RGEN
#Thank you, <UNK>.
Good morning, everybody.
Overall we're very pleased with the performance of the Company in quarter one.
Given the breakout year we had in 2015, where our overall revenue grew 38%, it is very encouraging that our end-markets have remained strong and we achieved 21% top-line growth and a record quarter for revenue of $25.1 million.
Our direct sales products, particularly our ATF filtration systems and OPUS pre-packed chromatography columns, were the clear drivers of growth in the first quarter, with our ligands and growth factor businesses coming in on target.
We also delivered strong operational performance for the Company in the quarter.
While our gross margins were a little bit below our full-year guidance range, we were able to leverage the investments we made in 2015 in SG&A, which resulted in 20% year-on-year growth in adjusted net income, and $0.02 higher to $0.14 on adjusted EPS when you exclude the nonoperational FX expense impact.
Before jumping into the business details and the highlights of Q1, I want to spend a few minutes on our strategic priorities for the year and, in particular, the acquisition of Atoll GmbH.
Going into 2016, a key priority for us was to strengthen our core businesses through acquisitions or strategic partnerships.
Our M&A strategy is very focused on bringing new technology offerings to our customer base and market leadership in several core areas.
In the case of Atoll, this acquisition brings us technology and market leadership in pre-packed columns in the high throughput process development labs, which is an area we did not address with our OPUS portfolio.
The acquisition moves us into the market leadership position now for pre-packed columns.
The demand for these products is accelerating rapidly, and our customers will now benefit from end-to-end solutions from process development through to commercial-scale manufacturing.
In addition, we like to acquire companies that are underinvested in specific areas.
In the case of Atoll, they had just started to build out their commercial team, whereas we had made a significant investment in this area that could be easily leveraged, given the overlap in customer call points.
A key benefit of the deal is that we will now have a Central European presence where we can invest and build out the Weingarten, Germany, facility to not only manufacture the full portfolio of pre-packed columns but also be a customer-facing hub for our direct portfolio of products, providing increased service and support for our European customers.
To help drive the success of the acquisition, we brought onboard a well-respected leader in bioprocessing, Vikas Gupta.
Vikas spent the last 11 years at Millipore and GE driving integrations and the growth of single-use and disposable technologies.
He is now leading our integration efforts as VP of Business Development.
I've spent time since the deal was announced traveling to Germany and meeting with the management team to discuss our plans for 2016.
I am excited about the acquisition, the expanded customer base, the portfolio, the passion of the people who have a shared vision with us on serving the pre-packed column community.
As we move through 2016, we will continue to assess assets and opportunity to add to our growing portfolio of market-leading technologies.
Turning now to the quarter, we had an excellent performance highlighted by increased demand for our OPUS and ATF products.
We entered 2016 with a strong order load for OPUS.
The momentum continued throughout Q1, with increased demand from our existing customers and new customer adoption of the technology.
Based on these developments, we accelerated our plans to bring on additional capacity.
The first new OPUS production suite came online at the end of April ahead of schedule, and we are now planning to add additional capacity by the end of Q3.
In Q1 we had a significant number of OPUS 60 column quarters, including the first OPUS columns specified for a commercial production process and a small but growing number of large-scale biopharma customers committing 100% to OPUS, important milestones for the technology and for our Company.
Our pre-packed column business is clearly accelerating, and we now expect growth in excess of 50% for the year.
Our advanced filtration business also performed ahead of plan in Q1, with Europe and Asia driving this growth.
In China, we had a number of large-scale implementations of ATF in late-stage processes.
This validation of the technology by large biopharma customers throughout 2015 and here again in 2016 is fueling an expansion and broadening of our customer base.
We believe we can drive further expansion and increase overall adoption of the technology through the launch of our single-use products.
We are making good progress on single-use ATF, with the first set of beta customers up and running and providing very positive feedback.
We expect to be out in the market with this product by the end of the quarter or early Q3.
Our growth factor business continues to show good progress, and we expect to also have a good year based on customers scaling up and expansion plans at existing accounts.
Our Protein A ligands business came in as expected.
We started the quarter by negotiating long-term supply agreements with our major customers.
We finished the quarter with a new supply agreement with Purolite as that company moves into the Protein A resin market.
Growth in our affinity ligands business continues to align with the market for monoclonal antibodies, where we are very encouraged by the continued approvals.
Already this year four monoclonal antibodies have been approved, including the first approval in the US for a mAb-based biosimilar.
So in conclusion, we continue to execute on our strategic priorities.
We're adding here in Q2 to our commercial organization with new headcounts in Europe and in Asia.
We're increasing capacity in our Waltham facility to keep up with robust demand for our pre-packed column line, and we have executed on a strategic acquisition by adding the Atoll products to our growing portfolio.
