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

Daniel Arias - Citigroup Drew Jones - Stephens Inc. Tycho Peterson - JPMorgan William March - Janney Montgomery Scott LLC Amanda Murphy - William Blair Charlie Eidson - Craig-Hallum Capital Group Steve Schwartz - First Analysis Securities Brandon Couillard - Jefferies David Westenberg - C.L. King & Associates.

Good day, ladies and gentlemen, and welcome to Repligen Corporation’s First Quarter 2018 Earnings Conference Call. My name is Alison and I will be your coordinator. All participants will be in listen-only mode. [Operator Instructions]. Please note that there will be a question-and-answer period following the company’s formal remarks.

[Operator Instructions] Please note this event is being recorded. 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. Please go ahead..

revenue growth at constant currency, operating expenses and income tax expense, gross profit and gross margin, operating income and operating margin, net income, earnings per share, EBITDA and adjusted EBITDA.

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

And with that, I’ll turn the call over to Tony Hunt for business update..

Thank you, Sondra. Good morning, everyone, and welcome to our Q1 earnings call. As reported this morning, Repligen had a very strong start to the year, reporting 46% total revenue growth year-on-year with greater than 20% organic growth from our direct filtration and chromatography franchises.

We also saw encouraging signs in our OEM Protein franchise, where demand strengthened through the quarter, resulting in 20% sequential growth compared to Q4 2017.

Overall, an excellent quarter that reflects our focus on being a leading innovator in the bioprocessing industry and on diversifying our product lines so with strong direct-to-market presence. As reported on our call in February, we set some very specific priorities for the first-half of 2018. First, Spectrum integration and performance.

We started the year focusing on commercial integration, training our collective sales force on the broader portfolio of products and implementing a commercial roll out plan. We’ve completed the training and implemented the necessary changes in Asia.

Here in Q2, we’ve started to roll out the changes in Europe, which will be followed by complete integration of the North America team in Q3. The performance of the Spectrum business has been strong through the first eight months ownership with pro forma growth of 27% during this period, a result of excellence execution by the combined team.

Second, new product innovations. 2018 is all about new products with multiple launches planned. OPUS 80R was launched on time in March and we have several additional new products in the development pipeline.

Our expectation is that, we will have a series of important product launches throughout the year as our R&D team delivers on developing expanded functionality for bench-top TFF systems and new controller technology for XCell ATF systems as examples.

We expect these new products to broaden our markets, fuel new revenue growth and reinforce our commitment to building our direct-to-customer product portfolio to internal R&D in addition to M&A. And third, business execution. On top of delivering strong top line performance, we expanded gross margins by 110 basis points.

Moving now to the performance by region and the performance of our three main product lines in the first quarter. As a result of our acquisition of Spectrum last August, we have expanded across many regions and established a much larger global footprint.

During the first quarter of 2018, 45% of total sales were from customers in North America, 43% of customers in Europe, and 12% from Asia Pac. Jon will provide additional detail on regional performance in his section.

On product line performance, our filtration franchise has grown more than threefold over the last 12 months, with Spectrum contributing $11 million during the first quarter. ATF products continue to gain traction with particularly strong performance during the first quarter in North America and Asia, which was up 37%.

Single use ATF continues to gain momentum, representing greater than 20% of sales in the quarter. When we developed the single use family of ATF products, our goal was to lower the barriers for trial and drive further awareness and adoption of the technology in perfusion applications.

This has resulted in clear benefits throughout the last few quarters with our consumable run rate increasing as we capture more of the direct opportunities from our installed base. Our sales funnel for Q2 and the remainder of the year is strong and early feedback from customers on the performance of our new controller is very positive.

We’re on track to launch this product into the market in the second-half of 2018. With our TFF products, the story here is strong demand for hollow fiber cartridges and systems, pro-connect single use products and flat sheet cassettes. Lab and process systems also continue to perform well, especially the lab-based systems.

Demand for these systems has grown rapidly with unit demands up over 100% year-on-year.

In related product developments, our R&D team has taken feedback from our customers and we plan to launch a new module called conduit for the KR2i systems lab-based system in the second-half of 2018, which will provide additional functionality in terms of measuring pH, conductivity and U.V. for customers.

Basically it provides our customers with walk away TFF automation. We’re also seeing more cross-selling of our hollow fiber TFF systems from Spectrum into our flat sheet TFF TangenX customer base creating revenue synergies. Our flat sheet TFF business continues to accelerate.

