Repligen Corporation (RGEN) Q3 2025 Earnings Call Transcript

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Overview

The earnings call reveals strong order growth, favorable gross margin trends, and increased revenue guidance, indicating positive financial performance. Analysts' sentiment is generally positive, despite some concerns about margin pressures and specific guidance details. The company's strategic focus on Asia and new modalities, along with robust equipment trends, supports a positive outlook. However, some uncertainties remain, such as the impact of onetime expenses and FX pressures. Overall, the positive aspects outweigh the negatives, suggesting a likely positive stock price movement in the near term.

Key Financial Performance

Revenue Third quarter revenue was $189 million, a reported year-over-year increase of 22%. This includes 18% organic growth, excluding the impact of acquisitions and currency. Acquisitions contributed approximately 2 points of the reported growth, while foreign currency was also a 2-point tailwind.

Gross Margin Adjusted gross margin was 53.3%, an increase of 260 basis points year-over-year and 210 basis points sequentially. The year-over-year increase was driven by volume leverage, price, and productivity.

Adjusted Income from Operations Adjusted income from operations was $27 million in the third quarter, up 16% year-over-year on a reported basis and up about 20%, excluding the impact from foreign currency and M&A. This growth was driven by a $22 million increase in gross profit on higher volume and margin improvement, offset by $18 million higher OpEx.

Adjusted EBITDA Margin Adjusted EBITDA margin was 19%, a year-over-year decline of 160 basis points, which included a $1 million headwind from foreign currency transaction losses.

Adjusted Net Income Adjusted net income was $26 million, a $2 million year-over-year increase. Higher adjusted operating income was offset by $3 million of lower interest income.

Adjusted Effective Tax Rate The adjusted effective tax rate for the third quarter was 17%, benefiting from actions executed within the tax planning strategy. The full-year expectation is now between 21% to 22%, about 100 basis points lower than previous guidance.

Cash Position The cash position at the end of the third quarter was $749 million, up $40 million sequentially from the second quarter. This was driven by strong operating cash flow performance, mostly from improved working capital.

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Operating Highlights

SoloVPE PLUS launch: The new generation of at-line protein concentration analytics offers increased data collection speed, enhanced sensitivity, and reproducibility with a streamlined workflow. This has initiated an upgrade cycle expected to last several years.

Innovative solutions in protein analytics: Several innovative solutions for new modality markets and monoclonal antibody markets are planned for launch in the coming years.

Geographical growth: Asia Pacific grew nearly 50%, Americas grew 20%, and EMEA grew low double digits. China showed growth in Q3 after a low prior year base.

CDMO and biopharma growth: CDMO revenues grew over 20%, and biopharma revenues also grew over 20% year-over-year.

Digitization strategy: Repligen is focusing on digitization, including real-time monitoring and process control, and announced a partnership with Novasign for digital twin integration.

Service revenue growth: Service revenue grew strongly, representing 5% of consolidated revenue, with high attachment rates in analytics.

Strategic account strategy: The strategy launched 3 years ago now covers 20 large pharma and CDMO accounts, driving growth through cross-selling and customer engagement.

Investment in growth: Investments in application labs, technology, and infrastructure to support sustainable growth and customer satisfaction.

Dual manufacturing: Plans to establish dual manufacturing for most of the portfolio by the end of next year to leverage global footprint and support U.S. onshoring projects.

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Risk or Challenges

Regulatory and Tariff Challenges: The company continues to face tariff charges, which remain a slight headwind to margins. Additionally, regulatory compliance and adherence to tariffs are ongoing challenges that could impact operational costs and profitability.

China Market Uncertainty: While there was some growth in China in Q3, the company expects China to be slightly down for the year and remains uncertain about its recovery until 2026. This poses a risk to revenue growth in the Asia Pacific region.

Sales Mix Fluctuations: Quarterly gross margin fluctuations are driven by changes in sales mix, which could lead to unpredictability in financial performance. This dynamic is expected to continue quarter-to-quarter.

New Modalities Revenue: Revenue from new modalities, including AAV and mRNA, remains muted, which could limit growth opportunities in these emerging areas.

Operational and Strategic Investments: The company is making significant investments in infrastructure, digital capabilities, and strategic initiatives, which could strain short-term margins and operational efficiency.

Supply Chain and Manufacturing Risks: Efforts to establish dual manufacturing for most of the portfolio by the end of next year highlight potential vulnerabilities in the supply chain and manufacturing processes.

Economic and Currency Risks: Foreign currency fluctuations have been both a tailwind and a headwind, adding complexity to financial planning and performance.

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Guidance & Outlook

Revenue Growth Guidance: Repligen has increased the midpoint of its organic non-COVID revenue growth guidance for 2025 to 14% to 15.5%, with an overall organic revenue growth of 12% to 13.5%. The total revenue guidance for 2025 is now $729 million to $737 million, up from the previous range of $715 million to $735 million.

Franchise Growth Expectations: Filtration is expected to grow approximately 10% (13.5% non-COVID growth), Chromatography is expected to grow approximately 25%, Proteins are expected to grow 15% to 20%, and Analytics is expected to grow over 30%.

