Quarterly Report (10-q)

RGEN

Repligen News

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Table of Contents

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 March 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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

☒

☐

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

☒

☐

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.:

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

☐

☒

The number of shares outstanding of the registrant’s common stock on May 4, 2020 was 52,305,744.

Table of Contents


		PAGE
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements (interim periods unaudited)
	Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019		3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019		4
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019		5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019		6
	Notes to Unaudited Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		36
Item 4.	Controls and Procedures		36
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3.	Defaults Upon Senior Securities		38
Item 4.	Mine Safety Disclosures		39
Item 5.	Other Information		39
Item 6.	Exhibits		40
Signatures			41

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.

Financial Statements

REPLIGEN CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands, except share data)


	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	529,525		$	528,392
Restricted cash		9,041			9,015
Accounts receivable, net of allowances of $658 and $525 at March 31, 2020 and December 31, 2019, respectively		44,726			43,068
Royalties and other receivables		30			148
Unbilled receivables		456			456
Inventories, net		61,781			54,832
Prepaid expenses and other current assets		5,819			5,917

Total current assets		651,378			641,828
Property, plant and equipment, net		50,373			48,455
Intangible assets, net		208,526			212,552
Goodwill		468,382			468,413
Deferred tax assets		2,904			2,920
Operating lease right of use assets		24,688			25,707
Other assets		230			238

Total assets	$	1,406,481		$	1,400,113

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,176		$	11,425
Operating lease liability		3,747			3,557
Accrued liabilities		27,930			33,331

Total current liabilities		41,853			48,313
Convertible senior notes, net		235,458			232,767
Deferred tax liabilities		29,868			29,944
Operating lease liability, long-term		27,038			26,995
Other liabilities, long-term		2,506			2,326

Total liabilities		336,723			340,345

Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.01 par value; 80,000,000 shares authorized; 52,278,083 shares at March 31, 2020 and 52,078,258 shares at December 31, 2019 issued and outstanding		523			521
Additional paid-in capital		1,074,183			1,068,431
Accumulated other comprehensive loss		(20,606	)		(15,027	)
Accumulated earnings		15,658			5,843

Total stockholders’ equity		1,069,758			1,059,768

Total liabilities and stockholders’ equity	$	1,406,481		$	1,400,113

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

REPLIGEN CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, amounts in thousands, except per share data)


	For the Three Months Ended March 31,
	2020			2019
Revenue:
Products	$	76,060		$	60,612
Royalty and other revenue		30			22

Total revenue		76,090			60,634

Costs and operating expenses:
Cost of product revenue		31,982			26,845
Research and development		4,702			3,620
Selling, general and administrative		27,500			18,998

Total costs and operating expenses		64,184			49,463

Income from operations		11,906			11,171

Other income (expenses):
Investment income		1,364			713
Interest expense		(2,976	)		(1,726	)
Other income		382			358

Other expenses, net		(1,230	)		(655	)

Income before income taxes		10,676			10,516
Income tax provision		861			2,463

Net income	$	9,815		$	8,053

Earnings per share:
Basic	$	0.19		$	0.18

Diluted	$	0.18		$	0.17

Weighted average common shares outstanding:
Basic		52,139			43,968

Diluted		53,109			46,279

Net income	$	9,815		$	8,053
Other comprehensive income (loss):
Foreign currency translation adjustment		(5,579	)		(1,891	)

Comprehensive income	$	4,236		$	6,162

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

REPLIGEN CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, amounts in thousands, except share data)


	Common Stock
	Number of Shares		Par Value		Additional Paid - In Capital		Accumulated Other Comprehensive Loss			Accumulated Earnings		Total Stockholders’ Equity
Balance at December 31, 2019		52,078,258	$	521	$	1,068,431	$	(15,027	)	$	5,843	$	1,059,768
Net income		—		—		—		—			9,815		9,815
Exercise of stock options and releases of restricted stock		199,825		2		1,587		—			—		1,589
Stock-based compensation expense		—		—		4,165		—			—		4,165
Translation adjustment		—		—		—		(5,579	)		—		(5,579	)

