Q1 2023 Repligen Corp Earnings Call

Participants

Anthony J. Hunt; President, CEO & Director; Repligen Corporation

Jon K. Snodgres; CFO; Repligen Corporation

Sondra S. Newman; Global Head of IR; Repligen Corporation

Brandon Couillard; Equity Analyst; Jefferies LLC, Research Division

Daniel Anthony Arias; MD & Senior Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Elizabeth Cristina Mari Garcia; US Life Science Analyst; UBS Investment Bank, Research Division

Jacob K. Johnson; MD & Analyst; Stephens Inc., Research Division

Matthew Gregory Hewitt; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division

Matthew Richard Larew; Research Analyst & Partner; William Blair & Company L.L.C., Research Division

Paul Richard Knight; MD & Senior Analyst; KeyBanc Capital Markets Inc., Research Division

Puneet Souda; Senior MD of Life Science Tools and Diagnostics & Senior Research Analyst; SVB Securities LLC, Research Division

Ruizhi Qin; Analyst; JPMorgan Chase & Co, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Repligen First Quarter of 2023 Earnings Conference Call. My name is Vyshnavi, and I will be your coordinator. (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, Head of Investor Relations for Repligen. Please go ahead.

Sondra S. Newman

Thank you, and welcome, everyone, to our first quarter of 2023 report. On this call, we will cover business highlights and financial performance for the 3-month period ended March 31, 2023, we'll also provide updates to our financial guidance for the full year. Repligen's President and CEO, Tony Hunt; and our CFO, Jon Snodgres, will deliver our report, and then we'll open the call up for Q&A.
As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly reports on Form 10-Q, our annual report on Form 10-K and the current report on Form 8-K and other filings that we make with the Securities and Exchange Commission.
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 website and on sec.gov.
Non-GAAP figures in today's report include the following: revenue growth at constant currency; gross profit and gross margin; operating expenses, including R&D and SG&A; operating income and operating margin; net income and earnings per share as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark Repligen's current results against historical performance and the performance of peers when evaluating investment opportunities. Now I'll turn the call over to Tony Hunt.

