Repligen Corp Q2 FY2025 Earnings Call

Good day, ladies and gentlemen, and welcome to Repligen Corporation's Second Quarter of 2025 Earnings Conference Call. My name is Greg, and I will be your coordinator. I would now like to turn the call over to your host, Jacob Johnson, Vice President of Investor Relations for Repligen. Jacob?

Thank you, operator, and welcome to our second quarter of 2025 report. On this call, we will cover business highlights and financial performance for the 3-month period ending June 30, 2025, and we'll provide financial guidance for the full year 2025. Joining us on the call today are Repligen's President and Chief Executive Officer, Olivier Loeillot; 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 for the fiscal year ended December 31, 2024, and our current reports, including the Form 8-K 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 oblige 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: non-COVID and organic revenue and/or revenue growth, cost of goods sold, gross profit and gross margin; operating expenses, including R&D and SG&A, income from operations and operating margin, tax rate on pretax income, net income, diluted earnings per share, 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 Olivier.

Thank you, Jacob. Good morning, everyone, and welcome to our 2025 second quarter call. We had another outstanding quarter in Q2 with 17% organic non-COVID growth, the highest growth rate since 2022. There were highlights across the portfolio, led by Chromatography, while Filtration posted mid-teens non-COVID growth. Consumable demand remains healthy, and capital equipment grew in the high teens. CDMOs had a very strong quarter, while biopharma continued its momentum with revenues growing 20%. Geographically, trends were consistent globally with all regions growing in the mid-teens in the quarter. Orders grew over 20% year-over-year and high teens organically, led by strength in filtration. This marks the eighth quarter in a row of orders exceeding non-COVID revenue and the fifth quarter of sequential order growth. We believe this broad-based demand across our diversified portfolio and customer base highlights our ability to outpace industry growth. As a result, we are raising the midpoint of our organic growth guidance. Given the strong order trends we are seeing, we're investing in manufacturing labor to best serve our customers and preserve our lead times. While there have been a number of macro headlines in recent months, we remain focused on what we can control, which is delivering on our strategy in 2025 and beyond. I'll speak to this more in a moment, but we believe our Q2 results highlight that by executing on our innovation and commercial strategy, we can deliver differentiated growth. Importantly, should our customers face macro challenges or pricing pressure, our products will enable them to improve yield and productivity. Customer centricity is core to our foundation, and we will continue to innovate to enable our customers to produce breakthrough therapies more efficiently. In addition, we are encouraged by the traction at our strategic accounts and great execution by our entire commercial team. In short, we're excited about the momentum in our business, as highlighted by our year-to-date performance, which demonstrates the differentiated nature of Repligen and the effectiveness of our strategy. Unpacking our performance by end market, Q2 '25 biopharma revenues grew 20% year-over-year and orders grew over 20%. This was driven by recent wins at large pharma accounts as we cross-sell our entire portfolio. Revenue from emerging biotechs grew in the high teens, so orders remained muted. CDMO revenues were up significantly, while orders grew in double digits. This strength was similar across our Tier 1 and Tier 2 CDMO customers. Year-to-date, both revenues and orders from biopharma and CDMOs are up greater than 20%, underscoring the continued momentum from our end markets. Consumable revenue and orders, which exclude Proteins, grew greater than 20% year-over-year, a record revenue quarter on a non-COVID basis. Capital equipment revenue returned to growth in the high teens, while orders grew greater than 20%. After optimism around our capital equipment funnel last quarter, it was great to see this convert to orders and revenue this quarter, driven by traction in both ATS and downstream systems. From a geographic point of view, growth was consistent across all regions in the mid-teens. We would highlight that China orders picked up significantly in Q2. While we are hesitant to call this a trend and there could have been some tariff-related dynamics at play in China, this is an encouraging sign. Coupled with new leadership, we are optimistic about China returning to growth in 2026. And outside of China, APAC orders nearly doubled sequentially. Given this momentum, we are investing more in this region. New modalities revenue grew in the mid-teens in the quarter. Demand was fairly broad, including a pickup in cell therapy activity. With orders essentially flat in the quarter, our guidance now assumes new modality demand will be muted in the second half. While we don't typically comment on customers, given recent headlines, we wanted to share the following incremental detail this quarter. The gene therapy platform represented $10 million of revenue in the first half of this year, and we have already recognized $3 million more in July. Our updated guidance assumes minimal incremental revenue from this platform for the remainder of 2025, which represents a 1% headwind versus our prior guidance. Momentum