Okay, welcome everybody to day two of the 2023 Stifel Healthcare conference. This is the Life Sciences and Diagnostics track. We're happy to kick things off this morning with Repligen. I have CEO Tony Hunt and CFO Jason Garland with me here. Guys, thanks very much for spending some time this morning. Good morning. Yeah, good to be here. Jason, maybe since this is our first time getting to chat with you in a public forum, I'll just start with you, if I can. Please. You arrived at the company a couple of months ago. What, at a high level, would you say you've been spending most of your time focusing on? For me, it's really been about looking at our margins, right? And understanding what we can do to improve that and set up a, I'll say, more of an ongoing process for continuous improvement around that. I think that, you know, with the fast growth that we had and added capacity, frankly, when you're doing that, cost discipline is not number one on your list. It's getting product out the door to customers and patients that need it. And so I think instilling some of that and understanding what the cost structure we still have flexibility on. You know, I say that, you know, you have direct costs, you have fixed costs, but there's a lot of things in the middle. You know, call it semi-vari- way down, and then also on the way up, and I think that's really where I've been spending my time, as well as certainly getting to know the team, the company. It's a great team across the board, industry experts. I'm sitting next to one here, but the entire team and a great finance organization as well. I'm really happy to help them continue to develop and be strong business partners for the company. Yeah. And if I think about some of the things that the company's talked about doing or is doing, you've discontinued some certain SKUs. I wanna ask you just quickly about that in a minute. You've consolidated some manufacturing operations, and then there have been some headcount reductions. I think you're aiming to be down 15% versus- Yeah ... 2022. How much of what you've done or what you will do, do you expect to be done by the end of the year, and therefore impactful to the beginning of 2023? The headcount reductions, you know, have happened or are in the process of; all that is underway. We'll continue to look at our site consolidations. Those take a little bit more time, but there's a lot in flight. And then, you know, when it comes to the overall spending, you know, again, that's where a little bit of the, you know, again, that cost discipline and managing the discretionary spend, that it's we've done a great job now in the second half, but there will be more of that that will continue to come the next year. Okay. I think we're really positioning ourselves to enter 2024 with the right structure and being right sized, but also finding ways to continue to drive that efficiency. Okay. And then on the manufacturing side, I mean, the production and capacity discussion for you guys over the last couple of years has been interesting. I mean, you scaled way up because you had to. Now the industry needs less capacity. So can you just talk about that journey and where you are and what you think the implications of what you have as a footprint for capacity mean from, I guess, you know, certainly in the context of the margins? Do you wanna start? Well, look, I think if you look at where we're at and what we've grown from a capacity, we probably have the physical capacity to grow to $1.5 billion, you know, or maybe more, and so with where we're at today, that again leaves a lot of open room. So that's the good news, is that we've got the runway for growth. And then from a site consolidation and optimization perspective, it's what are the right locations? How do we also build good business continuity, right? I mean, that's the one thing the pandemic taught us all, right, through across every industry, is having, you know, business continuity plans, being able to produce things in more than one place. So it's balancing that with cost structure that ultimately we'll continue to- Yeah ... focus on. Yeah, we're about probably 30%-40% of capacity, somewhere around that range, depending on the product line. Yeah. Does it stay that way for... I mean, I know you don't have a crystal ball, but do you think you hover around that level for a while, or? Yeah, I think 2023 is a good hover year. Yeah. Uh. Certainly. But- But yeah, no, no, I think as the markets pick up, then, you know, you start to grow at Repligen normal growth rates. And the, I think 2024, and I'm sure we'll talk about it, is gonna be a recovery year. 2025 is gonna be a normal year. I think as you look at 2025, 2026, 2027, they're gonna be more normal years 'cause there's so much positive stuff going on in our industry. Yeah. Yeah, we're gonna start to use up that capacity. And Jason's right, it's $1.5 billion-$1.8 billion, depending on how the mix goes. And so, you know, all we need to do is, as Jason mentioned, is consolidate down to the sites we need, which we're doing, and then just add people in as volume comes back. Okay. And just quickly on the, on the portfolio, I mean, portfolios get trimmed all the time. We don't necessarily hear about it all that often. But are the, are the things that you are discontinuing, are