Q3 2024 Repligen Corp Earnings Call
Glory to God!
Chad: Good day ladies and gentlemen and welcome to Repligen Corporation's third quarter of 2024 earnings conference call. My name is Chad and I will be your coordinator. Our participants will be in listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero.
Chad: Please note that there will be a question and answer session following the company's formal remarks. To accommodate all individuals who wish to ask questions, there will be a limit of two questions at a time. To ask a question, you may press star then 1 on your touchtone phone.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Sondra Newman, Head of Investor Relations. Please go ahead.
Sondra Newman: Thank you and welcome to our third quarter of 2024 report.
Speaker Change: On this call, we will cover business highlights and financial performance for the three and nine-month periods ending September 30, 2024, and will provide financial guidance for the full year 2024.
Speaker Change: Joining us on the call today are Rep. President and Chief Executive Officer Olivier Loeillot and our Chief Financial Officer Jason Garland.
Speaker Change: As a reminder, the forward-looking statements that we make during the 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.
Speaker Change: Additional information concerning risks related to our business is included in our quarterly reports on Form 10-Q, our annual report on Form 10-K, and our current reports on 8-K, including the report that we are filing today and other filings that we make with the SEC.
Speaker Change: 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.
Speaker Change: During this call, we are providing non-GAAP financial results in the guidance, unless otherwise noted. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to RELPLIGEN's website and on sec.gov.
Adjusted non-GAP figures in today's report include the following.
Based Revenue and Organic Revenue Growth.
Speaker Change: Cost of Goods Sold, Gross Profit and Gross Margin, Operating Expenses, including R&D and SG&A.
Speaker Change: income from operations and operating margin, tax rate on pre-tax income, net income, diluted earnings per share, EBITDA, adjusted EBITDA, and adjusted EBITDA margins.
Speaker Change: These adjusted measures should not be viewed as an alternative to gap measures, but are intended to best reflect the performance of our ongoing operations. Now I'll turn the call over to Olivier.
Olivier Loeillot: Thank you, Sondra. Good morning, everyone, and welcome to our Q3 earnings course. I'm very pleased to report strong third-quarter returns.
Olivier Loeillot: Excellent team execution coupled with improving market conditions has enabled us to deliver 10% year-over-year sales growth and 6% order growth with order spacing above sales by 4% despite the seasonality headwinds we typically see in the third quarter.
Olivier Loeillot: Most of the momentum we have seen in Quarter 2 has carried into Quarter 3. In fact, we saw sequential improvements with our non-COVID sales up 3% versus last quarter and orders up 2%.
Olivier Loeillot: For our mine, consumables continued to show solid sales and order growth, and we grew our opportunity funnel for equipment. It was a record revenue quarter for new modalities, where we are tracking to the highest annual revenue and order intake to date.
Olivier Loeillot: At the franchise level, filtration led in revenue growth, and chromatography delivered an exceptional quarter for orders.
Olivier Loeillot: During the third quarter, we managed to build backlog for the future. In addition, our order funnel is very healthy, setting us up for a solid exit to the year.
Olivier Loeillot: Overall we are really happy with the progress we're seeing as we continue monitoring micro-level trends with China, CAPEX funding and biotech funding.
Olivier Loeillot: With this positive context, we are narrowing the range and confirming the midpoints of our full year revenue guidance. We now expect to finish 2024 with revenue in the range of $630 to $639 million.
Olivier Loeillot: For clarity, this includes close to $7 million of incremental revenue following our 8K filing in September.
Olivier Loeillot: Jason will provide an update on the related restatement process but please note that all of the figures being reported today do include the impact of this shift in revenue timing.
Olivier Loeillot: Let us now deep dive a bit in the quarter and our year-to-date performance.
Olivier Loeillot: Pharma delivers a solid growth in Q3, with revenue of mid-single digits year-over-year.
Olivier Loeillot: Others were also strong at the highest level since 2021 and helped high single digits sequentially, but flatter over a year on a tough comp in Q3 2023.
Olivier Loeillot: Orders came primarily from our top biopharma customers. Year-to-date, our pharma revenues are at high single digits and orders are at mid-teens.
Olivier Loeillot: More importantly, pharma order dollars are tracking 12% above revenue in the quarter. CDMO revenue and order grew approximately 20% year-over-year. CDMO sales are now back to 2022 levels, and our order intake year-to-date is at five single digits.
Olivier Loeillot: In fact, over the last two quarters, orders are up mid-teens versus the same six-month period last year. It is good to see the activity level at some of our top 10 CDMOs picking up again, and particularly at those where we have put a tier-con manager in place.
Olivier Loeillot: In Q3, we also saw a more even distribution of orders coming from both larger Tier 1 and the smaller Tier 2 CDMOs. We look forward to getting further confirmation in the first quarter, but the situation has really improved from a year ago.
Olivier Loeillot: Moving to consumables and equipment performance, consumable momentum is still strong with revenues up 10% year-over-year and at their highest level in the last five quarters.
Olivier Loeillot: Consumable orders were at the highest level they've been since Q1 of 2022, but high teens here to date, which furthers our belief that this stocking is indeed behind us.
Olivier Loeillot: We continue to gain market share in capital equipment despite a challenging environment.
Olivier Loeillot: Our sales were at mid-single digits year-on-year and low-single digits sequentially.
Olivier Loeillot: Sales and orders are now at mid to high single digits here to date.
Olivier Loeillot: While equipment orders have been slower to recover, we could not be happier with the funnel we have for our systems. For example, several big pharma companies are adopting our PHE technology integrated with these systems to improve their productivity.
Olivier Loeillot: In particular, these companies are platforming our system for new modalities.
Olivier Loeillot: Speaking about new modality business, we delivered another great quarter. We filled up more than 20% year-over-year. In fact, quarter three was the highest revenue quarter ever for new modalities.
Olivier Loeillot: Our orders were also at low double digits compared with Q3 2023.
Olivier Loeillot: What is driving our success in this area is innovation and continued adoption at our top 20 accounts.
Olivier Loeillot: It's become even more clear to me that RipleyGene has the best, most advanced portfolio of products to serve this important market.
