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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to___________
Commission File Number 000-14656
REPLIGEN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
|
|
Delaware |
04-2729386 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
|
|
41 Seyon Street, Bldg. 1, Suite 100 Waltham, MA |
02453 |
(Address of Principal Executive Offices) |
(Zip Code) |
(781) 250-0111
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
|
|
Common Stock, par value $0.01 per share |
RGEN |
The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
|
|
|
|
Large accelerated filer |
|
Accelerated filer |
|
Non-accelerated filer |
|
Smaller reporting company |
|
Emerging growth company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes No
The number of shares outstanding of the registrant’s common stock on October 27, 2023 was 55,832,013.
1
Table of Contents
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PAGE |
PART I - |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (interim periods unaudited) |
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Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 |
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3 |
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4 |
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5 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3. |
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33 |
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Item 4. |
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34 |
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PART II - |
OTHER INFORMATION |
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Item 1. |
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35 |
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Item 1A. |
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35 |
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Item 2. |
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36 |
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Item 3. |
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36 |
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Item 4. |
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36 |
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Item 5. |
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36 |
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Item 6. |
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37 |
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38 |
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2
PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except share data)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
ASSETS |
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|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
630,779 |
|
|
$ |
523,458 |
|
Marketable securities held to maturity |
|
|
— |
|
|
|
100,299 |
|
Accounts receivable, net of reserves of $1,803 and $1,365 at |
|
|
106,158 |
|
|
|
116,247 |
|
Inventories, net |
|
|
211,372 |
|
|
|
238,277 |
|
Prepaid expenses and other current assets |
|
|
30,147 |
|
|
|
19,837 |
|
Total current assets |
|
|
978,456 |
|
|
|
998,118 |
|
Noncurrent assets: |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
201,618 |
|
|
|
190,673 |
|
Intangible assets, net |
|
|
343,729 |
|
|
|
353,676 |
|
Goodwill |
|
|
869,252 |
|
|
|
855,513 |
|
Deferred tax assets |
|
|
1,546 |
|
|
|
840 |
|
Operating lease right of use assets |
|
|
118,084 |
|
|
|
125,023 |
|
Other noncurrent assets |
|
|
1,444 |
|
|
|
815 |
|
Total noncurrent assets |
|
|
1,535,673 |
|
|
|
1,526,540 |
|
Total assets |
|
$ |
2,514,129 |
|
|
$ |
2,524,658 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
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|
|
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||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
18,961 |
|
|
$ |
27,554 |
|
Operating lease liability |
|
|
3,315 |
|
|
|
6,957 |
|
Current contingent consideration |
|
|
12,589 |
|
|
|
13,950 |
|
Accrued liabilities |
|
|
42,543 |
|
|
|
71,120 |
|
Convertible Senior Notes, net |
|
|
285,956 |
|
|
|
284,615 |
|
Total current liabilities |
|
|
363,364 |
|
|
|
404,196 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
14,036 |
|
|
|
23,000 |
|
Noncurrent operating lease liability |
|
|
130,615 |
|
|
|
131,389 |
|
Noncurrent contingent consideration |
|
|
13,759 |
|
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|
51,559 |
|
Other noncurrent liabilities |
|
|
3,798 |
|
|
|
3,814 |
|
Total noncurrent liabilities |
|
|
162,208 |
|
|
|
209,762 |
|
Total liabilities |
|
|
525,572 |
|
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|
613,958 |
|
Commitments and contingencies (Note 10) |
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Stockholders' equity: |
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|
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||
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value; 80,000,000 shares authorized; 55,774,706 |
|
|
558 |
|
|
|
556 |
|
Additional paid-in capital |
|
|
1,567,233 |
|
|
|
1,547,266 |
|
Accumulated other comprehensive loss |
|
|
(43,571 |
) |
|
|
(34,394 |
) |
Accumulated earnings |
|
|
464,337 |
|
|
|
397,272 |
|
Total stockholders’ equity |
|
|
1,988,557 |
|
|
|
1,910,700 |
|
Total liabilities and stockholders’ equity |
|
$ |
2,514,129 |
|
|
$ |
2,524,658 |
|
|
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, amounts in thousands, except per share data)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
|
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2023 |
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2022 |
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|
2023 |
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|
2022 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Products |
|
$ |
141,156 |
|
|
$ |
200,708 |
|
|
$ |
482,910 |
|
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$ |
614,668 |
|
Royalty and other revenue |
|
|
36 |
|
|
|
33 |
|
|
|
111 |
|
|
|
106 |
|
Total revenue |
|
|
141,192 |
|
|
|
200,741 |
|
|
|
483,021 |
|
|
|
614,774 |
|
Costs and operating expenses: |
|
|
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|
|
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|
|
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||||
Cost of product revenue |
|
|
104,634 |
|
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|
86,514 |
|
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265,786 |
|
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255,130 |
|
Research and development |
|
|
10,577 |
|
|
|
10,228 |
|
|
|
32,437 |
|
|
|
32,823 |
|
Selling, general and administrative |
|
|
55,465 |
|
|
|
53,643 |
|
|
|
160,601 |
|
|
|
162,592 |
|
Contingent consideration |
|
|
(34,292 |
) |
|
|
(2,309 |
) |
|
|
(31,266 |
) |
|
|
(11,604 |
) |
Total costs and operating expenses |
|
|
136,384 |
|
|
|
148,076 |
|
|
|
427,558 |
|
|
|
438,941 |
|
Income from operations |
|
|
4,808 |
|
|
|
52,665 |
|
|
|
55,463 |
|
|
|
175,833 |
|
Other income (expenses): |
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|
|
|
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|
|
|
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|
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Investment income |
|
|
6,662 |
|
|
|
2,177 |
|
|
|
18,112 |
|
|
|
2,962 |
|
Interest expense |
|
|
(269 |
) |
|
|
(329 |
) |
|
|
(813 |
) |
|
|
(892 |
) |
Amortization of debt issuance costs |
|
|
(459 |
) |
|
|
(455 |
) |
|
|
(1,373 |
) |
|
|
(1,360 |
) |
Other income (expenses) |
|
|
895 |
|
|
|
(6,591 |
) |
|
|
1,500 |
|
|
|
(10,389 |
) |
Other income (expenses), net |
|
|
6,829 |
|
|
|
(5,198 |
) |
|
|
17,426 |
|
|
|
(9,679 |
) |
Income before income taxes |
|
|
11,637 |
|
|
|
47,467 |
|
|
|
72,889 |
|
|
|
166,154 |
|
Income tax (benefit) provision |
|
|
(6,535 |
) |
|
|
7,062 |
|
|
|
5,824 |
|
|
|
28,924 |
|
Net income |
|
$ |
18,172 |
|
|
$ |
40,405 |
|
|
$ |
67,065 |
|
|
$ |
137,230 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.33 |
|
|
$ |
0.73 |
|
|
$ |
1.20 |
|
|
$ |
2.48 |
|
Diluted (Note 12) |
|
$ |
0.32 |
|
|
$ |
0.71 |
|
|
$ |
1.18 |
|
|
$ |
2.39 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
55,766 |
|
|
|
55,498 |
|
|
|
55,688 |
|
|
|
55,432 |
|
Diluted (Note 12) |
|
|
56,940 |
|
|
|
57,304 |
|
|
|
56,933 |
|
|
|
57,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
18,172 |
|
|
$ |
40,405 |
|
|
$ |
67,065 |
|
|
$ |
137,230 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustment |
|
|
(6,382 |
) |
|
|
(18,170 |
) |
|
|
(9,177 |
) |
|
|
(38,375 |
) |
Comprehensive income |
|
$ |
11,790 |
|
|
$ |
22,235 |
|
|
$ |
57,888 |
|
|
$ |
98,855 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITY
(Unaudited, amounts in thousands, except share data)
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Number of |
|
|
Par |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Total |
|
||||||
Balance at June 30, 2023 |
|
|
55,744,896 |
|
|
$ |
557 |
|
|
$ |
1,561,393 |
|
|
$ |
(37,189 |
) |
|
$ |
446,165 |
|
|
$ |
1,970,926 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,172 |
|
|
|
18,172 |
|
Issuance of common stock for debt conversion |
|
|
2 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
(10 |
) |
Exercise of stock options and vesting of stock |
|
|
36,195 |
|
|
|
1 |
|
|
|
293 |
|
|
|
— |
|
|
|
— |
|
|
|
294 |
|
Tax withholding on vesting of restricted stock units |
|
|
(6,387 |
) |
|
|
(0 |
) |
|
|
(1,038 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,038 |
) |
Issuance of common stock pursuant to the acquisition of |
|
|
— |
|
|
|
— |
|
|
|
222 |
|
|
|
— |
|
|
|
— |
|
|
|
222 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
6,373 |
|
|
|
— |
|
|
|
— |
|
|
|
6,373 |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,382 |
) |
|
|
— |
|
|
|
(6,382 |
) |
Balance at September 30, 2023 |
|
|
55,774,706 |
|
|
$ |
558 |
|
|
$ |
1,567,233 |
|
|
$ |
(43,571 |
) |
|
$ |
464,337 |
|
|
$ |
1,988,557 |
|
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Number of |
|
|
Par |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Total |
|
||||||
Balance at June 30, 2022 |
|
|
55,465,918 |
|
|
$ |
555 |
|
|
$ |
1,533,762 |
|
|
$ |
(37,091 |
) |
|
$ |
308,138 |
|
|
$ |
1,805,364 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,405 |
|
|
|
40,405 |
|
Issuance of common stock for debt conversion |
|
|
3 |
|
|
|
(0 |
) |
|
|
(0 |
) |
|
|
|
|
|
|
|
|
(0 |
) |
||
Exercise of stock options and vesting of stock |
|
|
59,112 |
|
|
|
0 |
|
|
|
2,321 |
|
|
|
— |
|
|
|
— |
|
|
|
2,321 |
|
Tax withholding on vesting of restricted stock units |
|
|
(5,387 |
) |
|
|
(0 |
) |
|
|
(1,070 |
) |
|
|
|
|
|
|
|
|
(1,070 |
) |
||
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
6,154 |
|
|
|
— |
|
|
|
— |
|
|
|
6,154 |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,170 |
) |
|
|
— |
|
|
|
(18,170 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
105 |
|
|
|
— |
|
|
|
— |
|
|
|
105 |
|
Balance at September 30, 2022 |
|
|
55,519,646 |
|
|
$ |
555 |
|
|
$ |
1,541,272 |
|
|
$ |
(55,261 |
) |
|
$ |
348,543 |
|
|
$ |
1,835,109 |
|
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Number of |
|
|
Par |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Total |
|
||||||
Balance at December 31, 2022 |
|
|
55,557,698 |
|
|
$ |
556 |
|
|
$ |
1,547,266 |
|
|
$ |
(34,394 |
) |
|
$ |
397,272 |
|
|
$ |
1,910,700 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
67,065 |
|
|
|
67,065 |
|
Issuance of common stock for debt conversion |
|
|
8 |
|
|
|
0 |
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13 |
) |
Exercise of stock options and vesting of stock |
|
|
212,589 |
|
|
|
3 |
|
|
|
353 |
|
|
|
— |
|
|
|
— |
|
|
|
356 |
|
Tax withholding on vesting of restricted stock units |
|
|
(69,625 |
) |
|
|
(1 |
) |
|
|
(12,177 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,178 |
) |
Issuance of common stock pursuant to the acquisition of |
|
|
31,415 |
|
|
|
0 |
|
|
|
5,465 |
|
|
|
— |
|
|
|
— |
|
|
|
5,465 |
|
Issuance of common stock pursuant to the Avitide, Inc. |
|
|
42,621 |
|
|
|
0 |
|
|
|
7,229 |
|
|
|
— |
|
|
|
— |
|
|
|
7,229 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
19,110 |
|
|
|
— |
|
|
|
— |
|
|
|
19,110 |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,177 |
) |
|
|
— |
|
|
|
(9,177 |
) |
Balance at September 30, 2023 |
|
|
55,774,706 |
|
|
$ |
558 |
|
|
$ |
1,567,233 |
|
|
$ |
(43,571 |
) |
|
$ |
464,337 |
|
|
$ |
1,988,557 |
|
5
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Number of |
|
|
Par |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Total |
|
||||||
Balance at December 31, 2021 |
|
|
55,321,457 |
|
|
$ |
553 |
|
|
$ |
1,572,340 |
|
|
$ |
(16,886 |
) |
|
$ |
194,060 |
|
|
$ |
1,750,067 |
|
Impact of the adoption of ASU 2020-06 |
|
|
— |
|
|
|
— |
|
|
|
(39,070 |
) |
|
|
— |
|
|
|
17,253 |
|
|
|
(21,817 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
137,230 |
|
|
|
137,230 |
|
Issuance of common stock for debt conversion |
|
|
15 |
|
|
|
0 |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
Exercise of stock options and vesting of stock |
|
|
281,839 |
|
|
|
3 |
|
|
|
2,781 |
|
|
|
— |
|
|
|
— |
|
|
|
2,784 |
|
Tax withholding on vesting of restricted stock units |
|
|
(83,665 |
) |
|
|
(1 |
) |
|
|
(15,828 |
) |
|
|
— |
|
|
|
— |
|
|
|
(15,829 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
21,054 |
|
|
|
— |
|
|
|
— |
|
|
|
21,054 |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(38,375 |
