Repligen Corporation (NASDAQ:RGEN) Q1 2024 Earnings Call Transcript May 1, 2024

Repligen Corporation misses on earnings expectations. Reported EPS is $0.28 EPS, expectations were $0.29. Repligen Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen, and welcome to Repligen Corporation's First Quarter of 2024 Earnings Conference Call. My name is Keith, and I will be your coordinator today. [Operator Instructions]. I would now like to turn the call over to your host for today's call, Sondra Newman, Head of Investor Relations. Please go ahead, ma'am.

Sondra Newman: Thank you, operator. And welcome to our first quarter of 2024 report. On this call, we will cover business highlights and financial performance for the three-month period ending March 31, 2024, and we will provide financial guidance for the year. Joining us on the call today are Repligen's CEO, Tony Hunt; our CFO, Jason Garland; and our Chief Commercial Officer, Olivier Loeillot. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the 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 quarterly reports on Form 10-Q, our annual report on Form 10-K, and our current report on Form 8-K, including the report that we're filing 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 financial results and guidance, unless otherwise noted. 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 and on sec.gov. Adjusted non-GAAP figures in today's report include the following: book-to-bill ratios, organic revenue growth, base business revenue which excludes COVID and M&A, non-COVID revenue, cost of sales, gross profit and gross margin; operating expenses, including R&D and SG&A; income from operations and operating margins; other income; pretax income; effective tax rate; net income; diluted earnings per share as well as EBITDA, adjusted EBITDA and adjusted EBITDA margins.

These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to best reflect the performance of our ongoing operations. Now let me turn the call over to Tony Hunt.

Anthony Hunt: Thank you, Sondra. And good morning, everyone. And welcome to our Q1 earnings call. As you saw in our press release this morning, we delivered a solid first quarter on revenue and orders. With Q1 revenues coming in at $151 million, we are right on track to delivering $300 million to $310 million in the first half of 2024. Orders were in line with our expectations, resulting in a book to bill of 0.99 in the first quarter and 1.03 over the past nine months. We're satisfied with these results, especially in light of top sequential and year-on-year comps and the known headwinds in COVID, proteins and China. During the first quarter of last year, 2023, we realized $23 million of COVID-related revenue, none of which was recurring.

And as we shared with you on our February call, we anticipate proteins headwinds up over $30 million in 2024, which we saw play out during the first quarter. Importantly, we continue to see signs of recovery in the market and feel confident that the de-stocking challenges are behind us for the most part. Our confidence is reinforced by what we are seeing in filtration performance, consumables demand and new modality momentum. In Filtration, our largest franchise, year-on-year, non-COVID filtration orders were up 20% in Q1 and revenue was up by more than 10%. We also saw a nice sequential uptick in non-COVID filtration revenue of greater than 15%. Regarding consumable orders, where de-stocking has been the most pronounced, we've seen a positive uptick in demand outside of proteins.

For the first quarter of 2024, these consumable orders increased by more than 10%, both sequentially and year-on-year. Both sales and orders from new modality accounts were another area of strength at levels higher both sequentially and year-on-year. New modality revenue growth in the first quarter of 2024 was greater than 15% compared to the first quarter of 2023, and orders were up 8%. While encouraging, these positives were offset by the aforementioned weakness in proteins and capital equipment purchase constraints as reported across the industry. Our expectation is that markets will improve as we go through the year with stronger order trends in the second half, and so revenue guidance range is unchanged for 2024. For the quarter, our overall revenues were down $31 million or 17% year-on-year.

driven primarily by the $23 million decline in COVID-related revenue. Our base business revenues were down approximately 9% in the first quarter, reflecting the anticipated decline in proteins and partially offset by filtration sales where our ATF business had a very strong quarter. Overall, non-COVID orders were flat year-on-year. Within our franchises, protein orders were down 30% as expected, which was more than offset by an approximate 20% increase in filtration demand. Excluding proteins, orders as reported from our non-COVID filtration, chromatography and analytics franchises were up 7% year-on-year and up 13% when you compare the last six months performance to the prior six-month period. Overall, order dollars are consistent with what we observed in the second half of last year while covering the drop off in proteins.

At a customer level, pharma orders were in line with Q4 and up greater than 10% year-on-year. CDMO orders were down year-on-year and sequentially. Some of the softness can be attributed to lumpiness in orders from a few of our larger accounts, but it's fair to say that, at this point, we're not seeing a true sticky rebound from CDMOs. The good news here is that when we take a look at the last six months versus the previous six months, both CDMO orders and pharma orders are up about 10%. New modality orders were also strong, up high-single-digits in Q1 versus the corresponding period last year. As noted on our February call, strength in new modalities is directly tied to our top 20 to 25 accounts who are scaling with our technology. Strategically, Q1 was another good quarter for the company.

Our latest acquisition in the fluid management mixing space, Metenova, had a strong quarter for revenues and orders. Our collective teams continue to work through the integration plan with a focus on managing the broader network of distributors and new product development. In fact, we just launched our first bag and film technology into the single-use bag market, paving the way for the launch of our single-use mixers in the second half of this year. In addition, our R&D team successfully developed and launched the industry's first fully automated GMP-ready filtration system called RS10. The feedback at the Interphex earlier this month on these two new product launches was incredibly positive and we expect the system for MRNA and cell and gene therapy processing to have a meaningful contribution in 2024.

