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Edited Transcript of RGEN earnings conference call or presentation 9-May-19 12:30pm GMT

Q1 2019 Repligen Corp Earnings Call

WALTHAM Jun 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Repligen Corp earnings conference call or presentation Thursday, May 9, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony J. Hunt

Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board

* Jon K. Snodgres

Repligen Corporation - CFO & Secretary

* Sondra S. Newman

Repligen Corporation - Senior Director of IR

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Conference Call Participants

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* Andrew Luten Jones

Stephens Inc., Research Division - MD

* Brandon Couillard

Jefferies LLC, Research Division - Equity Analyst

* John Charles Kreger

William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst

* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Paul Richard Knight

Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst

* Ruizhi Qin

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Repligen Corporation's First Quarter of 2019 Earnings Conference Call. My name is Elisa and I will be your coordinator. (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 like to now turn the call over to your host for today's call, Sondra Newman, Senior Director of Investor Relations for Repligen.

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Sondra S. Newman, Repligen Corporation - Senior Director of IR [2]

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Thank you, Elisa. Good morning, everyone. Today, we're reporting financial results for Repligen's first fiscal quarter of 2019, reviewing recent business events and updating our financial guidance for the full year. Repligen President and CEO, Tony Hunt, will cover our business highlights; and our CFO, Jon Snodgres, will provide a financial report.

As a reminder, the forward-looking statements that we make during this call include those regarding our business goals and expectations for the financial performance of the company and are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risk factors is included in our Annual Report on Form 10-K, the current report on Form 8-K, which we filed this morning and other filings that we make with the SEC.

Today's comments reflect management's current views, which could change as a result of new information, future events or otherwise. The company does not obligate or commit itself to update forward-looking statements except as required by law. During this call, we're providing non-GAAP results and guidance, reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's web site and on sec.gov.

Non-GAAP figures in today's report include the following. Revenue growth at constant currency, gross profit and gross margins, operating expenses and income tax expense, operating income and operating margin, net income, earnings per share, EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP. The company believes that these non-GAAP measures better enable investors to benchmark Repligen's current results against historical performance and the performance of peers while evaluating investment opportunities. Go ahead, Tony.

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [3]

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Thanks, Sondra, and good morning everybody. Welcome to our Q1 earnings call. As you know, 2019 is off to a fast start as our team has done an outstanding job executing on our business and strategic goals for the quarter and full year. With respect to our overall business performance, we're really pleased with our organic growth for the first quarter, which was up 37% year-over-year with all 3 franchises posting organic growth in excess of 25%.

As noted on our C Technologies' announcement call in April, our order load continues to build, up greater than 40% in the first quarter of 2019 compared to the first quarter in 2018. We continue to be confident about our performance this year and we are therefore raising our revenue and adjusted EPS guidance for the year by 16.5 and $0.035 from our previous guidance. This is exclusive of post closing C Technologies revenues and impacts on earnings.

Strategically, our team has also executed on key long-term objectives for the company through the first 4 months of 2019. The agreement to acquire C Technologies gives us a new franchise in process analytics with market-leading technology and protein concentration measurement using Solo and FlowVPE platforms. The proposed deal meets all of our acquisition criteria. It adds a fourth franchise to the company, further strengthens our direct portfolio of products and expands our addressable market. It also gives us new call points in quality control and formulation labs and has a very strong margin profile.

We expect the deal will be accretive to adjusted EPS here in 2019, more than offsetting the impact on our share count dilution from both the equity components of the acquisition and our follow-on offering. The follow-on offering netted the company $190 million giving us a very strong balance sheet as we continue to execute on our blueprint for growth, which is focused on commercial execution, M&A, strategic partnerships and high impact product launches from our R&D team.

We're well-positioned for next phase of growth and expansion into broader global markets with 4 strong franchises, an expanding sales and support team, enhanced R&D capabilities and a clear focus on single-use technologies, systems and continuous manufacturing solutions. So moving now to our Q1 results.

As reported today, we had a record quarter with $60.6 million in sales and adjusted operating margins north of 25%. The story of the quarter was across-the-board strength in all 3 franchises. In filtration, our product line, our ATF product line had a record quarter, up over 50% versus prior year. This continued acceleration in ATF sales, which we discussed on our Q4 2018 call comes from platforming of the technology at large accounts, including late stage clinical and commercial implementations.

