Q2 2022 Repligen Corp Earnings Call
Good morning, and welcome to their rapid Gen 2022nd quarter Conference call. All participants will be in listen only mode should you need assistance. Please signal the conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions.
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In order to accommodate all individuals who wish to ask questions. There will be a limit of two questions at a time.
Please note. This event is being recorded I would now like to turn the conference over to Sondra Newman had to think of that.
Their relations Herb Ampligen. Please go ahead.
Thank you Brendan and welcome to our second quarter report on this call will cover business highlights and financial performance for the three and six month periods ended June 30th 2022.
Well also provide updates to our financial guidance for the full year 2022.
<unk>, President and CEO , Tony Hunt and our CFO , John Snodgrass will deliver a report and then we'll open the call up for Q&A.
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 reports on Form 10-Q. The current report on form 8-K, which were filing today and other filings that we make with the Securities and Exchange Commission todays comments reflect management's current views.
Which could change as a result of new information future events or otherwise the company does not obligate or commit itself to update forward looking statements, except as required by law.
During this call we are providing non-GAAP results and guidance reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to <unk> website and on SEC 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 contingent consideration income tax expense net income and earnings per share as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not should not be.
It is an alternative to GAAP measures, but are intended to better enable investors to benchmark replica <unk> current results against historical performance and the performance of peers when evaluating investment opportunities now I'll turn the call over to Tony Hunt.
Thank you saundra and good morning, everyone and welcome to our Q2 earnings call.
We are very pleased with our performance in the second quarter and through the first half of 2022 with quarterly revenue coming in at $208 million on first half revenues, reaching $414 million.
Similar to Q1, our base business continues to perform well, finishing up 41% for the quarter and 39% through the first six months of the year.
Our filtration and chromatography businesses were the major drivers of this growth with robust demand in our core monoclonal antibody and gene therapy markets.
Gene therapy growth, which excludes COVID-19 related revenue from these accounts was up almost 70% in the quarter, representing 15% of total revenue with strong contribution across our direct product lines.
This places us in a very good position to finish the year above our 40% growth target for gene therapy are over $105 million and related revenue.
A key concerns during the quarter was the situation in China, and our ability to not only ship product into the region, but also transact with their customers for future orders, our China business ended the quarter up 36% on revenues and up 18% on orders versus prior year.
This is a direct result of the outstanding effort by our team there as they worked through numerous logistic issues associated with the pandemic, while still delivering an excellent quarter for the company.
As discussed on our Q1 call we saw predict a drop off in Covid revenues in the quarter down 21%.
In terms of pacing, we still expect second half of the year of Covid revenues to be down 30% to 40% versus first half with full year recovered revenues now expected to come in at a 140 to 150 million slightly down from our estimate on our Q1 call.
From an orders perspective, we had another strong quarter, especially for our base business, which was up 14% year on year and 18% year today's.
Book to Bill in total orders through the first half of the year. It was just below one while base business orders were above one based.
Based on overall performance of our base business and a strong order book, we are updating our revenue guidance for the year.
We are now projecting revenues in the range of $790 million to $810 million for total revenue growth of 18% to 21%, we're increasing guidance for base business growth to 31% to 33% from our previous 24% to 31%.
We anticipate organic growth in the range of 19% to 22%.
Before transitioning to the business unit highlights for the quarter I want to spend a few moments discussing new product market traction on the progress we've made on capacity expansion.
From a new product perspective, with an excellent start to 2022 with a 12 products developed and launched last year.
New product revenues accounted for 4% of ourselves in the first half led by our artisan chromatography and flat sheet cassette systems.
Within our affinity portfolio, our protein a high ph ligands and resin sold through ecolab is performing well for ph sensitive antibodies on a number of customers are now scaling up.
In addition, our other pure AAP portfolio of affinity resins.
Washington in the first quarter of this year are going through the sampling and evaluation phase of market seeding and adoption with very positive feedback on performance.
Overall, we are very pleased with our new product adoption, which validates the approach we've taken in R&D over the last five years, which is to focus on differentiated and disruptive technologies is core to our product development strategy.
From an operations perspective, we have completed the hollow fiber expansion in Rancho increased our filtration capacity and Marlboro and opened up a new Assembly center in Hopkinton.
Q3 will focus on bringing this capacity fully online.
With lead times down to pre Covid levels, we're seeing share gain wins, especially in our filtration portfolio.
We have another 12 months of capacity expansion programs lined up which will position us well for the next five years as we support our growing customer base.
