Good day, ladies and gentlemen, and welcome to Repligen Corporation's First Quarter of 2022 Earnings Conference Call. My name is Vaishnavi and I will be your operator. All participants will be in a listen-only mode. [Operator Instructions]. Please note that this event is recorded. I would now like to turn the call over to your host for today's call, Sondra Newman, Head of Investor Relations for Repligen. Please go ahead.

Thank you, Vaishnavi. And welcome everyone to our Q1 call. This morning, we'll be covering business highlights and financial performance for the three-month period ended March 31, 2022. We'll also provide financial guidance for the current year. And we have with us Repligen's President and CEO, Tony Hunt, and our CFO, Jon Snodgres, who will deliver our report and then address questions. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our annual report on Form 10-K and our 8-K for the first quarter, which we filed today, and other filings that we make with the SEC. 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 are 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. We expect to be filing the 10-Q for the quarter later on today. Non-GAAP figures in today's report include the following: revenue growth at constant currency, gross profit and gross margin, operating expenses including R&D and SG&A, operating income and operating margin, contingent consideration, income tax expense, net income and earnings per share, as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Repligen's current results against historical performance and the performance of peers when evaluating investment opportunities. Now I'll turn the call over to Tony Hunt.

Hey, thank you, Sondra. And good morning, everyone, and welcome to our Q1 earnings call. As you saw on our press release this morning, we delivered an outstanding first quarter for the company, with revenues topping $200 million for the first time, along with excellent gross margins and operating margins. The story in the quarter was the continued strength in our base business, which was up 37% year-over-year and up 20% sequentially versus the fourth quarter of 2021. We saw robust growth in our core monoclonal antibody markets, an increasing contribution from gene therapy accounts. Gene therapy growth was up over 100% and each of our franchises delivered over 30% year-over-year revenue growth, except for proteins which came in flat as expected. As demand continues to increase for products, we have stayed focused on building out our manufacturing capacity with the best in industry lead time. Our capacity expansion programs have enabled us to decrease lead times for the vast majority of our products to under 10 weeks. This has allowed us to take share in the bioprocessing market, especially in filtration, and we expect lead times to continue to be a competitive advantage for us. Finally, we're off to a good start to the year with new product introductions, a highlight being the three AAV resins launched through Avitide to serve gene therapy customers, which I'll discuss later. On a related note, we're also pleased with the early performance of our new products launched through our R&D team, as well as the contributions of M&A completed in 2021. New product and inorganic M&A contribution combined accounted for 6% of our revenue in the quarter. From an orders perspective, we finished the quarter with a book-to-bill ratio of 1, which is encouraging given the COVID orders contributed only 15% of…

Thank you, Tony. And good day, everyone. Today, we are reporting our financial results for the first quarter, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our first quarter earnings press release this morning, we've once again delivered record revenue, totaling $206.4 million in the period and we've also delivered record earnings performance. Our base business continues to outperform, up 37% year-over-year and up 20% sequentially from the fourth quarter of 2021. We also saw strong revenue performance of over $50 million related to COVID, which accounted for 26% of our reported revenue in the quarter. Operationally, during the first quarter, we focused on driving base business order growth and continue to execute on our key business initiatives for the year. We're off to a good start on our 2022 initiatives, including supporting our growing fluid management portfolio with dedicated commercial resources and operational leadership, expanding relationships with our gene therapy and cell therapy customers, and successfully integrating our 2021 acquisitions. As always, innovation drives our company and R&D teams continue to work on new product development programs, with several important launches planned for the year. With the goal of staying ahead of our growing demand for bioprocessing products, our capacity expansion plans are on track and are positively impacting lead times for our customers. We also continue to support the business with our ongoing IT system implementations and enhancements where we've completed our phase 4 SAP go-live at our Korea and India selling offices and at our Auburn and Hopkington, Massachusetts manufacturing locations. In addition, we've continued to invest in our information security capabilities and processes to protect the company, our employees, our customers and our shareholders. Respect to our capacity expansion and…

[Operator Instructions]. First question comes from Jacob Johnson with Stephens.

