Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Okay. Good afternoon, and welcome to the RBC Capital Markets 2025 Global Healthcare Conference. I'm Conor McNamara, the Life Science Tools and Diagnostics Analyst. With me today, and it's my pleasure to host Repligen. And with us our CFO, Jason Garland, and new Head of IR, Jacob Johnson. Welcome, and thank you for being here, gentlemen. .

Thank you. Thanks, Conor.

So let's just start with post Q1, can you walk us through in the quarter, what are some of the things that you incorporated in the guidance? And what changed in Q1 versus Q4?

Yes. So thanks, Conor. The only change we had incorporated into the guide in April was the inclusion of the 908 Devices acquisition that we did. So that was about a $10 million add of sales. It's slightly accretive to gross margin, but doesn't really move the needle, and then it brings about a 50 bps dilution at the operating margin. We brought on some I'll say, incremental sales and R&D costs with that acquisition. We'll be able to turn that accretive here over the next 12 to 18 months. But with the inclusion, it is a drag. What we didn't include was some of the other macro environment, things going on. So FX is an example. When we gave the guide in the beginning of the year in February, we called out that we had about a 1.5 point headwind of FX when we did the first quarter call, that flipped to about a 1 point tailwind. And as we stand here today, it's probably just north of 0.5 point a tailwind. So things move around, which is frankly why we didn't put it in at the point just to see how that would move.

And sorry, just to be clear, your guidance still incorporates the headwind.

It still incorporates the headwind. But as you do your modeling and think about what we're seeing today, it could be, again, at today's rates, probably about 0.5 point or just over 0.5 point of gain. And then that would fall through to some bottom line improvement as well. And then the other thing that we did not include in the guide was the impact of tariffs. But again, we tried to be transparent on what we're seeing. So there's probably about almost just under a point of potential sales increase, right, just from the ability to pass on surcharges and/or some pricing. And at the EPS level, it's probably a push. And so that's what we would see today, and I'm happy to share more on tariffs as we go forward.

Okay. Let's break those FX is pretty simple to understand. I think, on the 908, $10 million, that's not an annualized number.

That's the 2025. Yes. So annualized, it will be higher. We got just one month of sales in the first quarter.

Okay. All right. So it's $2.5 million to $3 million a quarter as we think about it as we get into next year. And then on the tariffs, so you said it would be just over 1 point...

Under a point.

But just under point accretive growth, assuming you took price to offset all of the tariffs. So can you walk us through where the tariff impacts are?

Yes, there's a lot of moving pieces there. So first, the majority of our manufacturing is in the U.S. And then if you take our sales half of it goes to the U.S. and half of it outside. So what we sell in the U.S., 90% of that is made in the U.S. as well or there's some products that very discretely have been called out to be exempt. So that's the lion's share within the U.S. sort of manufacturing and sale. So that means that some of that -- some -- the 10%, there are some things that we make primarily in Europe that would come in. And these are -- these would be products that we would then pass the surcharge on to customers. And that's what makes up a lot of that point, I said, of extra sales. Outside of the U.S., to take 50% of what we sell -- of our total -- half of our sales, 50%, half of that is made in the U.S. So this is the part of the business that we're watching to see if there are any retaliatory tariffs put in place with our -- with where we're selling. So Europe, of course, would be the biggest exposure for us. The good news there is that Europe has been pretty transparent about what products and commodities they would implement tariffs on if they were to retaliate and they haven't done so yet. And so that's about 1/4 of the sales is actually subject to that amount. So you start to whittle down as you can see the pieces that have exposure. And again, in that case, we would likely enact surcharges to try to cover it. I mean then you've got the China dynamic, which is certainly in a better place today than it was a couple of weeks ago. But again, as you whittle down that amount of sales, if you look at -- we called out that China was about 2% of our sales. You annualize that and you look at -- we had already shipped first quarter, we had already moved a lot of our inventory for the second quarter into China and you look at what left in the second half and you're talking kind of less than $5 million of sales exposure there. And in this environment, now at the more than 30% rate, we would look to try to pass that on the surcharge for our customers.

So that's where all the pieces come in. I guess the last piece I'd say is that 10% of what we make in the U.S. has foreign sources directly foreign sourced. And so that's the potential impact on our cost of goods sold. And that's the type of cost that we would then look to the pass-through with a likely pricing increase more general, but tied to the tariffs -- and so all that -- all those surcharges in terms of that smaller amount as well as the pricing is where we get that just under a point of sales income.

