Q1 2021 Repligen Corp Earnings Call
Good day, ladies and gentlemen, and welcome to Rutledge and corporations first quarter 2021 earnings Conference call. My name is Eileen and I will be your coordinator.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Please note this event is being recorded.
Following the company's formal remarks, there will be a question and answer session in order to accommodate all individuals who wish to ask questions. There will be a limit of two questions at a time.
I would now like to turn the call over to your host for todays call Sondra Newman and head of Investor Relations for Rutledge and.
Thank you Eiley. Good morning, everyone. We appreciate you joining us this morning and its busy season.
And we'll be covering today, our financial results and business highlights for the three months period ended March 31, 'twenty 'twenty. One we'll also update our financial guidance for the current year 2021 president and CEO, Tony Hunt will cover business updates and our CFO, John Snodgrass will cover our financial result.
<unk> and guidance as.
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 on form 10-K, our quarterly report on form 10-Q. The current report on form 8-K, which we filed today and other filings that we make with the SEC.
Today's comments reflect management's current views, which could change as a result of new information future events or otherwise the company does not obligate or commit itself to update forward looking statements, except as required by law.
During this call, we're providing non-GAAP results and guidance and reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Replicants website and on and SEC Dot Gov non-GAAP figures in today's report include the following revenue growth at constant.
Currency gross profit and gross margin operating expenses, including R&D and SG&A operating income and operating margin income tax expense net income and earnings per share as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures.
But are intended to better enable investors to benchmark represents current results against historical performance and the performance of peers when evaluating investment opportunities now I will turn the call over to Tony Hunt.
Okay. Thank you Sandra and good morning, everyone and welcome to our Q1 earnings call.
We are delighted with our performance and the first quarter of 2021 or a combination of accelerating demand from COVID-19 accounts on robust demand for non COVID-19 business day.
Our overall performance.
For the quarter revenue was up 88% coming in at 142 million with organic growth up 69% versus Q1 2020.
COVID-19 related programs made up approximately 25 percentage of our revenue and 46 points of our total growth.
Revenue from acquisitions, we made in 2020, including artisan accounted for over 14 points of our overall growth.
Finally, we were especially pleased by the performance of our base business, which accounted for 27 points of our growth on approximately 68% of our revenue reflecting.
Continued strong demand for our products.
As noted in our February call the strength and orders that we saw in Q4 last year and carries over into 2021 with an exceptional quarter on orders driving not only on revenue, but also our increased guidance.
Orders for the quarter were up more than 150% versus prior year with customers now planning out into the second half of this year.
Based on these developments, we now expect to finish the year with revenues and the range of $565 million to $590 million.
We anticipate COVID-19 vaccine and therapeutic programs will contribute approximately 25% to 27% of overall revenue on a non COVID-19 base business to grow at or above 20%.
Yeah.
Before jumping into our quarterly results I want to provide a progress update on our strategic initiatives for 2021.
Our number one priority as it has been for the last 12 plus months is building out our capacity to support accelerating demand across all of our businesses.
No our industry is seeing unprecedented demand for bio processing products. So it's critical that we stay ahead of this curve.
Our operations team has done an outstanding job over the last year as we have more than doubled and in some cases triple dark capacity and output across many of our product lines.
For example, our overall capacity and flagship cassettes and hollow fiber products has more than doubled and this time period on the chromatography.
<unk> front, we are on the final stages of completing our expansion embraer for Opus Prepacked columns, which will immediately add four suites for opus production on an additional four fully built to support future capacity needs.
We expect this facility to come online in early Q3 offering customers local production and Europe.
Finally, we plan to invest $55 million to $60 million and Capex programs here in 2021, as we build out capacity for our flow path assemblies filtration and chromatography systems on flat sheet and hollow fiber product lines. We expect many of these programs to be completed and the second half of this year through to mid 2022.
Securing manufacturing capability to support the company as we scale to our goal of $1 billion and revenue by 2025.
Our second initiative is around integrating artisan emt and NMS and to replicate.
It's been a busy first four months for our team as we evaluate and evaluated the commercial and operational needs of these businesses we.
We have made good progress on building out the commercial teams with the addition of sales talent to support both the chromatography and filtration systems that we gained through these acquisitions as well as the significant component portfolios of these companies.
Operationally, we are focused on integrating emt and artist and Waterford are two centers of excellence for flow parts assemblies, and expanding manufacturing capacity across this network.
All three acquisitions are tracking at or above our plan for 2021 with the artisan and having a very good quarter for revenue and orders.
We're very confident and our guidance of $33 million to $36 million for.
For artisan here in 2021 finally, one of the real benefits of doing these deals and so we now have critical mass on the fluid management side of bio processing on a sustainable consumable stream as we move further into chromatography and filtration workflows.
