RGEN - NASDAQ

Good day, ladies and gentlemen, and welcome to Repligen Corporation's First Quarter 2024 Earnings Conference Call. My name is Keith, and I will be your coordinator today. [Operator Instructions] Please note this event is being recorded. [Operator Instructions] I would now like to turn the call over to your host for today's call, Sondra Newman, Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator, and welcome to our first quarter of 2024 report. On this call, we will cover business highlights and financial performance for the 3-month period ending March 31, 2024, and will provide financial guidance for the year. Joining us on the call today are Repligen's CEO, Tony Hunt; our CFO, Jason Garland; and our Chief Commercial Officer, Olivier Loeillot. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly reports on Form 10-Q, our annual report on Form 10-K and our current report on Form 8-K, including the report that we are filing today, and other filings that we make with the SEC. 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: book-to-bill ratio, 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 margin, 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 let me turn the call over to Tony Hunt.

Thank you, Sondra, and good morning, everyone, and welcome to our Q1 earnings call. As you saw in our press release this morning, we delivered a solid first quarter on revenue and orders. With Q1 revenues coming in at $151 million, we are right on track to delivering $300 million to $310 million in the first half of 2024. Orders were in line with our expectations, resulting in a book-to-bill of 0.99 in the first quarter and 1.03 over the past 9 months. We're satisfied with these results, especially in light of tough sequential and year-on-year comps and the known headwinds in COVID, Proteins and China. During the first quarter of last year 2023, we realized $23 million of COVID-related revenue, none of which was recurring. And as we shared with you on our February call, we anticipate Proteins headwinds of over $30 million in 2024, which we saw play out during the first quarter. Importantly, we continue to see signs of recovery in the market and feel confident that the destocking challenges are behind us for the most part. Our confidence is reinforced by what we are seeing in Filtration performance, consumables demand and new modality momentum. In Filtration, our largest franchise, year-on-year non-COVID Filtration orders were up 20% in Q1, and revenue was up by more than 10%. We also saw a nice sequential uptick in non-COVID Filtration revenue of greater than 15%. Regarding consumable orders where destocking has been the most pronounced, we've seen a positive uptick in demand outside of Proteins. For the first quarter of 2024, these consumable orders increased by more than 10%, both sequentially and year-on-year. Both sales and orders from new modality accounts were another area of strength at levels higher both sequentially and year-on-year. New modality revenue growth in the first quarter of 2024 was greater than 15% compared to the first quarter of 2023, and orders were up 8%. While encouraging, these positives were offset by the aforementioned weakness in Proteins and capital equipment purchase constraints as reported across the industry. Our expectation is that markets will improve as we go through the year with stronger order trends in the second half, and so revenue guidance range is unchanged for 2024. For the quarter, our overall revenues were down $31 million or 17% year-on-year, driven primarily by the $23 million decline in COVID-related revenue. Our base business revenues were down approximately 9% in the first quarter, reflecting the anticipated decline in Proteins and partially offset by Filtration sales, where our ATF business had a very strong quarter. Overall, non-COVID orders were flat year-on-year. Within our franchises, Protein orders were down 30% as expected, which was more than offset by an approximate 20% increase in Filtration demand. Excluding Proteins, orders as reported from our non-COVID Filtration, Chromatography and Analytics franchises were up 7% year-on-year and up 13% when you compare the last 6 months' performance to the prior 6-month period. Overall, order dollars are consistent with what we observed in the second half of last year, while covering the drop-off in proteins. On a customer level, pharma orders were in line with Q4 and up greater than 10% year-on-year. CDMO orders were down year-on-year and sequentially. Some of the softness can be attributed to lumpiness in orders from a few of our larger accounts, but it's fair to say that at this point, we're not seeing a true sticky rebound from CDMOs. The good news here is that when we look -- when we take a look at the last 6 months versus the previous 6 months, both CDMO orders and pharma orders are up about 10%. New modality orders were also strong, up high single digits in Q1 versus the corresponding period last year. As noted on our February call, strength in new modalities is directly tied to our top 20 to 25 accounts who are scaling with our technology. Strategically, Q1 was another good quarter for the company. Our latest acquisition in the Fluid Management mixing space, Metenova, had a strong quarter for revenues and orders. Our collective teams continue to work through the integration plan with a focus on managing the broader network of distributors and new product development. In fact, we just launched our first bag and film technology into the single-use bag market, paving the way for the launch of our single-use mixes in the second half of this year. In addition, our R&D team successfully developed and launched the industry's first fully automated GMP-ready filtration system called RS10. The feedback at the INTERPHEX Conference earlier this month on these 2 new product launches was incredibly positive, and we expect the system for mRNA in cell and gene therapy processing to have a meaningful contribution in 2024. We are clearly executing on our strategy to differentiate ourselves in the market with best-in-class systems and follow-on consumables. So moving now to our quarterly performance. The story of the quarter was the performance of our Filtration and Fluid Management businesses. Our Filtration franchise had a very strong quarter with non-COVID revenue growth of more than 10%. As mentioned earlier, this was driven by the success of ATF, where we have been specified into 9 late-stage and commercial processes since mid-2023. The impact of these late-stage wins drives more consistency in consumables and should be a key driver of growth for this business over the coming years, especially as many of these drugs are in the ramp-up phase. In addition, the Fluid Management business had a good quarter for both revenue and orders. We are seeing some very positive signs as our investments in this area are beginning to pay off. In Chromatography, our OPUS Pre-packed Column business had a solid quarter, slightly up on revenue versus Q4. The opportunity funnel is strong, and we expect further growth in revenues here in Q2 as this business continues to recover from the resin shortage challenges in prior years. A major driver of growth for us is the continued uptick in OPUS demand in the new modality markets as more customers switch to the convenience of pre-packed columns versus self-packed. Our Analytics business had a slower start to the year, mainly driven by fewer dollars for capital equipment purchases. This is consistent with what we have seen for this franchise over the last few years. Again, our funnel of opportunities is strong. There continues to be strong demand for FlowVPX and real-time process management, or RPM, and we continue to see these technologies as the drivers of growth for analytics here in 2024. Finally, we had a weak quarter in Proteins. Revenues were down both year-on-year and sequentially as Cytiva demand dropped to essentially 0. And as we noted in February, another partner is burning off inventory, which also impacts our performance. The Q1 decline in Proteins is in line with our guidance for the year of 30% to 35% dropoff in revenues. However, we continue to expect growth in Filtration, Chromatography and Analytics, as previously guided. In summary, we're off to a good start here in 2024. We believe that destocking is essentially behind us. We see positive trends in consumables and our orders are holding steady, staying 2% to 3% ahead of sales over the last 9 months. Our guidance is based on our expectation to see orders pick up in the second half of the year. We remain confident in the medium- to longer-term potential in bioprocessing with stronger growth in view for 2025. With that, I will hand it over to Jason for a financial update.

