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. 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 3- and 12-month periods ending December 31, 2023, and we will provide financial guidance for the year 2024. Repligen's 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 10-Q and our current reports on Form 8-K, 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 Repligen'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 income, pretax 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, Sondra. 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, in 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 in the bioprocessing industry. The first half of the year saw elevated stock levels at both CDMO and pharma accounts, conservative capital spending, 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 Repligen: opportunity funnel growth, improving pharma ordering patterns, early indications of CDMO recovery, and overall book-to-bill strength. So let's start with our opportunity funnel. Our sales funnel improved in 2023 with our opportunities of 50% and above 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 pharma orders were up 50% versus the prior quarter. We finished the year with second half pharma 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 more 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 largest and most impacted by the 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: 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 in 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 wanted 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 Chrom, Filtration and Analytics franchises with notable product line strength from OPUS, Fluid Management assemblies, and ARTeSYN 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 pharma and 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% from the second half of 2023 compared to H1 and 20% for the full year compared to 2022. Of 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 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 ARTeSYN RS systems where we have a market-leading single-use system portfolio. And third was ATR, where the new XCell controllers are doing well in the marketplace and providing value in the form of 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 rightsize our organization. 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, adjusting inventories, and controlling expenses. By year-end, we were back to nearly 50% gross margin for the company. We expect to 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 Protein franchises as well as the aforementioned positive impact from new modality accounts. At a customer level, our non-COVID Q4 pharma 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. Metenova 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 Metenova 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 integrated 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, Chrom was down 4% for the quarter and for the full year 2023. The opportunity for our OPUS product lines continues to increase, and for 2024, we expect Chromatography revenue growth in the range of 0% to 5%. In Protein, our year-over-year revenues were up 7% in the fourth quarter and down 9% for the full year. Our Protein franchise had a solid revenue and orders quarter driven by growth factors and Custom Affinity Resins. That said, we expect weak demand for Protein in 2024, reflecting the Cytiva drop-off of approximately $10 million and the lower forecast for ligands from our other customers, including the discontinuation and ramp-down of some legacy resins by 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 Protein forecast in 2024 will be down 30% to 35%, we expect the Protein 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 2022 compared to $8 million 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 demand for XCell ATF, ARTeSYN systems, and Fluid Management assemblies. With a strengthening order book, our expectation in 2024 is that this franchise will be up 10% to 15% on our base business or 5% to 10% on a reported 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 the 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 the 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 modestly 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 projected to be up 10% to 15% over H1 or $335 million at the midpoint of our guidance. All in, our guidance for 2024 is in the range of $620 million 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: first, to further expand our opportunity funnel and strengthen our order position on top accounts; second, to launch new products with a focus on Fluid Management and integrated PAT systems; third, to build up our wins in new modality markets; fourth, to successfully integrate Metenova into Repligen and launching a portfolio of mixing solutions in the marketplace; and finally, to control our costs and increase 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 careful plan for delivering long-term rewards for our shareholders. Now I'd like to turn the call over to Jason for the reports on our financial performance.

