Earnings Call Transcript - RGEN Q1 2026

Jacob Johnson, Investor Relations

And we'll provide financial guidance for the full year 2026. Join 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, 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 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: 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, other income or expense, tax rate on pretax income, net income, diluted earnings per share, EBITDA, adjusted EBITDA and adjusted EBITDA margin. 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. With that, I'll turn the call over to Olivier.

Olivier Loeillot, President and Chief Executive Officer (CEO)

Thank you, Jacob. Good morning, everyone, and welcome to our 2026 first quarter call. We are delighted to share our first quarter 2026 results. Great execution once again by our team enabled us to deliver 15% reported revenue growth or 11% organic and 160 basis points of adjusted operating margin expansion. Mid-teens top line growth, coupled with disciplined cost management resulted in margins outperforming expectations. In addition to our strong financial performance in the quarter, we advanced several key strategic priorities. This includes the launch of our transformation office, the associated sale of the polymer business and a new partnership in China. This OEM relationship advances our strategy in the country where we are seeing significant growth again. I'll touch on each of these initiatives in more detail shortly. As I reflect on our end markets and company today, it's encouraging to see the strength we are seeing across all of our customer segments. The talented and experienced team we have assembled is executing fiercely on our differentiated strategy. This has resulted in a very rich high probability opportunity funnel that just needs to be coupled with faster customer decision-making. We did see encouraging signs in the first quarter, and remain convinced that capital equipment tap will open. We delivered $194 million of first quarter revenue, driven by healthy demand across our broad portfolio and all geographies. Analytics led the way with 50% plus growth, but all of our franchises grew nicely again in the first quarter. Consumables, including protein, grew double digit which was coupled with solid capital equipment growth and services remained a standout with 30% plus growth. Capital equipment demand benefited from strength in Analytics, mixers and easier comps. We also saw growth across our diversified customer base in all geographies. Order trends were solid in the first quarter with a significant pickup in March and included some conversion of our robust capital equipment funnel. Our first quarter results and these recent order trends reinforce our confidence in our full year revenue outlook. Jason will provide more details. We are reiterating our expectation for 9% to 13% organic growth, while updating our reported revenue guidance to reflect the sale of our noncore and low-margin Polymem business. This reduces our full year revenue outlook by $7 million, but improved our margin outlook. In addition, given our strong first quarter performance, while increasing our adjusted earnings per share guidance for the full year. We remain excited about our differentiated product portfolio, the global team we paired and the strategy we're executing. As we look ahead to the next several years, we see a number of opportunities across our portfolio that position us for robust growth and allow us to continue to outpace the market. Looking at our performance by end market, we saw widespread strength across our customer base. CDMO revenues grew mid-teens with similar growth across both Tier 1 and Tier 2. Biopharma revenues also grew despite a very difficult comparison. We saw notable growth outside of large pharma, including 20%-plus growth from emerging biotechs. We continue to be encouraged by growth from this customer base, though demand remains below historical levels. OEM and integrated demand was very robust given growth in fleet management. From a geographic point of view, we saw strength across all regions led by Asia Pacific. This included a near doubling of revenues in China with our best revenue quarter in the country in over 2 years. This is a testament to the team we've put in place. Asia Pacific remains a key strategic region and I will discuss the progress on our strategy in China shortly. As expected, new modalities were dilutive to growth given the gene therapy headwind we previously discussed. We continue to see healthy growth in cell therapy and also in gene therapy when excluding that specific headwind. I wanted to update you on the following 3 strategic initiatives: First, as we have emphasized recently, we are committed to expanding margins, while banking the efforts needed to support future growth. In an effort to accelerate both of our Fit for Growth journey and our path to 30% adjusted EBITDA margin by 2030, we've formed a transformation office that will ensure with the right prioritization and resources focused on these critical initiatives. Key focus areas under this program include a force to optimize our manufacturing footprint for increased cost efficiency, improving the profitability of certain product lines through targeted productivity and rationalization, continuously improving service to our customers and efforts to capture the value of our differentiated products; and finally, acceleration of our IT modernization and AI implementation across all functions. Jason will walk you through more details. But in terms of financial impact, we estimate this effort should result in at least