So moving now to our quarterly performance.
The story of the quarter was 41% base business growth and the continued strength across the regions in our filtration and chromatography franchise.
In filtration, our business was up more than 40% in the second quarter and 50% through the first six months of this year.
Compared to the same periods in 2021.
The strength in filtration was broad based led by our hollow fiber product lines.
R. T F D F business accelerated up greater than 80% in the first half of the year.
With more customer sites opening up we've been able to conduct a significant number of field trials focused on process intensification.
The interest in T. F. T F is accelerating for use in the production of monoclonal antibodies.
Rob fragments viral vectors and Exosomes.
As customers scale and implement the technology, we fully expect the T. F. D F will be a key driver of growth for our filtration business going forward.
Our ATF business had a strong orders and revenue quarter as customers continued to evaluate implemented scale the technology across multiple modalities.
And finally, our hollow fiber systems business was up greater than 30% driven by strong demand for both our bench top and process scale systems.
For the year, where you are increasing our guidance for filtration business to 24% to 28% growth up from our previous guidance of 19% to 24%.
Moving to chromatography, our Opus Prepacked column product line had an excellent quarter, driven by maps and gene therapy customers.
This business is off to a very strong start in 2022 50.
50% increase in demand for large scale columns in Europe , approximately 90% of our customers have now quantified in our Breda facility for Prepacked columns.
We also continue to be encouraged by the split of resins and calm overall business coms now representing 70% of Opus revenues.
Ali we are seeing some positive signs of improved resin supply, which should result in a strong second half for opus for the year, we anticipate that the chromatography franchise will grow in the range of 25% to 30%.
Our proteins business had a solid quarter, but as anticipated. This franchise was down year on year with very tough comps for both ligands and growth factors.
As discussed in our Q1 call Teva continues to reduce their external demand in line with the agreement we signed in 2021.
Our NGL family of ligands continued to perform well in the marketplace and we are encouraged by the traction we're seeing.
We continue to expect proteins to be down approximately 10% here in 2022.
Finally, our process analytics business continues to perform well as we focus our efforts on flow P. P. P X adoption.
<unk> sales were up almost 40% year on year on approximately 60% in the first six months of 2022.
Pipeline opportunities continue to expand our expectation around growth remains at 25% for the year.
So overall, we had another outstanding quarter in Q2, we are very encouraged by our base business growth, which we anticipate will be above 30% this year.
With additional capacity coming online new products continuing to hit the market excellent performance by our recent M&A is the future remains bright as we continue to execute on our strategic initiatives for the company.
We look forward to updating you on our progress through the year and with that I will turn the call over to John for the financial update.
Thank you Tony and good day, everyone.
Today, we are reporting our financial results for the second quarter as well as updating our financial guidance for the year.
Unless otherwise mentioned all financial measures discussed reflect adjusted non-GAAP measures.
As shared in our second quarter earnings press release. This morning, we once again delivered record revenue totaling $207 6 million as well as strong earnings performance.
Base business outperformed expectations up 41% year over year and up 13% sequentially from the first quarter of 2022.
While our base business represented 80% of total revenue during the second quarter, we saw solid COVID-19 related revenue contribution equating to 17% of total revenue.
And a nearly 4% uplift from inorganic M&A.
Yes.
At the market level, we expanded our presence in gene therapy with another strong quarter with year over year growth of approximately 70%, excluding COVID-19 related revenue at gene therapy accounts.
Our cell and gene therapy accounts comprise 15% of total revenue in the quarter.
This exciting area complements the steady growth that we continue to see across our monoclonal antibody market, including Biosimilars, where approvals continue to expand the commercial market available to reps legit.
We've also continued to successfully integrate our 2021 acquisitions of poly ma'am appetite and bio flex to support respective share gains in hollow fiber affinity chromatography and fluid management markets.
Our investments to scale, our business to support our long term growth projections are ongoing and we expect to bring our Marlboro, Massachusetts in Rancho, California filtration expansions fully online here in the third quarter, along with building out our Hopkinton, Massachusetts fluid management facility, where we've already shipped our initial products to <unk>.
Customers in the second quarter of this year.
For the full year to date period excuse me for the year to date period, we spent 54 million on capital expenditures and we are now accelerating our plans to build out and scale up fluid management and proteins manufacturing.
R 22.
Capex spend is now expected to be approximately $85 million, an increase of about $15 million to support additional projects with KOL live goals in 2023.
Now returning to our second quarter revenue commentary.