in biopharma, consumables, and hardware, along with 20% order growth in the first half of 2025 gives us confidence to increase our organic growth outlook despite that headwind. Our revenue guidance of $715 million to $735 million reflects 12.5% to 15.5% organic non-COVID growth. Jason will provide more details shortly. We recently completed our annual strategic planning process, and I would like to give you a brief update. While this is an internal exercise, we thought in the current environment, it might be helpful to share a few highlights as it relates to our outlook. Our vision is to be the global innovation leader in bioprocessing with a comprehensive portfolio of differentiated data-driven solutions across therapeutic modalities. All of this is backed by a mission to inspire advances in bioprocessing as a preferred partner in the production of biologic drugs that improve human health. As we reflect on the last decade, we have utilized M&A and R&D investments to add innovative products to our portfolio while diversifying our customer base and product offering. As we look ahead, we will continue to maintain customer trust through quality and service, work to cross-sell our portfolio by focusing on key accounts and be fit for growth. In addition, we see growth opportunities, including Asia, modalities like ADCs and cell therapy, and trends like digitization. These are key focus areas for future growth at Repligen. We think this results in our ability to outpace industry growth by 5%. Given this organic growth strategy, our strategic plan lays out a path to doubling the size of the company in the medium term with only modest M&A assumptions. As our top line grows, we will remain focused on profitability to drive gross margin expansion and operating leverage. Next, given the strong trends in capital equipment in the quarter, I wanted to touch on our system strategy. We embarked on this journey several years ago, and our portfolio now spans small to larger scale systems across our filtration and chromatography franchises. In addition to automation, configurability, and simplicity benefits, we have integrated our PAT capabilities into these systems and will continue to do so. The strength we have seen in hardware over the last 12 months is a positive leading indicator. Capital equipment placements will drive services and consumable pull-through in coming years, similar to the benefits we are seeing with ATF today. This is another example of innovation driving growth. We plan to run the same playbook with the 908 bioprocessing portfolio for the upstream workflow. As it pertains to tariffs, we said last quarter, we would leverage our global network, surcharges, and pricing where appropriate. With modest investments, we anticipate by next year, the vast majority of our portfolio will have dual manufacturing in the U.S. and Europe, which should position us well in this new trade environment. We have been passing surcharges through to customers. Finally, we have taken price actions to offset related inflation. The net result is a slight benefit to our 2025 revenue and a modest headwind to margin. Finally, I wanted to highlight that we published our 2024 corporate sustainability report in May. We take a pragmatic approach to advancing our sustainability-related ambitions. For example, we reduced our waste generation by 25% last year with the help of our Repligen performance system. As a testament to our efforts, we were honored to be named by Newsweek as one of the world's greenest companies in 2025. Before I turn the call over to Jason, I'll provide an overview of our franchise level performance. Filtration revenue grew in the mid-teens, excluding COVID in Q2. ATF Systems and TFF consumables were all meaningful contributors to this growth. Filtration orders were very strong as we had a record quarter for ATF order intake and as mentioned earlier, good traction on systems. We expect our hardware portfolio to complement healthy consumable demand to drive further filtration growth in the back half of the year. Chromatography had a record quarter with greater than 40% revenue growth. This was driven by large-scale column demand from pharma and Europe as our Q1 orders translated to revenue growth in Q2. With recent pharma customer wins, we did have a higher-than-normal mix of procured resins in the quarter. Chromatography orders grew low double digits in quarter 2. After a very strong quarter 1, Proteins posted high single-digit growth in quarter 2. This was driven by Chromatography resins and ligands. After a very strong first half, our guidance assumes lighter Proteins revenue in the second half. We are continuing to develop custom and catalog chromatography resins with several product launches planned for the second half of the year. Process Analytics grew over 30% in quarter 2 with $3 million of revenue from the 908 bioprocessing acquisition and 12% organic growth. This was mainly driven by consumable and service uptick. Process Analytics orders grew north of 20% in Q2, which was 12% organic. We have largely completed the initial integration of the 908 bioprocessing assets, moving their Boston operation to our Marlborough facility. We have also cross-trained both CTech and 908 commercial teams. To summarize our Q2 performance, 17% organic non-COVID revenue growth showcases the bioprocessing recovery continues to play out, as well as our differentiated product portfolio. Our order and funnel trends suggest this momentum should continue into the second half of the year. As a result, we are confident in our updated 2025 outlook and delivering above-market growth.

