Repligen Corporation ($RGEN)

We're excited to host Repligen for our next fireside chat, joined by Jason Garland, Chief Financial Officer; and Jacob Johnson, IR. And with that, we'll kick things off. We're going to do a -- just the fireside chat, if you've got questions, throw up your hand and we'll try to call on you when we can.

Maybe just to kick things off, you guys recently reported 1Q just a couple of weeks ago. Maybe give us a high level rundown of how the quarter played out relative to expectations, sort of what was a little bit better, what was a little bit surprising? Any key takeaways there?

Yes, look, we started the year -- in our view, executing exactly what we set out to do, right? So we had a strong first quarter better than expectation, certainly on a top line basis as well as earnings. It was right down in the middle of the fairway for our overall total year guide on organic growth. So it started strong in the top line and enough confidence in our margin profile that we actually raised EPS guidance for the year. So financially, a great start. Second, I'd say that we -- it helped build that confidence in our total year guide as well. We look at, again, first quarter, 11%. We've shared that second quarter is going to be around the same, that's right in line with our total year guide and which means the second half doesn't require an acceleration in growth, right? So again, we kind of keep executing what we're doing. So we've increased our confidence. The other thing is that we've delivered that margin expansion, but we also shared, I think, some tangible actions that we're taking to make margin expansion, I'll say, number one, more sustainable; and two, accelerating a little bit beyond what we've shared before. So we launched and announced the transformation office, both focused on our Fit for Growth journey in terms of the capabilities we have to continue to grow and scale as well as some very specific projects that will help deliver margin expansion. And we shared that by the end of next year, 2027 on a run rate basis, we'll see about 1 point of margin expansion as a benefit. And so again, we're building, I'll say, a structure, a framework, bringing in the right resources to execute that. We also announced a small sale of our Polymem segment, small, about $7 million in ship sales last year, but losing money. And so again, cleaning that up as well as a part of our transformation. And the other thing that we are really excited to share was the signing of an OEM partnership in China. So we've talked a lot about finding ways to be, I'll say, more [indiscernible] so we have a start of the year with the financial will be great renewal guidance over the quarter. You sort of postoperation from graph Yes. So broking through very strong. We saw both strong we saw both strength in the legal side filtration, again, kind of mid-single digits with overall growth. We talked about some dynamics there with ATF and happy to are some more of that a bit later. Chromatography, again, really great growth in the quarter as well as our analytics segment. And we've seen a lot of continued traction on particularly our upgrade cycle in the [indiscernible] VPs within our Analytics business. So in fact, they helped really lead the charge on our overall equipment performance. well in the quarter. So it was great as we saw great growth across all the franchises, and again, a good testament to the kind of the breadth that we have and the diversity of the portfolio.

I mean it touched on ETF. Maybe we'll dive into that a little bit -- you had some customer-specific timing, some inventory dynamics. I know you have a little bit of a more moderated outlook for that for 2026. Sort of what gives you confidence that you've got strong visibility there and sort of talk about the rebound beyond that?

Yes, absolutely. So I think maybe the first point is ATF grew in the first quarter for best insumables and capital equipment. As you mentioned, Mike, we called out a headwind on ATF, moderated our expectations for ATF for the balance of the year, it kind of as part of our updated outlook for the filtration franchise as well. In terms of what's going on there, it really relates to 2 customers who are managing inventories. We don't think that's totally uncommon for kind of a novel technology like ATF when it's early in its life cycle. As a result, we think it's really kind of a transitory headwind that we're facing this year. And we expect those customers to kind of order again next year -- and that's what gives us confidence in ATF returning to robust growth next year. I think the other important point is both those customers use ATF beyond the commercial drugs yes, commercial drugs were referencing there. And so we think it's really kind of specific to inventory management doesn't relate to anything else. I think as you think about -- this year and beyond, we continue to win new customers. We continue to expand with existing customers, and we have a really strong pipeline of opportunities. And I think the prior point they made is even with that headwind, we still have the same organic outlook for the year, which highlights what we've been emphasizing for some time, which is we have a broad diversified portfolio of offerings and growth opportunities across all our franchises.