Our third initiative is around new product launches.
Our strong start to the year for us with the launch of a spike protein resin single use ATF lab controllers and next generation flow PPE, which is called flow VP acts.
We are very encouraged by the initial reaction to these product launches with strong orders and shipments for flow Vps. Following the technical launch of the product on a rapid acceleration and the number of evaluations for the spike christened by many of the leading players and protein based vaccine.
Finally, our fourth initiative is focused on traction and gene therapy.
Our commercial and field applications teams were busy and Q1, adding in 17, new accounts on delivering another quarter of very robust orders.
With a strong order load we are on track for another good year and gene therapy with expected growth and the range of 25% to 30%.
Moving now to our quarterly performance.
The story of the quarter was the continued strength of COVID-19 vaccine accounts on the 31% base business growth for the non COVID-19 customer segment of our franchises.
Order load as noted earlier was exceptionally strong.
With our non COVID-19 accounts contributing approximately two thirds of this overall demand.
And filtration and our overall business more than doubled with across the board strength for all of our product lines. The demand for ATF devices flat sheet cassettes and hollow fiber modules continues to strengthen as COVID-19 vaccine and therapeutic manufacturers scale up.
And here in 2021, and map and gene therapy accounts continue to implement these technologies and clinical processes.
For example, our ATF business doubled as we have a number of late stage customers scaling the technology into commercial processes, and addition to COVID-19 winds for ATF as used to boost bioreactor yield.
Finally, our filtration systems business had an outstanding quarter with key bench top and process scale systems, including the artisan filtration portfolio up over 100% pro forma.
This reflects the differentiation, we have and the marketplace with our hollow fiber portfolio, which is now even further differentiation with the addition of the arts and single use systems.
Our filtration portfolio is also capturing new opportunities.
And for example, and Cho and gene therapy applications, we continue to be encouraged by the performance on the adoption of <unk> float up filtration technology, our <unk> App, which is on track to double again here in 2021.
And next generation COVID-19 vaccines, our products are getting specified into upstream and downstream parts of the workflow. We expect any significant revenue impact from these activities to be seen in the second half of 2021 and on into 2022.
Given the overall strength in orders and capacity projections for the year, we are raising our guidance for our filtration business, which we now expect to essentially doubled here and 2021.
Moving to chromatography, our opus pre packed column business had an outstanding quarter on orders on a solid quarter on revenue. Despite the limited availability of chromatography resins from suppliers and our industry.
We expect that the Ras and delivery situation will improve as we go through the year as more capacity comes online.
As mentioned earlier, we are very encouraged by the early evaluation results of <unk> and expect we will see a pickup in orders as we go through 2021.
Overall, we still anticipate a chromatography franchise to grow and the range of 30% to 40% this year.
Our OEM proteins business also performed well with strength in ligands and growth factors.
The momentum we observed in 2020 on Lincoln's has carried over into this year with robust demand for our products from our key partners as the market demand for protein a resins remains high for.
For the year, we now expect proteins to grow and the range of 20% to 30%.
Finally, our process analytics business had an excellent start to the year up over 40% year on year. We are clearly seeing the impact of our global commercial team with over 50% of instruments and consumables sold coming from new accounts we.
We saw an uptick in demand and Q1 that many of the companies supporting COVID-19 manufacturing a solo vps were implemented into the testing process for these drugs.
Our expectations for this business remains very positive with anticipated growth at the high end of the range of 20% to 25%.
So overall, we are off to an excellent start to the year with strong execution and operational financial and strategic level.
Our team remains focused on the key priorities, which is really namely capacity expansion to meet increased demand and thus minimize lead times and the integration of artisan Emt and NMS to expand our premier systems offerings.
The development and launch of differentiated new products, and winning new opportunities and the marketplace.
We continue to be well positioned to attain our long term growth targets and we're optimistic about the future.
Our performance would not be possible without our exceptional employee base.
And we continue to bring new talent into the organization and we expect to add 300 to 400 individuals during the first half of this year.
Through the dedication and commitment.
The entire rutledge and team over the last 15 months, we've been able to deliver essential bioprocess and products and to build and prepare our operations for continued growth. We look forward to updating you on our progress through the year and with that I'll turn the call over to John for the financial update.
Thank you Tony and good morning, everyone.
And today, we're reporting our financial results for the first quarter of 2021, 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 revenue and strong earnings growth for the first quarter of 2021, while continuing to see a significant order load.
As Tony mentioned, our performance reflects COVID-19 tailwind, which accounted for approximately $35 million.
And about half of our revenue growth and the quarter.
<unk> on our base business, which was up 31% below with nearly $11 million of incremental revenue from our 2020 acquisitions.