We’re off to a really good start in 2018 with a very strong order load and significant wins in Asia and Europe as a direct result of the expanded sales force, representing another example of revenue synergies coming from Spectrum deal. Moving now to chromatography. Our chrome franchise has strong – had strong growth led by our OPUS family of products.

We shift a record number of columns in the quarter and we have strong demand across the various column sizes. We also launched our OPUS 80R column at the end of Q1, which is the largest pre-packed columns available on the markets and includes our resin recovery feature.

This most recent addition opens up late-stage clinical and commercial processes, especially in the recombinant Proteins market. Interest in this product is also strong. And as a result, we expect to see a nice pickup in sales for the 80 centimeter format in the second-half of the year.

Our R&D team continues to make good progress on new chromatography offerings to main – maintain our technology edge and we expect to have more products coming to market in the second-half of the year. Finally, our Protein franchise is improving. As you know, we had a challenging second-half in 2017.

And while the year-on-your comp was very tough, we saw healthy signs in Q1, with 20% plus sequential growth and a positive momentum to date in Q2, both ligand demand and growth factor demand is strengthening and we look forward to a solid growth year for the business.

In summary, we’re very pleased with the performance of the company in Q1 and our outlook for the full-year remains positive.

With Spectrum tracking ahead of expectations and with continued core strength in our direct filtration and chromatography franchises, we’re raising our revenue guidance for the full-year to $182 million to $188 million, which Jon will further expand on.

We’re really excited about our company’s potential as we execute on our strategic drivers and accelerate customer adoption key products in our portfolio. We believe that our R&D portfolio is quickly becoming a key differentiator for the company, and we expect that our products and development will be significant drivers for future growth.

Now I’ll turn the call over for Jon for our Q1 financial reports..

Thank you, Tony, and good morning, everyone. Today, we’re reporting our financial results for the first quarter of 2018, as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures.

We are reporting first quarter 2018 GAAP revenue of $44.8 million, an increase of 46% as reported and 44% at constant currency compared to the first quarter of 2017.

As Tony mentioned earlier, our direct-to-customer filtration and chromatography product lines continue to perform well, with our overall direct product portfolio now approaching 70% of the company’s total revenue base. From a regional perspective, we saw strong performance in each of our primary regions of North America, Europe, and Asia Pacific.

The key highlight in the quarter was Asia Pacific, where we experienced a 35% increase in revenues on a pro forma basis, including Spectrum. Overall, growth in the region was driven by our expanding commercial team and broader filtration portfolio.

Our adjusted gross profit for the first quarter was $25.4 million, an increase of $8.4 million, or 50% over the first quarter of 2017. Our adjusted gross margin was 56.6% for the first quarter of 2018, a 110 basis point improvement versus the comparable 2017 period. Our gross margin is in line with our guidance of 56% to 57% for the year.

Key drivers include positive column to resin mix in our OPUS products, synergies from owning the Spectrum filter component of our ATF systems and the positive impact of our growing filtration franchise. Now moving to operating expenses.

On a GAAP basis, research and development expenses for the first quarter of 2018 were $3.3 million, compared to $1.7 million in the comparable period for 2017. Our focus in Q1 was on finalizing our new OPUS 80R column for market launch and on developing our new ATF controller and Spectrum conduit products.

We expect to spend 6.5% to 7% of revenue this year to support our R&D pipeline. Adjusted SG&A for the first quarter of 2018 was $12.8 million, compared to $8.2 million for the first quarter of 2017.

Approximately 70% of our year-over-year increase is related to ongoing expenses from our Spectrum acquisition, with the remaining portion related to our build out of field applications and field service departments, as well as infrastructure required to support our growth. Moving now to adjusted earnings and EPS.

For the first quarter 2018, our adjusted operating margin was 20.7%. Our adjusted operating income grew to $9.3 million, an increase of $2.3 million, or 33% compared to the first quarter of 2017. The year-over-year increase was driven by margin pull-through from sales growth.

Adjusted net income for the first quarter of 2018 was $7.5 million, compared to $5.3 million for the same period in 2017, and adjusted EPS for the first quarter of 2018 was $0.17 per fully diluted share, an 11% increase from $0.15 per share for the first quarter of 2017.

In addition to delivering strong adjusted operating income for the first quarter, the company’s adjusted net income also benefited from a favorable tax position in the first quarter of approximately 4 percentage points related to one-time benefits from investing of stock compensation that will not recur in the remaining three quarters of 2018.