one point of annualized margin benefit by the end of 2027. We remain committed to our goal of doubling the business and expanding margins while further progressing our Fit for Growth capabilities. The transformation office will enable us to achieve and accelerate all of these. So most of these initiatives have just picked off, we're happy to share that as part of this effort on March 30, we divested the Polymem operation in France for nominal proceeds. While this facility was a key contributor to Repligen's ability to supply product during the pandemic, the business has since reverted to noncore sales outside bioprocessing and has operated at a net loss. In 2025, Polymem generated $7 million of revenue and an adjusted operating loss. The new owner will offer synergies in the common market in which they operate. Second, we remain more excited than ever by our growth opportunity in Asia. In fact, Jason and I recently returned from a week-long visit to the region where we met with both key customers and our Asia leadership team. We are building a great team and continuing to gain traction with key customers in the region. We are also thrilled to announce that while in the region, we signed a critical partnership to expand our capabilities and local presence in China. The partnership outlines an OEM relationship that will increase our competitiveness and access to local manufacturing beginning in 2027. It will be a multiphase and multiproduct arrangements that we expect to expand over the coming years. After our trip, we have more conviction than ever that China will be a meaningful player in biopharma for years to come. Finally, I want to comment on our IT investments and digitization journey. On our last call, we mentioned investment in our IT organization in 2026 as part of our Fit for Growth journey. We have made key additions to our team this year, including new data management and AI experts. We have implemented AI across a variety of functions including, but not limited to legal, commercial and supply chain. And as part of our transformation office, we are also working to further optimize our data infrastructure which will allow us to better implement AI in the coming years. To support our customers, our analytics franchise is well positioned for an increasingly digital environment. Our PAT product portfolio allows for the collection of both upstream and downstream data in real time. We have integrated our FlowVPX into our downstream filtration system and are working to replicate this on the upstream side. We announced a partnership with Novasign last year and are working to integrate their digital twin capabilities into our next-generation small-scale filtration systems. We see digitization as a multiyear journey, and it remains a key strategic focus area for our company. Before I turn the call over to Jason, I'll provide some more detail on our franchise level performance. Starting with Filtration. Revenue grew mid-single digits on a reported basis in the quarter, driven by Fluid Management, ATF and other consumables. Excluding the gene therapy headwind, this franchise would have delivered double-digit growth. With the sale of Polymem, we now expect filtration growth to be roughly mid-single digits in 2026 on a reported basis. This also contemplates a moderated ATF outlook in 2026 due to customer-specific timing dynamics that are expected to be a tailwind in 2027. As a result, we see ATF returning to strong growth in 2027 and beyond, and we continue to see overall healthy consumable demand across our portfolio. We remain extremely confident in our process identification leadership position. After over a decade of seeding our ATF technology, we have built a high amount of trust from the biopharma industry. We will continue to prioritize further innovation and advancements that will allow us to remain the industry's partner in process intensification. Chromatography revenue increased over 25%, driven by growth in OPUS columns. We continue to win new customers globally as they appreciate the plug-and-play convenience of prepacked columns. Given the traction we are seeing in OPUS we now expect 20% plus growth in chromatography in 2026. With this outlook, we do expect a slightly higher mix of chromatography revenue versus our initial expectations. It was a great quarter in proteins with mid-teens growth on top of a very strong prior year comparison. We saw healthy demand across our offerings, led by our ligands, reflecting the benefits of the strategy we put in place to control our own destiny in proteins. We expect protein growth of at least low double digits for the year. Our Analytics franchise had another phenomenal quarter with 50% plus growth. This was led by notable strength in our downstream analytics offering, which had a record quarter. This benefited from strong demand for our SoloVPE PLUS, including new placements and upgrades. We continue to assume Analytics growth of 20% plus given momentum in downstream demand and a growing contribution throughout the year from our upstream Analytics offering. To wrap up, we are very pleased with our start to 2026. We delivered 11% organic growth in the first quarter, which is right in line with the midpoint of our full year guidance. This coupled with operating expense discipline has reinforced our confidence in our full year revenue outlook and enabled us to increase our adjusted earnings per share guidance. In addition, we made tangible progress on our strategic priorities, which positions us well to drive robust growth and margin expansion in coming years. Now I'll turn the call over to Jason for the financial highlights.