We are benefiting from an acceleration and demand for our products and general and the healthy biologics market that continues to move towards more flexible and efficient biologics manufacturing processes.
With product innovation and differentiation at our core we continue to drive technology leadership and the first quarter through three new product launches that Tony discussed through the integration of our most recent acquisitions that complement and broaden our systems and fluid management offerings and through expanding the applications for our products and to a lot.
<unk> set of drug modalities.
With increased demand, we continue to focus on expanding our manufacturing capacity with a three plus year time horizon to support increasing adoption of rustler Gen branded consumables and systems.
Now transitioning to our first quarter 2021 revenue commentary.
On our top line, we realized record revenue of $142 8 million and the first quarter of 2021.
As mentioned this represents growth of 88% as reported and 69% organic growth.
Within these figures are reported growth includes a four point tailwind from foreign exchange and a 14 point tailwind from our 2020 acquisitions.
Overall COVID-19 program revenues represented about 25% of our first quarter 2021 revenues.
Supplementing our revenue growth, we continued to see excellent orders expansion across each of our four product franchises with overall order growth exceeding 150% for the first quarter of 2021.
As it relates to regional revenue growth for our direct products and the first quarter. We continued to see excellent traction in Asia rest of world with revenue growth of nearly 200% led by the strength of our filtration products and China <unk>.
And India.
Our European and North American reach and also continue to perform very well with revenue growth of greater than 100% and 70% respectively.
In terms of revenue composition for the first quarter of 2021, North America represented 46% of the Companys direct product revenue with Europe, and Asia, representing 32% and 22% respectively.
Now moving down our income statement.
First quarter 2021, adjusted gross profit ramped up to $84 8 million, a lift of $40 3 million or 90% compared to the first quarter of 2020.
Adjusted gross margin expanded to 59, 3% versus 58, 5% reported and the same period and 2020.
Gross margin expansion reflects volume leverage from our increased sales more than offsetting additional human capital higher facility costs and higher depreciation from equipment and systems coming online.
All aligned with our manufacturing capacity expansion programs.
Next we'll move down the P&L to adjusted operating expenses.
First quarter of 2021, adjusted research and development expenses increased to $7 4 million for the first quarter of 2021 compared to $4 4 million and the same in 2020 period.
R&D dollars during the quarter were directed towards expanding our global R&D team finalized and key product launches and our filtration process analytics and protein strength businesses and.
And continuing to invest and new product development programs.
Adjusted first quarter 2021, SG&A expenses were $31 7 million or 22% of revenue compared to $21 8 million or 29% of revenue for the 2020 period.
Our first quarter spend increase reflects the timing of our 2020 acquisitions as well as investments and personnel occupancy and depreciation all in support of our capacity and commercial expansion activities to enable us to secure both near and long term growth opportunities.
Yeah.
Now turning to adjusted earnings and EPS.
Adjusted operating income was $45 7 million for the first quarter of 2021 and increase of $27 4 million or 149% compared to $18 3 million reported and the same 2020 period.
Adjusted operating margin was 32% and the first quarter of 2021 and expansion of 790 basis points compared to 24, 1% and the 2021st quarter.
First quarter adjusted operating margin expansion reflects the impact of strong volume leverage with our revenue growth accelerating faster than our capacity related investments.
First quarter adjusted net income was $38 8 million, representing an increase of $22 million or 131%.
Versus $16 8 million and the 2020 period.
In addition to our strong growth and operating performance our first quarter. Adjusted net income benefited from a low adjusted income tax rate of 14, 3% for the quarter related to the combined impacts from incentive stock transactions and U S tax reform changes related to our U S on core and operations.
First quarter 2021, adjusted EPS increased to 68 per fully diluted share compared to 32, and the 2020 period.
And an increase of 37.
Or 116%.
Cash and cash equivalents, which are GAAP metrics totaled $711 million at March 31, 2021.
I will now shift to our 2021 full year guidance.
Our GAAP to non-GAAP reconciliations for our 2021 financial guidance are included and the reconciliation tables in today's earnings press release.
As previously mentioned unless otherwise noted all 2021 financial guidance discussed will be non-GAAP.
Please also keep in mind that our 2021 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 2% tailwind on full year sales.
And does not include the potential impact of any future acquisitions that the company may pursue.
And acknowledgment of the continuing strength of the bioprocess and market and our strong operational execution. We are increasing our 2021 full year revenue guidance, a GAAP metric by $65 million at midpoint up to $565 million to $590 million.
This represents reported growth and the range of 54% to 61% and organic growth of 42% to 49%.
We are maintaining our 2021 adjusted gross margin guidance of 57% to 58%.