Olivier Loeillot: Our strategy to develop and launch tailored solutions for the different new modalities is very successful and with the expected rapid growth of this market we are ideally positioned.
Olivier Loeillot: Our pending acquisition of Tanti will also enable us to develop unique and innovative purification solutions for that market segment.
Olivier Loeillot: As a person of total revenue, new modalities continue to increase, tracking to 20% for the full year compared with 18% in 2023.
Olivier Loeillot: From a regional performance point of view, we are really happy about the progress we are seeing in the Americas and Asia, including China.
Olivier Loeillot: America's revenues were up mid-teens in Q3, while Asia ex-China was up more than 40% in Q3.
Olivier Loeillot: China remains a big headwind for us this year and will only represent about 4% of our 2024 revenues.
Olivier Loeillot: Asia will remain a critical focus for growth for us in 2025.
Olivier Loeillot: Let us now deep dive into our third quarter franchise performance.
Olivier Loeillot: Starting with our largest front-side filtration, Q3 has been another successful quarter.
Revenues were up mid-teens year-over-year, and around 10% year-to-date.
Olivier Loeillot: Others were flat year-over-year on very tough comps, but up high single digits sequentially and up greater than 10% year-to-date.
Olivier Loeillot: Our ATF revenues are up more than 50% this quarter, as we capitalize on our ATF late phase design-ins and significant consumable uptake.
Olivier Loeillot: Our ATS technology was also designed into another block cluster map during the quarter.
Olivier Loeillot: Our filtration systems portfolio is gaining market share at several large pharma accounts. In fact, we are starting to be platformed at some of these accounts, which will help us to generate ongoing growth thanks to the recurring nature of the associated consumables.
Olivier Loeillot: Another reason for the positive traction is that we are seeing the integration of FlowVPX technology with our filtration system at several accounts, creating a new market need for this differentiated technology combination.
Olivier Loeillot: Finally, our Targenex flagship cassette portfolio grew greater than 15% this quarter, driven by large pharma wins.
Olivier Loeillot: And with a strong funnel, we continue to work on several large-scale opportunities for the future.
Olivier Loeillot: Moving to chromatography, we are very encouraged by our performance in Quarter 3.
Olivier Loeillot: While revenue was down on a very tough comp, it was an exceptional quarter for orders which were up 35% year-over-year. In fact, the last two quarters have been record quarters for orders intake, driven by increased demand for both large-scale and small-scale opus columns.
Olivier Loeillot: Ligon revenues and orders were as expected with strength in growth factors and AVI type programs.
Olivier Loeillot: Our Habitat customers leak and funnel has strengthened over the last 12 months as more customers implement these solutions for custom and catalog products.
Olivier Loeillot: We are excited about the addition of Stantee to our portfolio and hope to close this deal here in the fourth quarter. The goal will be to launch some disruptive solutions into the new modality space as we move into 2025.
Olivier Loeillot: The work we are doing with Habitat 20 new modalities combined with our MAPS collaboration position us well to move beyond the known headwinds here in 2024 and re-establish growth for our protein business.
Olivier Loeillot: Finally, process analytics also had a strong quarter with 7% top-line growth and 6% order growth.
Olivier Loeillot: Our FlowVPX solution for measuring protein concentration drove the overall business growth across all modalities and compensated for a more difficult business environment for standalone systems.
Olivier Loeillot: So our franchise did well across the board. Our unique and innovative products combined with a successful implementation of our tier count strategy and focus on new modalities is generating a lot of new business opportunities for every gen.
Olivier Loeillot: This dedicated space showcases all of our refrigerant bioprocessing technologies, with product exhibits, purpose-built demo areas, and technical training space, all designed to provide our customers with pre- and post-sales support and hands-on experience with our technologies.
Olivier Loeillot: Every week, we're adding customers willing to open new doors to expand our business. This is reflected in our 50% plus probability funnel, which is 30% greater than prior year.
Olivier Loeillot: So in summary, I'm very pleased with the momentum we saw in Quarter 3 and believe we are well positioned for achieving our full year goals. We are very encouraged by our order strength over the last nine months and the 10% year-on-year revenue growth in Quarter 3.
Olivier Loeillot: With improving CDMO and capital equipment markets, and continued strength in pharma, consumable and new modalities, we're excited about our markets and the future as we move into 2025.
Olivier Loeillot: Finally, I really want to thank our entire Replicant team for delivering such a strong quarter. Over the last 6 to 12 months, we have added several experienced leaders and talented people to an already high-performing team and therefore we are excited and confident about the future of our company.
Speaker Change: It has also been a real pleasure meeting many of you over the past couple of months. I've enjoyed sharing my vision for the ongoing success of RefugeeGen and look forward to our discussion in the months ahead.
Speaker Change: With this, I will hand over to Jason for the financial updates.
Jason Garland: Thank you, Olivier, and good morning, everyone. I'm pleased to share more details on our Q3 financial report and to step through the pieces of our updated financial guidance.
Jason Garland: As Olivier mentioned earlier, please note that all the financials discussed will be inclusive of the adjustments related to the required restatement we disclosed in September.
Jason Garland: At that point, we are only able to share how top-line revenue timing would shift and the estimated impacts on operating income.
Jason Garland: We can now share a detailed summary of our restated financials for the past six quarters, including GAAP to non-GAAP reconciliations.
Jason Garland: Please refer to the supplemental presentation posted today on the investors section of our website for the summary, which is also included as an exhibit to the 8k we filed this morning.
Jason Garland: The restated financials address the specific COVID-related contract modification that gave rise to the need for the restatement, along with some minor adjustments to historical financials for certain other immaterial items.
Jason Garland: I want to thank the team for working through a very detailed and robust process to get to this point. Given the effort required, we are still in the process of finalizing all the required amendments for the impacted 10-Qs and 10-K, and we plan to file them as quickly as possible.
Moving now to the third quarter of 2024.
Jason Garland: Revenue of $155 million marked a return to double-digit growth, up 10% year-over-year on a total reported basis, and up 7% organically.
Jason Garland: Recent acquisitions contributed three percent of a reported growth with the minimist impact from currency.