Thank you, Tony, and good morning, everyone. Today, we reported our financial results for the first quarter of 2024 and left the adjusted financial guidance unchanged for full year 2024. Revenue in the first quarter was down $4 million sequentially from a strong fourth quarter driven primarily by the expected headwind from Proteins, on lower affinity ligands and resin demand. We delivered total revenue of $151 million in the quarter. This is a reported decline of 17% year-over-year or down 20% on an organic basis, with acquisitions contributing 3% of our reported growth and currency with nearly a 1% headwind. As Tony mentioned, for the quarter, our base business, which excludes COVID revenue and M&A, was down 9% on lower Proteins sales. We recognized $23 million of COVID revenue in the first quarter of 2023 and approximately $6 million in M&A sales in the first quarter of 2024 from our 2023 acquisitions. Therefore, our base sales were $145 million in the first quarter versus $160 million in the prior year. Tony shared color on our franchise performance, so let me quickly highlight the performance across our global regions. For context, in the first quarter of 2024, North America represented approximately 49% of our global business, while Europe and Asia Pacific and the rest of the world, represented 33% and 18%, respectively. For our non-COVID business in the first quarter, North America was up on strength across all franchises, except Proteins, and Europe was slightly down with the decline in ligands being offset by strength in Filtration. The decline in Asia Pacific and the rest of the world was driven by continued weakness in China. First quarter 2024 adjusted gross profit was $74 million, a 27% decrease year-over-year while delivering a 48.6% adjusted gross margin on $31 million of lower revenue. The year-over-year reduction in gross margin of over 6 points reflects roughly 4.5 points of mix headwind from the high COVID sales in the first quarter of last year with the remainder tied to reduced volume. Our gross margin remained roughly consistent with our fourth quarter 2023 exit rate, down about 50 basis points of slightly lower volume and consistent with achieving our 2024 total year guidance of 49% to 50%. As we have shared before, we remain focused on cost management and ensuring we have the right balance of resources. We continue to execute restructuring actions, and we'll remain diligent in our spending, investment prioritization, and we'll remain focused on driving productivity and efficiency across our manufacturing network. As an update, we incurred just over $1 million of restructuring charges in the first quarter, down from the $8 million of charges in the fourth quarter. This was mostly driven by severance and facility exit costs. All these charges are nonrecurring in nature and are only reflected in our GAAP P&L for all periods. Though our current restructuring plans are coming to an end, we will evaluate the need for future discrete actions as we continue our margin expansion journey. Continuing through the P&L, our adjusted income from operations was $12 million in the first quarter, down $29 million compared to prior year, driven by the $27 million drop in adjusted gross profit just described with an additional $3 million increase in adjusted SG&A and a $1 million decrease in adjusted R&D as we managed the timing of our technology investments while continuing to introduce innovative new products. The increase in adjusted SG&A is driven by $2 million from both our acquisitions that closed after the first quarter of 2023. SG&A is also impacted by the annual increase of salaries. Sequentially, OpEx was up $4 million in the first quarter of 2024 versus the fourth quarter of 2023. This also includes the impact of annual salary increases, higher stock-based comp and the timing of external services. In the fourth quarter, stock comp benefited from grants dissolving with employee exits, which did not repeat and, in fact, was offset by new grants in the first quarter. Our first quarter 2024 operating income margin of roughly 8% includes about a 5-point headwind from depreciation, which had been a 4-point headwind in the same 2023 period. This is reflective of the critical investments we have made in capacity. Year-over-year, operating income margin is primarily driven by roughly 9 points of negative mix at the operating margin level from COVID sales last year and about a 7-point drag from volume deleveraging on OpEx and our fixed capacity structure with the lower sales. Both of these are partially offset by nearly 2 points of net year-over-year cost initiative benefits. Our first quarter 2024 EBITDA margin rate was approximately 13%, which excludes the drag of the increased depreciation. Adjusted net income for the quarter was $16 million, down $20 million versus last year. This was driven by the $29 million drop in adjusted operating income offset by $2 million of higher interest income, net of interest expense from improved interest rates on our cash position and approximately $6 million less tax provision. Our first quarter adjusted effective tax rate was 18.7%. While the rate in the quarter includes a discrete benefit from stock-based compensation, the total year adjusted effective tax rate is still on track for 21% as guided in February. Adjusted fully diluted earnings per share for the first quarter was $0.28 compared to $0.64 in the same period in 2023. Finally, with the strong generation of cash flow from operations in the quarter, we increased our cash position to $781 million, up $29 million from the end of 2023. I'll now move to a quick update on our guidance for the full year of 2024. I'll speak to adjusted financial guidance. But 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. In summary, we have made no changes to the total year adjusted guidance ranges that we shared in February. Running quickly through the P&L. Our revenue for 2024 is expected to be in the range of $620 million to $650 million while we continue to manage 3 key headwinds, COVID, Proteins and China. We expect 2% to 7% growth for our non-COVID business with M&A contributing 3 points of that growth. As a note, we will not be reporting on COVID sales in 2024 as this will be de minimis. We expect revenues in the first half 2024 to be better than the second half of 2023, and we expect revenue for the second half of 2024 to step higher again. We expect to deliver adjusted gross margins in the range of 49% to 50%, essentially flat to 2023. As summarized in February, we see about 200 basis points of headwind from mix with our reduced Proteins 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 rate improvement. We still assume price will be flat for the year, though we will raise prices selectively. We expect our adjusted income from operations to be between $83 million to $88 million or 13% to 14% adjusted operating margin rate, which is down about 100 basis points at our midpoint versus 2023 and our adjusted income from operations we see line of sight to delivering 400 basis points of year-over-year productivity. However, total salary increases, material inflation, mix from lower Proteins sales and volume deleverage creates greater than 300 basis points of headwind. And the headwind from resetting our incentive compensation is a total of approximately 200 basis points of headwind at the adjusted income from operations level with the majority of our incentive costs in SG&A. As discussed earlier, we remain focused on optimizing our cost structure 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 from fixed depreciation costs from the critical capacity expansions we have made. Continuing through the P&L, we expect our adjusted other income to be between $18 million and $19 million. We will continue to monitor the progression of interest rates and update this outlook as appropriate through the year. Our 2024 adjusted effective tax rate is expected to be an estimated 21%. Incorporating all of these items, we expect our adjusted earnings per share to be between $1.42 and $1.49, down $0.33 to $0.26, respectively, versus last year. As we wrap up, let me state that 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 off our wins and new modalities, successfully integrating Metenova and remaining diligent on our cost control and productivity to support increase in margins as we go through the year. With that, I'll turn the call back to the operator to open the lines for questions.