On our top line, we delivered revenue of $207 6 million in the second quarter, representing an increase of approximately $45 million and 27% reported growth.
Constant currency growth.
Was 32% and our organic growth was 29% year over year.
Looking closer of second quarter growth of 27% our base business contributed 29 points of growth. We added four points from our 2021 acquisitions and we saw a six point decline from Covid related revenues.
Foreign exchange triggered a five point headwind primarily in the U S by.
By U S dollar strength.
Compared to the Euro and Chinese Yuan.
From our perspective, we expect that full year for the full year about 60% of sales will be U S dollar denominated and approximately 25% of our sales will be euro based.
We continue to see positive regional revenue growth in the second quarter across each of our three global regions led by our North America region expansion of 41% Asia rest of world growth at 34%.
And the European increase of 11% influenced by lighter Covid revenues.
We expect our growth in Europe to be lower in the second half of the year as Covid volumes decline.
Our regional revenue distribution for the second quarter included Asia rest of World at 20% Europe .
Europe at 35% at.
In North America at 45%.
Now moving down our income statement.
Adjusted gross profit was $121 9 million in the second quarter of 2022, increasing by $20 8 million or 21% compared to the same period in 2021.
Adjusted gross margin of 58, 7% for the second quarter compares to 62% in the same period of 2021, where we had significant revenue acceleration pacing well ahead of our capacity and personnel expansion activities.
We continue to manage FX headwinds and increases in material and labor costs, while still holding margins at a reasonable level for the company.
Now transitioning down the P&L to adjusted operating expenses.
Adjusted research and development expenses for the second quarter or about 5% of total revenue.
Increases in R&D spend continue to support the development of several innovative new products to be launched later this year.
Second quarter 2022, adjusted SG&A expenses were approximately 22% of total revenue.
Slightly lower than the same period in 2021.
Year over year dollar spend increases continue to be linked to the timing of our 2021 acquisitions and continuing investments in personnel facilities and systems expansions to support our long term growth expectations.
Now moving to adjusted earnings and EPS.
Second quarter 2022, adjusted operating income was $65 6 million, an increase of $8 9 million or 16% compared to the same 2021 period.
We are pleased to report adjusted operating margin of 31, 6% in the second quarter of 2022 compared to 34, 7% in the prior period, where revenue acceleration significantly outpaced our scaling activities at that time.
Moving to adjusted net income.
In the second quarter of 2022, our adjusted net income was $51 4 million, an increase of $6 5 million or 15% compared to the same 2021 period.
Adjusted EPS increased to 91 cents per fully diluted share in the second quarter of 2022, an improvement of 12 or 15% compared to 79 and the 2021 quarter.
And finally, our cash and cash equivalents, which are GAAP metrics totaled $596 5 million at June 32022.
We will now transition to our 2022 full year guidance.
Our GAAP to non-GAAP reconciliations for our 2022 financial guidance are included in the reconciliation tables in today's earnings press release.
As previously mentioned unless otherwise noted all 2022 financial guidance discussed will be non-GAAP .
Please also keep in mind that our 2022 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 4% headwind on full year sales.
And does not include the potential impact of any future acquisitions that the company may pursue.
Overall, we are updating our 2022 full year revenue guidance, a GAAP metric to $790 million to $810 million, which reflects increased projected demand for our base business offset by slightly lower projected COVID-19 related revenue.
We are now guiding to overall revenue growth in the range of 18% to 21% as reported.
2% to 25% in constant currency and organic growth of 19% to 22%.
Base business revenue is expected to increase by 31% to 33% to reach $630 million to $640 million.
At midpoint. This is a $22 million increase in anticipated revenue.
We now expect $140 million to $150 million and Covid related revenue and about $20 million in inorganic acquisition revenue.
We are increasing our 2022 adjusted gross margin guidance by 50 basis points to 57, 5% to 58, 5%.
We are ramping our adjusted operating income guidance by $8 5 million at midpoint to the range of $234 million to $239 million.
And we are increasing our adjusted operating margin by 50 basis points to the range of 29% to 30% of revenue for the year.
Adjusted other income and expense is expected at $6 million of expense for the year.
Up from our previous guidance of $1 million due to transactional foreign exchange impacts.
We expect we continue to expect 2022 adjusted income tax expense to be approximately 21% of adjusted pre tax income for the year.
Our adjusted net income guidance is now expected to be in the range of $180 million to $184 million, an increase from our previous guidance of $177 million to $182 million.
And we are guiding to adjusted EPS of $3 13.