Okay. And you're not taking -- or you don't have any planned actions to mitigate any of this in the surcharge. No manufacturing moves or...

No. We actually will -- we're looking at that now. So the good news is that a lot of our manufacturing is dual sort of dual capabilities and across the ocean. Our OPUS columns is a great example of that. We make -- do that in the Netherlands and Europe. We also do that in the U.S. But there are some areas that are only in the U.S. And so we'll look to see if it makes sense to create some dual capabilities within Europe. And we'll look at what's the likelihood of tariffs? Is it cost neutral, right? I mean the -- obviously, the bad news is you spread your manufacturing as you dilute your overhead leverage and those other things. And so we want to make sure that it's more a least cost neutral. And again, and even if then it's cost neutral and there aren't tariffs put in place it again, it builds out our portfolio to have dual capabilities. So we are actually looking at that.

All right. Thanks for all that clarity.

Yes, a lot of moving pieces.

And just what has been your customer response to the tariffs. Now you're making -- what you just said is it makes sense that you would be able to pass on that surcharge. Any pushback from your customers? I mean we're coming out of the pandemic, where the pricing definitely was up versus historical levels. And so are you getting any pushback on those surcharges? Or do your customers realize, "Hey, that's just the cost of doing business now." And so any pushback there? And then the second part to that any change in just demand or buying patterns from your customers overall from what's going on with the tariffs, either they're making smaller orders or they're waiting to see what finally happens, anything like that, that you've seen from a customer perspective?

Yes. So I think in terms of taking on surcharges, I think the industry understands the environment. I think we're not the only company in the space to talk about using surcharges. That certainly is understandable by the customers where there's unique situations or we can find other ways to help minimize that cost for them, then we certainly will have a discussion. But no outright sort of, "Hey, we're not taking this." We've already had some on that into the U.S. side. We've already passed on some surcharges. So we started to see that. I think in terms of buying patterns, we haven't -- I think the big question out there is, are people pulling things in, right? Is there another stocking dynamic going on? We haven't seen evidence of that yet. One of the things that we've been looking at and we think would be an indicator of that particularly would be if a customer already has an order placed, it's in our backlog, let's say it was due in September, and then they might come to us and say, Hey, I really want that next month? Or we haven't seen really any examples of that specifically. So I do think that we'll have to keep monitoring it every -- fortunately, every day, there's a different dynamic for them to think about, and we're very watchful on those things. But no real change in behavior.

And last question on tariffs, I promise maybe. Have you seen -- is there any longer-term opportunity for you as a U.S.-based manufacturer that maybe you could take share or you're going to have a higher priced competitor in the U.S. So is there any opportunity from a tariff perspective to accelerate your growth or take more market share.

So I think that our products are going to be competitive no matter where the region, I think in the cases where if we make it in the U.S. and our competitor that's directly selling in that particular product is outside the U.S., it might be a benefit. Again, we don't always face a lot of direct to direct or head-to-head competition on their products, right? A lot of them are unique or they offer a differentiated solution. And so I think we'll offer that where we can. I think what's also interesting is a lot of the onshoring announcements that have been made -- and again, with the ability to make nearly all of our products in the U.S. that being able to help them as companies build up new facilities that we could be a part of that. And it might be over a course of years, right? Those things, especially greenfield could be multiple years before it's ready. But in as much as we could supply them U.S. content as well as, again, our bread and butter is offering products that increase yield and efficiencies. And so again, we would believe that anyone starting up a new facility would want to incorporate that into their design.

Right. And then let's just talk about end markets and how you guys are doing there. What your mantra has always been or has been for quite some time as you've got an end market that's growing high single digits. You guys can grow 5 to 10 points above that. If you look at Q1, the other bio-production players talked about mid- to high single digits. You guys grew 14%. So that would play right in line with that, you grew 5 points above a high single-digit growth market. Do you think that's a good characterization of what happened in Q1, and that's how we should be thinking about the end markets as "Hey, the things have returned to normal, there's high single-digit growth out there in the market, and we're going to continue to grow significantly above the market." Is that a dynamic that you think played out in Q1 and that's how we should think about the rest of the year?