Thanks, Tony, and good morning, everyone. Today, we reported our financial results for the fourth quarter and full year of 2023 and provided financial guidance for 2024. As we expected, revenue in the fourth quarter stepped up nearly $8 million over the third quarter low point. We delivered total revenue of $156 million, with approximately $8 million of COVID sales in the quarter. This is a reported decline of 17% for the fourth quarter or down 21% on an organic basis, which excludes the impact of acquisitions and currency fluctuations. Our total year 2023 revenue was $639 million, aligned with our October guidance. This was a year-over-year decrease of 20% as reported and down 21% on an organic basis. FX provided a slight tailwind in the quarter. And for the total year, FX had a negligible impact of less than 30 basis points of growth headwind. For the total year, our base business, which excludes COVID revenue and M&A, was down 9% on a reported basis. We recognized $32 million of COVID revenue and approximately $7 million in M&A sales from our FlexBiosys and Metenova acquisition. Therefore, our base sales were $599 million. Included in the $599 million is just over $10 million of ligand sales to Cytiva, which will be negligible in 2024. Tony shared the revenue performance of our franchises, but let me highlight the revenue performance across our global regions. For context, the total year 2023, North America represented approximately 44% of our global business, while Europe and Asia Pacific and the rest of the world represented 37% and 19%, respectively. The challenges of the year were global in nature, and we saw declines across all regions, but Europe demonstrated the most positive momentum in the quarter. Year-over-year, on a reported basis, sales declined in North America by 20% for the fourth quarter and by 19% for the total year 2023. Europe was flat for the quarter, but down 19% for the year. And Asia Pacific was down 35% for the quarter and down 26% for the total year. China remained as the most significant driver of the region's decline, down 62% in the fourth quarter and down 41% for the total year 2023. Fourth quarter 2023 adjusted gross profit was $77 million, a 20% decrease year-over-year and nearly $31 million of lower revenue, delivering a 49.1% adjusted gross margin. Though still down about 2 percentage points versus the fourth quarter of 2022, this was a 700 basis point increase from the third quarter. This increase was driven by approximately 300 basis points from our lower level of inventory adjustments in the third quarter, 200 basis points from positive mix from higher Protein and COVID Filtration sales, 200 basis points from improved labor and overhead efficiencies and higher leverage on depreciation and capacity costs. With this fourth quarter, adjusted gross margin for the total year was 49.5%. This is down 750 basis points from 2022 on $163 million of less revenue. As Tony shared earlier, we have remained focused on cost management and rebalancing our resources through the second half of 2023. The majority of our restructuring actions will be complete within the first half of 2024, but we will remain diligent on our spending, investment prioritization, and we will remain focused on driving productivity and efficiencies across our manufacturing network. That said, for 2024, we expect our gross margin to remain at the 49% to 50% level. We believe we are turning the corner on profitability based on the actions we have taken in 2023 and will continue to take in 2024, coupled with higher leverage on increasing volumes going forward. Related to our actions, we incurred $8 million of restructuring charges in the fourth quarter, down from $24 million of charges in the third quarter. This was mostly driven by non-cash charges related to inventory revaluation and facility consolidations. All of these charges are non-recurring in nature and are reflected only in our GAAP P&L in the fourth quarter and total year. Though our current restructuring activities are primarily complete, we evaluate the need for future discrete actions as we continue our margin expansion journey. Continuing through the P&L, our adjusted operating income was $19 million in the fourth quarter, down $22 million compared to the prior year. This is driven by the $20 million drop in adjusted gross profit just described with only a slight increase in SG&A from our investment in our sales organization. Total year 2023 adjusted operating income was $94 million, down 59% on lower sales and gross margin, offset by a nearly $3 million year-over-year reduction in total operating expenses. Total year adjusted SG&A was down 1% on a reported basis and adjusted R&D spend, which is slightly down year-over-year as we essentially held our investments in technology development flat while continuing to introduce innovative new products. Our total year 2023 operating income margin of 14.8% includes about a 5-point headwind from depreciation, which was only a 3-point headwind in 2022. This is reflective of the critical investments we have made in our capacity. For total year 2023, EBITDA margin rate was 20% and more reflective of our profitability excluding the impact of the increased depreciation. Adjusted net income for the quarter was $19 million, down $20 million versus last year. Total year adjusted net income was $98 million, down $90 