Repligen Corp (RGEN) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Repligen Corporation second-quarter of 2016 earnings conference call. My name is Tyrea and I will be your coordinator. (Operator Instructions). I would now like to turn the call over to your host for today's call, Sondra Newman, Senior Director of Investor Relations for Repligen.

Good morning and thank you for joining. Today, we will discuss our financial results for the second quarter of 2016. We will update our guidance for the year and discuss recent business highlights. Joining me are Tony Hunt, President and CEO and Jon Snodgres, our CFO.

During the course of this call, we will make forward-looking statements regarding business goals and our expectations for the financial performance of the Company. We caution you that such statements are subject to risks and uncertainties that may cause actual events or results to differ. In particular, unanticipated events outside of our control may adversely impact future results.

Additional information concerning these risk factors is discussed in our annual reports on Form 10-K, the current report on Form 8-K, which we filed today and other filings that we make with the Securities and Exchange Commission. The forward-looking statements in today's discussion reflect management's current views and may become obsolete 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 will be presenting our financial results and providing guidance on an adjusted or non-GAAP basis, as well as on a GAAP basis. Adjusted figures will include the following -- revenue growth at constant currency, adjusted operating income, EBITDA, adjusted EBITDA and adjusted net income and fully diluted earnings per share.

A reconciliation of GAAP to non-GAAP financial measures is included as an attachment to our press release that we issued this morning. While these adjusted financial measures should not be viewed as an alternative to GAAP, the Company believes that the use of non-GAAP measures better enables investors to benchmark its results against historical performance and the performance of peers and to evaluate investment opportunities. With that, I will turn the call over to Tony Hunt for a business update.

Thank you, Sondra and good morning, everyone. Quarter two was another strong quarter for the Company both financially and in terms of delivering on many of the strategic goals that we set for ourselves at the beginning of the year. As our bioprocess business expands, we continue to be encouraged by the strength we are seeing in our end markets and as a result, we are increasing our top-line revenue guidance for 2016 to $101 million to $105 million, which Jon will cover in more detail in the financial update portion of this call.

Let me first start with execution on our stated strategic goals. We began the quarter off by acquiring Atoll GmBH to complement our fast-growing OPUS line and to provide a European customer center. We raised over $100 million in capital in May. We invested in operations to expand capacity, and finally, we delivered an exceptionally strong quarter here in terms of top and bottom-line growth.

The Atoll integration has gone well and we achieved our sales targets in the quarter, keeping us right in line with our deal model. With this business, we wanted to get off to a fast start, and I'm pleased to report that our commercial team is fully trained on the product line and the account mapping of total accounts to existing OPUS accounts is now complete.

We are working through branding and our goal is to have the Atoll portfolio fully integrated into the OPUS family brand by the end of this quarter. Customers have reacted very positively to the acquisition and I expect we will see the benefit from an integrated portfolio of products covering process development through to production scale columns during the second half of 2016 and into 2017.

The capital raise was a key milestone for us as it puts us in a much better position to execute on future internal capacity investments and M&A. We continue to be very active on the M&A front and we expect to add market-leading technologies to our portfolio as opportunities arise.

As mentioned in previous quarters, we have experienced a significant uptick in demand for OPUS prepacked columns and, as you know, we made the decision back in quarter one to increase capacity here in Waltham.

Our third manufacturing suite came online in April and we will have two more suites up and running by the end of the quarter. With prepacked column demand remaining high, this increased capacity will help drive down lead times by the end of the year and put us in a strong position for 2017.

On the commercial front, our sales and marketing teams continue to execute with strong opportunity funnels for the second half of this year. We've added sales heads in Asia and Europe in quarter two and we've also notified our North America and European ATF distributors that we will be going direct in these regions for ATF beginning in 2017.

In Asia, we are committed to using a combination of distributors and Repligen sales managers to drive growth and adoption of our bioprocessing portfolio. In China, our distributor is adding an ATF and OPUS demo center and is significantly increasing direct sales and technical specialists in 2016. This increased investment by our distributors will enable more frequent calling at key accounts and allow us to further expand within this important region.

So moving now to our quarterly results, as reported today, we had record sales of our bioprocessing products of $29.2 million, an increase of 36% over last year. We also grew adjusted EPS for the quarter by 26%. Our performance in Q2 was driven by the platforming of our technologies at key accounts, strong execution by our commercial team in developing existing and expanding into new accounts and finally by the continued strength in the biologics and bioprocessing markets.