Our cash and cash equivalents which are GAAP metrics were $173.9 million at March 31, 2018. We generated operating cash flow of $1.6 million in the first quarter inclusive of annual bonus compensation payouts, and we’ve reinvested nearly $1.6 million into capital expenditures during the quarter. Now moving to 2018 full-year guidance.

Our GAAP to non-GAAP reconciliations for our 2018 financial guidance are included in the reconciliation tables in today’s earnings press release. As previously mentioned, unless otherwise noted, all 2018 financial guidance discussed will be adjusted non-GAAP.

Please also keep in mind that our 2018 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 1.5% tailwind on sales, and does not include the potential impact of new acquisitions.

Today, we are increasing our 2018 full-year two revenue guidance of GAAP metric to $182 million to $188 million, reflecting growth in the range of 29% to 33% as reported and 27.5% to 31.5% on a constant currency basis, including 10% to 14% organic sales growth. We are maintaining our adjusted gross margin guidance for 2018 in the range of 56% to 57%.

We are also holding our adjusted operating income in the range of $40 million to $42 million, reflecting adjusted operating margin guidance of 21% to 23% of revenue. We are maintaining our 2018 adjusted income tax expense at 19% of adjusted pre-tax income.

We have increased the top-end of our full-year 2018 adjusted net income and are now guiding to a range of $30.5 million to $32.5 million for the year, and we are increasing our adjusted EPS guidance to a range of $0.69 to $0.73 per fully diluted share. We continue to expect adjusted EBITDA in the range of $44 million to $46 million.

Company continues to expect to invest $15 million in 2018 capital expenditures inclusive of the build out of our new Marlboro filtration facility and investments for the global templating component of our upcoming ERP implementation.

We expect 2018 year-end cash and cash equivalents GAAP metrics to be approximately $190 million, compared to $173.8 million at the end of 2017. This completes our financial report. And I will now turn the call back to the operator to open the lines for questions..

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Daniel Arias of Citigroup. Please go ahead..

Hey, good morning. Thank you.

Tony, on Spectrum, can you just add a little color on where you’re above plan?.

And then as we make our way through 2Q here, I’m just – I’m wondering whether you think you’ll see the first-half versus the second-half of the year weighting that you’ve seen in the past this year, or are you sort of thinking that you might smooth that out a bit this year? I’m just trying to put the $12 million that you did this quarter in the context for the full-year?.

Yes, sure. Yes, I think, as we finished off last year down, I think, we were building up some nice momentum just getting to understand the markets for Spectrum.

And so we’re really seeing the acceleration is probably in two areas in the pro-connect single use products and especially in the systems, both the lab-based systems and the process systems, we’ve seen really nice demand for those in Q1 and here again early in Q2. So that’s where the real incremental revenue is coming from.

Historically, Spectrum has had stronger second-half versus first-half. Obviously, we’ve been trying to really push to make sure that from a sales point of view that we’re working every quarter. We still expect the second-half of the year to be a little stronger than the first..

Okay. Then maybe on new products. If we’re just thinking about the incremental revenues coming out of the things that you highlighted that you’re doing there.

Should we be looking more to the TangenX side or some V2 Spectrum products in terms of contributions coming out of the second-half of the year and then into 2019?.

Yes, on the new products side, most of the new products are going to be really for the chromatography business, which is OPUS 80. So you should absolutely expect to see some revenue coming through for our OPUS 80R comps in the second-half of the year.

The other areas are definitely Spectrum, so the conduit product is a product that should launch second-half of the year and we should pickup some nice revenue on that. And then the other areas on the controller for ATF, again, picking up some revenue, I would think probably in the Q4 timeframe. So I think, TangenX is more in the future, right.

We still – we have definitely products under development, but nothing that’s going to hit significantly in 2018. And I would add that pretty much all the products we’re talking about really are setting us up for 2019, 2020 as these products really get embedded in the marketplace..

Right, okay. And then maybe once more since it sounds like you’re giving us three-year.

On the Opus portfolio, shipments can stay above 20% this year, is that fair? And then, I guess, on the margins, do you see the mix there being a driver for overall corporate operating margins this year? Is that something that’s more into 2019 or 2020?.

Yes. So maybe on the Opus side, I think, the 20% is fair. I think that’s exactly what our target is for the year. Obviously, we’d come off a number of years now where the growth has been stellar.

And I would expect that the mix will continue to be more column-driven than resin-driven, so that’s going to be – so we’re going to see a bigger increase in – on a percentage in terms of number of column shipped versus the overall revenue, and maybe Jon wants to comment on the….