) |
|
|
— |
|
|
|
(38,375 |
) |
Balance at September 30, 2022 |
|
|
55,519,646 |
|
|
$ |
555 |
|
|
$ |
1,541,272 |
|
|
$ |
(55,261 |
) |
|
$ |
348,543 |
|
|
$ |
1,835,109 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
67,065 |
|
|
$ |
137,230 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
50,942 |
|
|
|
36,605 |
|
Amortization of debt issuance costs |
|
|
1,373 |
|
|
|
1,360 |
|
Stock-based compensation |
|
|
19,110 |
|
|
|
21,054 |
|
Deferred income taxes, net |
|
|
(9,756 |
) |
|
|
1,722 |
|
Contingent consideration |
|
|
(31,266 |
) |
|
|
(11,604 |
) |
Non-cash interest income |
|
|
(2,023 |
) |
|
|
— |
|
Other |
|
|
861 |
|
|
|
210 |
|
Changes in operating assets and liabilities, excluding impact of acquisitions: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
8,315 |
|
|
|
(8,609 |
) |
Inventories |
|
|
25,979 |
|
|
|
(64,308 |
) |
Prepaid expenses and other assets |
|
|
(10,733 |
) |
|
|
168 |
|
Operating lease right of use assets |
|
|
10,203 |
|
|
|
(22,033 |
) |
Other assets |
|
|
(707 |
) |
|
|
(298 |
) |
Accounts payable |
|
|
(8,619 |
) |
|
|
(10,124 |
) |
Accrued expenses |
|
|
(28,294 |
) |
|
|
3,043 |
|
Operating lease liabilities |
|
|
(7,676 |
) |
|
|
26,157 |
|
Long-term liabilities |
|
|
79 |
|
|
|
(372 |
) |
Total cash provided by operating activities |
|
|
84,853 |
|
|
|
110,201 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Acquisitions, net of cash acquired |
|
|
(27,843 |
) |
|
|
— |
|
Proceeds from maturity of marketable securities held to maturity |
|
|
102,323 |
|
|
|
— |
|
Additions to capitalized software costs |
|
|
(2,736 |
) |
|
|
(2,568 |
) |
Purchases of property, plant and equipment |
|
|
(25,135 |
) |
|
|
(64,390 |
) |
Purchase of intellectual property |
|
|
— |
|
|
|
(45,000 |
) |
Other investing activities |
|
|
21 |
|
|
|
30 |
|
Total cash provided by (used in) investing activities |
|
|
46,630 |
|
|
|
(111,928 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
356 |
|
|
|
2,784 |
|
Payment of tax withholding obligation on vesting of restricted stock |
|
|
(12,178 |
) |
|
|
(15,829 |
) |
Repayment of Convertible Senior Notes |
|
|
(33 |
) |
|
|
(18 |
) |
Payment of earnout consideration |
|
|
(7,298 |
) |
|
|
— |
|
Proceeds from issuance of common stock, net |
|
|
(13 |
) |
|
|
— |
|
Total cash used in financing activities |
|
|
(19,166 |
) |
|
|
(13,063 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(4,996 |
) |
|
|
(15,661 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
107,321 |
|
|
|
(30,451 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
523,458 |
|
|
|
603,814 |
|
Cash and cash equivalents, end of period |
|
$ |
630,779 |
|
|
$ |
573,363 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Assets acquired under operating leases |
|
$ |
1,129 |
|
|
$ |
25,705 |
|
Fair value of 31,415 shares of common stock issued for the acquisition of |
|
$ |
5,465 |
|
|
$ |
— |
|
Fair value of 42,621 shares of common stock issued for the Avitide, Inc. |
|
$ |
7,229 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
REPLIGEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Repligen Corporation (the “Company”, “Repligen”, “our” or “we”) in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnote disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 22, 2023 (“Form 10-K”).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The business and economic uncertainty resulting from government-mandated actions in response to the COVID-19 pandemic, including all subsequent variants of the SARS-CoV-2 coronavirus ("COVID-19"), global geopolitical conflicts, supply chain challenges, cost pressure and the overall effects of the current high inflation environment on customers' purchasing patterns has made such estimates more difficult to calculate. Accordingly, actual results could differ from those estimates.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company made no material changes in the application of its significant accounting policies that were disclosed in its Form 10-K. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of its financial position as of September 30, 2023, its results of operations for the three and nine months ended September 30, 2023 and 2022 and cash flows for the three and nine months ended September 30, 2023 and 2022. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.
Recent Accounting Standards Updates
We consider the applicability and impact of all Accounting Standards Updates ("ASU" or "ASUs") on the Company’s condensed consolidated financial statements. As of September 30, 2023, there were no accounting standards or ASUs recently issued or effective during the fiscal year that would have a material effect on the Company's condensed consolidated financial statements or disclosures.
The Company uses various valuation approaches in determining the fair value of its assets and liabilities. The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:
Level 1 - |
Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access |
Level 2 - |
Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities |
Level 3 - |
Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
8
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.
Cash, Cash Equivalents and Marketable Securities Held to Maturity
The following table summarizes the Company's cash, cash equivalents and marketable securities held to maturity as of September 30, 2023 and December 31, 2022 (amounts in thousands):
|
|
As of September 30, 2023 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and money market funds |
|
$ |
630,779 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
630,779 |
|
Total cash and cash equivalents |
|
$ |
630,779 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
630,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and money market funds |
|
$ |
523,458 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
523,458 |
|
Total cash and cash equivalents |
|
|
523,458 |
|
|
|
— |
|
|
|
— |
|
|
|
523,458 |
|
Marketable securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury bills – short-term |
|
|
100,299 |
|
|
|
24 |
|
|
|
— |
|
|
|
100,323 |
|
Total cash, cash equivalents and marketable securities |
|
$ |
623,757 |
|
|
$ |
24 |
|
|
$ |
— |
|
|
$ |
623,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the fourth quarter of 2022, the Company purchased $100.0 million of 6-month U.S. treasury bills with the positive intent and ability to hold them until maturity. Therefore, the Company classified this investment as held to maturity and stated it at amortized cost on the condensed consolidated balance sheet. These U.S. treasury bills matured in June 2023. The amortized cost and the fair value of the Company's held to maturity securities by contractual maturity at December 31, 2022 is summarized below:
|
|
December 31, 2022 |
|
|
|||||
|
|
Amortized |
|
|
Estimated |
|
|
||
Maturity of one year or less |
|
$ |
100,299 |
|
|
$ |
100,323 |
|
|
Total |
|
$ |
100,299 |
|
|
$ |
100,323 |
|
|
9
Fair Value Measured on a Recurring Basis
Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of September 30, 2023 and December 31, 2022 (amounts in thousands):
|
|
As of September 30, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market accounts |
|
$ |
389,473 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
389,473 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,589 |
|
|
$ |
12,589 |
|
Long-term contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13,759 |
|
|
$ |
13,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market accounts |
|
$ |
343,929 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
343,929 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13,950 |
|
|
$ |
13,950 |
|
Long-term contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
51,559 |
|
|
$ |
51,559 |
|
Contingent Consideration – Earnouts
As of September 30, 2023, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay in connection with the completed acquisitions of Avitide, Inc. ("Avitide") in September 2021 and FlexBiosys, Inc. ("FlexBiosys") in April 2023, was $125.0 million over a three-year earnout period and $42.0 million over a two-year earnout period, respectively. Refer to Note 4, "Acquisitions" included in Part II, Item 8, “Financial Statements and Supplementary Data” to our Form 10-K and Note 3, "Acquisition of FlexBiosys, Inc.," to this report for additional information on the contingent consideration earnouts.
During 2023, expected results and a change in market inputs used to calculate the discount rate, resulted in a decrease in amounts reported as of September 30, 2023. A reconciliation of the change in the fair value of contingent consideration – earnouts is included in the following table (amounts in thousands):
Balance at December 31, 2022 |
|
$ |
65,509 |
|
Acquisition date fair value of contingent consideration earnout |
|
|
6,632 |
|
Payment of contingent consideration earnout |
|
|
(14,527 |
) |
Decrease in fair value of contingent consideration earnouts |
|
|
(31,266 |
) |
Balance at September 30, 2023 |
|
$ |
26,348 |
|
10
The recurring Level 3 fair value measurement of our contingent consideration earnout that we expect to be required to settle our 2023, 2024 and 2025 contingent consideration obligations for Avitide and FlexBiosys include the following significant unobservable inputs (amounts in thousands, except percent data):
Contingent Consideration Earnout |
|
Fair Value as of |
|
|
Valuation Technique |
|
Unobservable Input |
|
Range |
|
Weighted Average(1) |
||
|
|
|
|
|
|
|
|
Probability of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Success |
|
100% |
|
100% |
|
Commercialization-based payments |
|
$ |
|
19,383 |
|
|
Monte Carlo |
|
Earnout Discount Rate |
|
7.1% |
|
7.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility |
|
13.1%-24.6% |
|
21.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and Volume- |
|
$ |
|
1,460 |
|
|
Monte Carlo |
|
Revenue & Volume |
|
5.1%-9.3% |
|
8.2% |
|
|
|
|
|
|
|
|
Earnout Discount Rate |
|
6.1%-7.1% |
|
6.5% |
|
|
|
|
|
|
|
|
|
Probability of |
|
100% |
|
100% |
|
Manufacturing line expansions |
|
$ |
|
5,505 |
|
|
Probability-weighted present value |
|
Earnout Discount Rate |
|
6.1%-6.4% |
|
6.3% |
Fair Value Measured on a Nonrecurring Basis
During the three and nine months ended September 30, 2023, there were no re-measurements to the fair value of financial assets and liabilities that are measured at fair value on a nonrecurring basis.
On April 17, 2023, the Company completed its acquisition of all of the outstanding equity interests in FlexBiosys, pursuant to an Equity Purchase Agreement ("EPA") with FlexBiosys, TSAP Holdings Inc. ("NJ Seller"), Gayle Tarry and Stanley Tarry, as individuals (collectively with NJ Seller, the "Sellers"), and Stanley Tarry, in his capacity as the representative of the Sellers (the "FlexBiosys Acquisition").
FlexBiosys, which is headquartered in Branchburg, New Jersey, offers expert design and custom manufacturing of single-use bioprocessing products and a comprehensive range of products that include bioprocessing bags, bottles, and tubing assemblies. These products will complement and expand our fluid management portfolio of offerings.
Consideration transferred
The FlexBiosys Acquisition was accounted for as a purchase of a business under ASC 805, "Business Combinations," and the Company engaged a third-party valuation firm to assist with the valuation of FlexBiosys. Under the terms of the EPA, all outstanding equity interests of FlexBiosys were acquired for consideration with a value totaling $41.0 million. The FlexBiosys Acquisition was funded through payment of $29.0 million in cash, which includes $6.3 million deposited in escrow for future payments, the issuance of 31,415 unregistered shares of the Company's common stock totaling $5.4 million and contingent consideration with fair value of approximately $6.6 million.
Under the acquisition method of accounting, the assets acquired and liabilities assumed of FlexBiosys were recorded as of the acquisition date, at their respective fair values, and consolidated with those of the Company. The fair value of the net assets acquired is estimated to be $14.1 million, the fair value of the intangible assets acquired is estimated to be $12.6 million and the residual goodwill is estimated to be $14.3 million. The estimated consideration and preliminary purchase price information has been prepared using a preliminary valuation. Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which costs are incurred. The Company has incurred $0.9 million of transaction and integration costs associated with the FlexBiosys Acquisition from the date of acquisition to September 30, 2023 with $0.5 million of the transaction and integration costs incurred during the three months ended September 30, 2023. The transaction costs are included in operating expenses in the consolidated statements of comprehensive income for the three and nine months ended September 30, 2023.
11
Fair Value of Net Assets Acquired
The preliminary allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date. As of September 30, 2023, the purchase accounting for this acquisition had not been finalized. As additional information becomes available, the Company may further revise its preliminary purchase price allocation during the remainder of the measurement period. Besides tax implications of the purchase price allocation, the final allocation may result in changes to other assets and liabilities.