The continued adoption of single-use XCell ATF, which was up over 100% year-on-year and new accounts coming online as ATF technologies moves beyond traditional perfusion applications. Our hollow fiber business also had a very strong quarter led by single-use flow path assemblies, which were up over 50% and hollow fiber filter modules and systems, which continue to show strong demand across all our regions especially in Asia. Our CS flat sheet TFF cassette business continued its strong momentum into Q1 led by success in gene therapy accounts where 40% of our Top 20 accounts are now involved in gene therapy. With our new manufacturing facility up and running in Marlborough, this business is well positioned for long-term growth and success.

Moving now to chromatography, our OPUS pre-packed column business delivered another great quarter, up over 40% year-on-year. The story in the quarter was the demand for our larger 45- to 80-centimeter diameter columns, order load was again very strong and we saw a nice pickup in demand for OPUS in gene therapy accounts for over 40% of new accounts in the quarter came from this customer base.

With accelerating demand for OPUS and longer-term customer visibility, we are investing again in additional capacity which will come online over the next 6 to 18 months. Over the next year, we'll bring online 2 new suites in Ravensburg, Germany, we'll build out a second shift here in Massachusetts and add 6 new large scale OPUS suites to our Massachusetts facility. Our OEM proteins business also performed well in the first quarter, up over 25% organically with particular strength in growth factors and a solid uptick in ligand. Growth factor demand is a direct result of increased usage at our key accounts and the movement of new products into late stage clinical manufacturing.

Ligand demand was also robust in the quarter as inventory challenges on our top accounts appear to be behind us. We still expect second half demand for proteins to be lighter based on longer-term ligand forecasts and second half historical weakness.

Before concluding, I want to provide some additional comments on the C Technologies acquisition, our integration objectives and business goals for the remaining 8 months of the year. Once the deal is closed, which we expect will happen here in Q2, our integration activities will ramp-up and we will focus on 4 areas. Number one is commercial, where we will build out a dedicated analytics team in North America and Europe and add specialists into key countries in Asia. Number two, finance where our goal will be to align C Technologies to Repligen and public company standards. We have an integration leader in place who has a strong financial and commercial background and we'll get started immediately on implementing our integration plans including driving revenue synergy targets.

Number three is R&D where our goal is to increase investments in C Technologies programs to accelerate product launches associated with Flow and SoloVPE. And finally, number four is revenue synergies. We expect revenue synergies of $6 million to $8 million over 3 years starting in 2020. Once we have completed the build-out of the C Technologies' commercial organization, we believe synergies will stem primarily from cross-selling activities in the US, Europe and Asia. As we look to the remainder of 2019 for our company, our team is focused on the following areas. Number one will be new product launches and continued execution on strategic partnerships.

We're on track now to launch TFDF and ATF controller products in the second half of this year. Also our newly formed systems team is making significant progress and we expect to further strengthen our systems portfolio with new product offerings later this year. Number two is investing in operations in commercial with a focus on people and capacity. With the acceleration in demand through the first 4 months of 2019, we're adding additional headcount across our operations and building out manufacturing capacity.

We have already increased capacity in our hollow fiber flat sheet cassette and small scale OPUS operations. As noted earlier, our focus now turns to building out additional capacity for our large scale pre-packed column business. Commercially, we are also ramping up our field applications and service teams to provide an even higher level of support for our customers especially in Europe and Asia.

Number three is SAP implementation. We have made significant progress through the first quarter on our SAP implementation projects and expect to go live on Phase 1 in the third quarter and finally, C Technologies integration.

So in summary, we're very pleased with our business, financial and strategic execution in Q1. We've executed on key goals for the year, positioned ourselves well to attain our long-term growth targets and we're excited about the future as we move into the world of process analytics with C Technologies. We're looking forward to welcoming our new colleagues to Repligen and continuing to build off the great platform that they have established.

With that, I'll turn the call over to Jon now to address our first quarter financials and 2019 guidance.

