Sondra S. Newman - Senior Director Investor Relations Tony J. Hunt - President and CEO Jon K. Snodgres - CFO.
Drew Jones - Stephens Inc. Matt Tiampo - Craig-Hallum Paul Knight - Janney Montgomery Scott Brandon Couillard - Jefferies LLC.
Good day, ladies and gentlemen and welcome to the Repligen Corporation’s Fourth Quarter and Full Year 2015 Earnings Conference Call. My name is Kat and I will be your coordinator. At this time all participants are in a listen-only mode. [Operator Instructions].
Please note there will be a question-and-answer period following the company's formal remarks. In order to accommodate all individuals, who wish to ask questions there will be a limit of three questions at a time. I would now like to turn the call over to your host for today’s call, Sondra Newman, Senior Director of Investor Relations for Repligen..
Thank you and good morning. The purpose of today's call is to discuss our financial results for the fourth quarter and the full year 2015, to provide financial guidance for 2016, and to discuss recent business highlights. Joining me are Tony Hunt, our President and CEO; and Jon Snodgres, our CFO.
During the course of this call we will make forward-looking statements, regarding business goals and our expectations for the financial performance of the company. We caution you that such statements are subject to risks and uncertainties that may cause actual events or results to differ.
In particular, unanticipated events outside of our control may adversely impact future results. Additional information concerning these risk factors is discussed in our annual report on Form 10-K, the current report on Form 8-K which we filed this morning, and our other filings that we make with the Securities and Exchange Commission.
The forward-looking statements in today's discussion reflect management’s current views and may become obsolete 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.
Consistent with our public life science company peers, Repligen as of this call is presenting its financial results on an adjusted or non-GAAP basis as well as on a GAAP basis.
Adjusted figures will include the following; revenue growth at constant currency, adjusted operating income, EBITDA, adjusted EBITDA, adjusted net income, and adjusted fully diluted earnings per share. A reconciliation of GAAP to non-GAAP financial measures is included as an attachment to our press release issued this morning.
While these adjusted financial measures cannot be viewed as an alternative to GAAP, the company believes that the use of these non-GAAP measures better enables investors to benchmark its results against historical performance and the performance of peers and to evaluate investment opportunities.
With that I’ll turn the call over to Jon Snodgres for a financial update. Go ahead Jon..
Thank you, Sondra. Good morning. Today we are reporting our financial results for the fourth quarter and full year 2015 as well as our financial guidance for the year 2016. Our financial results for the fourth quarter of 2015 were highlighted by strong sales of our bio-processing products.
We reported product revenue of 21.4 million, an increase of 45% at constant currency or 39% as reported compared to the fourth quarter of 2014.
We realized an exceptionally strong quarter with greater than 50% year-over-year growth in our growth factors, ATF Systems and Consumables, and our chromatography group with includes our OPUS columns, Protein A resins, and ELISA Kits. Our gross profit for the fourth quarter was 11.3 million an increase of 4 million or 55% compared to 2014.
Our product gross margin is 52.7% for the quarter compared to 47.5% in 2014 reflecting a year-over-year increase of 520 basis points driven by higher sales volumes. Now moving on to our operating expenses.
Research and development expenses of 1.4 million were modestly higher than the fourth quarter of 2014 as we continued to invest in key product development programs including single use ATF and OPUS.
SG&A expenses increased to 6.5 million from 5 million in the fourth quarter of 2014, due to investments in our growing commercial organization as well as facilities, personnel, and systems infrastructure to support the fully integrated ATF business and the ongoing growth of the company.
Also included in our fourth quarter operating expenses is an additional 2 million of contingent consideration expense based on the increased probability of achieving the ATF sales milestones for 2016. The company’s final year of contingent consideration obligation under the refined asset purchase agreement.
This 2 million represents 36% of the 5.55 million of total potential payout for 2016. Or 48% of the 4.25 million fixed component. In the event that the minimum ATF sales milestone for 2016 is not achieved, the company will reverse the 2 million approval.
Moving now to income and earnings for the quarter, adjusted operating income for the fourth quarter grew to 3.4 million, an increase of 2.4 million over 2014. This increase was driven by margin pull through from our year-over-year sales growth.
Adjusted operating income excludes contingent consideration expense of 2 million recorded in the fourth quarter of 2015. And 1.9 million recorded in the fourth quarter of 2014. Also excluded is the one million of non-product revenue from therapeutic out license agreements during the fourth quarter of 2014.
