Q2 2020 Repligen Corp Earnings Call
Good day and welcome to the religion, 2022nd quarter Conference Golden webcast.
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Now I'd like to turn the conference over to me Sondra Newman head of Investor Relations. Please go ahead.
Great. Good morning. Thank you all for joining our Q2 earnings call.
Today will be covering financial results in business highlights for the three and six month period ended June Thirtyth 2020, well also provide revised financial guidance for the full year, President and CEO, Tony Hunt well 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 risks related to our business is included in our annual report.
<unk> form 10-K, our quarterly reports on form 10-Q. The current report on form 8-K, which we filed this morning 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 or commit itself.
Update forward looking statements, except as required by law.
During this call, we're 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 replicate in web site and on FCC dotcom.
Non-GAAP figures in today's report include the following revenue growth at constant currency gross profit gross margin operating expenses, including R&D and <unk> operating income and operating margin income tax expense net income and earnings per share as well as EBITDA and it.
Adjusted EBITDA.
These adjusted financial measures should not be viewed as an alternative to gap, but are intended to better enable investors to benchmark Replicants current results against historical performance and not appear with that I'll turn the call over to Tony Huh.
Hi, Thank you sound right and good morning, everyone and welcome to our Q2 earnings call.
As discussed during our Q1 call. It continues to be a challenging time for global workforce as we focus our priorities on ensuring employee and family health and safety, keeping our manufacturing sites operational and managing supply chain and logistics.
We are not more than five months after the call that 19 pandemic, which has pushed us to be creative in how we think plan and execute on our overall this that strategy.
I could not be more proud of what we've been able to accomplish our whole organization has done a remarkable job keeping us operating at full capacity delivering products on time to our customers, including rapid response deliveries to customers are developing drugs vaccines and diagnostics targeting over 19.
Our results for the second quarter answer the first half the 2020 of being stellar we delivered overall revenue growth of 25%.
Leading organic growth, 19% in the second quarter, despite really tough comps with Q2 of 29 seen being our strongest quarter last year, where we had organic growth of 46%.
All of our businesses continued to perform well with very strong order demand for direct product lines, which were up about 40% in the quarter.
The ramp up in orders is broad based with contributions from existing map and gene therapy accounts.
In particular from customers working on the development of vaccines and therapeutics for covenant on team.
We estimate that about 75% of our revenue beat in the quarter related to hold the demand with proteins being a major driver.
Gene therapy related demand also remains strong we now expect gene therapy revenue to grow by 30% to 40% and 2020.
We expect our direct revenues in the second half of 2020, well accelerate further as many of our customers get back to pull manufacturing and keep biopharm CDMO ramp up manufacturing capacity for covert programs.
Based on this momentum, we're increasing our revenue guidance by 22 million at the midpoint for the year, which includes three and a half to 4 million from our recent acquisition of engineered molding technology are empty.
We expect second half of 2020 revenue to be generally balanced across the two quarters. We're also increasing our guidance on gross and operating margins are raising adjusted EPS by 15 cents at the midpoint of our guide.
Okay.
Before jumping into the quarterly results I want to spend a few moments on the acquisition of B and C. Underperformance subsea technologies at one year post acquisition.
We are delighted to have completed the M.T. deal, which gives us core competency and silicone extrusion and molding strengthens our supply chain for single use components.
Our goal over the next six to 12 months, it's built out empties commercial structure expand our core OEM and direct customer base and finally develop new products that integrate into our single use Paul assemblies infiltration.
We expect M.T. to grow at 25% plus over the coming years, as we complete integration and execute on our overall central your strategy.
On the C technologies front, it's been a great first year for the business on team.
Core to our analytics strategy is the expansion off the commercial organization to help broaden the customer base on going direct in Europe and Asia.
With a full complement of salespeople since the beginning of the year, we've been able to build up a deep funnel of opportunities, especially in Q2, which resulted in a 29% you're on your pro forma revenue growth in the quarter, 26% for the first top 2020.
The analytics team and Bridgewater also has expanded the applications for BP technology.
Up until now the success of solo on flow VP products has been primarily centered on protein concentration measurement and biological drug manufacturing.
Now the applications are expanding and we're confident that BP technology can be applied to into gene therapy processes.
As mentioned during our Q1 call we observed some challenges for analytics, especially in the area of on site service and support a pharma accounts due to cold it.
While many of these challenges still exist our service organization has skillfully manage through the last four months on our expectation is that Seatac will deliver 32 million this year inline with our guidance back in February.
Adoption of flow VP is beginning to accelerate with multiple customers working to implement this technology and clinical processes.