Jason Garland: There were no COVID sales in the third quarter of 2024 or in the third quarter of 2023. Sequentially, from the second quarter, we were down approximately $4 million from $159 million. But for context, Q2 now includes $5 million of additional sales due to the restatement.
Jason Garland: Year-to-date revenue is 467 million dollars in line with our updated expectations. This was flat year-over-year but up about 5% if you exclude known COVID and protein headwinds.
Speaker Change: As Olivier shared color on our product franchise performance, I'll provide more detail on the performance across our global regions, starting with revenue, where we saw year-over-year growth across all regions during the quarter.
Speaker Change: North America represented approximately 51% of our global business in Q3, Europe represented 33%, and Asia-Pacific and the rest of the world represented 16%.
Speaker Change: Within Asia, China was down about 50% year-over-year and represented 3% of our total business in the quarter.
Speaker Change: We continue to expect China to be about a $20 million headwind to revenue in 2024, as shared in July, and to represent approximately 4% of our restated revenue.
Speaker Change: Excluding China, we saw very strong year-over-year and sequential sales growth for the Asia-Pacific region, up over 40% and 30% respectively. Year to date, the strongest region was North America, up about 10% with healthy growth across all four franchises.
Speaker Change: On regional orders, North America and Asia ex-China were both up double digit on orders year-to-date.
Speaker Change: Europe is down, due primarily to proteins, and China continues to present a meaningful headwind, though we did see some slight order grow sequentially from the second to the third quarter after a decline for three quarters in a row.
Speaker Change: Transitioning to profit and margins, the third quarter 2024 adjusted gross profit was 78 million dollars, a 19 million dollar increase year-over-year on 14 million dollar higher revenue.
Speaker Change: With this, we delivered a 50.7% adjusted gross margin. This is up 8.7 percentage points versus last year, driven by higher volume, year-over-year productivity, and with some offset due to inflation.
Speaker Change: Sequentially, gross margin is down about 40 basis points from the second quarter, but keep in mind that Q2 now includes the benefit of high margin from approximately five million dollars of restated COVID related sales.
Speaker Change: Excluding those sales, our third quarter gross margin improved by 1.1 percentage points.
Speaker Change: Looking at year-to-date, the first three quarters of 2024 adjusted gross margin is 50.3%.
Speaker Change: This is in line with achieving our total year guidance for gross margin, which we are increasing today by 50 basis points to a range of 49.5% to 50.5% entirely from the impact of the restatement.
Speaker Change: The implied midpoint guidance for the fourth quarter does suggest a drop from the third quarter.
Speaker Change: Even with the benefit we get at higher volumes and positive leverage in the fourth quarter, 3Q benefited from higher margin product sales that do not repeat in 4Q. This has a negative mixed impact on the adjusted gross margin, essentially from higher material costs.
Speaker Change: Continuing through the P&L, our adjusted income from operations was $23 million in the third quarter, with significant improvement over last year of approximately $18 million.
Speaker Change: This increase was driven by the fall through of the $19 million increase in gross profit with an offset of $1 million of higher adjusted operating expenses.
Speaker Change: Though our adjusted operating expenses are up versus last year, primarily due to the return of incentive compensation in 2024, sequentially they are down approximately $5 million from the second quarter.
Speaker Change: This is in line with the projected reductions primarily in SG&A that we highlighted as part of our guidance in July's earnings call.
Speaker Change: We continue to closely manage our operating expenses. From a run rate perspective, we do expect the fourth quarter to step up from the third quarter due to the timing of expenses, but should still remain below the first half run rate.
Speaker Change: Our third quarter 2024 adjusted operating income margins are up more than 11 percentage points year over year, driven primarily by strong operating and OPEX productivity, higher volume, some price tailwinds, offset by incentive compensation and inflation.
Speaker Change: Operating margin also improved sequentially by approximately 200 basis points to nearly 15%. Our third quarter 2024 adjusted EBITDA margin rate was approximately 21%, which reflects a greater than 5 percentage point drag from depreciation.
Speaker Change: The implied guidance at midpoint for fourth quarter adjusted operating margin is a small step up from 3Q. Even with gross margin down sequentially as discussed earlier, we expect to see an increased impact on volume leverage at the adjusted operating margin level, which more than offsets the gross margin mix headwind.
Speaker Change: To this end, we encourage just under $3 million of restructuring charges in the third quarter, all of which were cash expenses. For clarity, these expenses are excluded from our adjusted results.
Speaker Change: Adjusted net income for the third quarter was $24 million, up nearly $11 million versus last year. This was driven by the $18 million increase in adjusted operating income, offset by greater than $7 million of higher tax provisions.
Speaker Change: Our third quarter adjusted effective tax rate was 21.9% versus negative 5.8% last year.
Speaker Change: Our adjusted effective tax rate was also up over the first half, primarily due to a shift in our profit-before-tax mix being less U.S.-driven.
Speaker Change: With this increase in the quarter, we are maintaining our total year-adjusted effective tax rate outlook and still expect it to be approximately 20%.
Speaker Change: Interest income, net interest expense, was up slightly over last year. We expect this to decline in the fourth quarter on decreasing interest rates, though still see a path to higher interest income for the total year versus our prior guidance. There is no impact from the restatement.
Speaker Change: Adjusted fully diluted earnings per share for the third quarter was $0.43 compared to $0.23 in the same period of 2023.
Speaker Change: Finally, our cash position at the close of the third quarter was $784 million, down $25 million sequentially.
Speaker Change: after using $70 million for the settlement of our remaining 2019 convertible notes as previously discussed. This was partially offset by another quarter of strong cash flow from operations as we generated $49 million.
Speaker Change: As we end the year, we still expect the Tonti acquisition to close in the fourth quarter and plan to fund the transaction with our available cash on hand.
Speaker Change: I'll now move to an update on our guidance for the full year of 2024.
Speaker Change: I'll speak to adjusted financial guidance, but please note that our GAAP to non-GAAP reconciliations for our 2024 guidance are included in the reconciliation table in today's earnings press release.
Speaker Change: And for further clarity, our guidance is fully inclusive of the restatement and inclusive of the FlexBioSys and MetaNOVA acquisitions we made in 2023, but still excludes any impact from the pending acquisition of Tonti.