The outlook for the year is very positive, and we are raising our revenue guidance to $98 million to $102 million, which gives us overall growth of 17% to 22% and includes the contribution from Atoll GmbH.
Our brand awareness continues to increase, our end markets are strong, and we're off to an excellent start both in Q1 and here in Q2, which positions us well for future growth and expansion.
I'll turn the call over to <UNK> for a financial update.
Thank you, <UNK>.
Good morning.
Today we are reporting our financial results for the first quarter of 2016 and updating our financial guidance for the year.
I will start with our first-quarter results.
Our financial results for the first quarter of 2016 were highlighted by strong sales of our bioprocessing products.
We reported product revenue of $25.1 million, an increase of 21% at constant currency and as-reported compared to the first quarter of 2015.
In the quarter, we realized strong growth in our OPUS and ATF product lines.
Geographically, we experienced double-digit sales growth in each of our primary regions of North America, Europe, and Asia.
Our product gross profit for the first quarter was $14 million, an increase of $1.3 million or 10% over the first quarter of 2015.
Our product gross margin was 55.9% in the first quarter of 2016 compared to 61.2% in 2015.
The change in year-over-year gross margin is a result of product mix, predominantly driven by higher sales of OPUS, and from the impact of operational investments made in our facilities starting in 2015 to support the growing demand for our products.
Now moving on to operating expenses, research and development expenses were $1.5 million for the first quarter of 2016, consistent with the first quarter of 2015.
We expect R&D expenses to increase in the following quarters as we continue to invest in key product development and validation programs, including single-use ATF and OPUS.
SG&A expenses increased to $7 million in the first quarter of 2016 from $6 million in the first quarter of 2015.
The year-over-year increase was driven by Atoll acquisition costs of $0.4 million during the first quarter of 2016 and the increased investments made in 2015 to expand our commercial organization, operating teams, and systems infrastructure to support the ongoing growth of the Company.
Also included in our first-quarter operating expenses is an additional $2 million of contingent consideration expense based on the increased probability of achieving the ATF sales milestones for 2016, the Company's final year of contingent consideration obligation under the Refine asset purchase agreement.
We are now holding an accrual of $4 million on our balance sheet, representing 95% of the $4.25 million potential fixed component payout, or 73% of the $5.55 million total potential payout for 2016.
In the event that the ATF sales milestone for 2016 is not achieved, the Company will reverse the $4 million accrual.
Operating expenses for the first quarter of 2016 were $10.6 million compared to $8.7 million in the first quarter of 2015.
This includes the aforementioned $2.4 million of Atoll acquisition and Refine contingent consideration expenses recorded in the first quarter of 2016 and the $1.1 million of Refine contingent consideration recorded in the first quarter of 2015.
Moving now to income and earnings for the quarter, adjusted operating income for the first quarter grew to $5.9 million, an increase of $0.7 million or 14% compared to $5.1 million for the first quarter of 2015.
This increase was driven by margin pull-through from our year-over-year sales growth, resulting in first-quarter operating margin of 23.4%.
Adjustments to operating income include the aforementioned Atoll acquisition and Refine contingent consideration expenses.
On a GAAP basis, operating income was $3.5 million in the first quarter of 2016 compared to $4 million for the first quarter of 2015.
Income tax expenses totaled $0.9 million or 36% of pretax income.
This higher than normal first-quarter tax rate is the direct result of the impact of the $2 million of contingent consideration expense recorded in our US facility that drove the US entity into a loss position for the quarter.
Adjusted net income for the first quarter of 2016 was $4 million, consistent the first quarter of 2015.
Adjustments to net income include the aforementioned Atoll acquisition and Refine contingent consideration expenses.
On a GAAP basis, net income for the first quarter of 2016 was $1.6 million compared to $2.9 million in the same quarter of 2015.
Both adjusted and GAAP net income include $0.7 million of tax-effected nonoperating foreign exchange charges in the first quarter of 2016 compared to a gain of $0.1 million in 2015.
Adjusted non-GAAP earnings per fully diluted share in the first quarter of 2016 were $0.12, consistent with the first quarter of 2015.
Adjustments to diluted EPS include $0.07 from the previously mentioned contingent consideration and Atoll acquisition expenses in the first quarter of 2016, and $0.03 from contingent consideration expense in the first quarter of 2015.
On a GAAP basis, first-quarter 2016 fully diluted EPS was $0.05, a year-over-year reduction of $0.04.
Both adjusted GAAP and fully diluted EPS include the $0.02 impact of the previously mentioned tax-effected nonoperational foreign exchange charges.