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Jon K. Snodgres, Repligen Corporation - CFO & Secretary [4]

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Thank you, Tony, and good morning, everyone. Today, we're reporting our financial results for the first quarter of 2019 as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed today reflect non-GAAP measures. Before discussing the quarter, I want to comment on our recent acquisition and follow-on financing and how these are factored into our full year guidance. First on our acquisition of C Technologies, which we expect to close by early June, we're not including the impact of this deal in our formal 2019 guidance.

However, I will share our initial expectations for C Technologies now. For the assumed 7 months of ownership in 2019, we expect C Technologies to contribute $16 million to $17 million in sales with gross margins above 60% and adjusted operating margins in the range of 25% to 30%. On the bottom line, we expect C Technologies impact on GAAP fully diluted EPS to be a loss of $0.04 to $0.06 and on an adjusted basis, we expect C Technologies to be $0.05 to $0.07 accretive to our 2019 earnings per share. This includes the full year weighted average impact of 450,000 to 500,000 additional shares related to the $48 million equity component of the $240 million purchase price.

Adjustments to our initial non-GAAP EPS range reconciling to preliminary GAAP EPS include the following. Estimated inventory step-up charges of $0.03 per share, acquisition and integration costs of $0.07 per share and intangible amortization of $0.06 per share partially offset by a $0.04 tax effect of these adjustments. These initial financial projections are subject to change as we work through our early integration activities and fine tune the investment thesis especially in C Technologies' commercial and R&D organizations.

We will provide more specifics on our financial impacts of C Technologies during our second quarter earnings call in early August. Second, just last week we raised a net $190 million of cash in a follow-on equity offering giving the company balance sheet flexibility as we continue to execute on our blueprint for above industry growth. Today's updated guidance will include the weighted average impact of 2.1 million of additional shares at year-end.

Moving now to our first quarter 2019 financial results. As you've seen in our press release this morning, we delivered very strong financial performance for the first quarter and are raising both our top and bottom line financial guidance for the year while continuing to ramp- up on investments in capacity, systems and personnel to stay ahead of the strong market demand. Taking a look now at our first quarter financial highlights. First, we delivered another record quarter with revenues of $60.6 million with organic growth of 37% net of a 1.5% headwind from foreign exchange.

Second, we increased adjusted operating income by 68% year-over-year to $15.6 million and realized a 500 basis point year-over-year improvement in adjusted operating margin up to 25.7% and third on the bottom line, we reported a 66% year-over-year increase in adjusted EPS to $0.28 per fully diluted share. As Tony mentioned earlier, each of our 3 product franchises filtration, chromatography and proteins continue to perform well in the first quarter 2019.

Each of these businesses grew in excess of 25% compared to the first quarter of 2018 led by our filtration business. Regionally, direct product revenue growth during the first quarter was strong in Asia, Europe and North America, which were up 72%, 23% and 42% respectively.

Overall, North America accounted for 54% of direct product revenue during the first quarter with Europe at 28% and Asia coming in at 18% of direct product revenue. Based on first quarter results and overload visibility here in the second quarter, we continue to expect the first half of the year to be stronger than the second half of the year in terms of revenue dollars and organic growth percentage. Of our 3 franchises, our proteins business is meaningfully heavier in the first half versus the second half whereas revenue dollars from our filtration and chromatography businesses are more evenly distributed between the first and second half.

Moving now to gross profit. First quarter 2019 adjusted gross profit was $33.9 million, representing an increase of $8.6 million or 34% over the first quarter of 2018. Adjusted gross margin was 56% in line with our expectations for the year. With respect to operating expenses, research and development costs for the first quarter of 2019 were $3.6 million on both the GAAP and non-GAAP basis compared to $3.3 million in the 2018 period. Overall, R&D expenses for the first quarter were 6% of revenue and our spend will increase through the remaining 3 quarters for an overall investment of 7% to 8% of revenue for the year.

Turning to SG&A. Our adjusted SG&A for the first quarter of 2019 was $14.8 million compared to $12.8 million for the first quarter of 2018. The 15% year-over-year increase in SG&A was tied to the expansion of our sales, field application and field service teams, which is helping to drive product volume and strong organic growth.