For the quarter, OPUS was the most significant driver of growth. We also saw strong demand for growth factors and ATF while ligands came in on forecast. Our OPUS business continues to accelerate led by the OPUS 45 and 60 centimeter formats. Demand for 45 and 60 centimeter columns has increased significantly throughout the first half of 2016 with large pharma continuing to migrate to prepacked columns, a trend that emerged in the second half of last year.

Unit sales of 45 and 60 columns have more than doubled in the first half of this year versus the same period in 2015 and we now estimate OPUS will grow approximately 100% for 2016. Our growth factor business also had a strong quarter as demand for our IGF-1 reagent increased. Demand for IGF-1 falls into two categories -- pre-formulated into cell culture media or sold direct to end users for supplementation into processes. We continue to work closely with key accounts and Millipore Sigma to deliver custom formulations and formats as customers scale up their manufacturing processes.

Our XCell ATF business had another strong quarter led by system and consumable sales in North America and Asia. As the number of applications for ATF expands, specifically in N-1, seed train, vaccine and hybrid perfusion applications, we are seeing more multiunit orders for our smaller systems. In Asia, for example, we had one customer purchase 19 systems for process development and scale-up applications, which is a strong endorsement of the technology.

One of the benefits of increasing the number of installed systems in the field, which we have done now consistently over the last two years, is the opportunity for follow-on consumables. Our consumables growth this year has been approximately 50% and we expect this to continue as our customer base expands.

Customers are also excited about our new products, in particular, our single-use ATF system. Beta site feedback throughout Q2 has been very encouraging. We've accepted and delivered multiple orders for single ATF 6 units, which will be officially launched here in September. We have also accelerated the development of single use ATF 2, and this product will also launch in Q3.

Finally, we've upgraded and launched next-generation versions of software for our ATF controllers, adding features that have been requested by our customer base, so it's an exciting time for ATF as this technology continues to grow and expand. As we look at the second half of the year, our pipeline is strong and with the launch of single-use ATF, we expect the number of new account opportunities to increase.

Finally, our Protein A ligands business came in as expected for the quarter. Given the direct tie of our ligands business to the production of monoclonal antibodies, we continue to be encouraged by high approval rates with six FDA approvals this year. Among these six is the first US approval of a biosimilar version of the blockbuster arthritis drug Remicade. Keeping in mind that the demand for the products Repligen manufacturers is based on volume, we believe this dynamic is creating additional opportunities for our business.

As we move into the second half of the year, we are encouraged by the strength in our end markets and by the overall trends in our industry. Our biopharma customers are investing in capital expansion projects to increase overall capacity at their facilities as the biologic and biosimilar market grows.

Large pharma continues to outsource to CMOs where we are very entrenched with our technologies and where we deliver a combination of convenience, flexibility, speed and the ability to significantly increase yield and productivity.

In addition, the movement towards continuous processing from standard batch production is gathering momentum in both upstream and downstream bioprocessing and we are really well-positioned with our ATF and OPUS productlines.

These factors, along with our continued traction and our expanding global presence in both process development and manufacturing facilities, puts us in a very good position for the remainder of 2016 and into 2017. We are clearly pleased with the overall performance during Q2 and the growth in the first half of 2016 and we look forward to continued execution as we finish the year. I will now turn it over to Jon for a financial update.

Thank you, Tony. Good morning. Today, we are reporting our financial results for the three and six-month periods ended June 30, 2016. We will also be updating our financial guidance for the full year. Our financial results for the second quarter of 2016 were highlighted by strong sales of our bioprocessing products where we are reporting record revenue of $29.2 million, an increase of 36% as reported and 39% at constant currency compared to the second quarter of 2015. Revenue growth was driven by strength from our direct product portfolio.

Our gross profit for the second quarter was $16.5 million, an increase of $3.7 million or 28% over the second quarter of 2015. Our gross margin was 56.7% for the second quarter of 2016 compared to 60% in 2015. The change in year-over-year gross margin is a result of product mix predominately driven by the higher sales of OPUS and from the impact of operational investments made in our facilities to support the growing demand for our products.