Adjusted EBITDA for the first quarter of 2016 was $6 million compared to $6.4 million for the first quarter of 2015.
Adjustments from EBITDA include the aforementioned Atoll acquisition and Refine contingent consideration expenses.
EBITDA for the first quarter of 2016 was $3.6 million compared to $5.3 million in the first quarter of 2015.
Our cash, cash equivalents, and marketable securities at March 31, 2016, were $70.9 million, reflecting net usage of cash of $2.5 million from year-end 2015.
Usages of cash in the first quarter include the payment of the 2015 Refine contingent consideration earnout, payment of annual incentive bonuses, and increases in working capital supporting sales growth.
Now we'll move to full-year 2016 guidance.
Please keep in mind that our 2016 guidance may be impacted by fluctuations in foreign exchange rates beyond the current expectation of flat levels and does not include the potential impact of additional Refine or Atoll contingent consideration expenses, a potential reversal of the $4 million contingent consideration expense accrued during 2015 and in the first quarter of 2016, or potential new acquisitions.
Our 2016 guidance will include the financials of Atoll GmbH, which we acquired on April 1, 2016.
We are expecting sales of $3 million to $3.5 million, and slightly above breakeven adjusted net income from the newly acquired business.
In addition, we expect to incur $1.5 million of Atoll acquisition and integration expenses in our SG&A expenses for the year, inclusive of the $0.4 million reflected in our first-quarter results.
Today we are raising our total revenue guidance to $98 million to $102 million, an increase from our previous guidance of $93 million to $96 million.
Our revenue projection for 2016 reflects growth in the range of 17% to 22% on a constant-currency basis, an increase from our previous guidance of 12% to 16% at constant currency.
Currently, we do not expect any meaningful impact on our revenue results from foreign currency exchange.
We're holding our gross margin guidance to 57% to 59%, consistent with our previous guidance.
Operating expenses are expected to be in the range of $37.5 million to $39.5 million for the year 2016.
This includes increased operating expenses associated with the Atoll ongoing business, and the previously mentioned $1.5 million of Atoll acquisition and integration expenses, and the $2 million of Refine contingent consideration expense recorded in the first quarter.
Included in our operating expense guidance is R&D expense of $7 million, SG&A expenses of $28.5 million to $30.5 million, and contingent consideration of $2 million.
We are guiding to adjusted operating income of $21.5 million to $23.5 million, an increase from our previous guidance of $20 million to $22 million.
Our adjusted operating income guidance includes the aforementioned additional revenue projections and excludes the $3.5 million of expected Atoll acquisition and integration and contingent consideration expenses.
Our GAAP operating income guidance for 2016 is $18 million to $20 million.
We are guiding a slight uptick in income tax expense to $5 million to $5.5 million, based on the expectation of additional noncash tax provision of approximately $0.2 million to $0.3 million in 2016, associated with acquisition accounting for Atoll.
The tax accruals will be spread through the remainder of 2016, and we expect them to continue on an ongoing basis.
Adjusted net income for 2016 is expected to be $15.5 million to $17.5 million, an increase from our prior guidance of $15 million to $17 million.
Our adjusted net income guidance includes the aforementioned additional revenue projections and excludes the $3.5 million of expected Atoll acquisition and integration and Refine contingent consideration expenses.
Our GAAP net income is projected to be $12 million to $14 million.
Both GAAP and adjusted non-GAAP net income guidance include the $7 million tax-effected impact of nonoperational foreign exchange charges recorded in the first quarter of 2016.
Adjusted fully diluted earnings per share are expected to be in the range of $0.45 to $0.51, consistent with previous guidance.
Adjusted EPS guidance includes the aforementioned additional revenue projections and excludes a negative $0.10 impact from anticipated Atoll acquisition and integration costs and Refine contingent consideration costs.
We expect GAAP EPS for the year 2016 to be in the range of $0.35 to $0.41 on a fully diluted basis.
Both GAAP and adjusted non-GAAP diluted EPS guidance include the $0.02 tax-effected impact of non-operating foreign exchange charges recorded in the first quarter of 2016.
We're updating our EBITDA guidance to $22 million to $24 million.
This guidance includes the aforementioned additional revenue projections, plus depreciation and amortization expenses in the range of $5.5 million to $6 million; and it excludes the $3.5 million of anticipated Atoll acquisition and integration and contingent consideration expenses.
This updated EBITDA guidance includes the pretax $1 million impact from nonoperational foreign exchange charges recorded in the first quarter of 2016.
The Company expects to generate free cash flow in the range of $13 million to $15 million in 2016, including $4 million to $4.5 million of capital expenditures to support maintenance and continued factory expansion initiatives.
