Q1 2020 Earnings Call
Good day, and welcome to the religion, 2021st quarter Conference call.
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Then too.
Please note today's event is being recorded I would now like to turn the conference over to Sondra Newman. Please proceed.
Thanks, Eric Good morning, everyone. Thank you for joining our call today.
On this call will be covering financial results and business highlights for replicant first fiscal quarter of 2020.
And we'll provide an update to our full year guidance.
President and CEO, Tony Hunt will cover business update and our CFO, John Snodgrass will cover our financial results and guidance.
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 risk factors is included on 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 FCC.
Today's comments reflect our current views, which could change as a result of new information future events or otherwise the company does not obligate are committed sell 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 our website and also on Etsy Si Dot com.
Non-GAAP figures in today's report include revenue growth at constant currency gross profit in gross margin operating expenses operating income in operating margin 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 gap, but are intended to better enable investors to benchmark replicant current results against historical performance and the performance of peers when evaluating investment opportunities.
With that I'll turn the call over to Tony Hunt.
Thank you Sandra.
Good morning, everybody and welcome to our Q1 earnings call.
Before jumping into our overall business performance I want to spend a few minutes talking about a response to the cobot 19.
It's Thursday in a challenging talk to the world our industry our employees on our customers.
To wrap with John like so many other companies we have focused our priorities on employee and family health and safety well, we have implemented multiple programs over the last two months.
Antibodies topic, I really thought it actually sites around the world.
While working closely with our suppliers and customers to deliver products on time.
The response from the Rutledge unseen husband truly remarkable we've kept backfill sites open.
<unk> critical service and support customer sites.
Actively managed to execute on our commercial activities.
Working remotely.
Our team has also created a rapid response broker customers, we're focused on developing call with 19 drugs vaccine diagnostics, what the goal of manufacturing and delivering keep products with a significant production of lead times.
The end result is that our business has performed well with strong order demand through the first four months of 2020, along with a noticeable increase and activity related to cope with 19 programs in the last four to six weeks.
Well there are still some uncertainties around the impact to play clinical trials and the duration pandemic on the bio processing industry, we remain cautiously optimistic about the or on the overall performance of our company.
Therefore, we are maintaining our revenue guidance for the year, increasing our guidance on gross and operating margins.
Raising adjusted EPS by too so.
So moving now to our quarterly performance, our organic growth for the first quarter was up 16% year over year with all four franchises posting positive growth numbers.
The story of the quarter was the continued strength the gene therapy accounts on the performance of our filtration and color targeting businesses as customers continue to adopt these key technologies.
Okay. So that's also outperformed our expectations.
Just stayed at GE softness being less than expected.
Due to late quarter orders and robust demand from our other like an partners.
Finally, our see tech catalytic since that's got off to solve it starts in Q1, approximately 22% Barbara.
New doubled sales team started to promote so the P.P.E. technology into our as users and quality control and manufacturing settings.
[noise] strategically our team executed on key long term objectives for the company.
We set an all time recall that we expect to 2020 inch via your new product launches or we have not changed this year.
We successfully launched or gamma radiation transgenic spot check this out.
Appealing to vaccine gene therapy producers.
We also saw increased traction for Tee up do you have technology at early adoption sites and boat show a more recently and the gene therapy space. We remain on track to launch five new products here at 20 twice.
Moving to our business performance.
Infiltration or single Useighty out product line had an excellent quarter.
With robust orders in the quarter, a growing number up bench scale evaluations a movement into late stage clinical processes by existing customers. This business is well positioned for an excellent 2020.
Consistent with other product lines in our portfolio. We are encouraged by the increased orders in March and April as our customers procure product for not only plans late stage processes, but also early stage corporate related clinical programs.
Our hollow fiber business also had an excellent quarter led by Proconnect single use low pass assemblies across those systems, which continued to show robust demand.
Our 10, Janyk see us flat sheet <unk> cassette business continued its momentum in Q1, but by success in gene therapy accounts, which contributed approximately 25% overall concept so.
With the launch of our gamma radiation touchy cassettes, we expect to see increased traction at gene therapy, a conscious customers transition to this next gen product.
Finally, we continue to receive positive feedback on our TFT off technology.
The primary application is in chose salt harp occasion, with our field application specialists driving evaluations that early adopter accounts.
We've also extended applications of TFT up into gene therapy.
Focus on par with Dr. manufacturing, we have seen appeared yelp out of that using Ci TFT, often harvest TARP Acacia apparel doctors, most notably and let you parse.
The cobot 19 pandemic has slowed down or TFT off trials, especially in late Q1 and here again in early Q2, but we expect that they activity will increase through the year as more customers come back to work in the process development Department.
