Repligen Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with Q1 2015 unless otherwise noted. Repligen develops, manufactures and markets products used in biopharmaceutical manufacturing, including Protein A reagents, chromatography columns and ATF systems. The company reports one operating segment.
Financial performance and liquidity
- Revenue: $25.094 million, up 21% from $20.816 million. Management attributed growth mainly to increased chromatography column and ATF product orders.
- Profitability: Gross profit was $14.025 million, with a gross margin of approximately 55.9%, versus $12.743 million and 61.2% in Q1 2015. Operating income was $3.463 million (13.8% operating margin), down from $4.038 million (19.4%). Net income was $1.625 million, or $0.05 per diluted share, compared with $2.930 million, or $0.09 per diluted share.
- Drivers of earnings change: Cost of product revenue rose 37% to $11.069 million, faster than revenue. SG&A increased 16% to $7.018 million. Contingent-consideration fair-value expense increased to $2.005 million from $1.111 million. Other expense was $0.979 million, versus other income of $0.132 million, primarily reflecting foreign-exchange gains and losses.
- Non-GAAP measures: Adjusted income from operations was $5.861 million versus $5.149 million; adjusted net income was $4.023 million versus $4.041 million; adjusted EBITDA was $6.032 million versus $6.431 million. These measures exclude acquisition costs and contingent-consideration expense, among other adjustments as applicable.
- Cash flow: Operating activities used $3.811 million, compared with $2.305 million used in Q1 2015. Investing activities provided $1.200 million and financing activities provided $0.323 million. Cash and cash equivalents declined $0.879 million to $53.213 million; capital expenditures were $0.431 million.
- Liquidity and debt: Cash and marketable securities totaled $70.912 million at March 31, 2016, excluding $0.450 million of restricted cash. Working capital was $89.424 million. The balance sheet reports no debt; current liabilities were $15.821 million against current assets of $105.245 million.
- Balance sheet movements: Inventory rose to $21.318 million from $17.998 million. Stockholders’ equity was $128.886 million, up from $122.748 million at year-end 2015.
Material changes and notable items
- Revenue growth was offset by lower gross margin and higher operating expenses, contributing to lower GAAP operating and net income.
- Foreign-currency translation generated $1.881 million of other comprehensive income, compared with a $3.849 million loss in Q1 2015.
- On April 1, 2016, after quarter-end, Repligen acquired Atoll GmbH for $9.1 million in cash and 538,700 common shares. A further €1.0 million payment may be due if specified 2016 revenue growth is achieved. Purchase accounting was not complete when the filing was prepared.
- The filing reports significant customer concentration: GE Healthcare and MilliporeSigma accounted for 24% and 28% of Q1 2016 revenue, respectively, compared with 37% and 39% in Q1 2015.
Outlook, risks and contingencies
- Management expected 2016 operating expenses to increase as it expanded the bioprocessing business, product development and commercial capabilities. It expected existing cash balances to meet needs for at least 24 months, absent additional acquisitions of products, candidates or intellectual property.
- Management cautioned that order timing, customer development activity and biologic regulatory approvals can cause significant quarterly revenue fluctuations; quarterly results may not indicate future trends. Gross margins may also vary with production volume, shipments and product mix.
- Key risks include customer concentration, product demand and acceptance, competition, manufacturing and supply dependencies, acquisition integration and execution, foreign-exchange exposure, and the need for financing for potential acquisitions. The company did not hedge foreign-exchange exposure.
- At March 31, contingent consideration was subject to material estimation uncertainty, particularly Refine sales milestones. Management increased the estimated 2016 Refine contingent payment by $1.999 million based on revised sales forecasts; changes in projected sales could materially alter the fair value or reverse the accrual.
- Contractual obligations totaled $21.003 million, including $10.961 million of operating leases, $5.729 million of purchase obligations and $4.313 million of contingent consideration. The filing identifies no legal proceedings believed likely to have a material adverse effect and no material changes to previously reported risk factors apart from Atoll-related risks.
Important facts for investors to verify
- Whether higher product costs, product mix and production levels continue to pressure gross margin.
- Whether order growth from chromatography columns and ATF products is sustained, given customer concentration and quarterly order volatility.
- Atoll’s final purchase-price allocation, integration costs, performance and any contingent payment; the acquisition occurred after the reporting date.
- The assumptions behind Refine contingent consideration and the potential cash impact of milestone payments.
- Whether operating cash use and inventory growth convert into sales and collections, and how the Atoll cash consideration affects post-quarter liquidity.
- How foreign-exchange movements, including the reported Q1 other expense, affect future earnings and cash flows.