One of those customers that actually platform the TF across a lot of their lines. And so again, this is a very specific inventory [indiscernible].

Is that like a 3-, 6-month drawdown? Or is it like how long until you're past the [indiscernible].

We see this kind of a 26 item, right? And whether that changes towards the end of the year, we'll continue to connect with them. But we're -- our outlook and assumptions? Is that really that there's nothing that comes through [indiscernible].

And maybe the other important point I should note is outside of kind of the dynamics in ATF, we see healthy demand for consumables in the rest of the portfolio. So again, I think this is very much kind of an ATF customer-specific headwind that we've called out. .

I'm sure you've done this work outside of those 2 customers. order inventory levels like because there are concerns of someone else, so now down the road will have the same process? Or is there something that these guys have more elevated in the go to begin with?

I think as of now, we see it really confined to these 2 customers. And I think it's a testament to how close we are with these customers that we kind of were able to identify this and call it out and as it became apparent, but I don't think we're seeing any impact elsewhere within ATF on any other type of [indiscernible].

Have a good mix of commercial versus phonics well business. So this type of order of magnitude of inventory is going to be more on the commercial side as well. So again, that's the breadth of what we're offering helps.

Okay. All right. And then maybe more broadly in the portfolio, the strength you're seeing in the first quarter, the strength you're projecting for the rest of the year. Anything you can point to in terms of product type or drug class that's driving that? Is it more [indiscernible], biosimilars, cell and gene therapy, just sort of set into sort of where you're seeing the best opportunities?

Yes, I'll start on the kind of modality side of things, and then I'll let Jason maybe chime in on products. But Yes. Look, I think it's very much at driven. In the first quarter, new modalities were dilutive as expected. We've talked about or cited this gene therapy headwind. As a result, I think we'll continue to view the modalities of the dilutive for the year as well. With that said, if you look under the hood, we saw strength in cell therapy, which we've now seen for several quarters now. I think that's really encouraging. And we're seeing a lot of opportunities there. And then if you look at gene therapy, ex that particular headwind. We actually saw growth in the quarter. So I think that's encouraging, along with the fact that there's been 2 gene therapy approvals this year. So I think you put all that together, we continue to view new modalities of strategic end market for us. And and we are seeing opportunities in cell therapy. And ADCs aren't in that count, but I think we think about them similarly.

And from a product perspective, again, they cut across both NAV and new modalities. So that's that's great as we serve both of those kind of equally across the portfolio. Again, I talked already about the analytics growth that's certainly going to be one of the things that we continue to lean on this year. In chromatography as well, a lot of good demand, a lot of good conversion of new customers. So again, this is that type of product where -- we're not very frequently competing with a similar -- it's more about convincing customers that they can outsource what they most often do internally and the service and the value that we can bring to that, and we continue to see good conversion. So those are 2 areas in particular that we're really excited about. And proteins as well as to continue to have a strong year.

Can you talk about dilutive growth from new modalities and some of the effects there. Is that specifically 2026 dynamic? Is that a little bit long like it's still early in the year, but like how much visibility do you have into next year and beyond when that could turn to be growth accretive again?

I mean -- so again, we're still hurt this year by this -- by the gene therapy change. So that -- and like Jacob said, outside of that in the gene therapy space, we growing. So we see it as kind of let's get through the anniversary of that headwind. And overall, still very bullish on new modalities in total and [indiscernible] therapy.

To be blunted there for people who aren't familiar, as it relates to a specific customer, and we're assuming 0 in revenue from them this year. So I think hopeful that we won't have that headwind again next year.

Yes, an easy comp here.

There you go. -- 1 of the other ways that investors look at when thinking about the business and the market is equipment versus consumables. You've had really good strength in consumables that for a while. -- equipment, a lot of focus on orders, lead times there as a winning indicator. You talked about some improving equipment order trends later in the quarter. help frame the magnitude of that? How strong of a single data point that is being like week-to-week on equipment orders and book-to-bill and things like that. But how much should we be reading into that or not.