We fully expect to hit our revenue targets for this technology and 2020, we will deliver a person I've stopped systems to customers here in Q2.
Moving to chromatography.
Our opus pre packed columns that delivered another great quarter up over 25% here on your with robust demand across our core customer base.
We also had some nice win large pharma accounts I say continues their transition to our pre packed columns solution.
Equally encouraging other customers working with opus and downstream continuous manufacturing applications.
Where earlier process development programs are now scaling into the clinical stage.
Our OEM franchise.
Oh proteins franchise also performed well, but buyer Lincoln's business.
As mentioned earlier G, which it sounds like Tivo is down less than expected in Q1 due to link quarter increases in orders. In addition, we saw strength.
I'd, rather like accounts throughout the quarter, which was a major contributor to overall proteins business called.
The momentum on Lincoln demand has carried over into Q2 with increased orders in March and April which are directly related to cope with supply concerns.
Based on this we expect to see less of an impact than we anticipated then 2020 from sativa, bringing like of in house, and we're now forecasting closer to 30% production into back for the year.
We therefore expect our proteins business to be down approximately 5% to 7% you're on your versus our prior forecast up 15%.
Finally, our cross analytics franchise led by Sea technologies had a good quarter.
Up about 22%, but strong demand in Europe and Asia.
We're beginning to see the impact of our expanded commercial team.
And from a product perspective, the R&D team continues to move forward next Gen CLO VP, which remains on track for second half the your launch.
So overall, we're off to a strong start the 2020.
The ongoing coping 19 pandemic, that's definitely being a challenge in Q1, particularly in China, and India, where product shipments were delayed but weakness in these countries was offset by strength in North America in Europe.
As we move through Q2, we're very encouraged by the sustained order demand in April and the increased activity related to covert drug manufacturing.
We expect to have a strong first half of 2020 I can I continue to stay in close communication with our customers to help assess second talked about.
From a priority perspective.
We remain very focused on new product launches the implementation of that's 80 phase two expansion of our see type process analytics business, that's cost expansion programs.
We have activated the rapid response program, coupled with customers, we remain fully committed to providing a safe and healthy working environment for employees and customers, who does set our sights.
Summary, we're really pleased with our business financial and strategic execution Q1.
Same collaborative and flexible to marketing.
Believe we are well positioned to attain or long term called target we're optimistic about the future.
I'd, especially like to thank all our employees around the world for their dedication resourcefulness and commitment as we work together through these challenging times without I'll turn the call over to John to address our first quarter financial.
Data 2025.
Thank you Tony and good morning, everyone.
Today, we are reporting or financial results for the first quarter of 2020 as well as updating our financial guidance for the year.
Unless otherwise mentioned all financial measures discussed reflect non-GAAP measures.
As you've seen in our press release. This morning, we've executed on another strong financial performance on the first quarter of 2020 with both strong revenue and earnings growth.
In addition, with the strength of our business through the first few months of the Cobot 19 pandemic, we're saying on plan with investments in product development capacity expansion and Nike systems to support expected long term growth.
Today I'll cover the our first quarter 2020 financial results, then move to guidance updates for the full year.
Starting with the first quarter.
Our topline we delivered record revenue of 76.1 million, representing 25% reported growth and 16% organic growth.
Included in our revenue for the quarter, where process analytics sales of six point sixmillion related to our see technologies acquisition that closed on May 30, Onest 2019.
Pro forma basis. This represented you're on your growth of 22% Pricy technologies.
With respect to foreign exchange our revenue growth included nearly one point of foreign currency headwind for the quarter.
On a regional basis for the first quarter 2020 pro forma direct product revenue growth was strongest in Europe at 48%, but North America growing at 30% and Asia at 10%.
Well Asia was impacted in the first quarter by cobot related shipping delays this region still accounted for 15% of direct revenue.
North America represented 53% of direct revenue during the quarter and Europe, 32%.
Shifting now to the rest of our income statement.
Adjusted gross profit in the first quarter was 44.5 million, representing an increase of 10.6 million or 31% over the first quarter of 2019.
Our adjusted gross margin was 58.5% for the first quarter of 2020 compared to 56% for the same period in 2019.
The 250 basis point improvement was driven by productivity programs and favorable product mix, including stronger proteins revenue and stronger opus column to resin mix at our chromatography franchise.
Based on are stronger than expected first quarter adjusted gross margin performance. The healthy view of our order book moving into Q2, and the strength of our productivity programs, we're increasing our gross margin guidance for the year from the range of 55% to 56% up to 56% to 57%.
With respect to operating expenses.
Adjusted Research and development costs were 4.4 million for the first quarter of 2020 compared to 3.6 million for the first quarter of 2019.