Sure. Dan on the margin component of that, absolutely the larger percentage of column revenue versus revenue from resin will definitely have a positive impact in the margins. And that’s one of the key components of our guidance of 56% to 57% on a non-GAAP basis, so that’s an important component for us. And so far in Q1, things are looking good..

And for the future, Dan, I think, if you go into 2019 and 2020, I think that mix is going to be continue to be a positive mix for us..

Great. Super. Okay, thanks very much..

Our next question will come from Drew Jones of Stephens Inc. Please go ahead..

Thanks.

Tony, can you expand a little bit on what’s left to do for the European and then North American sales organizations to be fully cross-trained?.

Sure. So, when we started the year off, we really felt that we could take the integration by region. So really Q1 was around getting our Asia team pretty much engaged. And it wasn’t that challenging simply because we had two sales managers in Asia and Spectrum had 12, 13 people. So we integrated those. We did all the training for the sales reps in Q1.

And then what we decided to do just to really pace this for our organization on the product management side and on the FAS side is that, we would focus on Europe in this quarter and then next quarter finalize in North America. And in that way, it’s the least disruptive way we think to drive the business.

So in terms of what’s left, it really is – for Europe right now, it’s really the – basically the product management team, collective product management team for Repligen and the Spectrum portfolio working and traveling with the sales people. All the training – deep product training has been done.

FAS teams are all working together and we’ll learn from what we do in Europe. This quarter, we’ll have all the training for the North America reps done as well, and we’re moving those guys into an integrated mode in Q3. That said, there’s a lot of interaction happening between the reps in North America today.

So it’s not like we’re running the teams in silos, everybody is working together. But from a number for the reps, they’re still working of Repligen versus Spectrum numbers..

Got it.

And then on the Proteins rebound, is that more a function of the ligands returning to more of a normal life run rate, or is there some shrink from IGS in there? Any more color on that will be helpful?.

Yes, I would say that, overall, if you look at our Proteins business and you split it between ligands and growth factors, in Q4 of last year and again in Q1 of this year, we saw incremental orders coming in during the quarter.

So we saw that, again, in Q1, but we saw that across the Board in terms of the main players that we have for ligands, and we’ve seen an uptick in growth factor demand as we go through the first-half of the year. So we feel pretty good about – really good growth from the growth factor business this year, a rebound on the Proteins business.

And I think, by the end of the year, we’ll be at that 5% growth for the business..

Thanks, guys..

Our next question will come from Tycho Peterson of JPMorgan. Please go ahead..

Hey, thanks.

Tony, on that last note, the GE inventory drawdown, has that been worked through as of the end of the quarter? And can you maybe just comment on inventory levels at this point?.

Yes, it’s hard for us to really get a good read on the inventory drawdown. I think, the positive signs are that, we’re seeing these additional orders coming through that we saw in Q1, we saw it in Q4.

My sense is that, by the time we get into the second-half of the year, most of that drawdown will be complete, and the long-term forecast that we’re seeing are very encouraging..

And then, I guess, as reading about just end markets, can you give us a sense of how much a demand you’re seeing from new accounts versus scaling by existing customers? And then as we think about the growing focus around process analytics, how important is the conduit launch to your overall business?.

Yes. So I’ll start with the conduit launch. For us, the ability now to have our end users to be able to measure U.V., pH, and conductivity, it’s something that they’ve been asking for. It’s a really nice add-on to the KR2i systems.

And the KR2i system is this bench-based system that’s – basically has all the features that customers want to run TFF large-scale trials. And the feedback as that product got has been launched different versions of it over the last four or five years was that, they really like to have pH, conductivity and U.V. as a detection..

The question was – other question was on new customers and how much business coming from new customers versus what are we seeing with existing customers in scaling up? It’s a little bit of both. I don’t have exact percentages for you Tycho.

But there’s no doubt that when we run our business reviews every quarter and we look at what’s happening, we’re absolutely looking at how many new customers are coming into the fold.

And that’s been, for example, in the TangenX business, that’s been one of the major drivers that we’ve been really focusing on is, how do you really grow a business that have been very East Coast North America centric and really start to add new accounts in Europe, new accounts in Asia and we’ve been able to successfully do that.

We’ve been doing that across the Board with all our businesses. So it’s an important part of what we do. I think, 15%, 20% is – my recollection is kind of the number in terms of percent of what new customers contribute on an annual basis to the revenue of any one individual business.

But we’re also seeing some really nice demand, Tycho, on the – from existing customers. So those folks who are scaling up, we’re clearly seeing that on ATF. We’re seeing that with the OPUS product line. We’re definitely seeing that with the hollow fiber technology from Spectrum.