What's next Gen flow BP ready to launch by the end of the year. We're in a very strong position to further accelerate to see tech business and 2021.
So jumping now to Q2, an overall performance by product lines.
Our proteins business had an excellent quarter driven by increased orders from site chief of for Lincolns, a multi core set up for growth factors.
The additional demand from coal with customers for Lincolns combined with a strong growth factor quarter resulted in organic growth of greater than 10% in the quarter at sort of the first half of 2020.
True to historical performance, we expect proteins revenue to be more heavily weighted to the first half of the year similar to what we saw in 2019.
For the full here, we're increasing our expectations and guiding now to the high end of 5% to 10% organic growth for this business and 2020.
Our filtration business had another outstanding quarter with our hollow fiber franchise, leading the way.
We saw strong demand for highly qualified for modules assemblies on systems with revenue up greater than 30% year over year.
Our flashy cassette business also performed very well with important contributions from gene therapy accounts.
Finally, the single USEC, Sally Ts business continues to grow and expand as lead times have come down significantly and new accounts have adopted the technology.
Looking ahead, we expect dates you have to have a very strong second half as large implementations are on track over the next few months.
Regionally focused asiapac in Europe has excellent filtration quarters, what the Asia bouncing back to deliver greater than 60% year over year growth. After the challenges in Q1 two to covert.
Finally from an orders perspective, we benefited in the quarter from customers ramping up their activity uncovered programs, which will drive an overall strong second half for our filtration business. We expect we expect filtration will now growth, 25% to 30% and 2020.
Our chromatography business had a solid second quarter led by Opus pre packed columns demands for our mid mid range comps increased significantly as lead times have come down here in 2020 stemming from capacity investments we made in late 2019.
While we did see suncoke with orders in the quarter. The majority of Opus growth came from large pharma gene therapy accounts.
We continue to expect our chromatography business to deliver 15% to 20% growth and 2020.
As discussed on previous calls we've made key investments in our manufacturing capacity over the last 18 months, what the focus on Opus and AG up.
Given the acceleration we're seeing in demand will be spending an additional 10 million for a total of 30 to 32 million in Capex programs. This year.
Focus of this additional investment will be our filtration business as we wrap up capacity across our network.
From an R&D perspective, we are on track to launch five new products here in 2020.
Todays we've launched two with the introduction of our time Jack's Gallacher subs.
Cross flow TFT up systems.
In the second half, we will launch our XL HCS lap controller, new affinity ligands on the next generation flow VP.
As a reminder, our galaxy assess allow us to serve viral vector manufacturing TFT up as a disruptive technology for upstream harvest clarification. Our next Gen HF controller adds flexibility, including multiplexing capability and the new flow VP will simplify inline real time measurement.
Our customers.
So in summary, we've had an excellent start to the year, we've delivered on our financial goals execute on on an apartment acquisition that strengthens our single use portfolio, we've invested in people and infrastructure to scale, our company and introduce exciting new products to improve the process manufacturing biological drugs.
With a healthy balance sheet, we're well positioned to execute on our blueprint for growth, which remain centered on technology leadership and bioprocessing through internal development and M&A with that I'll turn the call over to John for financial update.
Thank you Tony and good morning, everyone.
Today, we are reporting our financial results for the second quarter of 2020, as well as updating our financial guidance for the year.
Unless otherwise mentioned all financial measures discussed reflect adjusted non-GAAP measures.
As you've seen in our press release. This morning, we delivered record quarterly revenue and strong earnings growth in the second quarter benefiting from overall market strength and increased demand related to cobot programs.
In step with our longtime strategy of driving growth through innovation, we proceeded to develop and launch new products through R&D in the second quarter, and we announced an absence completed our acquisition of the empty.
The financial impacts of the acquisition, which closed in July are included in todays updated financial guidance for 2020.
Now moving to more specifics on our second quarter financial results.
On our topline inclusive of Tailwinds covert 19, we delivered record revenue of 87.5 million, representing 24% reported growth and 19% organic growth.
All four of our product franchises continue to perform very well with each generating double digit growth in the quarter.
Within these growth figures, we realized approximately six points of non organic growth from Marci technologies business and nearly one point of foreign currency headwind in the quarter.
Overall in the second quarter, we achieved a 12% consensus beat on revenue and we estimate that cobot 19 related projects contributed approximately 9% of this overdrive.
With our proteins and filtration franchise is driving the majority of cobot related revenue gains.
Our overall revenue for the first half was up 2020 was 163.6 million representing growth of 25% as reported and 17% organic.
On a regional basis strengthened Asia was the highlight of the second quarter with pro forma direct pro forma revenue growth of greater than 60%.