I mean, so if you take a step back, the guide assumes equal growth, right, it double digit for both of those segments through the year. So again, I think good equal contribution overall to our growth story. Consumables, again, it's been great strength and will continue. The equipment, I think, is a bit of a tale of 2 cities. We've got -- and again, I've already referenced a couple of times now. So equipment is absolutely being held by the analytics side. So again, that upgrade cycle is a big piece of that. We saw analytics up 50% in the quarter. and 40% was organic, right? Because we still have some inorganic from the 908 portfolio that we purchased from them. But so that's really been a leader. And then the other piece on the equipment side, it's been a growth driver for us is mixer. So this stems from an acquisition we did at the end of 2023. We launched new products and really starting to see some good pickup on the mixing side as well. That's another place that has some good luck in China in -- so those have been really the growth. When you look at the, I'll say, the more traditional downstream filtration systems, that's where we're seeing more of a flat dynamic. This is where your question about kind of customer dynamics where we continue to see a good pipeline of -- in our funnel, right, of opportunities, but we're we're picking our analogy, but waiting for the task to open or the damn the brake, check can choose what you like, but that we're still waiting for customers to start taking some decisions because we don't see it as a -- we're bringing in opportunities, and we're losing them. It's the decisions aren't being made and there's -- whether that's MFN digestion or kind of just some of the overall uncertainty in the overall pharma space. we see some of those decisions being delayed. And that's -- we talked about that in February, and that dynamic continues. But again, back to Deca's point, with a broad and balanced portfolio, we're able to offset some of the lower points with other fast-growing products.

Why has analytics been so strong? Is this the comp dynamics you think about portfolio refresh your technologies, sort of what's driving the extra investment there from your customers?

Yes. So it really is that portfolio refresh. I mean, we launched the new generation of our -- this is our at-line device. So it's that we just launched with upgraded features and technologies. And frankly, this is one of those areas where, when Olivier came in, it was -- what do you mainly haven't upgraded or launched the new gen of this faster or to 10 years or 6 to 10 years old. So it's been a while. So we took that on. We came a priority, and we're seeing some great traction. So again, we all have new technology, right, our new next gen of phone, et cetera. But again, it brings enough good capability, functionality that has been a real good success. There's a a fair number of units out in the installed base that we've been doing out in the capture. We kind of see this as a tailwind for us probably over the next 18 to 24 months and then also expect with that to be able to capture some new growth as well to not just the upgrade and replacement cycle that actually give you customers. And it's a broad customer base that we sell that right? -- it tends to kind of -- the at line tends to be a little bit more on the PD side, but it's not -- it's big pharma, CDMOs, biotech, et cetera. So we've got a lot of a lot of good.

And you mentioned some of the larger, more traditional filtration systems still being what of the touch and go I mean what are we waiting there? Is this a capacity issue where there was a lot of investment there in prior years and you just don't need the at capacity? Is this a reshoring dynamic, sort of like what's the next step there?

Yes. I mean, look, we would -- we'd characterize it as just MFN digestion, just kind of the pharma ensuring and understanding what are the priorities, some of the things that -- changes that we've seen with the administration and priorities as well and how to respond to those. I think our view is that the capacity will be needed, right? The end therapies and drugs that are ultimately being produced will continue to grow, and they'll need more capacity. And then it's just kind of deciding when and where, right? And I do think there's that everyone has talked about the opportunity with onshoring and that it makes sense to either expand or build out within the U.S. Again, the timing on that still seems to be similar to the question. But that at the end of the day, even if a small percentage of the overall -- the onshoring opportunities out is very big numbers. And so even if you got a small amount of that, we still think there's an opportunity for all players in the space. So I think it's just the timing that we're waiting for to see kind of flip. Our funnel of opportunities continue grow. And so now, again, it's kind of -- when does the tax turn on?

Okay. hanging on a couple of other points you briefly touched on earlier from sort of like a customer segment perspective. Emerging biotech grew nicely in the quarter, but still sort of below historical levels. We've gotten really mixed data points on how biotech is playing out across the industry. What are you seeing there? And what's it going to take for that to fully come back?