The components and estimated allocation of the purchase price consist of the following (amounts in thousands):
Cash and cash equivalents |
|
$ |
1,090 |
|
Accounts receivable |
|
|
683 |
|
Inventory |
|
|
667 |
|
Prepaid expenses and other current assets |
|
|
35 |
|
Property and equipment |
|
|
12,034 |
|
Operating lease right of use asset |
|
|
3,537 |
|
Customer relationships |
|
|
2,530 |
|
Developed technology |
|
|
9,860 |
|
Trademark and tradename |
|
|
30 |
|
Non-competition agreements |
|
|
220 |
|
Goodwill |
|
|
14,321 |
|
Other long-term assets |
|
|
10 |
|
Accounts payable |
|
|
(136 |
) |
Accrued liabilities |
|
|
(314 |
) |
Operating lease liability |
|
|
(39 |
) |
Operating lease liability, long-term |
|
|
(3,498 |
) |
Fair value of net assets acquired |
|
$ |
41,030 |
|
|
|
|
|
|
During the third quarter of 2023, the Company recorded an immaterial net working capital adjustment related to the FlexBiosys Acquisition, which is included in goodwill in the table above.
Acquired Goodwill
The goodwill of $14.3 million represents future economic benefits expected to arise from anticipated synergies from the integration of FlexBiosys into the Company. These synergies include operating efficiencies and strategic benefits projected to be achieved as a result of the FlexBiosys Acquisition. Substantially all of the goodwill recorded is expected to be deductible for income tax purposes.
Intangible Assets
The following table sets forth the components of the identified intangible assets associated with the FlexBiosys Acquisition and their estimated useful lives:
|
|
Useful life |
|
Fair Value |
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
Customer relationships |
|
12 years |
|
$ |
2,530 |
|
Developed technology |
|
16 years |
|
|
9,860 |
|
Trademark and tradename |
|
4 years |
|
|
30 |
|
Non-competition agreements |
|
5 years |
|
|
220 |
|
|
|
|
|
$ |
12,640 |
|
As previously disclosed, in July 2023 the Board of Directors authorized the Company's management team to undertake restructuring activities to simplify and streamline our organization and strengthen the overall effectiveness of our operations (the "Restructuring Plan").
12
In addition to the initial streamlining and re-balancing efforts contemplated in July, the Company is undertaking further restructuring activities (collectively, the "Restructuring Plan") which include consolidating a portion of our manufacturing operations between certain U.S. locations, discontinuing the sale of certain product SKUs, and evaluating raw materials and components secured during the 2020-2022 COVID-19 pandemic period (the "COVID-19 Period") to meet increasing demand during a challenging supply chain environment in the industry. These activities are expected to be substantially completed by the end of 2023.
The Company recorded pre-tax costs of $24.0 million for the three and nine months ended September 30, 2023, related to the Restructuring Plan and for the full year of 2023 the Company expects to record charges of approximately $26 million, with the remaining costs in the fourth quarter related to remaining severance and employee-related costs. Approximately $21 million will be non-cash, relating primarily to an inventory write-off to adjust inventory to net realizable value and accelerated depreciation on equipment related to the shutdown of manufacturing facilities and production lines, the remaining costs will be cash expenses, primarily related to severance and employee-related costs.
The Company recorded pre-tax costs of $24.0 million for the three and nine months ended September 30, 2023 related to the Restructuring Plan and for the full year of 2023 the Company expects to record charges of approximately $26 million.
The following table summarizes the charges related to restructuring activities by type of cost:
|
|
Three and Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Severance & Employee-Related Costs |
|
|
Inventory Write-Off |
|
|
Accelerated Depreciation |
|
|
Facility and Other Exit Costs |
|
|
Total |
|
|||||
|
|
(Amounts in thousands) |
|
|||||||||||||||||
Cost of product revenue |
|
$ |
1,654 |
|
|
$ |
17,185 |
|
|
$ |
3,788 |
|
|
$ |
84 |
|
|
$ |
22,711 |
|
Research and development |
|
|
34 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
35 |
|
Selling, general and administrative |
|
|
1,142 |
|
|
|
— |
|
|
|
27 |
|
|
|
97 |
|
|
|
1,266 |
|
|
|
$ |
2,830 |
|
|
$ |
17,185 |
|
|
$ |
3,816 |
|
|
$ |
181 |
|
|
$ |
24,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Severance and employee-related costs under the Restructuring Plan are associated with actual headcount reductions. Costs incurred include cash severance and non-cash severance, including other termination benefits. Severance and other termination benefit packages are based on established benefit arrangements or local statutory requirements and we recognized the contractual component of these benefits when payment was probable and could be reasonably estimated.
The inventory write-off includes the impact of the Company discontinuing the sale of certain product SKUs and the impact of having proactively secured materials during the COVID-19 Period to meet accelerated demand during a challenging supply chain environment in the industry. Where demand has reduced, finished goods and raw materials, whose value exceeded the projected requirements to be used before reaching their expiration date, were written down to their realizable value. The Restructuring Plan also includes the closing of manufacturing facilities and production lines, which included inventory that could not be repurposed.
Non-cash charges for accelerated depreciation were recognized on long-lived assets that were taken out of service before the end of their normal service due to the shutdown of manufacturing facilities and production lines, in which case depreciation estimates were revised to reflect the use of the assets over their shortened useful life.
The restructuring accrual is included in accrued liabilities in the condensed consolidated balance sheet as of September 30, 2023 and the balance is expected to be paid by the end of 2023. Activity related to the Restructuring Plan for the nine months ended September 30, 2023 was as follows (amounts in thousands):
13
|
|
Restructuring Costs |
|
|
Amounts Paid in the Nine Months Ended September 30, 2023 |
|
|
Non-Cash Restructuring Items |
|
|
Restructuring Liability |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Severance & employee-related costs |
|
$ |
2,830 |
|
|
$ |
(2,478 |
) |
|
$ |
(214 |
) |
|
$ |
138 |
|
Inventory write-off |
|
|
17,185 |
|
|
|
— |
|
|
$ |
(17,185 |
) |
|
|
— |
|
Accelerated depreciation |
|
|
3,816 |
|
|
|
— |
|
|
$ |
(3,816 |
) |
|
|
— |
|
Facility exit and other exit costs |
|
|
181 |
|
|
|
(171 |
) |
|
$ |
(10 |
) |
|
|
— |
|
Total |
|
$ |
24,012 |
|
|
$ |
(2,649 |
) |
|
$ |
(21,225 |
) |
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Disaggregation of Revenue
Revenues for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(Amounts in thousands) |
|
|||||||||||||
Product revenue |
|
$ |
141,156 |
|
|
$ |
200,708 |
|
|
$ |
482,910 |
|
|
$ |
614,668 |
|
Royalty and other income |
|
|
36 |
|
|
|
33 |
|
|
|
111 |
|
|
|
106 |
|
Total revenue |
|
$ |
141,192 |
|
|
$ |
200,741 |
|
|
$ |
483,021 |
|
|
$ |
614,774 |
|
When disaggregating revenue, the Company considered all of the economic factors that may affect its revenues. Because substantially all of its revenues are from bioprocessing customers, there are no differences in the nature, timing and uncertainty of the Company’s revenues and cash flows from any of its product lines. However, given that the Company’s revenues are generated in different geographic regions, regulatory, economic and geopolitical factors within those regions could impact the nature, timing and uncertainty of the Company’s revenues and cash flows. In addition, a significant portion of the Company’s revenue is generated from a small number of customers; therefore, economic factors specific to these customers could impact the nature, timing and uncertainty of the Company’s revenues and cash flows.
Disaggregated revenue from contracts with customers by geographic region and revenue from significant customers can be found in Note 14, “Segment Reporting,” included in this report.
For more information regarding our product revenue, see Note 6, “Revenue Recognition” included in Part II, Item 8, “Financial Statements and Supplementary Data” to our Form 10-K.
Contract Balances from Contracts with Customers
The following table provides information about receivables and deferred revenue from contracts with customers as of September 30, 2023 (amounts in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Balances from contracts with customers only: |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
106,158 |
|
|
$ |
116,247 |
|
Deferred revenue (included in accrued liabilities and |
|
$ |
11,447 |
|
|
$ |
19,631 |
|
Revenue recognized during periods presented relating to: |
|
|
|
|
|
|
||
The beginning deferred revenue balance |
|
$ |
16,999 |
|
|
$ |
13,390 |
|
The timing of revenue recognition, billings and cash collections results in the accounts receivable and deferred revenue balances on the Company’s condensed consolidated balance sheets.
Goodwill
14
The following table represents the change in the carrying value of goodwill for the nine months ended September 30, 2023 (amounts in thousands):
Balance at December 31, 2022 |
|
$ |
855,513 |
|
Acquisition of FlexBiosys, Inc. |
|
|
14,355 |
|
Measurement period adjustment – FlexBiosys |
|
|
(34 |
) |
Cumulative translation adjustment |
|
|
(582 |
) |
Balance at September 30, 2023 |
|
$ |
869,252 |
|
During each of the fourth quarters of 2022, 2021 and 2020, the company completed its annual assessments and concluded that goodwill was not impaired in any of those years. The Company has not identified any "triggering" events which indicate an impairment of goodwill in the three and nine months ended September 30, 2023.
Intangible Assets
Indefinite-lived intangible assets are reviewed for impairment at least annually. There has been no impairment of the Company’s intangible assets for the periods presented.
Intangible assets, net, consisted of the following at September 30, 2023:
|
|
September 30, 2023 |
|
|||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted |
|
||||
|
|
(Amounts in thousands) |
|
|
|
|
||||||||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology – developed |
|
$ |
200,188 |
|
|
$ |
(40,093 |
) |
|
$ |
160,095 |
|
|
|
16 |
|
Patents |
|
|
240 |
|
|
|
(240 |
) |
|
|
— |
|
|
|
8 |
|
Customer relationships |
|
|
255,113 |
|
|
|
(78,929 |
) |
|
|
176,184 |
|
|
|
15 |
|
Trademarks |
|
|
7,709 |
|
|
|
(1,653 |
) |
|
|
6,056 |
|
|
|
19 |
|
Other intangibles |
|
|
3,026 |
|
|
|
(2,332 |
) |
|
|
694 |
|
|
|
4 |
|
Total finite-lived intangible assets |
|
|
466,276 |
|
|
|
(123,247 |
) |
|
|
343,029 |
|
|
|
16 |
|
Indefinite-lived intangible asset: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks |
|
|
700 |
|
|
|
— |
|
|
|
700 |
|
|
|
— |
|
Total intangible assets |
|
$ |
466,976 |
|
|
$ |
(123,247 |
) |
|
$ |
343,729 |
|
|
|
|
|
Intangible assets, net, consisted of the following at December 31, 2022:
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Weighted |
|
||||
|
|
(Amounts in thousands) |
|
|
|
|
||||||||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology – developed |
|
$ |
190,463 |
|
|
$ |
(30,992 |
) |
|
$ |
159,471 |
|
|
|
16 |
|
Patents |
|
|
240 |
|
|
|
(240 |
) |
|
|
— |
|
|
|
8 |
|
Customer relationships |
|
|
252,934 |
|
|
|
(66,559 |
) |
|
|
186,375 |
|
|
|
15 |
|
Trademarks |
|
|
7,682 |
|
|
|
(1,319 |
) |
|
|
6,363 |
|
|
|
19 |
|
Other intangibles |
|
|
2,811 |
|
|
|
(2,044 |
) |
|
|
767 |
|
|
|
4 |
|
Total finite-lived intangible assets |
|
|
454,130 |
|
|
|
(101,154 |
) |
|
|
352,976 |
|
|
|
16 |
|
Indefinite-lived intangible asset: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks |
|
|
700 |
|
|
|
— |
|
|
|
700 |
|
|
|
— |
|
Total intangible assets |
|
$ |
454,830 |
|
|
$ |
(101,154 |
) |
|
$ |
353,676 |
|
|
|
|
|
Amortization expense for finite-lived intangible assets was $7.5 million and $6.6 million for each of the three months ended September 30, 2023 and 2022, respectively, and $22.4 million and $19.8 million for each of the nine months ended September 30, 2023 and 2022, respectively.