The key driver of the year over year increase was the timing of our see technologies acquisition.
Overall R&D expenses finished the quarter at 5.8% of revenue. However, we expect to see an increase in R&D spending over the coming quarters. As we continue to work through key product launches and we're raising our internal expectation of R&D spend for the year by 1 million to arrange of 6% to 7%.
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Adjusted EPS DNA for the first quarter of 2020 was 21.8 million compared to 14.8 million for the first quarter of 2019.
The year over year increase in adjusted SGN. It was almost entirely related to investments made in 2019 to build out our process analytics filtration and chromatography customer facing James.
Investments and capacity and operating infrastructure answer the inclusion of expenses from sea technologies, which we acquired on May 30, Onest 2019.
Now moving to adjusted earnings of <unk>, Yes.
And the first quarter, our adjusted operating income was 18 point Threemillion, an 18% increase compared to 15 point Sixmillion reported in the first quarter of 2018.
Our adjusted operating margin was 24.1% compared to a very tough comp of 25.7% for the first quarter of 2019.
It was better than we initially guided back in February due to our strong operational execution and product mix on the quarter and timing shifts so some of our R&D projects.
Adjusted net income for the first quarter of 2020 was 16.8 million an increase of 37% compared to 12.2 million in the same period in 2019.
Benefiting from I, just mentioned earlier and a lower than normal adjusted tax rate for the quarter of 15.3% of adjusted pre tax income.
Which was driven by benefits from RSU vesting activity.
And exercises of stock options in the first quarter.
Adjusted EPS for the first quarter of 2020 increased to 32 cents per fully diluted share an increase of 20% compared to 26 cents for the first quarter of 2018.
Okay.
Our cash and cash equivalents, which are GAAP metrics totaled 529.5 million at March 30, Onest 2020, compared to 528 point Fourmillion at year end 2018.
For the first quarter of 2020, we generated free cash flow, a 4.5 million inclusive of 9.5 million of operating cash flow plus 5 million of capital expenditures.
Primarily related to our facility in capacity expansion projects and I two systems investments.
Now moving to 2020 full year guidance.
Our GAAP to non-GAAP reconciliations for our 2020 financial guidance are included in the reconciliation tables in today's earnings press release.
As previously mentioned unless otherwise noted all 2020 financial guidance discussed will be non-GAAP.
Please also keep in mind that our 2020 guidance, maybe impacted by fluctuations in foreign exchange rates beyond our current projection of net zero impact on full year sales and does not include the potential impact of any new acquisitions, but the company may pursue.
Today, we're reconfirming our 2024 your revenue guidance, a GAAP metrics at 309 to 319 million, reflecting growth in the range of 14% to 18% as reported and tend to 14% on an organic basis.
We're increasing our adjusted gross margin guidance for 2020 to 56% to 57%.
From our previous guidance of 55% to 56%.
Reflecting our strong first quarter product mix and execution on our key productivity programs.
We're also raising or adjusted operating income to a range of 72 to 76 million from our prior range of 70 to 74 million with adjusted operating margins increasing to the range of 23% to 24% of revenue for the year up from our prior guidance of 20% to 23%.
Well, we had not previously provided details on our adjusted other income and expense line. We're now highlighting this at our 2020 guidance due to the meaningful decline we are seeing an interest rates and the impact. This is having on returns from our cash investments.
Our current guidance for adjusted other income and expense is 1 million of income, which has been reduced by 3 million from our previous expectation of 4 million of income.
We're also reducing our 2020 income tax.
Expense guidance to 20% of adjusted pre tax income from our previous guidance of 23% based on increased benefits from RSU vesting and stock option exercises.
Based on the aforementioned changes, we're raising our full year 2020, adjusted net income guidance to a range of 58 to 61 million for the year, an increase from our previous guidance of 57 to 60 million.
[noise] accompanying this raise an adjusted net income we're all it also increasing our adjusted EPS guidance to a range of $1.90 to $1.14 per fully diluted share up two cents from our prior guidance of $1.70 to $1.12.
Our guidance continues to reflect an estimated 53.4 million fully diluted shares outstanding for the full year.
We're also raising or adjusted EBITDA guidance range to 80 to 86 million for full year 2020 up from our previous range of 80 to 84 million with depreciation and intangible amortization expense is expected to be approximately 10.5 million and 15.3 million respectively.
The company continues to expect to invest an estimated 20 to 22 million in 2020 for capital expenditures as we continue with our plans to build out or opus manufacturing capabilities and Breda.
Increased capacity in our Massachusetts, Syncope, California facilities and to move forward with our global S&P implementation project.
