Sondra Newman - Senior Director of Investor Relations Tony Hunt - President and Chief Executive Officer Jon Snodgres - Chief Financial Officer.

Brandon Couillard - Jefferies LLC Matt Tiampo - Craig-Hallum Capital Group LLC Paul Knight - Janney Montgomery Scott LLC Steven Schwartz - First Analysis.

Good day, ladies and gentlemen, and welcome to Repligen Corporation’s First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Ms.

Sondra Newman, Senior Director of Investor Relations. Ma’am, you may begin..

revenue growth at constant currency, adjusted gross profit and 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, let me turn the call over to Tony Hunt for a business update..

Thank you, Sondra. Good morning, everybody, and welcome to our Q1 earnings call. As reported this morning, Repligen is off to a strong start in 2017, with top line revenue growth of 22% or 24% at constant currency, and with our organic growth coming in north of 10%.

Our chromatography and filtration businesses were the major drivers of growth in the quarter, with our two acquisitions of Atoll and TangenX from 2016, contributing significantly to the overall success.

As our commercial team gains more experience with these products, I’m especially excited about the expanded applications, new customers and cross-selling opportunities these products bring to Repligen. I’m also encouraged by the improving trends for our Protein A ligands business, which has a challenging year in 2016.

Overall, our outlook for 2017 remains positive and we’re reaffirming our full-year revenue guidance and increasing our EPS guidance today.

Before moving on to additional details for the quarter, I want to spend a few moments walking you through the progress we’ve made on two of our three – on two of our key strategic priorities for the year, namely market traction for the two acquisitions we made in 2016, and the expansion of our commercial organization.

So let’s start with the market traction for acquisitions. We acquired the Atoll business back in April of last year to expand our market share in pre-packed columns for high-throughout process development applications. This acquisition presented an opportunity to address new markets and customers beyond our large-scale OPUS portfolio.

A year later, I’m happy to report that our commercial team has made some significant inroads. The Atoll portfolio of robo [ph] many on validation columns, which now carry the OPUS brand name, delivered strong double-digit growth year-over-year and has opened new doors to cross-selling our production scale OPUS columns.

Another key benefit of the Atoll acquisition was the opportunity to establish Weingarten as a customer-facing hub for our direct products. This is now in place and we are shipping many of our direct products from our German facility today.

As we look to the rest of the year, we expect continued strong double-digit growth for our OPUS PD portfolio, as our sales and marketing activities gain momentum, and more customers become aware of our differentiated product offerings and process developments.

With TangenX, we’ve completed our first full quarter since acquiring the company and the integration has proceeded smoothly. The commercial team is now trained.

We have added field application specialists to drive customer valuations and we quickly integrated TangenX single-use TFF products into our marketing activities to drive new lead opportunities.

At our San Diego technology seminar in March, we showcased OPUS XCell, ATF and TangenX TFF products, with featured speakers from major biopharmaceutical companies and contract manufacturing organizations who shared their experiences using Repligen products.

To underscore the success of this seminar, greater than 25% of the attendees requested follow-up meetings to discuss opportunities for using Repligen products, including TangenX TFF cassettes at their companies. For the quarter, the TangenX business performed very well, with some good traction in Europe and the West Coast of North America.

The next two to three quarters will be focused on driving more customer valuations and expanding the market presence for the portfolio beyond North America. We are on track to achieve $7 million to $7.5 million in revenues for the TangenX product line this year.

So in summary, the Atoll and TangenX acquisitions strengthened our portfolio and gives us opportunities to cross-sell, as we now have much deeper product lines in both chromatography and filtration. Our M&A strategy is continuing to be focused on building out these two growing franchises. Moving now to expansion of our commercial organization.

On our February call, we discussed the importance of investing in our commercial organization and global footprint. Our direct-to-customer products have delivered growth north of over 100% in both North America and Europe over the last 12 months, as customers adopt our filtration and chromatography products.