To $3 20 per fully diluted share.
Our adjusted EPS guidance reflects an estimated 57 5 million weighted average fully diluted shares outstanding at year end 2022.
Adjusted EBITDA is now expected to be in the range of $256 million to $262 million compared to our April guidance of $252 million to $258 million.
With depreciation and intangible amortization expenses projected to be approximately $25 2 million and 20 point $26 4 million respectively.
The company expects to spend $85 million in capital expenditures in 2022, an increase from our previous guidance of $70 million.
Okay.
We expect year end cash and cash equivalents, a GAAP metric to be in the range of $640 to $660 million, because 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.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad Easter are using a speaker phone. Please pick up your handset before pressing the keys is that any time. Your question has been addressed any of the like to withdraw your question. Please.
Thank you.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Dan Arias with Stifel. Please go ahead.
Good morning, guys. Thank you Tony on lead times, what percentage of the portfolio does it feel like you can.
To lead times as a strategic advantage.
And then im sure Youre, not looking to get too specific but at a high level, maybe where do you think the market shares are most likely to reflect the difference between where you are and where your competitors are where they might be.
Yes, I would say.
In terms of portfolio I would say are our filtration portfolio is.
Is probably the one area, we put a lot of effort over the last 24 months to build out capacity and really over the last say six months six months or so we've been able to drive down lead times to pre COVID-19 levels and in some cases lower than that that's definitely an advantage for us.
And I think it's something that.
When we look at 2022.
Yes.
We're we're honestly focused on in terms of how that splits with.
Our competitors I think it's it's kind of across the board.
Everybody is in a different position everybody is bringing on capacity I think we just need to focus on the differentiated nature of the products that we have and the good lead times that we have and as customers who have really struggled over the last year to get product, we can deliver that which I think should be to our advantage.
Okay, and then maybe just on Destocking activity in the way in which the customers of yours are managing their supply inventory.
Clearly been a topic of debate coming into the quarter. It doesn't feel like your results suggest too much of that but.
Can you just maybe touch on the extent to which youre seeing or not seeing that and then what your expectations might be when it comes to.
Book to Bill and the trend there into the back half of the year next year. Thanks.
Yes, Destocking I think are our view of the world is is pretty similar to what our peers have seen which is very strong order run rates in the first half of the year.
I would say that I think as we.
We go through the next six to 12 months Theres, probably will be a little bit of Destocking, it's hard to tell where it is because when you look at.
US and other bio processing companies, we all suffered from long lead times in 2021, So I'm not sure. There was a whole lot of product built up during that time period, but I would say over the next say two to four quarters. If there is some.
Destocking that's happening.
Happen, it's probably going to be in that timeframe.
Yeah.
Okay. Thanks, so much.
Yes.
The next question comes from Julien, Ken with JP Morgan.
Hi, good morning, congrats on the quarter. So in total I think.
Many of you have.
Meaningful price increases.
Brian .
Can you comment on the packaging division of royalties equal hydro year.
And then given the orderly time, how much incremental revenue from Pall from clinical do you expect to carry into next year.
Joining us John Yes, sure I'll take that one so yeah, just like peers in our industry, we work closely with our customers to <unk>.
Help them understand the challenges that we were seeing.
Any of them are experiencing similar situations in their businesses. So we did implement price increases overall in historically Julia if you remember we said, we typically had recognize about one 5% to 2% on average per year.
H, one we're kind of double that at the high end so in that four ish percent range.
Overall for price realized.
And.
So we actually implemented list price is higher than that we did a mid year increase as well.
Some of that stick some of it doesn't we have certain contracts under customer under contract, we had backlog coming into the quarter and whatnot, but overall as we go through the year, we should expect to see a bit more price sticking than we've seen on that roughly 4% level.
Got it that's very helpful.
One is on the obviously you saw exceptional strength in sandy CRP and a quarter up 70%.
How much of that is driven by the anticipation of Neogen FDA approval and commercial scale up or how much incremental acceleration do you still come back to see once we have more positive FTE.
Yes, so I would say that if we see.
Across the board for you get if we see approvals, it's definitely going to be very positive for the bioprocess and industry.
But I would say from.
When I look at Q1, and Q2 I would say that it's been more broad based it isn't really in anticipation of <unk>.
Success, our approval, it's more we have a lot of accounts that are using our technology that are scaling a number of customers that are scaling through different phases of clinical trials. So we'll see what the second half of the year brings in terms of approvals, but I think I've said this on a few occasions I think approvals will be really positive for everyone.