Speaker Change: As highlighted earlier by Olivier, we have updated our total year-adjusted guidance ranges that we shared last July.
Speaker Change: We have tightened our revenue guidance range around the same midpoint of $634.5 million communicated in our restatement disclosure. We now expect total revenue in 2024 to be between $630 and $639 million.
Speaker Change: As Olivier mentioned, this includes approximately $7 million of incremental revenue following our 8K filing in September.
Speaker Change: We still expect year-over-year revenue growth in the second half of the year, and even with the restatement, we still expect second half 2024 to be above the first half.
Speaker Change: At our midpoint, we expect total revenue growth in the second half of 2024 to be 5% higher than the second half of 2023 and 3% higher than the first half of 2024.
Speaker Change: Excluding COVID we expect revenue in the second half of 2024 to be 12% higher than the second half of 2023 and 7% higher than the first half 2024.
Speaker Change: Overall, for the full year, we expect growth in the range of 2-3% for our non-COVID business, with M&A contributing approximately 3 percentage points of that growth.
Speaker Change: We now expect to deliver adjusted gross margins in the range of 49.5% to 50.5%, with the increase solely due to the restatement impact on the first half of 2024.
Speaker Change: We also expect our adjusted income from operations to be between $80 to $85 million, or 12.5 to 13.5% adjusted operating margin rate.
Speaker Change: This 50-basis point increase from our guidance in July is driven by approximately 90 basis points of benefit from the restatement, partially offset by a 40-basis point of headwind in our expected operating expenses versus our July outload.
Speaker Change: This equates to about a $1 million higher SG&A than previously forecasted as we continue to balance making important investments for growth while driving prudent spending.
Speaker Change: Adjusted EBITDA margins are now expected to be in the range of 17.5% to 18.5% for the year.
Speaker Change: reflected of the adjusted operating margin changes and no impact on our prior outlook of roughly 500 basis points of fixed depreciation costs from capacity expansions we have made.
Speaker Change: Our adjusted other income, Outlook, has increased by $3 million to approximately $27 million. And our 2024 adjusted effective tax rate is unchanged at an estimated 20%.
Speaker Change: Incorporating all the updates discussed above, our guidance for adjusted net income is now 85 to 89 million dollars and our adjusted diluted earnings per share is $1.50 to $1.58.
Speaker Change: In closing, we continue to be encouraged by the momentum we are seeing in the market and our performance in the third quarter. We believe that our focus on key accounts, delivering innovation, driving orders growth for the company, continuing to develop and acquire differentiated technologies,
Speaker Change: and progressing on our revenue and profitability goals sets us up well for a successful exit to the year and into 2025. With that, I will turn the call back to the operator to open the lines for questions.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2.
Speaker Change: To accommodate all individuals who wish to ask questions, we ask that you please limit yourself to one question and one follow-up question. And at this time, we will pause momentarily to assemble our roster.
Thank you for watching!
Speaker Change: And the first question will be from Dan Leonard from UBS. Please go ahead.
Speaker Change: Thank you. I have a question on the fourth quarter revenue ramp. Can you walk through some of the assumptions that are behind the ramp from a budget flush perspective or anything else?
Good morning, Dan, Olivier here.
Speaker Change: Yeah, as we said a couple of times already, quarter four is always the highest quarter, was always the highest quarter pre-COVID due to seasonality.
Speaker Change: And on our side, I mean, obviously, we've seen a nice ramp-up of orders during the entire year. We spoke to be around one, if not above one, during the every quarter, one after the other, and quarter three being another good example here. So we've grown our order intake consistently during the entire year, which is putting us in a very strong position to enter into quarter four and deliver the higher number that we have today in quarter four versus the previous quarters.
Speaker Change: And the good news is October has been a very strong month as well, so that's why we decided to reduce the overall guidance as we did in the range.
Speaker Change: Thanks and as a follow-up I think you mentioned that equipment revenue was up low single digits sequentially which was better than we were expecting.
Speaker Change: the funnel closing at the same rate, are they closing faster, any change on that front?
Speaker Change: Yeah, no, absolutely Dan. So we were really happy to see some growth in what has been indeed a tough environment. And I mean, we've heard that, we've even seen it ourselves.
Speaker Change: but you're right we have a great funnel and if I look at the entire portfolio of products we have partly the artists in portfolio has enabled us we gain quite significant market share and the good news is partly new modalities
Speaker Change: several big pharma companies have decided to platform us across the board for those new modalities with our systems. And we're also benefiting from the integration of your BPX PAD system. So yes, it's
Speaker Change: definitely a good position we are in right now. In terms of the time it takes between you generate the funnel and you close the deal, it really depends quite heavily from one customer to the other, but you would say typically it can take something between three to six months to close the smaller scale type of hardware and maybe six to nine months for the larger scale.
Okay, thank you.
Speaker Change: And the next question will be from Dan Arias from Stiefel. Please go ahead.
Dan Arias: Morning, guys. Thanks for the questions. Olivier, you sound pretty encouraged by the CDMO picture. If I go back to the end of last year, demand stepped up and then it took a step backwards in early 2024.
Speaker Change: What about the improvement that you're seeing here suggests that the path forward might be more sustainable? Is it breadth of orders, order size, or frequency?
Speaker Change: anything that gives you extra confidence at entering next year on just the CDMO side specifically.
Speaker Change: Yeah, no, good morning, Dan. Yes, I think we've repeated consistently, like, the health of the industry is really at the highest level when you see CDMO recovering. So, from that point of view, we're really happy to see what we've seen now for, I would call it, even the last two quarters. In fact, when you look at the last two quarters order, they are at mid-teens versus the same two quarters last year. So, it's really a very significant improvement. In fact, our sales are back to the 2022 level at this stage. And what we're also very happy about is it's both large and small CDMOs that are really showing some very good performance. And when you look at large ones like Lonza or Samsung, they are non-CDMOs.
Sondra?
Sondra Newman: And another stuff we are happy about, we are covering four of these CDMOs with our Key Account Management team and partly at those four accounts we've seen incredible improvement over the last few quarters now.