Balance at March 31, 2020		52,278,083	$	523	$	1,074,183	$	(20,606	)	$	15,658	$	1,069,758


	Common Stock
	Number of Shares		Par Value		Additional Paid - In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
Balance at December 31, 2018		43,917,378	$	439	$	642,590	$	(11,893	)	$	(15,568	)	$	615,568
Net income		—		—		—		—			8,053			8,053
Exercise of stock options and releases of restricted stock		156,620		2		42		—			—			44
Stock-based compensation expense		—		—		3,251		—			—			3,251
Translation adjustment		—		—		—		(1,891	)		—			(1,891	)

Balance at March 31, 2019		44,073,998	$	441	$	645,883	$	(13,784	)	$	(7,515	)	$	625,025

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

REPLIGEN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	9,815		$	8,053
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,390			4,213
Non-cash interest expense		2,691			1,107
Stock-based compensation expense		4,165			3,251
Deferred tax expense		—			892
Other		140			—
Changes in operating assets and liabilities, excluding impact of acquisitions:
Accounts receivable		(2,399	)		(6,692	)
Royalties and other receivables		148			112
Unbilled receivables		—			2,602
Inventories		(7,191	)		(1,478	)
Prepaid expenses and other assets		36			215
Operating lease right of use assets		919			784
Accounts payable		(709	)		(570	)
Accrued expenses		(4,989	)		(1,855	)
Operating lease liability		334			(840	)
Long-term liabilities		180			(6	)

Total cash provided by operating activities		9,530			9,788

Cash flows from investing activities:
Additions to capitalized software costs		(911	)		(1,740	)
Purchases of property, plant and equipment		(4,126	)		(2,088	)

Total cash used in investing activities		(5,037	)		(3,828	)

Cash flows from financing activities:
Exercise of stock options		1,599			44
Payment of tax withholding obligation on vesting of restricted stock		(10	)		—

Total cash provided by financing activities		1,589			44

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(4,923	)		(3,691	)

Net increase in cash, cash equivalents and restricted cash		1,159			2,313

Cash, cash equivalents and restricted cash, beginning of period		537,407			193,822

Cash, cash equivalents and restricted cash, end of period	$	538,566		$	196,135

Supplemental disclosure of cash flow information:
Income taxes paid	$	1,756		$	1,055
Interest paid	$	527		$	—
Supplemental disclosure of non-cash investing and financing activities:
Assets acquired under operating leases	$	17		$	—

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

REPLIGEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements included herein have been prepared by Repligen Corporation (the “Company”, “Repligen” or “we”) in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the 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 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, 2019.

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 period. Actual results could differ from those estimates.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Repligen Sweden AB, Repligen GmbH, Spectrum LifeSciences, LLC and its subsidiaries (“Spectrum”), C Technologies, Inc. (“C Technologies”

)

, and Repligen Singapore Pte. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.

Risks and Uncertainties

There are many

uncertainties

regarding the current pandemic of the novel coronavirus (“COVID-19”), and the Company is closely monitoring the impact of

COVID-19

on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. While

COVID-19

did not materially affect the Company’s financial results and business operations in the Company’s first quarter ended March 31, 2020, the Company is unable to predict the impact that COVID-19 may have on its financial position and operations moving forward due to numerous uncertainties. These estimates may change as new events occur and additional information is obtained, and actual results could differ materially from these estimates under different assumptions or conditions. The Company will continue to assess the evolving impact of COVID-19 and will make adjustments to its operations as necessary.