With both our customer base and product portfolio expanding, we added five field specialists in Q1 and here again in Q2, three in sales and two in field apps to support this growth. We plan to hire an additional four field specialists across Europe and Asia in quarter two and quarter three.

This will support our efforts to expand the Repligen brand of building out new accounts and driving technical customer interactions in each territory. Moving now to our quarter one results. Our Chromatography business, which includes our OPUS pre-packed columns, our Protein A resins, and our ELISA kits had a very strong quarter.

The OPUS product line was again the main driver of growth for this business, with strength across the entire portfolio, highlighted by a record number of large-scale columns packed and shipped in the quarter.

Our message of no compromises when it comes to pre-packed columns is being heard, with our latest resin recovery feature on our OPUS R columns gaining traction in the quarter.

As discussed during our February call, we added two OPUS production suites in March, giving us a total of seven, and more importantly, driving down lead times for our customers. Our outlook for OPUS in 2017 remains positive, and we are on pace to ship 500 large-scale columns this year.

Our Filtration business, which includes our upstream XCell ATF product line and our downstream TangenX TFF product line also had a strong quarter. One of the highlights for the quarter was the increased traction for our single-use version of XCell ATF as an alternative to the stainless steel systems.

While the numbers currently represent a modest portion of total ATF system sales, we are encouraged by high interest in the single-use product and the increasing number of opportunities to adopt single-use ATF2 and 6 systems.

As planned, we expect to have the single-use ATF product in the marketplace by the end of this quarter, with first units shipped out to beta sites in Q1 and here again in Q2. Again, the ease-of-use features of the product is driving strong interest and we expect another good year for this product line.

Moving now to our Proteins business, which is comprised of our Protein A ligands and growth factor products lines that are sold through OEM agreements with our life sciences partners. For the first quarter of 2017, our overall Proteins business grew in the low single digits.

As discussed in our Q4 call, the demand for Protein A ligands, which makes up 70% to 80% of the Proteins business has been improving and our key customers have increased their forecast through the first-half of 2017.

Given the tough Q1 year-on-year comps for ligands, we are encouraged by the first quarter performance, which represents very healthy sequential growth from the fourth quarter of 2016. At the end-user level, there continues to be a strong commercial market for monoclonal antibodies and a healthy pipeline of over 300 mAbs in clinical development.

At the beginning of the year, there were 10 mAbs in queue for potential U.S. approval. And year-to-date, five new monoclonals plus one biosimilar have been improved by the FDA to treat a variety of difficult diseases, including MS and bladder cancer.

In summary, we are proud of the role we play in advancing biological drugs by providing products and technologies that enable manufacturing efficiencies.

We are very pleased with the performance of the company in Q1, and are confident in our ability to achieve the goals we have set for the remainder of 2017, which we expect to be another strong year for Repligen and the Repligen brand. I’ll turn the call over to Jon now to discuss our financial performance and outlook..

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

We use these non-GAAP indicators for financial and operational decision-making and as a means to evaluate our performance. As we indicated in our year-end 2016 earnings call on February 22, 2017, we are now excluding non-cash intangible amortization expenses and related income tax effects from our adjusted financials.

As we believe, these changes enable us to more appropriately reflect the true operating performance of our company. Our GAAP to non-GAAP reconciliations, including these adjustments for intangible amortization and related income tax effects are included in that GAAP to non-GAAP reconciliation tables in today’s earnings press release.

Unless otherwise mentioned, all 2017 financial measures discussed will be adjusted non-GAAP. Now moving to our financial results. We’re reporting first quarter 2017 revenue of $30.6 million, an increase of 22% as reported and 24% in constant currency compared to the first quarter of 2016.

As Tony mentioned, our strong first quarter of 2017 revenue performance was driven by growth in our chromatography and filtration product lines, which benefited from the acquisitions we made in 2016.

