Okay, good afternoon and welcome to the RBC Capital Markets 2025 Global Healthcare Conference. I'm Connor McNamara, the Life Science Tools and Diagnostics Analyst. With me today, and it's my pleasure to host Repligen, and with us are CFO Jason Garland and new Head of IR Jacob Johnson. Welcome and thank you for being here, gentlemen. Let's just start with post Q1. Can you walk us through in the quarter, what are some of the things that you incorporated in the guidance and what changed in Q1 versus Q4?
Yeah, so thanks, Connor. The only change we had incorporated into the guide in April was the inclusion of the 908 Devices acquisition that we did. So that was about a $10 million add of sales. It's slightly accretive to gross margin, but doesn't really move the needle. It brings about a 50 basis point dilution at the operating margin. We brought on some, I'll say, incremental sales and R&D costs with that acquisition. We'll be able to turn that accretive here over the next 12 to 18 months, but with the inclusion, it'll drag.
What we didn't include was some of the other macro environment things going on. FX is an example. When we gave the guide in the beginning of the year in February, we called out that we had about a one and a half point headwind of FX. When we did the first quarter call, that flipped to about a one point tailwind. As we stand here today, it is probably just north of a half a point of tailwind. Things move around, which is frankly why we did not put it in at the point just to see how that would move.
Sorry, just to be clear, your guide still incorporates the headwind.
It still incorporates the headwind, but as you do your modeling and think about what we're seeing today, it could be, again, at today's rates, probably about half a point or just over half a point of gain. That would fall through to some bottom line improvement as well. The other thing that we did not include in the guide was the impact of tariffs. Again, we tried to be transparent of what we were seeing. There was probably about almost just under a point of potential sales increase, just from the ability to pass on surcharges and/or some pricing. At the EPS level, it's probably a push. That is what we would see today. I'm happy to share more on tariffs as we go forward.
Okay, let's break those. FX is pretty simple to understand . On the 908, so the $10 million, that's not an annualized number.
That's the 2025. Yeah, so annualized, it would be higher. We got just one month of sales in the first quarter.
Okay . I t's $2.5 million-$3 million a quarter is the way to think about it as we get into next year. Okay. On the tariff, you said it would be just over one point.
Just under a point.
Just under a point accretive growth, assuming you took price to offset all of the tariffs. Can you walk us through where the tariff impacts are?
Yeah, there's a lot of moving pieces there. First, the majority of our manufacturing is in the U.S. If you take our sales, half of it goes to the U.S. and half of it outside. What we sell in the U.S., 90% of that is made in the U.S. as well. There are some products that very discreetly have been called out to be exempt. That's the lion's share within the U.S. manufacturing and sale. That means some of that, the 10%, there are some things that we make primarily in Europe that would come in. These would be products that we would then pass a surcharge on to customers. That's what makes up a lot of that point I said of extra sales.
Outside of the U.S., so take 50% of what we sell or half of our sales, 50%, half of that is made in the U.S. This is the part of the business that we're watching to see if there are any retaliatory tariffs put in place with where we're selling. Europe, of course, would be the biggest exposure for us. The good news there is that Europe has been pretty transparent about what products and commodities they would implement tariffs on if they were to retaliate, and they haven't done so yet. That's about a quarter of the sales is actually subject to that amount. You start to whittle down, as you can see, the pieces that have exposure. Again, in that case, we would likely enact surcharges to try to cover it.
You've got the China dynamic, which is certainly in a better place today than it was a couple of weeks ago. Again, as you whittle down that amount of sales, if you look at, we called out that China was about 2% of our sales. You annualize that, and you look at, we had already shipped first quarter, we had already moved a lot of our inventory for the second quarter into China. You look at what is left in the second half, and you're talking kind of less than $5 million sales exposure there. In this environment, now at the more than 30% rate, we would look to try to pass that on, the surcharge, to our customers. That's where all the pieces come in.