We continue to add field applications and field service personnel globally to ensure that we're providing the best possible level of customer support as our demand continues to accelerate.

Now moving to adjusted income and EPS. As I mentioned earlier, our first quarter 2019 adjusted operating income was $15.6 million, a 68% increase compared to $9.3 million reported in the first quarter of 2018. Our adjusted operating margin was 25.7%, a 500 basis point improvement over the first quarter of 2018. Beyond sales volume flow through, first quarter operating margin strength was due in part to pacing of investments and new hires in operations and in systems, which are more heavily weighted to the second half of the year. Adjusted net income was $13.1 million for the first quarter of 2019, an increase of 73% compared to $7.5 million in the same period in 2018.

Adjusted EPS for the first quarter of 2019 increased to $0.28 per fully diluted share from $0.17 for the first quarter of 2018. Our cash and cash equivalents, which are GAAP metrics, were $196.1 million at March 31, 2019, reflecting cash generation of $2.3 million for the first quarter. For first quarter of 2019, we generated free cash flow of $6 million inclusive of $9.8 million of operating cash flow plus $3.8 million of capital investments, primarily related to our ongoing capacity expansion activities as well as our SAP implementation program.

Now moving to 2019 full year guidance. Our GAAP to non-GAAP reconciliations for our 2019 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2019 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2019 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of a 1% headwind on sales. As noted earlier, today's guidance does include the new shares related to our equity offering, which closed on May 3, 2019, but does not include the impact of the C Technologies acquisition with the exception of our cash and cash equivalents guidance.

Today in recognition of our strong market conditions and overall execution, we're increasing our 2019 full year revenue guidance, a GAAP metric, to $235 million to $241 million, an increase of $16.5 million from the midpoint of our previous range and reflecting growth in the range of 21% to 24% as reported and 22% to 25% on an organic basis.

Within these projections, we are raising our expectations for growth across our 3 main franchises. We expect our filtration and chromatography businesses to grow at 30% plus and with our improved full year outlook for proteins, we're now expecting approximately 5% growth for this business.

We are holding our adjusted gross margin guidance for 2019 to 56% to 57% and we're holding our operating margin to 22% to 23% of revenue. We are increasing our guidance for adjusted operating income to $52 million to $55 million, an increase of $4 million at midpoint from our previous guidance. We expect our 2019 adjusted income tax expense to be approximately 20% of adjusted pre-tax income.

We're also increasing our full year 2019 adjusted net income by $3.5 million at midpoint to a new range of $41 million to $44 million and the midpoint of adjusted EPS by $0.035 to a range of $0.84 to $0.90 per fully diluted share. Our adjusted EBITDA range is also being increased by $3.5 million at midpoint to $60 million to $63 million for full year 2019 with depreciation expenses expected to be approximately $7.5 million and intangible amortization expenses expected to be approximately $10.5 million.

In terms of weighted average share count assumptions for 2019, we have included 48.7 million fully diluted shares at year-end. This includes additional share count from our equity offering, which reflects dilution of $0.04 to fully diluted EPS compared to our previous guidance.

To support the significant sales volume increases we're seeing, the company is increasing its full year 2019 CapEx investments to $18 million to $20 million, an increase of $4 million to $6 million compared to our previous guidance. Major investments include ongoing costs related to Phase 1 of our global ERP implementation, the build-out of large scale OPUS manufacturing and our Ravensburg Germany facility and additional capacity expansion activities for OPUS and Filtration product lines in Massachusetts.

We expect 2019 year-end cash and cash equivalents, a GAAP metric, to be in the range of $190 million to $195 million, which includes cash generation from our base business and net proceeds from our recent equity offering less the cash component of the purchase price of C Technologies and acquisition fees. It does not yet include any cash generation from C Technologies post acquisition.

This completes our financial report and guidance update. And I will now turn the call back to the operator to open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Tycho Peterson with JPMorgan.