We continue to expect 2020 year on cash and cash equivalents, a GAAP metric to be in the range of 580 590 million with our Capex investments being fully funded by cash generation from our operations.
This completes our financial report and guidance update and then we'll now turn the call back to the operator to open the lines for questions.
Thank you we will now begin the question answer session to ask a question you Me Press Star then one on your Touchtone phone it'd be using a speakerphone. Please pick up your handset for pressing the keys. If your question. That's been answered if you wish to withdraw your question. Please press Star then too.
And the interests of time, please limit yourself to three questions. You may reenter. The question can you for a follow up by pressing star than zero. Once your question. There has been that we will now pods for one moment to assemble our roster.
And our first questions name will come from Tycho Peterson. Please proceed with your question.
Hey, good morning.
The thing about the timing of delayed clinical trial. In fact, you know given your about two thirds Chronicle third commercial do you expect about cap slid out given the delays.
Yeah. It's a great question Tyco I you know when you look at our industry Bioprocessing, there's a lag phase between opened manufacturing is completed and when it's kinda called trial starts. So that's anywhere between sort of five in nine months. So we're really keeping an eye on second half of the year to see if any of the clinical trials that might be scheduled for.
I'd like Q3 into Q4 get pushed out into Q1 in Q2.
The feedback we have right now from our customers is really.
The majority of the programs that they are manufacturing are staying intact, we've seen a little bit of push outs right. So we might see.
Projects that we're supposed to happen in Q2 get pushed a little bit into Q3, we haven't really seen any cancellations that of at least been that I've been made aware of.
And then we heard from somebody appears about inventory stocking were you able to comment on whether there was a stocking component in the first quarter.
Any comments I wasn't GE stopped proteins.
Yes on the first quarter, we don't actually see any of the activities that happened in the first quarter related to stocking and really the only part of our portfolio. When you think about at our proteins business. Obviously has a majority Dupont we sell into in our proteins business is going into commercial drugs most of our other product lines.
As you pointed out earlier, it's about 70% kinda called 30% commercial so on the on the protein side, we didn't see really any stockpiling in Q1 with some additional orders that came and in early March that we shipped out but in terms of.
Two we definitely think that the addition orders that came in in March and April are related to covert supply concerns that the GE Cynthia customer level and that is obviously reflected in what we think proteins will do in in 2020 versus what we thought back at a at the.
End of February so beyond that we haven't really seen any stockpiling.
And then lastly can you help us just think about the numbers around any Colin tailwinds in particular around Bops and production are you able to talk about number programs upstream downstream demand can you maybe just help characterize how you think about.
Paul.
Yeah. It's early days you know, it's really been the last four to six weeks in terms of activity from customers that are moving forward, but we are definitely involved in project. Some programs probably just the same as almost every other bioprocessing company. It does come down a little bit too whether you're a platform technology at these accounts because speed is almost critical.
People are trying to get into these June through end of summer clinical trials, So where were strong at accounts I think we've we've picked up.
Some nice business that said Theres always when you look at our portfolios. While it's not like every product line is has been immune to covert so some of our smaller product lines.
We've seen some weakness in the and over the last over the last couple of months, but any of that weakness as really being offset by strengthening our core and our core product lines flatbreads ATM per opus or filtration businesses.
Okay. Thank you.
Our next question will come from John Kreger with William Blair. Please proceed with your question.
Hi, Thanks, very much Tony curious how would your commercialization plans changed at all you mentioned the five new launches still on track <unk> is that.
Do you have to kinda altered the plants since I I'm, assuming your reps can't really get into client facilities like they could before.
Yes, so to probably two parts to that question. What one is Oh I'll just talk about the commercial team and their activity. So you're absolutely right. The number of salespeople that are actually on phase out at accounts in.
In April March there definitely was some activity probably through the first half, but released late March all of April almost all activity for us and everybody else in the Bioprocessing industry from a sales point of view as been remote so lots of web access lots of zoomed calls.
But the the response from our customers has been fantastic I mean, where we're having all the the right conversations where we're working with our customers on programs that needs to get executed in in Q2 in Q3 large orders were expecting to come in John have have come in.
So it's really been.
It's it's worked quite well as we've gone through the last say six six weeks or so, but you're right. When it comes to new products and launching new products I think the majority of our products that we were launching this year, we've been working on for quite a while so we've done a lot of the alpha testing and beta testing so hasn't really cobot.
Isn't really impacted that but I think I highlighted in my and my prepared remarks that.
Technology like TFT up where customers are really interested in doing a value evaluations have slowed down just simply because the folks that would do those valuations are not on site. So like every other Bioprocessing group, you, you're kinda dealing with existing products.