Yes. So I mean, I think, first off, because we get asked a lot about this, right? Like clearly, funding was really good in the fourth quarter last year, I think really did in the first quarter, and it seems like April is really good. So I think that's certainly an encouraging kind of KPI, and I get why people ask about it. The reality is that they get the money, we then needed to get out the door, right? And so I think for us, we've had 4 straight quarters of growth from that customer base. I mean on the comps start to get tougher. But I think that suggests we're seeing stabilization. With that said, if you look at whether it's dollars or our mix from that customer base, it was probably 8% or 9% of our revenues right now, not that long ago, is 10% of our business, if not a bit higher, right? And so that's where our view is -- it's certainly encouraging trends there. Certainly, I think there's an opportunity in front of us given the funding trends. But I think we'd like to see kind of more tangible evidence of that money being spent before we kind of declare that it's back -- but certainly, we're under-indexed there versus where we were not that long ago.

I think for us, the question always becomes a funding picked up what's the timing, right? Did that translate to orders and sales. I know people always kind of talked 6 to 9 months maybe in today's environment, that ends up from the longer end of that range. So that's what we're waiting for as well. But overall, we still feel like that segment will be a tailwind for us. But the timing and how that flushes through is, I guess, still to be okay.

And then you also touched on China in your opening comments, including the OEM partnership just to get a little bit more of a local presence. China seems to be rebounding strongly overall, where are you seeing better performance there, if you could break it into what are the pockets of growth? And then I would just love to hear more about the OEM agreement and maybe next steps beyond that?

Yes. I mean, number one, we firmly believe that biopharma in China is going to be a key leader, right, globally and will be a huge source of growth. And so really, I'd say we've been employing 2 elements of our strategy. Number 1 is we -- we brought in new leadership, new team in many cases in our existing China country structure. And we're already starting to see I think some of the benefits for that. We had our best quarter in the last few years in China on a very low base [indiscernible] and coming off of some share loss. But I think again, we've got now a much stronger team that's able to capitalize on the opportunities that we have. And that cuts across a lot of pieces of the portfolio. So that's the kind of go execute and run what we got, right, and with the team we have, and we're starting to see good momentum there. The second piece is now back more to our longer-term strategy, which is the OEM partnership. So again, our view is that to really be able to to support and take advantage of the overall biopharma growth in country to be more localized, right? And I think as I said, I don't -- our view was no let's go plant a flag, build a greenfield, it's how do we find the right partner to grow with. And so we started -- they'll start manufacturing. Our products will sell that, but it could evolve into a broader relationship building more products. And certainly, we'll be able to to maybe leverage some of the local relationships that they have otherwise and be able to grow in different ways. So we -- the question always becomes, okay, you bring in a partner? Is there a risk of technology, IP loss. And our view is that we certainly took the time embedded to find the right partner. We haven't announced the company, but we know the leaders our leadership and team have worked with them in the past, they're trusted known leaders in the industry. And our view is that there will always be a risk of IP loss, but you either sit out and watch and not take advantage of any growth in China? Or you participate and you manage this risk and that's really -- so really excited about what this translates to and allows us to play in a more localized way and take advantage of what we see is, again, is going to be a big biopharma growth reason.

Is this one move, you talk about local presence and having sort of that lag. Is this one moving up? Or do you need does it get through everywhere you.

I think for us, it's a step. Our view, again, depending on how it goes, would be to continue to expand with this partner in different ways. And so we see it as a first step of multiphases, which could be more product, it could be different relationships. It could be at some point, is there -- within Asia, there's other countries and regions that are amenable to trying to build products, if you expand out. So there's a lot of different ways we could get there so we can kind of see this step on that has to be defined.

Okay. Maybe along a similar line. Let's talk about cash use, M&A portfolio evolution. You've got almost $800 million of cash in the books now -- you've got to focus on capacity expansion, analytics through innovation. How are you thinking about M&A opportunities going forward? Any gaps you'd like to fill? Any opportunities to up there from a valuation perspective.