Jason Garland, Chief Financial Officer (CFO)

Thank you, Olivier, and good morning, everyone. Today, we are reporting our financial results for the first quarter of 2026 and providing updated guidance for the full year 2026. Unless otherwise noted, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we delivered first quarter revenue of $194 million, reported year-over-year increased 15%. This is an 11% organic growth, excluding the impact of acquisitions and foreign exchange. Foreign currency contributed 3 points of growth and we had 2 months of inorganic contribution from our upstream Analytics acquisition. As Olivier offered details on our product franchise performance, I'll provide more color on our regional performance. Starting with quarterly revenue mix. North America represented approximately 46% of our total. EMEA represented 37% and Asia Pacific and the rest of the world represented approximately 17%. North America grew mid-single digits, driven by OPUS and Analytics. EMEA grew more than 20%, driven by proteins in OPUS. In Asia Pacific grew more than 25% driven by ATFs, mixers and Analytics. And as previously mentioned, we had very strong growth in China. Transitioning to profit and margins. First quarter adjusted gross profit was $108 million and adjusted gross margin was 55.5%. This was 180 basis points of margin expansion versus last year. The year-over-year increase was driven primarily by volume leverage, pricing execution and favorable product mix, all of which more than offset inflation and tariffs. The favorable mix was driven by growth in our Analytics business and certain accretive filtration products. In addition, first quarter gross margin also benefited from cost absorption timing associated with production levels required to support the sales ramp through the year. We expect this benefit to normalize over the remainder of 2026. Continuing through the P&L, our adjusted income from operations was $30 million in the first quarter, up 28% year-over-year on a reported and organic basis. OpEx grew 11% on an organic basis. We remain thoughtful about balancing investments in the business while expanding margin. We expect some additional investment in the second quarter. This translated to an adjusted operating margin of 15.4% in the first quarter, which was an increase of 160 basis points year-over-year on a reported basis and 200 basis points of margin expansion, excluding M&A and the impact of foreign currency. Adjusted EBITDA was $40 million in the quarter or just under 21% adjusted EBITDA margin. Moving to the bottom line. Adjusted net income was $27 million, a 22% year-over-year increase. Higher adjusted operating income was offset by slightly lower interest income on declining interest rates. Our first quarter adjusted effective tax rate was 22%, which starts the year on the low end of our full year guidance, which remains unchanged. Adjusted fully diluted earnings per share for the first quarter was $0.48, compared to $0.39 in the same period in 2025 or an increase of 23%. Finally, our cash and marketable securities position at the end of the first quarter was $785 million, up $17 million sequentially from the fourth quarter. This was driven by $20 million of strong cash flow from operations, offset by $5 million of CapEx in the quarter. We remain focused on optimizing our working capital to drive improved cash flow conversion. I will now speak to adjusted financial guidance. As Olivier mentioned, we are reiterating our organic growth guidance for full year 2026, while updating guidance for the sale of Polymem and our first quarter results. Our guidance also assumes a couple of million dollars tariff surcharges in 2026. We are now guiding $803 million to $833 million of revenue or 9% to 13% growth on both a reported and organic basis. Our updated guidance now reflects only one quarter of revenue from Polymem which removes approximately $7 million of revenue from the full year, previously included in guidance. This continues to assume just under one point of benefit from foreign currency, which we realized in the first quarter. Our reported growth of 9% to 13% assumes the following: mid-single-digit growth in Filtration, greater than 20% growth in Chromatography, Proteins growth greater than low double digits and 20% plus growth in Analytics. We now expect 110 to 160 basis points of gross margin expansion for the year. This assumes a slight benefit from the divestiture, partially offset by higher Chromatography mix and limited impact from the conflict in the Middle East. With the strong Q1 performance, the sale of Polymem and judicious management of OpEx, we are raising our adjusted income guidance. We now expect $124 million to $132 million of adjusted operating income. This implies 160 to 200 basis points of operating margin expansion which represents a 30 basis point increase at the midpoint versus our prior guidance. Continuing through the P&L, we now assume $90 million of adjusted other income and continue to assume a 22% to 23% adjusted effective tax rate. Putting this together, we expect adjusted fully diluted earnings per share to be between $1.97 and $2.05, this is up $0.26 to $0.34 versus 2025 or up 18% at the midpoint and $0.04 higher than our prior guidance at both the low and high end of the range. To assist with the quarterly cadence, we expect Q2 organic revenue growth to be similar to the first quarter. As a result, our guidance does not require a second half acceleration to achieve the midpoint of our full year outlook. We expect second quarter gross margin to be slightly below our full year guidance range and OpEx to pick up slightly sequentially following our disciplined OpEx control in the first quarter. We expect second half OpEx to be similar to 2Q. As a result, we expect solid operating margin expansion in the second quarter, while the third quarter will likely represent the lowest margin quarter of the year. Our balance sheet remains strong as we ended the first quarter with $785 million of cash and marketable securities. We will remain prudent in our spending while maintaining substantial dry powder for potential acquisitions. We expect CapEx spend to be approximately 3% to 4% of 2026 revenue. Before we wrap, I wanted to briefly follow up on the transformation office that Olivier shared earlier. We are thrilled to establish a team of both internal and external experts to drive focus improvements in areas that will drive our fit for growth capabilities and margin expansion. This is a change in mindset that reinforces the structured framework is required to drive margin expansion beyond volume leverage. As Olivier shared, we expect to see meaningful benefits from the initiatives. We are still finalizing the detailed scopes and benefits, but expect to generate at least one point of annualized margin benefit by the end of next year and continue into 2028 and beyond. We will see benefits in both gross margin and at the EBIT and EBITDA level. We see this effort accelerating our path to our 2030 EBITDA target. In other words, our path to reaching 30% adjusted EBITDA margins will be less weighted to the out years than previously communicated. We expect nonrecurring charges of approximately $5 million to $6 million through 2027 associated with this effort. These will be excluded from our adjusted non-GAAP results. Finally, Olivier and I would like to thank our Repligen teammates for delivering a strong start to 2026. We continue to be energized by the opportunities ahead, and we are focused on advancing our strategic efforts in 2026. With that, I'll turn the call back to the operator to open the line for questions.