On a GAAP basis operating income increased to 1.4 million for the fourth quarter of 2015 compared to 61,000 for the fourth quarter of 2014. Adjusted net income for the fourth quarter of 2015 was 2.2 million, a year-over-year increase of 1.7 million.
Adjustments to net income include the aforementioned contingent consideration expenses and non-product revenue adjustments. On a GAAP basis, net income for the quarter was 265,000, an increase of 663,000 over the same quarter of 2014.
Both adjusted net income and GAAP net income improvements are driven by margin pull through from our year-over-year sales growth partially offset by higher tax expenses mostly related to the increased profitability in our Swedish facility.
Adjusted EPS for the fourth quarter of 2015 increased to $0.07 per fully diluted share compared to $0.02 for the fourth quarter of 2014. Adjustments to EPS include the previously mentioned contingent consideration expenses and non-product revenue adjustments. On a GAAP basis, fourth quarter 2015 EPS was $0.01, a year-over-year improvement of $0.02.
Improvements were driven by the aforementioned drivers of operating and net income. Adjusted EBITDA for the fourth quarter was $4.3 million compared to $2.3 million in the fourth quarter of 2014, a year-over-year increase of $2 million or 89%.
Adjustments to EBITDA include the above stated contingent consideration expenses and non-product revenue adjustments. EBITDA for the fourth quarter of 2015 increased to $2.4 million from $1.4 million for the same quarter in 2014, reflecting an increase of 75%. I will now report on our full year 2015 financial results.
For the full year 2015 product revenue reached a record $83.5 million reflecting strong growth of 47% at constant currency or 38% as reported. Consistent with the fourth quarter we experienced strong demand for all of our products during the year with all of our product groups growing in excess of 20%.
For the year 2015 we reported $48.3 million of product gross profit, an increase of $15.9 million or 49% compared to 2014. Our product gross margin was 57.8% for the year, compared to 53.6% in 2014, reflecting a year-over-year increase of 420 basis points driven by higher sales volumes and improved factory leverage.
Moving to operating expenses for the full year of 2015, research and development expenses of $5.7 million were essentially flat to 2014. R&D spend was 6.9% of 2015 sales.
SG&A expenses increased to $24.7 million from $17.2 million in 2014, an increase of $7.5 million due to strategic investments to scale up our commercial organization as well as operating infrastructure to support the full integration of the ATF business and the ongoing growth of the company.
Now moving to our income and earnings performance, for the full year 2015 adjusted operating income was $17.8 million, an increase of $7.4 million or 71%. Our adjusted operating margin for the full year 2015 was 21.4% compared with 17.3% for 2014. This increase was driven by margin pull through from our year-over-year sales growth.
Adjusted operating income excludes refined contingent consideration expense of $4.1 million in 2015, refined contingent consideration and acquisition costs totaling $2.9 million in 2014, and non-product revenue of $3.1 million from therapeutic to out-license agreements in 2014.
For the full year 2015, GAAP operating income was $13.8 million, an increase of 29%. Adjusted net income was $13.4 million in 2015, an increase of $5.5 million or 69% over 2014. Adjustments to net income include the aforementioned contingent consideration expenses, acquisition costs, and non-product revenue adjustments.
GAAP net income for the year 2015 was $9.3 million, $1.2 million or 14% increase over 2014. Both adjusted net income and GAAP net income improvements are driven by margin pull through from our year-over-year sales growth, partially offset by higher taxes, mostly related to increased profitability in our Swedish facility.
Adjusted EPS for 2015 increased to $0.40 per fully diluted share compared to $0.24 in 2014, an increase of 67%. Adjustments to EPS include the previously mentioned contingent consideration expenses and acquisition costs and non-product revenue adjustments.
For the year, GAAP EPS was $0.28 per fully diluted share, a year-over-year increase of $0.03 or 13%. Improvements were driven by the previously noted drivers of operating and net income. For the year 2015, adjusted EBITDA was $22.2 million, an increase of $7 million or 46%. Non-adjusted EBITDA increased to $18.1 million, reflecting an increase of 18%.
Adjustments to EBITDA include the aforementioned contingent consideration expenses and acquisition costs and non-product revenue adjustments. Both adjusted EBITDA and non-adjusted EBITDA improvements are driven by the same factors noted previously for operating income.