<unk> and.
We'll definitely give more momentum to the overall gene therapy.
Market.
Okay.
Please help me in terms of new products I know you previously talked about Tia FTF momentum on track to double every year.
Strong initial traction from new products.
Just thinking more broadly how to think about the combined.
And all those 12, new products launched last year and I think so.
Yes and no.
You previously said new products launched in the past seven years account for 25% of revenue today is that a reasonable benchmark to use for the next seven years or are there factors that could support even more accelerated uptake trajectory.
Yes, I haven't run that analysis, but.
Just thinking through I would say that what we've done over the last seven years and the impact of those products and contributing about 25% of the revenue I would expect that it'll be at least 25% of the revenue.
On a go forward basis Theres, a lot of really great products coming through 4% is actually a really good number for contribution for new products that were only launched in 2021. So I think that's a really positive sign and we have a lot of other products in the pipeline that we think will also be.
Major contributors to the overall growth in the company. So I think we're pretty bullish on our new products.
Okay. That's it for me.
Thanks Julien.
The next question comes from Jacob Johnson with Stephens.
Hey, good morning.
Tony maybe just following up on that last question, you know intra quarter Youre highlighting 25% of your revenue came from 10 truly disruptive products like Tia FTF.
It seems like Youre, continuing to have traction winning new accounts.
Can you can you just talk about how much of those markets do you think you'd penetrated today, maybe what's the commercial clinical mix for those products I guess, what I'm just trying to get at is just kind of how long of a runway for growth is there for those kind of key products for you all.
I think there's a long runway for growth.
Our industry is.
Moves fairly slowly so in terms of new products. Once they are launched they tend to go into preclinical phase one maybe you get into a phase III, if you're really lucky you get into phase III. So it does take a number of years for those products to get into commercial processes. So when you look at the 10 disruptive products launched since 2014 2000.
15, many of those products now are in commercial processes, but we're at the very beginning so I expect that those products will continue to have a very positive impact on the company and I would say the products that we're launching last year this year and over the next few years.
They start to gain momentum in the marketplace.
We'll also have a very positive contribution.
One of the reasons why we highlighted Tia FTF a number of you have asked me specifically, how it's doing it's really tracking right to where we expected it to track two in other words doubling most years.
And we're getting into lots of processes on the applications are expanding and Thats, what you want to see with the product right. You may have an idea around.
At target application, but it's even more impressive when you can broaden the application base and and really bring more customers into the fold for that type of technology.
Got it thanks for that Tony and then just just as a follow up on on the Biosimilar opportunity. It seems like we're probably nearing an inflection point for those products just how meaningful is that opportunity for Jan I guess in particular as we think about some of these larger biosimilars that could come to market.
What areas of your portfolio are best suited to support this.
Yes, I think the areas of our portfolio that are best suited to Biosimilars clearly are our filtration portfolio and I would say our upstream.
Portfolio, where people are looking for process intensification.
Yield improvements sufficiency improvement. These are all the things that are really important in the manufacturing of Biosimilars.
We've always worked with companies that are focused on biosimilars, we kind of lump it into the for the most part into the mass market.
But yes, I expect it to be meaningful because if you think about the history of replica and we're really only in bio processing. Since 2013 2014. So we're really not in the originator molecules. So it's another opportunity for younger buyer processing companies like Rutledge and to jump in on the Biosimilar side.
And get some share of commercial drugs in the marketplace.
Got it thanks for taking questions Tony.
Thanks Jacob.
The next question comes from Liza Garcia with UBS.
Lisa you May proceed.
We might want to come back to Liza at the at the end she might have a problem.
You hear me yes.
Yes, we can hear you now sorry about that good morning, guys. Thanks, so much for taking the question.
Congratulations on the quarter.
On the updated guide.
You know Andrew.
I guess, starting off kind of a little bit higher level, just kind of how the demand trends and thinking about that and kind of the current business and what that kind of does sir how do you think about kind of that longer term $1 billion target that you have out there for the revenue and maybe kind of giving you.
As an update on the puts and takes and how you think about that that would be great to kind of that just kind of given the capacity expansion that you may incur.
Anthony extensions.
Yes, So base business Lisa has been really fantastic for the last few years.
Honestly three years in a row, where base business performed really really well, we've had very high organic growth rates as well for our comp for the company.
Clearly the Covid piece is something that we're all dealing with.
We talked about it last quarter I think.
In terms of our goal of getting to $1 billion.
Every year, we grow our base business above 30% gets us much much closer to achieving that goal.