Speaker Change: 7 million that falls into 24? Or do you think you can offset that? And then as we think about the quarters for next year, what would you call our attention to when it comes to the impact of these changes? Just sort of trying to get ahead of any modeling surprises that might show up when revenues and costs move around. Thanks a bunch.
Speaker Change: Yeah, I think that as we look into next year, we still are maintaining the view that we've shared before. I think that as we...
Olivier Loeillot: talk about next year, right? We certainly, when you exclude COVID, which again, most of the resaving impact is in that bucket, that that's where we're gonna focus on our continued growth. And I don't know if you wanna share anything more on 25, Olivier.
Well, I think we're good, Tim.
Jason Garland: Okay, but Jason, just to be clear, when we show up 90 days later, you don't envision there being something that surprises the street, surprises investors, surprises analysts about the 4Q and 1Q dynamics that resulted from that accounting change.
That's right.
Okay, thanks.
Speaker Change: And the next question will be from Rachel Vattenstahl from J.P. Morgan. Please go ahead.
Rachel Vattenstahl: Okay, perfect. Thank you, guys. First up, just on the order intake, you mentioned that orders grew 6% year-on-year. Can you also just give us what was sequential order growth given some of the COVID comps, especially in the first half? And then also, what was booked to bill this quarter? Was it truly above 1? Thanks.
Rachel Vattenstahl: Hey good morning, Richard here. So versus quarter two, our orders increased by 2%. In fact, year to date, our orders are up 8%, which is a very significant increase for us. And then we did mention like our orders were ahead of sales by 4% in quarter three.
Thank you for watching.
Speaker Change: Got it. And then just on my follow-up on 2025, I know Dan just pushed on top line, but maybe I wanted to look at margins a little bit more. You typically have grown gross margins by 100, 200 basis points a year, give or take. But you mentioned that this COVID restatement is margin accretive. So walk us through the moving pieces and really what that means for margin expansion in 2025 at this point.
Speaker Change: There's no change in the dialogue we've been having about 2025. Again, we're not issuing guidance, but we do expect to be able to still.
Speaker Change: achieve that 100 to 200 basis points of gross margin over the next few years. So no impact in particular from an impact to restatement. Certainly the step-off point becomes higher.
Speaker Change: Thank you. And the next question will be from Puneet Sota from Leering Partners. Please go ahead.
Puneet Sota: If you can maybe help us understand how much of the business is picking up in your Phase 1 and 2 versus Phase 3 and commercial. Can you maybe just help us parse out both revenue growth and order growth that you're seeing? How much of that is Phase 1 and 2 versus later stages?
Good morning, Puneet and Olivier here.
Puneet Sota: We don't have the exact number of how much of our new modality cells is going through CDMO versus pharma. I would say there is no reason why it should be any different from the rest of the business because the only difference probably is that a lot of CDMOs active in new modalities are on the smaller hand of the CDMO range as well, particularly on the gene therapy side, but we don't have the exact number here.
Puneet Sota: Well, what I think is important really to mention on the new modality side is we have about 20 plus customers that are really significant customers of ours and a big chunk of them are CDMOs indeed. But I don't have the exact number here to give you.
Puneet Sota: And then in terms of clinical phase, as you know, about 65% of our overall business is in the clinical phase, slowly but surely. Obviously, some of these projects are moving from the early phase clinical to the later phase, which is why we're seeing a very nice consumable order uptake and sales during the last several quarters, because we really have a tail end of this product moving to the later phases. But here again, I can't give you exactly the exact number. Typically at the end of the year, we do a reconciliation of where our sales went during the entire year. And we will probably be able to give you more granularity during the next call on the speed between the early phase and the later phase here.
Okay, that's helpful.
Speaker Change: Just on M&A, I mean there have been significant speculation lately and I think that's been an important question for investors as well.
Speaker Change: I understand it's always challenging to address any near-term discussions, but I just wanted to see and get a view from you on your M&A approach, and if you can provide any clarity on that, and your ability to deploy capital for the right asset.
Thank you.
Speaker Change: So as you all know, I mean, M&A has been absolutely critical for the growth of repeat chain in the past, and there is no reason why we are going to stop that. So we are having a very active funnel of opportunities. One of the messages we've conveyed over the last few months is, we are indeed a bigger company today than we were five to 10 years ago or so, which is why we are definitely looking at potential bigger targets today than we were five to 10 years ago. But what does remain similar is, we are looking for very unique technologies that will really enable us to further differentiate ourselves on the market. So we are not into the Me Too type of products, so we are not interested to acquire businesses that wouldn't bring something that is really going to be very differentiating.
Speaker Change: And differentiating means in the very short term or by adding it to the rest of the portfolio we already have where we can create something that's going to be very differentiating in the short to mid-term with that acquisition. So nothing really has been changing heavily on that side. We have a very strong funnel of opportunities and the Tanki, by the way, which is the latest acquisition we've done, is a good example of the fact we are still interested by bolt-on acquisition as well because even though it doesn't bring us a lot of top line in the very short term, the complementarity to our current portfolio is gigantic and will enable us to speed up the growth of the Avitide Ligand customized offering.
Thank you.
Okay. Thank you. I appreciate it, Olivier.
Speaker Change: The next question will be from Matt LaRue from William Blair. Please go ahead.
Speaker Change: Hi, good morning. Olivier, you mentioned part of the growth driven, especially in equipment, by being platformed at Big Pharma.
Speaker Change: Obviously, the enterprise sales strategy has been a focus for the last couple of years. Are these totally new accounts to Repligen? Are they accounts where perhaps you existed in a small way?
Speaker Change: but now have a much bigger opportunity. It sounds like ATF and FlipVPX were entry points. Could you maybe provide a bit more color on the success at the Big Farm on Monday quarter?
Speaker Change: Yeah, no absolutely and you nailed it well, Matt. I mean, we obviously have been very active with the Key Account Management Organization. In fact, today we are up to a team of seven people covering 20 accounts.
Speaker Change: You want to get access to the C-suite level people and there is nothing better than having one person who has the ability to present the overall portfolio because then suddenly you get access to those higher level decision makers at those big accounts.