Anthony J. Hunt

Thank you, Sondra, and good morning, everyone, and welcome to our Q1 earnings call. As you saw in our press release this morning, we delivered an excellent first quarter, given the bioprocessing industry market dynamics with 7% revenue growth for our base business at constant currency and stronger-than-expected gross and operating margins. Overall revenues of $183 million for the quarter, were down 9% in constant currency due to the predicted reduction in COVID-related demands.
The story in the quarter was the performance of our Proteins and Chromatography businesses where we saw solid gains and an increased contribution from non-COVID mRNA programs in the cell and gene therapy space. COVID-related revenues came in as expected at around $23 million, a decrease of approximately 60% year-over-year.
On the orders front, we saw book-to-bill for the base business in the quarter of 0.94x. Cell and gene therapy orders were strong, up 40% sequentially and 20% versus the average quarterly order intake in 2022. The region where orders were [stopped] was China, down 40% sequentially and 60% versus a year ago. Challenges in the region were driven by a combination of inventory burn off that was built up during COVID and lower demand from CDMOs in pharma.
Based on current projections, we expect it will take another few quarters for China to return to a more normalized level of demand. Base orders in the other regions performed reasonably well in Q1, with the combined book-to-bill of 1.0x. Activity and interest at our customer level remained high with many customers scaling here in 2023. However, given the lack of order growth across the regions and the situation in China and APAC to a lesser extent, we feel it's prudent to adjust outlook for the year.
We do expect overall orders for the company to pick up in the second half of the year and continue to strengthen as we move into 2024. Our expectation now is for 4% to 8% organic growth in our base business with our COVID outlook unchanged of $30 million to $40 million. Strategically, we continue to make selective investments across our product portfolio. We see 2023 as an important year to complete several key R&D programs, and our intent is to increase our spend to approximately 6% of revenue. We have four new product launches planned by midyear, supporting our Filtration and Analytics franchises, with additional launches in the second half, positioning us well for 2024. We continue to see strong traction for many of the new products we launched in '21 and '22, which contributed 10% of our overall revenues from the first quarter. We saw strong demand for our Chromatography and Filtration Systems and a high level of activity around our most recent launch, our RPM system with in-line Analytics.
On the M&A front, we closed on the acquisition of FlexBio Systems in mid-April, giving us another play in Fluid Management with the addition of single-use bags. We have focused our M&A efforts over the last few years in building out the Fluid Management division, and we believe that Flex, Bio Systems technology in 2D and 3D bag manufacturing is a core competency for the company and something we can build upon over the next few years.
With the newly built 7000 square foot manufacturing space, we expect to increase the number of opportunities for FlexBio Systems through our dedicated commercial team. and deliver approximately $5 million in revenue this year, with the business ramping up quickly in 2024.
As we look to 2024, our goal is to be back to 20%-plus growth for our base business armed with a broader portfolio of products and returns more to historical growth levels across the regions. So moving now to our quarterly performance. As mentioned earlier, the start of the quarter was the performance of our Proteins and Chromatographic franchises and the overall performance of cell and gene therapy.
In Chromatography, our OPUS prepacked column business had an excellent quarter from orders and revenue. Overall, revenue for Chrom came in at close to 20% against a lighter comp in Q1 of last year. We saw a greater than 50% increase in revenues and orders from new modality accounts focused on mRNA, viral vector and plasmid manufacturing.
As highlighted in our year-end call, chromatography resin supply remains tight through the first three months of this year. And while our results were strong year-on-year, our base comp targeting revenues were down 15% sequentially. Our expectation is that Q2 will be similar to Q1 with revenues picking up in the second half of 2023 as more resin supply comes online.
We continue to expect our Chromatography franchise to grow approximately 10% this year.
Our Proteins business had a good quarter with year-over-year reported growth in the high single digits in Q1. The expected drop-off in [Protein A] ligands demand in first quarter was more than offset by the performance of other ligands and growth factors as we continue to transform our Proteins business with Repligen developed products. We expect Proteins to be flat here in 2023.
In Filtration, our business was down approximately 20% as reported, driven by a predicted sharp decline in COVID-related revenues. For the Base Filtration business, revenues were down less than 5% against a tough comp in Q1 last year. Base Filtration revenues in Q1 were essentially in line with the revenue in the previous quarter.
Our ARTeSYN systems and Flow Paths and XCell ATF performed well in the quarter, with their Systems and Flow Paths revenues up over 200%. New modality strength came from just cell and gene therapy, including mRNA. We are seeing the benefits of our relationships established during COVID as many of these companies have pivoted to mRNA programs in vaccines and therapeutics. We expect mRNA to be a catalyst growth over the next few years as new vaccines and therapeutics make their way through clinical trials.
Overall, Filtration orders for the quarter were down versus a year ago, which is driven by the aforementioned weakness in China and APAC where CDMO and pharma demand were soft. We expect our Filtration Franchise will start to cover during Q3 as the macro headwinds subside and customers complete their de-stocking activities.
We expect this franchise to be down 13% to 20% overall and flat top 8% on base business.
Finally, our Process Analytics business had an excellent quarter on orders, which were up over 30% year-on-year. Our revenues were up slightly versus prior year the order growth rate is very encouraging. We continue to expect this business to deliver 15% to 20% growth here in 2023. So overall, we're off to a solid start to the year. However, given the macro environment, 2023 will be a challenging year for our industry and for the company. Repligen continues to be well positioned with a great suite of innovative products and strong traction in key areas of the market to manage through the next 6 to 9 months. We do expect to see order pickup during the second half of the year, which will put us in a good position for 2024.
We remain very optimistic about the medium- to longer-term potential in bioprocessing once we navigate through the next few quarters. With that, I will turn the call over to Jon for the financial update.