Our cash, cash equivalents, and marketable securities at December 31, 2015 were 73.4 million, an increase of 11.4 million over year end 2014. Free cash flow of 12.4 million includes our cash generated from operating activities of 15.1 million, less capital expenditures of 2.6 million.
Clearly we are very pleased with our strong financial performance for 2015 and we expect another successful year of growth in 2016. We’ll now move on to 2016 guidance.
Please keep in mind that our 2016 guidance maybe impacted by fluctuations and foreign currency rates beyond the expected FX headwind of 1% and does not include the potential impact of additional refined contingent consideration expenses or any reversal of the 2 million contingent consideration expense accrued during the fourth quarter of 2015 or potential acquisitions.
Today we are setting our revenue guidance at 93 million to 96 million for the year 2016, reflecting constant currency growth of 12% to 16% or 11% to 15% at prevailing currency rates.
Our product gross margin guidance for 2016 is 57% to 59% consistent with 2015 as we continue to scale our operations and make strategic investments in factory infrastructure and staffing to stay ahead of increasing demand.
Operating expenses for the year 2016 are expected to be in the range of 33 million to 35 million including projected SG&A expense of 26 million to 28 million and projected R&D expense of approximately 7 million. SG&A expense increases are driven by continued investments in selling and operating infrastructure to support our growth.
Growth in R&D expenses will support our development programs for ATF and OPUS product lines. And will enable us to continue to build out expertise in device product development.
Please be aware that our operating expense guidance assumes no expenses for refined contingent consideration or any reversal of the 2 million contingent consideration expense accrued during the fourth quarter of 2015.
We will complete the final year of the earn-out program in 2016 and will continue to monitor the status of our ATF sales forecast and report adjustments in 2016 as required. Income from operations is expected to be in the range of 20 million to 22 million or 21% to 24% of revenue, reflecting strong leverage of our sales volume growth.
Net income is expected to be in the range of 15 million to 17 million which translates to fully diluted EPS guidance in the range of $0.45 to $0.51. EBITDA is expected to be in the range of 25 million to 27 million for 2016, with depreciation and amortization expenses in the range of 5 million to 5.5 million.
The company expects to generate free cash flow in the range of 13 million to 15 million in 2016 including 3 million to 3.5 million of capital expenditures to support the maintenance and continued factory capacity expansion.
Based on the aforementioned projections, we are expecting year-end cash, cash equivalents, and marketable securities of 87 million to 89 million. I will now turn the call over to Tony to comment on business highlights for 2015 and expectations for 2016..
Great, thank you Jon. 2015 was clearly a great year for our company. As I close in on the completion of my first year as CEO I am especially proud of the extraordinary efforts by all our employees worldwide to deliver an outstanding year in terms of performance well ahead of our projections from a year ago.
As reported today, we had record sales of our bio-processing products of 83.5 million, an increase of 47% over 2015 at constant currency. We also grew our adjusted EPS by 67%.
Our record performance is attributed to three main factors, strength in the biological drug market, across the board growth and adoption of our proprietary products, and expansion of our commercial organization and global footprint.
More importantly we’ve established the Repligen brand throughout the biologics manufacturing industry representing technology leadership in both upstream and downstream production, innovation in driving more efficient and flexible manufacturing, and a relentless focus on improving customer service by providing a high level of customized support for our end users.
Looking back to the beginning of 2015 we set up care priorities for the business specifically accelerating sales and market adoption for our bio-processing products, expanding our commercial presence, investing in operations and driving gross margin expansion, and finally developing and launching new products.
We still have areas where we can improve, but overall we did a very good job executing against these priorities. So let me drill down on the performance of our various product lines. During Q4 we saw an acceleration and adoption of our ATF product portfolio as customers scaled up and implemented the ATF Systems in late stage and commercial processes.
Our ATF business finished the year north of $15 million in revenue, representing greater than 40% growth over an annualized 2014 number. This reinforces our position that the ATF technology is increasingly becoming an industry standard when it comes to improving cell culture fermentation yields and streamlining cell harvesting.
The performance of this product line also validates our decision in June 2014, to acquire, refine, and transform our product with the strong technical reputation into a market standard.
For example, we had many customers specify ATF into commercial processes throughout 2015 and equally important we observed a greater than 30% increase in the adoption of bench-top units, a leading indicator of the strong acceptance of the product in the marketplace.
The momentum has continued into Q1 and while the full year-on-year comparison is challenging, we do expect modest growth along with further adoption and scale up of ATF throughout 2016, which will be bolstered by the launch of family of single use systems as we progress through the year.