Recent Accounting Standards Updates

We consider the applicability and impact of all

Accounting

Standards Updates on our consolidated financial statements. Updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations. Recently issued Accounting Standards Updates that we feel may be applicable to us are as follows:

Recently Issued Accounting Standard Updates – Adopted During the Period

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. (“ASU”)

2018-13,

“Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”

ASU

2018-13

includes amendments that aim to improve the effectiveness of fair value measurement disclosures. The amendments in this guidance modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement,

“Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements

”

including the consideration of costs and benefits. The Company adopted ASU

2018-13

on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020.

In August 2018, the FASB issued ASU

2018-15,

“Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”

ASU

2018-15

aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use

software (and hosting arrangements that include an

internal-use

software license). The guidance also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The Company adopted ASU

2018-13

on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020.

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In June 2016, the FASB issued ASU

2016-13,

“

Financial Instruments-Credit Losses (Topic 326).”

ASU

2016-13

significantly

changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU

2016-13

replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments, including short-term trade receivables and contract assets, and expands disclosure requirements for credit quality of financial assets. The Company adopted ASU

2016-13

on January 1, 2020. The Company assessed all potential impacts that the adoption of this guidance has on its consolidated financial statements. Based on the composition of the Company’s investment portfolio, accounts receivable, current market conditions and historical credit loss activity, the adoption of ASU

2016-13

by the Company does not have a material impact on its consolidated financial position, results of operations or cash flows as of and for the three months ended March 31, 2020.

The Company continues to monitor processes and controls for indications of an adjustment for future economic conditions at quarterly and annual reporting periods. See Note 5,

“Credit Losses,”

below for more information on the Company’s adoption of ASC 326.

In November 2018, the FASB issued ASU

2018-18,

“Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.”

ASU

2018-18

clarifies the interaction between Topic 808,

“Collaborative Arrangements,”

and Topic 606,

“Revenue from Contracts with Customers,”

by making targeted improvements to GAAP for collaborative arrangements and providing guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. This includes improving comparability in the presentation of revenue for certain transactions between collaborative arrangement participants by allowing presentation of the units of account in collaborative arrangements that are within the scope of Topic 606 together with revenue accounted for under Topic 606. The Company adopted ASU

2018-13

on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020.

In December 2019, the FASB issued ASU

2019-12,

“

Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.”

ASU

2019-12

simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, including, but not limited to, the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, the exceptions related to the recognition of a deferred tax liability related to an equity method investment and the exception to methodology for calculating income taxes in an interim period when a

year-to-date

loss exceeds the anticipated loss for the year. The Company adopted ASU

2018-13

on January 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020.

2.	Fair Value Measurements

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 in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3 –		Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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.

As of March 31, 2020 and December 31, 2019, cash and cash equivalents on the Company’s consolidated balance sheets included $414.2 million and $415.6 million, respectively, in a money market account. These funds are valued on a recurring basis using Level 1 inputs.

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July 2019

, the Company issued $

287.5

million aggregate principal amount of the Company’s

0.375

% Convertible Senior Notes due July

2024

(the “

2019

Notes”). Interest is payable

semi-annually

in arrears on January

and July

of each year. The

2019

Notes will mature on

July 15, 2024

unless earlier converted or repurchased in accordance with their terms. As of March

2020

, the carrying value of the

2019

Notes was $

235.5

million, net of

unamortized

discount, and the fair value of the

2019

Notes was $

304.1

million. The fair value of the

2019

Notes is a Level

valuation and was determined based on the most recent trade activity of the

2019

Notes as of March

2020

. The

2019

Notes are discussed in more detail in Note

“Convertible Senior Notes”

to these consolidated financial statements.

uring the three months ended March 31, 2020

here were no remeasurements to fair value

of financial assets and liabilities that are not measured at fair value on a recurring basis.

3.	Acquisition of C Technologies, Inc.

On April 25, 2019, Repligen agreed to acquire C Technologies, pursuant to the terms of a Stock Purchase Agreement (the “Agreement”), by and among Repligen, C Technologies and Craig Harrison, an individual and sole stockholder of C Technologies (such acquisition, the “C Technologies Acquisition”).