Jon K. Snodgres

Thank you, Tony, and good day, everyone. Today we are we are reporting our financial results for the first quarter of 2023 as well as updating our financial guidance for the year. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we delivered revenue of $182.7 million in the first quarter. The highlight continues to be the performance of our Base business, which grew by 7% at constant currency driven by the performance of our Chromatography and Proteins businesses, despite challenging market conditions.
For the first quarter, our total revenue decreased by 12% as reported and 9% in constant currency. FX impact for the quarter was about $5 million, creating a 3-point headwind on reported growth. Based on current conditions, we expect FX headwinds to continue through the first half of 2023 and then shift to tailwinds from the second half, netting out to a 0 impact for the full year.
For our overall revenue performance, we saw year-over-year reduction in COVID revenue of $30 million. This was partially offset by performance in our base business, which grew by $10 million or 4% as reported and 7% in constant currency. As it relates to regional revenue growth, we saw strong performance in Asia, with Europe and North America down as expected due to COVID revenue declines.
For the quarter, overall revenues from Asia Rest of World increased by 21%, while North America and Europe contracted by 15% and 21%, respectively. While revenue growth in Asia was strong, orders in the region, especially in China, dropped out significantly, setting us up for a tougher last three quarters in 2023 from this region.
Regarding overall revenue distribution by region for the first quarter, Asia represented 23%, Europe represented 39% and North America represented 38% of our global business. Now moving down our income statement. First quarter 2023 adjusted gross profit was $100.8 million, a reduction of $23.8 million or 19% compared to the 2022 first quarter. Adjusted gross margin of 55.2% in the quarter, was down from 60.4% in the 2022 first quarter. Gross margin declines compared to 2022 first quarter are related to volume deleverage, less favorable product mix tied to COVID revenue declines, material cost inflation and higher expenses tied to our capacity expansions.
Sequentially, gross margins in the quarter improved by 370 basis points from our fourth quarter 2022 performance of 51.5%, driven by improved product mix benefiting our material costs, price increases covering material cost inflation from suppliers and operational cost optimization in our business.
Now transitioning down the P&L to adjusted operating expenses. Adjusted research and development expenses for the first quarter of 2023 were 6.7% of revenue. As Tony mentioned, we are focused on ramping up our R&D efforts here in 2023 in order to launch key new products into the market this year with our primary focus areas being Filtration and Systems.
Adjusted SG&A expenses for the first quarter of 2023 were 26% of total revenue compared to 22% in the same '22 period. Year-over-year percentage increases are tied to capacity expansion and investments in commercial resources to continue to drive growth and market share gains in the short and long term. Now moving to adjusted earnings and EPS.
First quarter of 2023 operating income was $40.9 million compared to $67.4 million in the prior year quarter. adjusted operating margin was 22.4% compared to 32.6% in the same prior year period. Adjusted net income for the first quarter of 2023 was $36.3 million compared to $53.7 million in the same quarter of 2022, a 32% reduction.
Adjusted fully diluted EPS for the first quarter of 2023 was $0.64 compared to $0.92 in the same '22 period, a decline of $0.28 or 31%. Our cash, cash equivalents and short-term investments, which are GAAP metrics, totaled $618 million at March 31, 2023.
We'll now transition to our 2023 full year guidance. Our GAAP to non-GAAP reconciliations for our 2023 financial guidance are included in the reconciliation tables in today's earnings press release. As previously mentioned, unless otherwise noted, all 2023 financial guidance discussed will be non-GAAP. Please also keep in mind that our 2023 guidance may be impacted by fluctuations in foreign exchange rates beyond our current projection of flat on full year sales and includes financial estimates for our FlexBiosys acquisition closed on April 17.
Guidance does not include the potential impact of any future acquisitions that the company may pursue. Based on our current view of market conditions, we are revising our 2023 full year revenue guidance, a GAAP metric, to a range of $720 million to $760 million, a reduction of $40 million at midpoint compared to our February guidance. This revised guidance reflects overall reported and constant currency growth of minus 10% to minus 5% and organic growth of minus 11% to minus 6%.
Our overall revenue guidance includes COVID revenues of $30 million to $40 million, consistent with our February guidance, and we have included $5 million of revenue from our FlexBiosys acquisition. We are updating our base business revenue guidance to a range of $685 million to $715 million, growing at 4% to 8% as reported and at constant currency. This compares to our February guidance of $730 million to $760 million, growing at 11% to 15% as reported and 12% to 16% at constant currency.
We are revising our 2023 adjusted gross margin guidance to the range of 52% to 53%, a 50 basis point reduction from our previous guidance of 52.5% to 53.5%, driven primarily by lower revenue projections for the year. We are modifying our adjusted operating income guidance to a range of $153 million to $158 million for the [$23.5 million] at midpoint from our February guidance of $176 million to $182 million.
Our adjusted operating margin guidance is now in the range of 20.5% to 21.5% for the year compared with our February guidance range of 22.5% to 23.5% of revenue. Adjusted other income guidance is being increased to $14 million compared to prior guidance of $10 million, and we continue to expect 2023 adjusted income tax expense to be approximately 20% of adjusted pretax income.
We are revising our adjusted net income guidance to the range of $134 million to $138 million, a difference of $15.5 million at midpoint from our February guidance of $149 million to $154 million. We are revising our adjusted EPS guidance to the range of $2.35 to $2.42 per fully diluted share, a reduction of $0.27 from our previous guidance of $2.61 to $2.69.
Our adjusted EPS guidance assumes 57.1 million weighted average fully diluted shares outstanding at year-end 2023. Adjusted EBITDA is now expected to be in the range of $190 million to $194 million, a reduction of $24 million at midpoint from our prior guidance of $213 million to $219 million with depreciation and intangible amortization expense is expected to be approximately $35.7 million and $30.2 million, respectively.
Adjusted EBITDA margins continue to be strong and are expected to be in the range of 25.5% to 26.5% for the year, reflective of the exclusion of fixed depreciation costs for our capacity expansions from this metric. We expect year-end cash and cash equivalents, a GAAP metric, to be in the range of $620 million to $640 million, with $60 million of CapEx investments being fully funded by cash generation from our operations.
This revised any cash figures inclusive of cash payments made for our April acquisition of FlexBiosys. This completes our financial report and guidance update, and I will now turn the call back to the operator to open lines for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Dan Arias with Stifel.