We are increasing our adjusted operating income expectations by $22 million at midpoint to a range of $156 million to $162 million incur.
And increasing our adjusted operating margin range by 100 basis points to a range of 27% to 28% of revenue for the year.
We continue to expect adjusted other income and expense to be $1 million of expense relating to cash interest expense from our convertible notes.
Based on our realized first quarter of the year benefits from U S tax reform and stock compensation, we are improving our expectation for 2021 adjusted income tax expense to be approximately 19% of adjusted pre tax income.
This guidance assumes an effective rate of 22% for the second through fourth quarters of the year and does not consider the potential impact of additional employee stock transactions, which we expect to be lighter for the remainder of the year.
We are increasing our full year of 2021 adjusted income net income expectations by $19 5 million at midpoint to be and the range of 126% to $130 million.
And we are increasing our adjusted EPS expectations by <unk> 34 to 35 at midpoint to a range of $22 21 to $2 28 per fully diluted share.
Our adjusted EPS guidance reflects an estimated 57 million weighted average fully diluted shares outstanding for the year.
Adjusted EBITDA is now expected to be and the range of $175 million to $181 million for 2021, with depreciation and intangible amortization expenses expected to be approximately $19 million and $21 million respectively.
Yes.
The company continues to expect to invest $55 million to $60 million into capital expenditures in 2021 inclusive of key capacity expansion initiatives for our filtration and chromatography and proteins portfolios as well as continued SAP system implementation and investments.
We expect year end cash and cash equivalents, a GAAP metric to be and the range of $760 million to $780 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.
And we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pickup your handset before pressing the keys.
Again, we ask that you limit yourself to two questions.
And with draw your question. Please press Star then two.
<unk>.
Our first question today comes from Julia Qin <unk> with J P. Morgan.
Hi, good morning, congrats on the strong quarter.
So maybe starting with guidance on the call net revenue expectations could you help us understand what net to the increased revenue expectations. How much of that is good news spike protein a ligand and how much is maybe just new commercial production scale up and does guidance include the new capacity, that's coming on line and re queue.
Okay.
Yes, great question Julia.
And you look at the increase and our COVID-19 guidance most of it is coming from the.
And the demand.
<unk> that we're seeing.
For both commercial.
Vaccines that we're in and for mid to late stage vaccines that are under development. So I think when you look back to where we were in February.
<unk>.
Many of the orders and for Q1 and into Q2, we've seen a lot more orders come in.
As we went through Q1, which is now going into the second half of the year and a little bit even into.
Into next year, so in terms of.
On capacity, we're constantly adding capacity so our guidance reflects where we believe we will be and capacity.
So it doesn't reflect yet as we go through the year, but what happens in Q2 Q3 Q4 in terms of the demand curve.
Got it thank you and then.
Then in the prepared remarks, you called out some pretty strong traction for <unk>.
Key new products, including Tia FTF and pipe coating.
Coaching and resin.
Just wondering how much contribution.
And these new products do you see in the <unk>.
Nice quarter.
Oh, and the first quarter. It is still minimal compared to what we did a few million dollars thats thats basically what those products contribute and the first quarter.
Hi.
Really think that the benefit of the new products are what's going to happen in 2022 and beyond it's great that we've gotten we've launched these products really happy with how flow <unk> is gaining traction and the marketplace, that's already being well seeded with the flow PPE technology being there for two to three years.
So I think the reaction to that product was really positive as I said on the spike resin, we're seeing a lot of evaluations going on but as we may have.
May remember.
And prior earnings calls, we've said that the opportunity for the Spike resin is going to be and next generation vaccines and of course, it will be for protein based vaccines and then finally T. FTF and I think we've been pretty clear that we believe that that technology and product will double every year for the next few years and we're right on track this year to double.
Got it very helpful. Thank you and congrats again.
Yes. Thank you.
Our.
Question comes from Dan <unk> with Stifel.
Hey, good morning, guys. Thanks for the questions here.
Tony a couple on gene therapy, if I could maybe starting with sales activity I know the difficulty there had been accessed revaluations last year are you feeling like you're approaching or at a level, where the ability to get in there and do a proper demo is now relatively unimpeded or are you still working through that situation.
And then as a follow up if I could.
Go ahead I'll just go ahead and perhaps the first one.
And I was just going to ask it.
And just sort of a follow up on your comment about 17, new accounts and that area. I was wondering if you could help us with looking across the next 12 to 18 months and that market are you able to parse out how much of what you think you see comes from New project and trial works on new business to you versus progression of exist.
The trial work to the later stages versus marketed product demand.
Okay.
Yes.
Yes, so maybe I'll start with the progression I would say most of our growth will come from the accounts that are being seeded over the last few years. So it's not that we get into a single process at a gene therapy accounts.