Operator, Operator

Your first question comes from the line of Dan Arias with Stifel.

Daniel Arias, Analyst, Stifel

Jason, nice start to the year on the op margins there. Obviously, you went through some of the moving parts, but can you just maybe summarize what within the quarter was sort of incidental, I guess, you could call it mix elements, timing of cost items versus more of a reprioritization that sounds like maybe it's starting to be in play here? And then along those lines, the transformation office impact, I know you said you're still working through the moving parts there, but is the right way to think about that, the normal 100 to 200 bps of annual op margin expansion that you've been talking about, plus the impact of transformation, is that like 100 bps to fiscal '27? Or are you kind of ramping by the time you get to the end of the year at 100 bps? I just want to make sure that we get the modeling element of that whole exercise right.

Olivier Loeillot, President and Chief Executive Officer (CEO)

Olivier here. I'm just going to kick it off and then let Jason give you more details. I mean we're obviously extremely happy about how we delivered on margin expansion in quarter 1, but beyond quarter 1, obviously, being able also to have line of sight of further improvement towards the rest of the year as well. And yes, you're right, the transformation office is an initiative like we've been thinking about for a long period of time. Now that we have the right people on board, we said that's the right time to kick it off. And as you'll hear from Jason in a few seconds, it's really a mix of getting acceleration on the fit for growth side, but also accelerating margin improvement. But Jason, yes?

Jason Garland, Chief Financial Officer (CFO)

Yes. Dan, great three questions, a lot of pieces to walk through. I'm really happy with first quarter gross margin and overall margin performance. The driver was volume, volume leverage, and price, so we are continuing to execute on that. We also saw a strong mix from Analytics growth and a few product lines within our filtration franchise. There was a timing element on cost absorption that will unwind through the year, but overall this sets us up well and gives us high confidence in our guidance to expand gross margin by about 110 to 160 basis points for the year. From a profile perspective, we do expect second quarter to be lower than first quarter. Third quarter may step down slightly from there, and then fourth quarter should be higher as volumes grow through the end of the year. Most of that change will be driven by mix phasing. On a full-year year-over-year basis, mix is still a neutral dynamic for us. After a positive first quarter, we expect some mix headwinds in the second and third quarters, and then fourth quarter steps back up mostly on higher chromatography sales and the cost absorption unwind. This is a really great start and puts us right on track with our guide; we lifted it a little bit with Polymem. On the transformation office, this is about creating the structure and program to allocate the right resources to our priorities. It’s heavily focused on fit-for-growth execution, developing necessary capabilities, and driving margin expansion. The one point of annualized margin expansion by the end of 2027 should be thought of as a run rate. We will have various settlements and projects that will begin over several months. We haven't assumed anything in 2026 yet, though there may be some benefits that arrive earlier and that we’ll share later in the year if they do. We really expect the run rate to start by the end of 2027 and to see full benefits in 2028. That will be on top of our normal run rate. We’ve talked about the path to a 30 percent EBITDA target by 2030, which we expected to be more weighted to the back end, but this initiative helps reduce that back-end weighting and brings some incremental benefits earlier. I’m really excited about all of this. Great start to the year.

Operator, Operator

Your next question comes from the line of Doug Schenkel with Wolf Research.

Madeline Mollman, Analyst, Wolf Research (on for Doug Schenkel)

Just a question on equipment. You mentioned that there was a pickup in equipment in March. Where was the strength most notable? Was it by category and customer type? And did that help you in the quarter? Or was it more the order book? And then I think last quarter, you mentioned that there were some RFPs you were waiting on. Have you started to hear back on those? Or do you feel that pharma companies are still digesting some of the MFN deals?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes, good questions. I mean capital equipment increased year-on-year in quarter 1 on what was pretty easy comp to be very open. And that was mostly driven by strength in both Analytics and mixers as well. We've partly seen a nice pickup of mix of demand in China, which is one of the reasons why China did so well for us in quarter 1. And similar to peers as well, we've seen orders increasing in the quarter. I mean, after what was maybe a bit of a slower start in January up to mid of February, we've seen a real acceleration of order intake towards the second half of the quarter and partly on the capital equipment side. And we realize pharmacy taking their time, but it was good to see indeed finally some answers coming and positive answers. And to your last point on RFP wins, yes, we start to win some of the RFP. We answered two towards the end of last year, which is for us very encouraging. As I mentioned previously, we didn't really have seat at the table before. So overall, very encouraging and we would like to see further acceleration of decision-making, but definitely going in the right direction right now.

Operator, Operator

Your next question comes from the line of Matt Larew with William Blair.