15
As of September 30, 2023, the Company expects to record the following amortization expense in future periods (amounts in thousands):
|
|
Estimated |
|
|
|
|
Amortization |
|
|
For the Years Ended December 31, |
|
Expense |
|
|
2023 (remaining three months) |
|
$ |
7,504 |
|
2024 |
|
|
29,558 |
|
2025 |
|
|
29,220 |
|
2026 |
|
|
29,192 |
|
2027 |
|
|
29,159 |
|
2028 and thereafter |
|
|
218,396 |
|
Total |
|
$ |
343,029 |
|
Inventories, net
Inventories, net consists of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Raw materials |
|
$ |
128,894 |
|
|
$ |
149,438 |
|
Work-in-process |
|
|
5,630 |
|
|
|
6,183 |
|
Finished products |
|
|
76,848 |
|
|
|
82,656 |
|
Total inventories, net |
|
$ |
211,372 |
|
|
$ |
238,277 |
|
Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Land |
|
$ |
950 |
|
|
$ |
1,003 |
|
Buildings |
|
|
1,637 |
|
|
|
1,599 |
|
Leasehold improvements |
|
|
124,925 |
|
|
|
115,672 |
|
Equipment |
|
|
111,625 |
|
|
|
94,613 |
|
Furniture, fixtures and office equipment |
|
|
8,786 |
|
|
|
8,307 |
|
Computer hardware and software |
|
|
35,359 |
|
|
|
29,813 |
|
Construction in progress |
|
|
37,679 |
|
|
|
31,553 |
|
Other |
|
|
410 |
|
|
|
420 |
|
Total property, plant and equipment |
|
|
321,371 |
|
|
|
282,980 |
|
Less – Accumulated depreciation |
|
|
(119,753 |
) |
|
|
(92,307 |
) |
Total property, plant and equipment, net |
|
$ |
201,618 |
|
|
$ |
190,673 |
|
Accrued Liabilities
Accrued liabilities consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(Amounts in thousands) |
|
|||||
Employee compensation |
|
$ |
13,727 |
|
|
$ |
33,522 |
|
Deferred revenue |
|
|
10,879 |
|
|
|
19,283 |
|
Income taxes payable |
|
|
2,446 |
|
|
|
2,459 |
|
Other |
|
|
15,491 |
|
|
|
15,856 |
|
Total accrued liabilities |
|
$ |
42,543 |
|
|
$ |
71,120 |
|
16
0.375% Convertible Senior Notes due 2024
On July 19, 2019, the Company issued $287.5 million aggregate principal pursuant to the 2019 Notes, which includes the underwriters’ exercise in full of an option to purchase an additional $37.5 million aggregate principal amount of 2019 Notes (the “Notes Offering”). The net proceeds of the Notes Offering, after deducting underwriting discounts and commissions and other related offering expenses payable by the Company, were approximately $278.5 million. The 2019 Notes are senior, unsecured obligations of the Company, and bear interest at a rate of 0.375% per year. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2019 Notes will mature on July 15, 2024, unless earlier repurchased or converted in accordance with their terms.
During the third quarter of 2023, the closing price of the Company’s common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the 2019 Notes are convertible at the option of the holders of the 2019 Notes during the fourth quarter of 2023, the quarter immediately following the quarter when the conditions are met, as stated in the terms of the 2019 Notes. These conditions have been met each quarter since the third quarter of 2020. As a result, $0.1 million aggregate principal amount of the 2019 Notes have been requested for conversion by the note holders since the issuance of the 2019 Notes and all conversions have settled as of September 30, 2023. The conversions resulted in the issuance of a nominal number of shares of the Company’s common stock to the note holders. Because the 2019 Notes mature within one year of the report date, the Company classifies the carrying value of the 2019 Notes as current liabilities on the Company’s condensed consolidated balance sheets at September 30, 2023.
The net carrying value of the liability component of the 2019 Notes is as follows:
|
|
|
|
|
|
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(Amounts in thousands) |
|
|||||
0.375% Convertible Senior Notes due 2024: |
|
|
|
|
|
|
||
Principal amount |
|
$ |
287,437 |
|
|
$ |
287,470 |
|
Unamortized debt issuance costs |
|
|
(1,481 |
) |
|
|
(2,855 |
) |
Net carrying amount |
|
$ |
285,956 |
|
|
$ |
284,615 |
|
The following table sets forth total interest expense recognized related to the 2019 Notes:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(Amounts in thousands) |
|
|||||||||||||
Contractual interest expense |
|
$ |
269 |
|
|
$ |
270 |
|
|
$ |
808 |
|
|
$ |
809 |
|
Amortization of debt issuance costs |
|
|
459 |
|
|
|
455 |
|
|
|
1,373 |
|
|
|
1,360 |
|
Total |
|
$ |
728 |
|
|
$ |
725 |
|
|
$ |
2,181 |
|
|
$ |
2,169 |
|
Effective interest rate of the liability component |
|
|
1.0 |
% |
|
|
1.0 |
% |
|
|
1.0 |
% |
|
|
1.0 |
% |
At September 30, 2023 and December 31, 2022, the carrying value of the 2019 Notes was $286.0 million and $284.6 million, respectively, net of unamortized discount, and the fair value of the 2019 Notes was $405.3 million and $452.0 million, respectively. The fair value of the 2019 Notes was determined based on the most recent trade activity of the 2019 Notes at September 30, 2023 and December 31, 2022.
Stock Option and Incentive Plans
Under the Company’s current 2018 Stock Option and Incentive Plan (the “2018 Plan”), the number of shares of the Company’s common stock that were reserved and available for issuance is 2,778,000, plus the number of shares of common stock that were available for issuance under the Company’s previous equity plans. The shares of common stock underlying any awards under the 2018 Plan and previous equity plans (together, the “Plans”) that are forfeited, canceled or otherwise terminated (other than by exercise) shall be added back to the shares of stock available for issuance under the 2018 Plan.
17
At September 30, 2023, 1,704,118 shares were available for future grants under the 2018 Plan.
Stock Issued for Earnout Payment
In May 2023, the Company issued 42,621 shares of its common stock to former securityholders of Avitide to satisfy the contingent consideration obligation established under the Agreement and Plan of Merger and Reorganization (the "Avitide Agreement") which the Company entered into as part of the acquisition of Avitide in September 2021. See Note 4, "Acquisitions", included in Part II, Item 8 "Financial Statements and Supplemental Data" to our Form 10-K, for additional information on the acquisition of Avitide and the contingent consideration. The shares represent 50% of the earnout consideration earned in the First Earnout Year (as defined in the Avitide Agreement).
Stock-Based Compensation
The following table presents stock-based compensation expense in the Company’s condensed consolidated statements of comprehensive income:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(Amounts in thousands) |
|
|||||||||||||
Cost of product revenue |
|
$ |
393 |
|
|
$ |
610 |
|
|
$ |
1,506 |
|
|
$ |
1,847 |
|
Research and development |
|
|
700 |
|
|
|
534 |
|
|
|
2,095 |
|
|
|
1,955 |
|
Selling, general and administrative |
|
|
5,280 |
|
|
|
5,010 |
|
|
|
15,509 |
|
|
|
17,252 |
|
Total stock-based compensation |
|
$ |
6,373 |
|
|
$ |
6,154 |
|
|
$ |
19,110 |
|
|
$ |
21,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock Options
Information regarding option activity for the nine months ended September 30, 2023 under the Plans is summarized below:
|
|
Shares |
|
|
Weighted |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Options outstanding at December 31, 2022 |
|
|
609,965 |
|
|
$ |
71.74 |
|
|
|
|
|
|
|
||
Granted |
|
|
66,069 |
|
|
$ |
173.08 |
|
|
|
|
|
|
|
||
Exercised |
|
|
(22,872 |
) |
|
$ |
15.52 |
|
|
|
|
|
|
|
||
Forfeited/expired/cancelled |
|
|
(2,000 |
) |
|
$ |
199.71 |
|
|
|
|
|
|
|
||
Options outstanding at September 30, 2023 |
|
|
651,162 |
|
|
$ |
83.60 |
|
|
|
|
|
|
|
||
Options exercisable at September 30, 2023 |
|
|
371,782 |
|
|
$ |
61.46 |
|
|
|
|
|
|
|
||
Vested and expected to vest at September 30, 2023(1) |
|
|
637,673 |
|
|
$ |
83.18 |
|
|
|
5.73 |
|
|
$ |
53,173 |
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing price of the common stock on September 30, 2023, the last business day of the third quarter of 2023, of $159.01 per share and the exercise price of each in-the-money option) that would have been received by the option holders had all option holders exercised their options on September 30, 2023. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2023 and 2022 was $3.4 million and $9.8 million, respectively.
The weighted average grant date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $85.70 and $76.64, respectively.
18
Stock Units
The fair value of stock units is calculated using the closing price of the Company’s common stock on the date of grant. The Company recognizes expense on awards with service-based vesting over the employee’s requisite service period on a straight-line basis. The Company recognizes expense on performance-based awards over the vesting period based on the probability that the performance metrics will be achieved. Information regarding stock unit activity, which includes activity for restricted stock units and performance stock units, for the nine months ended September 30, 2023 under the Plans is summarized below:
|
|
Shares |
|
|
Weighted Average |
|
|
||
Unvested at December 31, 2022 |
|
|
531,034 |
|
|
$ |
142.57 |
|
|
Awarded |
|
|
175,475 |
|
|
$ |
174.86 |
|
|
Vested |
|
|
(173,714 |
) |
|
$ |
118.70 |
|
|
Forfeited/cancelled |
|
|
(53,920 |
) |
|
$ |
179.53 |
|
|
Unvested at September 30, 2023 |
|
|
478,875 |
|
|
$ |
188.41 |
|
|
Vested and expected to vest at September 30, 2023(1) |
|
|
411,646 |
|
|
$ |
153.79 |
|
|
The aggregate intrinsic value of stock units vested during the nine months ended September 30, 2023 and 2022 was $32.3 million and $40.4 million, respectively.
The weighted average grant date fair value of stock units granted during the nine months ended September 30, 2023 and 2022 was $174.86 and $191.55, respectively.
As of September 30, 2023, there was $66.0 million of total unrecognized compensation cost related to unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 2.88 years. The Company expects 2,156,681 unvested options and stock units to vest over the next five years.
Collaboration Agreements
The Company licenses certain technologies that are, or may be, incorporated into its technology under several agreements and also has entered into several clinical research agreements that require the Company to fund certain research projects. Generally, the license agreements require the Company to pay annual maintenance fees and royalties on product sales once a product has been established using the technologies. Research and development expenses associated with license agreements were immaterial amounts for the three and nine months ended September 30, 2023 and 2022.
In June 2018, the Company secured an agreement with Navigo Proteins GmbH (“Navigo”) for the exclusive co-development of multiple affinity ligands for which the Company holds commercialization rights. The Company is manufacturing and supplying the first of these ligands, NGL-Impact®, exclusively to Purolite Life Sciences, an Ecolab Inc. company (“Purolite”), who is pairing the Company’s high-performance ligand with Purolite’s agarose jetting base bead technology used in their Jetted A50 Protein A resin product. The Company also signed a long-term supply agreement with Purolite for NGL-Impact and other potential additional affinity ligands that may advance from the Company’s Navigo collaboration. In September 2020, the Company and Navigo successfully completed co-development of an affinity ligand targeting the SARS-CoV-2 spike protein, to be utilized in the purification of vaccines for the COVID-19 pandemic, including emerging variants of the SARS-CoV-2 coronavirus. The Company has proceeded with scaling up and manufacturing this ligand and the development and validation of the related affinity chromatography resin, which is marketed by the Company. In September 2021, the Company and Navigo successfully completed co-development of a novel affinity ligand that addresses aggregation issues associated with pH sensitive antibodies and Fc-fusion proteins. The Company is manufacturing and supplying this ligand, NGL-Impact® HipH, to Purolite. The Navigo and Purolite agreements are supportive of the Company’s strategy to secure and reinforce the Company’s proteins business. The Company made royalty payments to Navigo of $0.8 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and payments of $3.1 million and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively.
19
Legal Proceedings
From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict, and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probably that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial results.
For the three and nine months ended September 30, 2023, the Company recorded an income tax benefit of $(6.5) million and an income tax provision of $5.8 million, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2023 was (56.2%) and 8.0%, respectively, compared to 14.9% and 17.4% for the corresponding periods in the prior year.
On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 ("Inflation Reduction Act"), which, among other things, implements a 15% alternative minimum tax on global adjusted financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy and was effective beginning in 2023. We evaluated the provisions of the Inflation Reduction Act and no provision had a material effect on our consolidated financial position or results of operations.
A reconciliation of basic and diluted weighted average shares outstanding is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(Amounts in thousands, except per share data) |
|
|||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
18,172 |
|
|
$ |
40,405 |
|
|
$ |
67,065 |
|
|
$ |
137,230 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Charges associated with convertible debt instruments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
387 |
|
Numerator for diluted earnings per share – net income available to common stockholders after the effect of dilutive securities |
|
$ |
18,172 |
|
|
$ |
40,405 |
|
|
$ |
67,065 |
|
|
$ |
137,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares used in computing net income per share – basic |
|
|
55,766 |
|
|
|
55,498 |
|
|
|
55,688 |
|
|
|
55,432 |
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options and stock units |
|
|
439 |
|
|
|
673 |
|
|
|
469 |
|
|
|
663 |
|
Convertible Senior Notes |
|
|
735 |
|
|
|
1,131 |
|
|
|
776 |
|
|
|
1,501 |
|
Dilutive effect of unvested performance stock units |
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Dilutive potential common shares |
|
|
1,174 |
|
|
|
1,806 |
|
|
|
1,245 |
|
|
|
2,166 |
|
Denominator for diluted earnings per share – adjusted weighted average shares used in computing net income per share – diluted |
|
|
56,940 |
|
|
|
57,304 |
|
|
|
56,933 |
|
|
|
57,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.33 |
|
|
$ |
0.73 |
|
|
$ |
1.20 |
|
|
$ |
2.48 |
|
Diluted |
|
$ |
0.32 |
|
|
$ |
0.71 |
|
|
$ |
1.18 |
|
|
$ |
2.39 |
|
20
For the three and nine months ended September 30, 2023, 301,404 shares and 328,179 shares, respectively, of the Company’s common stock were excluded from the calculation of diluted EPS because the exercise prices of the stock options were greater than or equal to the average price of the common shares and were therefore anti-dilutive. Comparatively, for the three and nine months ended September 30, 2022, 112,179 shares and 149,187 shares, respectively, were considered anti-dilutive.