Adjusted Gross Margins: The company expects adjusted gross margins in the range of 52% to 53% for 2025, representing a 210 basis point year-over-year margin expansion at the midpoint.

Capital Expenditures: Capital expenditures for 2025 are expected to be down 20% to 25% compared to 2024, with spending below pre-COVID levels.

Geographical Growth: Asia Pacific is expected to continue strong growth, with nearly 50% year-over-year growth in Q3 2025. The Americas and EMEA are also expected to maintain growth, with the Americas growing 20% and EMEA growing in low double digits.

China Market Outlook: China is expected to return to growth in 2026, though it is anticipated to be slightly down for 2025.

Strategic Investments: Repligen plans to continue strategic investments in product lines, geographies (e.g., Asia Pacific), and digital capabilities to support future growth. This includes investments in application labs, technology, and infrastructure to enhance productivity and customer service.

New Product Launches: Repligen plans to launch additional innovative solutions across its portfolio in the coming years, particularly in the Proteins franchise and new modality markets.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you talk about the cadence of order momentum across the quarter and out of the quarter, and how does the organic midpoint capture what you're seeing?

A:Orders grew more than 20% for the second consecutive quarter, marking the sixth consecutive quarter of sequencing order growth. All franchises grew double digits, with consistent growth across July, August, and September. China showed sales growth but softer orders, with expectations of full recovery and growth next year.

Q:Can you reconcile the sales guidance increase versus narrowing EBIT margin to the bottom end of prior guidance?

A:Gross margin trends were favorable, up 230 basis points year-to-date. Operating income grew 25% excluding M&A and FX impacts. Onetime operating expenses of $2 million, FX pressure, and infrastructure investments impacted margins. EPS guidance dropped by $0.01 due to these factors.

Q:What is your evaluation of Repligen's ability to participate in larger-scale projects related to onshoring activity?

A:Repligen is now a broad actor in hardware solutions and is receiving RFPs for large hardware investments. Onshoring projects represent a significant opportunity, with first orders expected in the second half of 2026 and sales from 2027 onwards.

Q:Why does guidance imply only 2%-3% higher revenue in Q4 versus Q3, compared to historical averages of 9%?

A:Less seasonality is expected due to a strong Q3, tougher Q4 comps, and a 3% headwind from a gene therapy customer. Organic growth in Q4 is expected to be 8%-13%, with filtration being a key factor.

Q:Is 13% organic growth for 2026 a reasonable expectation, and how is the gene therapy modality expected to trend?

A:2026 guidance will be provided in February. Repligen aims to outpace industry growth by 5% over the medium term. Gene therapy is performing as expected, with diversification into cell therapy and antibody drug conjugates showing success.

Q:What is driving the 50% growth in Asia Pacific, and are there plans for additional investments in the region?

A:Asia Pacific represents 15% of sales, with significant growth driven by investments in leadership and infrastructure. New offices in Singapore and Japan have been opened, with further investments planned.

Q:What is the revenue contribution from ATF placements in Q3, and what is the outlook for consumable pull-through?

A:ATF placements contributed to growth but were a small part of overall hardware performance. Consumable pull-through timing depends on customer commissioning and is expected mid-next year.

Q:What trends are you seeing in emerging biotech revenue and orders?

A:Emerging biotech revenue reached its highest level in 3 years, driven by increased biotech funding ($13 billion in Q3 vs. $9 billion in Q2) and M&A activity, which is expected to accelerate early-phase projects.

Q:What explains the strong equipment trends versus peers, and what is the revenue contribution from ATF placements?

A:Strong equipment trends are broad-based, with ATF and analytical equipment as key contributors. ATF placements were a small part of overall hardware performance, which grew more than 20%.

Q:What is the status of integrating the MAVERICK device into ATF, and how does it impact growth opportunities?

A:Integration is progressing as expected, with a growing funnel for the 908 portfolio. Updates on combining ATF with MAVERICK will be provided next quarter, with promising growth opportunities.

Q:What is the update on midsized CDMOs and recent protein launches?

A:Large-scale CDMOs drove more than 20% growth, with no specific update on midsized CDMOs. Protein growth was double digits, driven by chromatography resins and custom projects. Two to three new resins are expected to launch by year-end.

Q:What trends are you seeing at strategic accounts, and how do they differ from the overall portfolio?

A:Strategic accounts have driven growth through cross-selling, particularly in hardware. These accounts now recognize Repligen's capabilities in hardware, contributing to top-line and order growth.

Q:What are the order trends for new modalities versus mAbs, and what is the margin expansion opportunity for next year?

A:New modalities performed as expected, with muted demand and mid-single-digit growth year-to-date. Margin expansion is expected to continue, balancing growth investments with profitability.

Q:What is embedded in the guide for net pricing and tariff surcharges, and will they recur in 2026?

A:Net pricing is low single digit, consistent throughout the year. Tariff surcharges have minimal impact, with a couple of million dollars in costs, and are expected to remain similar in 2026.

Q:Review of Unclear Management Responses

A:Management avoided providing specific revenue contributions from ATF placements and detailed timing for consumable pull-through. They also deferred providing 2026 guidance and specific updates on midsized CDMOs.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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