Matthew Larew, Analyst, William Blair

You called out 20% growth from emerging biotech, and that comes off three very strong quarters to end 2025. You did reference that it's still below historical levels. We're now working off the back of two straight quarters of strong funding data. There have been some positive clinical updates. You're going to be escaping the one large customer headwind. Olivier, I'm curious for your take on what's remaining to get emerging biotech back to strength and how you feel about the momentum over the last couple of quarters?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes, I'm obviously very happy to see the fourth consecutive quarter of significant growth for that customer segment. As I’ve said, we’ve seen each segment come back one after another, and that was the last one to return. To be fair, Q1 comparisons were still relatively easy, so I want to see Q2 continue to show similar growth. Overall, it seems this market segment has returned to more normal behavior. You’re right that biotech funding numbers also look very good — Q1 funding was almost double last year and April was very strong; I’ve seen figures around USD 10 billion. The good news is we’ve seen a nice rebound, but we believe the injected capital has not yet fully reached all companies to the point that they are significantly increasing spending. So yes, what we’ve seen should hopefully be sustainable, and we hope to see similar growth over the next few quarters for emerging biotech. We’re definitely very excited about a fourth quarter in a row of strong growth.

Operator, Operator

Your next question comes from the line of Philip Song with Leerink Partners.

Philip Song, Analyst, Leerink Partners (on for Puneet)

You mentioned China nearly doubled in Q1 on a low base after just 2 quarters of growth in the second half. And I think, 2% to 3% revenue contribution. I was wondering if you could just unpack this some more just how much impact was from the OEM partnership kind of what's the composition between large pharma and CDMOs? And I guess, how would you characterize how much was order timing versus sort of genuine demand acceleration?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes. Philip. Absolutely delighted about the way quarter 1 played out for us in China. I mean you've heard me talking about it quite a lot over the last several quarters and it was actually also to almost see a doubling of our sales in China in quarter 1. You're right, it was on very low comp. What I'm even more excited about, to be honest, is our funnel looks really very strong. I mean Jason and I were in the region recently, we spent almost a week with the team down there, and we're seeing a funnel that looks really very strong across all of China right now, and that's very exciting. By the way, talking about China, all of Asia did very well. I mean that was our fastest-growing market geographically in quarter 1. But obviously, to your question about the OEM partner, I mean this has no impact yet. I mean, we literally just signed the agreement a couple of weeks ago. So we're going to take transfer different part of our portfolio, particularly on the filtration consumable side, and we expect those guys, those partners to be up and running probably towards the beginning of next year. But it's never really black and white. And where you're somewhat probably clear asking the question is, it's a good strong signal we're giving to customers in China that we are back and that we're going to really reclaim our market in China with that partner, but also we really want to be part of that huge upcoming market growth we're seeing in China over the next several years. So there might be already a little impact that people feel like, wow, Repligen is going to become really indeed a very strong actor in China for China. And that's why we're delighted about that agreement. It is just a first step, Philippe. I mean we are looking at expanding that collaboration and potentially with other partners as well in China over the next several years, but very excited to be back in China.

Operator, Operator

Your next question comes from the line of Casey Woodring with JPMorgan.

Casey Woodring, Analyst, JPMorgan

So you had a one point organic beat in 1Q and expect similar growth in 2Q, but you kept the low end of the full year guide unchanged. Maybe just talk about how much of that is driven by the moderated view for ATF in the second half versus the rest of the business? And then on ATF, could you provide more color on the customer timing dynamics that are driving that more moderated view in the second half. I think in the past, you had talked about a second half ramp in ATF consumables tied to one of the blockbusters you expect in 2. So is that really just a function of a customer commercial launch? And then what gives you confidence that things will pick up in '27?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes. So, first of all, I mean, we're obviously very happy we started quarter 1 at the midpoint of our full year guidance. As you heard us saying we estimate quarter 2 will probably be about the same. So obviously, it will set us up very well for the guidance we've given at the beginning of the year. And the midpoint would assume at this stage like there is no need for any acceleration towards the second half of this year, which is probably a little bit of a Repligen, specific situation that we are very happy to be in right now, it's a really high comfort zone for us from that point of view. So we would be disappointed if we would land at the low end because that would somehow imply a softening of the market that we're actually not seeing today. So we are more hopefully looking at the high end. And in order to reach the high end, we would need some type of acceleration both of our Consumable business, and you mentioned ATF, I'll come back to that in 10 seconds. But also said that some of these equipment orders we've been receiving now in the last couple of months, would also be potentially delivered this year, which is not a given yet because we need to hear about our customer site preparedness to be able to accommodate that or not. So that cannot really the way to look at the guidance for this year. We're quarter into the year with a very strong start with a couple of more calls, we'll know much more about how the year is going to play out by the end of July when we report out on quarter 2. In terms of ATF, yes. I mean, we have always been very transparent. I mean, we were transparent last year about what happened with that specific gene therapy program, we said we're going to be transparent has got a huge runway for the next several years. I mean I can tell you, we are more bullish than ever. A couple of our customers came to us beginning of this year, explaining as they were managing inventory this year on a couple of commercial drugs that have been using ATF now for a few years. This is not something unusual for what is still a pretty new technology where at the beginning, people built a little bit more stock maybe than they will need finally. We know it's going to be a real tailwind for us from '27 onwards because these are 2 commercial drugs, that will require more because the drugs themselves are growing very nicely. So it's really just a temporary inventory management that we are facing. What we think about those two customers is, in fact, they are implementing ATF across many more products than this specific commercial drug I was talking about, which is why we know next year, it's going to be a real tailwind for these customers for the commercial drugs themselves, but also across the new one, they are implementing ATF right now.