For now and I think as we get into May and into June you'll see a little bit more opening up for the process development labs for a lot of the evaluations would happen.
Great. Thanks, and just one quick follow up can you talk about order flow out of China, and how that sort of changed over the last couple of months as they start to reopen.
Yeah, I think the.
Yes, if you look at the three countries poor countries that you know majority of the orders come from so China Korea, India, and Japan on the China side.
We definitely saw an uptick in orders once China started to reopen I mean, it was it was really light.
Through through the month of Fabry and into early March but second half of March and all of April. It was a significant pickup we saw the same thing and Korea as well. So I was very similar to China.
And then in terms of countries like India, India is really shut down right now you probably heard that on some of other earnings call, but we definitely had saw an impact to us in terms of just getting product delivered on the last week 10 days of the quarter as they shut down their airports even to freight that's opened up again, a little bit over the long.
Last few weeks, but in general I think India is fairly quiet right now Japan is as probably status quo and we've seen a pickup in.
In China and Korea in the last four to six weeks.
Great. Thank you.
Our next question will come from Dan areas of Stifel. Please proceed with your question.
Morning, guys. Thank you Tony just a follow up on the vaccine side I'm sure you don't want to go into things that to be account level, but just so that we understand where your capabilities like is there any fundamental reason why you wouldn't be able to serve all of the molecule classes that are being worked on M&A and otherwise and then if you.
Just look at the totality of what it takes for a customer to develop a vaccine that at all a higher or lower margin activity for you relative to Babs proteins. If we just think about the mix of upstream and downstream products that are needed there.
Yes, maybe start with the last part of your question I don't think that has an impact vaccine versus mab versus protein on on margin profile I think that technologies that we have go across all molecule types I think the comfort I made a few moments ago around.
Where are your strongest accounts is probably where you're going to see the most activity around around the cobot programs I think it's got to be harder. If you haven't been in an account to jump in and quickly get established in what really is a very short time frame up say six to eight weeks before people really want to start getting a clinical trial up and running or.
Clinical trial, but making the clinical material.
So I think where were strong we've we've had good activity and.
And it does cover were were involved on the vaccine side. We're involved in the mob side were Bob on the diagnostic side. So you're right. Our technologies do go across the the sort of breadth of of molecules.
Okay, and then maybe on proteins and just thinking about GE dinner in sourcing.
Does seem like a tricky time to be pulling off the transition there that they were planning on especially you don't really have to so I guess I.
I know the way you saw in the protein side was due to a better than expected product demand just related to coded but do you have a view on whether they might scale back their ambitions for at least this year when it comes due to internal production there.
No I I really don't have any any further insight I do think that the increased orders are absolutely related to increased orders on the on the G. Sofia side, and that's just flung upload right back into interrupt bludgeon, our expectation is that we hit the second half.
The or I mean their forecast for the second half the or haven't really changed so.
We still expect that.
Instead of being down 50% I think we're going to be more like in that 25% to 30% up.
Okay, maybe just one more if I could John My wife started her online workout right. If you were talking about the margin outlook. So I might've missed something but does that change in op margin expectations for the year have anything to do with commercial investment that you were planning prior but not planning now.
Yeah no relationship at all the commercial investments are the plans we have in place. There will continue its really a result of a better than you know really really strong productivity actually as we started the year.
As well as you know some benefits that we've seen it overall mix.
But maybe one one additional comment on that there's no doubt that as John I myself I've looked at the.
<unk> expense line then in March really mid March we did slow down some of the hiring that I will flow through the PML, but it's more it was more out as an abundance of caution to to make sure that we could see what was going on from an order load. So we've started to really some of those headcounts as we move in through Q2, and I'd say most of those are and operate.
Tons and capacity obviously.
Yeah, Okay. That's perfect. Thank you.
[music].
Our next question will come from a neat Souda SBB Leerink. Please proceed with your question.
Hey, Great Ah Tony Thanks, and congrats on the quarter. So first one if I could ask done on T. Tech, what's your expectation for growth here through the.
The rest of the year given that this isn't your product. It takes efforts and you know and sometimes and person meetings and things like that they're troubled restriction that plays and other things. So what what's your expectation of that or is that the same as before and timeline or is that going to potentially get pushed out a little bit or maybe.
Oh are you able to manage these things virtually.
Yes, so scitex a perfect example of one of the businesses that is definitely a little bit more challenged from a because of covered a walk a few reasons. One is on the service side, there's a significant amount of what we do and service and with a customer sites a shutdown we've had to like every other company get creative in terms of being able to do.