Now as highlighted many times throughout 2015, the performance of our Protein A ligands business was very strong with double-digit year-on-year growth in Q4 and overall growth in excess of 20% for the full year, well above the historical average. As you know, our Protein A ligands business is closely tied to the strength of the biologics market.
We clearly are excited by the approval of 17 monoclonals throughout 2014 and 2015 compared to 17 in the prior five-year period along with the maturing of the biosimilar pipeline into Phase 3 trials and commercial approval.
We expect to see continued high single-digit to low double-digit growth for our ligands business throughout 2016 and we are pleased to announce that we have reached agreement with GE Healthcare to extend our long-term supply agreement for key ligands manufactured at our Lund, Sweden facility which was expiring at the end of this year out now until the end of 2019.
We are also pleased to announce that we have reached agreement in principle with Merck Millipore to extend our supply agreements out to the end of 2023.
These long-term commitments are a strong endorsement of our world class operations, leadership, and expertise along with our commitment and ability to plan, manufacture, supply and support a critical product to the bio-processing industry.
Moving now to our growth factors, this product line had strong Q4 and full year performance as customer demand increased.
Our commercial partnership with Millipore-Sigma formerly Sigma-Aldrich continues to strengthen and we are very focused on targeting the cell culture and media development labs to increase overall adoption and implementation of our products.
We saw an uptick in the number of customers evaluating growth factors in the second half of 2015 as our collective commercial organizations increased their focus on pipeline development. We expect another good year for growth factors in 2016 as we expect to see a number of customers scaling up and expanding their commercial operations.
Our OPUS pre-packed chromatography business continues to accelerate and we are gaining global market share with over 40% of our revenue now coming from outside of the U.S. We believe our value proposition in replacing glass columns with pre-packed columns is resonating with our customer base.
As mentioned on our third quarter call, our expanded commercial organization has helped the market adoption beyond our core CMO customer base to large pharma accounts. In fact in 2015 we had greater than 50% increase in revenues from large pharma.
A small but growing number of these large pharma customers are now beginning to commit to going 100% to pre-pack columns. In light of these developments we are adding more capacity for OPUS with new production suites expected to come online mid to late this year.
We’ve also executed on building out our commercial organization which has tripled in size since early 2014. As noted in Q3, this team's performance was especially strong in the second half of the year as we expanded our reach within each of our customer markets.
With over 50% of our direct product sales outside the U.S., we plan to increase our investment in field applications and direct sales people in Europe and Asia throughout this year.
In parallel, I am especially pleased with the progress we have made on establishing the Repligen brand as we kicked off this year with the transformation of the Repligen website with a renewed focus on bio-processing applications, technology innovation, and a much more intuitive approach to understanding the value proposition of our products.
In 2015 we also embarked on multiple initiatives to strengthen our operations and build an internal foundation for future growth, including our ability to efficiently integrate new potential acquisitions.
We’ve started work on simplifying our supply chain, improving our quality, and streamlining overall manufacturing processes using lean based manufacturing principles.
We added leadership and depth to our operations team, we increased managed capacity for ligands, ATF and OPUS product lines and this operations team delivered over 400 basis points improvement in gross margins. Finally in R&D we launched our OPUS 60 product in 2015 and made a strategic decision to not launch a new Protein A resin.
Our single use ATF family of products has been slower to complete development than anticipated. So 2016 will be above acceleration of our product development pipeline as we build out our expertise in device developments and manufacturing.
So as we look to 2016, our strategic priorities are centered in four areas; continued investment and expansion of our commercial organization, accelerating the global market adoption of our proprietary products, improving operational effectiveness with the focus on capacity, supply chain, and quality, and finally strengthening our core businesses through acquisitions and strategic partnerships.
We are off to a very strong start and we see robust growth in all of our markets. We believe that our innovative portfolio of products are increased brand recognition and the extension of key long-term supply agreements for Protein A ligands has formed a strong base for us to execute on our growth initiatives in 2016 and over the longer term.
I’ll now turn the call over to the operator to open up the lines for Q&A period. .
Thank you. [Operator Instructions]. Our first question comes from the line of Drew Jones with Stephens Inc. Your line is open. Please go ahead. .
Thanks, good morning all. .
Good morning. .
Wanted to start with OPUS. It sounds like lot of good things going on there.
The large pharma partners, I guess how big is their average order and are those going to be your customers that are going to be putting the media to you on consignment?.
