Repligen Corporation — Q2 2015 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2015. Repligen develops and sells bioprocessing products to life-sciences and biopharmaceutical customers, including Protein A, chromatography columns, and Refine’s ATF systems. The company reports one operating segment. The Refine acquisition, completed in June 2014, contributed to current-period growth.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $21.46 million, up 38% year over year | $42.27 million, up 33%; 2014 included $1.99 million of BioMarin royalty and other revenue |
| Operating income | $4.61 million, versus $3.11 million | $8.65 million, versus $8.41 million |
| Net income | $3.61 million, versus $2.83 million; diluted EPS $0.11 versus $0.09 | $6.54 million, versus $7.10 million; diluted EPS $0.19 versus $0.22 |
| Operating cash flow | Not separately reported for the quarter | $5.11 million, versus $10.32 million |
| Cash, cash equivalents and marketable securities | Not separately reported for the quarter | $64.39 million at June 30, compared with $62.00 million at December 31, 2014 |
Margins and costs. Product gross margin was approximately 60% in Q2, compared with 57% a year earlier. For the first half, product gross margin was approximately 61%, versus 56% on product revenue in 2014. Q2 operating margin was approximately 21.5%, compared with 20.0%; first-half operating margin was approximately 20.5%, versus 26.4% (prior-period revenue included BioMarin revenue). First-half SG&A rose 59% to $12.27 million, and R&D rose 7% to $2.82 million.
Balance sheet and liquidity. At June 30, cash and cash equivalents were $40.01 million; current and long-term marketable securities totaled $24.38 million; restricted cash was $0.45 million. Current assets were $93.27 million and current liabilities $15.83 million; working capital was $77.44 million. The filing reports no borrowings or debt balance. Operating lease obligations totaled $13.19 million, purchase obligations $6.74 million, and estimated acquisition contingent consideration $4.59 million.
Changes, outlook and risks
- Q2 product revenue increased $5.91 million year over year; $2.81 million was attributable to Refine. First-half product revenue increased $12.39 million, including $5.39 million from Refine and higher orders from key customers.
- First-half net income declined despite higher revenue, reflecting increased operating costs, including a $1.88 million fair-value charge for contingent consideration, and the absence of $1.99 million in BioMarin revenue recorded in the first half of 2014.
- Operating cash flow fell to $5.11 million. Receivables used $6.85 million of cash, primarily associated with higher sales and the timing of customer payments; inventory also increased.
- Management expects operating expenses to increase in 2015 as the company expands its bioprocessing business, product development and commercial capabilities. It cautions that gross margins may decline over the remainder of 2015 due to expected production volumes, shipments and product mix. No specific revenue or earnings guidance is provided.
- Management believes available cash is sufficient for at least 24 months absent acquisitions, while noting that acquisitions or other needs could require financing and potentially dilute shareholders. Product sales may fluctuate with customer order timing, development activity and regulatory approvals.
- Customer and geographic concentration is notable: GE Healthcare represented 51% of Q2 revenue and 58% of trade and other receivables at June 30; Sweden represented 51% of Q2 revenue. Foreign-exchange movements are not hedged.
- Refine contingent consideration is based on forecast sales and is subject to remeasurement; revised forecasts increased its estimated 2015 milestone liability. Repligen also disclosed an appeal of Massachusetts tax assessments and a $140,626 payment in July 2015 for other assessed periods; the amount had already been accrued. Management reported no known legal proceedings expected to have a material adverse effect.
Key facts for investors to verify
- Whether revenue growth and customer orders remain strong, particularly given reliance on a small number of significant customers and the contribution from Refine.
- Whether receivables convert to cash and operating cash flow improves after the first-half working-capital outflows.
- Whether management’s expected pressure on second-half gross margins and higher operating expenses affect profitability.
- How Refine sales performance changes the contingent-consideration liability and future cash payments.
- Whether customer concentration, foreign-exchange exposure, tax matters and lease and purchase commitments change materially.