Daniel Anthony Arias

Tony, maybe just to start on where things might be improving a little bit here. Is there an overlap between the new modality accounts where you're seeing a pickup in order activity and those that look to be some of the heavy inventory builders during the COVID trough? Or do you feel like those two dynamics are separate right now? And
then within that is this question of small and emerging biotech just given where those companies tend to play, how should we extrapolate the comments there to that customer bucket overall? Obviously, there is quite a bit of discussion on that subset last week.

Anthony J. Hunt

Yes. So thanks, Dan. So to answer your first question, I don't think they're related between any kind of inventory buildup would be going in the companies that were involved in COVID plus the company is focusing on mRNA and new indications. So there is -- a significant number of companies that have really focused on new mRNA-based vaccines, mRNA-based therapeutics, I think a lot of the work we've done over the last 2 or 3 years put us in a good position to be able to get involved in many of those programs, and that's kind of setting itself well in terms of what you saw in terms of revenue growth and order growth.
And I think that's, again, going to be a nice catalyst for us as we go through the next few years. On the small emerging biotech, no revenue sort of discussion from last week, where -- when we look at our accounts, right, the most exposure that we have is probably in the cell and gene therapy space. And obviously, there's some exposure in the biotech that are working on (inaudible) as well.
So we're at the -- just a little north of 10% of our revenue comes from the small biotechs with one caveat, right? We -- that does not include what percent of CDMOs focuses on small biotechs. We just don't have any idea how we would split our CDMO revenue into small biotech versus large biotech. So -- but in general, it's like a little north of 10%, closer to 10%.

Daniel Anthony Arias

Okay. Helpful. And then just maybe on some of the comments that you have made around relationships that were made during the pandemic. One of the pieces in the equation seems to be this idea that there may have been some share shifts or just new business wins during COVID as some of the larger players felt themselves constrained. Now that we're decently removed from the (inaudible) situation, can you maybe just comment on what you're seeing from your seat in terms of share gains do you think should stick versus business that maybe moves back to the big guys? Anything notable that you're taking away just in terms of the current state of affairs there?