And congrats on nice quarter. I know [indiscernible] business, but maybe just to get it out of the way because I'm getting questions on it. Just on the COVID contribution, $150 million for the year, $50 million plus in 1Q. Can just talk about the cadence for these revenues throughout the year. And then, any thoughts on kind of how we should be thinking about the 2023 COVID opportunity, Tony, especially given your comments around some orders that were pushed out until then?

I think maybe the way to handle this is to just kind of walk through the bridge and then talk about what we think will happen for the rest of the year. It's too early to kind of project 2023 at this stage because we really don't have information on 2023. But in terms of how the quarter played out, we had about $30 million of orders that were cancelled, majority from customers who were working on vaccines that have been a little less effective against Omicron. We had $30 million of new orders come in, so they kind of netted each other out. And then, we had $30 million of push out from 2022 into 2023 from the largest COVID vaccine manufacturers. When we look at the year, our best estimate right now is probably in that 65% range in the first half of the year, 35% in the second half. And for next year, it's just too soon, but I would think that the second half of the year is going to be more of a proxy on where 2023 is going to be as opposed to the first half of 2022.

Maybe kind of higher level question. A lot of cross currents over the last year, but the net of it is you guys have grown the top line rapidly and the guide for this year highlights the strength of the base business. Tony, you alluded to share gains in filtration, but maybe kind of thinking across the portfolio and your various segments, how would you kind of frame up the change in your market share over the last couple years? And how much of this has been driven by lead times? Maybe new additions to the portfolio? Just kind of talk about those dynamics?

I think the market share gains for Repligen are really coming from the strength and depth of the portfolio of products that we have. So, when you look at our Filtration portfolio, we're pretty differentiated in the marketplace versus competition. Chromatography, when you think about products like OPUS, there's not really a whole lot of competition out there for pre-packed chroms. Obviously, Cytiva has their own product line. Analytics, you can see what we have with our solo and flow product lines. And then proteins, I think you can see how the strategy that we implemented over the last few years in terms of what we're doing with Purolite, what we're doing with Navigo, what we're doing now with Avitide, that that's really our approach to how we deal with fall-off in volume, which is – it's happened really over the last few years, but obviously more prevalent here in 2022 from Cytiva. So, I think it's a combination of really good products in our portfolio that are highly differentiated, smart M&As and new R&D products that we've brought to market. We launched 12 products last year. And you can see that they've got off to a good start here in 2022.

The next question comes from Dan Arias with Stifel.

Tony, within the portfolio and just looking at the new products that you guys have launched and will launch, where do you think the biggest opportunities lie to push further into the gene therapy market? Just given that there are some areas that looks like you're on your way and the product sets have an interesting opportunity attached to them? And then, when you think about bringing new capacity online in 2022, do you think you see the benefit fairly quickly there just given your comments on the importance of lead times as an advantage? Or do you think that it kind of takes a quarter or two for the slack to be fully absorbed there?

Maybe I'll answer the last question first, Dan. I would think when we look at capacity, we really started to see a pivot point in Q4 of last year in terms of lead times coming down pretty quickly. That's continued to happen here in Q1 and into Q2. So, as I said in my prepared remarks, down to under 10 weeks, we get to the second half of the year, we're bringing on additional capacity, I think we'll be in really good shape in terms of the majority of our product lines in terms of overall capacity. And there are pockets of opportunities out there where others have longer lead times on products, and we will definitely be pushing our lead times as a competitive advantage. In terms of which products do I think really play in the gene therapy space for us, I think it's the filtration portfolio. It starts there. We've got a really deep product line between – when you look at the upstream part of gene therapies between ATF and TF/DF, both are doing quite well. When you go downstream, we have our systems, we have our hollow fiber technology, and now we're starting to introduce – which is obviously not part of the filtration portfolio, it's part of proteins, now bringing in the Avitide products into the picture. We'll always get our fair share of pre-packed chroms because customers just like the benefits of it, but it's no different than the mAb market or the biosimilar market where customers like that convenience of pre-packed chroms. And then, the final area is really in the Analytics business, where, traditionally, the analytics business has not really focused on the gene therapy space. And we've put that as an area of focus for us over the last 15, 18 months, and it's beginning to pay off. And we can see an uptick in new customers coming in that are gene therapy customers that are using solo – mainly SoloVPE, but down the road, we'll be using FlowVPE.