[Operator Instructions] And the first question comes from Rachel Vatnsdal with JPMorgan.

So first up, I just want to ask on some of the trends that we're seeing here in China. Obviously, we have some of the headlines related to BIOSECURE Act. You also called out some of the lumpiness from CDMOs. So can you just walk us through what are you seeing there from a customer perspective and conversations? And then also just in terms of your expectations on the year, how are you thinking about China in terms of how it will end?

Yes. So thanks, Rachel. I'll start a little bit on this, and then I'll ask Olivier, who's joining us today, who's spending a lot of time out in the region to also comment. But in general, I think what we're seeing is continued weakness in China, the CDMO market, which had some very positive kind of order trends in Q4 didn't repeat in Q1. And so it's just not out of -- we're not out of the woods yet in terms of where CDMOs are at. Pharma, of course, has been much more positive. Maybe, Olivier, would you like to comment a little bit on kind of the China situation what you're seeing and a little bit on the CDMO and pharma?

Absolutely. So as Tony just mentioned, we don't really see any improvement yet on the China market side. And as you mentioned, obviously, there are 2 potential acts happening right now the BIOSECURE Act, which is a little bit too early to say whether it will impact or not, and we work with most of the big pharma, CDMOs, meaning like wherever the product ends up really doesn't matter for us. In terms of the China estimates, the scope is very broad right now. So we are also waiting to hear how this will be implemented, and we are staying very close to our customers.