Asia was also the strongest performer in terms of growth for the first half of 2020 with pro forma revenue growth in excess of 40%.
On a year to date basis, North America represented approximately 53% of direct product revenue with Europe, and Asia accounting for 29% and 18% respectively.
Based on market strengthen our strong order load from the first half of the year. We continue to expect strong revenue performance in the second half of 2020 from each of our direct product franchises.
We now expect our filtration franchise to deliver organic growth in the range of 25% to 30% chromatography products to achieve 15% to 20% to organic growth and our process analytics franchise to achieve 32 million or 25% pro forma growth for the year.
In addition, we now expect our proteins franchise to finish the year towards the high end of 5% to 10% organic growth a significant increase from our previous guidance of minus 5% to 7%.
In terms of revenue phasing for a proteins business, we estimate that 55% to 60% of this revenue has shipped in the first half of the year, leaving 40% to 45% of revenue remaining to shift in the second half.
Now moving down or income statement.
Adjusted gross profit was 50.9 million in the second quarter of 2020, reflecting an increase of 9.5 million or 23% over the second quarter of 2019.
Our second quarter 2020, adjusted gross margin was 58.2%, reflecting a strong performance driven by robust sales volumes productivity programs and favorable mix, including strong proteins revenue and opus column to resin mix in our chromatography franchise.
Based on continued strength.
Of our second quarter adjusted gross margin performance the healthy view of our order book moving into the second half of the year and the strength of our productivity programs, we're tightening our gross margin guidance to 56.5% to 57% for the year.
Adjusted gross margins were 58.3% for the first half of 2020.
Similar to the trend we experienced in 2019, we expect a reduction of second half gross margin levels of approximately 300 basis points based on increased investments, we're making and manufacturing capacity in personnel to support higher long term growth expectations.
With respect to operating expenses adjusted research and development costs for the second quarter of 2020 were 4.1 million compared to 5.1 million for the second quarter of 2019.
R&D expenses finished the first half of the EUR, 5.2% of revenue and we expect a meaningful increase in the second half of the year as we continue to work through key product launches.
We expect overall R&D spend to be in the range of 6% to 6.5% of revenue for the full year.
Adjusted SGN eight costs for the second quarter of 2020, or 21.2 million compared to 16.2 million for the second quarter of 2018.
The year over year increase of 5 million supported investments made in.
In 2019 to build out customer facing teams as well as ongoing investments in capacity operating infrastructure and IP systems to support growth and inclusion of a full quarter of expenses from sea technologies, which we acquired on May 30, Onest 2019.
Now shifting to earnings and EPS.
Adjusted operating income for the second quarter of 2020 was 25.5 million an increase of 27% compared to 20.1 million reported in the second quarter of 2019.
Operating margin expanded to 29.2% compared to 28.4% in the second quarter of 2019.
Based on our strong performance, we're raising our full year adjusted operating margin guidance by 100 basis points to 24% to 25%.
Our first half a 2020 adjusted operating margin was 26.8%.
Similar to our trend in 2019, we plan to make significant capacity and personnel investments in the second half of this year to support anticipated market demand.
We are projecting an approximate 400 basis point reduction in adjusted operating margin for the second half 2020. This assumption is included in our guidance increase for the year.
On the bottom line.
On the bottom line excuse me adjusted net income for the second quarter of 2020 was 22.5 million a year over year increase of 6.3 million or 39%.
Net income also benefited from a lower than normal adjusted income tax rate of 9.1% related to the impact of incentive stock transactions.
Finally, adjusted EPS increased to 42 cents per fully diluted share in the second quarter of 2020.
An increase of 30% compared to 33 cents reported in the second quarter of 2019.
Our cash and cash equivalents, which are GAAP metrics totaled 560.4 million at June Thirtyth 2020, an increase of 32 million compared to year end 2019.
This does not include empty acquisition costs.
For the first half of 2020, we generated free cash flow of 19.4 million inclusive of 30.9 million of operating cash flow plus 11.5 million of capital expenditures.
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 non-GAAP.
Please also keep in mind that our 2020 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of net zero impact on full year sales.
Our guidance does include the impact of our empty acquisition for the second half for the year, but does not include the potential impact of any future acquisitions at the company may pursue.
Today in recognition of our strong bioprocessing market and operational execution as well as our acquisition of BMT, we're raising our 2020 full year revenue guidance, a GAAP metric by 22 million that midpoint to 332 to 340 million.
Reflecting growth in the range of 23% to 26% as reported and 18% to 21% on an organic basis.
