Repligen Corporation

Good day ladies and gentlemen and welcome to Repligen Corporation's fourth quarter of 2023 earnings conference call. My name is Sabrina and I will be your coordinator. All participants will be in listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. In order to accommodate all individuals who wish to ask questions, there will be a limit of two questions at a time. Please note this event is being recorded. I would now like to turn the call over to your host for today's call, Sondra Newman, Head of Investor Relations for Repligen.

Thank you, and welcome to our fourth quarter of 2023 report. On this call, we will cover business highlights and financial performance for the three and 12-month periods ending December 31st, 2023, and we will provide financial guidance for the year 2024. Revlogen CEO, Tony Hunt, and our CFO, Jason Garland, will deliver our report, and then we'll open the call up for Q&A. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our filings with the Securities and Exchange Commission, including our 2023 annual report on Form 10-K, last year's annual report, our quarterly reports on Form 10Q, and our current reports on Form 8K, as well as other filings that we make with the Commission. Today's comments reflect management's current views, which could change as a result of new information, future events, or otherwise. The company does not obligate or commit itself to update forward-looking statements, except as required by law. During this call, we are providing non-GAAP financial results and 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 Replicant's website and on sec.gov. Adjusted non-GAAP figures on this call include the following, book-to-bill ratios, organic revenue growth, base business revenue, which excludes COVID and M&A, non-COVID revenue, cost of sales, gross profit, and gross margin, operating expenses, including R&D and SG&A, income from operations and operating margins, other incomes, pre-tax income, effective tax rate, net income, diluted earnings per share, as well as EBITDA, adjusted EBITDA, and adjusted EBITDA margins. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to best reflect the performance of our ongoing operations. Now, I'll turn the call over to Tony Hunt.

Thank you, Sandra. Good morning, everyone, and welcome to our 2023 fourth quarter and year end report. In addition to reporting out on our financial results today, the key objective for this call is to provide insight into how we see 2024 playing out for Repligen and the pacing of revenue as we go through the year. Having had a few months to reflect on our Q4 results and 2023 in general, We believe we are seeing some clear indicators that our markets are beginning to turn in a positive direction, especially given the strength in orders coming out of last year. This will help drive growth for the company, especially as we move into the second half of 2024. As we all know, 2023 was a challenging year for Repligen and the bioprocessing industry. The first half of the year saw elevated stock levels at both CDMO and pharma accounts, conservative capital spending and project delays at pharma companies, and the deterioration in China, where orders dropped off rapidly and new opportunities for products declined. In the second half of the year, we started to see some positive signs of recovery. We aren't ready to call a full recovery yet, but there is good reason for optimism. We see four indicators for reflux. Opportunity funnel growth, improving pharma ordering patterns, early indications of CDMO recovery, and overall book to build strength. So let's start with our opportunity funnel. Our sales funnel improved in 2023 with our 50% and above opportunities up more than 50% compared to the start of the year. This is an important metric that we believe reflects the likelihood of customers placing orders in the near term. We also saw a rebound in pharma demand, especially in Q3, where farmer orders were up 50% versus prior quarter. We finished the year with second half farmer orders up greater than 30% versus H1. The CDMO market has also improved in the second half of 2023, with orders up more than 25% in Q4 versus Q3, and up more than 20% versus the fourth quarter of last year. Again, some positive signs from our CDMO customers for the first time since the first half of 2022. Overall, our book-to-bill improved in the second half of the year, coming in at 1.07 in Q3 and 1.03 in Q4. Our filtration franchise also had a positive book-to-bill in both Q3 and Q4, at 1.15 and 1.03, respectively. Ex-COVID, the filtration book-to-bill was 1.13 in Q4, so two strong quarters in a row of orders for our largest and most impacted by COVID franchise. When I look at the full year, I was also very pleased with the way the Repligen team executed, staying focused on the key goals we set for ourselves at the beginning of 2023. Namely, one, we wanted to make further inroads into new modalities. Two, we wanted to strategically manage key accounts to accelerate