million. This was driven by a $138 million drop in adjusted operating income, and that drop was offset by just over $25 million of higher interest income, net of interest expense from our improved interest rates on our cash position and approximately $20 million less tax provision. Our total year adjusted effective tax rate was 16.2%. This tax rate benefited from the efficient use of cash in our Swedish operation related to the funding of our Metenova acquisition in the third quarter and from stock-based compensation. We have not assumed a repeat of these benefits in 2024. Adjusted fully diluted earnings per share for the fourth quarter was $0.33 compared to $0.68 in the same period in 2022. Consistent with our October guidance, our total year adjusted fully diluted EPS was $1.75, a year-over-year decline of 47%. Finally, with operating cash flow generation and the proceeds from our convertible debt exchange, we ended the quarter with $751 million of cash and cash equivalents. I'll now move to our guidance for total year 2024. I'll speak to adjusted financial guidance. So please note that our GAAP to non-GAAP reconciliations for our 2024 guidance are included in the reconciliation tables in today's earnings press release. And for further clarity, our guidance is fully inclusive of the FlexBiosys and Metenova acquisitions we made in 2023. As Tony shared earlier, our revenue for 2024 is expected to be in the range of $620 million to $650 million. We expect 2% to 7% growth for our non-COVID business with M&A contributing three points of that growth. As a note, we will not be reporting on COVID sales in 2024, as this will be de minimis. As Tony shared, we expect revenues in the first half of 2024 to be better than the second half of 2023, and we expect revenue for the second half of '24 to step up again. As I mentioned earlier, we expect to deliver adjusted gross margins in the range of 49% to 50%, essentially flat with 2023. We see about 200 basis points of headwind from mix with our reduced Protein sales forecast, salary increases, material inflation, and from resetting our incentive compensation back to normal levels for our employees in 2024 after being far below that in 2023. The impact from these headwinds is expected to be entirely offset by the manufacturing productivity, which is forecasted to generate roughly 200 basis points of year-over-year adjusted gross margin improvement. I'll also note that price is assumed to be flat this year though we may raise prices selectively. We expect our adjusted income from operations to be between $83 million to $88 million or 13% to 14% adjusted operating income margin rate, which is down about 100 basis points from our midpoint from 2023. In our adjusted operating income, we see line of sight to delivering 400 basis points of year-over-year productivity. However, total salary increases, material inflation, mix from lower Protein sales and volume deleveraging creates greater than 300 basis points of headwind. And the headwinds from resetting our incentive compensation is a total of 200 basis points of headwind at the adjusted operating income level with the majority of our incentive costs in SG&A. We remain focused on balancing our cost structure, taking immediate actions while protecting the resources and investments needed to grow long term. As our volume grows, we expect profitability to grow with it. Adjusted EBITDA margins are expected to be in the range of 18% to 19% for the year, reflective of the exclusion of roughly 500 basis points of headwind fixed depreciation costs and the critical capacity expansions we have made. Continuing down the P&L, we expect our adjusted other income to be down year-over-year by an estimated $4 million to $5 million. This reflects the favorable but higher coupon on our convertible debt, increasing from 0.375% to 1.0%. It also reflects an assumption that interest rates that we earn on our money market cash investments will reduce through the course of 2024 as most forward forecasts indicate a similar profile. Our 2024 adjusted effective tax rate is expected to increase to an estimated 21%. This increase versus 2023's ending rate of 16.2% is driven by the 2023 benefits that I cited earlier and not repeating in 2024 related to the acquisition funding and stock-based compensation. Incorporating all of these items, we expect our adjusted earnings per share to be between $1.42 and $1.49, down 33% to 31%, respectively, versus last year. We've entered 2024 with a stronger balance sheet with $751 million of cash and cash equivalents. We will remain prudent in our spending while maintaining flexible dry powder. Our FX spending is expected to be flat to down 5% versus 2023 after 2023, was cut by more than 50% off of our 2022 peak spend. Now as we wrap, let me reiterate our excitement to move forward in 2024 and our optimism about the bioprocessing market improving through the course of the year. We will remain laser-focused on the execution of our strategic priorities, continuing to expand our position in top accounts, delivering more innovation with differentiated new products, building up our wins in new modalities, successfully integrating Metenova, and remaining diligent on our cost control and productivity to support increasing margins as we go through the year. With that, I will turn the call back to the operator to open the lines for questions.