As I mentioned earlier, we're tightening the range of our adjusted gross margin guidance for 2020 to 56.5% to 57% to the upper end of our previous guidance of 50, 657%.
We are increasing or adjusted operating margin guidance to a range of 81 to 84 million up 8.5 million at midpoint from our prior range of 72 to 76 million.
As mentioned this expands our adjusted operating margin guidance by 100 basis points to the range of 24% to 25%.
Adjusted other income and expense is expected to be zero.
Production of 1 million of income for our previous guidance.
This update is based on continued declines in interest rates on our invested cash and second quarter transactional foreign exchange exposure and curve.
Moving to tax.
We are reversing our 2020 full year adjusted income tax rate guidance to approximately 18% down from our previous guidance of 20% to reflect second quarter benefits realized from stock exercises.
This guidance assumes an effective rate of 25% for the second half of the year and does not consider the potential impact of additional employee stock transactions, which we expect to be significantly lower in the second half of the year compared to the first half.
We are increasing our full year 2020, adjusted net income guidance to a range of 66 to 69 million up 8 million at midpoint compared to our previous guidance.
In turn we're also increasing our adjusted EPS guidance to a range of $1.24 cents to one dollar and 29 cents per fully diluted share up 15 cents at midpoint from our prior guidance.
Our guidance continues to reflect an estimated 53.4 million average fully diluted shares outstanding for the full year.
Finally, we're increasing our adjusted EBITDA guidance by 8 million at midpoint to a range of 91 to 94 million for full year 2020, with depreciation and intangible amortization expense is expected to be approximately 10.7 million and 15.7 million respectively.
With respect to capital expenditures the company now expects to invest 30 to 32 million for 2020, an increase of $10 million from prior guidance.
Inclusive of our empty acquisition, we expect yearend cash and cash equivalents, a GAAP metric to be in the range of 560 to 570 million with our Capex investments being fully funded by cash generation from our operations.
This completes our financial report and guidance update and I will now turn the call back to the operator to open the lines for questions.
We will now begin the question answer session to ask a question. You May proceed Star then one on your Touchtone phone.
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This time, we will pause momentarily to assemble a roster.
First question is from the line of done already asked with Stifel. Please go ahead.
Hi, Good morning, guys. Thanks for taking the questions here Tony can you just add some color to the Cobi cobot vaccine opportunity and the way that that shaping up just in terms of buying patterns I mean, obviously the pace.
Of development here, and just kind of pretty amazing. So how is that translated to purchasing ahead of assumed campaign advancement. How is the demand here different or the same as traditional non crisis related vaccine programs and then what kind of visibility do you have when it comes at the next several quarters here.
Sure.
Okay. Thanks, Stan I, so maybe I'll split the split the question up into two parts I'll tell you what's happened in Q2 I'll tell you what is going on in the second half of the year and I'll give you visibility to kind of what we know as we sort of finish off 2020 and go into 2021.
So what's interesting about coal that is I mean, it is unique me you listen to all the other companies who are involved in this and the pace that companies are moving at his tremendous the demand is high so I would say our Q2.
Really accelerated based on when we finished Q1 and we gave we did our earnings call in May we talked a little bit about the fact that we had seen a ramp up in our orders for our protein a ligands, which was coming from site.
So we knew that was going to materialize in Q2.
Which was all covert driven.
And that's what happened on top of that there was some extra orders that came into or towards the end of the quarter.
In addition, what we saw across the rest of our product lines was as the companies. We were working with started to ramp up and and move into phase one and phase two type trials in the quarter. There were smaller orders that we deliver Don in our filtration and in our chromatography business as an analog.
Our next as well so right across the board there is demand for all our products, let's say the majority of the beat in Q2 really came from the protein side of equation. When you get into the second half of the year, that's going to change we saw significant orders come in in in Q2.
The second half of the year for coverage related programs and those orders were going to be delivering on here in Q3 and in Q4 in terms of our visibility I think our visibility goes out to the end of the year with some early handset Q1 of 2021, but our expectation.
Is that if these companies continue to scale and move forward.
And we remain in those and those opportunities that clearly this is something that is going to.
Moved through all of 2021 and probably beyond in terms of your last part of your question.
Around.
How different is this versus a non pandemic.
I personally haven't come across anything quite like this I think the demands are high you've got a lot of companies working and racing to get to vaccines. You've also got companies working on therapeutic programs. So it really has turned into a market.
[music].
By itself right now and so a lot of companies have have changed their programs and focused a lot at their capacity on covenant. So that's also driven a lot of the a lot of the activity in the demand. So hopefully that Dan gives you some color.
Either Dan.