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Ruizhi Qin, JP Morgan Chase & Co, Research Division - Analyst [2]

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This is Julia on for Tycho. So first off, the growth factor, obviously, very strong growth this quarter. Could you give a little bit more color on what drove the strength, is the business still 4Q, or are you actually seeing accelerating adoption of IGF? And then related to that, what's your current market share of IGF and how much share do you expect to take in, say, 5 years?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [3]

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Sure. On the growth factor business, it's clear based on the work we're doing with our partner, which is MilliporeSigma, who are the distributor of the product that the accounts that have been in place over the last, let's say, 4, 5 years continue to use growth factors and as drugs moved through the clinical pipeline of those accounts, it involves increased usage. So we've seen a pickup over the last, let's say, 2 quarters in terms of growth factor demand. We think that demand for growth factor in 2019 is going to be very strong. We don't see a reason for it to slow down in 2020 or beyond. We see it as a nice double-digit growth driver for us in the company. In terms of market share, it's probably 15% to 20% market share right now and that would be our estimate.

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Ruizhi Qin, JP Morgan Chase & Co, Research Division - Analyst [4]

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Got it. That's very helpful. And then on Asia, obviously, the region is seeing a lot of momentum there. Other than the benefit from your expanded sales team, could you maybe talk to the underlying market growth and the drivers for the sustained momentum there?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [5]

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Yes, I think the story in Asia is probably very similar to the story in North America and Europe. Really, it's a reflection of the products that we have in our portfolio. When you look at ATF, you look at the Spectrum hollow fiber filters, you look at the TangenX flat sheet cassette business, maybe less so the pre-packed columns in Asia. But in general, our products are viewed as the technology standard. And so I think our sales team is doing a really good job, I think adding in the support functions in terms of [FAS] and service has really helped our customer base and we just have a very healthy pipeline of opportunities in the region.

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Ruizhi Qin, JP Morgan Chase & Co, Research Division - Analyst [6]

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Got it. Lastly from me regarding gross margins, obviously, there are a couple of moving pieces here on the one hand you have -- think C Tech will give you about 100 bps of gross margin accretion but on the other hand, you're also expanding capacity for OPUS filtration. So could you maybe break out the relative magnitude of these moving pieces? And do you see upside to your current full year gross margin guidance? And then longer term, over what timeframe do you think you can reach this 60% gross margin target?

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Jon K. Snodgres, Repligen Corporation - CFO & Secretary [7]

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Yes, we think our gross margin target is going to stay in the range of 56% to 57%. We'll definitely get an uptick from C Tech once the deal closes, but it's still going to be in that range. And then I think as we've said in prior calls, we're expecting that we're going to be adding anywhere between 20 and 40 basis points per year in terms of gross margin expansion. We think there's more room for expansion on the operating margin side for the company.

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [8]

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And we're always going to be looking for deals that are going to be accretive to that as well, similar to C Tech.

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Operator [9]

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The next question comes from Brandon Couillard with Jefferies.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [10]

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Tony, would love to get an update if you could share with us kind of where you stand as far as Spectrum revenue synergy capture at this point?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [11]

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Yes, obviously good year last year, we've lucked through the first quarter of this year, about $2.5 million of revenue synergies come through in Q1. So well on track for hitting the revenue synergy target, I think that's $5 million to $7 million in for 2019.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [12]

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And if you could maybe help us with sort of the progression of the top line over the next few quarters and you've given the tougher comps in the back half. Is it reasonable that organic growth might be sub 10% as you lap those tougher comps in the second half?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [13]

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Yes, so for sure if you look at how 2018 played out, I think our revenues were -- I think it was $44 million, $45 million in Q1, I think we're up around $48 million, $49 million in Q2. So clearly the second half of the year comps are much tougher. We're expecting as we look at this year, the total dollar amount in the first half of the year is definitely going to be higher. But I think the main contributor on the dollar side -- difference between the first half and the second half is really going to be proteins. In terms of organic growth, we expect that the organic growth is probably going to be 10% or north of 10% in the second half of the year.

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Operator [14]

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The next question comes from Drew Jones with Stephens.

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Andrew Luten Jones, Stephens Inc., Research Division - MD [15]

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Maybe just following up on that last question. If we look at the incremental guidance raise on top of that 1Q upside that we saw. And kind of given your commentary on order trends and the first half seasonal strength, should we assume that most of that increase is going to be in the second quarter?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [16]

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No, I think clearly first quarter was strong as you can tell from our commentary, we expect second quarter to be also very strong. Like every other year, you have visibility 3 to 6 months out. So we don't have like tremendous visibility to Q3 and Q4. I think when we get to the August timeframe, we're going to have much stronger visibility. We don't expect, Drew, that there's going to be a whole lot of difference in terms of -- if you look at the first half of the year versus second half of the year in filtration and chromatography, I think they're going to match up fairly closely.