Great. And then just as my follow-up. Nice to hear the strength in the portfolio ex Proteins and equipment this quarter, but I just wanted to dig into some of the Protein weakness a bit more. So I believe you mentioned that orders on Proteins were down 30% this quarter. Can you just walk us through how did that land relative to your expectations? And then in terms of the cadence of the Protein headwinds throughout this year, has anything changed in your assumptions? And what should we expect in terms of the exit rate for Proteins this year?

Yes. Thanks, Rachel. Look, on the Proteins side, we're -- when we got together back in February, we set down about 30% to 35%. It's exactly in line with what we were expecting. I think in a lot of the follow-up calls, we were saying probably around that $8 million per quarter in that range, and it's exactly in line with that. And if you look at the orders in Q1 and you actually just take Proteins out, we're pretty much in line with what we saw in Q4 ex Proteins. So it is what we were expecting. There's nothing that has changed, and we expect to be down 30% to 35% at the end of the year.

And the next question comes from Jacob Johnson with Stephens.

Maybe, Tony, just thinking about orders a different way. Can you just talk about how orders trended throughout the quarter? And any commentary you'd like to give about April, if possible, as we think about just any kind of signs you'd point to support the view that orders will continue to pick up in the back half of this year.

Yes. Thanks, Jacob, for the April question. But yes, the -- I would say that we were very similar, I think, to most of our peers with January being somewhat of a lighter month. And then February and March were actually pretty strong, and that's how we ended up where we were with book-to-bill of 0.99 and covering off a fair amount of the Protein shortfall. Now April is -- it's come in pretty much close to where we would have expected it to come in. I think when we look overall at where we need to be, we need to see a pickup in orders as we go through Q2 and through Q3 for us to hit the second half of the year target. So I think that's the expectation. There's some real nice positive signs that we're seeing. I mean, like the consumable trends in Q1, that is something that is really, really positive because that really points to the fact that the destocking piece is more or less behind. The troublesome parts and the annoying parts are really the CDMO market now fully rebounded, dealing with this weakness, continued weakness in China. And I know a number of our peers talked about the capital equipment side of the market. And yes, we were no different. We saw weaker capital equipment, but Q1 is typically a slower quarter for capital equipment anyway. So that's kind of what we see, Jacob.

Got it. And last comment, I guess, I wanted to follow up on the weakness in capital equipment. You've been on this journey to build out a systems portfolio. Just anything about the current kind of capital equipment demand environment impact the trajectory of those efforts? Or is it just kind of seasonality?

Yes, I'll start and maybe have Olivier talk a little bit about kind of one of the launches we made this year, which I think becomes a really important launch for us. I would say that the capital equipment market -- when you finish off a year like 2023, and you can go back over the last 5, 10 years, there are -- you definitely have dollars at the end of the year that people spend and then the budgets are set but some of the dollars don't get released. So we think it's more of a dollars getting released as opposed to any real sort of bigger issue that we should be worried about. Now we've -- as you noted, we've spent a lot of time over the last 4 years building out a capital equipment portfolio, systems portfolio, and we're wrapping a lot of our consumables whether it's on the Fluid Management side or it's on our Filtration consumables into those systems. We've made a lot of progress. And Olivier joined back in October of last year, and he spent a lot of time on the field. Maybe, Olivier, do you want to chat or talk a little bit about the more recent launch and what you're seeing with capital equipment in the market.

Yes. No, absolutely. So we just launched a new product called RS10, which is a very unique bench-scale TFF system. I mean, I've hardly ever seen so much traction on the launch in the last several years. One of the reasons being like it's really for low-volume type of application, and this is perfect fit for the new modalities like mRNA and cell and gene therapy. So really great traction on that side, and we expect it to be generating significant sales already this year for us.

And the next question comes from Puneet Souda with Leerink Partners.

Can you hear me okay?

Yes, yes, we can hear you, Puneet.

Okay. Great. Okay. So just first one on book-to-bill and then I have a follow-up. I mean it appears that Proteins is where the challenges are. But you've pointed about Proteins challenges for the last few quarters. So just wondering if there's a book-to-bill number that you have here for ex Proteins and overall -- leaving proteins aside, when you look at the overall sales funnel, I think you talked more about that last quarter as well. So I'm wondering what you're seeing there in the sales funnels as we head into this sort of second half of the first part of the year.

Okay. Yes. Look, when I look at the book-to-bill, I don't have the book-to-bill for ex Proteins and trust me, but I think the way to look at this is honestly, to look at it on a 9-month basis. So if you look at our book-to-bill over the last 9 months, it's 1.03. I think that's a healthy sign, right? We're about 2% to 3% ahead of sales in terms of orders. And we've known -- we've chatted and we've had conversations with investors and analysts on this, we've known about the Proteins headwind. So that $8 million per kind of quarter challenge, we're trying to make up for that in terms of strength in consumables and strengthen in our products in hematologies. And you can see our biggest franchise, which is Filtration up 20% on orders year-on-year and then up, I think it was 8%, 10% on sales. So it's very encouraging. There's just a little bit of chop and noise still in the market that's getting flushed out. And we expect as we go through the year that begins to improve. The sales funnel, I think what's interesting about the sales funnel is we've talked a lot about that over the last 12 months. Year-on-year, sales funnel continues to be up. I would say if I look -- we looked at the percentages was at 50% versus 75% versus 90%. 75% to 90% part of our funnel is pretty much unchanged versus what we saw at the beginning of the year. 50% is down a little bit but we have a lot of new opportunities that have entered into the funnel. So we think it's -- we have the right funnel to deliver on what we need to deliver in 2024.