First question is from Dan Arias with Stifel.

Tony or Jason, regarding the outlook for the year, can you discuss the revenue projection of $620 million to $650 million? I'm curious about how you foresee the revenue growth throughout the year. It seems you are anticipating an acceleration in the second half, as mentioned previously. Can you clarify your expectations for the revenue distribution from the start to the end of the year, specifically from the first quarter to the fourth quarter? I'm trying to understand how the order book and the momentum you've described will contribute to that increase in the second half and how you plan to progress.

Yes. Thanks, Dan. I think the orders that we brought in, in the second half of the year, especially in Q4, definitely helps us in Q1 and Q2. Typically, the order book spreads out over a couple of quarters. It's not just the quarter ahead. Our expectation, we're going to be in that $300 million, probably $310 million in the first half of the year and then the remainder in the second half of the year probably around that $325 million to $335 million to get to the midpoint. We're just looking at it from a midpoint. So I don't think there's going to be a huge amount of difference between Q1 and Q2, and obviously, the next couple of quarters are going to be very important from an orders point of view because they will dictate a little bit of what happens in Q3 going into Q4.

Okay, that's helpful. Jason, regarding margins, the EBITDA margin has decreased by a few hundred basis points this year. It seems there are several factors influencing this. Looking further ahead, while I understand you’re not providing guidance on long-term margins, it appears you have given this some considerable thought. With that in mind, do you have any general insights on how we might expect post-COVID Repligen to align more closely with pre-COVID Repligen concerning margins? Do you anticipate that the low to mid-20s EBITDA margin could return once costs normalize and the top line stabilizes?

Great question, Dan. Thanks. I hope you noticed that we tried to offer more details regarding the profit bridge to emphasize the various factors at play. I'm very pleased with the productivity and cost efficiencies we're achieving. For 2024, much of this was implemented through our actions in the second half of 2023. We're not the only company addressing the challenges related to resetting compensation, which will be a significant challenge for us this year. Additionally, we are not benefiting from price increases, as we are assuming stability for the year, which is usually a factor for profitability. As we've mentioned, we see 2024 as a transitional year for our top line, which I believe will also impact profitability. The measures we're implementing are positioning us for long-term improvement. Regarding the timeframe, it may take a couple of years to establish the right structure, and as volume increases in the coming years, we will be able to leverage that. However, we remain confident about where we are headed; it will just require the necessary time to achieve our goals.

The next question is from Matt Larew with William Blair.

I just wanted to follow up, Jason on the OpEx side. And I wonder if you could just maybe give a little more color on the way on the cost savings will layer into the year and sort of how the profitability cadence may or may not match what the revenue cadence looks like throughout the year?

Yes. Regarding operating expenses, Matt, to address your second question, the cadence will align with the revenue. We expect to see more leverage in the second half as volume increases. We are confident about that. For operating expenses, it will rise by about $5 million to $6 million at the midpoint. I want to remind you that we have approximately $8 million in year-over-year acquisitions primarily from Metenova, which is not included in the baseline. Additionally, there is an impact from our incentive compensation and normal merit salary increases. These are some of the components contributing to the increase. However, we are also implementing over $20 million in productivity savings. Therefore, we are proactively addressing the challenges with various cost-saving measures.

And Matt, I would add that all the changes we made in the company in the second half of last year, that's going to help us as we go through the year. And Jason's comment on volume, volume is going to drive everything that we need to see in the year. So in the second half of the year, revenues are going to be higher, and therefore, most of the leverage we're going to see is going to be on the OpEx side.

Okay. And then you spoke on the call about some trends you've seen in pharma and CDMOs. A couple of the other categories that were headwinds last year were kind of early-stage, which I know was a nebulous term and then China. So I'm just curious what's contemplated in the outlook in terms of how those two buckets will trend throughout the year?

China is expected to experience weakness again in 2024. Last year, we had strong revenue from China in the first half, which was driven by orders placed in 2022. However, when we look at it from an order perspective, orders in the first and second quarters were significantly lower than the revenue we recorded. Therefore, our outlook for China in 2024 is based on the order trends we observed in 2023, leading us to anticipate that China will account for about 5% to 6% of our revenue this year. On the pharmaceutical side, particularly in the CDMO segment, we have seen some positive resilience over the last few quarters. We had an exceptionally strong order quarter in the third quarter and a good order quarter in the fourth quarter for pharma, marking the best orders outside of Q3 in the past four to five quarters. Thus, we believe the pharma sector is in relatively good shape. However, the CDMO segment has not rebounded like other parts of the industry. Despite this, we had a strong quarter in Q4, and when we compare CDMO orders in Q4 to the average of the previous five quarters, we see an increase of about 20% to 25%. This is an encouraging sign, but it’s just one quarter, and we need to observe a few more quarters in the CDMO market to determine if there is a significant turnaround.

The next question comes from Puneet Souda with Leerink Partners.

Tony, maybe if I could pull it to a little bit of high level. When we look at the full year guide, which appears to be low single digit at the midpoint. The question we're getting from investors is why is that the right number given all the backdrop and improvement that you're seeing across pharma? You talked about CDMO orders growing 25% quarter-over-quarter, Filtration business or book-to-bill is improving, I mean, a number of factors across the business are improving, so maybe just talk to us about...