adoption of our technologies, especially at our top pharma and CDMO accounts. Three, we wanted to launch new products with a focus on advanced analytics systems, and filtration. And four, we want to rebalance the organization to address margin challenges. First, on new modality inroads. Our new modalities business, which covers cell and gene therapy and mRNA, continues to gain ground. Driven by several late stage and commercial wins in 2023, new modality revenues in the fourth quarter were up 9% year on year. For the full year, new modalities represented 18% of total revenues, and while up only slightly versus 2022, the results are still impressive in light of the double-digit decline in sales across our industry. On the orders front, new modality accounts were up more than 10% in the second half of 2023 versus the first half of the year, and up greater than 15% for the full year compared to 2022. The order strength was driven by Chrome, filtration, and analytics franchises with notable product line strength from Opus, Fluid Management Assemblies, and Artisan Systems. We also added more than 85 new accounts in 2023. So we're really encouraged by our position and differentiation in this important market. Next, on managing key accounts. A key objective for us in 2023 was to build out a key account program and team to drive growth at our top farmland CDMO accounts. With the key accounts team in place by mid-year, we were able to focus this group on improving our portfolio visibility. In 2023, orders from our top 10 pharma accounts were up 50% in the second half of 2023 compared to H1 and 20% for the full year compared to 2022. At our top 10 CDMO accounts, orders in the second half of 2023 were flat versus H1, but up nearly 15% when compared to full year 2022. Again, directionally positive signs that our top accounts are beginning to show growth momentum. Moving now to new product launches and adoption. Each year, it's been our goal to launch 8 to 10 new products, and in 2023, we launched 10. Although these were first-year and partial-year product offerings, they generated over $12 million in revenue in 2023. So despite the year's challenges, we're really proud of our innovation track record. In 2023, 13% of our total revenue came from products launched between 2021 through the end of 2023. In the fourth quarter alone, that number was 16%. This past year, the success of our new products was in three areas. The first was RPM, where our analytics customers are seeing the benefits of real-time process monitoring. Second was our artisan RS systems, where we have a market-leading single-use system portfolio. And third was ATF, where the new Excel controllers are doing well in the marketplace and providing value or more automation and control for our process intensification customers. And finally, regarding rebalancing resources, our entire team from top to bottom focused on cost containment, and the leadership team rolled out programs to right size our organizations. Through this difficult but prudent process, we reduced our workforce by more than 15%. We are consolidating facilities, merging three of our facilities into sister plants. We are adjusting inventories and we are controlling expenses. By year end, we were back to nearly 50% gross margin for the company. We expect to be complete our rebalancing and streamlining activities by the end of Q2. And from there, we anticipate that margins will improve as our volumes improve over the next few years. So moving now to our Q4 business results. As you saw in our press release this morning, we delivered 156 million in revenue, with our base business, which excludes COVID and M&A, up 1% sequentially, down 13% year-on-year, and down 9% for the full year. Base revenue highlights in the fourth quarter included modest year-over-year growth and nice sequential growth. for both our analytics and proteins franchises, as well as the aforementioned positive impact from new Medazi accounts. At a customer level, our non-COVID Q4 farmer revenues, which includes M&A, were flat year-on-year. For CDMOs and integrators, Q4 revenues were down 20% and 10%, respectively, compared to Q4 of 2022. MetaNova came in right on track at $5 million of revenues in Q4, The team continues to work through the early phases of integration. We are happy with the progress we are making and expect to further integrate MetaNova mixing solutions into our fluid management portfolio as we go through the year. Moving to orders. Base business orders for the fourth quarter were up 3% year over year. Non-COVID orders for the fourth quarter were up 6% year over year. From a customer perspective, Non-COVID pharma and integrator orders were flat year on year, but CDMOs were up greater than 20%, both year on year and sequentially. The order performance in Q4 is very encouraging, especially at CDMO accounts, where we are starting to see some early signs of recovery. Moving now to franchise-level business highlights. In chromatography, our year-over-year revenues were down approximately 