Repligen Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; dollar amounts below are in millions unless otherwise stated. Repligen develops and sells bioprocessing technologies and systems used in biologic drug manufacturing.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $200.7 | $178.2 | $614.8 | $484.0 |
| Revenue growth | 12.6% | — | 27.0% | — |
| Gross margin | 56.9% | 57.6% | 58.5% | 59.3% |
| Income from operations | $52.7 | $45.2 | $175.8 | $129.8 |
| Net income | $40.4 | $33.5 | $137.2 | $99.2 |
| Diluted EPS | $0.71 | $0.58 | $2.39 | $1.74 |
| Operating cash flow | — | — | $110.2 | $69.4 |
- Product revenue, substantially all company revenue, increased 12.6% in Q3 and 27.0% for the nine-month period. Management attributed growth to demand in filtration, chromatography and process analytics, including mAb and cell and gene therapy applications, as well as contributions from acquisitions completed in 2021.
- Operating margins were approximately 26.2% in Q3 and 28.6% for the nine months, compared with 25.4% and 26.8%, respectively, a year earlier. Gross margin declined year over year as manufacturing headcount, capacity-related occupancy, depreciation and freight costs increased.
- Nine-month adjusted net income, a non-GAAP measure, was $149.5 million, or $2.61 per diluted share, versus $128.3 million, or $2.25, in 2021. Adjusted EBITDA was $197.8 million versus $168.9 million. These measures exclude specified items; they are not GAAP results.
Cash, debt and liquidity
- Cash and cash equivalents were $573.4 million at September 30, 2022, versus $603.8 million at December 31, 2021. Working capital was $542.5 million, down from $556.4 million.
- Nine-month operating cash flow of $110.2 million was more than offset by $111.9 million of investing outflows and $13.1 million of financing outflows; cash also declined $15.7 million due to exchange-rate changes. Investing included $64.4 million of property, plant and equipment purchases and a $45.0 million upfront payment for licensed technology.
- Convertible senior notes had $287.5 million principal outstanding and a $284.2 million net carrying amount; they mature in July 2024 and bear 0.375% interest. Holders could convert during Q4 2022 under the notes’ terms; the company classified the carrying value as a current liability. The notes’ disclosed fair value was $494.6 million.
- Management stated existing cash was expected to meet needs for at least the next 24 months, absent acquisitions of additional products, candidates or intellectual property. Additional financing could be required for acquisitions or if cash flows or demand fall short.
Material changes and unusual items
- Cost growth outpaced Q3 revenue growth, contributing to the 0.7 percentage-point gross-margin decline. Management cited inflation in raw materials and freight, higher manufacturing costs and investment in capacity.
- Inventory increased to $242.7 million from $184.5 million at year-end. The nine-month cash-flow statement shows a $64.3 million inventory cash use, which management said was intended to support expected demand.
- Repligen recorded a $11.6 million nine-month reduction in contingent-consideration expense (a $2.3 million reduction in Q3), primarily reflecting valuation changes for Avitide earnouts. This benefited reported operating income; valuation inputs included discount rates and revenue/volume assumptions.
- Foreign-currency translation reduced other comprehensive income by $38.4 million for the nine months. Management also cited realized foreign-currency transaction losses in other expenses and stated it does not currently hedge its foreign-exchange exposure.
- Adoption of ASU 2020-06 on January 1, 2022 changed accounting for the convertible notes and materially adjusted opening equity and debt balances. The company also irrevocably elected in March 2022 to settle note principal in cash and conversion premium in shares.
- On September 19, 2022, the company entered a 15-year exclusive license agreement for Daylight’s Culpeo technology, involving a non-refundable upfront payment and quarterly royalties. The filing does not state the upfront payment amount.
Outlook, commentary and risks
- No specific numerical revenue or earnings guidance is provided in the supplied filing text. Management expected operating expenses to increase for the rest of 2022 and R&D spending to gradually rise to support product development.
- Management expected inflation, supply-chain pressures and related costs to continue affecting results through the remainder of 2022 and into 2023. It said price increases and productivity improvements had generally helped offset these pressures.
- Management reported decelerating demand from customers focused on COVID-19 vaccine manufacturing, while describing demand in other bioprocessing applications as robust. Lower future demand related to COVID-19 vaccines, customer purchasing patterns, supply constraints, acquisitions and integration, and currency movements remain relevant risks.
- The filing reports no material change to the risk factors in the 2021 Form 10-K and no legal proceedings believed likely to have a material adverse effect. Disclosure controls were assessed as effective at the reasonable assurance level.
Important facts for investors to verify
- Whether demand outside COVID-19 vaccine-related applications can sustain growth as vaccine-related demand decelerates.
- Whether inventory build, capacity investment and inflation affect future gross margins and cash conversion.
- The timing and amount of Avitide contingent earnout payments and the sensitivity of their valuation to performance and market assumptions.
- The conversion and cash-settlement implications of the 2024 notes, including potential share dilution from conversion premiums.
- The economics, commercialization milestones and royalty obligations associated with the Daylight license.
- How acquisition integration, foreign-exchange exposure and customer concentration affect reported results; the filing identifies no customer representing at least 10% of Q3 2022 revenue.