Puneet, there seems to be a lot of disruptions in our conversation. We have the guidance set at mid-single-digit for Filtration. Let's address this issue.

I could hear you, Puneet, but there's a lot of static on the line. If you could mute, that might help. I understood your question about the guidance and its relevance given the current market conditions. To clarify, we are projecting a growth range of 2% to 7% for our non-COVID business in 2024. If we adjust for the impact of mergers and acquisitions, specifically Metenova, that translates to a range of minus 1% to plus 4%. Excluding the challenges we're facing in the Protein segment, we are actually experiencing about 9% growth in our other three franchises, and year-over-year, that would equate to 6%. Therefore, I believe our guidance is quite solid and reflects the positive influence of a stronger book-to-bill ratio, primarily from our Filtration platform. In Q3, our Filtration franchise had a book-to-bill ratio of 1.15, and in Q4, it was 1.03. However, if we exclude the COVID revenue from Q4, the ratio was 1.13. This indicates that our largest franchise is demonstrating substantial strength, which is very encouraging. Although our guidance may appear conservative and lower than some might anticipate, it is fundamentally linked to the downturn in Protein, while our other franchises are performing exceptionally well. We believe this guidance is appropriate as we begin the year.

Hopefully, you can hear me okay now, but just if you can, just a very brief question. On the Protein, could you provide more...

Puneet, the connection is quite poor. I believe it would be best to limit it to one question. It's very difficult to understand the questions, likely due to the phone line. I don't think others are experiencing this issue. Is that alright? It’s just challenging to hear. Let's move on to the next question.

The next question comes from Jacob Johnson with Stephens.

Tony, following up on that last question, we are hearing inquiries this morning regarding Q4 orders. If I annualize those orders, it seems to align with the midpoint of your guidance. Can you discuss whether you expect any recovery in orders beyond what was seen in Q4 in this revenue guidance?

Yes. Clearly, when you look at the orders that came in, in Q3 and Q4, they definitely have an impact in the first half of the year. I think the piece that maybe gets lost in this is that our Protein business will be down 30%, 35%. So we're kind of counteracting kind of that trend. And look, every business, every product line has challenges. And so we're not making any excuses on that. It's just it is what it is. But I think if you look at the growth of the other three franchises, they're coming in really around that 6% to 9% range. So I think it's actually really good given the environment in the market that the whole industry has gone through and we've gone through over the last year. So I think it's been masked a little bit by the weakness in Protein.

Got it. Following up on that, can you elaborate on what's happening with the Protein business? Is this expected to be a one-time impact in 2024?

Yes. I believe this is a one-time impact. Everyone was aware of Cytiva leaving as we entered the year. As we approached Q1, the forecasts from our other two partners for ligands were lower than expected. The cause was that from Q4 of 2022 to mid-2023, our partners anticipated a strong year and stocked up on ligands, but that expectation did not materialize. Unlike the COVID inventory buildup, this situation arose because last year's performance fell short of expectations, leaving them with excess ligand inventory that needs to be utilized. Therefore, this is a significant issue for 2024, but I want to emphasize that our strategy for innovative Protein A ligands has positioned us as the leader in the market. Purolite has also been enhancing their commercial efforts. We remain very positive about long-term growth in ligands and our Protein business, and we project that by 2025, it will exceed 10% growth for us.

The next question comes from Dan Leonard with UBS.

My first question is on China. I appreciate that you have a tough comp in the first half of 2024. But can you speak to the sequential trends in China? Has the revenue outlook there bottomed? Or are you still seeing further deterioration quarter-on-quarter?

Yes, thanks, Dan. If we evaluate our orders in China for 2023, they were quite stable, remaining consistent across the four quarters, varying by about $1 million. They were very close to each other. I would say that China has certainly hit a low point concerning orders. For revenue in 2024, we essentially projected our orders for the year, assuming that’s what it will be. If there is an increase, which is possible in the latter half of the year, we might see some positive impact from China in that period, but we don't anticipate it for the first half. Therefore, our forecast for China at 5% to 6% is conservative, but it only remains so if China begins to improve in the latter half of the year.

Appreciate that. And then for my follow-up, Tony, could you elaborate on how you're thinking about cell and gene therapy trends in 2024 in your business? So what growth is baked into that forecast? And how concentrated is that customer base for you?