I think the proteins business, we know it's first half heavy and that's something we know historically, right. And we also know that the ligands forecast from our top accounts tend to be weaker in the second half of the year. That's kind of what we've factored into our guidance. When we get a little bit more information, you know as we finish off Q2 and we get to the August call, we'll have a little bit more visibility into the proteins business in the second half of the year and be able to guide accordingly.

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Andrew Luten Jones, Stephens Inc., Research Division - MD [17]

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Great. And then Tony, you talked about the order load increase in the quarter. Could you maybe talk about the mix of that? And then also what's the timing of the transitioning of the backlog to revenue for each of the 3 segments?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [18]

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Yes. So I would say that order load across the board was really strong. So it's not one product, that's really driving the success. If we look at our filtration business, we're really pleased with the way ATF is going. Obviously, we saw that momentum in the second half of last year. That's continued through the first half here in 2019.

The flat sheet cassette business is doing really well as well. I think my commentary on being able to see -- we're seeing a lot of gene therapy accounts beginning to use our flat sheet cassette products, Spectrum even though not a whole lot of commentary on it, but the business is doing really well. I mean I think the revenue synergy number in the first quarter should indicate a little bit as to how well this product line is doing.

And then if you jump down into chromatography, I think the OPUS after a 20% growth year last year having a 40% plus growth in Q1, strong demand, a lot more visibility to what customers need in 2020 and 2021. That's driven our decision to go ahead and build out additional capacity. And I think the piece that, if you go back 2 months ago back to the February earnings call, earnings piece, we didn't have a whole lot of visibility into honestly with the proteins business. That's, obviously, come in strong in the first half of the year. And as I said a few minutes ago, we'll know a little bit more about second half of the year when we get to the August call.

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Operator [19]

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Our next question comes from Paul Knight with Janney Montgomery Scott.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [20]

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Can you go over addressable market on ATF, I'm under the impression that most systems are ATF capable but most systems do not have ATF technology. Could you talk to that market potential and size?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [21]

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Yes, I think we split the market into 2 parts, one is perfusion and then the other one is fed-batch. So perfusion represents about 25% to 30% of the overall market, fed-batch is about 70%. I think from a technology point of view, ATF is by far the market leader in doing cell retention or clarification for perfusion bio-reactors. We've seen steady -- more than steady increase in sales of our products and especially since we launched the single use product line and it should be known, it was up over 100% year-on-year.

I think the piece that we talked about last year was that the emergence of new applications for ATF that move us into the world of fed-batch. So the C Train opportunities, the use of ATF in what we call high productivity harvest, which is putting the technology onto a production bioreactor, all of those applications are beginning to gain some traction. So we think we have a lot of runway. I think we're doing really well in the perfusion part of the market. But to your earlier point, I think there's a long runway now in the world of fed-batch that we can really drive accelerated adoption of ATF into that marketplace.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [22]

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And regarding the protein business, I know that you have additional vendors. How long is that sales cycle do you think going to take for alternative outlets for protein to hit -- to see uptick, I would say?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [23]

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Yes, so like last year we signed some strategic partnerships with Navigo and with Purolite and it's clear from the early sort of feedback from Purolite, that the NGL impact to a ligand is a really good ligand in the marketplace. It's performing well on the Purolite resin. We expect this year we'll have definitely good revenue from Purolite. I think it really becomes a 2020, 2021. The more seeding they do, the more Phase 1 opportunities they get into, the more revenue that will come back to Repligen. So we feel like we're in a good spot in terms of our overall approach in the ligand business. We're absolutely reiterating this that we expect when we get to 2020 that the GE volume definitely starts to move in-house but there should be some offset on that volume as Purolite picks up in the marketplace.