Jon, maybe just thinking about where EBITDA can go from here, are you able to just sort of talk a little bit about expense growth, maybe beyond the next quarter or two? And then, if we could push out a little further, are there considerations we should be mindful of when it comes to just getting this COVID versus non-COVID mix correct, thinking about the profitability levels that you see in the out years, maybe once you get past some of this investment that you're making?

We can talk a little bit on the second question first, Dan. The profitability levels of our COVID business within like products between COVID and non-COVID are about the same. So, there really isn't a major price difference or performance difference in margin between COVID and non-COVID type products. If you talk about the margins, we had an outstanding quarter, as you guys have seen, and we certainly had benefits that we've talked about already on that area. And as it relates to spending, one of the things that we've got to do here in the second half, you've seen that we've maintained our gross margin guidance and our operating margin guidance from what we guided earlier in the year at a higher revenue number. So, we've got to do some more work in terms of pacing our investments here in the second half of the year, which we will do, which will enable us to continue to stay within those guidance ranges. So, should have that pretty well under control here for the second half.

First one, really, great to see the strength and the base business and the gene therapy that you talked about. But wondering sort of what gives you confidence in the $150 million guide? Is that still the right way to think about it? The question that we're getting from investors, is there a chance that this potentially steps down further if vaccine manufacturers shift more to 2023 and more cancellations come in? Maybe just walk us through your process? How do you get to this number? And then, when we look at the other larger bioprocessing peers, they're keeping their full-year COVID vaccine guide intact. So, is there something unique about Repligen products and how they're delivered to the vaccines that actually ends up bringing the number lower versus your prior estimates?

Getting to the $150 million, I think I've walked through that with Jacob, but it is essentially – if you think where we started the year, which was – as we called out in February, we had $180 million of COVID orders coming into 2022. We had the cancellations. We also had new orders that came in, and obviously, the push out, and they were all around $30 million. So that's how we ended up at $150 million. We've had extensive conversations with the top players. The numbers I'm giving are the numbers that we know today. The fact that we're saying 65% of our revenues for COVID is going to be in the first half of the year and 35% in the second half of the year, it just means if you just do the math, it's a much lower number for COVID in the second half of the year. So, if it falls off further, I really believe that the strength we have in our base business, the strength we're seeing in orders, we'll deal with any smaller drop offs that might happen. But, right now, you're getting what we know, we don't believe it's going to drop further. But we also believe that our base business is doing quite well. And that's why we're able to manage 50% of the call down straight away through the strength in our base business. In terms of our peers, we can only speak for what's going on at Repligen. And we are in the biggest vaccine manufacturers, right? That's who we're working with. We're in a half a dozen commercial COVID vaccines. And all I can tell you is what we see and I can't really speak for other players in our industry. I would note, Jake – I'm sorry, Puneet, that when you look at where we are, as a company, we came into the year with 28% of our revenue in COVID. And now after bringing it – are calling COVID down to $150 million, we're at 19%. I think a lot of the bigger players have a smaller percent of their COVID – of their revenue tied up in COVID. So, that could be part of the explanation.

Just to follow-up, on the 2024 $1 billion guide, how much, if any, COVID are you expecting in that? And then just lastly, given the China lockdowns ongoing, could you maybe just outline your sort of exposure there and what you're seeing there and is that baked into your full-year guide in terms of overall impact and potential recovery there?

On the 2024 number, if you actually do the math on where we are right now with our base business and you CAGR out at 20% to 24% – or 20% to 25%, you pretty much get to $1 billion at the 25% range off our projections. So, we think that if we can keep our non-COVID business growing in that 20% to 25%, whatever the contribution is going to be from COVID, which we expect there will be some contribution in 2023 and 2024, we're pretty confident that we're still on track to hitting that billion dollar number.

And that doesn't incorporate any additional M&As that may come our way.

And on China?