Yes, we have consistently discussed cell and gene therapy and mRNA in 2023. We consider new modalities as a broader category that includes these therapies. Approximately 20 to 25 accounts make up the majority of our revenue. We saw benefits in 2023 and will continue to see benefits in 2024 from customers who have engaged us in commercial and late-stage processes. Last year wasn't a growth year for us; our revenue for new modalities was flat in 2023 compared to 2022, primarily driven by the late-stage opportunities from our top 20 accounts rather than the wider range of cell and gene therapy and mRNA companies. Looking ahead to 2024, we expect that the same accounts that performed well for us in 2023 will continue to do so. We are anticipating a growth rate in the mid-single digits, likely in the 5% to 7% range for 2024, as we have not yet seen a recovery in the broader base of accounts.

The next question comes from Conor McNamara with RBC Capital Markets.

Just on orders, can you talk about the progression of orders throughout Q4 and how things are looking at the start of the year? And maybe start there, and then I have a follow-up.

I missed the second part, Conor. So the progression of orders in Q4?

And then how things are looking at the start of the year?

Yes. So I'll provide an overview of the last four months of 2023. September was exceptionally strong, contributing to a solid third quarter. Order patterns in the fourth quarter have been very consistent, with an even distribution across October, November, and December. As we begin the year, we are on track with our pacing, and we are about halfway through the quarter, aligning with our expectations.

Okay. Great. And then my follow-on there is, if you look at your guidance for this year, what are you assuming for order growth progression through the year? And where would you need to be on a book-to-bill basis exiting the year to hit that guidance? Are you basically assuming no real improvement in book-to-bill throughout the year in your guidance?

No, I would say that looking back over the past six quarters, the downturn in the industry on the order side began in mid-2022. In Q3 '22, Q4, and Q1 and Q2 of 2023, we had four consecutive quarters with a book-to-bill ratio of about 0.8. Now, we've seen two quarters with ratios of 1.07 and 1.03. We expect the first half of this year to average around a 1:1 book-to-bill ratio. In the second half, we anticipate an increase of 10% to 15%, indicating an improvement in the book-to-bill ratio. A key quarter for us will be Q2; to meet our targets, Q2 needs to be stronger, followed by Q3 and Q4, also showing increases of 10% to 15%. So, we can think of it this way: we started with four quarters at a book-to-bill of around 0.8, moving to four quarters with a ratio around 1 to 1.05, and then further progressing to about 1.1, which is in line with our historical growth rate.

Okay. Perfect. That answers my final question. You mentioned double-digit growth in 2025, but you'll need to be at or above a 1.1 book-to-bill ratio, and it sounds like you're confident about that.

Absolutely. What's encouraging is that our Filtration business has been above 1.1 for the last couple of quarters. That's probably the most encouraging part for us.

The next question comes from Matt Hewitt with Craig-Hallum Capital Group.

You mentioned in your press release the goal of returning to double-digit growth in 2025. Previously, you suggested a possible target of around 20%. As you assess that target of double-digit growth in 2025, can you outline the key factors that will drive this, such as inventory funding levels at CDMOs, mergers and acquisitions, and the Chinese market? What are the main levers that will help you achieve this growth rate more quickly?

Yes, thanks, Matt. I would say that the markets need to broadly recover. Looking ahead to 2024, the pharmaceutical sector is clearly in better shape compared to the CDMO market. We had a decent order quarter for CDMOs in Q4. If we project 12 months forward, we expect CDMOs to return to growth, pharmaceuticals to continue advancing, and the Protein business to begin recovering in 2025. These factors will be critical drivers. Our exposure to China is limited, so any growth there in 2025 would simply be a bonus as I believe we have hit the bottom in terms of revenue.

Got it. All right. That's helpful. And maybe just one more. On the CDMO side, obviously, it sounds like you're starting to see some improvement there. Is the inventory adjustments or the corrections that you're seeing at the CDMOs, is that pretty broad-based? Or are there specific products that are still sitting on their shelves? I'm just trying to think, I mean, is it OPUS columns that they need to work through? Or is it Filtration? Or is it broad-based? Like they bought a ton of inventory and still there's pieces of equipment and products that they're still working through?