Yes. I think that we have the best line of sight and visibility to our own, right outlook, of course. So we've talked about 11.5% to 15.5% organic non-COVID growth. And I think we've also heard some of the bigger players even talk about that high single digit for the year and their outlook and -- and so I think it does fit. And I think it fits again with our ability to outpace the market. The first quarter, again, was a great start to the year, not only the top line, but the bottom line as well. We certainly had some strong proteins recovery as well, and that helped the quarter. But it's reflective of that guidance that we've given is reflective of that above market growth.

Okay. And just as we think about the acceleration throughout the year, I know you had little bit of equipment weakness in Q1, which strength elsewhere didn't mask some of that. But can you talk about the dynamic of some -- you had a couple of wins at the end of last year that I think played through with just the timing was there, some weakness on the equipment relative to Q3 and Q4? And then how does that play out for the rest of the year? This is related to the ATF.

I'm sorry, for ATF. .

Yes ATF.

Yes. So ATF, I mean we're really very excited about how that franchise continues to grow and the opportunities it has. I think uniquely in the first quarter had really tough comps to -- first quarter 2024. It still got some tough comps, not as much in the second -- and we really see the ATF sort of second half of the year is where we'll see a lot of that year-over-year growth rate. But we also talked about wins that we've been able to get in commercial and blockbuster programs and really love the momentum we're seeing. We're in 9 out of the 10 biggest CDMOs, talking with the 10 about how we can partner and what's even exciting for us as well is with most of those CDMOs, it's one program that we're on today. So there's obviously a lot of room to expand that across multiple programs. And in multiple facilities as they build those out. And so a lot of great tailwind. I think just, again, life is a linear, you can have some lumpiness, and we'll see more of that growth really come through in the second half.

Conor, if I could add just one thing, as people kind of think about the magnitude of these wins as we've been asked a lot about that. A commercial customer for ATF could be, call it, low to mid-single, mid-millions of consumable pull-through annually. Maybe some of these larger wins, you could be looking at something at $15 million plus a year just in terms of framing that opportunity.

You still have no -- I think it's no customer, no program is more than 3% of sales. So you've got -- you're not levered to any specific program. But as you [ probably ] these wins like the ones you had last year, obviously help you guys.

Yes. So I'll just -- so -- we have no more than 3% we called out in the new modality space -- our single biggest customer, 6, but it's the same point and one that we really wanted to get people thinking more about is that we do have very much a diverse portfolio. And that even within these customers where it might be 6%, it's not a single program. So there's a lot of room there for managing the ups and downs. And so again, I think, hopefully, people will see that, okay, if one program has some sort of negative view and/or positive that we that we can manage that, both up and down and that we're building out a portfolio that's very different than what it was even 5 years ago.

And just get the programs that you won last year, these were as a program progressed later in the clinical program, I think it was Stage 2 to Stage 3 to market. And you won that program, you were able to displace who was there first. So how much opportunity is there for that for you guys in the future? And vice versa, it's kind of my view that once someone specked in, they're specked in. So why were you able to win that contract.

Is this for ATF, you're talking.

Yes.

Well, so for ATF, though, there was no incumbent. So again, think about ATF is as an opportunity to increase yield, right? I mean we see, on average, maybe 3 to 4x yield improvement for ATF. And so we really think about it as the customer saying, "I might need to -- my volume is growing, I may need to put in another line." Well, guess what, if you add ATF, you may not need to do a second line or even a third for that matter until the volume grows. And so the win think about it is these are already commercial programs that we were still able to demonstrate the value creation and our customers than incorporated it in. And I think the point is that even in a commercial stage, that, especially at the N-1 level where our ATF usually sits, it can -- our customers can still get that specked in through regulatory requirements and as little as maybe even a year. So that's the, I think, the bigger [ aha ] here is that it's not -- okay, we missed the clinical window. We can't help.

Thanks for clarity. And just kind of some other questions outside of tariffs and cadence of growth this year. Just on China, that you had that follow-up and that's 2% to 3% of sales now -- how should we think about that region as an opportunity? Has that historically been -- China historically been accretive to growth for you guys and as we look over the next decade, is that a region that you do see as important down the road -- and in the medium term, will it be -- is it going to continue to be a slight drag on growth, albeit a much smaller drag given the size.