We were also encouraged by the performance of our Proteins business, where we reported modest growth in the quarter, despite very challenging comparable figures in Q1 2016. From a regional perspective, our Chromatography and Filtration businesses delivered very strong growth in all three regions of North America, Europe, and Asia Pacific.

As previously highlighted, we experienced a 2% net headwind in sales due to foreign currency fluctuation most significantly in our Proteins business, driven by weakness in both the British pound and Swedish krona versus the U.S. dollar. This 2% currency headwind is consistent with what we expect for the full-year.

Our adjusted gross profit for the first quarter was $16.7 million, an increase of $2.6 million, or 18% over the first quarter of 2016. Our adjusted gross margin was 54.7% for the first quarter of 2017 compared to 56.5% for the same period in 2016.

Our adjusted gross profit figures exclude intangible amortization charges of $138,000 in the first quarter of 2017 and $145,000 in the first quarter of 2016.

Key drivers of our year-over-year gross margin change include inventory step-up charges of $224,000, or 0.07% of sales related to our December 2016 acquisition of TangenX technology, increased depreciation and operating costs associated with our OPUS packing suite build outs, and a higher percentage of OPUS sales in our overall product mix.

It is important to note that inventory step-up charges were completely consumed in Q1, and we do not expect additional inventory step-up charges for the remainder of 2017. From an operations perspective, we are pleased to confirm that the OPUS suite build outs in our Waltham facility are complete and fully operational.

So now we have seven fully functioning packing suites available to drive down delivery times and support our expected growth of OPUS for the next couple of years. Now moving to operating expenses. Research and development expenses for the first quarter of 2017 were $1.7 million compared to $1.5 million for the comparable 2016 period.

Our increased R&D spend is a result of continued investments in our single-use ATF platform, another important product line extensions in development. Adjusted SG&A for the first quarter of 2017 was $8.2 million compared to $6.4 million for the first quarter of 2016.

The 2017 quarter excludes a combined $1 million of acquisition costs and intangible amortization expenses, and the 2016 quarter excludes a combined $0.7 million of acquisition costs and intangible amortization expenses.

Approximately 40% of the year-over-year increase in adjusted SG&A is related to expenses from Atoll and TangenX acquisitions that were not included in our prior year comparable figures. And approximately 50% of the increase is related to investments in our commercial organization, with the remaining 10% related to general business expenses.

Now moving to adjusted earnings and EPS. For the first quarter of 2017, our adjusted operating margin was 22.2%. Our adjusted operating income grew to $6.8 million, an increase of $0.5 million, or 9% compared to the first quarter of 2016.

The year-over-year increase was driven by margin pull-through from our sales growth, partially offset by continuing investments and operations and commercial teams to continue to drive and support ongoing growth. Adjusted net income for the first quarter of 2017 was $5.1 million, compared to $4.3 million for the same period in 2016.

And adjusted EPS for the first quarter of 2017 was $0.15 per fully diluted share, a 14% increase from $0.13 per share for the first quarter of 2016. Adjusted EBITDA for the first quarter of 2017 was $7.6 million, a 26% increase from $6 million for the same period in 2016.

Our cash, cash equivalents and marketable securities at March 31, 2017 were $141.8 million, consistent with year-end 2016.

Free cash flow for the first quarter reflected a utilization of $0.1 million as we paid off final contingent consideration liabilities to Refine and Atoll, and made payments for incentive compensation in the first quarter of the year. 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 projected headwind of 2% on sales and does not include the potential impact of new acquisitions.

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

This guidance represents our expectations for strong double-digit growth in both our Filtration and Chromatography businesses and mid single-digit growth for our Proteins business. We are maintaining our adjusted operating income guidance for 2017 of $27 million to $29 million, or greater than 20% of revenue.

Notably, we expect the benefits of higher sales volumes and global material sourcing and mix improvement programs to more than offset the cost of additional investments in our commercial organization, and operating infrastructure. We continue to guide to full-year adjusted cash interest of $2.4 million related to our convertible debt financing.