25% in the fourth quarter, and down 4% for the full year. The fourth quarter decline was primarily driven by the higher mix of columns versus resin demand. On orders, Chrome was down 4% for the quarter and for the full year 2023. The opportunity volume for our Opus product lines continues to increase, and for 2024, we expect chromatography revenue growth in the range of 0% to 5%. In proteins, our year-over-year revenues were up 7% in the fourth quarter and down 9% for the full year. Our proteins franchise had a solid revenue in order's quarter, driven by growth factors and custom affinity resins. That said, we expect weak demand for proteins in 2024, reflecting the Cytiva drop-off of approximately $10 million and lower forecasts for ligands from our other customers, including the discontinuation and ramp-down of some legacy resins one of our partners. This is the one franchise where we see excess finished goods inventory in the channel and we think it will take 2024 for this to reverse as our proteins forecast in 2024 will be down 30 to 35 percent. We expect the proteins business to have a strong bounce back year in 2025 as new products targeting antibody and antibody fragment purification gain traction. We have built a market-leading set of ligands over the last two years, firmly establishing ourselves as the technology leader in this space, and we will be working closely with Purolite to drive market adoption for these products. In filtration, our year-over-year revenues were down approximately 20% in the fourth quarter and 30% for the full year. The declines were driven by the drop-off in COVID-related revenue, which was approximately $23 million in Q4 of 2020, in Q4 of 2023. Filtration orders in Q4 were again strong, with a book-to-bill ratio of 1.03. Excluding COVID contributions in Q4, our filtration book-to-bill was 1.13, driven by strong demands for XLATF, artisan systems, and fluid management assemblies. With a strengthening order book, our expectation in 2024 or 5% to 10% on a reporting basis. Finally, our year-over-year analytics business was up 2% in the fourth quarter of 2023 and up 6% for the full year. We're seeing solid orders for analytics, which were up 10% for the year. The analytics story of the quarter and the year was a strong traction for our FlowVPX and RPM product lines and the continued adoption of VPE technology by new modality accounts. As the markets pick up, we expect the analytics business to grow 10% to 15% in 2024. In summary, despite the headwinds in proteins, our other three franchises combined are showing solid growth potential in 2024, projected to be up 9% on base business and 6% as reported at the midpoint of our guidance. So what do we expect to see as we move through the year? As we have repeatedly stated over the last six months, We see 2024 as a transition year for the company and industry, and we don't expect a full recovery until the second half of this year. We do expect revenues in the first half of 2024 to be moderately better than the second half of 2023. We believe the strength we've seen in orders over the last six months supports our ability to reach our 2024 revenue targets, including $300 million in the first half. We expect stronger revenues and orders in the second half of the year with revenues in H2 projects to be up 10 to 15% over H1, or 335 million as midpoints for our guidance. All in, our guidance for 2024 is in the range of 620 to 650 million, up 2 to 7% for non-COVID business, with M&A contributing three points of growth. We also expect that we will return to double-digit revenue growth for our businesses in 2025. We believe that the increased emphasis we've placed on commercial execution is really helping to reshape and expand our opportunity funnel. The stronger funnel, combined with our investment in the key account management team, along with an improving book-to-bill environment provides some real momentum as we head into 2024. As we move through the year, our strategic priorities will center on the following. Number one is to further expand our opportunity funnel and strengthen our order position and top accounts. Two is around launching new products with a focus on fluid management and integrated PAT systems. Three is around building off our wins in new modality markets. Four is around successfully integrating metanoma into Repligen and launching a portfolio of mixing solutions in the marketplace. And finally, five is around controlling our costs and increasing our margins as we go through the year. In summary, We are happy to be moving forward here in 2024. We have the right team and expertise in place across all aspects of our business, from operations to finance to commercial. We'll continue to focus on bringing flexibility and efficiency to bioprocessing through internal R&D and M&A. We've entered 2024 with a stronger balance sheet and a clear plan for delivering long-term reward for our shareholders. Now I'd like to turn the call over to Jason for a report on our financial performance.