In July 2019, the Company issued $287.5 million aggregate principal amount of the 2019 Notes. As provided by the terms of the indenture underlying the 2019 Notes, prior to March 4, 2022, conversion of the 2019 Notes could have been settled in cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. On March 4, 2022, we entered into the Second Supplemental Indenture for the 2019 Notes, which irrevocably elected to settle the conversion of the 2019 Notes using a combination of cash and shares of the Company’s common stock, settling the par value of the 2019 Notes in cash and any excess conversion premium in shares.
As provided by the terms of the Second Supplemental Indenture underlying the 2019 Notes, the Company irrevocably elected to settle the conversion obligation for the 2019 Notes in a combination of cash and shares of the Company's common stock. This means the Company will settle the par value of the 2019 Notes in cash and any excess conversion premium in shares. The Company adopted ASU 2020-06 effective January 1, 2022. Under ASU 2020-06, the Company is required to reflect the dilutive effect of the convertible securities by application of the "if-converted" method, which means the denominator of the EPS calculation would include the total number of shares assuming the 2019 Notes had been fully converted at the beginning of the period. Prior to March 4, 2022, the Company had the choice to settle the conversion of the 2019 Notes in cash, stock or a combination of the two. Therefore, from January 1, 2022 (the date the Company adopted ASU 2020-06) to March 4, 2022, the Company included 3,474,429 shares in the denominator of the EPS calculation, applying the if converted method. Subsequent to March 4, 2022, after the Second Supplemental Indenture became effective, the Company irrevocably elected to settle the conversion obligation for the 2019 Notes in a combination of cash and shares of the Company's common stock, and from March 5, 2022 forward, only the excess premium will be settled with shares. Under the if-converted method of calculating dilutive shares, the Company was also required to exclude amortization of debt issuance costs and interest charges applicable to the convertible debt from the numerator of the dilutive EPS calculation for the period from January 1, 2022 to March 4, 2022, as if the interest on convertible debt was never recognized for that period. For the three months ended March 31, 2022, the Company excluded interest charges of $0.4 million (net of tax) from the numerator.
Prior to the adoption of ASU 2020-06, the Company applied the provisions of ASC 260, “Earnings Per Share,” Subsection 10-45-44, to determine the diluted weighted average shares outstanding as it related to the conversion spread on its convertible notes. Accordingly, the par value of the 2019 Notes was not included in the calculation of diluted income per share, but the dilutive effect of the conversion premium was considered in the calculation of diluted net income per share using the treasury stock method. The dilutive impact of the 2019 Notes was based on the difference between the Company’s current period average stock price and the conversion price of the 2019 Notes, provided there was a premium. Pursuant to this accounting standard, there was no dilution from the accreted principal of the 2019 Notes. For the three and nine months ended September 30, 2023, the dilutive effect of the conversion premium included in the calculation of diluted earnings was 735,150 shares and 776,339 shares, respectively. For the three and nine months ended September 30, 2022, the dilutive effect of the conversion premium included in the calculation of diluted earnings was 1,130,530 shares and 1,500,717 shares, respectively.
Certain facilities leased by our subsidiary, Spectrum LifeSciences LLC ("Spectrum") are owned by the Roy T. Eddleman Living Trust (the "Trust"). As of September 30, 2023, the Trust owned greater than 5% of the Company’s outstanding shares. Therefore, the Company considers the Trust to be a related party. The lease amounts paid to the Trust prior to the public offering were negotiated in connection with the acquisition of Spectrum. The Company incurred rent expense totaling $0.1 million and $0.2 million respectively for each of the three months ended September 30, 2023 and 2022 related to these leases and incurred rent expense of $0.5 million for each of the nine months ended September 30, 2023 and 2022.
Operating segments are components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Our Chief Executive Officer ("CEO") has been identified as the CODM.
21
The Company views its operations, makes decisions regarding how to allocate resources and manages its business as one operating segment and one reportable segment. Our CODM evaluates financial information on a consolidated basis. As a result, the required financial segment information can be found in the consolidated condensed financial statements of the Company disclosed herein.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue by customers' geographic locations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
|
49 |
% |
|
|
42 |
% |
|
|
44 |
% |
|
|
42 |
% |
Europe |
|
|
34 |
% |
|
|
35 |
% |
|
|
36 |
% |
|
|
38 |
% |
APAC/Other |
|
|
17 |
% |
|
|
23 |
% |
|
|
20 |
% |
|
|
20 |
% |
Total revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant concentrations of credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. Per the Company’s investment policy, cash equivalents and marketable securities are invested in financial instruments with high credit ratings and credit exposure to any one issue, issuer (with the exception of U.S. Treasury obligations) and type of instrument is limited. At September 30, 2023 and December 31, 2022, the Company had no investments associated with foreign exchange contracts, options contracts or other foreign hedging arrangements.
Concentration of credit risk with respect to accounts receivable is limited to customers to whom the Company makes significant sales. While a reserve for the potential write-off of accounts receivable is maintained, the Company has not written off any significant accounts to date. To control credit risk, the Company performs regular credit evaluations of its customers’ financial condition.
There was no revenue from customers that represented 10% or more of the Company's total revenue for the three and nine months ended September 30, 2023 and 2022.
No accounts receivable balance from a specific customer represented 10% or more of the Company's total trade accounts receivable at September 30, 2023. Significant accounts receivable balances representing 10% or more of the Company's accounts receivable and royalties at December 31, 2022 came from our accounts receivable balance outstanding with Purolite, an Ecolab Inc. company, which was 12.7% of our total trade accounts receivable balance.
Acquisition of Metenova Holding AB
On October 2, 2023, Repligen Sweden AB, a subsidiary of the Company completed its acquisition of all of the outstanding equity interests in Metenova Holding AB ("Metenova"), pursuant to a Share Sale and Purchase Agreement with, inter alia, Metenova for approximately $173 million in cash and the Company's equity. Metenova will further strengthen our fluid management portfolio with its magnetic mixing and drive train technologies that are widely used by global biopharmaceutical companies and contract development and manufacturing organizations.
The Company will account for the acquisition of Metenova as a purchase of business under the acquisition method of accounting and has engaged a third-party valuation firm to assist with the valuation of the business acquired. The estimated purchase price allocation for the acquisition of Metenova will be included in the Annual Report on Form 10-K for the year ended December 31, 2023.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Repligen and its subsidiaries, collectively doing business as Repligen Corporation (“Repligen”, “we”, “our”, or the “Company”) is a global life sciences company that develops and commercializes highly innovative bioprocessing technologies and systems that increase efficiencies and flexibility in the process of manufacturing biological drugs.
As the overall market for biologics continues to grow and expand, our customers – primarily large biopharmaceutical companies and contract development and manufacturing organizations and other life sciences companies (integrators) – face critical production cost, capacity, quality and time pressures. Built to address these concerns, our products help set new standards for the way biologics are manufactured. We are committed to inspiring advances in bioprocessing as a trusted partner in the production of critical biologic drugs – including monoclonal antibodies, recombinant proteins, vaccines and cell and gene therapies – that are improving human health worldwide. Increasingly, our technologies are being implemented to overcome challenges in processing plasmid DNA (a starting material for the production of mRNA) and gene delivery vectors such as lentivirus and adeno-associated viral vectors. For more information regarding our business, products and acquisitions, see Part I, Item 1, “Business” included in our 2022 Annual Report on Form 10-K (“Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on February 22, 2023.
We currently operate as one bioprocessing business, with a comprehensive suite of products to serve both upstream and downstream processes in biological drug manufacturing. Building on over 40 years of industry expertise, we have developed a broad and diversified product portfolio that reflects our passion for innovation and the customer-first culture that drives our entire organization. We continue to capitalize on opportunities to maximize the value of our product platform through both organic growth initiatives (internal innovation and commercial leverage) and targeted acquisitions.
Macroeconomic Trends
As a result of our global presence, a significant portion of our revenue and expenses is denominated in currencies other than the U.S. dollar. We are therefore subject to non-U.S. exchange exposure. Exchange rates can be volatile and a substantial weakening or strengthening of foreign currencies against the U.S. dollar could increase or reduce our revenue and gross profit margin and impact the comparability of results from period to period.
We have experienced, and expect to continue to experience, cost inflation, primarily in raw materials, and other supply chain costs, as a result of global macroeconomic trends, including global geopolitical conflicts and labor shortages. Actions taken to mitigate supply chain disruptions and inflation, including price increases and productivity improvements, have generally been successful in offsetting the impact of these trends. In addition, decreasing demand for COVID-19 vaccinations is driving a reduction in future demand of our products related to these vaccines. We expect that these trends will continue to impact our results for the rest of 2023.
2023 Acquisitions
Acquisition of FlexBiosys, Inc.
On April 17, 2023, we completed the acquisition of all of the outstanding equity interests in FlexBiosys, Inc. ("FlexBiosys"), pursuant to an Equity Purchase Agreement ("EPA") with FlexBiosys, TSAP Holdings Inc. ("NJ Seller"), Gayle Tarry and Stanley Tarry, as individuals (collectively with NJ Seller, the "Sellers"), and Stanley Tarry, in his capacity as the representative of the Sellers (the "FlexBiosys Acquisition").
FlexBiosys, which is headquartered in Branchburg, New Jersey, offers expert design and custom manufacturing of single-use bioprocessing products and a comprehensive range of products that include bioprocessing bags, bottles, and tubing assemblies. These products will complement and expand our fluid management portfolio of offerings.
Acquisition of Metenova Holding AB
On October 2, 2023, we completed the acquisition of all of the outstanding equity interests in Metenova Holding AB ("Metenova"), pursuant to a Share Sale and Purchase Agreement with, inter alia, Metenova for approximately $173 million in cash and the Company's equity. Metenova will further strengthen our fluid management portfolio with its magnetic mixing and drive train technologies that are widely used by global biopharmaceutical companies and contract development and manufacturing organizations.
23
Critical Accounting Policies and Estimates
A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 2, "Summary of Significant Accounting Policies", to the consolidated financial statements included in our Form 10-K.
Results of Operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto.
Revenues
Total revenue for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Increase/(Decrease) |
|
|
Nine Months Ended |
|
|
Increase/(Decrease) |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Products |
|
$ |
141,156 |
|
|
$ |
200,708 |
|
|
$ |
(59,552 |
) |
|
|
(29.7 |
%) |
|
$ |
482,910 |
|
|
$ |
614,668 |
|
|
$ |
(131,758 |
) |
|
|
(21.4 |
%) |
Royalty and other |
|
|
36 |
|
|
|
33 |
|
|
|
3 |
|
|
|
9.1 |
% |
|
|
111 |
|
|
|
106 |
|
|
|
5 |
|
|
|
4.7 |
% |
Total revenue |
|
$ |
141,192 |
|
|
$ |
200,741 |
|
|
$ |
(59,549 |
) |
|
|
(29.7 |
%) |
|
$ |
483,021 |
|
|
$ |
614,774 |
|
|
$ |
(131,753 |
) |
|
|
(21.4 |
%) |
Product revenues
Since 2016, we have been increasingly focused on selling our products directly to customers in the pharmaceutical industry and to our contract manufacturers. These direct sales represented approximately 88.4% and 86.2% of our product revenue for each of the three months ended September 30, 2023 and 2022, respectively, and represented 85.6% and 87.5% of our product revenue for each of the nine months ended September 30, 2023 and 2022, respectively. Sales of our bioprocessing products can be impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies, which may result in significant quarterly fluctuations.
Revenues from our filtration franchise include the sales of our XCell ATF® systems and consumables; Spectrum filtration systems, including KrosFlo®; SIUS® filtration products and systems; the fluid management assemblies and components offered by Engineered Molding Technology LLC, Non-Metallic Solutions, Inc., ARTeSYN Biosolutions Ireland Limited ("ARTeSYN"), Bio-Flex Solutions, L.L.C. and FlexBiosys; the hollow fiber membrane technology offered by Polymem S.A., and our ARTeSYN filtration systems. Revenue from our chromatography products includes the sale of our OPUS pre-packed chromatography columns, ELISA test kits and chromatography systems from Spectrum and ARTeSYN. Revenue from proteins products includes the sale of our Protein A ligands and cell culture growth factors, and sales of affinity products, including adeno-associated virus resins offered by Avitide, Inc. ("Avitide"). Revenue from our process analytics products includes the sale of our SoloVPE®, FlowVPE® and FlowVPX® systems, consumables and service. Other revenue primarily consists of sales of our operating room products to hospitals as well as freight revenue.
