Sondra Newman - Senior Director, IR Tony Hunt - President & CEO Jon Snodgres - CFO.

Brandon Couillard - Jefferies Drew Jones - Stephens Paul Knight - Janney Matt Tiampo - Craig-Hallum.

Good day, ladies and gentlemen and welcome to the Repligen Corporation's Fourth Quarter Full Year 2016 Earnings Conference Call. My name is Shannon and I will be your coordinator. At this time, all participants are in a listen-only mode. Please note that 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..

revenue growth at constant currency; adjusted gross margin; adjusted operating income, adjusted net income, adjusted fully diluted earnings per share, EBITDA and adjusted EBITDA.

While these adjusted financial measures should not be viewed as an alternative to GAAP measures, the company believes that the use of these non-GAAP measures better enables investors to benchmark Repligen’s current results against historical performance and the performance of peers and to evaluate investment opportunities.

With that, I will turn the call over to Tony Hunt for a business update..

Thank you, Sondra. Good morning everybody and welcome to our year end update. Before jumping into the performance in Quarter four and full year 2016, I want to spend a few minutes covering our strategy and execution over the last few years.

2016 was a milestone year for the company, surpassing a $100 million in revenue in our fifth year as a pure play bioprocessing company having transitioned away from higher [ph] therapeutics back in 2012.

Over the last five years, we’ve focused our efforts on developing and acquiring best-in-class technologies that has enabled meaningful efficiency gains in the production of Biologics. We’ve built out our infrastructure and operations, both internally and externally.

We’ve invested in our people, bringing in top industry talent and a first class global commercial team.

These investments have resulted in strong and consistent double digit revenue growth and multiple new product lines through internal R&D like our large scale OPUS 45, 60 and OPUS.com [ph] and single used versions of our market leading XCell ATF systems.

We have also executed on three strategic acquisitions since 2014 by the strength in our direct to customer portfolio and positioned us well in the market as single used and continuous processing technologies gain further traction.

All three acquisitions are a strong set with our business and we have successfully leveraged the commercial team and infrastructure to accelerate the growth in the adoption of these assets.

Driven by this combination of internal innovation and acquisition, we have established the Repligen brand to represent both technology leadership and the primary customer experience in the world of higher processing.

Most importantly, we have pivoted the company, saw a direct to customer product portfolio has grown over six fold and now represents approximately 50% product revenue in 2016 compared with only 20% in 2012.

Looking back now to the beginning of 2016, we defined some clear goals around long term supply agreements, capital financing and allocation, new product introductions and M&A. I am proud to say that our company of now 235 employees has achieved these goals.

We first renewed our long term supply agreements for our core Protein A business with GE and Millipore Sigma with extension through 2019 and 2023 respectively. We raised over $100 million in a convertible bond offering in May, which set us up well for internal investments and M&A activity.

We executed on two acquisitions in 2016 acquiring Atoll GmBH in April and TangenX in December. Atoll strengthens our chromatography business by expanding our leadership position in pre-packed columns while TangenX strengthens our filtration business by expanding our acquisitions [ph] into downstream filtration.

We launched two new product families in quarter three and quarter four with the introduction of single use XCell ATF systems to align with single use in continuous work flows and the introduction of OPUS R technology enabling the recovery of high value chromatography resin from our pre-packed columns.

Finally, we exceeded our expectation on revenue and overall growth targets for the company and the year. So, moving now to quarter four and full year 2016 performance, as reported today, we had strong sales of our bioprocessing products. Our full year sales of $104.5 million increased 25% year-over-year following the exception we saw in 2015.

As the number of product lines that we offer continues to increase, going forward here in 2017 our commentary will be on our three businesses, chromatography, filtration and Protein. Our chromatography business includes our pre-packed columns, our Protein A resin and ATF [ph].

OPUS was one of the main drivers of growth in both the quarter and for the year with particularly strong demand for 45 centimeter and 60 centimeter columns. Regionally we saw increasing sales in Asia and in the Americas in the quarter with all three regions including Europe performing well for the year.