On China, the situation is that, like everybody and all our peers, we are dealing with major cities like Shanghai where you have a lot of the bioprocessing customers basically shutdown for the last month. Like everybody else, we're hoping that that opens up. We're early in the year. So, if you look at it on a full-year basis, we expect that we'll be able to do the catch up between now and as you go through Q2, Q3 Q4. What happens in the next few weeks, I think just we all have to wait and see as to when China opens up a lot more than what it is today.

The next question comes from Julia Qin with J.P. Morgan.

Regarding the long-term outlook, presumably, I think that leads more upside than downside. So, other than COVID, which I know you're leading as upside, maybe help us think through where we might expect to see the biggest potential upside or downside for the base business either in terms of end market demand or in terms of uptake of your new products? And to what extent are you factoring any inventory levels or stocking dynamics into the outlook?

There's no doubt that upside is going to come from the continued launch of new products out of the company, right? So, 12 new products, Julia, last year, probably on track to do somewhere between 9 and 12 products again this year. That's the sort of accelerator for us. But we think 20% to 25% on the non-COVID part of our businesses – we're literally putting out what we really feel we can do consistently for the next few years. That gets us up to that billion upside will come, as I said, from new products. And obviously, continued traction in gene therapy, but probably also in the mRNA space. And as others have alluded to, there's continued good progress on the biosimilar space as more of the originators come off patent. So, all of those contribute towards a robust market and a healthy outlook for Repligen over the coming years.

And inventory dynamics, are you factoring any destocking in 2023?

That's a harder question. And the reason it's a harder question is, if you – I think everybody was asking about inventory dynamics last year. And I think there was maybe some expectation, as we started off this year that we'd start to see some pull back. When we look at our order strength, it's been really, really strong through the first four months of the year. So, we're not seeing it right now. And if it does happen, it's kind of factored into what we see over the next few years. We haven't gone in and put a specific number, we just think that our portfolio, how we're doing in the marketplace, the new products that were coming through, all lead us to a level of confidence around that 20%, 25% for non-COVID.

My follow-up is, to what extent have your customers already pivoted their capacity from COVID to non-COVID projects? Based on your observations, how smooth has the transition process been or has any of them experienced a temporary air pocket in between projects?

I think it's pretty fluid right now. So, I can't really comment on someone who canceled, do they immediately jump back in and say, oh, I need product for x and y. A lot of the companies you're dealing with are major multinationals and the CDMOs that we're dealing with also have a much broader business than COVID. So, it's hard to look at it and say, Oh, we lost – let's say, there was $2 million of cancellation out of CDMO and that, oh, we picked up X at the same CDMO and that was an offset. I think it's more around the overall health of the industry. And I think our peers have kind of highlighted this over the over the last week as well. This is a robust bioprocessing market right now. And all you have to do is look at our base business and see 37% growth in the quarter, right, and a 24% to 31% projection on base business for the rest of the year. That's healthy. COVID is normalizing, right? Whatever normalizing really means, right, but it's going to start to move down. And I think all of us in the bioprocessing industry will be able to move forward to absorb that and we're all, I think, very encouraged by the fact that our core base businesses are all very healthy with strong order growth.

Congrats on the quarter.

The next question comes from Paul knight with KeyBanc.

Tony, there's been a lot of angst about early stage funding, particularly I think that comes down at a lot of the cell and gene therapy players. Do you have any feel for what those customers are doing? It seems like the larger ones have a lot of mature pipeline, but any color there appreciated.

The early stage funding, there's clearly impacting the very small startup companies in cell and gene therapy, probably in a few other areas as well. But I think you're right, I think it's mainly on the cell and gene therapy side. When we look at that and we look at our business, the majority of the revenues that we have in cell and gene therapy are coming from large CDMOs and large – more mature gene therapy companies. There's a lot of companies out there that are working in this space. And I think, today, we gave a little bit more kind of color on how we split cell and gene therapy revenue up. So, 50% is AAV, but the other 50% is CAR T, mRNA and other modalities. So, I think we're positioned quite well in terms of the mix that we have and the impact of the early stage funding, at least here in the first half of 2022. And I would suspect through 2022, it's just not impacting us. So, I wish I could give you a further sort of color on it. While we know it's happening, it's not really impacting what's going on in our space right now.