Yes, yes and yes. So definitely accretive growth. We expect there it to be accretive in the future. We're still very bullish on that region. But in the short term, we still do see some headwind. I think as a testament to that, we've added both a new leader in the Asia region, who's very -- knows the China market and particularly well, and then we also added a new GM in China. So we're very optimistic that with the relationships that they bring and the experience they have in the market that we'll be able to approach it differently and get some of that traction back. But it will take time.

And then earlier in the Q&A, you talked about in-sourcing manufacturing, bringing manufacturing capacity up in the U.S., and there's been announcements by a lot of pharma companies that are investing in the U.S. manufacturing. So how does that impact you? So if you've got a customer that's currently manufacturing outside of the U.S., they bring it in-house, into the U.S. I'm assuming they have to buy more equipment, there's a tech transfer. So ultimately, that's a win for you, at least on the equipment side, I would assume. And then should we think about on the consumables at a run rate, it's no real change? Or is it does this -- is it actually significant from an opportunity for you guys as these buildouts get announced?

Yes. I mean you can liken it maybe some of the biosecure discussions, right? If the volume doesn't change, then you get the, I'll say, the onetime benefit on building a new plant, so we're going to duplicate the hardware. And then the consumables on an equal demand basis, they're going to be the same. But if if that now new location creates a new opportunity set, then we could grow with it as well.

Yes. I guess if you look at facility that's being transferred maybe 5 years ago, you didn't have the suite of products. And so now they know, okay, this time when we do it, we're going to do it right. So they come to you and it offers more of an opportunity.

It's a great point. Again, back to ATF, it may even help them to spend less in their CapEx. We do offer a lot more in the portfolio and could absolutely have a bigger play in that.

And what's the time for this to start. I mean, I get the P&L because we're seeing these announcements, which I'm assuming means that they're starting to -- you're starting to see RFPs, which...

Yes, that is right? I mean, I think -- I mean, we've kind of heard if it's a greenfield, it could be 3-plus years. If it's a brownfield, maybe it's a year or 2. So I mean there's still I think, some time that, that is going to pass before we start to see orders in hand. But again, everyone that's made announcements, we have relationships with, and certainly, we'll be letting them know that we're there to help.

Okay. And so once they hit the order book, I think your time from order to revenue is 6 months plus.

Well, typically, right? If we get in -- for a given order book, about 1/3 of them get delivered in the same quarter, the 1/3 of them get delivered the next quarter and then the final 1/3 over the next 2 to 3 happens pretty quickly in.

All right. And on capital deployment going back to 2017, I think you've done 13 deals since then, a lot of small tuck-ins that help build out the full suite of offerings. But what's -- maybe talk to me about your appetite for a larger deal? And is there a specific area that you just kind of look at everything and like, gosh, I wish we were here versus you're going to continue in that tuck-in side. How should we think about your M&A strategy?

Well, look, I'll start with our M&A strategy is the same. It's consistent. We're first looking for differentiated products, innovation, a company that if they join with us, we can add value either commercially or through R&D or technology or product development. And then again, looking for some level of accretion. Hopefully, at the bottom and the top line and the bottom line, it might be one of the other -- and -- but we've also recognized that many of the plays we have made have taken time to really come to fruition. So we're looking at a funnel that is looking for those criteria there's -- we've been clear about sort of the gaps we have in the bioprocessing workflow. It's the bioreactor, it's to cell culture media. It's the viral filtration that we don't have places. Those certainly become an area that we're looking for. But -- at the same time, there's a lot more we could do within the other spaces to create even more robust offerings. A lot of it's about the timing of what's available and what we're looking for. And kind of taking all those in the play.

Okay. And is -- would you say that adding to revenue growth is more important than adding margin.

I think it's a balance, right? I think that we recognize -- I mean, look at the ATF discussion we had and the acquisition we did years ago, it takes time. And so we won't look -- we won't throw away or pass a great opportunity if there's distance. But ideally, I'd love to find both, one that adds to top line growth and isn't dilutive for too long.

Okay. Yes. Great. Well, we're just about out of time. I will say you locked out, last year, I made you do a Rubik's cube -- this year, I was planning to put up a Jenga set for you, but we ran out of time, so dodge a bullet. congratulations. But thanks for your time. Thanks for joining us.

Thank you, everyone. Thanks.