We continued to see strength in our core CMO and large pharma accounts with basically a 50:50 split for the quarter and for the year. We are also encouraged by the increasing number of key accounts who have platforms on this technology.

Probably most encouraging was the overall columns demand in quarter four where we delivered close to the same number of large scale columns in the quarter as we shipped in the whole of 2015.

This acceleration supports our decision to expand our production capacity in quarter three and we are pleased that we are on track to add two more production suites here in Q1, 2017.

The addition of OPUS R to the portfolio has been well received by our customers who value the ability to recover chromatography resins from our large columns and we will be shipping OPUS R columns by the end of this quarter.

The OPUS PD product line which we acquired from Atoll GmBH back in April also had good performance for the quarter right in line with our dual model for the nine months of ownership in 2016.

Our customers are benefitting from a combination of our larger OPUS coloumns and the smaller OPUS PD coloumns for early scale up, screening and validation studies. Our chromatography business approximately doubled in 2016 led by the OPUS portfolio which grew well over 100% for the year.

We expect another strong year for OPUS and strong double digit growth for our chromatography business here in 2017. Our filtration business includes our XCell ATF and TangenX products. Having acquired TangenX in mid-December our filtration business was essentially ATF in 2016.

We had a solid fourth quarter for ATF and strong double digit growth for the year which was very encouraging giving the strong performance of the product line in 2015. Most encouraging about the quarter and the year was the increased demand for small scale systems and consumerable filtrate where we absorbed almost 50% growth.

This gives us confidence around our future funnel and bodes well for adoption of a single use XCell ATF systems currently available in small and mid scale sizes.

The newly introduced XCell single use ATF products performed well in the quarter and we believe this demand will continue to accelerate as we go through 2017, where the barrier for trial and adoption are lowered due to the easy use of the single use product line.

In addition to the XCell ATF filtration line used in upstream processes, our acquisition of TangenX as the single use TFF filtration product line used in downstream formulation and drug concentration to our portfolio.

In 2017 we expect these single use TFF products to contribute $7 million to $7.5 million in revenue and overall we expect strong growth for our filtration business in 2017. Moving now to our Proteins business, which comprises our growth factors in Protein A ligand products.

As a reminder, we saw growth factors through an OEM distribution agreement with Millipore Sigma and Protein A ligands through long term supply agreements with GE healthcare and Millipore Sigma primarily. For growth factors we recorded strong growth in the quarter and for the year similar to the previous year.

We have benefited from commercial biological drug sales utilizing growth factories, development of NextGen commercial processes for onmarket biologics and the platforming of the technology at specific accounts.

Following a record performance here for Protein A ligands in 2015, this line was essentially flat for the quarter, for the year as [Indiscernible] excess inventory due to slower than anticipated sales of major drugs approved in the prior year.

The encouraging news is that Protein A ligands forecast from our customers have improved here in Q1, 2017 and that there is a healthy pipeline of monotonal [ph] antibodies in the queue for approval with ten in review and over 30 in phase three clinical trials as we entered the year.

So overall we expect mid single digit growth from our Proteins business here in 2017. In summary, we had a successful 2016 and we are excited about our growth prospects for 2017.

Our investments in our direct-to-customer chromatography and filtration businesses continue to pay off and our expectation is that these businesses will be major targets of growth for the company in 2017.

So moving over to our commercial expansion plans, as discussed throughout 2016, we continue to invest in our commercial team and our plan is to add sales and field application specialists in the first half of the year in North America and Europe where there is accelerating demand for our products.

[Indiscernible] you can expect, see continued new product offerings as we complete our single use ATF portfolio with a technical launch of a single use ATF-10 our largest ATF systems towards the end of our first half 2017. This year, our strategic priorities will be centered on four areas.

Continuing investment in expansion of our commercial organization and global footprint, accelerating the global and markets adoption of our proprietary products including our recently acquired TangenX and Atoll portfolios, improving operational effectiveness with a focus on delivery times and gross margin optimization.