Got it. And then just a follow-up on the CDMO side. You said CDMO stickiness is not what you would have seen before or expected. Just can you elaborate a bit more on that? And what do you mean there? And in terms of the overall recovery within the CDMO, is there something fundamentally different there?

Yes, I'll start, and I'll have Olivier because he spent actually a lot of time over the last 1.5 quarters actually visiting not only the key pharma accounts but also the key CDMO accounts. For me, the CDMO customer base really is -- what we're seeing is more around lumpiness within certain accounts. If you actually look at kind of the long tail of outside the top 10 CDMOs, it's pretty consistent over the last couple of quarters in terms of revenue and orders. It's -- we're just seeing a little chop in the top 10 accounts until it bounces up and down. And therefore, based on how that moves, you can have stronger quarters or weaker quarters. But maybe, Olivier, do you want to chat a little bit about what you're seeing in the marketplace.

No, no, absolutely. I would just add that the good news is the last 6 months orders with CDMOs have been 10% higher than the previous 6 months old. We are still not where we would like to be with CDMOs. At least we've started to see some improvements. There are also quite a lot of moving pieces right now or potential moving pieces with the recent acquisition of Catalent by Novo and also the potential implementation of the BIOSECURE Act, which means that probably some of the projects are moving from one CDMO to the other and so on, and it might be also turning a little bit of high loss for the time being.

And the next question comes from Dan Arias from Stifel.

Tony, maybe on Chromatography. I think your phrasing was that the business continues to recover from the resin shortage. Is that to say that the market is still a bit constrained by supply? Or is it back where it needs to be? And then just assuming that you are in better shape than you were last year, is it fair to think about chrome growing a little bit this year. I mean, I think the outlook was for 0% to 5%. It seems like the low end of that is less likely, but maybe I'm not considering something.

No, I would say that when we look at the chrome business, the supply challenge is definitely behind us. I think both the main players on the chromatography resin side have built capacity and lead times are essentially back to where we would have seen in the pre-COVID days. So I think that's a non -- that's really a nonissue. I think we're -- when you look at our chrome business and you kind of say, how does it split up? I mean it's -- I don't know if it's exactly 50-50 CDMOs and pharma, but obviously, you can imagine the pharma side is -- and small, medium-type biotech is doing well. And then CDMOs is -- and we're still waiting for some recovery there. So it's a little bit of that, that slows it down. But we're thinking that 0% to 5% is pretty solid for the year, Dan. Is there some upside? I think that will really come from an order uptick that you -- that we're looking to see in the second half of the year. What's very encouraging for us is if I went back 2 years ago, we looked at the new modality space 2 years ago, and we were surprised that we weren't getting as much traction with the OPUS Pre-packed Column in that space, and we put a real effort on it. And now we're really seeing the traction. And we're getting a lot of companies that typically would say, "Hey, the packer on column, they're looking to the convenience of getting self-packed from us as a service. So I think that's -- if I were to look to an area where we would see growth, it's probably continued growth in new modalities and then a pickup in the CDMO side that could get you to the higher end of that 0% to 5% growth.

Yes. Okay. And then, Jason, maybe on EBITDA margins, anything from a cadence standpoint that's noteworthy? Or is it sort of fair to model sequential improvement across the year as the volumes ramp in order to get to that 18%, 19%? And then you touched on the fixed cost elements. When we think about the leverage you can pull this year versus what's more for next year, can you just maybe make a comment on OpEx cost containment versus what might need to be done on the production side?

Great. Thanks, Dan. Look, yes, I think we've been trying to be clear that our profitability would be increasing with volume through the year. And to your point, that's certainly how we see this playing out, especially with the second half step-up over the first half in aggregate. We'll see -- and if you look at kind of the -- where we're at for first quarter 8% to get up to the guidance of 13% to 14%, that's scaling up about 5 points. We'll -- I think to answer some of your question, we'll get probably 1 to 2 points of that from higher gross margin, but through a little bit of leverage, but mostly through the cost actions and profitability actions we're taking. We'll get 2 points of straight volume leverage on that OpEx, right. So it's just OpEx content. And then as you can imagine, we'll then take the rest through further reduction programs for OpEx. So we're continuing to execute that. And to your point, really the higher volume -- with the higher volumes in the second half, we'll see that profitability step up.

And the next question comes from Conor McNamara with RBC Capital Markets.

Tony, just getting back to the book-to-bill, one of the things you highlighted was a book-to-bill greater than 1 for the last 9 months versus 0.99 for the quarter. So I'm just curious if there was anything else in Q1 around seasonality for higher cancellations or just timing of equipment that gives you confidence that you should be above 1 for the rest of the year?