they low sales, low margin, or low margin and low sales? And is it even impactful to the P&L? In a lot of cases with the SKU reduction, it was related to SKUs that were more specific to COVID-related products. Okay. That's really the lion's share. And so again, there, you know, there are some that are transferable or outside of that space, but really, the focus there was that and knowing that we wouldn't need that at that great a level. Okay. Maybe to that point, so pre-COVID, EBITDA margins, I think as an average, are around 25%. You shot up to 32 during the height of the pandemic. I know you're still getting your hands around all of this, but when you think about how much of that was due to just leverage on the overall volume versus the mix that you have with those products? How would you attribute, how, what would be the attribution on the higher margin there? I mean, it was really both, right? I mean, the COVID products were able to capture much higher than average margin rates. So that mix part helped. And then, I mean, you're right, there's the volume leverage you get can be huge, especially... Again, I want to go back to this semi-variable cost structure, right? That's where, again, you can add and grow without adding a lot of overhead and indirect sort of resources. But if you don't take them down as quickly on the way, you know, on the other direction, then that's where you get some of that stranded cost, if you will- Mm-hmm ...that we're really digging into now. But I, you know, there's absolutely no reason why, in the long term, we can't continue to grow EBITDA from where we're at today, and sustainably do that, right? Yeah. I mean, again, you if you get a rhythm where we're, you know, offsetting our inflation with productivity and still capturing 1%-2% of price, and then you're, you know, maintaining an OpEx level, you know, at the right level, you'll always be able to get that net volume leverage, if you effect, if you will, at the EBITDA level. Yep. What do you think price could look... All of this is caveated by, I'm sure we'll get a more detailed view in a few months, but just thinking about pricing next year and thinking about the way that pricing has been in the industry this year, quite a while for, to be honest. I think you've got 7% of realized price or thereabout this year. How would you think about what that, what can be translated next year without doing too much, you know, harm to the customer relationship? Yeah, I mean, we actually see about 4%-5% realized price for this year, and next- Pricing pieces were about seven. Yeah. Okay. So it's more, yeah, the real net. And then we see next year, frankly, it's probably flat. Yeah. So that's why I think that's that dynamic you're talking about. It's gonna be differentish in 2024. And then again, as we go into the future, it's probably that 1%-2% net realized, you know, on a normal basis. But 2024, we see flat to slightly positive. Okay. And Dan, maybe one comment back on what you were talking about, mix. I think for us, the getting, I mean, filtration was what drove margin expansion during COVID, and what gets us back closer to the margins that we've seen is going to be a resurgence in filtration. And what I think was encouraging in Q3 was the Book-to-Bill in filtration was 1.15. So that, that was a, you know, for us at least, a good sign that probably the most important franchise we have in the portfolio had a, had a solid quarter. Yeah. And that 1.15 was the highest Book-to-Bill of the different segments of the different businesses, correct? I mean, we didn't talk about- I believe so. I haven't looked at every single one, but given the size, yeah. Okay. It's definitely the most impactful. I think it was the highest. To what extent does that feel like it's a read on where we are with destocking? Because that is where the COVID concentration has been highest, versus something that's more Repligen specific. And I guess embedded with that, in that, is the question: Were there a couple of customers that kind of made that number higher than the rest of the portfolio, and then maybe the rest of us, the way that the rest of us would have thought it would have been for the quarter? Yeah, maybe start with that piece. You could look at every quarter, and you will find some big, big wins. So did we have big wins in Q3? Absolutely. Do we have a number of big wins? Yes, we had those as well. So, you know, we were talking with somebody else about this in the last few days, and, you know, my point on it is, you know, those are opportunities that were out there that we won, and I don't think it was the driver of overall performance. But in terms of your question on destocking, most of what we saw in Q3 was wins in phase three and commercial. You know, drugs moving into commercial, drugs moving into the phase three opportunities. It didn't feel to me, even though there was some of it, but it wasn't really, "Hey, we used to buy from you. We burnt off our inventory. Now we're gonna put a PO in for a three-month supply. Okay. Right? It, although there were some of those that happened in the quarter, it was predominantly driven by, "Hey, we've got, you know, these Phase III drugs that are moving forward, these commercial drugs that we need product for," and at accounts that we're fairly well