Repligen Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; interim financial statements are unaudited. Repligen develops and sells bioprocessing products and systems used in biologic drug manufacturing. Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance and liquidity
- Revenue: $142.8 million, up 87.7% from $76.1 million in Q1 2020. Product revenue was $142.7 million; royalty and other revenue was $0.1 million. EMT, NMS and ARTeSYN contributed $10.9 million, or 7.6% of total revenue.
- Profitability: Gross margin was 58.2%, versus 58.0%; excluding $1.6 million of ARTeSYN inventory step-up amortization, Q1 2021 gross margin was 59.3%. Operating income was $36.4 million (25.5% margin), versus $11.9 million (15.6%). Net income was $29.5 million, versus $9.8 million; diluted EPS was $0.52, versus $0.18.
- Supplemental non-GAAP results: Adjusted operating income was $45.7 million, adjusted net income was $38.8 million ($0.68 per diluted share), and adjusted EBITDA was $48.8 million. These measures exclude specified acquisition-related, amortization, inventory step-up and other items; they are not GAAP measures.
- Cash flow: Operating activities provided $9.3 million, compared with $9.5 million. Receivables and inventory increases used $19.8 million and $17.0 million, respectively. Investing activities used $9.0 million, primarily for capital expenditures; financing activities provided $0.5 million. Cash and cash equivalents were $711.3 million at quarter-end, down from $717.3 million at December 31, 2020.
- Debt and liquidity: Working capital was $613.0 million, up from $583.4 million at year-end. The company had $287.5 million principal amount of 0.375% convertible senior notes due 2024, with a $246.6 million net carrying value; the notes were classified as current because holders could convert during Q2 2021. Their disclosed fair value was $502.0 million. Repligen said existing cash was sufficient for at least 24 months, excluding potential acquisitions.
Changes versus the prior comparable period
- Revenue growth reflected increased adoption of chromatography and filtration products, broad-based demand from monoclonal antibody, gene therapy and COVID-19 customers, and contributions from 2020 acquisitions. Management also cited a $3.0 million increase in process analytics revenue, particularly SoloVPE systems.
- Operating expenses rose 65.9% to $106.5 million, less than the revenue growth rate. R&D increased 61.9% to $7.6 million, and SG&A increased 42.2% to $39.1 million, reflecting acquisitions, added personnel, commercial expansion and infrastructure investment.
- Investment income fell to $0.1 million from $1.4 million, primarily due to lower interest rates. The effective tax rate rose to 11.0% from 8.1%, but remained below the 21% U.S. statutory rate, chiefly due to tax credits and stock-award tax benefits.
- Comprehensive income was $19.9 million, below net income of $29.5 million, primarily because of a $9.6 million foreign currency translation loss.
Outlook, commentary and risks
- Management expected direct sales to continue increasing during 2021, including demand from COVID-19 customers scaling vaccine and therapy candidates. It also expected R&D spending to gradually increase and operating expenses to rise as the business expands. The filing provides no specific full-year revenue or earnings guidance.
- Management noted that large-scale production orders, regulatory approvals and product mix can cause quarterly revenue and gross-margin fluctuations. It expects continued investment in manufacturing capacity, product development and commercial capabilities, and continues to evaluate acquisitions.
- Key risks include the duration and effects of the pandemic, customer demand and production timing, successful integration of recent acquisitions, reliance on partners and third-party manufacturers, competition, regulatory and intellectual-property matters, and foreign-exchange volatility. The company did not hedge its foreign-currency exposure and reported no material change to the risk factors in its 2020 Form 10-K.
- The filing reports no legal proceedings believed likely to have a material adverse effect, no material changes in internal control, and no off-balance-sheet financing arrangements.
Important facts for investors to verify
- How much of the exceptional revenue growth and future demand is recurring versus linked to pandemic-related programs, production timing or recent acquisitions.
- Whether gross-margin improvement persists as product mix, manufacturing costs and ARTeSYN inventory step-up charges change.
- The timing and settlement terms of convertible-note conversions, including the potential cash requirement and dilution from conversion premiums.
- Whether receivables and inventory growth convert into cash as expected; operating cash flow remained nearly flat despite substantially higher net income.
- Acquisition integration and purchase-price estimates remain important: ARTeSYN’s preliminary allocation could still change during its measurement period.