So it is a balance, but clearly, we keep an eye on the number of new customers that are coming through..

Okay.

And then last one, I guess, as we come up on the anniversary of the Spectrum announcement next month, can you just talk a little bit on capital deployment? How actively are you guys looking at M&A at this point?.

Yes, on the M&A side, yes, a year later, I think, part of our blueprint for success is a combination of being able to develop new products and also continue to look for great technology that’s out there. So we’re absolutely continuing to look at our funnel of opportunities. And when something comes along that we think makes a ton of sense for us.

We’ll absolutely act on it. That said, I think, you should also probably take away from this call and from conversations we’ve had that – the importance of being able to do these acquisitions and then turn them into or really roll out new R&D programs and do things with the technology that hasn’t been done before.

So ATF, we’ve been able to take out single-use ATF products that’s being huge in the success of ATF. I think, what you’re going to see this year and next year is a lot more product launches from Repligen and that should really be a reflection of our strategy here, which is to develop products based on the core technology that we acquire..

Okay. Thank you..

Our next question will come from William March of Janney Montgomery Scott. Please go ahead..

Hey, guys, how are you?.

Hey, Bill..

Bill, hi..

First, maybe could you just talk a little bit more about the Spectrum team in Asia? And how having that larger sales force there has maybe impacted legacy Repligen product sales in the region?.

Yes. It’s early days, but the way we’re organized in Asia and it’s on the Spectrum side is, Spectrum had invested in a direct sales team in Japan, in Korea, in China and in India. And what we had were really some very good distributors that went across the region with two individual sales leaders that were replacing running that process.

Our sales leaders now have started to interact with the country managers that are running each of those countries that I just described. And I think, the biggest benefit and the biggest beneficiary of the integration and the deal is really being our filtration portfolio. So we’re seeing more opportunities to drive ATF into the market.

We’re definitely seeing a lot more opportunities on the TangenX flat sheet cassettes. So I would say, the TangenX flat sheet cassettes probably have benefit the most in the region. But the other thing that’s happened is, we’re – we would compete a little bit with Spectrum on perfusion applications.

We’ve been able to eliminate that and now we just go to the customer with a unified front with really good positioning for the whole product portfolio. So there are really the three main benefits in the region..

Got it. And then maybe switching gears to the new OPUS 80 column.

Can you talk about how the new larger column has may be expanded the addressable market? And then secondly, with a larger column, are there anything that we need to be concerned about in terms of the logistics around shipping these columns? Do you need to be closer to clients in terms of where the manufacturing takes place?.

Yes, part of the logistics question, I don’t think there’s any real concern on logistics simply, because part of how we do the development of these larger OPUS columns as we go through some significant shipping studies and we do drops – drop testing of the columns to make sure that if anything happen for a – a crate was dropped in the – in shipping that there would be no impact on the product.

So we did a lot of extensive testing of the product before it got launched, which is very similar to what we’ve done in the past with the 60 and the 45s. So we’re not really concerned about that, Bill. We think regionally, we’ll be able to deliver the products in the timeframe that customers want.

And if you think about it an 80 centimeter diameter column, people aren’t really looking for that with the six-week lead time. They’re probably looking for a column like that with a 12 to 16-week lead time, simply because you planned the Phase III and commercial type processes well in advance.

In terms of the addressable market part of the question, I think, for us, the – what’s really opened up is the recombinant Protein part of the market. So if you think about an 80 centimeter diameter column, that really plays quite nicely into recombinant Proteins, so proteins made out of E.

coli, for the proteins made out of east, people tend to use 60 centimeter, 80 centimeter diameter columns, mainly 80s.

So that’s an opportunity for our sales force now to start to really sell the whole portfolio into those accounts that are doing recombinant proteins and you can use pre-packed columns all the way from pre-clinical Phase 1, all the way through to commercial.

The other area where we had a little bit of pick up is in Phase 3 opportunities for MabS, there is definitely opportunities for the 80 centimeter column there.

So a little bit of the challenge will be just planning, we’ve a lot of interest, but we’ve got to sort of lineup the interest and the timing of when columns are required, so sucking out the years when we think we’ll see more sales..

Got you, and then last one. Maybe just taking about ATF single-use, I think you said that was greater than 20% of sales in the quarter? And just talking about the new clients, is that may be where you’re seeing more of the penetration with new clients in the single-use ATF or just – is that more legacy company switching over? Thanks..

