Repligen Corporation — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; includes unaudited fourth-quarter results. The filing was signed March 1, 2019. Repligen supplies bioprocessing technologies used in biologic drug manufacturing, across filtration, chromatography and protein products.
Financial performance and position
Amounts are in millions of U.S. dollars except per-share data and percentages.
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Total revenue | $194.0 | $141.2 | +37.4% |
| Product revenue | $193.9 | $141.1 | +37.4% |
| Gross profit / margin | $107.5 / 55% | $74.2 / 53% | Margin +2 percentage points |
| Operating income / margin | $26.0 / 13.4% | $14.0 / 9.9% | Income +85.6% |
| Net income | $16.6 | $28.4 | -41.4% |
| Diluted EPS | $0.37 | $0.72 | Down |
| Operating cash flow | $32.8 | $17.5 | +$15.3 |
| Capital expenditures | $12.8 | $5.5 | Higher |
- Product revenue by line: filtration $90.6 million, up from $49.1 million; chromatography $45.3 million, up from $36.3 million; proteins $54.4 million, approximately flat versus $54.0 million. Filtration growth included a full year of Spectrum revenue versus only a partial year in 2017.
- Operating expenses increased to $168.0 million from $127.2 million. R&D rose 82% to $15.8 million, and SG&A rose 28% to $65.7 million, reflecting product development, acquired operations and commercial and administrative expansion.
- Net income declined despite higher operating income, principally because 2017 included a $21.1 million income-tax benefit, while 2018 recorded a $4.8 million provision. The 2018 effective tax rate was 22.5%.
- Non-GAAP adjusted net income was $33.3 million, or $0.73 diluted per share, versus $27.2 million, or $0.69, in 2017. Adjusted EBITDA was $45.0 million versus $35.1 million. These company-defined non-GAAP measures exclude specified items and should be considered alongside GAAP results.
- At year-end, cash and cash equivalents were $193.8 million, current assets $275.7 million, current liabilities $129.8 million, and working capital $145.9 million. Total assets were $774.6 million and equity $615.6 million.
- Convertible notes had $115.0 million principal and $103.5 million carrying value; classified as current at year-end. The company reported no marketable securities at year-end.
Fourth-quarter results
Q4 2018 revenue was $51.9 million versus $41.6 million in Q4 2017, up about 24.8%. Gross profit was $28.4 million versus $22.5 million. Net income was $5.6 million versus $12.2 million, and diluted EPS was $0.12 versus $0.27. The 2017 annual tax benefit materially affects the year-over-year earnings comparison; the filing does not separately explain the full quarterly net-income difference.
Material changes, outlook and risks
- Management attributed revenue growth to continued customer adoption and the full-year contribution from the 2017 Spectrum acquisition. Direct sales represented approximately 72% of product revenue.
- Management expected 2019 R&D and operating expenses to increase as it invests in product development, commercial capabilities and business expansion. It stated existing cash was adequate for at least 24 months absent acquisitions; no specific revenue or earnings guidance was provided.
- The company’s $115.0 million 2.125% convertible notes, due 2021, became convertible at holders’ option in Q1 2019 after the share-price test was met. Repligen intended to settle principal in cash and any conversion premium in shares. The filing reported no holder conversions through the filing date. Contractual obligations included $114.989 million of notes due within one year and $29.0 million of purchase obligations due within one year.
- Customer concentration remains important: GE Healthcare and MilliporeSigma each represented 15% of 2018 revenue, down from 21% and 18%, respectively, in 2017. Their combined share was 30%.
- Key disclosed risks include competition from larger companies, reliance on major customers and suppliers, acquisition integration and goodwill/intangible-asset impairment, manufacturing and product-quality issues, and foreign-exchange exposure. About 28% of 2018 revenue and 15% of costs and expenses were denominated in foreign currencies; the company did not hedge this exposure.
- Unusual or notable items: the 2017 Spectrum acquisition involved $122.9 million cash and 6.15 million shares; 2018 included $2.9 million of related integration costs. Repligen entered a Sartorius collaboration for perfusion-enabled bioreactors and a Navigo/Purolite collaboration for affinity ligands. Management reported no material legal proceedings, no goodwill impairment, and effective internal controls; the auditor issued unqualified opinions.
Investor verification priorities
- Check the 2019 outcome of the convertible notes, including cash repayment, share issuance and any effect on liquidity or dilution.
- Assess whether filtration-led growth and customer adoption continue, distinguishing organic growth from acquisition contributions.
- Track gross-margin performance against product mix, manufacturing investment and higher R&D and SG&A spending.
- Review customer concentration, contract renewals and exposure to GE Healthcare and MilliporeSigma, as well as supplier alternatives for critical products.
- Evaluate cash generation and commitments against capital spending, purchase obligations, acquisition plans and the stated 24-month liquidity expectation.