Oh, yes, sorry, I put you back on mute there because my.
On the other side of the coin with with monoclonal antibody production for coated how does that figure into things I mean, our tally we get there are 50 or 60 of each of these.
Programs that are ongoing.
And it sounds like the opinion from some in the clinical community.
That the role here might be preventative, whereas the treatment until a vaccine arise but it also felt like some of the comments that you made in the spring kind of had you thinking that this would be a wave behind vaccines just given the pace at the vaccines were on so what is the current thought on just how you see scale up activity for the Mabs from a timing perspective relative to what you're seeing.
For the vaccine definitely yes, we're definitely working what companies on the map side and clearly there are some.
Groups that are moving fairly quickly.
I think from at least Fuck were involved in I would say that vaccines are moving at a very rapid pace and I do think that as we get into the second half of the year, we will see more activity on the map side, but thats just a rough lajeune view, that's not a view.
I'm not trying to make that to be a a global do that's just what we're saying.
Got it okay, if I could sneak one more in for John John just on the guidance for the year, how much of the topline increase is due to empty versus just a better view on organic and then on the outlook for the balance of the year. When you look at Threeq and Fourq you.
Kind of being similar I'm, just curious why the nature of this scale up in development and production wouldn't sort of lend itself.
To Fourq, you being a little bit higher than Threeq, you is there something discrete bear that you're thinking about or is it.
More than just Thats, a prudent way to looking at the back at at this point.
Yeah sure. So I'll start with the Mt question, we've included about three and a half to $4 million in the second half.
PMT in terms of revenue so.
Covers that question and then the second question is why don't we see I think margin expansion in Q4 versus Q3.
As we look at our second half I think Tony mentioned the revenue levels are fairly linear through Q3 in Q4 and.
Equal levels that between the two quarters so.
That that coupled with the fact that were significantly adding.
Human resources and capacity costs will be ramping up on travel costs back in the second half of the year at least our expectation more visits to customers and things of that nature. So if you look at all those things combined.
Thats dropping down gross margins here in the second half and.
And probably dropping gross gross and operating margins more significantly in Q4 of them there in Q3.
Because I was actually referring that that is in itself helpful. But I was actually referring to the top line and why Fourq you would naturally be a little bit higher than Threeq you just given that your that much farther along on this stuff that's being done.
Yes, I mean based on just based on.
On what our or looks like right now and the deliveries based on what we're seeing.
We think it's fairly linear and and remember.
We do have a pretty meaningful.
Drop from one to age two and our proteins business, which is also giving us some headwind there that we have to make up with with direct products, maybe down one final comment on that I mean, we're we're basing but we know on obviously what happened in Q2 with the order jump up so as we go through Q3.
There could be other companies that are going to start to scale that could could push Q4 to be a higher quarter than Q3, but right now they look pretty.
Yes, Thats fair, Okay. Thanks, a bunch.
Okay.
Operator would you take the next question. Please. The next question is from the Atlanta, Puneet Souda Weve SVB Leerink. Please go ahead.
Yes, Hi, Tony John Thanks.
First on first of all congrats on a really strong quarter here versus the very tough compare.
So the first one on vaccines is still just wanted to understand if you could.
Factorized, we're seeing on the order of magnitude sort of 200 plus different projects out there anything you can provide in terms of number of cobot vaccine projects.
You are levered to obviously youre getting levered to at different stages of those project those projects are maturing.
And if you could also characterize for us if the 75% of the growth that you mentioned, but that number go even higher as sort of percentage growth and the second half.
And also on that point was Asia, driven more by maps are gene therapy or vaccines, if you could elaborate a bit there to that'd be helpful.
Okay. So on the covert side to need.
I think were unlike maybe some of the bigger players.
In the industry that fairly touch almost every.
Vaccine therapeutic that Thats happening I think revpor Gen.
We are a little bit more.
Tied to those companies that we've been working with four for the last number of years. So we're in.
Yes significant number of programs in both vaccine and and therapeutics and it spans North America, Europe and Asia. So it's not just centered in one region were really across all regions. So that's very encouraging there continues to be active.
The going on in covert square.
Companies are.
Maybe later than some of the big guys in terms of moving forward, but there is definitely signs that.
Other companies are beginning to scale and we'll see what the impact of that is and the second half of the year.
In terms of growth.
There couldn't theres definitely the potential to be upside.
And it will come from I think.
What happens to the companies that are scaling do they moved through phase two into phase three.
How that plays out over the next six to nine months and obviously that other companies that are at the very early stages as they move through so they would be the areas, where we would expect to see.