Yes. So on the Q1, I don't think there was anything unique in Q1 or different in Q1 versus, say, what we've seen over the last 3 or 4 quarters besides what we kind of highlighted in Proteins. I mean, if you take the Proteins out, then you can see the impact on orders between Q4 and Q1 is purely the proteins piece. Now look at -- you can look at any portfolio, whether it's us or any of our peers, and you're going to have lumpiness in different sections or segments of the market. So for instance, in Q4 versus Q1, we had stronger consumables in Q1 versus Q4, but we had weaker capital equipment. We were stronger in Asia including China in Q4 and weaker in Q1. And so when it all kind of balances out, it comes in around the same number, right? And look, we need to see increased traction. So the goodness we're seeing in consumables, it's got to continue. We got to see a bounce back in the capital equipment side. We've got to see CDMOs also beginning to rebound a little bit more. And of course, we're all -- as you know, we're in a bit of a unique position as a company because while everybody is dealing with COVID as a headwind, we've got Proteins headwind. While everybody is dealing with COVID and China headwinds, we've got the additional headwinds, which is Protein. So it masks a little bit of the goodness that's going on in the portfolio.

And then just on margins, can you comment on what the margins are on the Proteins business, if there's anything else as far as mix that impacted the gross margins this quarter? Equipment is weak and consumables is strong or anything else worth calling out as far as the margin mix?

Yes. I mean, look, the Proteins is certainly above average. I think the other thing, too, to keep in mind is both on a year-over-year first quarter to first quarter basis, $0.3 million of COVID sales at very high margins last year in the first quarter. And then when you look at it sequentially from fourth quarter '23 to first quarter '24, again, $8 million of COVID revenue in the fourth quarter at high margin. So I think it's more of this COVID dynamic in terms of some of the margin changes you do on a comparable basis and less so maybe Proteins. But certainly, that's a drag for us as well as through the year.

Got it. Okay. But the proteins is above average. I guess that was the bigger question.

Yes, absolutely.

And the next question comes from Matt Larew with William Blair.

I'm sorry, another one on CDMOs. It sounds like given, Tony, your comments around the lack of destocking that it's not sort of an inventory work done issue and maybe more of an activity issue. So I guess, just curious if you were to break out either your own orders or just conversations with CDMOs. Is there any way to cut it from a modality perspective, early-stage, late-stage perspective, just to help maybe give us confidence on whether orders returned throughout the year.

At the CDMO level, Matt?

Yes.

For CDMOs question. Yes. Look, as I said earlier, I think, what we're seeing is more lumpiness at the top accounts. And of course, we know that for the Tier 2, Tier 3 CDMO players, the small biotech companies feed into that. And -- but, it's so encouraging to see the biotech funding returning, right? And it's also encouraging to see that the industry had a strong start to the first quarter in terms of number of drugs approved, right? I think there were 6 mAbs, 5 biosimilars. There were 3 or 4 gene therapy drugs. So that's actually at a pace that's been better than we've seen in prior years. All of that is going to help the CDMO market, right, because a lot of those smaller and medium-sized biotech companies turn to the CDMO industry to do that. And for us, like we were also encouraged when you look at the mAbs side. I think we're in 2/3 of those mAbs that got approved with products from Repligen. So it's, again, leading indicators that we like, and we'll see as we go through the year how it all plays out.

Okay. And that comment actually maybe feeds into my next question, which is you referenced in Filtration, non-COVID revenue up 10%, driven by ATF. [indiscernible] 9 late-stage and commercial processes since mid-'23. Could you maybe give us a little context in terms of that number relative to the total number of late-stage or commercial processes or perhaps how that number would compare to a typical year or a typical period in terms of your involvement in late stage and commercial with ATF?

Yes. Let me start, and I'll have [ Duffy ] and Olivier talk through some of the nuances of the 9 late-stage drugs that we're in. But ATF is, I would say that Repligen as a company, right, we have 35% of our revenue coming from commercial, 65% of our revenue coming from clinical. So we've been working, obviously, on many of these product lines, whether it's ATF or it's our consumables like hollow fibers flat sheet cassettes. So we would start to -- we would expect that we would see more approvals coming through. But that was -- that's a high number of approvals to get in a short period of time. And I can say that just having worked myself at other companies in this industry over the last 25-plus years. But maybe, Olivier, do you want to speak a little bit to kind of how the 9 split up between mAbs and vaccines, so people get a sense of what we're talking about.

Yes. No, absolutely. I would just add that indeed, we started that ATF journey several years ago and so on. And it's really great to see how we're collecting the fruit right now because it's 9 projects we've been designing recently, which are anywhere within Phase III or commercial stage are added to another set of tens of products where we were already designing. And as Tony just mentioned, this is really across the board. I mean, it's really from the vaccine side to monoclonal antibody and more recently it is within the cell and gene therapy arena as well. So we really have great traction and the best is yet to come for ATF because indeed, when those products move towards commercialization volume typically increase significantly.

And the next question comes from Matthew Hewitt with Craig-Hallum Capital Group.