established at. Yeah. So it feels less like it's an industry phenomenon and just where your particular, I don't want to say concentrations, but where your customers- Yeah ... happen to be with a particular project. That's right. And what was interesting about even the filtration 1.15 is that it was predominantly driven by the pharma sector, not... The CDMO sector just was, you know, it was up a low single-digit percent year-on-year. And remember, Q3 last year, orders were relatively light for CDMOs. It was the low. Yeah. So we're off the low for CDMOs, but when you have a good... Like, we had a good quarter in CDMOs in Q3 in North America, but Europe was really, was really soft, and Asia continues to be, especially China, continues to be really low. So, across the kind of the globe, CDMO market hasn't recovered. Do you think that it recovers first? I mean, one of the things that we've talked about is they were the first to go down, and so in theory, they could be the first to come back. I don't know whether you have a view on whether that's going to be true and whether this tick-up in pharma perhaps says that maybe that's not the case. I don't know. I mean, you're, you're not suggesting that it's just a clear path to higher book-to-bills in pharma, but- No. And, and if you think about it, right, when we were in August, right, we were at pains to say that the big surprise in Q2 was how weak pharma was. Yeah. We could see it. It was projects getting pushed out, really conservative spend, much longer to get POs approved, and then you have a 50% increase in Q3. In the, like, what is the summer quarter, which is not the quarter you would typically expect to have the strongest performance from pharma, especially Europe is shut down for a whole month. So kind of hard to draw a conclusion on one quarter, but we're happy that pharma bounced back. I did say back in August, I thought that pharma's stocking levels would not be as high as what maybe we would see at CDMOs. Long answer to your question, but I think the piece that maybe people miss is that when you look at just CDMOs as an example, when the orders started to drop in CDMOs last year, everybody in bioprocessing was continuing to ship to the CDMOs at a pretty high rate all the way through the end of the year and into Q1. The assumptions everybody was making on burn rate was based on a normal year in 2023, not like a really weak year in 2023. So I think if someone was sitting on six months of inventory based on where they thought six months of inventory looked like on July 1, 2022, that's not what 2023 has turned out to be. Yeah. I think the amount of inventory that people have, while it might be six months or nine months of inventory at the beginning of 2022, it's longer than that because the market slowed, and a lot of the small biotechs aren't, you know, doing the same level of business that they were doing, you know, in 2021 and 2022, here in 2023. So I just think that's why it's gotten extended, not necessarily that people were underestimating the months of inventory that customers were holding. Yeah. The small biotech conversation has been a pretty active one this year. And in your most paranoid moments, you would just say that the industry will be different because there are fewer companies in it, in that sm all set. I guess the simple question would be: Are you seeing some go away, or do you feel like this right now is just a slower period for some, and you're not sure what their future is? No, there's clearly some companies that have disappeared. Definitely some small CDMOs have shut down in the last 12 months. Some of the gene therapy new modality companies have shut down. Where you see that, believe it or not, is where the inventory that they would have on equipment and consumables now starts to show up in a secondary market. So you see a little bit of that. It's not. It's a headwind, but it's not the major headwind- Yeah ... that we're all dealing with. But when you start to hear of, you know, "Hey, there's X number of systems that are on the market," and you can realize straight away which companies shut down and put, and those things, you know, end up going on the resellers market. And then that just takes opportunities away for anyone in bioprocessing because they've got to flush through because they're being sold at a much deeper discount than what any normal piece of equipment would be sold for. It tends to be capital equipment. We haven't had a whole lot of exposure on that side, but that's a phenomenon that exists because of some of these companies going under. Okay, that's interesting. If I think about the Book-to-Bill that you had this quarter, either in filtration or just overall, which I think was 1.07, the seeds for that were sort of sown in Q2 when you talked about these high probability opportunities coming into the picture in a more meaningful way. I think it was up 25%. That was the number that you kind of- Yep. So certainly some of that translated in 3Q, and I guess the question would be: Are you kind of backfilling with new, higher probability business looking into this quarter and then again into next year? Yeah. It's, it was nice to actually predict something back in August that happened. So, yeah, we had-- we definitely had a really nice pickup in our 75, 90% probability