We're clearly executing on our strategy to differentiate ourselves in the market with best-in-class systems and follow-on consumables. Moving now to our quarterly performance. The story of the quarter was the performance of our Filtration and Fluid Management businesses. Our filtration franchise had a very strong quarter with non-COVID revenue growth of more than 10%. As mentioned earlier, this was driven by the success of ATF where we have been specified into nine late stage and commercial processes since mid-2023. The impact of these late stage wins drives more consistency in consumables and should be a key driver of growth for this business over the coming years, especially as many of these drugs are in the ramp up phase. In addition, the Fluid Management business had a good quarter for both revenue and orders.

We are seeing some very positive signs as our investments in this area are beginning to pay off. In chromatography, our OPUS pre-packed column business had a solid quarter, slightly up on revenue versus Q4. The opportunity funnel is strong and we expect further growth in revenues here in Q2 as this business continues to recover from the resin shortage challenges in prior years. A major driver of growth for us is the continued uptick in OPUS demand in the new modality markets. as more customers switch to the convenience of pre-packed columns versus self-packed. Our analytics business had a slower start to the year, mainly driven by fewer dollars for capital equipment purchases. This is consistent with what we have seen for this franchise over the last few years.

Again, our funnel of opportunities is strong. There continues to be strong demand for FlowVPX and real-time process management or RPM, and we continue to see these technologies as the drivers of growth for analytics here in 2024. Finally, we had a weak quarter in proteins. Revenues were down both year-on-year and sequentially as Cytiva demand dropped to essentially zero. And as we noted in February, another partner is burning off inventory, which also impacts our performance. The Q1 decline in proteins is in line with our guidance for the year of 30% to 35% drop off in revenues. However, we continue to expect growth in filtration, chromatography and analytics as previously guided. In summary, we're off to a good start here in 2024. We believe that de-stocking is essentially behind us.

We see positive trends in consumables and our orders are holding steady, staying 2% to 3% ahead of sales over the last nine months. Our guidance is based on our expectation to see orders pick up in the second half of the year. We remain confident in the medium to longer term potential in bioprocessing with stronger growth in view for 2025. With that, I will hand it over to Jason for a financial update.

Jason Garland : Thank you, Tony. And good morning, everyone. Today, we reported our financial results for the first quarter 2024 and left adjusted financial guidance unchanged for full year 2024. Revenue in the first quarter was down $4 million sequentially from a strong fourth quarter, driven primarily by the expected headwind from proteins on lower affinity ligands and resin demand. We delivered total revenue of $151 million in the quarter. This is a reported decline of 17% year-over-year or down 20% on an organic basis, with acquisitions contributing 3% of our reported growth and currency with nearly a 1% headwind. As Tony mentioned, for the quarter, our base business, which excludes COVID revenue and M&A, was down 9% on lower protein sales.

We recognized $23 million of COVID revenue in the first quarter of 2023 and approximately $6 million in M&A sales in the first quarter of 2024 from our 2023 acquisitions. Therefore, our base sales were $145 million in the first quarter versus $160 million in the prior year. Tony shared color on our franchise performance, so let me quickly highlight the performance across our global regions. For context, in the first quarter of 2024, North America represented approximately 49% of our global business, while Europe and Asia-Pacific and the rest of the world represented 33% and 18%, respectively. For our non-COVID business in the first quarter, North America was up on strength across all franchises except proteins, and Europe was slightly down with the decline in ligands being offset by strength in Filtration.

The decline in Asia-Pacific and the rest of the world was driven by continued weakness in China. First quarter 2024 adjusted gross profit was $74 million, a 27% decrease year-over-year, while delivering a 48.6% adjusted gross margin on $31 million of lower revenue. The year-over-year reduction in gross margin of over 6 points reflects roughly 4.5 points of mix headwind from the high COVID sales in the first quarter of last year with the remainder tied to reduced volume. Our gross margin remained roughly consistent with our fourth quarter 2023 exit rate, down about 50 basis points on slightly lower volume, and consistent with achieving our 2024 total year guidance of 49% to 50%. As we have shared before, we remain focused on cost management and ensuring we have the right balance of resources.

We continue to execute restructuring actions and will remain diligent in our spending, investment prioritization and we remain focused on driving productivity and efficiency across our manufacturing network. As an update, we incurred just over $1 million of restructuring charges in the first quarter, down from the $8 million of charges in the fourth quarter. This was mostly driven by severance and facility exit costs. All these charges are non-recurring in nature and are only reflected in our gap P&L for all periods. So our current restructuring plans are coming to an end. We will evaluate the need for future discrete actions as we continue our margin expansion journey. Continuing through the P&L, our adjusted income from operations was $12 million in the first quarter, down $29 million compared to prior year, driven by the $27 million drop in adjusted gross profit just described, with an additional $3 million increase in adjusted SG&A and a $1 million decrease in adjusted R&D as we manage the timing of our technology investments, while continuing to introduce innovative new products.