Potential upside in the second half of the year, but we think in general the most of our second half piece is really coming from covered.
Pretty much all our other product lines are moving in the direction, we were expecting them to move at the beginning of the year and if you look at filtration is doing very well our chromatography products are doing while sea Tac as you could see from Mike earlier comments is doing very well and our proteins business has obviously been.
In.
Our real surprise for us versus where we were expecting it to be at the beginning of the year and again thats, mainly driven by covered and then the final part of your question, which was on Asia.
Asia I would say is as knobs biosimilar as there is definitely code activity going on so.
Maybe a small amount of gene therapy, not not a huge amount for us in Asia, right now, but I would say mobs and.
And cobot or the major drivers and after a pretty slow start to the year, which was not unexpected given China shutdown for essentially March and April it's incredibly encouraging to see.
Asia bounce back.
With that with a great Q2, and actually turns out you know one for Asia actually is.
The highest growth as John pointed out.
In all regions, obviously, our office much smaller base than North America in Europe.
Okay. That's that's super helpful.
If I could also asking on the second half.
And the visibility that you have in the order book and the lead times that you're currently seeing.
If you could some companies that quantify some of the peers have quantified. This order book is that something you can quantify in terms of the growth you're seeing year over year and then in terms of the on the capacity and we're seeing that the lead times are six to 12 weeks and some of your products accelerates yet.
We cross flow TFT at 12 weeks or so in process development. So just wondering if those are within the norm. So are there any some capacity constrains here.
With the strong growing demand.
Yes, maybe start with the capacity part of the question I think our lead times are.
No no different on our filtration products than they were.
Maybe a year ago or two years ago, I think we've improved our ATM lead times down significantly with the investments we made last year on the chromatography side. Obviously, we had very long lead times on Opus a year ago. We've made some significant investments and brought those lead times down to very reasonable number of weeks, depending on the size of columns. So people.
I want to order.
Filtration side, clearly strong demand that's coming from cobot, we're investing we're adding lots of people.
In basically our east coast in West Coast filtration sites.
We're increasing our capex investment to bring in additional equipment as we think through where we want to be in 2021 and 2022. So our our capex investments are with a 2021 2022 mindset not are not really a 2020 mindset. The people pieces 2020 going into 2021.
And remind me the first top of the question again Cooney the or the quantification on the order book could.
Yes, so so I don't have the exact numbers, but ballpark if you look at our.
40%.
The increase in orders on the direct portfolio, probably 40% to 50% of those orders were covered related.
So we have very strong order book going into Q3 into the second half some companies have placed orders all the way out to the ended the year.
There is have place that through Q3 on im referring to coated the rest is very similar to what we see.
With our with our typical customers in terms of hasn't place orders there typically placing orders two to three months out.
I think the only other comment I would make on the order side is that we are really strong order book and Q2 as well for our.
For fusion product line AOCF on so thats going to lead to a very strong second half radio.
That's great. Thank you and congrats again.
Thank you.
Our next question is from Atlanta for Tyco Peter Please go ahead.
Hey, Thanks, another cobot related questions you, Tony just curious about the degrees of tailwinds across the portfolio wire protein infiltration benefiting more than chromatography now and how do you see that mix shift evolving as some of these trials scale up and are you skewed to improve at any particular type of vaccine platform.
Yes, good question I think the.
Proteins is pretty clear right, it's really driven by the protein a ligands demands freight and so we know that there was some stockpiling that went on in Q1 in Q2, and we know that the therapeutic protein.
Opportunities as people scale those up are driving demand on the on the like inside so thats kind of the major driver.
We did see on the protein side less for is not really related to covert, but just very strong growth factor demand through the first half of the year.
On the slight filtration proteins versus say chromatography, I think the differences that when you look at our filtration portfolio. We have flat sheet concepts, we have hollow fiber membranes. We have the single use assemblies like pro Connex, we have the TFS skid systems, we have a very broad portfolio of products and when you look at our chromatography.
Portfolio, it's essentially one product line its opus and so we are seeing demand for.
Pre packed columns going into cobot programs be Ed vaccine are.
Therapeutic program. So it is happening it's just that you kind of have for product lines infiltration and we have one major product line in chromatography and the same thing is is true around or analytics business, where our seatac sold on flow Vps are also seeing.
I'd around meeting instrumentation for covert programs, but again, it's one product line, that's kind of the reason tyco that it's more skewed towards filtration, we have kind of four product lines buried in our filtration portfolio.
Okay, and then in terms of being skewed toward any particular type of vaccine program is there any any nuances there I assume maybe less marinade, but just any color you can provide there on the types of programs.
