Repligen Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Interim financial statements are unaudited. Repligen develops and sells bioprocessing products and systems used in biologics manufacturing.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $178.2 million | $94.1 million | $484.0 million | $257.6 million |
| Revenue growth | 89.5% | 87.9% | ||
| Gross margin | 57.6% | 57.9% | 59.3% | 57.9% |
| Operating income | $45.2 million | $21.0 million | $129.8 million | $52.4 million |
| Net income | $33.5 million | $14.6 million | $99.2 million | $40.2 million |
| Diluted EPS | $0.58 | $0.27 | $1.74 | $0.75 |
| Operating cash flow | $69.4 million | $47.8 million |
Revenue growth reflected strong demand across product franchises, particularly filtration and proteins, including demand associated with COVID-19 vaccine and therapeutic work, gene therapy, and monoclonal-antibody manufacturing. The Polymem and Avitide acquisitions also contributed revenue in 2021; there were no comparable contributions in 2020.
Reported gross margin was 57.6% in Q3 and 59.3% year to date. Excluding inventory step-up amortization, management reported margins of 57.8% and 59.6%, respectively. The year-to-date improvement excluding that charge was attributed primarily to revenue growth and favorable product mix, partly offset by increased manufacturing headcount.
For the nine months, operating cash flow was $69.4 million. Increased accounts receivable used $51.9 million and increased inventory used $61.6 million, reflecting higher sales and preparation for expected demand. Investing activities used $158.9 million, including $121.0 million net cash for the 2021 acquisitions and capital spending. Cash and cash equivalents were $621.1 million at September 30, 2021, compared with $717.3 million at December 31, 2020. Working capital was $561.4 million, down from $583.4 million.
Total liabilities were $526.1 million and stockholders’ equity was $1.715 billion at quarter-end. The company reported $287.5 million face value of 0.375% convertible senior notes due 2024, carried at $252.3 million net of discount and issuance costs and classified as current. The notes were convertible at holders’ option in Q4 2021; the company stated its intent to settle principal in cash and any conversion premium in shares.
Material changes and transactions
- Revenue increased 89.5% in Q3 and 87.9% for the first nine months versus the prior-year periods. Operating expenses also rose, reflecting higher volume, expanded headcount, acquisition-related expenses, and investment in R&D and commercial capacity.
- Polymem, acquired July 1 for approximately $47.0 million, expands hollow-fiber membrane and module capacity.
- Avitide, acquired September 20, had consideration of up to $275.0 million: upfront consideration of $150.0 million and up to $125.0 million in contingent earnouts. The filing records $80.0 million as the earnout’s acquisition-date fair value. Purchase accounting was preliminary; the acquired business expands affinity-ligand capabilities, including for gene therapy.
- Cash declined by $96.2 million during the nine-month period, principally reflecting acquisition spending, capital expenditures, and working-capital investment. Capital expenditures were $35.0 million for property and equipment, plus $2.9 million of capitalized software costs.
Outlook, risks, and unusual items
- The filing provides no specific revenue or earnings guidance. Management expected R&D and operating expenses to increase during the remainder of 2021 and anticipated continued investment in product development, manufacturing capacity, and commercial capabilities.
- Management stated that existing cash was adequate for at least 24 months from the filing date, absent acquisitions of additional products, candidates, or intellectual property. Additional capital could be needed for acquisitions or if cash flows or product demand are lower than expected; financing could dilute shareholders or impose restrictive terms.
- Key risks include COVID-19 effects on the company, customers, and suppliers; fluctuating demand and timing of large production orders; customer and supplier concentration; acquisition integration and realization of expected benefits; manufacturing capacity and third-party dependence; foreign-exchange exposure; and competition, regulatory, and intellectual-property risks. The company did not hedge its foreign-currency exposures.
- Avitide earnouts are contingent on performance through 2024 and may be settled equally in cash and shares; their fair value depends on estimates and could change. Acquisition purchase-price allocations for Avitide and Polymem remained preliminary and could be revised.
- No material legal proceedings were identified, and the company reported no material changes to the risk factors in its 2020 Form 10-K. Management concluded disclosure controls were effective; the internal-control assessment excluded the recently acquired Polymem and Avitide businesses.
Important facts for investors to verify
- Whether exceptional demand and acquisition contributions persist, and how much future growth is organic versus acquired.
- Whether gross margins hold up as production volume, product mix, manufacturing costs, and acquisition-related amortization change.
- How effectively Repligen integrates Polymem and Avitide and realizes expected strategic benefits; review final purchase accounting and earnout assumptions.
- Whether receivables and inventory growth convert into cash, given the substantial working-capital use in the period.
- The potential dilution and cash requirements associated with convertible-note conversion and Avitide earnouts, and whether liquidity remains adequate if further acquisitions occur.