Net of the $9.1 million used in the Atoll acquisition on April 1, 2016, and based on the aforementioned projections, we're expecting year-end cash, cash equivalents, and marketable securities of $78 million to $80 million by year-end.
This completes our financial report, and I will now turn the call over to the operator to open the lines for questions.
Yes, if you look at ---+ I think the key to, honestly, our success over the last 12 months, it's really been the investment we made in the commercial organization.
They really didn't come onboard until early Q2 last year, and we started to see the increased activity and the broadening customer base in the second half of the year.
That's definitely what we're seeing again in Q1.
We like what we have in North America.
We're adding some people in Europe and also adding individuals in Asia throughout Q2 and Q3.
But it's not a significant number of heads.
Not baked into our Q1, so we haven't hired the people yet.
But it is baked into our overall guidance for the year.
So I think we're in a good position.
I think from a sales point of view, we're very close to the blend that we need across the regions.
We'll be looking at field applications people as we go through the second half of this year and into next year, because that's really the next area for us to invest in, to match up with the commercial team that we've already brought onboard.
Roughly, <UNK>, you can assume about 50-50 between mix and investments.
Yes, I think it goes back to the Refine acquisition that we did two years ago.
Part of that acquisition was we brought onboard a couple of distributors that are doing very well for us both in China, Korea as well.
As that team in China and also in Korea has gotten to know Repligen a little bit better, we've been able to work very, very closely with them.
They've made investments into their sales force, and our China distributor is also now adding demo labs into their facility in Shanghai.
So we're seeing a lot more activity.
We have, obviously, a lot of interaction with the customers in China, and our ATF product line in particular is resonating quite well over there.
So when you look at the success that we've had second half of last year, Q1 this year, it's a lot of the seeding that was done let's say 12 months ago, and it's coming through to fruition now.
Yes, absolutely.
When you ---+ the whole idea about launching OPUS 60 us to give us that full portfolio of products that really matched up with glass columns.
When you look at Phase 1, Phase 2, early Phase 3 trials, you definitely have some columns that are going to be 60-centimeter diameter.
So it was very encouraging for us to get OPUS into the first commercial process.
What was nice about that opportunity was we had a customer who had a disposable facility that hadn't used OPUS before, but knew about the reputation that we've established over the last one to two years.
And they moved right into putting us into the commercial process specifically because of the scale that they were operating at and the availability of the 45- and the 60-centimeter columns.
Without those, we wouldn't have been in that process.
Yes, when we look at it, it's definitely newbuild projects because ---+ when you say newbuild, <UNK>, are you talking about new facilities being built out.
Or are you talking about new opportunities within existing accounts or new accounts.
Okay.
I would say it's existing accounts and new opportunities that are coming from those existing accounts.
There are absolutely opportunities as well from new facilities, but I would say the majority is coming from customers who have used ATF, adopted ATF, and now are platforming ATF for multiple processes at their facilities.
I think when you look at the Atoll business, obviously they're pre-packed columns; they're down in the process development lab area.
They've had really nice growth over the last few years, so we would expect that it's going to move nicely into our whole portfolio of pre-packed columns and be in the growth ranges that we're seeing for OPUS.
For single-use ATF, the contribution that we expect from a revenue point of view is going to be marginal in 2016.
It's all about getting the product out there, which is what we're doing today with our beta site customers: getting the feedback, making sure that the product we're bringing to market is the right product.
The rest of this year is really going to be focused on expanding that customer base so we get more key accounts evaluating.
In terms of increasing TAM, I think it's maybe a little early on that one right now.
But I think what we're going to find is that customers who have looked at ATF in the past and have not tried it out simply because you need autoclaves in your facility to do that, that the barriers to trial are going to go down.
So we would expect that as that product comes out that we're going to have lower barriers to trial, and we will have the opportunity to broaden our customer base.
So I think in another quarter or so, we'll be able to give you a better idea of the overall total addressable market and what we think that might increase by over the next couple of years.
Sure.
In terms of ---+ if you just think about our Waltham facility, we have two OPUS suites today.
By the end of the year we'll have five, so clearly we're going to increase our capacity by double to ---+ 2 to 2.5 times, right.
We'll see as we go through next year what that's going to roll out in terms of total number of columns.
Because we've some other opportunities as well to increase overall throughput.
Could you repeat your second part of your question just so I can answer it correctly.
Yes.
Sure.
It really does depend on the number of campaigns that a company would run.
Obviously there is a suite of columns that will be used; that will be run for a campaign.
And then, depending on the number of campaigns a customer would run in a given year, then those columns would end up getting a repeat buy.
So we don't know what that is, but obviously it's just great to have the technology into a commercial process with multiple 45s and 60s.
We think that's a very positive sign for OPUS going forward.