Now moving on to our operating expenses, research and development expenses were $1.9 million for the second quarter of 2016, an increase of $0.6 million or 51% compared to the same period in 2015. Increased R&D expenses are related to ATF development and validation programs covering single use systems and software development on our controllers.

SG&A expenses increased to $8.1 million in the second quarter of 2016 from $6.2 million in the second quarter of 2015. The year-over-year increase was driven by Atoll acquisition costs of $0.7 million, ongoing business costs for Atoll of $0.4 million and $0.8 million in investments as we expanded our commercial organization, operating personnel and systems infrastructure to support the ongoing growth of the Company.

Also included in our second-quarter operating expenses is an additional $0.6 million of contingent consideration expense based on the increased probability of achieving the ATF sales milestones for 2016, the Company's final year of this obligation. We are now holding an accrual of $4.7 million on our balance sheet representing over 100% of the $4.25 million potential fixed component payout and 84% 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 $4.7 million accrual.

GAAP operating expenses for the second quarter were $10.7 million compared to $8.3 million in the same period of 2015. Adjusted operating expenses for the second quarter of 2016 of $9.3 million compared to $7.5 million in the same period of 2015. Adjustments of $1.4 million in 2016 include the aforementioned Atoll acquisition and Refine contingent consideration expenses. In 2015 quarter, adjustments of $0.8 million were made for Refine contingent consideration.

Now moving to income and earnings for the quarter. On a GAAP basis, operating income was $5.9 million in the second quarter of 2016, representing a 20.1% operating margin, compared to $4.6 million in the same period in 2015. Adjusted operating income for the second quarter grew to $7.2 million, an increase of $1.8 million or 34% compared to the second quarter of 2015. This increase was driven by margin pullthrough from our year-over-year sales growth resulting in adjusted operating margin of 24.8%. Adjustments to operating income include the aforementioned Atoll acquisition and Refine contingent consideration expenses.

Interest expense for the second quarter of 2016 was $0.6 million attributable to cash and non-cash interest of $0.3 million and $0.4 million respectively related to our convertible debt financing that closed in May. Interest expense was de minimus during the second quarter of 2015.

Income tax expenses for the second quarter of 2016 totaled $1.5 million or 28% of pre-tax income compared to a 17% tax rate for the same period in 2015. The higher tax rate in 2016 is the direct result of higher year-over-year profitability in our Swedish entity where we have a 22% tax rate and a loss position in our US entity.

On a GAAP basis, net income for the second quarter of 2016 was $3.9 million compared to $3.6 million in the same quarter of 2015. Adjusted net income for the second quarter of 2016 was $5.6 million, an increase of $1.2 million or 28% compared to the same period in 2015.

Adjustments to net income totaled $1.6 million, which includes the aforementioned Atoll acquisition and Refine contingent consideration expenses and the non-cash interest associated with our convertible debt financing.

On a GAAP basis, second-quarter 2016 fully diluted EPS was $0.11, consistent with the 2015 quarter. Adjusted non-GAAP earnings per diluted share for the second quarter of 2016 were $0.16 compared to $0.13 in the second quarter of 2015. Adjustments to diluted EPS include $0.05 from the previously mentioned combined impact of Refine contingent consideration, Atoll acquisition and convertible debt non-cash interest expenses in the second quarter of 2016 and $0.02 from contingent consideration expense in the second quarter of 2015.

EBITDA for the second quarter of 2016 was $7.3 million compared to $5.5 million for the same period in 2015. Adjusted EBITDA for the second quarter of 2016 was $8.6 million compared to $6.3 million for the same period in 2015, an increase of 38%. In the 2016 quarter, adjustments to EBITDA of $1.4 million include the aforementioned Atoll acquisition and Refine contingent consideration expenses. In the 2015 quarter, adjustments of $0.8 million were made for contingent consideration.

I will now report on our year-to-date 2016 financial results for the six-month period ended June 30 where we have driven strong revenue growth and operational performance. Year-to-date in 2016, we are reporting product revenue of $54.3 million, an increase of 28% as reported and 29% at constant currency compared to the $42.3 million reported in 2015. This growth reflects particular strength in our OPUS and ATF product lines.

We are reporting year-to-date 2016 gross profit of $30.6 million, an increase of $4.9 million or 19% compared to the same period in 2015. Year-to-date gross margin of 56.3% compares to 60.6% in 2015 with the change driven by a combination of product mix and capacity expansion activities aimed at increasing factory capacity.

