Repligen Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 26, 2020. The company develops and sells bioprocessing technologies and systems used to manufacture biologic drugs. It reports as one business segment.
Business context and performance
Repligen’s offerings span Chromatography, Filtration, Process Analytics and Proteins. In 2019, approximately 76% of product revenue came from direct sales to end users. Growth was driven by adoption of filtration and chromatography products and the May 2019 acquisition of C Technologies, which added process analytics.
Key financial metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $270.2 million | $194.0 million | +39.3% |
| Gross margin | 56% | 55% | +1 percentage point |
| Operating income | $36.1 million | $26.0 million | +38.8% |
| Net income | $21.4 million | $16.6 million | +28.9% |
| Diluted EPS | $0.44 | $0.37 | +18.9% |
| Operating cash flow | $67.2 million | $32.8 million | +$34.4 million |
FY2019 product revenue by franchise: Filtration $119.5 million; Proteins $65.1 million; Chromatography $64.6 million; Process Analytics $16.4 million; Other $4.4 million. C Technologies contributed $16.4 million of revenue from June through year-end and recorded a $7.4 million net loss during that period.
Fourth-quarter revenue was $69.5 million versus $51.9 million in Q4 2018; net income was $3.6 million versus $5.6 million. Quarterly results can fluctuate with customer order timing and regulatory approvals.
At year-end, cash and cash equivalents were $528.4 million, with an additional $9.0 million restricted; working capital was $593.5 million. Investing activities used $205.3 million, including $182.2 million net cash for the C Technologies acquisition and $23.2 million in capital expenditures. The company reported no marketable-security investments at year-end.
Convertible notes due 2024 had $287.5 million principal and a $232.8 million carrying value; the coupon is 0.375%. Long-term obligations were $292.0 million, including the notes and lease liabilities. The company raised $320.7 million net through stock offerings and $278.5 million net from the 2024 notes offering, and settled its prior 2021 notes. Shares outstanding increased to 52.1 million from 43.9 million.
Material changes versus the prior year
- Revenue growth reflected continued product adoption and the addition of C Technologies; reported growth includes only seven months of that acquisition.
- Gross margin rose to 56% from 55%, despite a $1.5 million inventory step-up charge related to C Technologies.
- Operating expenses increased 39.3% to $234.2 million. SG&A rose 45.5%, reflecting acquisition costs, expanded commercial activity and infrastructure; R&D rose 22.9%.
- GAAP net income increased, while reported other expenses worsened to $9.9 million, including a $5.7 million loss on extinguishment of debt and higher interest expense.
- Operating cash flow more than doubled. Financing inflows from equity and convertible-note offerings substantially increased cash and funded the acquisition and debt settlement.
Outlook, risks and unusual items
- Management expects 2020 operating expenses and R&D spending to increase as it invests in product development, manufacturing capacity and commercial capabilities. It said available cash was sufficient for at least 24 months absent additional acquisitions.
- No specific 2020 revenue or earnings guidance is provided in the filing. Management expects continued investment and says quarterly revenue may fluctuate with large orders, customer development activity and biologic approvals.
- GE’s Lund Protein A supply agreement ended in December 2019 and was not renewed; the company expected GE to bring some ligand manufacturing in-house in 2020. GE’s Waltham agreement runs through 2021. GE and MilliporeSigma represented 12% and 13% of FY2019 revenue, respectively.
- Key risks include customer concentration, strong competitors (including customers), reliance on certain suppliers, foreign exchange exposure, acquisition integration and goodwill/intangible-asset impairment. The company disclosed potential U.S. export-control violations and voluntary self-disclosures to the Bureau of Industry and Security. Its ATF patent was due to expire in 2020.
- The filing identified the coronavirus outbreak beginning in December 2019 as a potential source of supply-chain and operating disruption; its effects were uncertain when the report was filed.
- The C Technologies acquisition cost $239.9 million in cash and stock and added $142.0 million of goodwill and $90.8 million of identifiable intangible assets. No goodwill or intangible impairment was recorded in 2019.
- Management and the auditor concluded internal controls were effective; however, the 2019 controls assessment excluded C Technologies, which represented $261.8 million of year-end assets and $16.4 million of 2019 revenue.
Most important facts for investors to verify
- How much future growth and margin performance comes from organic demand versus acquisitions, and how C Technologies performs after integration.
- The customer and revenue impact of GE’s nonrenewed Lund agreement and anticipated insourcing, alongside ongoing dependence on GE and MilliporeSigma.
- Cash generation, share dilution and the terms, conversion exposure and repayment obligations of the $287.5 million 2024 convertible notes.
- Whether management’s planned 2020 spending and capacity additions translate into sales growth and operating leverage.
- Potential consequences of export-control disclosures, the ATF patent expiration, and the emerging coronavirus-related supply and demand risks.