Operator, Operator

Your next question comes from the line of Daniel Markowitz with Evercore.

Daniel Markowitz, Analyst, Evercore

I wanted to follow up on emerging biotech. It's good to see 4 quarters in a row, if I heard correctly, of growth from this customer segment. And I wanted to talk about the benefit from biotech funding recovery, which seems like it could flow through to back half this year and help in back half in 2027. Can you help frame the potential timing of when this benefit might occur? Remind us your exposure to this customer set and help us understand what the contribution could look like once we start to see that benefit?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes. I think you nailed it already pretty well. I mean fourth quarter in a row of very significant growth. I mean, I would say, very significant growth in quarter 1 was above 20% of growth. This being said, the activity level still remains slightly below historical level. So that's why we're saying it's probably a little bit too soon to call it a trend. But maybe to be a bit more specific, we mentioned in previous call, like we some of the growth coming from some of the small biotech getting acquired. That was particularly the case in quarter 2, quarter 3 of last year. It's fair to assume that some of the funding that we started to improve towards quarter 3 of last year, has maybe started to reach some of these company toward the end of last year and probably a little bit more in quarter 1. I do expect it to become real stronger tailwind from quarter 2, quarter 3 onwards to be confirmed, but that's what we could expect, we would expect looking at this much better biotech funding environment we've been experiencing. And to answer your specific question, I mean, it's still lower than 10% of our total sales. I won't say more into the 8% to 9% vicinity in quarter 1, but probably trending back to the 10% that we experienced in the past in the next few quarters.

Daniel Markowitz, Analyst, Evercore

That's helpful. And then just a follow-up. Can you talk about the ATF opportunity more broadly? Like how penetrated is this market? And how would you frame the potential impact from competitive product introductions?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes. No. I mean, again, let me start by saying ATF grew in quarter 1, both, by the way, in capital and consumable as well. And we've just decided to moderate our expectation for 2026 because of this transitory headwind that we've been hearing from the 2 specific customers. But apart from that, I mean, we are still extremely bullish. I mean we were getting our products designing in multiple new products, multiple new modality as well. I mean we've talked about successes we've had on the cell therapy side, and that has become a very significant tailwind for us over the last several quarters. We are also very heavy on innovation. And I tell you, I'm very, very confident about the fact that were going to be leading the process intensification for the next several years. I mean I have 0 doubt about that. And we've got a lot of innovation being worked out right now with several launches that we expect to happen probably towards one toward the beginning of next year and then 1 or 2 others towards mid or end of next year. So we are absolutely very bullish. And as the runway on ATF is still absolutely very strong.

Operator, Operator

Your next question comes from the line of Mac Etoch with Stephens.

Steven Etoch, Analyst, Stephens

Maybe just following up on some of the previous order related questions. Just looking at what you called out during March, can you just unpack what specifically changed in the order environment at that point? Was it tied to improving customer decision-making, budget releases, increased activity within certain product lines like maybe Analytics or upstream systems? And how is that exit rate carried in April at this point?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Well, it's a little bit of all of that, to be honest, but let me take one step back. We had, taking two steps back, a fantastic quarter 4 in terms of order intake. When I say fantastic, I mean it was a peak we haven't seen in several years. So it was somewhat expected that the beginning of quarter 1 would be a little softer. But toward mid-February we started to see a significant acceleration that enabled us to deliver very strong order intake for the full quarter 1, really in the right zip code in terms of book-to-bill as we expect. So across the board it was a very healthy quarter 1, thanks to what happened in March. What's more important than orders, because they can be lumpy, is how we are tracking our funnel. We have extraordinary discipline in tracking it. One part I look at weekly is the high-probability funnel, which includes opportunities with more than a 50% probability of closing within the next two to three quarters, and it's probably at the highest level ever. I ran the comparison a week or two ago versus a year ago, and it's significantly higher. From that point of view, we are very confident about how things will play out over the next several quarters. What we still don't fully control is customer decision-making, and that’s where I see a difference between consumables and equipment. Both look really good for the year; our full-year guidance shows both growing double digits in sales. But most of the headwinds we've discussed are affecting consumables, specifically the gene therapy program on one side and two ATF customers on the other. Despite that, consumables are still doing extremely well. On capital equipment, Analytics and mixers have been leading the pack. We would like to see a real acceleration in the larger type of CapEx equipment. We have started to win some of those RFPs, and if the capital equipment tap really opens, it will be a massive opportunity for all of us. I'd say Mac is well positioned because the water is just waiting for the tap to open, and then it will become a totally different story for tool providers. So that's a long answer to a short question, but it summarizes how we're seeing order intake and the differences across consumables and hardware.