Maybe first up, with the new bags that you're launching, what will that mean for the Metenova single-use technology? I mean, has that been a gating factor? Or therefore, getting the bags launched will mean that, that can be a driver later this year? Or how should we be thinking about that?

Yes. I'd say it's not quite impacting Metenova yet. You kind of have to have the bags in the market. So when we did the FlexBiosys deal a year ago, the thought process was they also accelerate the commercialization of a Repligen film/bag. So that's what's happened. The next phase actually does involve Metenova because we want to get out in the second half of this year like this mixing technology, which would be single-use mixer. And Metenova bag, as you might recall, has been very much a stainless steel, repeat-use type mixing technology. And so now this gives us a single-use mixing portfolio. But to be able to do that, you need to have the bag. We have to bag now we marry it up with single-use impeller technology from Metenova and we get that into the marketplace in the second half of the year.

Got it. And then kind of separately here, and I realize the BIOSECURE Act, it's -- there's still a question where it's going to go from here and even if it is ultimately made law that it's really a zero-sum game for you. But with -- there's already been some pharma companies that have come out and said that we're already having discussions about moving some of our production around. Does that create a little bit of a lag where CDMOs, in particular, but even pharma companies are trying to figure out, okay, well, if we have to move from CDMO A to CDMO B, but we don't know the timing. Is there any risk that, that creates a timing lag, so maybe it exacerbates the lumpiness over the next couple of quarters? Or how should we be thinking about that?

Yes. And Olivier has done a nice job of kind of giving everybody an overview of where the BIOSECURE Act is at. We just don't know the answer. And we've had lots of questions on this, as you can imagine, over the last couple of months. I think it's a wait and see, but if it were to pass, and there were changes, then yes, there would be some type of transfer lag that would probably happen. But let's see how this all plays out. We're focused on serving our customers and making sure we get products delivered on time with the highest quality and brand processes will stay in the processes. That's our view.

And the next question comes from Paul Knight with KeyBanc Capital Markets.

Tony, I know you're not -- you haven't been involved in GLP-1s. Is there any way you could be with product development? And then the last question or second question would be what portion of the OPUS Pre-packed Column market, so to speak, is still homebrew, half or what's the level of that?

That's a great question on the OPUS Pre-packed Column. I would say that the vast majority -- I'll answer that question first, but the vast majority of the CDMO side of the industry, has moved to pre-packed columns. And I would say the smaller, medium-sized biotech companies have also moved to pre-packed columns. I would say large pharma is a bit of a mixed bag. You have some large pharma companies that really embrace having the flexibility of getting pre-packed columns delivered when they need them. And you have a -- still a significant number of pharma companies that we know how to pack our columns, we pack it ourselves. We do a good job. We're not interested. But it's a bit of a slow grind. And one of the things maybe Olivier can talk about is with the implementation of our key account management structure, that is one of the focus areas that we have, and maybe we'll chat about that in a minute. But on the GLP-1s, that we do play a little bit in it, but it's just not big enough for us to call it out as meaningful. But you can imagine, technology like our component side, mixing side of what we do in Fluid Management, there's definitely some involvement there. We continue to look to see the areas where we can play. But for us, at least today, it's not a big plan. Maybe, Olivier, do you want to chat a little bit about kind of how the key account management team is focusing on the pharma side for pre-packed columns?

Yes. No, absolutely. And just maybe to add one point to your question on OPUS specifically. The big difference between CDMOs and pharma is pharma they know in advance what product they will have to manufacture over the next 12 months. CDMOs don't always know which is why they love OPUS because then they have a set of columns ready to use for whatever products they might capture in the next 6 to 12 months. But back to key account management, as you know, we've built that team about a year ago. We're really happy about the progress we have on that side. And we are really covering both big pharmas on one side and the top CDMOs as well on the other side and to make sure really like -- we are capable to offer the A to

And the next question comes from Justin Bowers with Deutsche Bank.

So a couple of questions. Just one, on the CDMO comments and the sort of the lumpiness you're seeing there, is that more around equipment sales? Or is it just fits and starts in terms of ordering patterns? And the gist of it is like how close are we? Are we back to normal ordering patterns and is this just sort of like the post-COVID norm? And then the second part is on your comments about going to see CapEx come back. Is that more targeted towards CDMO or new builds or sort of replacement? Just trying to get a sense on those areas.

Yes. No problem, Justin. On the CDMO lumpiness, there's definitely some capital equipment in there but there's also consumables. So it's not -- you just can't look at the data and say, "Oh, it's all capital equipment." It's a combination of both. So I don't think it's favoring one versus the other. And then the CapEx comeback. I think that's more around dollars getting released. If you look at how last year played out on CapEx, we went back and looked at this. It was like in terms of CapEx or biotech pharmas, CDMOs in the first half of last year. And then there was a big step-up in CapEx spend in the second half of the year. So that's just a year ago. If you went back and looked at other years, Q1 does tend to be on the lighter side, but it typically picks up as you go through Q2 and into the second half of the year.

And then just my follow-up. Can you remind us what the -- what sort of the revenue opportunity is and the scale-up when you go from an early-stage to like a late-stage or commercial program, all the 9 programs you mentioned last year. And then was there a book-to-bill for CGT that you can provide as well?