Maybe this is a question for Jon, you had mentioned supply chain higher costs, is there any trouble getting material and then what's the price dynamic on pricing, right, as we go into the end of the year on supply?

Inbound supply, you always have the day-to-day challenges with different piece parts and things of that nature, but the most significant challenge continues to be obtaining resin for packing and chromatography columns. And so, that dynamic hasn't completely changed, although we're starting to see maybe a little bit of freeing up on the resin availability side. In terms of inflation, we're definitely seeing inbound inflation probably anywhere on the range of high-single digits to low-double digits would be a reasonable average. Here in the first quarter, we were able to leverage some inventories that we purchased back in 2021 at the former prices, so that did help our margins a bit here in the first quarter and got us off to a great start. But we are definitely seeing that inflation coming in. And other areas, one area where we're seeing a significant increase to that early is in the freight side, where freight charges are really high right now. So, working through that.

The next question comes from John Kreger with William Blair.

This is actually Justin on for John. So, I guess, obviously, you're getting some really good traction in cell and gene therapy. What's the anticipated growth rate you think you can achieve within that bucket, let's say, in the next two to three years. Do you have the capabilities needed to achieve growth in line or above industry CAGR of 25%? And I guess if the funding drought persists for another three or four quarters, are you worried about long-term growth in this area at all?

When we look at the cell and gene therapy space, I think our view is that, this year, we think we can grow north of 40%. I think on average, we believe we can grow probably five points above the market. So we think 30%, 30% plus is probably very attainable for us over the next few years. When you look at the funding issue, I think, for us, really, when we look at this space, while the funding piece is really important, we think that the drugs, the cell and gene therapy drugs moving through the funnel and getting approved is probably more important right now. So, the phase two to phase three successes, the phase three to commercial approval, I personally believe that that's what we need to see that will really help in terms of validating the approaches that companies have taken, whether it's on the viral vector side or it's using CAR T technology, I think those wins will give a lot more confidence to the early stage companies and will probably secure some of the funding on a go-forward basis. So, we're really paying probably more attention to how deep is the funnel, are phase 2s becoming phase 3s, are phase 3s getting in front of the FDA and getting approved. That's what we're looking at.

And real quick on, I guess, Asia-Pac. I think, last quarter, you said it more than doubled in 2021. And you grew another 27% in the quarter? I think you mentioned filtration and COVID were big contributors last quarter, as well as the driver this quarter, and how should we think about the region going forward? Or in other words, like what areas are you primarily investing or expanding your presence in?

I would say filtration is probably the one area in Asia-Pac where we've done really well. I think when you look at the depth of that portfolio of products, it resonates quite well. When you look at what customers are doing in Asia Pac, you've got a lot of biosimilar activity going on. So, products like ATF do very well in those processes. The mAb continues to do well in Asia Pac. Obviously, gene therapy is also on the rise there. But if I had to pick one portfolio for us that really stands out in Asia Pac, it's filtration. So as we go through the year, I think someone asked the question, I think the important piece right now, honestly, in Asia Pac is for China to open back up. Obviously, everybody's dealing with the last four weeks, we'd like to see that clear up. And then, basically, open up to what we know is a very robust market in China.

The next question comes from Matt Hewitt with Craig-Hallum Capital Group.

Maybe first up regarding gross margins – and thank you for the color on the supply side – I'm just curious, what opportunity do you have to pass along some of these higher prices to your customers? Are they receptive? Does it change some of their ordering dynamics? Any color on that side would be helpful.

I can speak to that. And Tony can add additional color as is necessary. But, overall, we are passing along price increases to our customers. The overall, I guess, receptive to that that is pretty good in the market today simply because it's pretty prominent, right? Everybody's seeing the inflation coming in from different suppliers, some of those suppliers, maybe not specific to bioprocessing, right, clear down the chain. And so, we're seeing those price increases and, of course, we're passing, passing that along to our customers. And we'll continue to look at those opportunities as we go forward as well.