funnel opportunities, and so you expect to close those. I mean, you don't expect them to go away. The commercial team did a really, really good job of closing out. If I look at the orders we closed in, you know, August, September, and October, so kind of one month into this quarter, I can tell you that as of our earnings call, we had fully replenished all the orders that had come in with new opportunities into the funnel, and it was up a little higher than where we started. So we went back 13 weeks from our earnings call. The size of the funnel was actually slightly lower than what we ended up when we did our earnings call. Now, the difference is that in August, our 75% and 90% funnel was actually flushed with, with lots of opportunities. We've replenished with a significant number of opportunities that moved into the 50%. So you think about how a funnel works. You have 10, 25, so a lot of all those earlier opportunities have now pushed right up into higher probability. And when we look at any given quarter, we are not looking at 10% and 25% opportunities to close, where the commercial team is very focused on 50% and above. So I'm encouraged that we were able to replenish the funnel. The fact that the mix is a little different doesn't isn't at all negative. I think what's most encouraging is we replenished the funnel and added some. And so while it might take a month or two longer to close out 50% opportunities versus 75 and 90, there's plenty of opportunity out there for the commercial team to go after. Okay, that's good. Does the visibility on that probability... Is it changing? Is the ability to say that this is a 75% opportunity getting better than it was? Which is another, another way of saying it is, are your sales guys feeling better about putting it in a bucket, or just the, the conversion potential that exists there? Yeah, you know what? A lot of times it's those opportunities are there, and if they don't move, it's not because of what the commercial team did. It's typically because the customer slows down, or because it's a multimillion dollar deal, someone saying: "Hey, look it, we're gonna hold off, and we'll place the order." Like, we got a lot in Q2 of: "We'll give you half the order now, we'll give you half the order in, you know, Q1 next year." So it was cash conservation that was happening. But I think our commercial team, as we've gone through this year, has gotten better. So we've made... You know, a year ago, we made changes in terms of how we wanted the commercial team to operate. We were still trying to get people to stop doing sales calls from home. Mm-hmm. Right? So, you know, that was in 2022. So just getting people out into the field, so I think that's better. We've set up a key account team, which I think, you know, I kinda spearheaded that since last October. Brought somebody on in March, built the team by July. I think that's really helping because we're at a point in our, in our growth, where you can't rely 100% on the sales team going in at mid-level into an account and selling, you know, an OPUS column, or ATF or whatever it is, versus educating at a higher level in an account about all the things Repligen brings to the table. So I think the realization in the industry, at a customer level, is we have actually a lot more to offer than maybe people thought. And the reason that is, is that COVID kinda hurt companies like us, because all we were doing in COVID was produce, produce, produce, go into COVID vaccines. And so the education of the customer base about all the things that we do, and that what we do that's different, wasn't probably as strong as it should have been. Mm. So now we're kind of... For the last year, we've been in that catch-up mode, but I think we've made a lot of progress in bringing Olivier on board, who's, you know, an expert in bioprocessing. He's now 100% focused on commercial and business unit execution, where in the past it was me doing that X% of my time. So I'm super happy to have somebody of that capability. And then having Jason running on the, on the cost side and finance side, I think we're, you know, I think we're evolving as a team, which is a good thing. Okay. Yeah, that's helpful commentary. Maybe just sticking with this line of thought on what took place during COVID and what's taking place after COVID. I mean, I guess all of this is a, is a statement on that. But one of the things that we talk about is whether or not the company was a beneficiary during COVID of some of the larger players being just flat out maxed out when it comes to serving some of the customer needs beyond just the obvious candidates. And then whether that changed post-COVID, and now you're, you're less of a beneficiary there. Yeah. Is that an idea that you support? And I guess the flip side of that would be, could you make the case for share gains, or at least wallet share, wallet gains now, just given some of the things that we're talking about having happened in 3Q and maybe going forward? Yeah. No, no, we've been asked this question a number of times, and I can tell you during COVID, we did take share, but it tended to be COVID opportunities. So where the huge demand was from companies who were making vaccines or therapeutics, and they just couldn't get volume, and so we definitely picked up some