Strengthening of our core businesses through acquisitions and our strategic partnerships. We were off to a good start in 2017 with a healthy pipeline of opportunities in each of our businesses.

We will continue to execute on our strategy of launching great products through internal development and strengthening our position in the market with bolt-on acquisitions that provide breadth and depth to our current portfolio of products and positions us well for long term growth.

We have made huge strides in transforming the company to a direct-to-customer bypassing company and 2017 will be another big step for us in solidifying our market position and growing a leading brand in the bioprocessing industry. I’ll hand it over to Jon for a finance update..

Thank you, Tony and good morning everyone. Today, we are reporting our financial results for the fourth quarter and full year 2016 as well as providing our financial guidance for the year 2017. As a reminder, we will be discussing our results and projections using non-GAAP financial measures with respect to our performance.

We used these non-GAAP indicators for financial and operational decision making and as a means to evaluate our performance.

As we move into the financial discussion, please recall that we closed on the acquisition of TangenX on December 14 and our fourth quarter and full year 2016 non-GAAP financial statements includes approximately $120,000 of TangenX revenue recorded before the end of the year of holiday shutdown period.

The acquired business incurred a small loss in the fourth quarter due to timing of the acquisition we considered diminimus through our overall results. Now moving to our fourth quarter of 2016 adjusted non-GAAP financial results. Our financial results for the fourth quarter of 2016 were highlighted by strong sales of our bioprocessing products.

We are reporting total revenue of $25.6 million, an increase of 19% as reported and 21% at constant currency compared to the fourth quarter of 2015. Our gross profit for the fourth quarter was $13.4 million, an increase of $2.1 million, or 19% over the fourth quarter of 2015.

Our gross margin was 52.5% for the fourth quarter of 2016 compared to 52.7% in 2015.

The change in year-over-year gross margin is a result of product mix, predominately driven by strong sales of OPUS pre packed coloumns, inventory step up charges from our TangenX acquisition and from operational investments made in our facilities to support the growing demand for our products.

Adjusted operating income for the fourth quarter of 2016 grew to $3.8 million, an increase of $0.4 million or 11% compared to the fourth quarter of 2015.

The year-over-year increase was driven by margin pull-through from our sales growth partially offset by additional product development and validation investments for single-use ATF systems and OPUS R as well as investments in our sales and marketing teams to continue to fuel ongoing growth. Fourth quarter adjusted operating margin was 14.8%.

Adjusted net income for the fourth quarter of 2016 was $2.6 million compared to $2.2 million for the same period in 2015. An adjusted EPS for the fourth quarter of 2016 was $0.08, an increase of $0.01 compared to the fourth quarter of 2015.

Adjusted EBITDA for the quarter of 2016 -- fourth quarter of 2016 was $5.4 million compared to $4.3 million for the same period in 2015. I will now report on our full-year 2016 results where we have driven strong revenue growth and operational performance.

For the full-year of 2016 we are reporting product revenue of $104.5 million, an increase of 25% as reported and 26% at constant currency compared to $83.5 million reported in 2015. Major driver of our growth in 2016 was our chromatography business with solid contributions from our filtration and protein business.

Full-year 2016 adjusted operating income grew to $21.4 million, an increase of $3.6 million or 20% compared to 2015. The year-over-year increase was driven by margin flow-through from sales growth partially offset by investments in new product development and validation and in sales and marketing. Full-year adjusted operating margin was 20.5%.

Full-year 2016 adjusted net income was $15.1 million, an increase of $1.7 million, or 13% compared to the same period in 2015. Full-year 2016 adjusted earnings per diluted share were $0.44, an increase of $0.04 from the same period in 2015.

Adjusted EBITDA for the full-year 2016 was $25.9 million compared to $22 million for the same period in 2015, reflecting an increase of 18% over the prior period. Our cash, cash investments and marketable securities at December 31, 2016 were $141.8 million. Now moving to 2017 full-year guidance.