We are updating our guidance for 2017 income tax expense to a range of $5.5 million to $6.0 million, a decrease of $0.5 million from our previous guidance of $6 million to $6.5 million.

As a result of our lower guidance for income tax expenses, we are increasing our guidance for adjusted net income by $0.5 million to a range of $18.5 million to $20.5 million for the year, and raising our adjusted EPS guidance by $0.01 to a range of $0.55 to $0.60 per fully diluted share.

We are reiterating our guidance for adjusted EBITDA in the range of $31 million to $33 million for the full-year 2017, with depreciation expenses in the range of $4 million to $4.5 million.

Consistent with our previous guidance, the company expects to spend $6 million to $7 million for capital expenditures to support maintenance and continued factory expansion. And we continue to expect 2017 year-end cash, cash equivalents and marketable securities to be in the range of $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..

[Operator Instructions] Thank you. And our first question comes from the line of Brandon Couillard with Jefferies. Your line is now open.

Thanks. Good morning..

Good morning, Brandon..

Good morning..

Tony, could you just give us a sense of your view of the macro landscape in bioprocessing geographically? Any variations that you’ve seen regionally?.

Yes, I would say that Q1 hasn’t been any different than what we have observed in prior years. So 2016 in terms of strength in North America and Europe, obviously, we’ve had a couple of good years in Asia, in particular in China. Again, when we looked at our numbers for Q1, we were on track to what we thought we would do in Asia.

But in general, we still see outsourcing going on at many of the large pharma companies to the big CMOs, so that’s still pretty consistent. I think when you look out our demand for key chromatography and flirtation products, demand is still very strong.

And I think, as we – as I said earlier, even the ligands business, which was challenging in 2016 just seeing the sequential quarter-on-quarter growth and observing also the increased forecast also gives us a good indication that the Protein A resin market is still very strong..

Thanks. And a question for Jon. Could you give us – break out the M&A contribution of revenues in the quarter? It feels like the stacked organic revenue growth trend decelerated somewhat in the first quarter.

I’m not quite sure why that would be the case?.

Actually, we are not giving out specifics on the revenue contributions from the acquisition, specifically. But as Tony mentioned, organic growth above 10% for the quarter and you have the general range for the year for our TangenX business is $7 million $7.5 million.

So I think you can pretty closely back into that number as well as the Atoll, where you know that was $3 million to $3.5 million for three quarters last year, you should be able to get very close to the numbers..

Okay. And if I think about the revenue guidance for the year, I mean, if I just take out the first quarter revenue rate and annualize that, I mean, that would put us already to the midpoint in guidance.

And given what seemed like a somewhat better protein experience in the first quarter and easier comps over the back of the year, should we interpret that just as the abundance of conservatism? How do we think about the balance of the year from here?.

Yes. Obviously, we had a very good first quarter, we’re one quarter in. We clearly have good visibility to where we are and for the first-half of the year. I think when we get to the Q2 earnings call, we’ll have a much better sense of where the second-half of the year is going.

But we can say across the Board, we are really happy with the order loads that we are you seeing for OPUS that large system orders that we are seeing that are teeing up for the second-half of this year for ATF. We’re off to a good start with TangenX.

And yes, we’re probably a little conservative, but I think we believe we’re still right in that range..

Typically, Brandon, we’ll see a little bit of a lull in the third quarter as well in terms of normal linearity. So that can also play an effect there..

Super. Thank you..

Thank you. And our next question comes from the line of Matt Tiampo with Craig-Hallum. Your line is now open..

Good morning, gentlemen. Congrats on a good quarter. Start off with one for – I guess, for Jon. On the incremental SG&A step-up in the quarter sort of sequentially compared to Q4, can you give us a sense for what in that increase was TangenX? And what is the commercial adds they made in Q1? And then, you know….