Service remotely and actually assist customers are multi on how to do service of instruments. So that's clearly been a challenge. The other piece that's being challenge has been a challenge undersea tech business, especially as we moved and move into Q2 is the a lot of what we do requires a demo.
And so there's definitely been slow down and being able to get demos done that said, we still expect to have a good year.
It probably is going to be closer to that 20% growth than a 25% growth for us and see tech that's probably one of the offsets that we're seeing right now but.
Interest and the technology the activity of the 10 person sales team has been.
Amanda So we think as the as you know countries opened up in June July that second half year should.
Pick up again for Pricy Tech.
Okay. That's helpful. And then I just wanted to clarify and in terms of the proteins guide, but you are now implying does that mean that filtration and chromatography is down the full year in order to reach the full year revenue guide just tell us how should we think about that or what.
Or the opposite to or positive offsets to the upper teens business that is actually doing better here.
Yes, that's not an exact science, but I would say you know the Seatac theres definitely.
To be a small drop off there.
The smaller businesses that we have in our portfolio. So you take 'em spectrum has legacy businesses and lab dialysis care today, that's being challenged simply because that's all research and and into the process of Almond labs.
We have hospital business that also has.
Being a little challenge can these are smaller businesses, but they add up so so those those are offsets against the goodness and proteins I do think that you know in general I'd say chromatography is about the same us where we weren't filtration is probably down.
Three or 4% versus where we thought we were at the at the end of February again, it's more it's not related to the core businesses like 80 effort 10, geninex or the are the main hollow fiber business, it's probably some of the other.
Smaller and smaller product lines, they get loaded into into that total number but in general maybe a small little drop off in a infiltration chrome the same proteins better than we were expecting.
Small drop off on sea Tac, that's kind of the way I look at it.
Okay, great and on gene therapy, I didn't know if you provided this already but what's the mix in terms of the revenue for four coming from gene therapy, obviously habit strong quarter here, what's it's how should we think about the expectation for the rest of the year just sort of given this trend, but you're seeing right now.
Yeah. So gene therapy, obviously Q1, I I don't think they you know our gene therapy accounts were really impacted by Covidien Q1, because by the time really.
Restrictions were put in place in Europe, and and ER and the U.S., you're really dealing with the last couple of weeks to the quarter.
In terms of we Didnt give out any numbers in terms of how gene therapy did in Q1, but were tracking I'm very much inline with where we where last year. It's obviously a significant percentage of our overall business. We're excited about by being able to take.
Carty FDF technology, and bring TFT f. into the gene therapy space. We just had a paper published by Oxford biomedical in the UK, what's some folks on our team.
Around the impact of using to FDF technology, and Lentiviral harvest clarification, Thats really positive and we just expect that Uh huh.
TFT out technology as a technology will we'll see more more applications and more traction on gene therapy space. So we think in gene therapy is gonna be are really important customer base for us for the for foreseeable future. So we're excited about it.
Alright, great Thanks, and congrats again.
Great. Thank you.
Our next question will come from Jacob Johnson with Stephens. Please proceed with your question.
Hey, Thanks, I'd, just kind of big picture, Tony I think going into the year.
You faced a tough comps in the first half kind of it had expected this to be more back half year I just started in the first half a somewhat that.
Proteins being better than expected.
Outside of that dynamic do you think you pulled forward any demand into the first half.
Just trying to be conservative around back half expectation until you had some more visibility.
Yes, so I think first half second half purely at the end of at the end of February we felt that the second half of the or will be stronger than the first the and the majority of that was you know that the thought process and that was really around our proteins business, because we know that they ligand demand as his first top heavy and second.
Light and so we news expected that that's where the biggest impact was going to be now that that's not quite played out that way, mainly driven by by cobot.
We think that we're gonna be closer to being kind of similar in the first half versus second half, but we don't have enough visibility right now so.
We you know we've gone through four months Tyco asked the question about clinical trial impact in the second half of the year I think that's a that's still on you know.
Unanswered question as as we go through the next say two three months. So we're keeping an eye on order run rate, we haven't seen a slowdown in orders through through the end of April but it doesn't mean that you know may June or July that if we start to see any weakness there and so we feel like when we get to the August earnings call.
I'll take a will have a much better sense of you know how Q2 played out what our Q3 order run rate looks like what customers are saying to us about second half of the or whether there is any impact coming from clinical trial delays.
And in late 2020, and so that's kind of why we're keeping guidance where it is and.
We'll have a probably a much better idea when we get to the August timeframe, but second half is going to look like.
Got it and I'm seeing therapy were seeing a lot of viral vector capacity addition announcement.
If your products are going to east network slow just how much visibility or each time, you habit to those sales I guess, maybe to the bigger question being do you have more visibility into the gene therapy catheter based than your traditional biologics that stores.