Yes, great question Drew. When we look at our pharma partners, clearly 2015 was a year where we were able to move beyond our core CMO base. And so when we are looking at now these pharma customers they are talking about 10s of columns a year and maybe even more than that.
It just depends a little bit on each customer and the number of campaigns that they want to run in a given year. And I think its split in terms of who will consign versus where we go ahead and procure ourselves. So that’s a customer by customer basis that we will make that decision. .
And what is the capacity increase you guys are shooting for?.
Well we are going to add basically two more suites so we’ll double the overall capacity in terms of physical space. But one of the other things we are doing is we want to use the capacity to drive down lead times. So we’d like to get our lead times down to even shorter than where they are today. .
Okay.
And then on the new agreements with GE and Merck Millipore, anything new with those agreements or is it the same price-volume discounts we've been seeing?.
Yes, they’re very similar to what we've done in the past. Obviously, the negotiations are always around price volume and we're very excited obviously that we've extended both agreements out to -- one to the end of the 2019, the other to the end of 2023. But very typical terms, very similar to what we've had in the past. .
And then last one from me.
You talked about the strength in ATF and the fact that you still expect growth in 2016, how much tapering is there from the legacy stainless steel product as the disposable comes on?.
Yes, good question. So the way we look at 2016, we've started off the year strong with orders on ATF. As we get into the second half of the year we just don’t have as much visibility so that’s -– we're being cautious in terms of where we are and overall growth, we expect we’ll have a good year.
But overall I think when we launched the single-use product we believe though the -– that the customers who were going to adopt the single-use product are going to be using it in pre-clinical Phase 1 type opportunities. So this year is all going to be about exceeding the market and when we get into 2017 I expect to see a ramp up.
Don’t expect to see a whole lot of cannibalization of the stainless steel business. .
Thanks, guys. .
Thank you. Our next question comes from the line of Matt Tiampo with Craig-Hallum. Your line is open. Please go ahead. .
Good morning, gentlemen and congratulations on a nice finish to the year. I just wanted to ask, seems like gross margin ticked down pretty meaningfully in Q4, maybe a little bit more than we would’ve expected.
Can you give us some sense for what the mix was like and what else might have caused that?.
Sure, Matt. This is Jon, I’d be happy to answer that question. Actually, yes we had a really, really strong year in gross margin in 2015 and we did see a little bit of a deceleration similar to what we saw in 2014.
And basically one of the dynamics that happens in our business in the fourth quarter, we have a higher amount of time off and factory downtime as we retool the factory. And so that was one of the bigger factors in the lower margins. We didn’t have as much throughput through the factory in the fourth quarter.
The other dynamic, there was some dynamic of product mix but that was to a smaller extent than the downtime. .
Okay, great. And then…..
And we expect as we go forward that we will, obviously the margins will ramp back up into that 57% to 59% range. .
Great, thank you.
And then as I think about seasonality through 2016, should we think about -– in terms of the mix of business coming in and out in a similar fashion to 2015, is that the right way to think about the year on a quarterly basis?.
Yes, I think that’s the right way to think about the year. .
Okay, great. And then just finally for me, if you could give us a maybe a little bit of a sense of capital allocation in 2016 and what your thoughts are and what your sort of -– how you would rank the different options that are out there in front of you? Thanks. .
Sure, sure. So first and foremost we are going to continue to reinvest in the business to support the future growth that we're expecting to see. Also I think of equal importance really is M&A and we continue to be active on the M&A front looking for opportunities and that’s a really, really high priority for us next year.
We will be reinvesting in CAPEX as we talked about but that will be not significantly above where we were at this year but a little bit above this year. .
Great, thanks, guys. .
Thank you. Our next question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is open. Please go ahead..
Hi Tony, could you talk about OPUS a little and then I know you were doing single shipments and you were maybe seeing a move towards multiple orders per customer or multiple OPUS units per customer, is that still -– do you see that improving, accelerating on OPUS?.
Yes Paul, absolutely. So I think one of the things that really has helped us in 2015 and as we go into 2016 is the expansion of the commercial organization. So we have been able to now broaden our customer base in both the U.S. and in Europe. We’re seeing an uptick in Asia as well. Really pull through from the strength that we have in ATF.
So as we broaden the customer base, the opportunities to get into more processes and to ship multiple columns is absolutely the case. So when we look at our top customers it's not one or two columns it is probably 5 to 10 columns per year that we are shipping to those sites.