During the three and nine months ended September 30, 2023, product revenue decreased by $60.0 million, or 29.7%, and $131.8 million, or 21.4%, respectively, as compared to the same periods of 2022. This is mainly due to a decrease in revenue from programs related to COVID-19 as customers continue to repurpose inventory initially purchased for COVID-19 therapeutics and vaccines. This primarily affected our filtration products. Partially offsetting these revenue declines were price increases and strong performances within the Chromatography and Process Analytics franchises during the nine months ended September 30, 2023, as compared to the same period of 2022. Specifically, revenue from sale of chromatography systems and flowpaths as well as slope spectroscopy systems, consumables and service.
Royalty and other revenues
24
Royalty and other revenues in the three and nine months ended September 30, 2023 and 2022 relate to royalties received from a third-party systems manufacturer associated with our OPUS PD chromatography columns. Royalty revenues are variable and are dependent on sales generated by our partners.
Costs of Product Revenue and Operating Expenses
Total costs and operating expenses for the three and nine months ended September 30, 2023 and 2022 were comprised of the following:
|
|
Three Months Ended |
Increase/(Decrease) |
|
|
Nine Months Ended |
Increase/(Decrease) |
|
||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||||||||||||||||||
Cost of product revenue |
|
$ |
104,634 |
|
|
$ |
86,514 |
|
|
$ |
18,120 |
|
|
|
20.9 |
% |
|
$ |
265,786 |
|
|
$ |
255,130 |
|
|
$ |
10,656 |
|
|
|
4.2 |
% |
Research and development |
|
|
10,577 |
|
|
|
10,228 |
|
|
|
349 |
|
|
|
3.4 |
% |
|
|
32,437 |
|
|
|
32,823 |
|
|
|
(386 |
) |
|
|
(1.2 |
%) |
Selling, general and administrative |
|
|
55,465 |
|
|
|
53,643 |
|
|
|
1,822 |
|
|
|
3.4 |
% |
|
|
160,601 |
|
|
|
162,592 |
|
|
|
(1,991 |
) |
|
|
(1.2 |
%) |
Contingent Consideration |
|
|
(34,292 |
) |
|
|
(2,309 |
) |
|
|
(31,983 |
) |
|
|
1385.1 |
% |
|
|
(31,266 |
) |
|
|
(11,604 |
) |
|
|
(19,662 |
) |
|
|
169.4 |
% |
Total costs and operating expenses |
|
$ |
136,384 |
|
|
$ |
148,076 |
|
|
$ |
(11,692 |
) |
|
|
(7.9 |
%) |
|
$ |
427,558 |
|
|
$ |
438,941 |
|
|
$ |
(11,383 |
) |
|
|
(2.6 |
%) |
Cost of product revenue
Cost of product revenue increased 20.9% and 4.2% in the three and nine months ended September 30, 2023, respectively, compared to the same periods of 2022. The increase is primarily due to restructuring charges, including a $17.2 million inventory write-off to adjust inventory to net realizable value, a $3.8 million charge for accelerated depreciation on equipment related to manufacturing facilities to be closed and $1.7 million in severance and other charges during the third quarter of 2023 as a result of our restructuring activities, which commenced in July 2023. See Note 4, "Restructuring Plan" of this report for more information on the Restructuring Plan. Our restructuring activities include the closing of manufacturing facilities, discontinuing the sale of certain product SKUs, and evaluating raw materials and components secured during the 2020-2022 COVID-19 pandemic period (the "COVID-19 Period') to meet increasing demand during a challenging supply chain environment in the industry. Where demand has reduced, finished goods and raw materials, whose value exceeded the projected requirements to be used before reaching their expiration date, were written down to their net realizable value. The inventory write-off includes reserved values which may be recoverable in future periods, if salvageable. In addition, there was an increase due to cost inflation, primarily in raw materials as well as freight charges due to fuel costs and carrier market conditions during the three and nine months ended September 30, 2023, compared to the same periods of 2022. Also, our occupancy costs and depreciation expense increased during the three and nine months ended September 30, 2023, as compared to the same periods of 2022, due to expanded facilities and manufacturing equipment being placed into service throughout 2022 and 2023. These increases were partially offset by a decrease in costs associated with lower revenue as well as a decrease in employee-related costs not related to the restructuring activities in the three and nine months ended September 30, 2023, as compared to the same periods of 2022.
Gross margin was 25.9% and 56.9% in the three months ended September 30, 2023 and 2022, respectively and gross margin was 45.0% and 58.5% in the nine months ended September 30, 2023 and 2022, respectively. The reduction in gross margin in the three and nine months ended September 30, 2023, as compared to the same periods of 2022, is primarily due to restructuring activities as noted above during the third quarter of 2023 to simplify and streamline our organization and strengthen the overall effectiveness of our operations. In addition, lower margins were a result of lower overall sales and production volumes, and a change in product mix, where we saw a significant decline in revenue associated with higher-margin consumable products due to the decrease in COVID-19 vaccine demand. We also experienced an increase in manufacturing costs from an increase in occupancy costs due to added capacity, an increase in depreciation expense, and an increase in freight charges from cost inflation.
Research and development expenses
Research and development (“R&D”) expenses are related to bioprocessing products, which include personnel, supplies and other research expenses. Due to the fact that these various programs share personnel and fixed costs, we do not track all of our expenses or allocate any fixed costs by program, and therefore, have not provided historical costs incurred by project.
R&D expenses increased $0.3 million during the three months ended September 30, 2023 and decreased $0.4 million for the nine months ended September 30, 2023, compared to the same periods of 2022.
25
For the three month period, the increase in employee-related costs during the period from an increase in headcount since the end of the third quarter of 2022 as well as an increase in depreciation expense and spending on new product development more than offset a decrease in occupancy costs for facilities where R&D work is performed. For the nine month period, the decrease in occupancy costs for facilities where R&D work is performed more than offset the increase in employee-related costs, an increase in depreciation expense and spending on new product development.
R&D expense also includes payments made to expand our proteins product offering through our agreement with Navigo Proteins GmbH (“Navigo”). Such expenses were $0.8 million and $3.1 million, respectively, for the three and nine months ended September 30, 2023, as compared to $0.3 million and $1.4 million, respectively, for the same periods in 2022, in the form of milestone payments to Navigo.
We expect our R&D expenses for the remainder of 2023 to gradually increase to support new product development.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our commercial products and costs required to support our marketing efforts, including legal, accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.
SG&A costs increased by $1.8 million, or 3.4% during the three months ended September 30, 2023 and decreased $2.0 million, or 1.2%, during the nine months ended September 30, 2023, as compared to the same periods of 2022. Both the three and nine month periods include an increase in SG&A costs related to the operations of FlexBiosys, which have been included in our results of operations since the acquisition date in April 2023 and $1.3 million in one-time costs incurred from restructuring activities during the third quarter, for which there were no comparable costs in the same periods of 2022. For the three-month period, there was also an increase in professional fees related to the FlexBiosys Acquisition, compared to the same period last year. Partially offsetting these increases was a decrease in employee-related costs during the three months ended September 30, 2023, as compared to the same period of 2022. For the nine-month period, the increases in SG&A costs related to FlexBiosys operations and restructuring were more than offset by a decrease in in the amount of commissions paid out resulting from lower revenue and a decrease in employee-related costs.
Contingent consideration
Contingent consideration benefit represents the change in fair value of the contingent consideration obligation included in current and noncurrent contingent consideration on the consolidated balance sheets as of the end of each period. Remeasurement of the contingent consideration obligation is done each quarter and the carrying value of the obligation is adjusted to the current fair value through our condensed consolidated statements of comprehensive income. Expected results and a change in market inputs used to calculate the discount rate, resulted in a change to the benefit reported for the three months ended September 30, 2023 and 2022 of ($34.3) million and ($2.3) million, respectively, and ($31.3) million and ($11.6) million for the nine months ended September 30, 2023 and 2022, respectively.
Other Income (Expenses), net
The table below provides detail regarding our other expenses, net:
|
|
Three Months Ended |
|
|
Increase/(Decrease) |
|
|
Nine Months Ended |
|
|
Increase/(Decrease) |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||||||||||||||||||
Investment income |
|
$ |
6,662 |
|
|
$ |
2,177 |
|
|
$ |
4,485 |
|
|
|
206.0 |
% |
|
$ |
18,112 |
|
|
$ |
2,962 |
|
|
$ |
15,150 |
|
|
|
511.5 |
% |
Interest expense |
|
|
(269 |
) |
|
|
(329 |
) |
|
|
60 |
|
|
|
(18.2 |
%) |
|
|
(813 |
) |
|
|
(892 |
) |
|
|
79 |
|
|
|
(8.9 |
%) |
Amortization of debt issuance costs |
|
|
(459 |
) |
|
|
(455 |
) |
|
|
(4 |
) |
|
|
0.9 |
% |
|
|
(1,373 |
) |
|
|
(1,360 |
) |
|
|
(13 |
) |
|
|
1.0 |
% |
Other income (expenses) |
|
|
895 |
|
|
|
(6,591 |
) |
|
|
7,486 |
|
|
|
(113.6 |
%) |
|
|
1,500 |
|
|
|
(10,389 |
) |
|
|
11,889 |
|
|
|
(114.4 |
%) |
Total other income (expenses), net |
|
$ |
6,829 |
|
|
$ |
(5,198 |
) |
|
$ |
12,027 |
|
|
|
(231.4 |
%) |
|
$ |
17,426 |
|
|
$ |
(9,679 |
) |
|
$ |
27,105 |
|
|
|
(280.0 |
%) |
Investment income
26
Investment income includes income earned on invested cash balances. Our investment income increased by $4.5 million and $15.2 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods of 2022 due to an increase in interest rates on average invested cash balances since September 30, 2022, as well as interest earned on U.S. treasury bills purchased at the end of 2022. We expect investment income to vary based on changes in the amount of funds invested and fluctuation of interest rates.
Interest expense
Interest expense in the three and nine months ended September 30, 2023 and 2022 is primarily from our 0.375% Convertible Senior Notes due 2024 (the “2019 Notes”), which were issued in July 2019. Interest expense for the three and nine months ended September 30, 2023 includes the contractual coupon interest on the 2019 Notes.
Amortization of debt issuance costs
Transaction costs related to the issuance of the 2019 Notes and attributable to the liability component of the 2019 Notes are included in amortization of debt issuance costs on the condensed consolidated statements of comprehensive income.
Other expenses
The change in other expenses during the three and nine months ended September 30, 2023, compared to the same periods of 2022, is primarily attributable to realized foreign currency gains and losses related to transactions with customers and vendors.
Income Tax (Benefit) Provision
Income tax (benefit) provision for the three and nine months ended September 30, 2023 and 2022 was as follows:
|
|
Three Months Ended |
|
|
Increase/(Decrease) |
|
|
Nine Months Ended |
|
|
Increase/(Decrease) |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(Amounts in thousands, except for percentage data) |
|
|||||||||||||||||||||||||||||
Income tax (benefit) provision |
|
$ |
(6,535 |
) |
|
$ |
7,062 |
|
|
$ |
(13,597 |
) |
|
|
(192.5 |
%) |
|
$ |
5,824 |
|
|
$ |
28,924 |
|
|
$ |
(23,100 |
) |
|
|
(79.9 |
%) |
Effective tax rate |
|
|
(56.2 |
%) |
|
|
14.9 |
% |
|
|
|
|
|
|
|
|
8.0 |
% |
|
|
17.4 |
% |
|
|
|
|
|
|
||||
For the three and nine months ended September 30, 2023, we recorded an income tax benefit of $(6.5) million and an income tax provision of $5.8 million, respectively. The effective tax rate was (56.2%) and 8.0% for the three and nine months ended September 30, 2023, respectively, and is based upon the estimated income for the year ending December 31, 2023 and the composition of income in different jurisdictions. The difference in effective tax rates between the periods was primarily due to lower income before taxes and increased benefits from business tax credits, nontaxable contingent consideration and a deductible foreign exchange loss on certain long-term intercompany debt, partially offset by lower foreign-derived intangible income and nondeductible executive compensation. Our effective tax rate for the three and nine months ended September 30, 2023 was lower than the U.S. statutory rate of 21% primarily due to business tax credits, foreign-derived intangible income, windfall tax benefits on stock option exercise and the vesting of stock units, nontaxable contingent consideration and a deductible foreign exchange loss on certain long-term intercompany debt.
For the three and nine months ended September 30, 2022, we recorded an income tax provision of $7.1 million and $28.9 million, respectively. The effective tax rate was 14.9% and 17.4% for the three and nine months ended September 30, 2022, respectively, and is based upon the estimated income for the year ending December 31, 2022 and the composition of income in different jurisdictions. Our effective tax rate for the three and nine months ended September 30, 2022 was lower than the U.S. statutory rate of 21% primarily due to business tax credits, foreign-derived intangible income and windfall tax benefits on stock option exercise and the vesting of stock units.