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Operator [24]

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Our next question comes from John Kreger with William Blair.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [25]

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Jon, question about the updated guidance for the year. I believe you said your expected EBIT margin is going to be well below what you did in the first quarter. Can you just talk about what's driving the lower expectation for the rest of the year?

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Jon K. Snodgres, Repligen Corporation - CFO & Secretary [26]

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Yes, as we did mention in the script, we do have a lot of investments that we're putting back into the business in the second half of the year. These are going to come in the realm of operational people really to build out capacity to stay ahead of the market demand as well as on the commercial side, looking at field applications and field service people to help really support the business out there once the customers adopt and helping the customers adopt. So those are critical to the long-term growth of the company and investments that we're going to continue to make. In addition, there's going to be additional CapEx investments as we noted, a lot of these are going to be in factory capacity building up, our filtration and expanding on our OPUS capacity as we see in a really nice adoption in the market of our product. So very important investments that we're going to be making.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [27]

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Great, thank you. And then secondly, given your comments about C Technologies' accretion for the second half of 2019, would it be reasonable that a full year accretion contribution would be sort of $0.08, $0.10, $0.12?

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Jon K. Snodgres, Repligen Corporation - CFO & Secretary [28]

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No, I think as we mentioned in on the call with C Tech all -- oh, full year?

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [29]

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In other words next year.

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Jon K. Snodgres, Repligen Corporation - CFO & Secretary [30]

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Yes, we haven't really guided on 2020 at this point on EPS but I think there are going to be some additional investments going in next year as we talked about in R&D, commercial as well as in finance. So just keep that in mind as you extrapolate any of the 2017 numbers. We will be investing in that business and, obviously, those investments will come in prior to the added growth that we're going to see.

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John Charles Kreger, William Blair & Company L.L.C., Research Division - Partner & Healthcare Services Analyst [31]

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And one last one? Are you seeing any areas where you're having production constraints across your product lines, where you're not able to satisfy current order flow?

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Jon K. Snodgres, Repligen Corporation - CFO & Secretary [32]

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Sure. I think across the board, we're definitely meeting what's required from our customer point of view but I think we're moving fast to add additional capacity. I would say our main focus, John, really for the next 6 to 12 months is increasing production capacity within our large scale OPUS business. I think the acceleration we're seeing this year is pretty impressive and we need to continue to invest. So I think the big thing for us right now is adding the second shift into Massachusetts, which should happen this quarter and then that'll help on overall lead times.

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Operator [33]

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(Operator Instructions) The next question today comes from Matt Hewitt with Craig-Hallum.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [34]

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Maybe the first one kind of following on the heels of the last question answer there, regarding the cassette expansion and the new facility in Waltham, maybe an update on how that's progressing?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [35]

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Yes, so new facility in Marlborough just came on line at the end of last year, beginning of this year, it's gone really, really smoothly in the sense that the whole tech transfer from the old manufacturing site to this new one has gone well. Our teams are producing the cassettes, we're operating within the lead times that we had in 2018 and, obviously, looking to see other products that we can put into that new facility.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [36]

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Great. And then maybe one question regarding the growth factor business, you mentioned in your prepared remarks that you're seeing an uptick as some of those products are hitting later stage clinical trials. Is there any expectation for some of those and I realize you were dealing with the FDA but some of those maybe going on to commercial, getting approved, going into commercial and then so seeing additional growth as we get into '20 and beyond?

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [37]

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Yes, I think it's probably no different than 2 or 3 years ago, it really is how good is your pipeline, which products moved through, which ones finally got approved. So I think there has been a lot of good work done by the Sigma team and that's resulted in broader adoption, more adoption within the accounts where we've been successful and that's led to an uptick in overall demand.

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Operator [38]

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This concludes our question-and-answer session. I would like to turn the conference back over to Tony Hunt for any closing remarks.

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Anthony J. Hunt, Repligen Corporation - CEO, President, Director & Member of Scientific Advisory Board [39]

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I'd just like to thank everybody for joining us this morning. Obviously, a really good start to the year. I think we're really excited about having C Technologies join our Repligen colleagues as we finish off Q2, look forward to jumping back on the call in August and bringing up to speed on how we're doing for the year. And just like to thank everybody for joining again. Thank you.

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Operator [40]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.