Operator, Operator

Your next question comes from the line of Paul Knight with KeyBanc.

Paul Knight, Analyst, KeyBanc

When you look at the China market right now, is this domestic demand or is it multinationals expanding their bioprocess capabilities in that market?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Paul, yes, I have to say at this stage, the vast majority, and I say vast majority, at least what I have a good line of sight of is really China, local demand market that's coming back. And we've had a lot of successes. I mentioned mixers already a couple of times. But beyond mixers even on our filters, consumable and so on, we're seeing a lot of these customers coming back now. As you know very well, we are facing much more competition than we were before, which is why we've been pushing and now implementing that strategy that I think it's very different, very differentiating as well versus what others might have been doing, where we are really going to capitalize on local company to help us gaining our market back. I've said several times, the China market today is totally different than it was 5, 5 years ago, even maybe 3 years ago, even to a certain extent, you want to supply in China, you have to appear to be much more really Chinese than you were before, and that the only way you're going to be able to defeat competition locally. We found a partner that we like a lot because we know the management team pretty well, but also they are still in the early phase of growth. And I've seen so many of these companies being successful over the last several years that collaborating together, we feel we have got an incredible runway over the next several years. But the demand is really from Chinese company Chinese local demand, which we know is going to grow very significantly over the next several years now with all of the money that has been injected into the China ecosystem.

Operator, Operator

Your next question comes from the line of Brendan Smith with TD Cowen.

Brendan Smith, Analyst, TD Cowen

I wanted to actually ask just another one on the transformation office a bit. Any more granularity on what kinds of margin optimization efforts you really have going on there? I guess are you focused on certain segments more than others? I know you mentioned some AI process involvement. So I guess just wondering if there's any potential for some of the relative margins across your different segments to maybe close ranks a bit from some of the historical spread we've seen?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes, Brendan, good question. We highlighted four main areas. First is optimizing our manufacturing footprint, which can affect different product lines and drive efficiencies across the network. Second is improving profitability on specific product lines by reviewing the portfolio to find what’s dilutive to the overall average, pursuing design changes and manufacturing efficiencies, and rationalizing product SKUs to raise overall margins. For example, Polymem was a noncore product, outside bioprocessing, that was not only margin-dilutive but a loss on the bottom line, so opportunities at that level can be limited and unique. That makes it important to identify below‑margin products and either improve or exit them. The third area is how we serve customers better and capture more value, which can also appear within product-line actions. The fourth is IT modernization and AI. We treat them as connected but pursue different paths for each. We need to upgrade our IT infrastructure and optimize our data environment, including rationalizing the large number of applications and vendors we have relative to our size to drive synergies and cost savings. We also want to get more out of SAP, our ERP. On the AI side, it’s about balancing available tools with a clear understanding of the processes and problems we’re solving and defining the right use cases. We’re allocating internal experts and bringing in external help to accelerate this. Overall, these initiatives are part of the long game to expand margins and enable scalable growth.

Operator, Operator

Your next question comes from the line of Matt Stanton with Jefferies.

Matthew Stanton, Analyst, Jefferies

Maybe just one in the context of the order commentary and then the kind of high probability funnel that you laid out, Olivier. Can you just remind us in terms of your equipment portfolio and the order book there, how quickly you turn that? I think historically, you had kind of talked about earning 2/3 of the order book in 6 months or less. I think it would be helpful to kind of get an updated number on that given the evolution of the portfolio as it relates to about what could maybe show up in orders today and income and revenues in the back half of the year versus 27. It sounds like mixers, analytics, some of those are maybe shorter cycle type equipment than the larger projects you talked about late but would just be helpful to kind of level set the order book, how quickly you think you can turn that today and how that maybe has evolved from a couple of years ago.