The last piece I'd say is that 10% of what we make in the U.S. has foreign sources, directly foreign sourced. That's the potential impact on our cost of goods sold. That's the type of cost that we would then look to pass through with a likely pricing increase, more general, but tied to the tariffs. All those surcharges in terms of that smaller amount, as well as the pricing, is where we get that just under a point of sales increase.
Okay. You are not taking, or you do not have any planned actions to mitigate any of this other than the surcharges? No manufacturing moves or sourcing?
No, we actually will. We're looking at that now. The good news is that a lot of our manufacturing is dual, dual capabilities. Across the ocean, our Opus columns is a great example of that. We do that in the Netherlands and Europe. We also do that in the U.S. There are some areas that are only in the U.S. We will look to see if it makes sense to create some dual capabilities within Europe.
We will look at what's the likelihood of tariffs. Is it cost neutral? T he bad news as you spread your manufacturing is you dilute your overhead leverage and those other things. We want to make sure that it's more at least cost neutral. Even if then it's cost neutral and there aren't tariffs put in place, it again, it builds out our portfolio to have dual capabilities. We are actually looking at that.
All right. Thanks for all that clarity.
Yeah, a lot of moving pieces in tariffs.
What has been your customer response to the tariffs? Now, what you just said is it makes sense that you would be able to pass on that surcharge. Any pushback from your customers? W e're coming out of the pandemic where pricing definitely was up versus historical levels. Are you getting any pushback on those surcharges or do your customers realize, hey, that's just the cost of doing business now? Any pushback there? The second part to that, any change in just demand or buying patterns from your customers overall from what's going on with the tariffs? Either they're making smaller orders or they're waiting to see what finally happens. Anything like that that you've seen from a customer perspective?
Yeah. I n terms of taking on surcharges, the industry understands the environment. We're not the only company in the space to talk about using surcharges. That certainly is understandable by the customers. Where there are unique situations or we can find other ways to help minimize that cost for them, we certainly will have a discussion. No outright , hey, we're not taking this. We've already had some on that into the U.S. side. We've already passed on some surcharges. We've started to see that. I think in terms of buying patterns, we haven't, the big question out there is, are people pulling things in? Is there another stocking dynamic going on? We haven't seen evidence of that yet.
One of the things that we've been looking at and would be an indicator of that particularly would be if a customer already has an order placed, it's in our backlog. Let's say it was due in September, and then they might come to us and say, hey, I really want that next month. We haven't seen really any examples of that specifically. W e'll have to keep monitoring it. Fortunately, every day there's a different dynamic for them to think about. We're very watchful on those things. No real change in behavior at the moment.
Last question on tariffs, I promise, is maybe. Have you seen, is there any longer-term opportunity for you as a U.S.-based manufacturer that maybe you could take share or you're going to have a higher-priced competitor in the U.S.? Is there any opportunity from a tariff perspective to accelerate your growth or take more market share?
Yes. O ur products are going to be competitive no matter where in the region. I n the cases where if we make it in the U.S. and our competitor that's directly selling in that particular product is outside the U.S., it might be a benefit. Again, we don't always face a lot of direct or head-to-head competition on our products. A lot of them are unique or they offer a differentiated solution. W e'll offer that where we can. W hat's also interesting is a lot of the onshoring announcements that have been made. Again, with the ability to make nearly all of our products in the U.S., that being able to help them as companies build up new facilities that we could be a part of that.
It might be over a course of years, those things, especially a greenfield, could be multiple years before it's ready. In as much as we could supply them U.S. content, as well as, again, our bread and butter is offering products that increase yield and efficiencies. Again, we would believe that anyone starting up a new facility would want to incorporate that into their design.
Let us just talk about end markets and how you guys are doing there. What your mantra has always been or has been for quite some time is you have got an end market that is growing high single digits. You guys can grow 5-10 points above that. If you look at Q1, the other bio production players talked about mid to high single digits. You guys grew 14%. That would play right in line with that.
You grew 5 points above a high single digit growth market. Do you think that is a good characterization of what happened in Q1? That is how we should be thinking about the end markets, is, hey, things have returned to normal. There is high single digit growth out there in the market, and we are going to continue to grow significantly above the market. Is that a dynamic that played out in Q1, and that's how we should think about the rest of the year?