Anthony J. Hunt

I would say that for the most part, the players that we were deeply involved with during COVID have continued to work with us. And I can't honestly say that they were share gains. We had the right products with the right capacity to be able to serve many of the companies that we're deeply involved in COVID vaccine manufacturing. The relationships with those companies have continued, and that's rolled into other programs. And we continue to get our share of those opportunities, and all the other players in bioprocessing are also working with those companies as well.
So it's not like this it's unique to Repligen. I think the broader comment I would make is that the overall market, it's a tough market out there. And everybody is kind of working -- every company in the bioprocessing space is working hard to secure orders and get traction at various accounts. But it's just a tough macro environment right now that everybody is working through.

Operator

The next question comes from Jacob Johnson with Stephens.

Jacob K. Johnson

Tony, maybe starting off where you just ended on a tough macro environment and the weakness in Asia Pacific. Can you just unpack what you're seeing from that region? It sounds like some of this is de-stocking, but I think there's also been some scuttlebutt around local competition in China, maybe some re-shoring going on to. Just what -- can you unpack what you're seeing in Asia Pacific?

Anthony J. Hunt

Yes, just to be very specific about it, most of the challenges we are seeing are in China. And if we look at the order patterns that we saw in 2022, China and APAC kind of falls very much in line with what we saw in North America and Europe with a strong first half of the year and then dipping down in Q3, China recovered in Q4, then dipped down significantly in Q1 up this year. And our view of it is that it is a combination of stocking that happened not because -- because of COVID, it's not because of COVID vaccine manufacturing, just that there was such a start-stop in China throughout the second half of last year that I don't think that the amount of product that was procured in the first half was just actually used for the manufacturing that may be scheduled for the year.
That said, I do think that there's a bit of a reset going on in China. And we think that demand is soft, and it's beyond just de-stocking, just demand has been relatively soft. We had a good quarter on revenue, but the orders were weak, and we expect that that's going to continue through most of the year.
On the competition side, there's always going to be local competition in China. That hasn't changed over the last 5, 10 years, and there are more players popping up. So there's always that -- there's always going to be some competition and some probably changes in share, but it's not a primary or secondary reason what we're observing right now.

Jacob K. Johnson

Got it. And then just the follow-up, going back to last week, I think one of your peers talked about kind of less visibility in the current environment. I'd just be curious kind of how you compare contrast your visibility right now versus maybe pre-COVID, especially in light of the comment around kind of 20% -- returning to 20% growth in 2024, kind of what gives you confidence in that?

Anthony J. Hunt

Yes, what's good about our industry is there's a ton of activity going on. There's a lot of scale-up happening, North America, Europe, Asia. The conversations we have with our customers is definitely about projects and timing and the scale of activities that they're going through. So lots of opportunities. Our funnel of opportunity continues to strengthen.
What we have seen and I think other companies in bioprocessing have also commented on this, is that it's taking a little longer for those orders to materialize. We're seeing projects getting pushed out into the second half of the year and into early 2024. We're seeing just longer just time to get orders secured versus what we might have seen over the last three or four years. So that's really the dynamic. We're not seeing any kind of slowdown in a overall activity of the accounts. It's just a timing issue, and it's also some project delays.

Operator

The next question comes from Puneet Souda with SVB Securities.

Puneet Souda

So maybe just first one, I appreciate the comments on emerging biotech being about 10%. But just could you remind us what's your exposure for Phase I and II? Obviously, that's an important question. And sort of what you're seeing within that segment for you? Obviously, you've been levered to more of the innovators and early adopters of the technologies in Phase I and II.

Anthony J. Hunt

Yes. So maybe a broader way of answering that question, Puneet. I think in general, like 65% of our revenue comes from clinical, 35% is coming from commercial and that's ex COVID, so that's looking at our base business. I don't have a split on Phase I and II, but you could assume that our 10% emerging biotech is all preclinical Phase I, Phase II, a small -- maybe a small percent is in Phase III. But that's -- that would be my sense. And again, I would add the caveat that we don't know what percent of the CDMO part of our customer base, how much of that is serving small biotech as a percent.

Puneet Souda

Got it. And then just a clarification on, excluding FlexBiosys, should we be looking at a 3% to 7% guide for the year versus 4% to 8%? Just wanted to confirm that. And then, Tony, on the resin side, it seems like things are improving. But obviously, you're pointing out that this is still a recovery into the second half, things should improve more. Can you just elaborate a bit on your conversations and sort of the visibility that you have for the Chromatography segment and the drop shipments that you're getting?