Olivier Loeillot, President and Chief Executive Officer (CEO)

Matt, you answered your question very well, so I'll add a few more details. We have very different types of hardware in our portfolio. Mixers and analytics are shorter cycle. Analytics can often be turned around within a couple of weeks. For mixers, I differentiate stainless steel mixers, which we acquired about five years ago, from single-use mixers. For stainless steel mixers our turnaround is typically under three months; for single-use mixers it's a little more than three months. Even within larger-scale hardware there are differences. For ATF systems we can often deliver in three months or less when no customization is required. For downstream systems, whether TFF or chromatography, timing depends on whether the product is catalog or requires customization. Catalog items can also be in the roughly three-month range; custom items are more in the five- to six-month range. What is becoming increasingly important is customer preparedness. As we participate in more onshoring projects, we see very different situations: some customers have brownfield sites ready to accept equipment, while others must build everything from scratch. We do not fully control that readiness, and it may affect when we can recognize revenue. Some sites that could be enabled by our lead times this year may not be ready until mid-2027 or even the second half of 2027. For example, we won a significant ATF order a couple of years ago, but the customer’s final sizing is still being finalized. Customer preparedness is something we will need to get better at understanding in the coming quarters.

Operator, Operator

Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Matthew Hewitt, Analyst, Craig-Hallum Capital Group

A great start to the year. Analytics is becoming a much bigger demand area for your customers, whether it's the CDMOs or the pharma companies. You're seeing increased demand. You're speaking to some of the growth that you're seeing there. From an investment standpoint, where do you see opportunities to invest in that area, whether it's real-time monitoring or taking some of the data that you're capturing and kind of helping your customers identify areas for improvement. Is this an area that you're investing internally is an area that you see from an M&A perspective, maybe augmenting some of your existing capabilities? Any discussion there?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Yes, Matthew, great question. We’re really excited about the traction we’re seeing in process analytics: 50% growth in Q1 and 40% organic growth in downstream analytics. Historically, Q1 has been seasonally weaker, so this performance was exceptional. To capitalize and double down on this over the next several years, we see multiple drivers. The upgrade cycle is still in its early stages, so it should be a tailwind for the next several quarters, if not years. On the PAT side, we have huge traction as well. We launched our FlowVDX in-line protein concentration technology about 1.5 to 2 years ago and it has gained incredible adoption. We are also working on multiple other process analytics technologies and product launches that will come over the next one to two years. We are investing heavily in R&D to ensure many more products on our shelves over the next several years, both from an application line and an in-line perspective, and you will hear us discuss that extensively in upcoming quarters and years. In terms of M&A, capital deployment priority number one for us is acquisitions. We ended Q1 with $785 million of dry powder and are evaluating several opportunities. If the right assets, such as Polymem on the analytics side, present themselves to complement our offering, we would be very interested. Finally, our services business is benefiting significantly, growing more than 30% in Q1. We have a strong attachment rate of services to our analytical equipment, which is another area into which we are investing considerably and which is closely linked to the analytical business.

Operator, Operator

Your next question comes from the line of Justin Bowers with Deutsche Bank.

Analyst, Analyst, Deutsche Bank

So on the proteins, pretty strong quarter, especially against a tough comp. Can you talk about some of the drivers there? And then is that more of a shorter cycle business, i.e., how much visibility do you have into that? And then over the next 2 to 3 years, is that a franchise that you believe can continue to grow above Fluid average?

Olivier Loeillot, President and Chief Executive Officer (CEO)

Justin, Happy to have a question on protein because that's another business. I'm so happy about the progress we're seeing here. So yes, you're right, I mean, meeting growth lapping on what was a very strong quarter in 2025 was a really great positive surprise for us. And honestly, we got demand across all our offerings, but partially on the ligand side. I mean I mentioned in the past we've really become closer and closer with Purolite. We work really very much hand-in-hand together they have fantastic traction, and we are very happy about the way we collaborate together. That has been one of the reasons why protein did so well. So we are in the long-term type of business here because beyond that specific collaboration the fact also we have our data in our hands for all of the non monoclonal antibody side of the business is also very encouraging because we are winning multiple and we say multiple is really multiple designing. And it's a business that takes a little bit of time because where you first need to get designed in and then you start to deliver some first pilot quantities. And then hopefully, some of these products are either making it to the market or if they are already on the market, people are going to put the trigger to switch from one supplier to us. But with all of the designing we've been working on, and we've got a dedicated team that is going on the market, getting fantastic response from the market because they've never seen a company capable to develop a new ligand in 3 months and scale. I'm absolutely very bullish about that market for the next several years. I think the best is still to come here for sure.

Operator, Operator

We have reached the end of the Q&A session. I will now turn the call back to Olivier Loeillot for closing remarks.

Olivier Loeillot, President and Chief Executive Officer (CEO)

Thank you all for joining our call today. We had a very great first quarter, and we're executing against the plan we've outlined which is outpacing market growth, delivering margin expansion, and Jason gave you a good number of details about what we're achieving on that side; and finally, making tangible progress on our strategy. I really want to thank all of our Repligen teammates. We have an incredible team, and we are delivering a fantastic start of the year and looking forward to talking to you again in a quarter from now. Thank you all.