Yes, I think the information – sure, the information we’re giving out is at about 40% of the increase on a year-over-year basis. On a non-GAAP perspective, it’s actually coming from TangenX and the Atoll acquisitions, which weren’t there before, so 40% of the $1.8 million on a non-GAAP basis.

The – in terms of the commercial organization, about 50% of that $1.8 million is related really to commercial headcount and additions that we made in that area to, obviously, bolster our long-term growth prospects.

And then there is about another 10% dating back again to Q1 of the prior year, that’s related to just ongoing growth in general business expenses that we’ve incurred. So we are really putting our money in the right places really trying to support and push long-term growth..

Yes, maybe one other comment, Matt. I would say that, when you think about 2016, we added in field applications, people and we also built out a service group. So even though we didn’t add a lot of sales heads in 2016, we did add – build out a service group and field applications people.

And then here in Q1, we’ve added in a number of folks into the – onto the sales team. So that’s really how that commercial split looks..

Great. And then, in terms of capacity, it sounds like your capacity for OPUS, it sounds like you’re sort of taking a breather here in terms of additional adds, at least, that was sort of my takeaway from your commentary.

How should we read into that? Do you think you’re in front of sort of your production needs for the moment? And when do you think you might need to continue to add suites?.

Yes. I think we are in really good shape with respect to seven production suites. You’d have to go back to a year ago and you would have heard us talking about the fact that we had two production suites, so we’ve gone from two to seven in 12 months. And I think we’ve put ourselves in a good position now as demand continues to be very robust.

But we have a lot more flexibility in terms of lead times and in terms of certain customers that want rapid response on the column. So having the seven suites gives us that level of flexibility. And I think you’re right.

We’re going to run it through the next couple of quarters and see exactly what the demand is before we make any more decisions on building out any more suites..

Great. Thanks, guys..

Thank you. And our next question comes from the line of Paul Knight with Janney. Your line is now open..

Hi, Tony. Could you talk about the Protein A market a little bit? You are seeing maybe a little more growth now and in the rest of the year.

Is it customers drawing down inventory? Is it new capacity coming online from your customers? What’s the dynamic going on with Protein A?.

Yes. So I – so if you’d go back to 2016, clearly, the challenge we had last year was customers at the biopharm level drawing down inventory. Our customers also doing the same thing, so we clearly had that challenge in 2016.

Our view as we’ve gone through 2017, and we mentioned this back in February, that it was encouraging that forecast had increased in Q1. And it’s also encouraging, here, we are in May that we’ve seen an increase as well as we’ve gone here into Q2.

So if you look out the market and the number of drugs that are getting approved, we believe right now that the inventory issues that we experienced a year ago for our Protein A ligands that’s probably close to being behind us.

And I think when we get into that August call, we’ll have a little better visibility to the second-half of the year and be able to comment a little bit more in terms of what we think the long-term growth is in 2017, and it’s 2018 for Protein A ligands..

And Tony, Sartorius has been a little more careful on their guidance. And my impression of Sartorius is that, they’re involved in the actual capacity build in the industry.

Does that – what is your view on, is capacity build slowing down in the industry? And should that affect you at all, or not on the impact on year-over-year businesses?.

Yes, I think, companies like Sartorius and other big players have obviously a much bigger portfolio of products and a much bigger number, right, in terms of revenue.

Our products that we have when I look at the direct-to-customer products that we sell like the ATF, TangenX portfolio and the OPUS columns, you look at those products and they really are platform products now at accounts. And we haven’t seen for those two product lines any real slowdown in demand, and we see the expansion still going on.

So – but we haven’t observed it. I mean, we’ll say that when we looked at the ATF business, it’s interesting in terms of the capital equipment, purchasing and the timing of that. So in 2015, Q4 was a really strong quarter for us, last year it was Q3.