Yes, I think it’s definitely new clients. If you look at our single-use ATF 2 products, which is basically your bench-top system, it’s really accelerated. And it comes down to ease-of-use, ease of setup, you don’t need autoclaves, you just basically buy the product and it’s ready to go, it’s easy for our sales team to push that into new accounts.

It’s not a big decision for people to go and test it and we’ve seen a real ramp up there and I think that’s reflective to in terms of the consumable growth that we are seeing.

We were pretty steady through 2017 in terms of consumables, but it’s picked up quite nicely here in 2018 and I put that down to really the more testing that’s going on and people adopting and putting it into processes..

Thanks guys..

Our next question will come from Amanda Murphy with William Blair. Please go ahead..

Hi, good morning. I just had a few follow-up questions that have already been asked, specifically on the 80 centimeter column. So obviously a lot of – can you tell there in terms of how you expect that to start to contribute.

I’m just trying to get a sense of sort of how meaningful you think that product line could be in terms of contribution to growth over time? If you have obviously laid out longer-term growth targets for the columns segment with OPUS product line, is that – does that include the 80 centimeter product or is there a way that that could be incremental, just trying to get a sense of magnitude of how that 80 centimeter over time?.

Yes, I think the way to think about the 80 centimeter column, clearly we’ll have good revenue coming from that product and it’ll – it’s ramp rate will be pretty similar to what we sell with the 45s and 60s switch, reasonable number of orders in 2018 and then ramping up in 2019.

I think the piece that’s probably not super apparent to everybody is, is that once you have an 80 centimeter diameter column, it’s probably less about how many 80s we sell and more about the fact now that we have a fleet portfolio end-to-end, where if a customer is thinking about pre-pack columns you won’t get the resistance that, well, I can only go to Phase 2 or Phase 3 and then I got to switch to stainless.

So at least in the world of recombinant proteins we’re going to be able to push the whole portfolio in the world of MabS, we’re going to be able to get well into Phase 3 opportunities. And I just think it’s going to lift sales of the other products because people will look at it now as a complete portfolio..

Okay, fair enough, and I don’t think you gave us a number, I was curious in terms of, I know you discussed and actually some of the synergies you are seeing with Spectrum in terms of revenue synergies.

Is there anyway to kind of give us, and if you did, I’m sorry if I missed, do you have a more of a quantified number of what that looks like? And then also just some commentary around efforts to move beyond antibodies into various viruses and things like that which you had outlined sort of at the beginning of the acquisition as an opportunity?.

Sure on the revenue synergies, our goal for this year is $2 million to $3 million and we’re right on track for hitting that. We can see the activities that are going on with – in the world of TFF flat sheets, we are definitely seeing it with the KR2i systems.

We are seeing it in terms of the sales force now having a broader portfolio and just being able to push into each region then the growth in Asia is definitely the direct result of having the combined sales team together. And the second part was, I’m sorry Amanda, what was the part of the….

I’m sorry, I was just looking, yes, I was just looking for more commentary around, you had outlined at the beginning of the acquisition or when you did the acquisition that there was an opportunity to expand beyond antibodies into areas like viruses and things like that, so I was just looking for commentary around, just how that’s progressing?.

So in terms of the world, so most – not the most, but one of the big drivers for Spectrum is the vaccine world and so there is definitely cross-selling opportunities going on there.

We – when you look at things like gene therapy, it is was really encouraging that both the Spectrum portfolio and the TangenX portfolio were addressing that market with their products. So we’ve been able to really position that portfolio and go in with a more unified message and into those customers.

So we’re seeing the early signs, we’re really encouraged, Amanda, there’s a lot of opportunities even beyond vaccines, there is animal health opportunities that are popping up and it’s just really a matter of prioritizing and making sure that in 2018 our sales force, combined sales force knows how to sell the whole product portfolio and then as we get everybody comfortable with that, we start to look at some of these other opportunities that are there for us to move on..

Okay and then I had – just last one on protein and it seems like investors are still quite focused on this business even though obviously it’s becoming a smaller part as you growth the rest of the direct product line, but just curious if you are able to provide any commentary in terms of how – are you thinking about continuity to plans over time and obviously you have contracts in place, but if you could talk about expectations that sort of half the business possibly moving over the course of a number of years, is that still kind of how you are thinking about it at this point?.

Yes, if we look at the proteins business and specifically the ligands business, purely we have relationships with GE, with MilliporeSigma, and with Purolite. And in terms of GE’s intention around building out their facility and implementing a business continuity plan, I don’t think our thinking on that has changed.

