Repligen Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited consolidated results; dollar figures below are in millions unless stated otherwise. Repligen develops and sells bioprocessing products used in biopharmaceutical manufacturing.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $30.590 | $25.094 | +22% |
| Product revenue | $30.569 | $25.094 | +22% |
| Gross profit / gross margin | $16.600 / 54.3% | $14.025 / 55.9% | Margin down about 1.6 percentage points |
| Operating income / margin | $5.676 / 18.6% | $3.463 / 13.8% | Improved |
| Net income | $3.068 | $1.625 | +89% |
| Diluted EPS | $0.09 | $0.05 | +$0.04 |
| Cash from operating activities | $1.147 | ($3.811) | Improved by $4.958 |
Cost of product revenue increased 26% to $13.990 million, faster than revenue growth; the company attributed the increase primarily to higher sales. R&D expense rose 13% to $1.742 million, while SG&A rose 31% to $9.182 million, reflecting commercial and administrative expansion and acquisition-related costs. Q1 2016 included a $2.005 million contingent-consideration fair-value expense that did not recur.
Interest expense was $1.585 million, largely related to the convertible notes issued in 2016; $0.970 million was non-cash. The effective tax rate was 24.6%, versus 36.0% in Q1 2016. Management also reported non-GAAP adjusted net income of $5.054 million, or $0.15 diluted per share, versus $4.318 million, or $0.13, a measure that excludes specified acquisition, amortization, contingent-consideration and non-cash interest items.
Liquidity, cash flow and debt
- Cash and cash equivalents were $129.663 million and marketable securities were $12.180 million at March 31, 2017, for combined cash and securities of $141.843 million, roughly unchanged from $141.780 million at year-end 2016.
- Working capital was $172.048 million, up from $163.078 million. Current assets were $185.799 million and current liabilities $13.751 million.
- Operating cash flow was positive $1.147 million. Receivables used $2.415 million of cash, and accrued-liability payments used $4.220 million, mainly for acquisition milestone consideration. Investing activities provided $6.077 million, primarily from marketable-security redemptions; financing activities used $0.330 million.
- The company had $115 million principal amount of 2.125% convertible senior notes due 2021; carrying value was $96.242 million after discount and issuance costs. Their reported fair value was approximately $144.3 million. The company said it knew of no event or market condition allowing holders to call or convert the notes as of quarter-end.
Changes, outlook and risks
- Revenue growth was attributed primarily to increased chromatography-column orders from key customers and contributions from the Atoll and TangenX acquisitions. TangenX contributed $1.973 million of Q1 2017 revenue; the filing does not separately quantify Atoll’s Q1 contribution.
- Repligen paid contingent consideration related to 2016 milestones; the related year-end accrued liability of $6.119 million was fully paid in Q1. The Atoll revenue-growth milestone was met, and its payment was made in March 2017.
- Management expected operating expenses to increase during 2017 as the company expands its bioprocessing business, product development and commercial capabilities. It stated that current cash balances were adequate for at least the next twelve months absent additional acquisitions. No specific revenue or earnings guidance was provided.
- Management cautioned that quarterly sales may fluctuate with order timing, customer development activity and regulatory approvals; gross margins may also vary with production volume, shipments and product mix. Two customers, GE Healthcare and MilliporeSigma, accounted for 48% of Q1 revenue combined.
- Other risks include successful integration of acquisitions, product acceptance and demand, customer and supply relationships, competition, manufacturing capacity, foreign-exchange movements (which the company did not hedge), and the possibility that acquisition or other funding needs could require additional financing. The company reported no material change to the risk factors in its 2016 Form 10-K and no known legal proceedings expected to have a material adverse effect.
- A 100-basis-point increase in interest rates was estimated to reduce investment fair value by approximately $24,000. Management reported effective disclosure controls; integration of acquired businesses’ internal controls was ongoing.
Important facts for investors to verify
- How much of the 22% revenue increase came from acquired businesses versus underlying product growth, and whether elevated chromatography orders recur.
- Whether gross margins stabilize after declining year over year, given management’s stated sensitivity to volume and product mix.
- Whether receivables and accrued-liability cash outflows normalize after the quarter’s sales growth and milestone payments.
- The economics and dilution implications of the $115 million convertible notes, including the gap between carrying value and reported fair value.
- Customer concentration, acquisition integration progress, and any future financing needs if the company pursues further acquisitions.