Please keep in mind that our 2017 guidance may be impacted by fluctuations in foreign exchange rates beyond our current project headwinds, 2% on sales, and does not include the potential impact of new acquisitions.

As we move into 2017, we will be excluding non-cash and tangible amortization expenses from our non-GAAP financial statements as we believe this change enables us to more appropriately reflect the true operating performance of our company.

Starting with our first quarter of 2017 earnings report, our GAAP to non-GAAP reconciliations will include adjustments for intangible amortization. Unless otherwise mentioned, all 2017 financial measures will be reflected as adjusted non-GAAP.

For your models per data [ph] we’ll also provide you with the 2016 information update related to the effects of adjusting intangible amortization and the associated tax implications. For the full year 2016, intangible amortization totalled $2.1 million, with $0.6 million included in cost to goods sold and $1.6 million included in SG&A expenses.

An increase in tax expense was $0.4 million should be apply to the adjustment of intangible amortization as a partial offset to the income improvement in your models.

This equates to an adjusted operating income impact of plus $2.1 million and adjusted net income of plus $1.7 million and an adjusted EPS impact of plus $0.05 compared to what we have reflected in our GAAP to non-GAAP reconciliation tables in today’s earnings press release.

For full-year 2017, please refer to our earnings release which was filed with the SEC today, which outlines the details of all of our non-GAAP exclusions which include intangible amortization expenses, acquisition expenses, non-cash interest expenses and unfavourable adjustment for income tax expense.

These adjustments combined to a non-income operating income impact of plus $3.3 million and a net income impact of plus $6.8 million, which translates to between $0.19 and $0.20 per fully diluted share of EPS for the year 2017.

Today, we are setting our 2017 full year guidance for revenue at $121 million, $126 million reflecting growth in the range of 16% to 21% as reported, or 18% to 23% on a constant currency basis. Our adjusted gross margin guidance for 2017 is 55.5% to 56.5%.

Total adjusted operating income guidance for 2017 is expected to be in the range of $27 million to $29 million, or greater than 20% of revenue. We are guiding full-year adjusted cash interest expense of $2.4 million related to the full-year impact of our convertible debit financing.

We are expecting 2017 adjusted income tax expenses of $6 million to $6.5 million. Adjusted full-year 2017 net income is expected to be in the range of $18 million to $20 million, and full-year adjusted EPS is expected to be in the range $0.54 to $0.59.

Adjusted EBITDA is expected to be in the range of $31 million to $33 million for the year 2017, with depreciation expenses in the range of $4 million to $4.5 million. The company expects to spend $6 million to $7 million in capital expenditures to support maintenance and continued factory expansion in 2017.

We're expecting 2017 year-end cash, cash equivalents and marketable securities $150 million to $152 million. This completes our financial report and I will now turn the call back to the operator to open the lines for questions..

Thank you. [Operator Instructions] Our first question is from Brandon Couillard with Jefferies. You may begin..

Thanks. Good morning. Appreciate all the detail there. Tony, just in terms of the Protein A business, is your visibility gotten better sort of over the last several weeks. Do you seeing the point of an approving forecast from GE and Millipore, your partners there.

And is it fair to say that you contemplated sort of a low single-digit growth outcome for that side of the business this year?.

Yes. Overall as we discussed in prior calls, the ligands business was a lumpy business in 2015 and we definitely saw inventory burn off at both our customers and their customer end users, but for sure as we moved through Q1 the forecast have strengthened and so we’re encouraged by that.

And I think we’re also encouraged by the fact that the pipeline of mAbs that are up for approval is still very healthy. So, yes, I think in terms of mid single-digit growth for that overall business is what we’re anticipating..

And then, one for OPUS, you point that adding to new productions suites in the first quarter here. At some point will it become more realistic or more -- or let’s say at some point would you begin to think about shifting production capacity more into the local markets outside of the U.S.

closer to customer base in Europe and Asia? And as you add additional capacity, is any additional value you can extract from perhaps allocating some of that capacity to a few of the larger customers that have platform on OPUS, those are wide adoption?.