I think we're right on track to being able to accomplish that I think next year, we'll all have to deal with lower COVID-19 numbers and trying to make up that shortfall through base business growth. So I think message is really on track for $1 billion in 2024.
And really driven by base business performance, and obviously dealing with the slower Covid revenues are lower COVID-19 COVID-19 revenues than in 2023.
Great and then I mean, it would be just great to kind of get kind of what youre seeing in the market in terms of the M&A pipeline I mean, there's certainly a couple of moving pieces, just given market volatility and kind of updated valuations, but it'd be great to hear.
What you're seeing and any.
Incremental pieces, you might think would be great for the portfolio.
Yes, so maybe the last part of the question Theres always pieces, we'd love to add on.
Every year is a little different in terms of what might be available. We're very active in terms of conversations.
And it just has to be the right fit and the right timing. So I don't think this year is any different than any other year I do think.
I would say that the first half of this year was a little slower in terms of opportunities, but we tend to target a handful of companies that we think makes sense for <unk> and then see how conversations go and then hopefully over time, they can become part of the represent family.
Great. Thank you Ed.
The next question comes from Matt Larew with William Blair.
Hi, Good morning, as we think about the margins in the second half could you maybe help us just parse out a little bit the impact from inflationary costs like material labor and freight firsthand.
The capacity expansion activity and maybe that can help us better understand what the true jumping off point for 'twenty three will be as we get to your Ed.
Yes, so I'll just take it from an operating margin perspective and then.
That really.
We'll handle this the key drivers of gross margin as well.
You look at the three drivers I think one is FX rate. So we continue to see strengthening dollar weakening other currencies across the globe, that's certainly having an impact on us from both the translational and transactional impacts so there's a headwind there associated with FX. We're also seeing cost inflation.
For us most of the cost inflation.
On material costs, which is our largest component of our of our overall cogs.
Really hasnt hit our P&L that significantly yet in the first half of the year and that's because we've carried quite a bit of inventory as we planned to do by stocking up into 2022 from 2021. So we continue to burn off that inventory at lower costs, but starting in Q3, that's going to stop.
Rolling through.
The second half of Q3 and into Q4 is going to have a pretty significant impact and then head count adds.
And capacity expansion projects kind of tie together.
You know as we as we start to take those projects alive will start having the depreciation and we've continued to add heads throughout as I mentioned in my prepared remarks, we've continued to try to catch up to the revenue growth because last year, we had obviously revenue growth preceded our ability to do.
All the capacity expansion. So the other component I would tell you on the gross margin level, maybe it makes sense to go there.
We've seen really good performance year to date, we're at 59, 5% gross margin.
This comes on top of the last three years I guess 2019 through 2021, we've expanded about 310 basis points on the gross margin and.
So we've had a good run there, but we do expect as we look at our implied margins in the second half to be in that 56, 5% to 57% range. So we do expect a bit of a slowdown as we come through the end of the year with all of these different elements really contributing to it.
Okay, great. Thank you and then you provided an updated outlook on coal.
For the back half.
Curious if.
The ability to given the tighter range there has also.
The ability to get to that.
Outlook on 2023 Africa as well.
Yes so.
On the Covid front, it's pretty clear that.
What we talked about back in May.
It is a reality right.
There is clearly a slowdown we saw in Q to.
In Q2, we know that the numbers in the second half of the year will be lighter.
We think that in general Covid is.
Going to be probably in that 25% to 35% of peak revenues.
In 2023, Thats, our best kind of range at this stage.
And it will normalize after that theres going to be some sort of normalized level of COVID-19 revenue that will be there for the next 234 years. So that's kind of what we see about 25% to 35% of peak peak revenue in 2023.
Okay. Thanks, Tony Thanks, Sean.
The next question comes from Paul Knight with Keybanc.
Hi, Tony when you acquired Bowflex you were talking about the fluid management portfolio, what's in that portfolio and then second part of the question is you.
You had cited that single use.
Just starting to develop in <unk>.
Flow path.
And kind of the market.
We feel early days in and flow path going to single use so kind of a two parter there.
Yeah. So.
Maybe start with the.
What's in the fluid management portfolio.
So over the last two years, we've acquired a number of companies.
As you stated bowflex being the latest back in December, but we in 202020, we acquired Emt NMS.
Almost half of the artisan business is really fluid management and then you have bowflex in at the end of last year, so bringing that all together under one roof was really the goal.
Here in 2022, so we have a we have a business team we have a management group.