The increase in adjusted SG&A is driven by $2 million from both our acquisitions that closed after the first quarter of 2023. SG&A is also impacted by the annual increase of salaries. Sequentially, OpEx was up $4 million in the first quarter of 2024 versus the fourth quarter of 2023. This also includes the impact of annual salary increases, higher stock-based comp, and the timing of external services. In the fourth quarter, stock comp benefited from grants dissolving with employee exits, which did not repeat and, in fact, was offset by new grants in the first quarter. Our first quarter 2024 operating income margin of roughly 8% includes about a 5-point headwind from depreciation, which had been a 4-point headwind in the same 2023 period. This is reflective of the critical investments we have made in capacity.

Year-over-year, operating income margin is primarily driven by roughly 9 points of negative mix at the operating margin level from COVID sales last year and about a 7-point drag from volume deleveraging on OpEx and our fixed capacity structure with the lower sales. Both of these are partially offset by nearly 2 points of net year-over-year cost initiative benefits. Our first quarter 2024 EBITDA margin rate was approximately 13%, which excludes the drag of the increased depreciation. Adjusted net income for the quarter was $16 million, down $20 million versus last year. This was driven by the $29 million drop in adjusted operating income, offset by $2 million of higher interest income, net of interest expense from improved interest rates on our cash position, and approximately $6 million less tax provision.

Our first quarter adjusted effective tax rate was 18.7%. While the rate in the quarter includes a discrete benefit from stock-based compensation, the total year adjusted effective tax rate is still on track for 21% as guided in February. Adjusted fully diluted earnings per share for the first quarter was $0.28 compared to $0.64 in the same period in 2023. Finally, with a strong generation of cash flow from operations in the quarter, we increased our cash position to $781 million, up $29 million from the end of 2023. I'll now move to a quick update on our guidance for the full year of 2024. I'll speak to adjusted financial guidance, but please note that our GAAP to non-GAAP reconciliations for our 2024 guidance are included in the reconciliation tables in today's earning press release.

And for further clarity, our guidance is fully inclusive of the FlexBiosys and Metenova acquisitions we made in 2023. In summary, we have made no changes to the total year adjusted guidance ranges that we shared in February. Running quickly through the P&L, our revenue for 2024 is expected to be in the range of $620 million to $650 million, while we continue to manage three key headwinds – COVID, proteins, and China. We expect 2% to 7% growth for our non-COVID business, with M&A contributing 3 points of that growth. As a note, we will not be reporting on COVID sales in 2024 as this will be de minimis. We expect revenues in the first half of 2024 to be better than the second half of 2023 and we expect revenue for the second half of 2024 to step higher again.

We expect to deliver adjusted gross margins in the range of 49% to 50%, essentially flat to 2023. As summarized, in February, we see about 200 basis points of headwind from mix with our reduced proteins forecast, salary increases, material inflation, and from resetting our incentive compensation back to normal levels for our employees in 2024, after being far below that in 2023. The impact from these headwinds is expected to be entirely offset by the manufacturing productivity, which is forecasted to generate roughly 200 basis points of year-over-year adjusted gross margin rate improvement. We still assume price will be flat for the year, though we will raise prices selectively. We expect our adjusted income from operations to be between $83 million to $88 million, or 13% to 14% adjusted operating margin rate, which is down about 100 basis points at our midpoint versus 2023.

In our adjusted income from operations, we see line of sight to delivering 400 basis points of year-over-year productivity. However, total salary increases, material inflation, mix from lower protein sales, and volume deleverage creates greater than 300 basis points of headwind. And the headwind from resetting our incentive compensation is a total of approximately 200 basis points of headwind at the adjusted income from operations level, with the majority of our incentive costs in SG&A. As discussed earlier, we remain focused on optimizing our cost structure while protecting the resources and investments needed to grow long term. As our volume grows, we expect profitability to grow with it. Adjusted EBITDA margins are expected to be in the range of 18% to 19% for the year, reflective of the exclusion of roughly 500 basis points of headwind from fixed depreciation costs from the critical capacity expansions we have made.

Continuing through the P&L, we expect our adjusted other income to be between $18 million and $19 million. We will continue to monitor the progression of interest rates and update this outlook as appropriate through the year. Our 2024 adjusted effective tax rate is expected to be an estimated 21%. Incorporating all of these items, we expect our adjusted earnings per share to be between $1.42 and $1.49, down $0.33 to $0.26 respectively versus last year. As we wrap up, let me state that we will remain laser focused on the execution of our strategic priorities, continuing to expand our position in top accounts, delivering more innovation with differentiated new products, building off our wins in new modalities, successfully integrating Metenova, and remaining diligent on our cost control and productivity to support increase in margins as we go through the year.

With that, I'll turn the call back to the operator to open the lines for questions.

See also

25 States with Highest Mortgage Delinquency Rates and

11 Oversold Growth Stocks to Buy Right Now.

To continue reading the Q&A session, please click here.