Maybe have a separate question, one of your larger COVID vaccine customers recently announced that they're going to be moving ahead with mAb flu vaccines. And I'm curious, are there any different dynamics to that market? How big of an opportunity could that become for you? Anything along those lines would be helpful.

When you look at the mAb flu market, just the flu market in general, using mRNA technology, I think there's a lot of opportunity out there. There are a number of companies that are working on that. It's really early stages. So, I think the actual dollar contribution is going to be relatively light. But if you'd like to have it on a five-year horizon, I think it's definitely one of the really nice tailwinds that comes out of COVID where you take mRNA technology and it starts getting applied to multiple other opportunities. So, I think everybody knows that that's an opportunity in the bioprocessing space. I think we're all working on it. But I think the revenue contribution is going to be pretty light for the next year or so. But, yeah, I think in the future it becomes significant.

The next question comes from Brandon Couillard with Jefferies.

Most of the questions have been addressed already. I'm just curious if you could share an update on your latest thoughts around some of the M&A environment, whether it's volatility of the markets kind of opening up some opportunities and where your priorities would be as far as places you'd like to add or bulk up in the portfolio?

M&A is, clearly, part of our – has been a big part of our strategy over the last eight or nine years. I don't think that's going to change. I think the dynamics on M&A are pretty similar in 2022 versus what we saw, say, in 2021 or 2020. I'd say it's been a little slower in the first quarter than what we saw last year. But in general, I still think there are some good assets out there. And as always, we're always talking to people and we'll see what happens as we go through the next one to two years. And I think the other piece is, when we look at our portfolio, we do have an M&A strategy for each of our businesses. So, as assets become available or get closer to a transaction, we're not focusing on any one division to, say, Oh, this is the only one we want to do M&A on, we have a strategy for each one.

I wanted to add on. I made a comment earlier when Tony talked about 20% to 25% growth. And so, the non-COVID growth does include some impact – could include some impact from M&A. And so, I wanted to clarify that comment.

Just one clarification. I think, Tony, you mentioned this, or Jon, you did, about new products. Can you quantify that? Is it like 3% of revenue in terms of new products introduced last year and this year? Did I get that right?

Yes, that's right.

That's about right.

[Operator Instructions]. The next question comes from Ram Selvaraju with H.C. Wainwright.

Congrats, again, on the performance in the quarter. I was wondering if you could comment on the regulatory environment, particularly with respect to cell and gene therapy, and if you're hearing any concerns from among your – in particular, gene therapy customers regarding the regulatory situation, especially in light of a few projects that have recently been placed on clinical hold and if you think that's likely to have any kind of knock-on effect with respect to your business.

I think it comes back to what I said earlier, this whole market in cell and gene therapy, we need to see more approvals, and more drugs moving through the process. I think it's very healthy in terms of the number of companies and number of phase 1, phase 2 and phase 3 trials that are happening. So, I just think that progression, just we need to see it. And I think that will be the catalyst for growth. And it'll put into the background any regulatory concerns that might be out there, whether it's now or six months from now or six months ago.

And then, the follow-up would be, if you think about the overall M&A strategy and where you intend to pursue directions for future growth, are we likely to see you continue to bulk up in areas where you already have an existing presence and focus on sort of line extensions in those arenas? Or are you thinking about this in a broader CDMO context, beyond even perhaps the existing areas within bioprocessing, where you're already present? Just maybe comment on that in a general sort of qualitative way, how we should be thinking about the way in which you expect to be positioning yourselves in the coming years?

When you think about M&A and what we've done, I think our strategy has always been to build out various legs on the stool for Repligen. So, we were a proteins company, and then we became a protein chromatography company, then we added in filtration, then we added in analytics, and now we've added in fluid management. So, I would say the vast majority of what we will do in the next five years will line up with those five different businesses that we have. There may be down the road some opportunity to add in a new vector for us. But I think our focus is going to be on those five businesses.

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

I just want to thank everybody for attending this morning. Obviously, we're coming off just a really fantastic Q1. We'd look at our markets and they're incredibly strong. And our orders as we come into – as we're starting off Q2 are also very strong. So, we're really optimistic about how the company is going to perform as we go through the year and look forward to catching up with everybody at the end of July. Thank you.

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