Speaker Change: And particularly for a company like ours that has got very differentiating innovation, you really want to make sure you get access to the key decision makers, because sometimes for my company, I'm a little bit reluctant to embed changes. So having access to these higher level decision makers has enabled us to speed up them taking up on the innovation we are launching every year around.
Speaker Change: Okay, thank you. And then on China you referenced 3% in the quarter. I think, you know, some speculation about...
Speaker Change: potential stimulus activity for the space, how that might affect things next year, where it might come through. But you also referenced to an earlier question, I think a positive impact from some CDMOs related to biosecure, which I don't know, sort of is maybe an offset.
Speaker Change: to sort of what's going on in China. I'm just curious if you could, one, sort of provide current thoughts on the go-forward business in China, and two, maybe flesh out a bit more what your customers are telling you about the positive impact in biosecure.
Thank you.
Yeah, so absolutely so.
Speaker Change: I think we're all thinking and hoping that China is bouncing along the bottom at this stage, and you're right, I mean, slowly but surely it has reached like a very small portion of our overall revenue, about 3% in Q3, we think probably a little bit less than 4% for the overall year.
Speaker Change: Well, what's great, by the way, and I just take a very short segway, is the rest of Asia is doing very well. I mean, in fact, our sales outside of China were up 40% in quarter three. But back to China, we need to focus more on that market for sure in the upcoming few months because we think there will be a rebound coming sooner or later. And yes, you're right, the stimulus seems to be hitting more every quarter. I mean, I think in August, there was a specific announcement made for equipment for bioproduction, which we start to see reaching some of the potential customers in China. So we hope indeed to see some positive impact coming from that side. And in terms of the Biosecure Act, well, what I was talking about earlier is, yeah.
Speaker Change: There have been some companies, some pharma companies, who have started inquiring with alternative CDMO sources, and very often there's a smaller hand of CDMOs, considering the projects they are considering moving faster might be the early phase one. So it's a fact, like, a few of the small CDMOs in the U.S. have been really benefiting from probably much higher opportunity funnel intake during the last two quarters, and I mean, we start to even see some M&A activities in the small CDMO arena in the U.S., as you've seen AVID being acquired by a private equity company. So there are quite a lot of stuff happening on that side, for sure, right now.
Okay, thank you.
Speaker Change: The next question will be from Jacob Johnson from Stevens. Please go ahead.
Jacob Johnson: Thanks, good morning. Maybe just on clinical demand, I think that's been a focus area for investors and perhaps some concern there that we could see a slower recovery in clinical next year versus commercial.
Jacob Johnson: I think one of your larger peers called out muted growth from earlier-stage demand earlier this quarter. You guys are pointing to improving demand from CDMOs, I think last quarter, maybe also earlier-stage customers. Can you just talk about what you're seeing in the clinical piece of the business?
Speaker Change: And do you think that business could hold up relatively well, even if the broad, you know, for Replicant specifically, even if the broader space is a bit more muted next year?
Speaker Change: Hey, good morning Jacob. Yeah, as usual you're spot-on here. Yeah, if there is one area that is probably still a bit of concern including for us as well right now, it's with emerging biotechs.
Thank you.
Speaker Change: And then, in order to try to better understand what the pattern might be, we will look into that clinical trial start this year. And in fact, here today, clinical trial starts in the U.S. have gone down by about 20,000 to 25,000 versus last year. So, there seems to still be a little bit of a story here. And if I look at our own business, indeed, the only red figures we have across the entire portfolio, whether from a business unit point of view or whether from a market segment point of view, this is really still with emerging biotech. So, we're hoping to see some improvement coming from that side, hopefully, in the next two quarters.
Speaker Change: Okay, thanks for that, Olivier. And then, Jason, just one maybe last question on 2025. You talked about gross margins in response to Rachel's question, but as we think about the OPEC side of things,
Speaker Change: OPEX was down nicely sequentially. It seems like maybe it'll pick up a little bit in for you but as we look into next year, should we assume that maybe you get kind of some benefit from the savings in the back half of this year that...
Speaker Change: helps margin expansion in the first half of next year or is there are there any moving parts on the the op-ex side of things like incentive comp that we need to pay attention to as we're thinking about modeling next year. Thank you.
Speaker Change: Yeah, I mean, obviously, we'll get more clarity as we issue our 2025 guidance in February. But, yeah, there will be moving parts, and we do expect to get some additional leverage at the op margin level. But, yeah.
Speaker Change: And I don't know that I'd say there's a particular timing sort of dynamic, but yeah, we need to sort through all those different pieces. But we'll get the leverage from our improvement at the gross margin level, see that fall through, and maybe some additional OPEX leverage as well.
Got it, thanks for taking the questions.
Speaker Change: Thanks. And the next question is from Connor McNamara from RBC Capital Markets. Please go ahead.
Connor McNamara: Hey guys, thanks for taking the questions. One, just quick housekeeping, and this is a follow-up on margins and going in next year, but just first off, what is your Q4 implied...
Connor McNamara: base revenue growth, ex-COVID, and then what's your Q4 implied EBITDA margins and are both of those a good jumping-off point as we go into next year?
Nambi Nambi
Speaker Change: So, Olivier, do you want to start on margin? No, go ahead on the revenue. Yeah, so on the revenue side, if you exclude COVID, our growth for Q4 is going to be in the 12% to 13% range at midpoint of the guidance, Conor.
Speaker Change: I have op margin in front of me. I don't have it at the EBITDA level, but the implied is probably just over 15% for 4Q.
for Op Margin.
Speaker Change: Again, I think there's going to be always ebbs and flows as you look at OPEX levels through the course of a given year, and so, you know, we'll determine how that transitions in 2025. But that's the fourth quarter implied at the OPEX margin.
Speaker Change: Okay, thanks for that. And then you talked about the couple of big platform wins with large pharma. Are those competitive wins or are you seeing more activity at the overall market with large pharma?
Speaker Change: like having that feature is becoming absolutely critical for them, which is why for the next buy of equipment, they are just not considering going anywhere else than at Ray Pigeon because they want to have that feature offered with the system here.