Yes. Its clearly, 2016 was a milestone year for the chromatography business and for OPUS in general. And I think our number one goal last year was to drive down lead times as the demand security went up significantly.

So, when we brought on the two new suites in September that was to really drive down the lead times from where we were in mid year to where we ended up at the end of the year. Now we’re right now down into single-digit weeks [ph] as lead times for the product, so its come down pretty significantly.

So adding in the two new suites that we’re doing right now is adding further capacity for us, its giving us more flexibility for those large customers that you refer to, so we would be able to use those suites in a way that we can use it for specific accounts or for opportunities that are going to crop up with very short lead times.

So, it’s giving us a lot more flexibility. And for sure as we look towards the rest of this year and into 2018 our goal would be to put some production suites into Europe. Right now, I think we're doing a really good job of getting the lead times down to where they need to be.

So we’re scheduled to put in those production suites by the end of the year, beginning of next year and that's kind of the plan as we start 2017. But, yes, I think that's really a quick update on that..

And this one for Jon, you spiked out the TangenX’s revenue contribution late in the fourth quarter.

Give us the total revenue impact from M&A which I guess would include Atoll both in the fourth quarter, and then what you contemplated in the guide for 2017?.

Sure..

And get an organic number?.

Yes. We gave you the guidance for Atoll was early on the year $3 million to $3.5 million was comfortably within that range for this year and next for revenue should give you one-third of point. TangenX should have 120,000 for the year. And then we had guided separately the TangenX’s business to be between $7 million and $7.5 million for 2017.

So – and we expect the OPUS PD product line from Atoll business to grow in double-digits..

Great. Thank you..

Thank you. Our next question is from Drew Jones with Stephens. You may begin..

Thanks. Good morning, guys..

Hi, Drew..

Good morning..

Just looking at the margins a little bit and understanding there are lot of moving pieces especially that pertains to OPUS.

Has the incremental capacity for OPUS had an impact on margins there, or is the growth that’s not having an impact?.

Yes. So it has had an impact. We’ve added basically CapEx into our facilities, so we’ve added some additional depreciation cost. We’ve added personnel as well as we’ve expanded to a second shift. And really we’re trying to stay ahead of the growth curve on OPUS. So, it's definitely the cost had some impact. The mix had some impact.

Though in the fourth quarter we typically have, also as we’ve spoken about in prior years, some effect from year-end shutdown periods and that type of thing and as we go forward we’re optimistic that we can drive a little margin expansion this year and we’re guiding between 55.5% to 56 5%.

And the challenge with OPUS is really, as customers account [ph] the product line having them basically first procure the resin where they get bigger discounts when we do on the resin, plus ship that resin to us and thereby improving our mix of columns versus resin mix.

And so, that’s one of our key areas of improvement this year and we’re expecting to see some benefit from that..

And then, when you guys announced TangenX, you talk a little bit about the constraint being on distribution sales force, as you plugged it into your commercial organization where is the kind of easiest cross-sell, is it your OPUS customer or somewhere else?.

No. It’s definitely the OPUS customer because TangenX technology, the TFF single-use product line, it’s the next step after the OPUS column, so it's a natural sort of stuff call point for our sales reps.

So they can talk to their customers about OPUS and then there's a conversation that can happen around concentration of the mAb or the protein both the third column in the process.

So, the good news is, as we obviously built out our commercial organization over the last three plus years, many of the people that we’ve brought on board have filtration background. So this is an easy fit for them and adds quite nicely into the portfolio. So their experience works and I think the call point works for us..

Thanks guys..

Thank you. Our next question comes from Paul Knight with Janney, You may begin..

Hi, Tony, can you talk about market uptake on the polymer version of ATF and that rollout what September occurred?.