We've integrated those companies together and so the best way to look at our fluid management business is probably just split it into two theres a component part where we saw basically the components that come from those individual companies to <unk>.
Many of the players in bio processing right and then there is ane assembly part, which is the <unk> piece.
We're we've opened up the Hopkinton Assembly centers, so we're integrating.
With our filters are we're integrating our tubing with clamps and and other products in the portfolio. So line sets et cetera, and we sell those.
They actually complement what we are selling with our system. So there is support our system sales so our.
Artisan systems and also our spectrum systems that we've had in the marketplace for a number of years. So that's a big part of it and then it supports our customers who need those flow paths to run there to run their systems as well. So that's how it all comes together the single use part Youre absolutely right its <unk>.
Increasing I think it increases more as the assembly centers come online and we can provide more flow paths into our own product line and more flow paths to the customers who are buying those products. So that's kind of how we see it playing out we say it is about a $50 million.
Revenue business.
This year Pall and growing.
While north of the 20% plus for the foreseeable future.
Okay. Thank you.
The next question comes from Matt Hewitt with Craig Hallum Capital Group.
Good morning, Thank you for taking the questions, maybe first off but you've touched on this a little bit, but obviously you've seen some strong growth from the new products that were launched I think as of last quarter. Your expectations were to have nine to 12, new products. Yet this year, you've got a few out the door are you still on track for that target.
Yes, we are a number of products will be coming through the pipeline here in the second half of the year. So I expect it is going to be in that 9% to 12 range and that's really a great reflection of.
The importance of the deals we've done that over the last three or four years, maybe five years.
And the ability now to absorb those R&D teams into the larger R&D group, and then be able to produce products and get them out the door. Because if you went back 345 years ago. We were may be launching two products three products a year Max now we're in that kind of 9% to 12 products per year, that's just going to help us.
Long term, especially as we are our focus is really on.
Adding more disruptive products into the bioprocess market.
That's great and then maybe a second question for me.
Harmony job navigating the challenges of China.
Last quarter and so far this year I'm just curious how much of a headwind did that represent either for Q2 or the first half and.
As that subsides or potentially some sides.
Does that represent maybe a little incremental growth in the back half of the year and entering next year.
Yes, So China was really a challenge in Q2 less of a challenge in Q1 remember.
We came into the year with a pretty strong order book, just like all of our peers. So it wasn't an issue really around.
<unk>.
Getting orders or anything like that it was more when we put in Q2 here.
Shanghai shut down it was just really challenging from a logistics point of view to get.
Product into the country.
We exited in May it started to open up and so the team in China just in the logistics folks here on the in the U S. Just did a phenomenal job getting everything out the door. So we hit our targets for the quarter I don't know if theres really upside in the.
Half of the year and the reason is.
Kind of expect that theres going to be some bumps in the road. If you look at omicron waves and in the U S and Europe , it's not like there's five six months between a wave it's.
Pre every few months, there's waves of omicron coming through so expect.
To see some shutdowns in regions and we're just actually beginning to see that again in China over the last week.
So I don't think there is a whole lot of upside I think it's more around executing to the plan for the year and making sure that our customers in China get the product that they need and I think our team over there has shown their ability to roll with the punches and be able to execute as we need to.
Execute so we expect more of the same in terms of execution from the broader replica and team.
That's great. Thank you.
Yeah.
The next question comes from Brandon Couillard with Jefferies.
Hey, guys. This is Matt on for Brian Thanks for taking the question.
One on the Capex step up of $50 million could you talk a little bit more about what's driving that is it better visibility into demand a little bit of easing on the supply chain that makes projects more feasible and then please confirm if that's pull forward from projects you had from 'twenty three years should we think of that as kind of incremental capex spend thanks.
Yes, great Great question.
I think we've been in the middle of a three year capacity expansion journey, and we've talked about it quite a bit it's 'twenty one through 'twenty three we're expecting to to put significant dollars.
Forward in terms of building out facilities, adding facilities building out equipment et cetera.
So it's part of that journey.
We've seen the opportunity of this year as we start to close out some of the major projects and filtration that we've been working on.
To actually kick start a couple of other filtration projects and to.
To really work on the fluid management expansion.
And these are projects that we had slated for 2023 that we've just pulled forward because we've completed some projects and we feel like we have the ability to go ahead and execute on these so.
Again, all part of the longer term plan all.
All here to support that three to five year.
Capacity expansion that we said we were going to do and.