Anthony J. Hunt

Yes. So the 4% to 8% does not include the impact of Flex, right? So it's 4% to 8% on base. The resin supply, I think was tight throughout Q1, right? I think we -- in our February call for the year-end 2022, we called out that we had seen a slowdown in terms of resin supply versus what we saw in Q3, Q4 of last year, and that's why I provided that 15% sequential drop off in revenue versus Q4.
That said, our conversations are indicating that as we move through Q2 and into Q3, supply is going to get better. So we feel fairly confident based on the conversations that we've been having that things will start to open up in the second half of the year. Our order -- the order strength on our prepacked comp has stayed high. And so we have a nice backlog of orders that need to be fulfilled, but it's all dependent on drop shipping of resin. And again, we expect that to open up in the second half of the year.

Operator

The next question comes from Julia Qin with JPM Chase.

Ruizhi Qin

So Tony, I want to follow-up on the order trends you mentioned, book-to-bill during the quarter was 0.94x, some strength at mRNA customers. Could you talk about the order trends, excluding mRNA customers? And what have you been seeing in terms of book-to-bill coming out of 1Q? And generally, what's order trend through the rest of the year? And then in light of the pressures that you mentioned, how is pricing trending versus your prior expectations?

Anthony J. Hunt

Can you repeat the last part, again, Julia? I missed up.

Ruizhi Qin

How is pricing holding up versus your prior expectation?

Anthony J. Hunt

Okay. Let me start with pricing. Pricing has held up pretty well. It's covering our inflation. So I think that's going exactly the way Jon and myself and the team figured it would play out here in 2023. On the book-to-bill, I know that -- I would say that -- it's -- I don't have the exact book-to-bill without mRNA. But obviously, it will be a little lower than the 0.94x, but it's not a massive contributor.
Obviously, this is a market that's just taking off. So beyond the fact that we're getting really strong traction and actually reasonable orders, multimillion dollar-type orders, I -- it's just not big enough to really move the needle up or down. So it's -- there's nothing really a whole lot less, maybe it's 0.9x, I'm not sure exactly, but it's not a big detractor when you take it out.

Order trends, we're expecting that orders will pick up in the second half of the year. But it's slower pace than what I think we all thought back in February. So that's really the piece that we all have to keep an eye on as we go through Q2 and we get into Q3 and Q4. But the expectation is that the orders will pick up in the second half of the year, and that will contribute towards overall revenue for us in 2023 and obviously sets us up for a better 2024. .

Ruizhi Qin

Got it. That's helpful. And then a follow-up on China dynamics. Are you seeing any differences in terms of activity or order patterns between different types of customers or between your different product lines? And within your guidance, what kind of recovery expectation have you baked in? And if any, what supports your confidence for a return to normal in China?

Anthony J. Hunt

Yes. In China, it is a challenging situation. I would say the CDMOs in China are down more than the pharma companies. That said, it's a significant drop-off in what I think everybody was expecting for the year. So we have taken out -- we've de-risked China for the year. We expect that orders will start to pick up in Q4, but not soon enough to have any meaningful contribution to Q4 revenue. But the conversations we're having with customers is still around a lot of activity and investment, and I don't think there's anyone in bioprocessing that believes that China is going to stay in a prolonged slow.
I think this is a few quarters that everybody has to work or at least we have to work through only speak to our situation in China. And we expect that, that will get carried out by the end of the year and returns to more normal growth rates that we've seen in the past for China, even pre-COVID.

Operator

The next question comes from Matt Larew with William Blair.

Matthew Richard Larew

So just thinking about the guidance reduction here and trying to assess whether there might be additional risk or not for the guidance of the balance of the year. When you talk about an expectation for orders picking up in the second half of the year, could you give us a sense just for what underlies that? Is it sort of actual on-the-ground order activity? Is it customer surveys assessment of product shelf lives within customer inventory, more qualitative conversations? Just what are the kind of other metrics internally that treat into that optimism for the second half of the year?