No I think it's across the board I don't think Theres anything that I think our portfolio is really suited to both protein based.
Bugs on to R&D based drug so there's no no differentiation for us.
And then if I go back to last quarter. You know there was a fair amount of talk on clinical trial delays. Obviously two thirds. Your businesses is kind of exposed on the clinical side can you just talk about where you see the resurgence of clinical trials at this point.
And any risks in the back half of the Airways kind of clinic flaring up in some of these markets that trials could could get pushed out again.
Yes, I think I think that yes, clearly some of the big players have have.
Regional their schedules and put a lot of effort into the cobot programs I, we're probably not the best company to comment on where clinical trials are I think the CD ammos on the large pharma guys are going to probably have a lot more insight, but we haven't seen any slowdown in.
In order demand for our major product lines for Noncovered related activities. So gene therapy is probably a good one tyco you think about.
We started the year, saying gene therapy will grow by 30%. We think we're now going to be more like 30% to 40% on gene therapy. It doesn't mean that some of those trials haven't been delayed but I think the overall.
Market is very healthy and we havent seen any.
Slowdown in.
In order demand outside coated.
And that's kind of probably our leading indicator as opposed to we don't spend a whole life time looking to see which companies are slowing down on clinical trials as more looking at our order book and how that looks for the second half of the year.
And then that is a good precursor to my last question on gene therapy. Obviously, you took up the growth rate there what do you see that going I guess from kind of mix perspective over the next year or two and then can you talk to investments, you're making to kind of scale up that business a little faster.
Yes, so the good news on the on the on the scale up of the business and the investments we're making it is all of our so all the products were using today that are going into map processes are going into gene therapy, now I would say where supplementing our existing portfolio of products with products that are even more.
More suited to gene therapy applications like our T. FDF technology, we think has as a Hugh will have a huge impact in.
On the upstream side of up gene therapy on the viral vectors side, so thats going to be very very positive. We think that there is upside in our see technologies business, where we put a focus on really looking to see how you can use this technology.
In gene therapy, So we're close to being able to rollout some applications that we think will be fairly unique for us. So there are there areas, where we see some upside I don't think we have to do anything different beyond making sure that from a capacity point of view that we can stay ahead of demand.
So whether its end Mabs Biosimilar is KOVA gene therapy, and as I may have mentioned on prior calls we havent dedicated team now and the company. That's that's that's really focused on the gene therapy market and Thats really helping our commercial organization, that's helping our field applications piece and it's also helping our customers because these these into.
Vigilance are more expert in in the viral vectors side of gene therapy than say the the regular.
Sales team.
Great. Thanks for the color and congrats again on the core.
Thank you.
The next question is phenomenon of Gen. Jacob Johnson with Stephens. Please go ahead.
Hey, Thanks for taking the question I guess first Tony if I remember correctly I think.
Spectrums customer base included a pretty significant amount of vaccine work as we look into the second half is this kind of where you're seeing the most activity in terms of filtration sales into the vaccine worked.
Yes, no it's across the board Jacob.
All all our filtration products are being used in vaccine and and in the mab processes. So.
It's not it's not just our fiber portfolio. It's our it's our flaxseed, it's our ATM products, all and it's our systems. So all of our all of our products are being used which is really encouraging.
Got it and then from everybody who is reported so far this quarter it seems like.
The Bioprocessing markets really strong right now it seems like a lot of that in the near term is a bit 19 related activity, but can you expand on the growth you're seeing in monoclonal antibodies and the need regarding kind of touched on cell and gene therapy.
Yes, the mob markets are still.
Doing well so when you think about the portfolio of products that we have whether it's our pre packed columns. It's our.
Jeff systems, which go into perfusion processes.
A lot of wherever we are on our last call we talked a little bit about there was some push out of our projects that went from Q2 into Q3, so that actually happened and so we're seeing all of those projects that were delayed by a few months because of companies closing or are going to.
Very small workforce, that's coming back and so we see a very strong second half of the year for for our ATM product line. So I think than the map market is healthy I think the hard piece to gauge is within the big biotech CDMO is how much capacity is being diverted over to covert related activities and how does.
That impact say, the mab recombinant protein.
Programs that would have been Ron So I think between the combination of co bid.
The strength in gene therapy, and solid performance on the mob side.
It it's played out quite well for replication.
Yes, I'll leave it there thanks for taking the questions.
No problem.
Next question is on the line of John Craig.
Im Blair. Please go ahead.
Thanks, very much I, Tony could you remind us in a normal year, what percentage of your order flow would be vaccine related and what you think that percentage will likely end up to be this year.