Thank you, Olivier, and good morning, everyone. Today, we are reporting our financial results for the second quarter of 2025 and providing an update to our financial guidance for the full year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we delivered second quarter revenue of $182 million. This is a reported increase of 15%. We were up 11% on an organic basis, which excludes the impact of acquisitions and currency, and up 17% on an organic non-COVID basis, which we believe best reflects our underlying performance in the quarter. Acquisitions contributed approximately 2 points of the reported growth, while foreign currency was also a 2-point tailwind. As Olivier offered perspective on our product franchise performance, I'll provide more detail on our global regions. Starting with quarterly revenue. North America represented 49% of our total. Europe represented 38%, and Asia Pacific and the rest of the world represented 13%, with Europe gaining some share since last quarter. We saw equally strong performance across all 3 regions, each growing in the mid-teens. Asia growth was led by ATF. Europe growth benefited from OPUS, TangenX, and Systems, while North America growth was broad-based across all 4 franchises. For orders, APAC and the rest of the world bounced back with strong growth, while Americas grew nearly 20%, and EMEA orders were up in the mid-teens. While China revenues declined, it was encouraging to see orders from China rebound to north of 40% year-over-year and more than double sequentially. Even with some likely pull forward of a couple of million dollars of revenue, we saw early wins from our new leadership in the region, as Olivier mentioned earlier. Transitioning to profit and margins. Gross margin of 51.1% was flat on a reported year-over-year basis, as strong volume and productivity overcame a tough comparison from COVID revenue, which was a 1-point benefit to margin in the prior year. In addition, mix was a 3-point headwind in the second quarter versus last year, driven by a higher-than-normal mix of Repligen procured resin for OPUS columns. We expect that mix to be at more normal levels in the second half. Tariffs were a slight headwind to margin in this quarter. First half gross margin was 52.3%. And as a result, we still see gross margins at 52% to 53% for the year. Continuing through the P&L, our adjusted income from operations was $22 million in the second quarter, up 8% year-over-year on volume leverage. This increase is driven by $12 million higher gross profit from higher sales and the gross margin discussed earlier, offset by an increase in operating expenses. Adjusted OpEx grew 9% on an organic basis, which is approximately half of organic non-COVID revenue growth of 17%. Both exclude the impact of acquisitions and foreign currency. We continue to make strategic investments to support future growth. This translated to an adjusted operating margin of 12%. Margins declined 80 basis points year-over-year due to the aforementioned COVID and mix headwinds, along with a point headwind from recent acquisitions. This more than offsets price, volume, and productivity benefits. Our second quarter adjusted EBITDA margin was 17.6%, flat year-over-year. Adjusted net income was $21 million, a $1 million year-over-year decline. Higher adjusted operating income was offset by $3 million of lower interest income and higher tax provisions. Our second quarter adjusted effective tax rate was 22.7%, in line with our full year guidance. Adjusted fully diluted earnings per share for the second quarter were $0.37 compared to $0.40 in the same period in 2024, down 6% year-over-year, also affected by last year's high-margin COVID business. Finally, our cash position at the end of the second quarter was $709 million, up $12 million sequentially. This was driven by cash flow from operations. We are very happy with the strong first half results, delivering above-market revenue growth and margin expansion, which positions us to deliver on our improved outlook. I'll speak to adjusted financial guidance, but please note that our GAAP to non-GAAP reconciliations for our 2025 guidance are included in the reconciliation tables in today's earnings press release. Our guidance includes tariffs and updated foreign currency assumptions. As highlighted earlier by Olivier, we are increasing our organic revenue growth midpoint as we narrow towards the high end of the guidance range. We now see 