during that. But then it disappeared for everybody. Yeah. If we had picked up share and now we were losing all that share, then you would expect that our growth numbers this year would be worse than the industry, right? And so, you know, I think Sartorius is down mid-teens, we're down 9%. Cytiva's down 9%-10%. So I don't think it's actually meaningful- Yeah. Right? But your last comment, I think, is really accurate in, insofar as for the next... You know, when you're in a growth market, right? It's a little bit like, you can send off all the bioprocessing players in different directions, and they'll all make business, and they'll all grow because the market is growing, really, you know, 10, 15%, whatever. But when you're in a market like we're in right now, where the growth is limited and to down 10%, there's a limited pool of dollars, so I think we're all learning how everybody's fighting for the same bucket of dollars. And so how do you differentiate yourself? How do you try and win those deals? I think that's definitely a good competitiveness out in the marketplace right now. Yeah among all the bioprocessing players. So it is about trying to win share. I know I'm careful to say, "Take share," but it's about winning share. And it's not one company, everybody is trying to do it. Certainly, one of the areas, one of the top areas that everybody's trying to win in is Cell and Gene Therapy. How are you differentiating yourself there? When we think about growth rates, this is a question I think you've gotten in the past as well. When we think about growth rates in Cell and Gene Therapy, which have just been well above average in a lot of cases, 25, 30. In fact, I don't wanna put numbers in your mouth or but I think it is- But you're close. I'm close. Can you assume something like that in a more normalized environment? I guess that's probably the question. I think. And And I would have given you this answer two years ago as well. I think as long as the number of approvals continues to go up, then I think you can deliver in a normal environment, 25% type growth. I, I don't think that's Out of the question at all. I think what's happened to us this year is all the, all the work that we did in 2019, 2021, 2022, where I think on our Q4 call, year-end call back in February, we said, "Hey, look, we have 20 big accounts that are big customers who are scaling." And when I look at what we've done so far this year through three quarters, most of the orders that we're getting coming in and the revenue going out are coming from those accounts who scaled, right? So there's about 25 or so of those accounts right now that are scaling. Some are at a much higher level than others. Some are in commercial drugs. The difference between a phase II, phase III, and a commercial is quite different in cell and gene, right? Right. When you're in commercial, it's definitely multi-million-dollar, and I don't mean two. Mm. It's a big deal, right? It makes up for tens of other companies that could be contributing, you know, $100,000s- $500,000 per year. So the industry itself has been weak this year, right? And you've pointed that out a number of times. It has been weak. We're not seeing a whole lot of traction with you know the smaller cell and gene therapy companies. And where we're getting our revenue and where we, I don't wanna call it growth because it's flat, but where we're at least you know what's coming in is really from the accounts that have scaled. But if we hadn't done the work a few years ago to get into those accounts, whether it's in, I put three buckets. I think we're doing quite well in process intensification, so ATF, TF, DF. I think we do well with our OPUS pre-packed columns. Our analytics business has picked up pace in cell and gene, and our systems are actually quite suited to the processing part in cell and gene. So we got a lot of companies that have, you know, four or five products from Repligen that they're using. And if you went to a mAb account, you know, it's much harder to get five products into a mAb account than it is to get into a cell and gene. Yeah. So that kind of plays into this idea that you've talked about in the past of platform companies, which is where you're just established beyond just being sort of a point provider. It's not a, it's not a metric that you update quantitatively all that often- No. But you do talk about it ticking higher over time. Is it fair to say that that's happening today, and some of that is due to these new modalities that we're talking about? Yeah, definitely, it's, it's happening, and new modalities have helped. I would say that the other thing we've seen in the last 18 months is the bigger players, their acknowledgment and understanding of all the things that we do has opened up doors. It hasn't materialized into significant orders yet, but I think the conversations we're having are a lot richer now than they were 18 months ago. So I think the, the legwork we've done in the last year of really focusing on large accounts, big accounts, and getting more share of wallet and getting our products embedded, that eventually starts to become platformed, and then that becomes, you know, $10s of millions of dollar type opportunities that open up. Yeah. So I really feel like the next couple of years from us will be