C Technologies’ business consists of two major product categories (i) biotechnology, or Biotech, and (ii) Legacy and Other. Through its Biotech category, C Technologies sells instruments, consumables and accessories that are designed to allow bioprocessing technicians to measure the protein concentration of a liquid sample using C Technologies’ Slope Spectroscopy

method, which eliminates the need for manual sample dilution. C Technologies’ lead product, the SoloVPE instrument platform, was launched in 2008 for

off-line

and

at-line

protein concentration measurements conducted in quality control, process development and manufacturing labs in the production of biological therapeutics. C Technologies’ FlowVPE platform, an extension of the SoloVPE technology, was designed to allow end users to make

in-line

protein concentration measurements in filtration, chromatography and fill-finish applications, designed to allow for real-time process monitoring.

Consideration Transferred

The C Technologies Acquisition was accounted for as a purchase of a business under Accounting Standards Codification No. 805,

“Business Combinations”

(“ASC

805

”)

. The C Technologies Acquisition was funded through payment of approximately $195.0 million in cash, $186.0 million of which is consideration transferred pursuant to ASC 805, and $9.0 million of which will be compensation expense for future employment, and 779,221 unregistered shares of the Company’s common stock totaling $53.9 million for a total purchase price of $239.9 million. Under the acquisition method of accounting, the assets of C Technologies were

recorded as of the acquisition date, at their respective fair values, and consolidated with those of

Repligen

. The fair value of the net tangible assets acquired

was

6.8

million, the fair value of the intangible assets acquired

was

90.8

million, and the residual goodwill

was

142.3

million. The consideration and purchase price information has been prepared using a valuation

that

required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that

Repligen

believes to be reasonable

owever, actual results may differ from these estimates.

Total consideration transferred is as follows (amounts in thousands):


Cash consideration	$	185,949
Equity consideration		53,938

Fair value of net assets acquired	$	239,887

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred $4.0 million in transaction costs in 2019. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of comprehensive income. In connection with the transaction, an additional $9.0 million in cash will be due to employees based on their continued employment with the Company one year after the date of the close of the C Technologies Acquisition. For the period ended March 31, 2020, the Company recognized $2.2 million of compensation expense associated with this amount due to employees. The Company has recognized a total of $7.5 million of compensation expense associated with this amount due to employees

since the C Technologies Acquisition.

Fair Value of Net Assets Acquired

The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, based on the preliminary valuation. The Company obtains this information during due diligence and through other sources. In the months after closing, the Company may obtain additional information about these assets and liabilities as it learns more about C Technologies and will refine the estimates of fair value to more accurately allocate the purchase price. Only items identified as of

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the acquisition date are considered for subsequent adjustment. We will make appropriate adjustments to the purchase price allocation, if any, prior to the completion of the measurement period, which is up to one year from the acquisition date.

The components and allocation of the purchase price consists of the following amounts (amounts in thousands):


Cash and cash equivalents	$	3,795
Restricted cash		26,933
Accounts receivable		3,044
Inventory		3,783
Prepaid expenses and other current assets		93
Fixed assets		40
Operating lease right of use asset		3,836
Customer relationships		59,680
Developed technology		28,920
Trademark and tradename		1,570
Non-competition agreements		660
Goodwill		142,314
Deferred taxes		895
Accounts payable		(436	)
Accrued liabilities		(2,767	)
Accrued bonus		(26,928	)
Deferred revenue		(1,709	)
Operating lease liability		(51	)
Operating lease liability, long-term		(3,785	)

Fair value of net assets acquired	$	239,887

Acquired Goodwill

The goodwill of $

142.3

million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. Substantially all of the goodwill recorded is expected to be deductible for income tax purposes. Pursuant to the Company’s business combination accounting policy included in Note

“Summary of Significant Accounting Policies – Business Combinations, Goodwill and Intangible Assets,”

of our

Annual Report on Form

10-K

for the fiscal year ended December 31, 2019

the Company recorded goodwill adjustments for the effects on goodwill of changes to net assets acquired during the period that such change is identified, provided that any such change is within the measurement period (up to one year from the date of the acquisition). In

December 2019

, the Company recorded a deferred tax asset for the C Technologies Acquisition of $

0.9

million as an adjustment to goodwill. In

March 2020

, the Company recorded an additional adjustment to goodwill of $

0.3

million related to additional state income tax liabilities to be paid to the seller, which were incurred from the Company’s finalized

338

(h)

(10)

tax election.