I don't think the I don't think we have more insight I think a lot of those companies are smaller so they have a one or two products. So you you kinda nowhere, where they're going on the timeframe of what they want to get something accomplished.
But I think our sales sales team our BFS team, which is our sales specialist are really good job of understanding.
What's happening as an account what projects are coming through and that's a real partnership with the customer in terms of getting them the product delivered and the timeframe that they want so yeah, I don't see any increase visibility in gene therapy versus say, a mab I'm up customer.
Got it a I'll leave that they've stayed the question Tony.
Great. Thanks pickup.
Our next question will come from Paul Knight with Janney Montgomery and Scott. Please proceed with your question.
Good morning, Tony and good like Allenby gene and cell therapy market are are you oriented toward academic customers and I know, there's a lot of academic labs shutdowns.
Could you talk to what you're seeing from academia in R&D, a big pieces owns a.
50, or so projects you had last year.
Yeah. So.
The academics academia I would say, it's a small part Paul I'll talk we do we currently work with some of the bigger.
Players that are you know at the forefront of what's going on in cell and gene therapy, but I think the majority, but we do is really with the.
The gene therapy innovators and the and the CD demos that are focused and the gene therapy space. So I would say vast majority of like we're doing there is related to those too and so the impact in a in academia is probably small.
Yeah, Okay, and then I'm alive again market or would you say the initiatives are the changes you've seen in terms of whether it's a new vendors X G.E. or your own projects internally is that both driving that better than expected color or one in particular that you could highlight.
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Yes, so I would say on the on the ligand side.
If you look at Q1, clearly, though we had some late quarter orders that came in.
And product that was shipped four per GE. So that helped but we also saw you know for other two partners or I'm sure light a stronger quarter and so thats related to the activities that they have yeah. We continue to be very pleased with the way our NGL impact a.
Technology has taken off and you know we've talked about that a lot over the last couple of years, but it continues to have good traction in the marketplace and.
That's really the reason why we developed our own portfolio of ligands back two three years ago and expect that at something you'll hear more about as we go through the year on additional products that will be launching.
Okay. Thank you.
Okay.
Our next question will come from Brandon Cooley yard <unk> of Jefferies. Please proceed with your question.
Hey, Thanks, Good morning, I'm, just couple of housekeeping questions for John you shared the <unk> revenues accounted for the direct product in the first quarter and any color on the relative growth rates of the sub segments kinda between filtration biography proteins in terms of which performed above or below kind of a 16% core growth overall.
No.
Yeah, Brandon I think on the.
The overall percentage its you know in line with our.
With our desires to get up to that 80 20.
Direct to too.
Oh, Yeah, I'm a ratio so between 75 and 80% for the quarter.
As is where we're at I would say in terms of the overall businesses as we guided at the beginning of the year.
You can see that.
All of our direct businesses performed well and as well as the OEM business for us So I'm not a lot of other color that we're not we're providing today on that yeah, and maybe printed on the protein side clearly.
We had positive growth and that that was probably the big win for us and the first quarter and it was Oh, it was high single digit growth or for proteins.
And then Tony change to your capacity expansion plans for the year, particularly offensive opus manufacturing into Europe, and maybe this year.
Yeah, I mean, the capacity expansion plans. That's that's clearly you know where were tracking to the plan that we put in place back at the beginning of the year, but I would not be surprised at all if we see a couple of months to three month delays and any of these programs that simply because you take the European work.
We're doing in on Opus.
Thats happening in Holland and so.
People aren't able to go out and work right at the moment, So that's where we're in an engineering phase and the design phase. So a lot of the work that we need to get done is is actually paperwork snow building, but I think yeah. We're trying we're pushing hard to stay to the planned but it wouldn't be surprised were off by a couple of months.
Very good thank you.
Our next question will come from Matt Hewitt, Craig Hallum Capital Group. Please proceed with your question.
Good morning, and thank you for taking the questions.
Maybe just a couple from me what percentage of your business, maybe exiting last year was attributable to attributable to vaccines.
Where does that sit maybe now and do you believe that this increase is durable.
Yeah on the vaccine side I don't have the exact percent map, but I would have like my guess is probably in that 5% to 10% range somewhere somewhere in that in that range and so anything that we would pick up let's say from coal that on the vaccine side in 2020 is gonna be.
Relatively small just because a lot of those trials our phase one trials, but if any of those continue to move through into phase two in phase. Three then obviously it'll be a meaningful pickup for us.
Okay, Great and then maybe just a tag on to the last question <unk> a minute ago.
With <unk> with some of your expansion plans in Holland and whatnot.