Year-to-date 2016 operating income was $9.3 million compared to $8.6 million for the same period in 2015. Year-to-date adjusted operating income grew to $13.1 million, an increase of $2.6 million or 24% compared to the same period in 2015. This increase was driven by margin pullthrough from our year-over-year sales growth resulting in a year-to-date adjusted operating margin of 24.1%.

Adjustments to 2016 operating income include $1.1 million of Atoll acquisition expense and $2.7 million of contingent consideration expenses. Adjustments to 2015 operating income include $1.9 million of contingent consideration.

Year-to-date 2016 interest expense was $0.6 million attributable to the previously mentioned cash and non-cash interest of $0.3 million and $0.4 million respectively related to our convertible debt financing. Interest expense was de minimus during the comparable period in 2015.

Year-to-date 2016, other expense was $0.9 million due to non-operational foreign currency expense recorded in the first quarter of this year. Other expense was $0.1 million for the comparable period in 2015.

Year-to-date net income was $5.5 million compared to $6.5 million for the same period in 2015. Adjusted net income for year-to-date 2016 was $9.6 million, an increase of $1.2 million or 14% compared to the same period in 2015.

Adjustments to 2016 net income of $4.1 million include Atoll acquisition, Refine contingent consideration and non-cash interest expenses. Adjustments to 2015 net income include $1.9 million of Refine contingent consideration expense.

On a GAAP basis, year-to-date 2016 fully diluted EPS was $0.16 versus $0.19 for the same period in 2015. Adjusted earnings per diluted share for year-to-date 2016 were $0.28, an increase of $0.03 from the same period in 2015. For year-to-date 2016, adjustments to EPS total $0.12, which includes the impact of the previously mentioned Refine contingent consideration, Atoll acquisition and convertible debt non-cash interest expenses. In the 2015 period, adjustments to EPS of $0.06 reflect the impact of Refine contingent consideration.

EBITDA for year-to-date 2016 was $10.9 million compared to $10.8 million for the same period in 2015. Adjusted EBITDA for year-to-date 2016 was $14.6 million compared to $12.7 million for the same period in 2015. In both periods, adjustments from EBITDA include the aforementioned Atoll acquisition and Refine contingent consideration expenses. Our cash, cash equivalents and marketable securities at June 30, 2016 were $181.8 million reflecting a net increase of cash of $108.4 million from year-end 2015.

Now moving 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 levels and does not include the potential impact of additional contingent consideration expenses or any reversal of the $4.7 million Refine contingent consideration accrual or potential new acquisitions.

Today, we are raising our total revenue guidance range to $101 million to $105 million, an increase from our previous guidance of $98 million to $102 million. Our revenue projection for 2016 reflects growth in the range of 21% to 26%, or 22% to 27% on a constant currency basis, an increase from our previous guidance of 17% to 22% at constant currency.

Based on recent FX rates that we use as a proxy for the remainder of the year, we now expect a foreign exchange headwind of 1% to 2% on sales for the year. We are tightening our gross margin guidance to 56% to 57% from our previous guidance of 57% to 59% based on the stronger-than-expected growth of OPUS and the associated change in mix.

GAAP operating expenses are expected to be in the range of $39 million to $41 million, an increase from our previous guidance of $37.5 million to $39.5 million, predominantly due to second-quarter Refine contingent consideration of $0.6 million and higher commissions associated with our increased sales guidance.

We are increasing our adjusted operating expenses to $34.5 million to $36.5 million from our previous guidance of $34 million to $36 million. Adjustments include the previously mentioned $2.7 million of Refine contingent consideration recorded in the first half of the year and $1.5 million of Atoll acquisition and integration expenses expected in 2016.

R&D expenses are expected to be approximately $7 million, consistent with previous guidance. GAAP SG&A expenses are expected to be in the range of $29 million to $31 million compared to prior guidance of $28.5 million to $30.5 million. Adjusted SG&A expenses are expected to be in the range of $27.5 million to $29.5 million versus previous guidance of $27 million to $29 million.

Adjustments include the aforementioned $1.5 million of Atoll acquisition and integration expenses expected to be incurred in 2016. Our GAAP operating income guidance for 2016 is $17 million to $19 million compared to our prior guidance of $18 million to $20 million. We are guiding to full-year 2016 adjusted operating income of $21 million to $23 million, a change from our previous guidance of $21.5 million to $23.5 million.