And as I said a little earlier it depends a little bit on the number of campaigns that a customer would run in a given year. So if you are a CMO there is a kind of a fix set of campaigns they run.
When you start to get into the large pharma accounts clearly if we can move into their preclinical Phase 1, Phase 2 opportunities, the number of columns goes up significantly.
So we’re pretty pleased of all this as we have kicked off this year, that we have a number of customers now that are asking about going a 100% committing to our pre-pack column. So that’s exciting for us and that’s what spearheading our investment in manned capacity and physical capacity for OPUS. .
And then on your distribution channels, you talk about Asia more it seems every call but is it adding sales people within the organization, is it Asia Expansion.
I mean what are your top three most important channel moves this year Tony?.
Yes, I think it is -- obviously the distributors that we’ve brought on have worked out really well for us and we have put Repligen people into Asia as well and that’s also played a big part in our success in 2015.
It is clear to me that we need to continue to add more people into Asia and we think that the right balance of applications, people to support the customers especially on ATF evaluations and implementation, this probably is our number one priority.
So we’ll be looking at China and Korea as the two areas where we want to add in the applications people and additional sales people. We have a very strong distributor in India and so we think we can manage that territory quite nicely through the folks that we have on the ground right now. .
And lastly does it matter to you Tony if the biosimilars are expanding or are they still willing -- are they still in the same price point you want to have?.
Yes, so for us the biosimilar story is really strengthened the biologics market.
So whether it is an originator molecule that moves through Phase 3 into approval or it’s a biosimilar, we’re agnostic because from a Protien A ligand point of view its purely a volume play and so we will ship to our top two customers in GE and Millipore, the same amount of Ligand to do purification of a biosimilar as it would be to do with the purification of an originator molecule.
So we like the fact that the biosimilar market continues to mature and it is exciting to see biosimilar is coming through now for a final approval and I think that’s going to help the overall growth in the market going forward. .
Thank you. .
[Operator instructions]. Our next question comes from the line of Brandon Couillard with Jeffries. Your line is open. Please go ahead. .
Thanks, good morning.
Just back on the M&A pipeline, I mean do you feel like we are any closer today to potentially find a suitable asset than we were perhaps three or six months ago and what you really view as the primary guiding factor, is it valuation or finding the right asset?.
Yes, it’s a great question. So I’d say since mid 2015 I personally have been very focused on driving the M&A strategy for the company and I think we made a lot of progress. We have an active pipeline of targets that we are working with. I can't really speak to timing of when a deal there may not get done but we are making progress.
I don’t think it is an issue. Well, every company that you deal with there is always a valuation piece but I think it is just a matter of getting the targets that we’re interested in getting deals done with to a point where they are comfortable with getting a deal done with Repligen.
And that’s really what we are working towards and you know it is our strategic priority for this year and our goal is to get some deals done this year for sure. .
And then one for Jon, could you give us a sense of operating cash flow for 2016? And then secondly, do you expect to actually pay out the milestones to refine this year and I think the max was about $11 million, will that fall in 2016 or 2017?.
Sure, sure. So I’ll touch on the refined question first, your contingent consideration. So we paid out a -– it’s a three-year program, obviously we paid out in the first quarter of 2015 the $1 million earn out that occurred for the 2014 year.
And the 2015 year we achieved the full maximum amount of payout and will be paying out another $4.35 million in the first quarter of 2016.
We accrued $2 million towards the 2016 milestone in Q4 and there are additional amounts of about $2.25 million to $3.55 million that we could payout if our sales actually hit the lower end to the high end of the milestone schedules.
So we can’t really say right now whether we're going to hit those milestones or not, but right now we're accrued to about 48% of the lower end of the milestone which gives you the level of confidence that we think we’ll be able to hit that milestone.
In terms of cash flow, we guided basically a few minutes ago that we have a good solid forecast for next year and we expect to generate about $13 million to $15 million of free cash flow and spend about $3 million to $3.5 million obviously in CAPEX. So the total next year finishing around $87 million to $89 million is our expectation.
Obviously, that excludes any M&A activity. .
Got it. Sorry I missed that. Alright, thank you. .
Thank you. [Operator Instructions]. And I'm showing no further questions at this time. I’d like to turn the call back over to Sondra Newman for any closing remarks. .
Okay. Well, thank you all for joining the call today. As you process all the information and if you have any questions please feel free to reach out to investors@repligen.com. Thank you..
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a great day..