And like every everybody else and bio processing, we're looking to get platforms. So you pick up new drugs.
As they come through the pipeline so for sure I think when you look at our top accounts. They continue to grow they continue to expand.
The idea of with our commercial team if you remember a year ago, we put a.
Gene therapy.
Go to market team in place that team has done a tremendous job they work with the salespeople they work with the field applications folks.
And Thats, what we focus on in terms of bringing new accounts online. We don't expect that those new accounts will add a tremendous amount of revenue and the first year, but it's all around seating and keeping the funnel filled up and I think from that perspective, I think we've done a good job. The second part of this is really.
<unk> around building out our gene therapy on.
Obligations lab. So we're in the middle of doing that right now so when we get into kind of late summer timeframe will be up and running fully functional so that will give us the balance of being able to work with key accounts with.
Thought leaders in this space, but also be able to do our own gene therapy applications work here and here in Waltham and Rutledge and.
The first part of the question I believe was around that.
The gene therapy.
Project.
<unk> yeah.
Yes.
I would say that there is still some restrictions, but nothing like what we were dealing with and sort of Q2 Q3 last year I think the field applications team sales team are pretty figured out a way to work with all our accounts, while it's not ideal.
We do and evaluations.
And we're making progress and so our expectation is that we need to keep building the funnel with new opportunities I think the challenge we have and everybody in our industry has right now is that when you look at the COVID-19 demand, which is really strong you have to balance the delivery of products to.
<unk>.
To the COVID-19 vaccine and therapeutic accounts and also working with the non COVID-19 accounts to get product to them as well. So that's the idea of adding our extra capacity is that we're going to be able to shorten lead times for the non COVID-19 accounts as well.
Okay.
No that was too technically to so apologies for slipping and a third year, but if I could I was I just wanted to ask I was reading about clinical trial progression and where these candidates and gene therapy are and it looks like right now more than half of them are and phase. Two this is cell and gene together. So it's not specific to gene side, where you are.
But if we assume that it's close do you think that that translates to.
And sort of a surge and buying at some point and are there capacity considerations there.
Or is the expectation that things will sort of naturally space themselves out so to speak and so therefore, it should be more steady over time.
Yeah, and this is just my opinion and I believe it will be steady over time as opposed to a huge surge.
But that's that's just where we're on that and what I when I look at what's going on and our and the broader industry. There is purely.
CD moes are working rapidly to expand capacity, which I think is a really good leading indicator. We're also and along with all all our peers everybody is building capacity the capacity build out is going to be not only for COVID-19 vaccines and therapeutics, but it's going to also be.
Very helpful. As we look at Nab and gene therapy customers that want lead times that are much shorter than what the industry is providing right now.
Yeah, Okay, great. Thanks, Tony.
And.
Our next question comes from Jacob Johnson with Stephens, Inc.
Hey, guys. This is mason on for Jacobs <unk> day, everyone doing.
Good.
Good just a few quick ones from me on the gene therapy side.
There seems to be a shift to using suspension for viral vectors versus the adhere and processes.
And the opportunity does this present for your product portfolio.
Yeah.
Yes, so definitely I think we've spoken about this a little over the last year or so there is a move towards suspension sales. Obviously when you look at the products that we have and our portfolio, whether it's the ATF technology or any of our filtration products or systems, it's going.
And to be pretty well suited suspension sales thats, what we do and the Mab world.
It's more scalable and I think thats, just a positive development for.
And for Rutledge and and for really on.
Many of the players and bio processing. So we just see it as positive.
Got it and then proteins seem to be performing well any updated commentary on the site relationship going forward.
Yeah and on our proteins business really really good quarter honestly the last couple of years have been.
Very positive for that business, which is comprised as obviously of ligands and growth factors, yes, we continue to have our.
Dialogue and conversations with site Eva I think there is a genuine.
Tristan and extending the current contract and.
We're working through that process, and obviously, we will update people and when that gets done.
Got it thanks guys.
Our next question comes from Puneet <unk> with SBB Leerink.
Yes, Hi, Tony John Thanks for taking the question so.
Obviously first of all.
Congrats on the on the really impressive quarter, and it's really great to see how youre contributing to being an important part of the COVID-19 vaccines and therapeutics solution out there.
And maybe on <unk>.
COVID-19 was covered a little bit so maybe if I could talk a little bit and in terms of base business.
What was the contribution and that base business from worst those gene therapy versus non COVID-19 vaccines.
You could provide obviously.
Really strong growth there too, but just wanted to see if you have any if anything if there's anything you can provide there.
Yes, I don't have the split of mobs and gene therapy, but 25% of par of our beat came from or in the quarter came from our <unk>.