Yes, so I'm not going to be able to answer the second part of the question because I just don't know the number but typically it would be like 5% to 10% would be the normal percent and I.
I think the best way would be I think around 5% of our total revenue in 2020 will be code. So that would be therapeutics diagnostics vaccines. So we're probably adding about I can't say, it's all vaccines, because it's not but if you view.
Think about the impact coveted were probably adding another five points of growth on to hunt.
5% of our revenues going to come from from those programs.
Hopefully that gives you a bridge it does thank you.
Sounds like China, and Asia did did very well would you say that's kinda back to normal or is it still in recovery mode. At this point.
I definitely think it's back back to know about Theres no. One this really back to normal, but it's it's back to normal as past two can you can expect and there's a lot of activity going on in China in Korea in Japan, and India, India has been a little slow rate I mean, as we saw that at the end of.
As of Q1 as.
As India went into a shutdown. So I would say probably India is not quite moving back to the levels of where the other three areas three countries are but but Asia has been a real bright spot for us.
Great. Thank you and then lastly can you tell us I'm curious if your commercial strategy has changed at all given a pandemic I would think what the new product flow and your efforts to sort of open up new relationships are you able to still do that or is some of that gotten pushed into 21 or beyond.
Yes, I think I think thats, probably one of the areas thats being the most challenging so we have a really great built applications team. We are definitely doing more onsite trials in June and July than we were doing in March April may Theres, no doubt that that's gone up.
But I think it's mainly trials that companies view as critical right that they want to really get an evaluation done of a technology because of the specific programs I think the ability to get new products tested is much harder and so while we will do.
We're probably going to be doing more quality than quantity and the second half of the year in terms of our new products and getting evaluations going I think thats, that's definitely a challenge job and its if it's a nice to have it's really.
Unlikely that a customer is going to say come on in and Thats due to a study together. So I think as more of the critical studies that were and then doing and the team is very busy but at the volume of trials that were running is not like what we would have done a year ago.
Interesting okay. Thank you.
The next question is on the line of much cubic with Craig Hallum Capital Group. Please go ahead.
Good morning, congratulations on the strong quarter.
Thanks, Matt.
One house cleaning item first the Mt contribution will that be a new bucket or will that fold into one of the existing buckets.
No I think I think it will will end up putting it probably into the filtration bucket.
Okay great.
And then.
Flow VP, it's great to hear that's still on track are you starting to take preliminary orders for that or are you going to wait until the formal launch to really start to ramp the efforts there.
Yes. Good question. So I think sometimes when we talk about the next generation flow VP people forget about the fact that we have an existing product in the marketplace.
Works really well so customers are continuing to order the existing product and then when we get to a crossover point towards the end of the year, we'll be able to.
Make the make the move to the next generation version of the product, which is a smaller footprint.
Improved software capability.
More intuitive in terms of how you use it but the activity around flow VP with existing products has been really encouraging through the first half of this year.
That's great. Thanks, and then one final.
The last time, you guys hit 30% EBITDA margins you made some investments.
It sounds like you're doing the same thing here.
How should we think about the is it going to be a couple of quarters in and Pops back up and will we get back to that maybe that 30% EBITDA margin quarter faster. This time or just help us think about the timing there. Thank you.
I'll start I'll hand, it over to John I think from our point of view, it's really more around.
You kind of have to look at what's going on in the market and where we need to make investments and so.
We're always going to drive.
Making the appropriate investments to keep our lead times, where they need to be to add more people. So that we have the right.
Balance of individuals in operations internally externally in the commercial organization. So I think thats really a function of.
How we see the markets and right now obviously, we see strong market demand we have to invest it's hard to say when it'll bounce back to 30% I'm not sure. John has some additional comments he wants to add yes, I can I can add a little bit of color I mean, it sounds like you're looking for a little bit more specifics on 2021.
If you look at if you look at our ending point for the year I think those are are pretty good starting points for for looking at where we might might finish up.
Next year overall and so.
It's it's a phasing of investments we always want to stay one step ahead of of the obviously market demand as Tony mentioned.
And that kind of gives you a sense of where we think will be for 2021, we're heading into our budget cycle right now and I think in future calls will be able to give you more clarity on that Matt, but but for now that's kinda tend to the starting point.
That's very helpful. Thank you.
If you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over back over to Mr., Tony Hunt for any closing remarks. Thank you.
So just quickly just wanted to thank everybody for joining us obviously.
Okay, Great Q2 for US great first half of the year.
Lots for us to do in the second half of the around execution and I look forward to catching up with everybody over the coming weeks and back on on this call. It November pay so thanks everybody.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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