Anthony J. Hunt

Yes. I think that we look at our funnel and we look at the progression of opportunities as those opportunities move through the funnel up to the higher probability level that is getting better. We are talking to a lot of customers around second half of the year programs and activity. So again, that gives us some confidence. So it's really based on the feet on the street and conversations that we expect that the second half of the year is going to pick up. And obviously, as we go through the next 3, 6 months, we'll absolutely see if all of that's going to materialize or not.

Matthew Richard Larew

Okay. And then just for Jon, your gross margins were obviously strong in the first quarter. I assume COVID maybe was a part of that. But I think to sort of balance the year, it looks like the guide would imply something at 51.5%. The initial conversation for the year, I think, was to start at 51% and then build throughout the year.
I think the quarterly revenues for Q2 through Q4 are just based on guidance above that within Q1. Again, I know the majority of COVID was in Q1. But maybe just help us understand what exactly is going on from a gross margin perspective for the rest of the year?

Jon K. Snodgres

Sure. Just to give a little bit of color on Q1, Q1 came in with a better product mix than we were originally projecting. So our Proteins came in a bit higher. Our OPUS revenues came in a bit lower with some of the pressure on resin supply being a little bit more than we even expected. And then we had some favorable product mix within our overall Filtration business, so a higher mix consumable products versus equipment. So that was a positive.
The challenge with that though is as we move through the year, we expect that to correct itself and go back to the original budget assumption for the full year. So that's creating some pressure on mix in the second half of the year. The other thing is we've taken $40 million out of our top line revenue at midpoint. And with that, most of -- the cost that drops out all is just your material costs, right, all your overhead costs, facilities costs and all those types of things do not come out of the equation.
So as we see that dropping through, that's putting pressure on the overall margins. And I'll call it, volume deleverage, right, as the major headwind there. So those are the drivers. The revenue impact in the second half of the year, we expect to be stronger than the first half of the year for overall revenue. But again, with some of these other headwinds bringing down the overall revenue projection, that's the impact.
And if you look at phasing, we expect the phasing on the gross margin at roughly 51.5% at midpoint should be a good gauge for -- through the rest of the year at this point.

Operator

The next question comes from Paul Knight with KeyBanc.

Paul Richard Knight

Could you give us a little color -- I know you're building a factory or you're positioning a product to get to the next year's growth. So what should we think about for 2024? Is it C Technologies? Is it Fluid Management? Is it ARTeSYN or expansion of manufacturing at the hollow fiber -- I mean, what are kind of the three levers you were looking at and doing this year to get ready for '24?

Anthony J. Hunt

Yes. Great question, Paul. I think that when you look at it, I think it's exactly the three areas that you've highlighted. I think Fluid Management is a big lever for us, right? Obviously, there is a clear de-stocking challenge that goes on with the component side of Fluid Management. We're investing very heavily on the assembly side of Fluid Management. We expect that, that's going to be a growth driver for us next year. There's a lot of work going into our Systems portfolio. And ever since we did the acquisition of ARTeSYN, we've been really trying to transform that business from a custom system shop to a more standardized system shop, which we were able to do for the most part in 2022.
But what we're trying to do right now is continue to build out the overall Systems portfolio, whether it's the benchtop characterized that have been around for a number of years that came out of Spectrum deal by adding in Advanced Analytics. It's the combination of Advanced Analytics with our Systems, that's going to be a big driver for us next year. And then there are some other products that we'll talk about as we go through the year that I think will serve as a catalyst for growth for us.
But you can see that the evolution of the company is really happening, right? If you went back 2 years ago, Paul, you would see us as an individual product-by-product company. And now we're a lot more integrated between our consumables and our Systems and our Fluid Management solution. So it's that kind of integrated offering that I think is going to be a driver for us when we go into 2024.

Operator

Our next question comes from Liza Garcia with UBS.

Elizabeth Cristina Mari Garcia

So I think you guys called out that new products were about 10% of revenue this quarter. Is 14% kind of still the right number to think about for this year? Kind of how are you guys thinking about 2023 and kind of the new product build? I know you guys also kind of threw in the new acquisition this year.

Anthony J. Hunt

I think 14% is still a very good number for the year. Remember, a number of the products were launched in mid to late last year. So picking up at around 10%, I think, is very encouraging. And I fully expect that we'll be closer to that 14% by the time we get to the end of the year.