Yeah, we have the best line of sight and visibility to our own outlook . W e've talked about 11.5%-15.5% organic non-COVID growth. And we've also heard some of the bigger players even talk about that high single digit for the year and their outlook. I t does fit. I t fits again with our ability to outpace the market. The first quarter, again, was a great start to the year. Not only the top line, but the bottom line as well. We certainly had some strong proteins recovery as well, and that helped the quarter. It is reflective of that guidance that we've given, is reflective of that above market growth.
Okay. As we think about the acceleration throughout the year, I know you had a little bit of equipment weakness in Q1, which strength elsewhere masked some of that. Can you talk about the dynamic of some—you had a couple of wins at the end of last year that played through with just the timing—there was some weakness on the equipment relative to Q3 and Q4. How does that play out for the rest of the year? This is related to the ATF side.
I'm sorry, for ATF?
Yeah, ATF.
Yeah. So ATF , we're really very excited about how that franchise continues to grow and the opportunities it has. U niquely in the first quarter, it had really tough comps to the first quarter of 2024. It still got some tough comps, not as much in the second. We really see the ATF second half of the year is where we'll see a lot of that year-over-year growth rate. We also talked about wins that we've been able to get in commercial and blockbuster programs and really love the momentum we're seeing. We're in nine out of the 10 biggest CDMOs talking with the 10th about how we can partner. What's even exciting for us as well is with most of those CDMOs, it's one program that we're on today.
There is obviously a lot of room to expand that across multiple programs and multiple facilities as they build those out. A lot of great tailwind. J ust, again, life is not linear. You can have some lumpiness, and we will see more of that growth really come through in the second half.
Connor, if I could add just one thing is people kind of think about the magnitude of these wins because we've been asked a lot about that. A commercial customer for ATF could be, call it, low to mid-single millions of consumable pull-through annually. Maybe some of these larger wins, you could be looking at something at $15 million plus a year just in terms of framing that opportunity.
You still have no, it's no customer, no program is more than 3% of sales. You are not levered to any specific program. These wins, like the ones you had last year, obviously help you guys.
Yeah. I'll just correct. We have no more than 3% we called out in the new modality space. Our single biggest customer, six, but it's the same point. One that we really wanted to get people thinking more about is that we do have very much a diverse portfolio and that even within these customers where it might be 6%, it's not a single program. There's a lot of room there for managing the ups and downs. Again, hopefully people will see that, okay, if one program has some sort of negative view and/or positive, we can manage that both up and down and we're building out a portfolio that's very different than what it was even five years ago.
Just the programs that you won last year, these were as a program progressed later in the clinical program. I t was stage two to stage three or stage three to market. You won that program. You were able to displace who was there first. How much opportunity is there for that for you guys in the future and vice versa? It's my view that once someone's specced in, they're specced in. Why were you able to win that contract?
Just for ATF, you're talking? For ATF, there was no incumbent. Again, think about ATF as an opportunity to increase yield. W e see on average maybe three to four times yield improvement for ATF. Really think about it as a customer saying, "I might need to, my volume is growing. I might need to put in another line." Guess what? If you had ATF, you may not need to do a second line or even a third for that matter until the volume grows. The wins, think about it as these were already commercial programs that we were still able to demonstrate the value creation and our customers then incorporated it in.
The point is that even in a commercial stage, especially at the N minus one level where our ATF usually sits, our customers can still get that specced in through regulatory requirements in as little as maybe even a year. T he bigger aha here is that it's not, okay, we missed the clinical window. We can't help.
Thanks for that. Thanks for that clarity. Just some other questions outside of tariffs and cadence of growth this year. Just on China, you had that fall off and that is 2-3% of sales now. How should we think about that region as an opportunity? Has that historically been a, has China historically been accretive to growth for you guys? As we look over the next decade, is that a region that you do see as important down the road? In the medium term, will it be, is it going to continue to be a slight drag on growth, albeit a much smaller drag given the size?
