Repligen Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; interim financial statements are unaudited. Unless noted, amounts are U.S. dollars.
Business context and financial performance
Repligen supplies bioprocessing technologies and products used in biologic-drug manufacturing. Its product areas include filtration, chromatography, and proteins. The company reports one operating segment.
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $60.6 million | $44.8 million | Up 35.3% |
| Gross margin | 56% | 56% | Flat |
| Operating income | $11.2 million | $6.0 million | Up 86.9% |
| Net income | $8.1 million | $3.4 million | Up 133.6% |
| Diluted EPS | $0.17 | $0.08 | More than doubled |
| Operating cash flow | $9.8 million | $1.6 million | Up $8.2 million |
Revenue growth was led by filtration products, up 45.9% to $28.9 million; chromatography rose 31.2% to $13.9 million; protein products rose 22.6% to $16.7 million. Management attributed growth principally to continued product adoption by bioprocessing customers. Approximately 73% of product revenue came from direct sales.
Cost of product revenue rose 36.5%, faster than revenue, reflecting unfavorable product mix and higher manufacturing headcount. Research and development expense increased 10.1% to $3.6 million; selling, general and administrative expense increased 19.5% to $19.0 million. Management expects R&D and operating expenses to rise for the remainder of 2019 to support product development, business growth, and commercial expansion.
GAAP operating margin was approximately 18.4% versus 13.3%; net margin was approximately 13.3% versus 7.7%. Non-GAAP adjusted operating income was $15.6 million versus $9.3 million; adjusted net income was $13.1 million, or $0.28 diluted per share, versus $7.5 million, or $0.17. Adjusted EBITDA was $17.5 million versus $10.7 million. These are company-defined non-GAAP measures and exclude specified costs, including acquisition and integration costs and intangible amortization.
Cash, liquidity, debt, and balance sheet
- Cash and cash equivalents were $196.1 million at March 31, 2019, compared with $193.8 million at December 31, 2018. Cash increased $2.3 million during the quarter; operating cash flow of $9.8 million was offset in part by $3.8 million of investing outflows and a $3.7 million adverse exchange-rate effect.
- Working capital was approximately $153.8 million, up from $145.9 million at year-end. Accounts receivable increased $6.7 million during the quarter, largely alongside higher revenue.
- Capital expenditures and capitalized internal-use software totaled $3.8 million. The filing says existing cash was expected to cover needs for at least 24 months from the filing date, absent acquisitions of additional products, candidates, or intellectual property.
- The 2.125% convertible notes had $115.0 million principal and a $104.6 million carrying value, classified as current liabilities. They mature June 1, 2021. The notes were convertible at holders’ option in Q2 2019 under the stock-price conditions; the company stated its intent to pay principal in cash and any conversion premium in shares. Their reported fair value was $214.7 million.
- Adoption of lease accounting on January 1, 2019 added operating lease right-of-use assets and liabilities. At March 31, lease assets were $16.2 million and lease liabilities were $20.2 million. Comparative 2018 balance-sheet figures were not restated.
Material developments, outlook, and risks
- C Technologies transaction: On April 25, 2019, Repligen signed an agreement to acquire C Technologies, a biopharmaceutical spectroscopy-instrument company, for estimated consideration of $240.3 million: $192.3 million cash and $48.0 million in stock. The filing describes the purchase-price allocation as preliminary and notes closing conditions and potential liabilities. Repligen warned that, if completed, the acquisition was expected to result in a GAAP loss per share in 2019. Integration, execution, valuation, and potential undisclosed-liability risks were highlighted.
- Equity offering after quarter-end: On May 3, 2019, the company sold 3,144,531 shares at $64 per share and reported net proceeds of approximately $190.2 million. This followed the quarter-end cash balance and is a material financing and dilution item.
- Demand variability and concentration: Management cautioned that sales can fluctuate with large production orders, customer development programs, and regulatory approvals. MilliporeSigma and GE Healthcare accounted for 16% and 13% of Q1 revenue, respectively.
- Other principal risks: Competition and pricing pressure; reliance on key customers, suppliers, and partners; manufacturing capacity and quality; acquisition integration and financing; intellectual-property disputes; foreign-exchange movements, which the company does not hedge; and the ability to recruit and retain personnel. No material legal proceeding was identified in the filing.
- Other unusual items: Foreign-currency translation reduced other comprehensive income by $1.9 million. Q1 2019 included $1.8 million of acquisition and integration costs in the company’s non-GAAP reconciliations. Management reported no goodwill impairment trigger during the quarter.
The filing does not provide a specific full-year revenue or earnings forecast. Management’s stated outlook was for higher operating and R&D spending, continued investment in bioprocessing products and commercial capabilities, and potential future capital needs if acquisitions or other strategic investments require additional funding.
Important facts for investors to verify
- Whether and when the C Technologies acquisition closed, its final consideration and purchase-price allocation, financing effects, and actual contribution to earnings.
- How the May 2019 share offering and any conversion of the notes affected share count, dilution, cash, and debt repayment needs.
- Whether high revenue growth continued across filtration, chromatography, and protein products, and whether product mix supported gross margins.
- Whether customer concentration, order timing, and receivables collection affected subsequent revenue and operating cash flow.
- Whether expected increases in R&D, commercial, and integration spending translated into sustainable growth and profitability.