Repligen Corporation — Q1 2015 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2015. Repligen develops and sells bioprocessing products for life-sciences and biopharmaceutical manufacturers. Results include Refine Technology, acquired in June 2014, whose ATF system expanded the product portfolio. The company reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $20.82 million | $16.33 million |
| Gross profit / margin | $12.74 million / 61.2% | $8.00 million / 49.0% |
| Operating income / margin | $4.04 million / 19.4% | $5.31 million / 32.5% |
| Net income / diluted EPS | $2.93 million / $0.09 | $4.28 million / $0.13 |
| Operating cash flow | $(2.30) million | $8.00 million |
Product revenue rose 45% to $20.82 million, including $2.58 million from Refine and higher orders from key customers. Q1 2014 included $2.0 million of BioMarin intellectual-property revenue; there was no royalty or other revenue in Q1 2015. Cash and marketable securities totaled $56.28 million at quarter-end, versus $62.00 million at December 31, 2014. Working capital was $70.33 million; current assets were $83.51 million and current liabilities $13.18 million. No material debt is reported.
Accounts receivable increased to $14.69 million from $7.76 million and used $7.24 million of operating cash. Cash also declined due in part to $2.43 million of adverse foreign-exchange effects. Cash used in investing was $1.27 million for property and equipment, partly offset by net security redemptions. The effective tax rate was 30.2%, compared with 20.8% a year earlier. Foreign-currency translation loss of $3.85 million drove comprehensive loss of $0.94 million despite net income.
Material changes versus prior period
- Total revenue increased 28%, but operating income fell 24% and net income fell 32%.
- Gross margin improved to 61.2% from 49.0%, while operating margin contracted, reflecting higher operating expenses.
- Selling, general and administrative expense rose 78% to $6.02 million, including costs associated with expanded commercial activity and planned inventory-accounting software implementation. Research and development expense increased 31% to $1.57 million.
- A $1.11 million fair-value expense for contingent consideration, mainly reflecting a higher probability of achieving Refine’s 2015 sales milestone, compared with $0.10 million in Q1 2014.
- Customer concentration remained significant: GE Healthcare accounted for 37% of revenue, with two other bioprocessing customers accounting for 23% and 16%.
Outlook, risks and contingencies
Management stated that existing cash was adequate for at least 24 months, absent acquisitions. It expects 2015 operating expenses to increase as it expands bioprocessing operations and commercial capabilities, and cautioned that gross margins may decline during the remainder of 2015 because of production volume, shipment timing and product mix. Product revenue can fluctuate with customer orders, development activity and regulatory approvals; quarterly results may not indicate future trends.
Material risks include customer concentration, demand and product acceptance, integration of Refine, foreign-exchange exposure (not hedged), and the possibility that additional financing for acquisitions or development may be unavailable or dilutive. Contractual obligations totaled $19.89 million, including $13.21 million of operating leases, $2.84 million of purchase obligations and $3.84 million of estimated contingent consideration. Refine payments may reach up to $9.9 million for 2015–2016 sales targets; additional patent-dispute-related payments could be up to $7.5 million if specified proceeds are received. The company is also eligible for up to $160 million in potential BioMarin milestones and royalties, contingent on future development and commercial events. Management reported no known legal proceedings expected to have a material adverse effect.
Key facts investors should verify
- Whether higher product sales, including Refine contributions, can be sustained and customer concentration reduced.
- Whether receivables convert to cash and operating cash flow improves after the Q1 working-capital outflow.
- Whether operating expenses and contingent-consideration remeasurement continue to pressure operating income and margins.
- Progress toward Refine sales milestones and any resulting cash payments; these estimates depend on forecasts and could change materially.
- Foreign-exchange impacts and the timing or likelihood of BioMarin milestones and royalties; potential payments are not assured revenue.