Great. Thanks for that, Carl. I appreciate it, guys.
Speaker Change: And the next question will be from Brandon Collard from Wells Fargo. Please go ahead.
Speaker Change: Hey, guys. This is Evan on for Brandon. How's it going? Thanks for the question. A lot's been covered here. One thing I did want to – I think we just kind of touched on in the last question, but in terms of, you know, your system strategies, so you put these systems in there and then you have these, I think, fairly high-priced consumables.
Speaker Change: that get attached to them that are, they're, you know, it's pretty,
Speaker Change: It's only, you're only able to put on Replicant-produced consumables. Can you maybe just talk about how that strategy is helping you guys and how that, you know, maybe is helping you to gain share, which is something you talked about previously?
Speaker Change: So what you want to re-ensure is like, in this consumable, you're joining to your systems, are going to really enable customers to run their processes in a very efficient manner. One of the reason why we differentiated ourselves on the system side is because we are really indeed enabling customers to deal with lower volume products than they were capable of dealing with the other system, for example. So where you're right, there will be recurrent sales of consumables over the next several years. We're also making sure, like, from a productivity point of view, our customers benefit from a state-of-the-art system that enables them to be much more efficient, much more productive than they were with the other system.
Speaker Change: and they got access to. So it's really a win-win on both sides here.
Speaker Change: Gotcha, thank you. And I guess as my follow-up, I don't think anyone touched on this yet, but you did mention a nice win for for ATF, I believe, in what you described as a blockbuster drug.
Speaker Change: I guess now that I think about it, I mean, I guess...
Speaker Change: Integrated further down the path as you're looking to kind of increase yields and you're later in the clinical stage, but
Maybe it's touch on, is that?
the right way to think about it.
Speaker Change: And then, two, like, how big of an opportunity could this blockbuster drug be as we look into next year? Thanks.
Yeah
the presents.
Speaker Change: very happy. As we mentioned, we have great traction. I mean, our sales grew by more than 50% in quarter three. So that's really a very well-performing business for us.
Speaker Change: Thank you. And the next question will be from Matt Hewitt from Craig Hallam Capital Group. Please go ahead.
Matt Hewitt: Good morning and thanks for taking the questions. Maybe first up, for the sake of consistency, I feel like you've talked about your go-forward expectations on a half basis. You talked about 1.524 being better than the second half of last year.
Matt Hewitt: to have 24 being up versus 1st half. As we look out at next year, and I realize you haven't provided guidance, but are you anticipating further growth, you know, 1st half versus 2nd half of 24?
Matt Hewitt: want to wait for the CDMO and the hardware improvement. We've seen ourselves in quarter three to be confirmed in quarter four. But overall, yeah, we are in a much better spot today than we were a year ago. And also keep in mind the seasonality that I know we've all forgotten during COVID because we had so much backlog for several quarters that nobody cared about seasonality anymore. Quarter three has always been the weakest quarter for bioprocessing company, which is why we're very happy about the performance we had because we even managed to show growth between quarter two and quarter three. But we know quarter four is always the strongest quarter in the year by far.
Speaker Change: Got it. And then, maybe in a similar vein, I think pre-COVID, you typically had good six-month visibility. Like, you had a very good idea based on order flows and backlog on how things were going to shake out.
Speaker Change: And then COVID hit, and then the reprioritization of pipelines, and all these different things that have hit over the past couple of years. Do you feel like you're getting back to that level of visibility that you had pre-COVID, where you've got a pretty good sense for how things can shake out over the next one, two, or even three quarters? So kind of back to normal?
Speaker Change: Yeah, so in fact, the pre-COVID, the typical backlog a bioprocessing company would have would always be in the range of three to four months.
Speaker Change: And then indeed during COVID getting bombarded by customer orders and so on, those backlog went up to sometimes up to 10 months or so. So in fact, you could say we had more busy-busy during COVID than before and after. But obviously the 10-month backlog was not a normal situation when you are a bioprocessing company. So yes, back to your question, we are back to the normal pattern we experienced before COVID for the previous 10 years before COVID. And probably one of the reasons why we've been doing very well on a book-to-bill ratio side ourselves now for the last five quarters, is because probably we've been back to the normal situation ourselves already for almost a year now.
Speaker Change: But the real visibility you always have is typically four months of backlog in that industry.
That's helpful, thank you.
Speaker Change: And the next question is from Subu Nambi from Guggenheim Securities. Please go ahead.
Speaker Change: Yeah, I mean, you know what I keep on saying is...
Speaker Change: You never have the perfect M&A opportunity, Subbu, I mean, and you are looking really, first of all, at differentiating technology that will not only add to your portfolio in the short term, but potentially in the midterm as well, because it's very complementary to something else you have. That's a perfect example of the Tonti acquisition that combined to Habitat is going to give us tons of upside on the raising market side. It's the example of the Metanova acquisition where you're acquiring what is mostly a stainless steel mixing business that now merge to our single-use business is going to enable us to launch a state-of-the-art single-use mixing technology, which is back in the industry. So you always start with technology.
Speaker Change: And then the second piece you want to look at is how is this really going to complement potentially your A to Z offering by adding maybe an offering in some areas where you didn't have much yet that will enable you to broaden the workflow of offering you have. And then obviously you always look at financials and financials you look at it from two angles. You want to bring something that's going to bring you growth for the reason I mentioned earlier because it's very complementary to your portfolio of products and it's a very fast-growing business but you also want to look at something that's going to bring you also a better margin maybe than what you already have. So ideally you find the targets that tick all of these boxes. In reality sometimes it ticks all the boxes.
Speaker Change: Sondra Newman, Olivier Loeillot, Jason Garland, Sondra Newman, Jason Garland, Sondra Newman,
Perfect, makes sense guys. I'll hop back in the queue.
Speaker Change: And the next question will be from Justin Bowers from Deutsche Bank. Please go ahead.
Justin Bowers: Hi, good morning everyone. So just taking a step back as we think about 2025, I think most of your peers have characterized it as a year of normalization for the industry. And in your perspective, is that still the case?
Justin Bowers: And what are some of the swing factors that would drive growth sort of at the high end or low end or outside of those ranges?
into 2025.