On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 ("Inflation Reduction Act"), which, among other things, implements a 15% alternative minimum tax on global adjusted financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy and will become effective beginning in 2023. We evaluated the provisions of the Inflation Reduction Act and no provision had a material effect on our consolidated financial position or results of operations.
Non-GAAP Financial Measures
27
We provide non-GAAP adjusted income from operations; adjusted net income; and adjusted EBITDA as supplemental measures to GAAP, measures regarding our operating performance. These financial measures exclude the items detailed below and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure are provided below.
We include this financial information because we believe these measures provide a more accurate comparison of our financial results between periods and more accurately reflect how management reviews its financial results and measures the performance of our ongoing operations for the periods in which such charges are incurred.
Non-GAAP Adjusted Income from Operations
Non-GAAP adjusted income from operations is measured by taking income from operations as reported in accordance with GAAP and excluding acquisition and integration costs, restructuring costs, contingent consideration fair value adjustments and intangible amortization booked through our condensed consolidated statements of comprehensive income. The following is a reconciliation of income from operations in accordance with GAAP to non-GAAP adjusted income from operations for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(Amounts in thousands) |
|
|||||||||||||
GAAP income from operations |
|
$ |
4,808 |
|
|
$ |
52,665 |
|
|
$ |
55,463 |
|
|
$ |
175,833 |
|
Non-GAAP adjustments to income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition and integration costs |
|
|
3,147 |
|
|
|
1,251 |
|
|
|
4,927 |
|
|
|
7,142 |
|
Restructuring costs(1) |
|
|
24,012 |
|
|
|
— |
|
|
|
24,012 |
|
|
|
— |
|
Contingent consideration |
|
|
(34,292 |
) |
|
|
(2,309 |
) |
|
|
(31,266 |
) |
|
|
(11,604 |
) |
Intangible amortization |
|
|
7,492 |
|
|
|
6,547 |
|
|
|
22,330 |
|
|
|
19,712 |
|
Non-GAAP adjusted income from operations |
|
$ |
5,167 |
|
|
$ |
58,154 |
|
|
$ |
75,466 |
|
|
$ |
191,083 |
|
Non-GAAP Adjusted Net Income and Adjusted Earnings Per Share
Non-GAAP adjusted net income and adjusted earnings per share is measured by taking net income as reported in accordance with GAAP and excluding acquisition and integration costs, restructuring costs, contingent consideration fair value adjustments, intangible amortization, amortization of debt issuance costs and the tax effects of these items. The following are reconciliations of net income and fully diluted earnings per share in accordance with GAAP to non-GAAP adjusted net income and adjusted fully diluted earnings per share for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
|
|
|
Fully Diluted |
|
|
|
|
|
Fully Diluted |
|
||||
|
|
|
|
|
Earnings per |
|
|
|
|
|
Earnings per |
|
||||
|
|
Amount |
|
|
Share* |
|
|
Amount |
|
|
Share* |
|
||||
|
|
(Amounts in thousands, except per share data) |
|
|||||||||||||
GAAP net income |
|
$ |
18,172 |
|
|
$ |
0.32 |
|
|
$ |
40,405 |
|
|
$ |
0.71 |
|
Non-GAAP adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition and integration costs |
|
|
3,147 |
|
|
|
0.06 |
|
|
|
1,512 |
|
|
|
0.03 |
|
Restructuring costs(1) |
|
|
24,012 |
|
|
|
0.42 |
|
|
|
— |
|
|
|
— |
|
Contingent consideration |
|
|
(34,292 |
) |
|
|
(0.60 |
) |
|
|
(2,309 |
) |
|
|
(0.04 |
) |
Intangible amortization |
|
|
7,492 |
|
|
|
0.13 |
|
|
|
6,547 |
|
|
|
0.11 |
|
Amortization of debt issuance costs |
|
|
459 |
|
|
|
0.01 |
|
|
|
455 |
|
|
|
0.01 |
|
Tax effect of non-GAAP charges |
|
|
(5,837 |
) |
|
|
(0.10 |
) |
|
|
(2,241 |
) |
|
|
(0.04 |
) |
Non-GAAP adjusted net income |
|
$ |
13,153 |
|
|
$ |
0.23 |
|
|
$ |
44,369 |
|
|
$ |
0.77 |
|
* Per share totals may not add due to rounding.
28
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
|
|
|
Fully Diluted |
|
|
|
|
|
Fully Diluted |
|
||||
|
|
|
|
|
Earnings per |
|
|
|
|
|
Earnings per |
|
||||
|
|
Amount |
|
|
Share* |
|
|
Amount |
|
|
Share* |
|
||||
|
|
(Amounts in thousands, except per share data) |
|
|||||||||||||
GAAP net income |
|
$ |
67,065 |
|
|
$ |
1.18 |
|
|
$ |
137,230 |
|
|
$ |
2.39 |
|
Non-GAAP adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition and integration costs |
|
|
4,927 |
|
|
|
0.09 |
|
|
|
7,403 |
|
|
|
0.13 |
|
Restructuring costs(1) |
|
|
24,012 |
|
|
|
0.42 |
|
|
|
— |
|
|
|
— |
|
Contingent consideration |
|
|
(31,266 |
) |
|
|
(0.55 |
) |
|
|
(11,604 |
) |
|
|
(0.20 |
) |
Intangible amortization |
|
|
22,330 |
|
|
|
0.39 |
|
|
|
19,712 |
|
|
|
0.34 |
|
Amortization of debt issuance costs(2) |
|
|
1,373 |
|
|
|
0.02 |
|
|
|
1,360 |
|
|
|
0.02 |
|
Tax effect of non-GAAP charges |
|
|
(8,793 |
) |
|
|
(0.15 |
) |
|
|
(4,600 |
) |
|
|
(0.08 |
) |
Non-GAAP adjusted net income |
|
$ |
79,648 |
|
|
$ |
1.40 |
|
|
$ |
149,501 |
|
|
$ |
2.61 |
|
Adjusted EBITDA
Adjusted EBITDA is measured by taking net income as reported in accordance with GAAP, excluding investment income, interest expense, amortization of debt issuance costs, income tax provision, depreciation and amortization, acquisition and integration costs, restructuring costs and contingent consideration fair value adjustments booked through our condensed consolidated statements of comprehensive income. The following is a reconciliation of net income in accordance with GAAP to adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(Amounts in thousands) |
|
|||||||||||||
GAAP net income |
|
$ |
18,172 |
|
|
$ |
40,405 |
|
|
$ |
67,065 |
|
|
$ |
137,230 |
|
Non-GAAP EBITDA adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment income |
|
|
(6,662 |
) |
|
|
(2,177 |
) |
|
|
(18,112 |
) |
|
|
(2,962 |
) |
Interest expense |
|
|
269 |
|
|
|
329 |
|
|
|
813 |
|
|
|
892 |
|
Amortization of debt issuance costs |
|
|
459 |
|
|
|
455 |
|
|
|
1,373 |
|
|
|
1,360 |
|
Income tax provision |
|
|
(6,535 |
) |
|
|
7,062 |
|
|
|
5,824 |
|
|
|
28,924 |
|
Depreciation |
|
|
12,186 |
|
|
|
6,097 |
|
|
|
28,530 |
|
|
|
16,810 |
|
Intangible amortization |
|
|
7,519 |
|
|
|
6,575 |
|
|
|
22,412 |
|
|
|
19,795 |
|
EBITDA |
|
|
25,408 |
|
|
|
58,746 |
|
|
|
107,905 |
|
|
|
202,049 |
|
Other non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition and integration costs |
|
|
3,147 |
|
|
|
1,512 |
|
|
|
4,927 |
|
|
|
7,403 |
|
Restructuring costs(1)(3) |
|
|
20,196 |
|
|
|
— |
|
|
|
20,196 |
|
|
|
— |
|
Contingent consideration |
|
|
(34,292 |
) |
|
|
(2,309 |
) |
|
|
(31,266 |
) |
|
|
(11,604 |
) |
Adjusted EBITDA |
|
$ |
14,459 |
|
|
$ |
57,949 |
|
|
$ |
101,762 |
|
|
$ |
197,848 |
|
Liquidity and Capital Resources
We have financed our operations primarily through revenues derived from product sales, the issuance of the 2019 Notes in July 2019 and the issuance of common stock in our December 2020, July 2019 and May 2019 public offerings. Our revenue for the foreseeable future will primarily be limited to our bioprocessing product revenue.
On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. Subsequently, the U.S. Treasury, Federal Reserve and FDIC announced that SVB depositors would have access to all of their money. We have a banking relationship with SVB and hold cash, cash equivalents and marketable securities of less than $0.1 million as of September 30, 2023 in SVB depository accounts to cover short-term operational payments.
29
While we have not experienced any losses in such accounts, the recent failure of SVB caused us to utilize our accounts at other financial institutions in order to mitigate potential operational risks stemming from the temporary inability to access funds in our SVB operating accounts. As a result of bank failures, such as SVB, our access to funding sources in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired and could negatively impact the financial institutions with which we have direct arrangements, or the financial services industry or economy in general.
At September 30, 2023, we had cash and cash equivalents of $630.8 million compared to cash and cash equivalents of $523.5 million at December 31, 2022.
During the third quarter of 2023, the closing price of our common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the 2019 Notes are convertible at the option of the holders of the 2019 Notes during the fourth quarter of 2023, the quarter immediately following the quarter when the conditions are met, as stated in the terms of the 2019 Notes. These conditions have been met each quarter since the third quarter of 2020. As a result, $0.1 million aggregate principal amount of the 2019 Notes have been requested for conversion by the note holders since the issuance of the 2019 Notes and all conversions have settled as of September 30, 2023. The conversions resulted in the issuance of a nominal number of shares of our common stock to the note holders. Since the 2019 Notes mature within one year of the report date, we classify the carrying value of the 2019 Notes as current liabilities on our condensed consolidated balance sheet at September 30, 2023.
As discussed in Note 4, "Restructuring Plan" to this report, in July 2023, the Board of Directors authorized our management to undertake restructuring activities to simplify and streamline our organization and strengthen the overall effectiveness of our operations (the "Restructuring Plan"). Cash payments of $2.6 million related to the Restructuring Plan were made during the three and nine months ended September 30, 2023, with approximately $1 million to $2 million of expected costs remaining as of September 30, 2023. We expect to make substantially all remaining restructuring payments pursuant to the Restructuring Plan by the end of 2023.
Cash Flows
|
|
Nine Months Ended |
|
|
Increase/(Decrease) |
|
||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
|
|
(Amounts in thousands) |
|
|||||||||
Operating activities |
|
$ |
84,853 |
|
|
$ |
110,201 |
|
|
$ |
(25,348 |
) |
Investing activities |
|
|
46,630 |
|
|
|
(111,928 |
) |
|
|
158,558 |
|
Financing activities |
|
|
(19,166 |
) |
|
|
(13,063 |
) |
|
|
(6,103 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(4,996 |
) |
|
|
(15,661 |
) |
|
|
10,665 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
107,321 |
|
|
$ |
(30,451 |
) |
|
$ |
137,772 |
|
|
|
|
|
|
|
|
|
|
|
|||
Operating activities
For the nine months ended September 30, 2023, our operating activities provided cash of $84.9 million reflecting net income of $67.1 million and non-cash charges totaling $29.2 million primarily related to depreciation, amortization, contingent consideration fair value adjustments, deferred income taxes, non-cash interest income and stock-based compensation charges. A decrease in accounts receivable provided $8.3 million of cash and was primarily driven by lower revenue. Additionally, we had a decrease in inventory manufactured that provided $26.0 million of which $17.2 million was related to the Restructuring Plan. An increase in prepaid expenses, primarily related to prepaid taxes and subscriptions consumed $10.7 million. A decrease in accounts payable and accrued expenses consumed $36.9 million and was due to the timing of payments to vendors as well as the payment of employee bonuses related to 2022 during the nine months ended September 30, 2023. The remaining cash provided by operating activities resulted from favorable changes in various other working capital accounts.
For the nine months ended September 30, 2022, our operating activities provided cash of $110.2 million reflecting net income of $137.2 million and non-cash charges totaling $49.3 million primarily related to depreciation, amortization, contingent consideration adjustments, deferred income taxes and stock-based compensation charges. An increase in accounts receivable consumed $8.6 million of cash and was primarily driven by the 27.0% year-to-date increase in revenues. Additionally, we had an increase in inventory manufactured of $64.3 million to support expected increases in future revenue. Accounts payable decreased $10.1 million due to timing of payments to vendors.
30
Offsetting these uses of cash was a $4.1 million net increase in operating lease liabilities due to new operating leases entered into during 2022 and a $3.0 million increase in accrued liabilities due to the increase in expected costs, including corporate income taxes. The remaining cash used in operating activities resulted from unfavorable changes in various other working capital accounts.