Our adjusted operating income guidance includes our additional revenue projections and excludes $4.1 million of expected Atoll acquisition and Refine contingent consideration expenses.

We are guiding full-year interest expense to $3.7 million inclusive of $1.5 million of cash interest and $2.3 million of non-cash interest related to our convertible debt financing. Interest expense was de minimis in our prior guidance.

We are guiding full-year other expenses to $0.9 million due to the nonoperational foreign exchange expense already recorded in our year-to-date P&L. We are expecting 2016 income tax expenses of $5 million to $5.55 million consistent with previous guidance.

Our GAAP net income is projected to be $8 million to $10 million compared to our previous guidance of $12 million to $14 million. Adjusted net income for 2016 is expected to be $14.5 million to $16.5 million versus our prior guidance of $15.5 million to $17.5 million.

Our adjusted net income guidance includes the aforementioned additional revenue projections, cash interest expense and foreign exchange expense and excludes the $6.4 million of expected Atoll acquisition, Refine contingent consideration and non-cash interest expenses.

We expect GAAP EPS for the year 2016 to be in the range of $0.23 to $0.29 on a fully diluted basis, an adjustment from previous guidance of $0.35 to $0.41. Adjusted earnings per share are expected to be in the range of $0.42 to $0.48, a change from our previous guidance of $0.45 to $0.51. Adjusted EPS guidance includes the aforementioned revenue projection and the unfavorable impacts of $0.04 from cash interest expense and $0.02 for foreign exchange expense and excludes a negative $0.19 impact from aforementioned Atoll acquisition, Refine contingent consideration and non-cash interest expenses.

EBITDA is expected to be in the range of $22 million to $24 million, consistent with prior guidance. Adjusted EBITDA for 2016 is expected to be $26 million to $28 million with depreciation and amortization expenses in the range of $5.5 million to $6 million consistent with previous guidance.

The Company expects to generate free cash flow in the range of $13 million to $15 million in 2016, including approximately $5 million of capital expenditures to support maintenance and continued factory expansion initiatives. We are expecting year-end cash, cash equivalents and marketable securities of $187 million to $189 million.

This completes our financial report and I will now turn the call back to the operator to open the lines for questions.

(Operator Instructions). Paul Knight, Janney Montgomery Scott.

Hi, Tony. Could you talk to OPUS? Specifically where are you with production lines? Are customers now in the past beta? Is it multiple orders now of OPUS or the stage of that product development cycle?

Sure. So as you know, we added the one extra suite of capacity back in April and we are adding two more this quarter. So by the time we get into early September, we will have five production suites up and running for OPUS. And you are right, we are definitely seeing more multiunit orders. It's no longer the one column going to a customer; it's really the whole process, so we get maybe three columns.

As I said in my opening remarks, we are seeing that migration into large pharma, so we are getting larger orders from some of the bigger pharma players. So 45s and 60s are clearly what's driving the growth for us right now. The rest of the portfolio is doing very well as well, but obviously the 45s and 60s drive volume.

And then you had mentioned Atoll. Was it fully integrated at the end of Q2? Could you repeat that? And then what are the steps you want to take with Atoll in terms of is it a common salesforce? What are the synergies you are targeting?

Yes, so I think the first step was to make sure that we got the Repligen sales team fully trained on the Atoll products, so we did that very early in Q2. What we've been doing since then is really mapping the accounts that Atoll has with the ones that we have today from OPUS, and there's a good amount of overlap and so what we've been able to do now is take the Atoll portfolio of products and using the Repligen sales team, drive increased activity.

So I think our activity levels are high. I think the opportunities are beginning to come through as we finished off Q2 and as we enter here into Q3. So my expectation is that it's one team selling both the Atoll portfolio into process development and the OPUS productline into the clinical manufacturing space. It will get branded -- the whole portfolio will be branded under OPUS with the process development products like RoboColumns and MiniColumns and (inaudible) Columns all being OPUS-branded. So I think the integration is going well. The activity is high and I think we are in good shape for the second half of the year.

And then lastly, Tony, [Purelight] and General Electric have announced ligand capacity additions. When would their facility build -- turn into demand for your Protein A?

