stuff and some people really like the advantages of hollow fiber. So we actually offer customers both options and they don’t really have to turn and go anywhere else to really solve whether it’s a purification challenge or it’s a filtration challenge. So I think we are in really good shape.

Okay.

I’ll add to that.

Go ahead.

You would ask about capacity and this year, and going into next year, we are investing in capacity on hollow fiber filtration, as well as flat sheet with investments in our Rancho plant as well as in our new Marlboro plant. So, as we’ve done in the past, we are always looking a few years ahead to what the markets are going to be doing to make sure that we are well ahead of the game in terms of capacity. So we should be in great shape there to answer the second part of your question.

Great, great. That’s helpful. And then, just lastly on capital deployment, can you maybe jus touch on M&A? How the funnel looks? How actively you are looking at additional deals?

Yes, I mean, the M&A this year is probably no different than any other year in terms of the funnel, continue to talk to companies. Clearly, our focus has been in the chromatography infiltration space. We continue to do that and if something comes up, I think we will be – we are definitely in a good position to be able to execute on it. So, yes, we are active.

Okay, thank you.

Thank you very much. The next question is from Drew Jones of Stephens Inc. Please go ahead.

Thanks. Good morning guys. Tony, you talked about large pharma interests with single-use ATF. Is that something you are seeing the impact from yet or is that a kicker on kind of current trends for that segment?

Yes, I would say, it’s a kicker on current trends. I think ATF is a very interesting product line. I think, when we acquired it from Refine back in 2014, they really had a handful of customers that are using the technology. And there was a general sense within the pharma community that small company, not so sure we want to basically go wide into a technology. But I think as we move forward, and especially bringing out the single-use ATF portfolio, that’s made a massive difference in terms of customers willing to evaluate. It’s simple to evaluate and I think as some of the big pharma companies that have adopted ATF over the last four, five years, as they present on that at conferences, other pharma companies are really beginning to weighing in. So we are seeing definitely a pickup in interest within pharma and using perfusion-based technology, whether it’s traditional long-term perfusion or as I mentioned in our last earnings call, the short-term perfusion applications are really beginning to gain some serious traction.

And then Jon, I don’t know, innovations become such a big part of the story here over the past few years. As we look beyond 2018, if you reiterated your R&D spend guide for this year, is there any reason that that should lit up 2019 and beyond or whether on an absolute dollar basis or percentage of revenue?

Yes, I mean, we will be coming out with our 2019 guidance in February. But, I think the one thing that we can’t say today is that we are highly committed to R&D and product development. And so, you’ll continue to see us spending in that area. But we will give more specifics on our February call. But it is definitely an area that we are committed and we’ve seen it pay off in the past and that we would expect it to pay off for us in the future as well in terms of organic growth.

And Drew, one thing I would say on R&D that’s really important for us. We’ve made a number of acquisitions over the last four years. We have that opportunity now to reinvest and that’s essentially what we are doing. You can see what the outcome of reinvesting into the ATF business with single-use ATF. We are doing the same thing with Spectrum. We are doing that with TangenX. And so, it’s – the key really is not to put too much on the R&D play. We have to just pick the right products and make sure we stay focused on getting those two or three products every year that we launch into the marketplace and really use that then to drive our overall organic growth for the company.

Thanks, guys.

Thank you very much. [Operator Instructions] Our next question is from Raghuram Selvaraju of H.C.Wainwright. Please go ahead.

Hi, thanks very much for taking my questions and congratulations on an excellent quarter. I just wanted to ask if very quickly I could get some background on the following housekeeping items. Firstly, what do you expect stock-based comp to evolve to over the course of the remainder of this year? And do you expect that to stay at a similar level for the foreseeable future? Secondly, if you could walk me through the difference between the basic and the fully diluted share count? Thirdly, if you have any additional granularity, you can give on how you expect R&D to trend going into 2019? And also, I had a specific question relating to strategic M&A. Are you specifically looking at the possibility of working on other bioprocessing enzymes that are associated with the manufacture of recombinant proteins beyond Protein A at this point? Thank you.

Yes, maybe I’ll take the first two questions and have Jon then cover the other ones. On strategic M&A, our strategy is all around bioprocessing and as you probably know, with the Spectrum acquisition, we are much broader than monoclonal antibodies. So we are in vaccines. We are in nanoparticles. We are in delivery systems that are used for drug delivery systems, because those particular particles have be separated, purified, filtered. And we are not specifically looking at bioprocessing enzymes, but I can guarantee you that our products are being used in that area today. So I think, look, when we look at our strategy when it comes to M&A, it really falls into three or four categories, right. We have to find something that really fits into what Repligen is doing today to have the right gross margin, operating margins to be accretive within a year of doing the deal. So, we stay very true to those criteria and so, yes, but bioprocessing enzymes, clearly, a lot of activity going on in that area. Not a specific focus right now, but it doesn’t mean that, it’s something came along that makes sense that we wouldn’t look at it. In terms of R&D, strategic R&D, as I think we answered in the earlier question and Jon, I think gave the detail. The 8% of sales is a good proxy for where we should be spending on a go-forward basis. And then, I think, Jon on the stock comp.

Yes, sure, I can jump into the stock comp here. We don’t expect any significant changes in the fourth quarter versus what we’ve seen in Q2 and Q3. So that should be relatively consistent. We are not in a position to project what we are doing for 2019. We will advice of more information on our expenses as we go into our February call. In terms of the share count difference. So it’s about a $2 million difference on a quarter-to-date basis between our basic and diluted and the real difference here is just – is largely outstanding shares that just have not vested yet and that could be in the form of RSUs, much of our – for our general employee base, stock comp plan is tied to RSUs and then there is some options for more senior level people that account for some of that.

Okay. And then, just one very quick - another housekeeping item. When do you expect the Q to be filed?

We should be filing today.

Great. Thank you very much.

Thank you very much. Ladies and gentlemen, this concludes the question and answer session. I would now like to turn the conference back over to Tony Hunt for any closing comments.

Great. thank you guys and thanks to everybody for joining us today. Clearly We will look forward to catching up with everybody in February and bringing up to speed on how we finish out the year. And thanks again for joining the call today.

Thank you very much, sir. Ladies and gentlemen, that concludes this conference call and you may now disconnect your lines.