Right in line with our plans and just pulling it forward a little bit, which I think everybody will be very happy about in a couple of years, one when we have capacity for further growth.
That's helpful and then Tony on the process analytics side that you talked about how the pipeline continues to expand there can you just talk a little bit more about where that demand is coming from either by modality customer type newer applications, just a bit more color on where that pipeline is building.
Yes, I would say, it's a combination of traditional labs trade and and the gene therapy space. So when we.
Acquired Seatac, they really were not focused in terms of customer base over the last two plus years three years, we've really focused on expanding the applications. So there is no.
A growing opportunity within gene therapy. So I think we've definitely taken advantage of that with the products that we have.
So just.
So it's really is.
I would say the other part that.
Is driving this is.
All the work that's being done by the applications and sales team to.
To do evaluation. So when you think about a technology like flow VP X.
On the market just about a year at this stage the <unk>.
Number of clinical evaluations has gone up significantly so as those clinical evaluations.
Our completed and customers make the decision to bring.
<unk> technology and put it on the manufacturing floor that also results in wins for us and and gains momentum for the technology in the marketplace. So there would be the two things that are driving it.
Super Thank you.
The next question comes from Puneet <unk> with <unk> Securities.
Yeah, Hi, Thanks, Tony Thanks for taking the question. So just wanted to clarify on Covid for 2023 was at 25% to 35% or 25% to 30% of the peak revenues and maybe could you just talk a little bit about the sort of peak revenues and sort of how are you thinking about this.
In 2023.
Yes, so we see the range of about 25% to 30, 35% of peak revenues will obviously, when we get to the end of the year, we'll have a better sense of what 2023 is going to look like but I think thats a pretty fair range at this stage.
So yes.
Based on conversations we've had in the last 10 to 12 weeks and.
Our while we see are the projections for next year and the peak revenues that were calling it is the 190 million peak revenues for Rutledge for 2021, yes.
Okay.
Got it and then on.
<unk>.
One question, we continue to get at is around smaller biotechs being under pressure in a more recessionary environment just wondering on that point.
There is.
A number you can provide there were a metric that helps us understand sort of what's the exposure there for smaller biotechs and then.
More importantly, you know.
Your exposure to clinical trials versus commercial map production historically have been more labor to clinical trials given the innovative product that <unk> has but just wanted to see if there were any updates you can provide there.
Yes so.
Small biotech doesn't have a huge impact for rutledge and the majority of our customers are big name companies Big named <unk>.
I think if you looked at the gene therapy space there is probably.
A number of smaller players.
But in general.
Biotech funding Hasnt really impacted.
Bio processing companies in general and Hasnt really impacted rutledge in as well. So your second question on clinical commercial will run those numbers again puneet at the end of the year, but I think you have a good sense right now.
Without COVID-19, we're in that 65 <unk>.
Percent, that's clinical 35% that's commercial will run the numbers at the end of the year and expect it probably bumps up a little bit.
But thats, where we are right now.
Okay and then.
Tony you talked a.
A bit about the systems capabilities and offering more systems to the customers could you talk about what's the feedback so far.
Providing overall.
Systems approach and then on the chromatography front.
It's great to see Opus and the expansion there and what youre seeing with the growth rate, but just wondering when.
When we think about the chromatography systems so.
Im wondering how you want.
<unk> is positioned there versus.
Existing competitors in the marketplace.
<unk> been there for some time thank you.
Okay.
Ill dissect and hopefully give you an answer on this one but on the system side.
Early days for US right. So obviously, we're known in the marketplace for the systems that we have for the hollow fiber portfolio right and that really the foundational pieces for that came from.
From the spectrum acquisition. So that's continues to do well in the marketplace.
Much focused on the Rutledge and portfolio.
Apollo fibers, and we took Pall Knights.
Question earlier, a lot of our flow paths are really associated with those systems and the customers that have been buying those products really for the last half dozen years now with the artisan deal right, which is still.
Essentially we're a year and a half into that.
We're clearly working on expanding our portfolio of systems, we brought some chromatography systems to market over the last six to nine months theyre doing quite well in the marketplace.
Expect to continue to grow and expand that portfolio for.
For both chrome and for filtration.
And really expect over the next few years that.
Systems become an important part of our portfolio. They complement the consumables that we have and they absolutely complement.
Flow path solutions that we're creating.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tony Hunt for any closing remarks.
Just like to thank everybody for joining us today, obviously, a great first half of the year for <unk>.
We look forward to catching up with you guys in a few months' time.
Again, thanks for joining today.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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