Yes, good question. The way I would look at that, Paul, is more around -- it's a little bit like what we are doing with OPUS, so we are putting in extra capacity. They are currently building up their manufacturing capabilities. I would probably pay more attention to the continued number of approvals of mAbs and the continued number of approvals of biosimilars. Typically, when they do capacity expansions of this scale I think that GE and Purelight are doing are probably looking out two or three years. So I think they are just gearing themselves up to be able to meet demands out to 2020.

Okay. Thank you.

Matt Tiampo, Craig-Hallum.

Congratulations on a strong quarter. Just a quick one from me. I'm wondering if you're seeing any evolution or change in the number -- in the percentage of customers that are having you procure the resin for them for OPUS, or are they drop-shipping resin and how you think that dynamic is going to unfold over the next couple quarters to couple years. Thanks.

Yes, great question, Matt. If you look at quarter two and you compare it with last year, the split of OPUS column revenue to resin revenue was about the same, so there was really no change. But what I think we are going to see as we get into the second half of the year and as we move into 2017, as the volume of 45s and 60s increase, I fully expect that we're going to see more drop shipment of resin to Repligen and that's just the trend that I think will happen as we hit the second half of this year and go into 2017.

I think the reason for that is, when you do one column, it's easy for Repligen to go ahead and procure that resin. When someone orders 5 or 10 columns, then I think the pricing that they would get versus what we would get at Repligen would be different, so we'd expect to see more of a shift towards drop-shipping.

Great. Thank you.

Drew Jones, Stephens Inc.

In the prepared comments, you guys mentioned capacity investments a couple of times. Am I reading it correctly that that's above and beyond what you're doing for OPUS and I guess spreading into other productlines? And then can you give us an update on where are we in terms of capacity utilization for Protein A, IGF, maybe ATF to a lesser extent?

Sure. So the majority of the capacity expansion plans, Drew, are really related to OPUS. There are some things we are doing around ATF, but most of the capacity expansion around ATF was done last year. And the single-use products for ATF are really just getting going now, so I think we are in good shape there. There will be some capacity, but it's more people that we look at around our ligands business and that's something that we've been adding as we've gone through this year, and we will assess it when we are in Q3, Q4 and see what we need to add for next year as we begin to see some of the forecasts from our partners.

In terms of capacity utilization, we continue to -- when I look at obviously OPUS and ATF, we are in good shape on capacity. Our increasing capacity of OPUS is really related to driving down leadtimes and we think that's something that we are going to continue to focus on here in the second half of the year and into 2017. But overall I think capacity utilization is very similar to where we were last year where we've got still plenty of capacity on our ligands, and anything we do there will be related to manpower.

Okay. And then on OPUS, the last couple of quarters, you guys gave pretty good updates in terms of large pharma partnerships. You mentioned it a couple of times already today. Is there anything incremental beyond what you've said the past couple of quarters in terms of -- I think last quarter you said you had one large pharma customer that's committed to OPUS as its disposable column. Any updates like that that you could provide?

Yes, sure. There are more large pharma that have come in in Q2 that are committing. Some of the other players that we've always wanted to get into have started to evaluate some of the larger columns that we make, but not to a point where they've said they've fully committed to moving -- to replacing say glass columns with prepacked columns, but we've made a lot of progress there.

There's also some of the CMOs, Drew, that, again, we are not in every CMO, or we weren't in every CMO at the beginning of the year, but some of the big CMOs that we've wanted to get into globally, we've been able to make some progress there as well. So it's really across the board. The CMO traction is very strong. We are seeing the increase in the number of pharma customers that are migrating to prepacked columns from glass columns, so it's just a very positive trend for us.

And then last one from me, driving down those leadtimes with OPUS, can you tell us what's the backlog here, or maybe give us a peek there? What's the backlog? When do you feel that accelerating? Is it 4Q?

Yes. I would say that we are fully booked through Q3 on OPUS. We've really done a very nice job with our customer base in terms of teeing people up in terms of when they need columns and making sure they get it on time, so we've really pretty much fully booked through Q3. Obviously, with two more production suites coming online really at the beginning of September, we would expect that we will be able to drive down leadtimes as we enter Q4. So you are spot on in your analysis there.

Thanks.

Brandon Couillard, Jefferies.

Tony, two-part question for you. The strength that you pointed to with growth factors, is that tied to drugs going into commercial production by chance? And then, secondly, you spoke to the platforming of the portfolio. Is there any metrics, or numbers, or data points you can speak to that would, I guess, add some context to your success at selling the entire direct portfolio?