Speaker Change: Yeah, absolutely, and I mean, again, that's what I was saying earlier, I mean, the situation we are in today versus 12 months ago is very different, I mean, totally different, I should say, even now. I mean, look at the traction we've had on CDMOs in the last four quarters, in fact, three out of the four last quarter were really good on the CDMO side, there was only one that was a little bit behind.
Speaker Change: Pharma, who were already doing very well beginning of this year, have just improved constantly over the entire year. I mean, if I look at quarter three, I mean, we had the highest level of orders since 2021 on Pharma. Our orders are up mid-teens year-to-date on the Pharma side. So, Pharma are doing very well. The consumable business, we had the highest sales in the last five quarters on consumable. We had the highest orders for the last two years on consumable as well. Equipment, when you say about the watch out, equipment might be one, but from our side, we had a really good performance in quarter three. Again, the funnel we have is at the highest we ever had, which is why we're so very confident.
This is where we were 12 months ago for sure.
Speaker Change: And the only other little watch out I would have, really, as I mentioned earlier with Jacob is on the smaller biopharmaceutical company. It is a fact that we've seen some kind of softness is there, which doesn't impact us too much. I mean, as you know, a small biotech business is only 10 percent of our overall business. But that is something we still need to watch out a little bit. But overall, we think we're in a very good spot today, for sure.
Appreciate it and then one quick follow-up
Speaker Change: Are you seeing any, like, how are activity levels changing for process development?
and that part of the value chain within your portfolio.
Yeah, do it.
Speaker Change: Honestly I think there might be more constraint on that side for the reason I mentioned earlier, maybe lower number of clinical staff and where funding of biotech is significantly higher this year than it was last year. It hasn't probably been declining now for two quarters in a row.
Speaker Change: We don't see really a lot of impact from our side because, I mean, we're just doing a lot of lunch and learn with customers right now, with the traction we have with the big account in particular. So we managed to bring a lot of people from the PD group, probably more than ever. I mean, we just had an event last week on the West Coast. We have another one coming. I mean, I think we had probably three times more PD people than we would have had in the past and so on. So we don't seem to be suffering from that a lot. We're just watching out in terms of clinical trials to make sure like funding and clinical trials are going to recover again in quarter four and beyond. But overall, we were not particularly worried about that ourselves.
Okay, thanks so much. I'll jump back in queue.
Speaker Change: And the next question is from Paul Knight from KeyBank. Please go ahead.
Speaker Change: Thank you very much, Olivier. Looking at 2025, what would you say will be kind of your dynamic growth drivers? Will it be
Speaker Change: Protein A may be getting traction above the 2-3 products you think are kind of the secret to 2025?
Speaker Change: Yeah, and it's probably a bit of all of that, but I'll start by saying, as you all know, we had a lot of headwind entering into 2024. Remember, and obviously with the restatement, the headwind has changed slightly, down probably to about $60 to $65 million only, but it's still $60 to $65 million of headwind, which we will have more or less none left next year. So at least on that side, that's going to put us in a much better shape to start 2025. And if I had to pick up really within the different franchises, I mean, we're very excited about most of them right now. But if I would have to pick up probably two or three, I would restart with ATF, where indeed all of this designing we've managed to achieve over the last several years is
Speaker Change: This is giving us a lot of tailwind in terms of consumable order uptake and sales for 2025. I'm also very excited about the systems, and I know the industry is having some challenges, but the uptake of orders and funnel we've had is absolutely very good in this difficult environment. For whatever reason, funding on CAPEX improved significantly. We should really see a huge increase coming from that side next year, hopefully. And then finally on proteins, yes, it has been a tough business for us this year. It's a really risky year for us, with no more side T by sales and very limited from the second big players. We have so much fraction now coming from our...
Speaker Change: and the Abitai and Tanti product offering. We think that's going to be a real big tailwind for us. We are launching our first resin combining Tanti and Abitai technologies as early as quarter four of this year. And we are really very positive that this is going to be also generating a lot of growth for the future as well here.
Speaker Change: And then lastly, cell and gene therapy, what portion of revenue in that market getting better or no?
Thank you.
Speaker Change: And the next question is from Matt Stanton from Jefferies. Please go ahead.
Speaker Change: Thanks. Maybe first one for you, Olivier. I want to follow up to one of your answers to one of the questions on phasing between the halves. I think you said that there's good momentum that's continued in the first half or the first month of 4Q here. I guess, did I hear that right? And then any color on either demand or orders you'd be willing to give for October, just given a bit of a later reporting period this time around with the accounting adjustments? Thanks.
Speaker Change: Yeah, no, we won't give any numbers for the timing for sure, but yeah, we had a very strong start of the quarter. We were very, very happy with the October order intake and so on, which is why we were very confident about the guidance for the year 2024, and the fact we're going to be able to enter into 2025 in a strong position here as well.
Speaker Change: Would you expect the new product cohort to fare better, given a more normalized demand backdrop? Or is that, you know, cohort of products, you know, launched last few years actually held up, you know, maybe a bit better, even though we've seen some weaker industry demand more broadly? Thank you.
Speaker Change: Again, we feel like that's going to become a feature that is becoming so important for customers that they won't even imagine not having it included in the system they buy in the future.
Speaker Change: So, really good traction on that side. Finally, and I mentioned briefly about it with the acquisition of Tanti, we're all going to be able to launch our first resin, including both Tanti and Abitai, the part of the offering quarter for this year. On this specific resin, we are getting a lot of traction as well already, even though it has not been officially launched yet. So, lots of good things coming from MPI. Next year, it's going to be an exciting year. We're launching our single-use mixers, and we're going to be launching products more or less across the entire portfolio in every single business unit. So, it's going to be a very strong year next year as well.
Super, thank you.
Speaker Change: And ladies and gentlemen, this concludes today's question and answer session. I will turn the conference back over to Olivier Loeillot for any closing remarks.
Olivier Loeillot: I would just like to thank you so much for joining our quarter three call. We are really looking forward to seeing many of you at the upcoming events starting early as of this week and then on our Q4 call in February where we expect to share our first formal guidance for the year 2025. Have a great day all. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.