Yes. So, we launched the Single-use version of ATF. We launched the Single-use ATF 2 and ATF 6 in September, and we hit exactly what we were forecasting for the years.

So we actually had very good traction in Q4, and we think that the advantage of the Single-use product is clearly around ease-of-use and ease-of-implementation, and that’s what the customers are experiencing.

So again, this year we expect that we’ll continue to see good uptake in Single-use sales and obviously launching single-use ATF 10 gives us the full portfolios. So customers who are buying and implementing at two or six have a path forward to a 10 and late clinical or commercial scale processes.

So, we expect obviously not a huge amount of revenue from Single-use in 2017, but clearly as we go through the next two, three, four years it's going to be one of the major drivers of growth for that product line..

And then, looking at the Atoll and TangenX acquisitions, are they able to be tucked into your existing sales force or is that why you need to add more people could you talk about the level of synergy you're getting from these acquisitions.

Is it a new sales force you’re having to build kind of you talk to the possible synergy in the distribution part of the business?.

Sure. Let’s start with Atoll. Clearly the Atoll which is now OPUS PD which is small-scale column fits very, very well with our overall OPUS portfolio and is a natural call point for our sales team. So, instead of talking to the, let’s say, the manufacturing organizations with the OPUS PD, our product line is ready with process development groups.

And for TangenX as I said a few minutes ago, it's a natural fit with the OPUS call point as well as our sales books are talking to the exact same end user.

I think the -- when we look at our overall business the addition of the sales people is really not necessarily due to the impact of Atoll or TangenX, it's just really the acceleration that we’re seeing of our direct to customer products and so as I sat down in Q4 and started to look at our - at the regions and at the territories we could see areas in North America and in Europe where we had significant amount and needed more feet [ph] on the street.

So that's really the rationale around adding salespeople. The field applications folks are coming in really to have more of the technical conversations with our customers. So as our product line gets a little bit more complex and complicated.

As you go from pre-packed columns to selling ATF Systems for perfusion or for hybrid perfusion processes and now talking about TFF platforms down in the purification workflow.

They become a little bit more technical in terms of the conversations and require a combination of sales and field applications, people to have the right interactions with our customers.

So again, I think we signal this last year that we would be adding in field applications people, and again North America and Europe is where we’re adding FAS and we’ll be adding a person into Asia as well to support the growing business there..

And then, my last question, Tony, as the Samsung and [Indiscernible] expansion, the huge expansion of what they’re doing in the Asian market.

Is that good for your business or what’s the effect of what they're doing?.

Yes. In general the Asian market has been -- has done very well over the last few years. Though we've gone from almost a standing start with very little revenue to now 8% to 10% of the revenues of the company are coming for Asia. So you can see the progress we've made.

And I think when you look at companies like Gucci [ph] and Samsung and there are other companies over there as well that are expanding. That’s good, that’s good for bio-processing. It’s is good for Repligen especially if you have your products in their workflows..

Thank you..

Thank you. Our next question comes from Matt Tiampo with Craig-Hallum. You may begin..

Hi. I just have quick ones. Congrats on the quarter and strong first year, but what was the mix within OPUS [Indiscernible 37:14] versus resin that you are procuring yourself as you guys did in 2016..

So, Matt, it hasn’t changed that much since our Q3 call.

I think back in Q3, we were – I think we signalled that it was around at 50:50 mix, and that’s where we ended for the year more or left and I would say as we go into 2017 where I expect that we’ll see a shift towards a 60:40 split, I’m not saying that that’s exactly how we’ll end up, but that’s really the direction we are going in as more large pharma and more multi column order comes through the national progression is for those customers to drop shift the resins to us and that’s definitely the trend we are seeing..

Okay, thanks very much..

[Operator Instructions] And I’m showing no further questions at this time. I’d like to turn the call back over to Tony Hunt for closing remarks..

Great. Just like to thank everybody for joining us and look forward to bringing up to speed in a few months on our Q1 results. Thank you..

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation. Have a wonderful day. You may now disconnect..