10.5% to 13.5% organic revenue growth, which increased from 9.5% to 13.5%. This represents 12.5% to 15.5% organic non-COVID growth. We are increasing our organic growth expectations despite the aforementioned headwind from new modalities. We are now assuming a 1% benefit from foreign currency versus our prior assumption of a 1.5% headwind. Putting this together, we are increasing our 2025 revenue guidance to $715 million to $735 million, up from $695 million to $720 million or an increase of $17.5 million at the midpoint. To provide a clear walk of this midpoint increase, it is driven by $7.5 million of overall portfolio strength, which more than offsets $7 million of gene therapy headwind. In addition, we expect a couple of million dollars of tariff surcharges, which incorporates this past weekend's agreement with Europe, and the remaining $15 million increase reflects the benefit of foreign currency changes. Regarding our revenue cadence, our normal seasonality would suggest third quarter revenue would be below the second quarter. But given the momentum we are seeing, we expect the third quarter to be in line with the second quarter. That said, the fourth quarter will represent our strongest revenue and margin quarter for the year. In terms of growth by franchise, we expect the following: filtration growth of 10% to 12%, up from 9% to 12%. This represents 13.5% to 15.5% non-COVID growth. Chromatography growth of greater than 20%, up from 10% to 15%. Our Proteins outlook of 10% to 15% is unchanged, and PAT will grow approximately 25% versus our prior guidance of 20% to 25%, including the 908 bioprocessing acquisition. We continue to expect to deliver adjusted gross margins in the range of 52% to 53%, which represents 160 to 260 basis points of year-over-year margin expansion, driven by volume leverage, pricing, and manufacturing productivity, offset primarily by inflation and some 2024 COVID sales drag. Our guidance assumes a slight headwind from tariff surcharges, offset by some benefit from foreign currency. We now expect our adjusted income from operations to be between $98 million to $103 million while maintaining our 13.5% to 14.5% adjusted operating margin guidance. The $2 million increase at the midpoint versus prior guidance reflects the top line momentum we have seen year-to-date. Relative to our prior outlook, foreign currency adds close to $4 million of operating expenses. We're also continuing to make strategic investments in expanding our global commercial team and ensuring we are fit for growth across our business processes and functions. That said, we will continue to manage our organic investments in operating expenses at a rate that is lower than our organic sales growth as we balance cost efficiency with investments that are critical to support future growth. Continuing through the P&L, we are updating our adjusted other income guidance to $22 million to $23 million or $1 million lower than our prior guidance due to lower interest income assumptions. Our 2025 adjusted effective tax rate expectations are unchanged at 22% to 23%. Given these dynamics, we now expect our adjusted fully diluted earnings per share to be between $1.65 and $1.72, a $0.01 increase at the midpoint from our prior range, which represents 5% to 9% growth versus last year. Our balance sheet remains strong as we ended the second quarter with $709 million of cash, and we are well positioned to manage the current environment. We will remain prudent in our spending while maintaining flexible dry powder for potential acquisitions. We still expect CapEx to be down 20% to 25% versus 2024 with our spending back to pre-COVID levels. As we wrap, we are encouraged by our strong first half financial results, especially considering some of the headwinds we continue to face from recent new modality headlines. We believe this performance reflects solid execution on our differentiated strategy.

I just wanted to thank everybody for joining us today. I mean you heard we are really excited about the momentum we have in our business. We'd like just to thank all of our Repligen colleagues for helping us deliver these very strong results. And as you heard, we remain focused on our strategic plan for 2025, and we are looking forward to speaking with everyone again very soon. Thank you very much.

Thank you. And ladies and gentlemen, again, that concludes today's call. Thank you all for joining, and you may now disconnect.