We think as we look at this year, probably capital equipment, purchases for ATF are probably going to be stronger again, in the second-half of the year versus the first-half of the year, it’s really timing.

So we’re not seeing any slowdown in terms of people requesting quotes and putting orders in for large systems that are going into late-stage clinical or commercial processes..

Okay. Thank you..

Thank you. [Operator Instructions] And our next question comes from the line of Steve Schwartz with First Analysis. Your line is now open..

Good morning, everyone..

Hi, Steve..

Tony, in your prepared remarks, you talked about hiring on additional salespeople.

At this point, are the salespeople you re getting experienced people who are having nearly immediate effectiveness within the industry, or is there a ramp time for them to become effective? And is it different now from when you first started doing the build out over, say, if we looked back a year ago?.

Yes. So we’re – what I see is almost like a Phase two of our commercial expansion. The first phase was really just getting to critical mass. And if you went back to 2014, we had three sales – actual salespeople out in the field for Repligen. But by the end of last year, we had really around 11.

So we’ve added in four more, so we’re up around 14, 15 at this stage. But what we are hiring is experienced salespeople, typically people with more than five years, but a lot of times people with 15 years experience.

There’s always a ramp, right? So what we are doing just to be clear is we looked at our growth in North America and Europe, and clearly it’s very strong. And we could see the size of the territories for each of the reps, and what we’ve really done is split the territories up for basically four reps.

And by doing that, we now put a little bit more focus in a specific territory. So there is an immediate impact in that, you have two people covering a territory that used to be covered by one. But in terms of new account development, there’s always a ramp-up on stuff like that. It takes a while for a rep to get up and – up to speed.

And so we’d expect that second-half of this year, we’d begin to see an impact from hiring the reps, but probably more importantly, 2018 we’re going to see the bigger impact..

So 2018, okay. And you did say that you added five in the first quarter, five here in the second, and there’s four....

It’s five total..

five total. Okay..

Yes four total..

Okay.

The four for EU and Asia, those are pending?.

Pending, yes..

Okay.

And then, Jon, in your prepared remarks when you discussed gross margin, you talked about a higher OPUS sales in the mix?.

Yes..

And that being positive, is that positive mix a result of more column packing service work, or was it related to actual equipment sales?.

Yes. Sure, I mentioned that the change in year-over-year margin was impacted by the percentage of OPUS and the overall product mix, which is correct. Typically, OPUS margins are a little bit lower than some of the other margins in the – some of the other product margins in the portfolio.

So typically, growth in OPUS will bring down margins a little bit.

That said, we are working on internal programs to really improve our mix within the OPUS columns themselves, their material sourcing programs and things of that nature, and other efficiency programs in the business really to bring the margin back up here in the second-half of the year.

And I did mention that we had about $224,000 worth of TangenX inventory step-up charges that hit us for about 0.7% in overall gross margin – negative gross margin impact that won’t be there in the remaining part of the year. So we are optimistic about our ability to recover margins back up to those levels that we’ve guided for the year..

All right. Okay, great. Thanks. And then one last question.

Tony, you’d mentioned 500 large-scale systems shipping in 2017? And I think that you were referring to OPUS, is that right?.

Yes. So we’ll ship close to 500 columns this year, large-scale columns..

And these are the 45 and 60 centimeter?.

No, it covers all our columns that go into clinical trial production, so GMP..

Okay.

How does that compare to 2016, just as a raw number of systems?.

Significant increase. We haven’t given out numbers for 2016. But you can imagine we had two production suites for the first-half of 2016, now we have seven. So we’re really raising and and I think it represents the leadership we have in the marketplace with the products..

Yes. Okay, great. Thank you..

Thank you. And I’m showing no further questions at this time.. I would now like to turn the call back to Tony Hunt for any closing remarks..

And I would like to thank everybody for joining us today, and look forward to bringing everybody up to speed at our August call on our Q2 results. So thank you..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone have a great day..