Non COVID-19 based business. So I think that's a real positive things we're seeing.
And it's across the board it doesn't really matter, whether it's maps or it's our it's gene therapy, but on our base business.
And what we're seeing right now is our proteins business is done.
And has really over performed and the first quarter.
We're seeing.
Opportunities, where we have lead times that are short term, where we can take some share.
And be able to deliver to accounts that really need product and a shorter period of time really happy with our analytics business. That's really accelerated again in Q1, which I think is very encouraging and the deals we did last last year.
Artisan MTN and mass are all performing well and we're building out that commercial team. So I look at it as really the whole portfolio.
And really look at it as gene therapy versus mobs, but we're really happy with the over 30% growth for are.
For our base business and Q1, I think that's a reflection of the technologies. We have I think that's a reflection of.
Sure.
Ability for our sales and field applications team to do a really good job with our customers.
Got it Okay. That's helpful and then Tony on Theres, a quite a bit of discussion about the booster shots and how do you think about that opportunity longer term.
Obviously these number of these products usually get specced in.
So.
How should we think about the COVID-19.
Opportunity the COVID-19 tail.
And.
And what can vaccines be of what portion of revenue do you think with vaccines can be as a mix of your revenue longer term.
Given the ramp up we're seeing here.
Yes that crystal ball answer is going to be really hard to give in terms of what percent long term, but I think it's pretty clear that day.
The whole therapeutic vaccine part of COVID-19 is going to be with us for a number of years and definitely into 2022 and more and more likely beyond that.
I read the same reports you do on booster shots, so if booster shots.
And later this year early next year, that's going to add increased demand.
Annual vaccines, if thats a reality, obviously you can see how that adds to the overall.
Demand cycle, and then on top of all of that there is still a large percentage of the global population Thats not vaccinated and we don't really know what way. The variance are going to go. So a lot of a lot of unknowns I think as we get.
Into the second half of this year it will become a little cure on on 2022.
And on and even on 2023 as well, but we have.
We expect that that.
COVID-19 is here for a number of years, it's going to be.
On a driver of growth and.
And it's a driver of growth for our whole industry.
Got it and then last one if I could squeeze and in terms of the product portfolio.
Is there obviously you highlighted the artisan.
Are there and the other products that are doing remarkably well.
And part of the larger part of the pick up here and COVID-19 COVID-19 and on our does and are you what was it mostly system sales or was there a good mix of systems and consumables that was part of the growth here in the quarter. Thank you yes.
Yes, I think artisan was combination of systems and consumables when you look at our overall portfolio.
It's been really impressive like all our products are doing very well and the marketplace, obviously the filtration portfolio.
When you see what our guidance is for the year, where we expect filtration to essentially double I think that tells you a lot about where we're winning.
But that's not to say that our whole industry is doing incredibly well right now so the demand is high.
And it's really around.
And everybody is ability to produce and keep lead times out at a reasonable level, that's what everybody and the industry is focused on.
And when we look at where we're going as a company I believe that the combination of the new products. The products, we've launched over the last four or five years.
We have firmly established ourselves as a technology player and the industry and I think that's paying off for us.
Got it great. Thank you.
Our next question comes from Paul Knight with Keybanc.
Good morning, Tony could you go over the Capex numbers, and where is that Capex forget it is at four <unk>.
And our lab, John John Walk you through that.
Yes.
The biggest piece of that Paul is really and I am not going to give specific numbers, but we're talking about $55 million to $60 million biggest pieces going into the various Phil.
Filtration product lines.
For both flat sheet and hollow fiber along with the flow paths businesses, so, including including pretty significant investments, we're making and the new acquisitions and then there is a bit going into opus.
And there is a bit and actually going into proteins as well for us to continue to maintain capacity there for expected higher higher amounts on the future. So those are kind of the big capacity related programs of course, Theres, there just general maintenance as well that's probably.
$10 million number to $15 million number a year and then there is <unk>, which is going to take another $5 million or so this year. So.
And that program continues as well.
And then Tony you've gone on were very robust internal set of products do you think your growth and the future now is shifting a bit toward internal projects or is there still the same level of M&A opportunity out there.
Yes look obviously the.
Portfolio over the last seven years has expanded dramatically.
The projects that we can work on the programs. We can work on from an R&D perspective continues to grow and expand so we have lots of ideas about what we want to do with the technologies that we have but we also believe that.
For us to continue to compete in this industry.
We still need to bring new technology, and whether it's through M&A or through the R&D efforts. So expect that we're going to continue to work through the continued to keep to the strategy. We put in place over the last five years.
On a go forward basis.
Thanks.
Our next question comes from Matt Hewitt with Craig Hallum Capital Group.
Good morning, congratulations on the strong quarter.