Yes. So I mean M&A remains a high priority for us. We still think that's the best use of our capital and the cash that we have available. We, again, are focused on finding technologies that are differentiated. We don't want to go down a me-too path. We -- there is a gap to be filled in our portfolio. We've shared those a lot, both on the mAb side, but then also opportunities to support new modality workflows. And so a lot of opportunity very active in the space. We've also gone down the path of minority interest as well investments. So we announced Novasign earlier last year. So this allows us to access partnerships in new technologies, frankly, without sort of needing to deal with some of the short-term dilution that might come with with earlier-stage companies. So we're really excited about what Novasign can bring, and we're open to that type of investment as well. So a lot of activity, a lot of opportunity. You get a -- it's all got to line up. They got to want to sell when we want to buy and all the pieces that come with it, but very active right now.

Okay. We've got about 5 minutes left. If there's any questions from the audience. All right. We'll keep going. Let's talk a little bit about margin progression and margin story from here. When you introduced the Transformation Office targeting some incremental margins. What are the biggest levers you have talk us through sort of what that ramp could look like over the next couple of years will be.

Yes. So again, I come the point earlier that the transformation office is the way to formalize and I'll say, a sign and dedicate the right resources. So a lot of different priorities that we've been either working through or planning and it puts the structured framework around and a way to bring in, again, not only dedicate some of our internal resources, but also bring in some external experts to help us. We see it as a path for acceleration. So we've shared probably over the last year more this target to get to about a 30% EBITDA within 5 years. But I also had shared often that we felt like '26, '27, were still more of investment years, and we would see I'll say, an acceleration of that margin expansion in the latter part of that period. I think the transformation office and some of the benefits it can can deliver for us is a way of accelerating that, employing some -- I won't say it's linear, but making it less of a sort of a ramp-up at the end and put the framework. It's going to be focused on product. But in our portfolio, for example, we've talked about fluid management is 1 of the elements of the portfolio that is below average, right, for our product margins. And so that's one of the focal points, which could be a design changes, material, it could be manufacturing, adding more automation, et cetera. And so outlining all those different opportunities that can drive it. And there's other things in terms of supplier, working with them. And then we also talked about beyond the margin expansion in the transformation office would help us on our several growth journey. The big one in there is our is our IT modernization, right, making sure that we take more advantage of the systems we have today and then also rationalize some -- I mean, for our size company, -- we have way too many apps, wait too many vendors, right? So how do we rationalize those, how do we start to align on common platforms. And then all of that as well as a push on our data management and infrastructure will be the foundation for us to build more AI from an internal benefit as well as in how do we incorporate that into our products as well. So that's why that's a really important one because it's the fit for growth, it's modernization. But frankly, I might get some savings as well when it comes to some of the rationalization on one vendor. So really excited about this. I think, again, we said that be about one point of margin expansion by the -- on a run rate basis by the end of '27. So we'll see some of those benefits. And then on a go-forward basis, we'll kind of see that full point on '28 and beyond.

Okay. Maybe one last big picture question from [indiscernible] just thinking about what the markets and where we sit today and how we feel about bioprocess end market going forward. It's been really volatile the last couple of years. We talked about the moving pieces with some of the new customer contracts and modalities, but you did 11% in the first quarter, you're guiding to 9% to 13% for the year -- taking a step back, everything has gone on merchant biotech, pharma, MFM restore in China. Has it changed your views on bioprocess long-term algorithm, long-term growth at demand drivers.

Absolutely not. I mean this is -- this has an incredible tailwind behind it. Again, we see this year still kind of this digestion happening. And like I said, the pipeline and opportunities continue to build up. We think we're well positioned to capture those opportunities in a different way than we ever have before with our broader and deeper portfolio as well as the relationships that we build. We've already -- we talked a lot about starting to actually have some swings of that for RFPs. We actually won one recently. And so that's -- so it's going to be the start of it. So we're thrilled. We're excited about the year and even more excited about the future beyond 2026 and the opportunities that we have.

Okay. All right. Well, with that, we'll have to leave it there.

Thank you.

Thanks, Mike.