Repligen Corporation

Good day, ladies and gentlemen, and welcome to Repligen Corporation's second quarter of 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, then zero on your telephone keypad. Please note that there will be a question and answer session following the company's formal remarks. 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 like now to turn the call over to your host, Sondra Newman, Head of Investor Relations for Repligen. Please go ahead.

Thank you, and welcome to our second quarter of 2024 report. On this call, we will cover business highlights and financial performance for the three- and six-month period ending June 30, 2024, and we will provide financial guidance for the year 2024. Joining us on the call today are Repligen's current Chief Executive Officer, Tony Hunt, our Chief Commercial Officer, Olivier Léaud, and our Chief Financial Officer, Jason Garland. 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 quarterly reports on Form 10-Q, our annual report on Form 10-K, and other current reports on 8-K, including the report that we are filing today and other filings that we make with the Securities and Exchange 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 Repligen's website and on sec.gov. Adjusted non-GAAP figures in today's report include the following. base revenue and organic revenue, non-COVID and non-proteins revenue, cost of sales, gross profit and gross margin, operating expenses, including R&D and SG&A, income from operations and operating margin, other income, pre-tax income, tax provision, 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 gap 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, and good morning, everyone, and welcome to our Q2 earnings call. As you saw in our press release this morning, we reported on an improving quarter for both revenues and orders, with orders pacing 2% above revenues for the second quarter and 1% above revenues for the first half of the year. As outlined in our May earnings call, we were looking for continued momentum in Q2, and with the exception of seeing China demand decline further and the known headwinds in proteins and COVID, we had a really good quarter. We saw a positive Q2 in year-to-date sales and order performance in pharma, and a healthy pickup in CDMO order activity. Sales and order momentum on consumables continued, and we saw a bounce back in equipment orders, both sequentially and year-over-year. And finally, our momentum in the new modality space continued, with first-top revenues and orders well above the same period in 2023. We are narrowing revenue guidance within our range with the expectation that we will finish 2024 between 620 to 635 million, which lowers our midpoint by 1%. This is directly related to the demand drop-off in China, where we saw a weak Q2, which is driving an additional 10 million decline versus our May call. We're also seeing increased headwinds coming from FX. But overall, we're really happy with the progress we're seeing including the strategic direction being reinforced for proteins with pending acquisition of Tansy Labs that we announced yesterday. So moving now to the big picture on the quarter on the first half of 2024. Farmer revenues in Q2 were up about 15% sequentially and 20% year on year. Farmer orders were also strong, up 5% sequentially and 40% year on year. For CDMOs, While Q2 sales were down as anticipated, orders, as noted earlier, came in strong, up by 20% plus, both sequentially and year over year. Book-to-bill for CDMO was over 1.4 for the quarter and 1.1 for the first half of the year. This improvement was driven by an uptick in Tier 2 CDMO activity, which we view as an important turn for emerging biotech and the overall biologics market. We look forward to seeing how this plays out later in the year and into 2025. Consumables maintain their momentum in Q2 with revenues of double digit versus Q1. Orders in Q2 were up 30% versus prior year and in line with our Q1 orders. With consumable orders up 20% in the first half of the year, we are confident that destocking is finally behind us. Moving to capital equipment, Similar to CDMOs, equipment was light on revenue in the quarter. We did, however, see first half equipment sales up close to 10% versus the first half of 2023. More importantly, equipment orders showed a very nice rebound, up 20% versus last quarter and about 15% year-to-date on relatively easy comps. Supporting our order strength in H1 is the early success of our RS Systems product line, where we have seen important wins at strategic accounts in Q2, including first placements of our most recently launched RS10 system. While the Q2 results are encouraging, there are still headwinds in this part of the market. However, we still expect capital equipment orders to pick up further in the second half, as we have a very strong opportunity funnel that we expect to convert to orders. The new modality customer base delivered mid-single-digit revenue growth in Q2 versus the same quarter in 2023. New modality orders were up more than 40% year-over-year, delivering a Q2 book-to-bill of 1.1. First half of the year revenues were up greater than 10%, and more importantly, orders were up greater than 20% in the same period. This reflects the momentum we are seeing in this market and the strong portfolio fit for this customer base. Our regions continue to perform well, with the exception of China. China orders and sales were down again in Q2, and our expectation is that China revenues will now come in around $25 million in 2024, or about $10 million lower than we were anticipating at the time of our Q1 call. Jason will cover more in his finance section on regional dynamics. So in summary, total Q2 revenues decreased 3% year over year, but were up 4% if you exclude known COVID and proteins headwinds. Sequentially, total Q2 revenues were up 2%. We continue to see some lumpiness on a franchise level from quarter to quarter, but sales through the first half of 2024 support our view that our franchises are recovering. Further validating this view is orders performance in the quarter and first half. Total orders in Q2 were up 20% year-over-year and up 30% if we exclude proteins. Sequentially, orders were up 5%. Moving to our updated revenue guidance for 2024. As noted earlier, we are narrowing our guidance to a range of $620 to $635 million, reflecting the incremental headwinds from China and foreign exchange. We are encouraged that our businesses are performing as expected and we achieved our revenue targets in the first half of the year. Orders held steady, supporting a first-half book-to-bill of 1.01 and higher in important market areas like CDMOs and new modalities. Our opportunity funnel continued to strengthen as we moved through the first half of the year. The funnel is up significantly versus the same period in 2023. Our healthy funnel was reflected in our orders performance for the quarter And it's another lens to support our view that the markets are more fully recovering as we move into the second half of 2024. With the positive uptick in orders and funneled strength, along with improving visibility, we expect the second half of the year revenue to be stronger versus first half. We also expect to see a return to robust revenue growth in the second half of the year with non-COVID revenues projected to be up 11% versus same period in 2023. We expect Q4 to be an especially strong revenue quarter given the funnel and the known seasonality challenges associated with Q3. Based on these market trends and our healthy funnel, we believe we are finally seeing the turnaround in the markets and we are excited about the momentum going into 2025, where we expect to continue to grow above market. I'll now hand the call over to Olivier to talk about our franchise performance and the commercial efforts to develop a key account program.