And.
Thank you and maybe yeah.
Maybe a couple so you've talked a little bit about the visibility into the second half maybe even a little bit of next year. The lead times. It sounds like you are staying on top of those both from a capacity standpoint, where you can making more investments as well as on the head count side I am curious as you look at.
Those lead times, where are there potential pinch points is it more on your suppliers getting.
On the products that you need.
Is that the potential pinch point and if so how are you working with your suppliers to make sure that they are and are positioned to help you kind of meet the demand that youre seeing.
Yes, I think it's both to honestly.
Clearly, we're working with our suppliers I guarantee you have every everybody and bio processing is working with their suppliers.
But you never know right as you go from quarter to quarter, but.
Unexpected supply.
Supply issues crop up and you just have to manage through it I think in general the supplier side.
<unk> has been.
Well managed.
And work through any issues that need to get worked through I think the internal capacity and lead times.
And obviously for the last two years been building out and Thats helped us a lot honestly second half of last year and first half of this year, but we also realize that we need to add more capacity and that's why we're spending the $55 million to $60 million this year and there'll be a significant spend next year as we had.
Capacity and the second half of this year, and we add capacity and 2022 and all of that puts us in a position to be able to support a 1 billion dollar type company by 2025.
Understood. Thanks, and then and maybe one last one here I think last quarter. You commented that the vast majority of the COVID-19 related demand that Youre seeing was vaccines is that still the case or you know.
Are there opportunities in.
The tree on the treatment side, as well and and what kind of demand and you're seeing from those customers. Thank you.
Yeah on the therapeutic side.
I would say, it's similar to what we saw last year, we're in obviously a number of processes.
But I think the vast as you said the vast majority of the revenue is coming from the vaccine side and that Hasnt changed.
Understood. Thank you.
Our next question comes from Ram <unk> with H C Wainwright.
Alright, thanks, very much for taking my questions and congratulations on a very impressive quarter operationally with.
With respect to the vaccine outlook in the COVID-19 space too.
Two quick questions there first.
Can you comment on the degree to which your vaccine solutions are likely to be applicable to vaccine technologies that may arise in the future that are not specifically reliant upon the spike protein and.
And secondly, I wanted to understand better to what extent do you anticipate two factors potentially driving your business with regard to the COVID-19 vaccine related items and those are in particular, the need for vaccination campaigns to be accelerated dramatically and.
Emerging countries, especially as we've been seeing surges running out of control and those areas where vaccine Rollouts really has not happened to any great extent and also in developed countries and particularly most notably in the United States to what extent you expect b.
Broadening of vaccine and applicability to younger people, including children as young as now it seems 12.
To have on the demand for your vaccine related reagents. Thank you.
Yeah.
Yes, so maybe start with the last question I do think that the.
Especially in the developed countries the campaigns that are going on to get people to vaccinate.
And is really important I think it's hard to put a number on what that means for demand, but we do honestly is we're really relying on the players that we're working with to give us the forecast of what they need and thats kind of what we work to and obviously we pay.
Attention to what's going on and the news.
But really it just comes down to what do the big vaccine manufacturers forecast out in terms of their needs whether it's in the quarter and the year are in the following year.
In terms of developing countries.
I mean it is a.
And.
We're a long way as a as a <unk>.
Human race in terms of getting vaccines rolled out to all all sort of developing countries and I think thats something that obviously is going to happen more as we hit the second half of this year and my guess is all the way through 2022. So that's something that everybody will be focused on and again.
And we will rely on the companies and partners that we have in terms of forecasting out.
And what the demand is going to be to your first question, which was on.
And the applicability of our technologies to future vaccines that are non COVID-19 vaccines, but just vaccines and general I think our portfolio of products are very well suited to.
Any vaccine development work Thats going on I think our filtration portfolio hollow fiber technology has been historically used and vaccine manufacturing so.
To the extent that we see more.
Viral vector based vaccines.
RNA based vaccines I think we're well positioned with our technologies.
To be able to operate and both upstream and downstream.
Parts of that.
And that vaccine development work.
Great and then on the gene therapy side two questions there.
Firstly, if we look at the emergence of specialized gene therapy <unk> I think our research. We cited the case of privately held entity called Forge biologics.
Clearly, we see those as being more potential customers for Rep Lids, and then potential competitors, but we were wondering to what extent you are seeing as these and.
Entrants and the CMO space and gene therapy start to emerge that's having any kind of impact on future demand for your gene therapy solutions and then secondly, if you think that at any point in the future any of the CMO gene therapy businesses.
Might be likely to try to compete with rep with Jen on any of the product offerings that you have or if you think theyre going to stay and Berlin, and youre going to stay and yours and and point of fact, it's more complementary relationship that you see developing and the future. Thank you.