There is no new news on this, but it’s just – that’s the way we feel about it. We’re pretty much – we’d look at that portfolio and we still see from an R&D point of view that there is opportunities for us to develop products that we think will have an impact in the marketplace so that’s something to watch out for over the next year or so.

And in general, you’re right, it’s going to be a smaller part of our total business, but at the same time it’s still an important part and so we’ll continue to invest and we’ll continue to work with our partners and we’ll see how the business continuity piece plays out over the next couple years..

Okay, thanks very much..

The next question will come from Matt Hewitt of Craig-Hallum Capital Group. Please go ahead..

Hi, this is Charlie Eidson on for Matt Hewitt, thanks for taking my questions.

A couple for me, can you provide an update on the Purolite relationship, do you have any additional visibility on when their larger facility could come online?.

Yes, so as I said a few minutes ago, yes we’ve got a good relation with Purolite. I believe that they are scheduling to bring their agarose facility online by the end of the summer. But again I think that’s something that you probably would want to check with the Purolite team, but that’s – that’s my put, my recollection tells me..

Okay that’s helpful and then is the tariff situation in China expected to impact Repligen at all?.

No, I don’t, I don’t – I honestly don’t think so, obviously we can’t say with a 100% confidence something like that, but in general we have – we know what we are selling and we’ll continue to do that..

Okay, great thanks..

The next question will come from Steve Schwartz of First Analysis. Please go ahead..

Well, good morning everyone..

Good morning Steve..

Tony, in your prepared remarks you highlighted the fact that this is a year of new product introductions and what have you, and R&D expense of course was up year-over-year.

Can you give us an idea on how you expect R&D expense to rollout across the year given the new product the activity?.

Yes, I’ll let Jon walk you through the R&D line for the year..

Yes. So from a non-GAAP perspective, we continue to expect to increase our spend in new products. As I mentioned earlier, we expect our spend to be about 6.5% to 7%.

The spend we expect to increase a bit in Q2 and then levelized throughout the remainder of the year at a slightly lower rate, but again, it should be somewhere around that high-end of that 6% to 7% range of revenue..

Okay, sound good. And then just looking at your statement on the cash balance for the balance sheet. Typically, your first quarter, you’re either flat or you consume a little bit of cash.

And I don’t know what’s your cash from operations number is? But what is about the business that the first quarter is like that with respect to your cash consumption?.

Yes. So I think the biggest driver of that is the fact that we payout management and employee bonuses in the first quarter. So we accrue those throughout the year recognizing the expense, but then the cash outflow occurs in Q1 each year. So that’s the biggest driver there. And I think a lot of companies have that phenomenon..

Okay..

Hey, and Steve, maybe just one comment back on R&D. I think in terms of looking at it on a dollar per quarter basis, I think, $3 million to $3.5 million ranges is kind of the right range for R&D spend this year per quarter..

$3 million to $3.5 million. And you have talked Tony in the past about getting to that 7% level for R&D spending.

So this is rate where you want to be right?.

Absolutely. And I think the other part of the equation is that, we have to launch products, right, and I think, you’re going to see that as we go through the year..

Yes, yes. Okay. And then just one small thing.

I think, Jon, in your prepared remarks, when you talked about the drivers behind the improved gross margin, did you allude to the fact that there’s something going on with your resin procurement dynamics in the chromatography business?.

Yes, there’s….

Does that helps?.

Yes. So some of the key drivers of our margin performance are going to be, one, owning the Spectrum component of the ATF filters, right. So that’s a big driver. A second driver is definitely the mix of our revenue in the – in our column. So basically, we make larger margins on the columns and lower margin pass-through type margin on resins.

And so, as that mix improves and as customers platform on our products, they typically tends to source the resin themselves and take advantage of the larger discounts that they get from buying that resin from the big OEM providers.

And they’re able to generate better economics for themselves, but it also generates better gross margin performance for us..

Yes. So, just to help us maybe with the sensitivity on that one element. In the past, I mean, we’ve never gotten into hard numbers on it, but it’s been – we’ve talked, it’s roughly 50-50 the pass-through.

And so in a quarter like this where it’s a factor behind better gross margin, is it significantly different from 50-50? I mean, they got like 40-60 or something, or is it for our purposes on this side of the sense, if you will, immaterial change in the numbers?.

It’s – it could move. But in this quarter, it was directionally aligned with where we budgeted. And we expect every year to get two to three maybe four points of shift in that mix. So it’s not going to be huge numbers. In this quarter, it was just right in line with where we expected to be and slightly improved versus our overall year last year..