If the travel restrictions stay in place <unk>. Our <unk> are you considered an essential business that maybe you would still be allowed to visit some of these international opera markets or do those travel restrictions even for prevent someone like you from being able to get out in either me with.
Customers or is it your own sites. Thank you.
Yeah on the customer visitation piece I the way I look at it is I think we're going to be regionally based in terms of how we looked at customers right. We have a a really good strong European commercial organization. So those guys are going to look after.
Basically the our European customers I don't think Theres, a need for me or others on the leadership team to get on a plane and had over to Europe right. Now I think we found over the last two months that zoom.
<unk> has been very effective and being able to conduct meetings.
Other its internal meetings or meetings with customers. So thats working and I can imagine that you'll see probably a lot more.
Up using that technology as we move forward when it comes to building out and doing capacity expansions. We also you know you don't do they expansion plans with just replicant employees driving it. So we have engineering firms that are based in Holland that are really driving the vast.
Majority of that so it's really the project oversight, where you may have some individuals going back and forth. So we're going to pay attention to the lifting of restrictions a you know when travel between continents is going to be opened up again, I think we have enough tools, Matt in terms of the.
Zoom technology, you know the the Microsoft technology that we can.
Got any customer related meetings done without having to jump on a plane.
That's great. Thank you.
Our final question today will come from Ram Selvaraju H.C. Wainwright. Please proceed with your question.
Hi, Thanks very much for taking my question I was just wondering if you could enumerate on the 2020 product launches that are still to come regarding specifically in what part of the remainder of the year you expect them to occur. Please.
Yeah no problem. So the first product launch was really the flat sheet to set a demo radiator technology, which launched in in Q1, a hearing Q2 expect to see our bench top TFT F. a system.
Be fully commercially launched a we've been obviously manufacturing and shipping those too early early sort of alpha beta sites, but in Q2 that'll happen right on the sort of the ended Q2, beginning in Q3 expect the.
Hey, TF Nexgen controller again, we are working with a bunch customers on the so it's not it's not something where we're shifting the first unit.
The ended the quarter beginning of next quarter I expect that in the second half of the year with no no no real sort of time timeline on the right now the second half of the are probably in the fourth quarter next gen flow and and any technology might see from us on on the Lincoln side.
And also I wanted to ask if you could elaborate on the specific advantages of the gamma radiated concepts.
Particularly within the context of gene therapy product manufacturing.
Yeah. It's it's it's really straightforward, it's around or having a at close system that as gamma radiated and start all purses not that's really the advantage.
Okay and then this is more of a nuance situation. The T.S.P.S. long term for costs could you maybe talk a little bit about whether you expect those to be meaningfully impacted if you start to see people switch to non viral lead trends do you sell.
Therapy manufacturing methodology.
Right and I think if you look at Ti FDF. The when we started the year out we were at you know in that $1 million to $2 million range in revenue coming from the technology. We expect that that's exactly where it will end up remember the majority of what we're doing right now is really in that show and the chose space. So I think.
It's really going to be the major driver for US. We've just started to move into the the lentiviral and viral vectors side. So we'll see how that plays out over the next six to 12 months.
You know like everybody else, if there is new technology.
That hits the market, then obviously will be well be able to react to adjust accordingly. So for US you know, we're really focused on the very upfront parts of the of the workflow and and so far you know the technology has performed the way we expected and we're expanding the applications that are a real hope hope is that you know its.
Not about just one application or two applications, we think they'll be a lot more applications for the technology. So at one one application area might might flatten out we think there'll be others that will pick up the slack and we expect this would be a really important technology for us going forward.
And just very quickly do you think that there's likely maybe qualitatively you could comment on opportunistic situations that are emerging in the week of the Kogut 19 pandemic for you either on the M&A side or potentially on the technology platform in licensing side.
Yeah, I think it's probably a little early on the on the on the wake side, but I do think that yeah.
You know even just on M&A, we you know, where we don't think about M&A and 2020 any differently than we thought about M&A in 2019. So we have our company. So we like where obviously all of us talking to various a number of companies in any given quarter any given year. So I don't expect it to change.
But you never know right when it comes to as you said post covert or whatever between phase one phase two or wave one and wave two there may be some opportunities and I think replica is well positioned in terms of cash on hand that if we need to go and execute on something we can.
Great. Thanks, and congratulations on a very solid first quarter.
Great. Thanks.
Thank you. This concludes our question and answer session I would now like to turn the conference back over to Tony <unk>, President and CEO for any closing remarks.
Yeah, just like to thank everybody for joining us today, obviously challenging times for a lot of company. So hopefully from we all got to August as a brighter future for everyone, but again, thanks for joining and touch you guys in a few months.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.
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