Yes . Definitely accretive growth. We expect it to be accretive in the future. We're still very bullish on that region. In the short term, we still do see some headwind. A s a testament to that, we've added both a new leader in the Asia region who knows the China market particularly well. We also added a new GM in China. We're very optimistic that with the relationships they bring and the experience they have in the market, we'll be able to approach it differently and get some of that traction back. It will take time.
Earlier in the Q&A, you talked about on-sourcing or insourcing manufacturing, bringing manufacturing capacity up in the U.S. There have been announcements by a lot of pharma companies that are investing in U.S. manufacturing. How does that impact you? If you've got a customer that's currently manufacturing outside of the U.S., they bring it in-house into the U.S., I'm assuming they have to buy more equipment. There's a tech transfer. Ultimately, that's a win for you, at least on the equipment side, I would assume. Should we think about on the consumables, at a run rate, it's no real change, or is it actually significant from an opportunity for you guys as these buildouts get announced?
Yeah. Y ou can liken it maybe to some of the bio-secure discussions, right? If the volume doesn't change, then you get the, I'll say the one-time benefit, "Oh, I'm building a new plant. I'm going to duplicate the hardware." T he consumables on an equal demand basis, they're going to be the same. I f that now new location creates a new opportunity set, then we could grow with it as well.
Yeah. I f you look at a facility that's being transferred maybe five years ago, you didn't have the suite of products. N ow they know, "Okay, this time when we do it, we're going to do it right." T hey come to you and it offers more of an opportunity. It's just a pure tech transfer.
That's just great. Great point. Again, back to ATF, it may even help them to spend less in their CapEx. We do offer a lot more in the portfolio and could absolutely have a bigger play in that.
What's the time for this to start impacting the P&L? W e're seeing these announcements, which I'm assuming means that they're starting to get, you're starting to see RFPs, which.
I don't know that it's yet, right? W e've heard if it's a greenfield, it could be three plus years. If it's a brownfield, maybe it's a year or two. T here's still some time that is going to pass before we start to see orders in hand. Again, everyone that's made announcements, we have relationships with, and certainly we'll be letting them know that we're there to help.
Okay. Once they hit the order book, y our time from order to revenue is six months plus.
Yeah, typically, right? If we get in for a given order book, about a third of them get delivered in the same quarter. A third of them get delivered the next quarter, and then the final third over the next two to three. Happens pretty quickly, yeah.
All right. On capital deployment, going back to 2017, you've done 13 deals since then, a lot of small tuck-ins that help build out the full suite of offerings. Maybe talk to me about your appetite for a larger deal. Is there a specific area that you just kind of look at everything and like, "Gosh, I wish we were here," versus you're going to continue in that tuck-in side? How should we think about your M&A strategy?
I'll start with our M&A strategy is the same. It's consistent. We're first looking for differentiated products, innovation, a company that if they join with us, we can add value either commercially or through R&D or technology or product development. Again, looking for some level of accretion, hopefully at the top line and the bottom line, it might be one or the other. We've also recognized that many of the plays we have made have taken time to really come to fruition. We're looking at a funnel that is looking for those criteria.
We've been clear about the gaps we have in the bioprocessing workflow. It's the bioreactor. It's the cell culture media. It's the viral filtration that we don't have place. Those certainly become an area that we're looking for. At the same time, there's a lot more we could do within the other spaces to create even more robust offerings. A lot of it's about the timing of what's available and what we're looking for and kind of taking all those into play.
Okay. Would you say that adding to revenue growth is more important than adding margin?
It's a balance, right? T hat we recognize, look at the ATF discussion we had and the acquisition we did years ago. It takes time. We won't look, we won't throw away or pass a great opportunity if there's distance. Ideally, I'd love to find both, one that adds to top line growth and isn't diluted for too long.
Okay. Great. We're just about out of time. I will say you lucked out. Last year, I made you do a Rubik's Cube up here. This year, I was planning to put up a Jenga set for you. We're going to have a Jenga, but we ran out of time.
Luckily, the flowers are here.
You dodged a bullet. Congratulations. Thanks for your time. Thanks for joining us. Thank you, everyone.
Thanks.