Repligen Corporation (RGEN) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 6, 2020. Repligen develops and sells bioprocessing technologies and products for biopharmaceutical manufacturing. Its four franchises are Chromatography, Filtration, Process Analytics, and Proteins. Unless otherwise indicated, dollar amounts below are in millions.
Financial highlights
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $76.1 | $60.6 | +25.5% |
| Gross margin | 58.0% | 55.7% | +2.3 percentage points |
| Operating income | $11.9 | $11.2 | +6.6% |
| Net income | $9.8 | $8.1 | +21.9% |
| Diluted EPS | $0.18 | $0.17 | +5.9% |
| Operating cash flow | $9.5 | $9.8 | -$0.3 |
| Capital expenditures and capitalized software | $5.0 | $3.8 | +$1.2 |
- Product revenue was $76.1 million; royalty and other revenue was $0.03 million. Management attributed growth mainly to continued adoption of chromatography and filtration products. C Technologies, acquired in May 2019, contributed $6.6 million of Q1 2020 revenue, so reported growth includes an acquisition contribution.
- Operating expenses rose 29.8% to $64.2 million. R&D increased 29.9% to $4.7 million, and selling, general and administrative expense increased 44.8% to $27.5 million. The company cited acquired C Technologies costs, higher headcount, commercial expansion, and infrastructure investment.
- Net income included an 8.1% effective tax rate, compared with 23.4% in Q1 2019; the company attributed the lower rate primarily to tax benefits from stock-option exercises and vesting stock units. Interest expense rose to $3.0 million, primarily reflecting the 2019 convertible notes and non-cash discount amortization.
- Non-GAAP measures: adjusted operating income was $18.3 million versus $15.6 million; adjusted net income was $16.8 million, or $0.32 per diluted share, versus $12.2 million, or $0.26; adjusted EBITDA was $21.2 million versus $17.5 million. These measures exclude specified acquisition and integration costs, intangible amortization, and, for adjusted net income, non-cash interest expense and tax effects.
Balance sheet, debt, and liquidity
- Cash and cash equivalents were $529.5 million at March 31, 2020, versus $528.4 million at December 31, 2019; restricted cash was $9.0 million. Current assets were $651.4 million and current liabilities $41.9 million. Working capital was $609.5 million, up approximately $16.0 million from year-end.
- Total assets were $1.406 billion and total liabilities $336.7 million. The company reported no current portion of debt.
- The 0.375% convertible senior notes due 2024 had $287.5 million principal and $235.5 million net carrying value; their disclosed fair value was $304.1 million. They were not convertible at holders’ option in Q2 2020 based on the Q1 stock-price test. Repligen stated it intends to settle principal in cash and any conversion premium in shares.
- Operating cash flow was $9.5 million. Inventory growth used $7.2 million of cash, while capital expenditures and capitalized software totaled $5.0 million. Cash, cash equivalents, and restricted cash increased $1.2 million after a $4.9 million adverse effect from exchange-rate changes.
Changes, outlook, and risks
- Gross margin improved on higher revenue and favorable product mix, partly offset by increased manufacturing headcount. GAAP operating income grew more slowly than revenue as operating expenses expanded.
- Management said it expected R&D expense and overall operating expenses to increase during the remainder of 2020 to support product development and business expansion. It stated existing cash was adequate for at least 24 months from the filing date, absent acquisitions of additional products, candidates, or intellectual property. No specific revenue or earnings guidance was provided.
- COVID-19 had not materially affected Q1 results or operations, but management said future effects were uncertain. The filing identifies potential manufacturing and supplier disruptions, reduced demand, delays in customer development or clinical activity, and broader economic effects as risks. Facility access was restricted and most personnel were asked to work remotely; some suppliers had temporarily closed facilities or experienced work stoppages.
- Revenue depends in part on order timing and biologics regulatory approvals, which can create quarterly fluctuations. MilliporeSigma represented 14% of Q1 2020 revenue; the filing notes significant revenue concentration in two customers. Foreign-exchange movements also affect results, and the company did not hedge its foreign-currency exposure.
- Repligen reported no legal proceedings believed likely to have a material adverse effect, no material changes to previously disclosed risks other than the added COVID-19 risk, and no material change in internal control over financial reporting.
Investor verification points
- Separate underlying organic growth from the $6.6 million C Technologies contribution, and assess whether product demand and order timing remained durable.
- Track COVID-19 effects on customer demand, supplier availability, manufacturing capacity, and operating costs beyond Q1.
- Assess whether rising SG&A and R&D spending translates into growth and whether margins remain resilient.
- Review the convertible notes’ cash repayment exposure, conversion terms, and potential share dilution; reconcile principal with the lower accounting carrying value.
- Monitor customer and supplier concentration, inventory growth, and the company’s stated liquidity runway alongside acquisition plans.