Yeah to your second question.
I don't know how that plays out I think.
If you look at <unk>.
Historical data <unk> have tended to focus on working directly with customers and developing drugs, whether it's gene therapy or its monoclonal antibodies.
Arent really that many examples of CD and most hu <unk>.
Become bioprocess technology players so.
Again, I don't know how that plays out and I don't read.
I can't really predict the future on that but.
I think you can see what's happened in the past.
In terms of comps.
Companies like porch biologics.
I think when you look at the gene therapy space.
We've been working Rutledge and has been working with.
On <unk> and the gene therapy space for the last three or four years, and I would say that the CD and most have.
<unk> close to about 50% of the revenue that we Havent gene therapy. So.
Other <unk> jump in and start to manufacture than we.
Would see them as another opportunity to.
Position technologies that we have and I would imagine everybody else and our industry would look at it the same way, but I think the CMO.
Industry has been probably one of the biggest drivers of gene therapy growth over the last four or five years. So I fully expect that the addition of <unk> on <unk>.
New CD mills is only going to be viewed as positive.
Okay, and then just won and lost more general question. If you look at strategically speaking the impetus that COVID-19 has created for your business and how you think replica and Ken best capitalize on this for the long term.
Do you view this in terms of effectively broadening the scope of replicants offerings, and expanding replica and customer base as this pertains specifically to vaccines and possibly also to certain segments of the therapeutics landscape that may have applicability and COVID-19, but may also.
Have implications for future therapeutics down the line that are not related specifically to COVID-19 or do you think that.
And point of fact give.
Given that at least some of the COVID-19 related revenue strength.
And may be transient in nature, you would look at this as possibly and opportunity that may give you the potential to pursue other strategic acquisitions or other strategic directions that.
Don't have anything to do with COVID-19, 19, or perhaps even vaccines and general.
Kind of.
And while Youre able to make hay, while the Sunshine and I understand that that's kind of a loaded question, but I think on any perspective, you can give us would be helpful.
Yes, I don't think our strategy changes.
And how we compete and.
Play and bioprocess and market so we've been.
Doing the combination of M&A and launching new products, whether they're new products come from and M&A that we've done a few years ago or is something that we've come up with internally and decided to develop ourselves. So I don't think COVID-19 changes.
How we think about the overall strategy of the company with respect to the importance of M&A or and the importance of warranty.
In terms of.
How we think about the COVID-19 opportunity and how it can broaden.
Offerings for us down the road.
To me the most important part of being involved.
On the COVID-19 front is.
There's a huge sense of purpose and pride within our company in terms of our ability to produce deliver and have a real impact with.
With respect to these vaccines and therapeutics.
The other piece that I think is longer term is the relationships that we develop.
<unk>.
These manufacturers whether it's.
Pharmaceutical companies biotech companies <unk> because of the way the vaccines are being rolled out there are many new players that we haven't worked with before and we get an opportunity to work with and and form a really strong relationship and we expect that those relationships will extend beyond what's going on with COVID-19.
Day and that those are the future opportunities for us So that's kind of how we view it.
Our next question comes from Brandon Couillard with Jefferies.
Hey, Thanks, two part question for John.
Did 59% gross margins and the first quarter.
And just maintaining guidance.
For the balance of the year why wouldn't we necessarily see more operating leverage on that line and then any color you can share with us in terms of the phasing.
Of the expected COVID-19 revenues over the next three quarters should we just assume it's ratable.
And maybe perhaps more front end loaded net.
Yeah, I'll, let Tony cover the second one but the first one on in terms of the gross margin.
Yes, we had a great quarter of 59, 3% and you're correct that we held guidance of 57% to 58.
You got them, we have meaningful investments coming into the into the P&L.
In terms of head count in terms of depreciation expenses coming in terms of facility expenses for added.
Added footprint that we've added so.
And just really reflects the expected timing and when we expect those things to hit aligned with the revenue coming through the P&L essentially that's.
That's what we're seeing I would say.
And you start to look at it.
And at that range, we're probably edging towards the higher and the mid to high end of that range versus the lower and at this point in time. So there is some movement, but we're just kind of moving up within that range right now.
And I think Brandon on the on the COVID-19 revenue, it's probably going to be evenly spaced.
If you if you just take the midpoint of our guidance and take out the $35 million you will see we're probably on the high end of $35 million to $40 million and the next few quarters.
That's it from me thank you.
Yes.
This concludes our question and answer session I would like to turn the call back over to Tony Hunt for any closing remarks.
Great. Thank you thanks to everybody for joining us today look forward to catching up and August one wells on bringing up to speed on the first half of the year performance. So again, thanks, and thanks everybody for joining.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.