Investing activities
Our investing activities provided $46.6 million of cash during the nine months ended September 30, 2023, primarily due to the maturity of our short-term investment in U.S. treasury securities in June 2023, which provided cash of $102.3 million. We used $27.8 million in cash (net of cash received) for the FlexBiosys Acquisition. Capital expenditures consumed $27.8 million in 2023 as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $2.7 million represented capitalized costs related to our internal-use software for the nine months ended September 30, 2023.
Our investing activities consumed $111.9 million of cash during the nine months ended September 30, 2022 mainly due to $67.0 million of capital expenditures in 2022 as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $2.6 million represented capitalized costs related to our internal-use software for the nine months ended September 30, 2022. In addition, in September 2022, the Company paid a one-time, non-refundable, non-creditable upfront payment to Daylight as required under a License Agreement for the commercialization and sale of Culpeo® QCL-IR Liquid Analyzer.
Financing activities
Our financing activities consumed $19.2 million of cash for the nine months ended September 30, 2023, primarily for $12.2 million in cash disbursed for shares withheld to cover employee income tax due upon the vesting and release of restricted stock units and the payment of $7.3 million to settle the cash portion of the First Earnout Year contingent earnout obligation related to our acquisition of Avitide in September 2021. This was partially offset by proceeds received from stock option exercises during the period.
Our financing activities consumed $13.1 million of cash during the nine months ended September 30, 2022, which included cash disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units of $15.8 million. This was partially offset by proceeds received from stock option exercises during the period of $2.8 million.
Working capital increased by $21.2 million to $615.1 million at September 30, 2023 from $593.9 million at December 31, 2022 due to the various changes noted above.
Our future capital requirements will depend on many factors, including the following:
Absent acquisitions of additional products, product candidates or intellectual property, we believe our current cash balances are adequate to meet our cash needs for at least the next 24 months from the date of this filing. We expect operating expenses for the rest of the year to increase as we continue to expand our bioprocessing business. We expect to incur continued spending related to the development and expansion of our bioprocessing product lines and expansion of our commercial capabilities for the foreseeable future.
31
Our future capital requirements may include, but are not limited to, purchases of property, plant and equipment, the acquisition of additional bioprocessing products and technologies to complement our existing manufacturing capabilities and continued investment in our intellectual property portfolio.
We plan to continue to invest in our bioprocessing business and in key R&D activities associated with the development of new bioprocessing products. We actively evaluate various strategic transactions on an ongoing basis, including acquiring products, technologies or businesses that would complement our existing portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of equity and convertible debt securities may result in dilution to our shareholders, and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, if at all.
Net Operating Loss Carryforwards
At December 31, 2022, the Company had federal net operating loss carryforwards of $42.9 million, state net operating loss carryforwards of $0.8 million and foreign net operating loss carryforwards of $4.9 million. Federal net operating loss carryforwards of $7.3 million will expire at various dates through 2037. The state net operating loss carryforwards will expire at various dates through 2041, while the foreign net operating loss carryforwards do not expire. The other $35.6 million of federal net operating loss carryforwards have unlimited carryforward periods. We had state business tax credits carryforwards of $3.8 million available to reduce future domestic income taxes. The state business tax credits carryforwards will expire at various dates through 2042. Net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service, state and foreign tax authorities and may be limited in the event of certain changes in the ownership interest of significant shareholders.
Effects of Inflation
Our assets are primarily monetary, consisting of cash, cash equivalents and marketable securities. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture, fixtures and office equipment, computer hardware and software and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and contract services, which could increase our level of expenses and the rate at which we use our resources.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position, potential impairment of future earnings, management’s strategy, plans and objectives for future operations or acquisitions, expectations and beliefs for recently-completed acquisitions, product development and sales, restructuring activities and the expected results thereof, product candidate research, development and regulatory approval, SG&A expenditures, intellectual property, development and manufacturing plans, availability of materials and product and adequacy of capital resources, our financing plans and the projected continued impact of, and response to, COVID-19 constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management’s beliefs and assumptions. The Company undertakes no obligation to publicly update or revise the statements in light of future developments. In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company’s behalf.
32
Words such as “expect,” “seek,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation, risks associated with the following: the success of current and future collaborative or supply relationships, including our agreements with Cytiva, MilliporeSigma and Purolite Life Sciences, an Ecolab Inc. company; our ability to successfully grow our bioprocessing business, including as a result of acquisitions, commercialization or partnership opportunities, and our ability to develop and commercialize products; our ability to obtain required regulatory approvals; our compliance with all U.S. Food and Drug Administration regulations, our ability to obtain, maintain and protect intellectual property rights for our products; the risk of litigation regarding our patent and other intellectual property rights; the risk of litigation with collaborative partners; our manufacturing capabilities and our dependence on third-party manufacturers and value-added resellers; our ability to hire and retain skilled personnel; the market acceptance of our products, reduced demand for our products that adversely impacts our future revenues, cash flows, results of operations and financial condition; our ability to integrate acquired businesses successfully into our business and achieve the expected benefits of the acquisitions; our ability to compete with larger, better financed life sciences companies; our history of losses and expectation of incurring losses; our ability to generate future revenues; our ability to successfully integrate our recently acquired businesses; our ability to raise additional capital to fund potential acquisitions; our volatile stock price; and the effects of our anti-takeover provisions. Further information on potential risk factors that could affect our financial results are included in the filings made by us from time to time with the SEC including under the sections entitled “Risk Factors” in our Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have historically held investments in commercial paper, U.S. treasury and government securities as well as corporate bonds and other debt securities. As a result, we have been exposed to potential loss from market risks that may occur as a result of changes in interest rates, changes in credit quality of the issuer or otherwise. Our investment portfolio consists of cash and cash equivalents (cash and money market funds) that total $630.8 million at September 30, 2023. We held marketable securities (U.S. treasury bills) of $100.3 million, which were included in short-term marketable securities on the consolidated balance sheet as of December 31, 2022. These marketable securities matured in June 2023.
Our cash equivalent investments (money market funds) have short-term maturity periods that dampen the impact of market or interest rate risk. As a result, a hypothetical 100 basis point increase in interest rates would have no effect on our cash position as of September 30, 2023.
We manage our investment portfolio in accordance with our investment policy or approval by the Board of Directors. The primary objectives of our investment policy are to preserve principal, maintain a high degree of liquidity to meet operating and other needs, and obtain competitive returns subject to prevailing market conditions without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and marketable securities in high-quality securities, including money market funds and U.S. treasury bills. The U.S. treasury bills were classified as held-to-maturity at December 31, 2022 and consequently were recorded at amortized cost on our consolidated balance sheet in accordance with accounting principles generally accepted in the United States. These marketable securities matured in June 2023. We do not expect any material loss from our marketable security investments and therefore believe that our potential interest rate exposure is limited.
Foreign Exchange Risk
The reporting currency of the Company is U.S. dollars, and the functional currency of each of our foreign subsidiaries is its respective local currency. Our foreign currency exposures include the Swedish krona, Euro, British pound, Chinese yuan, Japanese yen, Singapore dollar, South Korean won and Indian rupee; of these, the primary foreign currency exposures are the Swedish krona, Euro and Chinese yuan. Exchange gains or losses resulting from the translation between the transactional currency and the functional currency are included in net income. Fluctuations in exchange rates may adversely affect our results of operations, financial position and cash flows. We currently do not seek to hedge this exposure to fluctuations in exchange rates.
33
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the principal executive officer and the principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control
In connection with our initiative to integrate and enhance our global information technology systems and business processes, we continued the phased implementation of a new enterprise resource planning ("ERP") system. The Company is implementing the ERP system in phases through 2024. The implementation of the ERP system is expected to, among other things, automate a number of accounting and reporting processes and activities, thereby decreasing the amount of manual processes previously required. As a result of this implementation, we modified certain existing internal controls over financial reporting as well as implemented new controls and procedures related to the new ERP systems.
Other than the foregoing, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
ITEM 1A. RISK FACTORS
The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances, over many of which Repligen has little or no control. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Part I, Item 1A of our Form 10-K for the period ended December 31, 2022 and in subsequent filings, including this Quarterly Report on Form 10-Q, could cause our actual results to differ materially from those in the forward-looking statements. Other than as indicated below, there are no material changes to the risk factors described in our Form 10-K for the period ended December 31, 2022.
Our corporate restructuring and the associated headcount reduction may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
In July 2023, our Board of Directors authorized the Company's management team to undertake restructuring activities to simplify and streamline our organization and strengthen the overall effectiveness of our operations (the "Restructuring Plan"). As part of the Restructuring Plan, we are consolidating a portion of our manufacturing business between certain U.S. locations and also are reducing our headcount. We may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, our operating results and financial condition could be adversely affected. Furthermore, the Restructuring Plan may be disruptive to our operations. For example, our headcount reductions could yield unanticipated consequences, such as increased difficulties in implementing our business strategy, including retention of our remaining employees.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Since that date, SVB has announced they have been acquired by First Citizens Bank and have resumed mostly normal operations. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. If any of our lenders or counterparties to any such instruments were to be placed into receivership, we may be unable to access such funds. We have a banking relationship with SVB and hold cash, cash equivalents and marketable securities of less than $0.1 million as of September 30, 2023 in SVB depository accounts to cover short-term operational payments. While we have not experienced any losses in such accounts, the recent failure of SVB caused us to utilize our accounts at other financial institutions in order to mitigate potential operational risks stemming from the temporary inability to access funds in our SVB operating accounts. In addition, if any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program.
35
Additionally, there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the Company, the financial institutions with which the Company has credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which the Company has financial or business relationships, but could also include factors involving financial markets or the financial services industry generally. The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.
In addition, any further deterioration in the macroeconomic economy or financial services industry, could lead to losses or defaults by our suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, modified, or terminated a Rule 10(b)5-1 trading arrangement during the Company's fiscal quarter ended September 30, 2023.
36
ITEM 6. EXHIBITS
|
Exhibit Number |
|
Document Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
3.4 |
|
|
|
|
|
10.1+† |
|
|
|
|
|
10.2† |
|
|
|
|
|
31.1 + |
|
|
|
|
|
31.2 + |
|
|
|
|
|
32.1 * |
|
|
|
|
|
101.INS+ |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH+ |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL+ |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF+ |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB+ |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE+ |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104+ |
|
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). |
+ Filed herewith.
* Furnished herewith.
† Indicates a management contract or a compensatory plan, contract or arrangement.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
REPLIGEN CORPORATION |
|
|
|
|
|
Date: October 31, 2023 |
|
By: |
/S/ TONY J. HUNT
|
|
|
|
Tony J. Hunt |
|
|
|
Chief Executive Officer |
|
|
|
(Principal executive officer) |
|
|
|
Repligen Corporation |
|
|
|
|
Date: October 31, 2023 |
|
By: |
/S/ JASON K. GARLAND
|
|
|
|
Jason K. Garland |
|
|
|
Chief Financial Officer |
|
|
|
(Principal financial officer) |
|
|
|
Repligen Corporation |
38
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”) is made as of September 8, 2023 between Repligen Corporation, a Delaware corporation (the “Company”), and Olivier Loeillot (the “Executive”) and shall become effective on the first date of the Executive’s employment with the Company, which date is currently anticipated to be October 1, 2023 (such date, or another date if mutually agreed by the parties in writing, the “Effective Date”).
WHEREAS, the Company wishes to employ the Executive, and the Executive wishes to be employed, pursuant to the terms described herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
ACTIVE/123594487
2
ACTIVE/123594487
3
ACTIVE/123594487
4
ACTIVE/123594487
5
ACTIVE/123594487
6
ACTIVE/123594487
7
ACTIVE/123594487
8
ACTIVE/123594487
9
ACTIVE/123594487
[Remainder of Page Intentionally Left Blank]
10
ACTIVE/123594487
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.
REPLIGEN CORPORATION
/s/ Anthony Hunt____________________________________
By: Anthony Hunt
Its: Chief Executive Officer
EXECUTIVE
/s/ Olivier Loeillot Olivier Loeillot Exhibit A: Current Severance Plan
ACTIVE/123594487
(filed as Exhibit 10.13 to the Company Annual Report on Form 10-K for the year-ended December 31, 2022)
ACTIVE/123594487
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) / RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Tony J. Hunt, certify that:
Date: October 31, 2023 |
|
/s/ TONY J. HUNT |
Tony J. Hunt |
Chief Executive Officer |
(Principal executive officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) / RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Jason K. Garland, certify that:
Date: October 31, 2023 |
|
/s/ JASON K. GARLAND |
Jason K. Garland |
Chief Financial Officer |
(Principal financial officer) |
Exhibit 32.1*
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Repligen Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
Date: October 31, 2023 |
|
By: |
/S/ TONY J. HUNT |
|
|
|
Tony J. Hunt |
|
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Chief Executive Officer |
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(Principal executive officer) |
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Date: October 31, 2023 |
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By: |
/S/ JASON K. GARLAND |
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Jason K. Garland |
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Chief Financial Officer |
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(Principal financial officer) |
* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.