On the CDMO side, the product category that has been overstocked and has impacted Repligen the most is likely the components side of Fluid Management. This includes items such as tubing and valves, which are typically purchased and stocked in large quantities for multiple years. It's not the OPUS columns that are a concern. Additionally, it's important to note that in 2023, there are fewer projects in the CDMO sector. This situation is not solely due to destocking; there are simply fewer projects being undertaken. For the CDMO market to recover, biotech companies need to initiate and outsource more projects, and large pharmaceutical companies need to do the same. While we are observing positive momentum among our top 10 CDMO accounts, the broader segment has yet to rebound. Its recovery will depend on a healthier biotech environment and increased funding, among other factors.

The next question comes from Paul Knight with KeyBanc.

I'll give you a break, Tony. But the question is for Jason. With the EBITDA margins you've indicated, around 18% to 20%, what does Repligen aspire to for one or two years beyond 2024? You achieved 30% in 2022, so what would the goal be?

Yes, we are aiming for a 25% margin, but we are targeting the mid-20s as our next milestone. We will also evaluate opportunities to exceed that goal. However, at the 30% margin, the profitability and volume don't seem to provide a sustainable mix for our business. Therefore, the mid-20s is definitely where we plan to return.

And Tony, the Association thinks we might have 14 cell approvals this year. Do you see that in customer orders? And what products do you make for this market as well? Maybe let's start with the products in the marketplace. I would say that the drivers and new modalities for us are definitely our Filtration portfolio, products like ATF and our hollow fiber technology. Also, our systems are performing well, such as our ARTeSYN systems and OPUS comps. Those would probably be the three main product lines. Additionally, many companies are utilizing our analytics technologies like SoloVPE, which would likely be the fourth product that performs well in the cell and gene area. Regarding the 14 approvals, if there are more approvals this year, I believe it will benefit Repligen. I haven't reviewed the 14 to identify which ones present customer opportunities or have already been specified into Phase II. However, we have around 20 to 25 accounts that are scaling. Therefore, if those are part of the 14, we will indeed benefit from that.

The next question comes from Rachel Vatnsdal with JPMorgan.

Perfect. A lot already been asked, and maybe I'll just put one in around M&A. For Metenova, you've had that asset for a few months here. So can you talk about how integration is going there? And then any expectations for M&A and just talk about the state of the environment there for this year as well?

Yes, Metenova is progressing as anticipated. The integration is proceeding smoothly, and there is a strong synergy between Metenova's operations and the Fluid Management business at Repligen. We've successfully integrated our efforts, and the sales teams are well-trained and collaborating closely. Overall, the experience has been very positive thus far. Regarding future mergers and acquisitions, the landscape has not significantly changed over the past year, and we will remain selective in our pursuits. Sorry for any background noise; there appears to be some construction happening on our roof.

Our next question comes from Justin Bowers with Deutsche Bank.

I have two questions. Can you discuss the assumptions behind your expectation for a return to double-digit growth by 2025 and what evidence supports your confidence in this direction? Additionally, regarding site consolidations, when would you need to begin adding capacity as you aim to return to that double-digit growth trajectory next year and beyond?

Yes, maybe I'll start with the site consolidation piece. I think we're in great shape in terms of what we have for facilities, we're doing a little bit of site consolidation. But in terms of capacity, we have capacity that's going to get us out for the next five years. So I don't think there's a lot more investment than we have to do. Of course, if we did an M&A and it required a capital investment, then that probably would be the exception. In terms of kind of assumptions around getting back to double-digit growth in 2025, it's really around broad market recovery, it's kind of what I said earlier, broad market recovery. We are in a significant number of late-stage processes. So as those go into commercial, I think we get a nice pickup from going from Phase III into commercial. And we're seeing that, honestly, in 2024 for some of our product lines. So I think that's a positive. And then, it's the new products. Like we've been launching some great products over the last few years. We're really proud of what we've done on the systems side. You're going to see as we go through this year, a number of new products are going to come out on the Protein A ligand side as well. I think all of those contribute in a very positive way to the double-digit growth in 2025.

This concludes our question-and-answer session. I would like to turn the conference back over to Tony Hunt for any closing remarks.

Yes. Thanks, Sabrina. Look, it's great for everybody to join us today, obviously, right at the start of 2024. I look forward to getting back together with everybody in May and talking about the progress we're making. So again, thanks, everybody, for joining.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.