really determined by two things. One is the more approvals on the cell and gene therapy side, and this isn't in order of priority, but large accounts using a lot more Repligen products and platforming on more of our technologies, and then that opens up, you know, important and big opportunities for us. Okay. And just to your point on approvals for the industry being something that we need to see to push forward with the field, can it be hits and misses? I mean, Sarepta goes in one direction, maybe Exa-cel goes in a different direction. You know, that's a cell, not a gene therapy product. Yeah. But can it be wins and losses together that move the field together and keep you where you need to be growth-wise, or do we really need to see a sustained period of success? I think. -for commercialization? I think we would take the sustained period of success. You would take it, but do you need it? Yeah. I think... Well, it depends, right? If you take the 20, 20 opportunities that you're in with multiple products, if, as long as there's successes and failures in that list, and there's more successes than failures, your needle moves. Yeah. But if it's, you know, if you have three or four that are significantly lower, you know, and you, you've brought up, and you've asked me about, you know, something like the Sarepta drug, it depends. I think what happens in the industry and how it impacts the industry depends a little bit on what the final ruling becomes. Does it stay as, you know, categorized as, you know, four to five-year-olds, or does it get an expanded label, or is it not on the market? I think most people feel like it's either going to be stay as is or an expanded label, but we'll find out in the next, I suppose, three to six months. Yeah, pretty soon. Okay. A couple minutes left. I just want to hit on the outlook for either one of you, shorter term and longer term. Shorter term, if I think about the guide for the year, it's $640 million at the midpoint, and if I strip out the COVID revenues from that, you're basically looking at a quarter of $160 million and then two quarters of $140 or so, and then the implied 4Q number would be kind of right in between. It would be, like, $150 million if I'm doing the math right. So that sequential step up from 3Q to 4Q, is that due to some seasonality-related element? Is it due to some of those opportunities that we kind of touched on, coming to fruition this quarter? Or how would you describe what we, what we'd need to see 3Q to 4Q in order to get there? Yeah, so I'll start, and Jason can add in. I would say for this year, the 4Q, remember, there's COVID revenue- Mm-hmm ... in 4Q, so that's probably the biggest difference between 3Q and 4Q. But I actually, and I'm not trying to be too- Yeah, yeah ... specific here. I was taking out the $5 million or so that I think you'd get for 4Q, if you just kinda back into what gets you at $30 million, and that goes from 140 to 150 non-COVID. Yep. Is that a step up that just can be supported by, you know, some of these things that we've talked about mid-session here, which is nice? I think it's timing. Okay. Yeah. I don't think it's anything that's happened in the second half of the year in terms of order run rates. It's absolutely knowing what I know about what's in that funnel, there was a number of good orders that came in during the year that happened to sit in Q4, right? And I think it's more that. Yeah. Fair enough. And then the longer-term question would be, you know, we go to the Analyst Day, you talk about 20% growth. At the time, it sounded... you could make a case for it even being conservative in some ways. And then the industry changed a lot, and it made people think about what, you know, the industry was gonna look like for the next couple of years. How do we think about, I guess I have to ask about 2024 in that context, and then the 20% growth rate now, just thinking about the way that the world will look for the next couple of years? You've never called me conservative, have you? But, no, I think next year is a recovery year, and, I see absolutely no reason why, you know, we can't be growing at a 20% growth rate in 2025- Okay ... and beyond. I just think we have a great portfolio of products. We're executing really well. I don't think anything's really changed at Repligen in terms of the differentiation of technology and products. But if, you know, if the market growth in the, you know, let's say 2018 to beginning of 2020, let's say the market growth was 12%, and we could grow higher than market. If the market growth is 5%, then, of course, that totally changes what you can and cannot do. Right. So if market growth is, you know, in that 8%-12% range, then I think, you know, 15-20 is absolutely a good range for Repligen to be, and we should be on the high end of that range. If it's 15%, then yeah, then maybe I'm being conservative, but I'd love to, I'd love to be back in that situation again- Yes ... where the industry is growing double digits, and people are asking us about, you know, what the following year should look like in terms of growth- Yeah ... as opposed to what we're dealing with right now. Yep. Okay. I'm gonna leave it there, guys. Great way to start the day. That's fine. Great. fine. Great. Thanks a bunch for being with us. Thanks, Doug. Thanks.