Elizabeth Cristina Mari Garcia

Great. And then I think last quarter, you kind of discussed the order book by customer type kind of thinking about pharma versus CDMO. And I don't know if you have these numbers at your fingertips, but maybe are you able to even speak qualitatively about kind of where kind of the book-to-bill ratios are and kind of thinking about parsing between those two customer types and kind of where we sit?

Anthony J. Hunt

Yes, a little bad. I would say that on the CDMO side for the sort of second quarter in a row, we saw a positive uptick, which is encouraging, but not back to where we were a year ago. So there's a bit of a journey that we all have to go on to get to see CDMOs back to where CDMOs work, right? And clearly having a very low order book in China and APAC didn't help on that, right?
So -- but in general, CDMOs have moved back up. I think if you look at pharma -- if you take pharma, excluding China, APAC, I think pharma in Q1 versus the average pharma intake in 2022 is pretty much in line. So we had an outstanding Q4. It was lower in Q1, but versus the average order intake where pharma was strong last year, it was very much in line.

Operator

The next question comes from Matt Hewitt with Craig-Hallum Capital Group.

Matthew Gregory Hewitt

Maybe first up, I'm just curious what feedback you've gotten on the large-scale controller that you launched during the quarter. How do you expect that to ramp over the course of the year?

Anthony J. Hunt

Yes. This is just an evolution really our ATF portfolio. So we've been making probably custom large-scale controllers for a handful of companies over the last 12 to 18 months. Feedback from those companies has been really, really very positive. And so we did a technical launch of it in Q1. We'll probably start to see more of a marketing launch done on the controllers as we go through Q2 here.
But in general, it's a modernization of ATF. We've done that on the lab controller, which was done really last year, large-scale control risk, which are for the much larger ATF units is what's happening right now. It's -- I think our customers expect it, they want it, they'd like what we've added in terms of feature sets. And I think it's a lot more around ease-of-use customer satisfaction than anything else. But it's where we should be checking that portfolio.

Matthew Gregory Hewitt

Got it. And I guess, along those lines, as you look at the remainder of the year in the number of launches products that you plan to introduce to the market, is that -- are the majority of those more evolution-type products? Or is there one or two in there that you think could really move the needle as you get into '24 and beyond?

Anthony J. Hunt

There's definitely some transformative products that are going to get launched this year, but it's going to take a little while. I remember when we had those conversations, Matt, about TFDF and how long it takes to get market traction, I just think it takes a while even when you have some great products to get customers to not only adopt but start to platform the technologies at an account. So you get into a process, but what you really want to be as a platform, we have a number of products this year that I would say are disruptive products.
And I think we're looking forward to getting those into the market. Expect that what we're going to be talking about as we go through the year is really around Systems, Analytics and Filtration products. They're kind of the buckets where most of the products fall

Operator

The next question comes from Brandon Couillard with Jefferies.

Brandon Couillard

Tony, just on China, will you remind us how big China is as a percent of the mix? What were you assuming for growth there previously and what's embedded in the new guide? And longer term, do you think you need to have more in China for China manufacturing to be competitive locally?

Anthony J. Hunt

Yes. Great question, Brandon. In general, our China exposure was about 10% of revenue last year. So that kind of gives you an idea of how big China is for Repligen, has grown quite rapidly. That 10% did include COVID-related accounts as well. In terms of assumptions going into this year, I don't have the exact growth at my fingertips, but it would have been probably on base business, probably close to 20% growth going into the year.
Clearly, that's going to be a real challenge, given the dynamics that we're dealing with. The in China for China, that's a -- clearly, there is plenty of manufacturing going on at our peer level and also with other local competitors in China, and that's something that we talk about internally. But right now, I think we're continuing to manufacture outside the region. And with a really great team in China, we've been able to compete well.
It doesn't mean we won't do manufacturing in China in the future. It's just where we are today.

Operator

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

Anthony J. Hunt

Thanks, everybody, for joining. Good discussions today. Look forward to connecting with everybody in a few months' time and talking through how first half of the year has gone for us. So thanks, everybody, for joining.

Operator

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