Okay..

And Steve, [Multiple Speakers] it’s a somewhat lumpy business, right? So it depends on who’s ordering in a given quarter. So if you’ve got a lot of CMO demand, that probably is going to be more – we would procure the resin versus if it’s a lot more pharma demand in a given quarter, it will be dropship. So a little bit of it depends on who’s ordering.

And so when you look at it on an annual basis and that type of incremental improvement is what’s going to happen..

Yes. And Steve, I’ll add on to that as well. Our guidance for the year on an ongoing basis is 56% to 57%. We would expect that any quarter within the year to be around that range, it shouldn’t move significantly above or below that range. So in terms of you guys all building out your models, I would plan to be in those ranges each quarter..

And the next question will come from Brandon Couillard of Jefferies. Please go ahead..

Thanks. Good morning..

Good morning, Brandon..

Jon or Tony, is it safe to say that Spectrum is now tracking above this $47 million to $50 million range for the year? And then Jon, can you just give us the operating cash flow number for the first quarter?.

Yes, on the Spectrum business, I think, we’re still in the range, Brandon, but we’re probably tracking towards the high-end of the range..

That range being $47 million to $50 million..

Yes..

Yes.

Then, Jon, do you have the operating cash flow figure?.

Yes. So the operating cash flow was about $1.6 million. And then if you back it into the free cash flow, we spent almost $1.6 million in CapEx. So we were basically neutral on cash between Q – end of Q4 and into Q1..

Then last one, Tony – okay.

Then last one, Tony, any – can you just give us any more color on the Protein business in the first quarter whether it was actually up year-over-year against the tough comp? And then just remind us how the base of comparison progresses through the balance of the year for that segment, that would be helpful?.

Yes, sure. So year-on-year, the business was down just it – but the comp was incredibly tough. If you actually look at the ligands business, it tends to be pretty lumpy in last year, for example, over 60% of the ligand revenue came in the first-half of the year and that was actually not normal.

So I just think that that comp in general for the first-half of the year is really tough. I think, we’re going to see a little bit more balanced demand as we go through this year. So it should – it shouldn’t be like a 60-40 type scenario. This year, it’s probably going to be more like 50-50..

Very good. Thank you..

[Operator Instructions] Our next question will come from David Westenberg of C.L. King. Please go ahead..

Thank you for taking my question. So I have kind of a continuation of the last question.

So can you give us a reminder about why there’s lumpiness in the Protein business in the first-half of the year versus the second-half of the year? And kind of what I’m getting at with this question is, is there any opportunity to sort of catch-up on the first-half of the year some of the slack that you – that we’ve seen in the market? Thank you..

Yes, I think, in general, the – when you look at OEM businesses, they tend to be lumpy, right? It’s not a Repligen demand that you’re looking at. You’re looking at a GE demand, you’re looking at a mill port demand, you’re looking at a pure light demand.

Historically, we’ve seen ligand has been a little stronger in the first-half of the year versus second-half. But I think, the dynamics this year are a little different in the sense that we know that GE has had been drawing down inventory levels. And so when we look at their longer-term forecast, they’re picking up as we get to the end of the year.

So I think that’s encouraging. We’re seeing increased demand from our other ligand providers and we’re seeing increased demand and forecasts for our growth factor. So that’s just the dynamics in 2018 that are a little different than other years..

Okay. And you remind me, I believe your price mostly on – in the U.S. dollars. Is there any other currency impact you’d expect to see even if you price in U.S. dollars on, say, maybe product inputs that you see or maybe competitors that are maybe poor on price in local currencies? And that that’s it for my questions. Thank you..

Yes. So, David, I think about – I would say about 75% to 80% of our revenue was actually priced out in U.S. dollars. And then the remainder bigger piece in European currencies, with a much smaller piece in the Asian currencies. We’re open to pricing in local currencies as it becomes a competitive situation.

And likely over time, our plans are to have products available in local currencies in the various regions as we migrate into the former Spectrum selling offices that we’ve acquired with the Repligen products. So we expect to see a little bit of a change in that basis on as we move forward, but it’s all about putting us in a more competitive position.

And we think it certainly will benefit us going forward..

Thank you..

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Tony Hunt for any closing remarks..

Great. I’d just like to thank everybody for participating in the call today. I think, we’re off to a really good start here in 2018 for the company. We’re definitely excited about our new products that are in development and we’ll look forward to catching up with everybody in August and bringing up to speed on the progress in Q2. So thank you..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..