Sure. So on the growth factor side, the majority of the volume does come from commercial drugs that we've been in that we've been in for a number of years. We've known really for the last year or so that a number of those companies are making second-gen, next-gen molecules, transferring production to new facilities. So with that comes some increased volume. So that's really the major driver. Obviously, we continue to focus on building out the pipeline, but it's a long and fairly slow process, but overall I think our growth factor business is really driven by the commercial drugs and those that are in late stage.

On your question on platforming, clearly the strategy that we've put in place over the last couple of years, which is to really drive the direct portfolio of products that we have here at Repligen into the marketplace and really leverage the commercial organization that we've also put in place over the last 2.5 years, that's having an impact. And when you look at the success of ATF and you look at the success of our prepacked column line, we see it this year in the revenue growth that we are achieving and I think what's important is that technologies like ATF are becoming platforms so they are being used in multiple processes, whether it's Phase 1, Phase 2 or commercial processes at key accounts.

So we have a really strong portfolio of -- a strong list of accounts and blue-chip pharma accounts that have really adopted ATF over the last few years. And so we are in a combination of commercial processes and late-stage processes.

What's also encouraging is, as we've looked to China and looked to Asia in general, it's been a real strong area for us and when you see companies purchasing 19 smaller ATF systems, that's a strong leading indicator that they are going to start scaling over the next few years.

So platforming for me is being entrenched at accounts and also having the smaller systems, whether it's smaller columns in OPUS or smaller systems on ATF being used in the process development labs and early clinical, which should become opportunities for us over the next few years as those customers scale.

Thanks. That's helpful. Then a question for you, Jon. On the gross margin side, specifically in the second quarter, can you give us some details on the balance of the factors between mix, currency and extra capacity? And then any directional color you can give us on the staging between the third quarter and fourth quarter understanding that fourth quarter is usually the low watermark for the year?

Sure, sure. So looking at the second-quarter gross margins, a good estimate is about 50% of the year-over-year reduction from say 60% down to -- and the 56% is related to our capacity expansion initiatives and about 50% is also associated with the mix, predominantly the much higher volume of OPUS that we are seeing.

As you look forward into Q3 and Q4 in terms of staging, and I assume you are continuing with the question on gross margin, we expect to see similar type mix, and if you look at our year-end overall full-year guidance of 56% to 57%, you can see that year-to-date we are right in that range and we expect to continue with that range as we go forward.

And then in terms of foreign exchange, a relatively small effect for the year, 1% to 2% on the top line and not a huge effect on the gross margins at this point.

One more for you. Could you give us the Atoll revenue contribution in the second quarter and what you are factoring for the full year? And then on the EPS line, so just want to make sure I understand this right, you are taking the midpoint down by $0.03, but $0.06 of that seems to be related to interest expense and then FX. So net-net effectively $0.03 better excluding those two items? Is that correct?

Sure. So I will start with the Atoll situation. In the last quarter, we guided $3 million to $3.5 million for Atoll and we are still -- the business has taken off well since we purchased it and we are still guiding in that $3 million to $3.5 million range and there are no surprises whatsoever in the second quarter, so business according to plan.

In terms of EPS guidance, the $0.03 versus $0.06, good question; $0.02 related to foreign exchange was already included in last quarter's guidance, Brandon, so the spread is a little bit lighter. We've made up a little bit on the volume side, volume gross margin side has made up a little bit of the $0.04 for the cash interest.

Got you. Thank you.

Drew Jones, Stephens.

You guys obviously have a lot of dry powder on hand. Can you give us an update on M&A activity; how close do you have something to the finish line? Is there anything that's close to the finish line?

Yes, so on the M&A front, Drew, obviously, we got the Atoll business back at the beginning of quarter two and, as I said, we are active out there, but I think anyone who knows the bioprocessing business arena knows that it's fairly competitive and we are going to continue to pursue assets that we think are strategic to Repligen and obviously we will give an update on that if we get closer on something. But for now, I think we are in a good position in terms of our cash to be able to go out and execute on deals as they come up.

Okay. Thanks.

Thank you. At this time, I'm showing there are no further participants in the queue. I'd like to turn the call back to management for any closing remarks.

That's it. Thank everybody for joining us this morning.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone have a great day.