Yes. On the CGT new modality space, it was a [ little bit above 1. ] So a nice quarter for that portfolio. It's hard to put a dollar amount on when you go from a Phase I to II to III to commercial. But in general, the revenues tend to double, right? I think it's not a bad way to kind of look at it. But obviously, we get into a more of a blockbuster drug, and it's -- and this high, high demand, it could be much higher than a factor of 2, it could be a factor of 4 between Phase III and commercial. But typically, the revenues would double.

And the question comes from Matt Stanton with Jefferies.

Maybe sticking with the theme of new modalities, Tony, 2-parter for you. I guess first, 1Q was up mid-teens. I think you've been looking for 5% to 7% for the year. Is that still the right way to think about it? Is there potentially upside there on the heels of a strong start here in 1Q? And I guess why can't that part keep up the pace we've seen aside from maybe tougher comps in the back half of the year? And then just longer term, stepping back, any reason we can't see a return to kind of healthy double-digit growth for this part of the market given the softer period more recently? And then you talked about adoption of OPUS within this category. Are there any other parts of the portfolio you think are relatively underindexed to the new modalities?

Yes. Thanks, Matt. Those are a good few questions in that, but I'll decipher and walk you through it. I would say that a good quarter, obviously, in Q1, obviously, double-digit growth, which is great. We've been pretty consistent, though, in saying that the new modality strength is coming from 2025 accounts. So it's not like the whole new modality space. The long tail in new modalities really hasn't caught up yet. So that biotech investment, that's starting to pick up in the first quarter for the industry should have an impact, but it could be 9 to 12 months before anyone really sees that flowing into the manufacturing side of the equation. So I think we have to be a little careful that we don't look at -- we don't take Q1 and say, "Oh, look, we're just going to take Q1 and annualize it" because it really is driven by this sort of handful of accounts that we have that are scaling. So that's probably the important part. And I do think you're right that tougher comps in the second half of the year will definitely slow down the growth. But last year, if you remember, we had essentially the same revenue in 2023 as we had in 2022 in the new modality space. That was actually a great result given how challenging, a, the space was; and b, the overall bioprocessing market. So I think we're in the right range in what we said in that like 5% to 7% range. And I'd like to see another quarter or so before we say that, that could be higher.

Okay. And then I guess just on the second part, longer term, is there anywhere the [indiscernible] on the new modalities? You talked about adoption with OPUS is really focused on the other parts of the portfolio that are kind of underindexed and you may look to run the same playbook over the coming years here, specifically within the new modalities?

Yes. If I looked at all the markets that we play in, new modalities is one where I think a vast majority of the Repligen technology portfolio plays out. I think we're at maybe 20% of revenue now in new modalities. And so when I look at our portfolio, you can clearly see OPUS, even our Analytics business, when we bought the Analytics business back in 2019 from C Technologies, it had no revenue in the new modality space, and I think around 20% of the revenue is now coming from new modalities. So that's a very nice positive uptick. Our whole Fluid Management portfolio, definitely opportunities, and we're getting traction there. And then you just have to look at anything from ATF to our flat sheet cassettes. Our whole portfolio of products really play nicely in the space. And then maybe I'll finish out, Matt, with a comment from what Olivier said, which was the RS10 launch is absolutely geared towards this customer base. So if you think about where are we placing bets, we're definitely placing bets in the space and some of the products that we're launching right now are totally geared towards this customer base like the RS10.

If I could maybe squeeze one more in. It sounds like the U.S. was up, EU was down slightly tied to ligands. Would just be curious if you could talk a bit more about the trends within pharma between those 2 regions? Any differences between top 10 or 20 accounts in the small to midsized customers between U.S. and Europe in the quarter?

Yes. I would say that if we looked at the regions, the one region that was down in Q1 was APAC, right, with China. That was probably the one region where if you looked at -- if it had the similar performance as what it had in Q4, we would be talking about a much higher book-to-bill, right? But again, we're -- I'm not trying to make an excuse. The problem is every quarter, there's something that you weren't expecting that you have to deal with. And so look, if you look at us as a company over the last 3 or 4 quarters, we've been pretty consistent on the orders and pretty consistent on the revenue. What we need to see is an uptick, right? And that's the way that we get to our sort of guide for the year. If you think about it, where if you took it ex Proteins, I think we're up around 6% or so in Q1 versus where we were in -- actually, if you look at where we will be in the first half of this year, if you take the midpoint of, say, $305 million between $300 million and $310 million, you go back to the last 6 months of last year, we're probably up 6% ex Proteins on revenue. So to get to our midpoint of our guidance, we would need to be up 8% in the second half of the year versus the first half of the year. So I don't think it's like a huge stretch, but we have a lot of execution that we have to do to get there.

And this does conclude the question-and-answer session. I would now like to turn the conference back over to Tony Hunt for any closing comments.

Great. Thanks, Keith, and thanks, everybody, for joining. Obviously, a solid start to the year for us. Look forward to catching up with everybody at the end of July, beginning of August. So thanks again.