Intangible Assets

The following table sets forth the components of the identified intangible assets associated with the C Technologies Acquisition and their estimated useful lives:


	Useful life		Fair Value
			(Amounts in thousands)
Customer relationships		17 years	$	59,680
Developed technology		18 years		28,920
Trademark and tradename		20 years		1,570
Non-competition agreements		4 years		660
			$	90,830

Revenue, Net Income and Pro Forma Presentation

The Company recorded revenue from C Technologies of $6.6 million for the three months ended March 31, 2020 and $16.4 million from May 31, 2019, the date of acquisition, to December 31, 2019. The Company recorded a net loss from C Technologies’ results of operations of $2.2 million for the three months ended March 31, 2020 and a net loss of $7.4 million from May 31, 2019 to December 31, 2019. The Company has included the operating results of C Technologies in its consolidated statements of comprehensive income since the May 31, 2019 acquisition date. The following pro forma financial information presents the

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combined results of operations of

Repligen

and C Technologies as if the acquisition had occurred on January

2019

after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the C Technologies Acquisition, factually supportable and have a recurring impact. These pro forma adjustments include amortization expense on the acquired identifiable intangible assets, adjustments to stock-based compensation expense for equity compensation issued to C Technologies employees and the income tax effect of the adjustments made. In addition, acquisition-related transaction costs and an accounting adjustment to record inventory at fair value were excluded from pro forma net income in

2019

Prior to the C Technologies Acquisition, C Technologies did not generate monthly or quarterly financial statements that were prepared in accordance with GAAP.

The following pro forma financial information does not reflect any adjustments for anticipated expense savings resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on January 1, 2019 or of future results:


	Three Months Ended March 31, 2019
Total revenue	$	66,052
Net income	$	10,664
Earnings per share:
Basic	$	0.24

Diluted	$	0.23

4.	Revenue Recognition

We generate revenue from the sale of bioprocessing products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. Under ASC 606,

“Revenue from Contracts with Customers,”

revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers.

Disaggregation of Revenue

Revenues for the three months ended March 31, 2020 and 2019 were as follows:


	Three Months Ended March 31,
	2020		2019
	(Amounts in thousands)
Product revenue	$	76,060	$	60,612
Royalty and other income		30		22

Total revenue	$	76,090	$	60,634

When disaggregating revenue, the Company considered all of the economic factors that may affect its revenues. Because 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, factors such as regulatory 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 revenues are generated from two customers; therefore, economic factors specific to these two 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 can be found in Note 15,

“Segment Reporting,”

below.

Revenue from significant customers that represent 10% or more of the Company’s total revenue is as follows:

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	Three Months Ended March 31,
	2020		2019
	(Amounts in thousands)
MilliporeSigma	$	10,873	$	9,407
GE Healthcare		N/A	$	7,666

Chromatography Products

The Company’s chromatography products include a number of products used in the downstream purification and quality control of biological drugs. The majority of chromatography revenue relates to the

OPUS

pre-packed

chromatography column line. OPUS columns typically consist of the outer hardware of the column with a resin as ordered by the customer packed inside of the column. OPUS columns may also be ordered without the packed resin. In either scenario, the OPUS column and resin are not interdependent of one another and are therefore considered distinct products that represent separate performance obligations. Chromatography product revenue is generally recognized at a point in time upon transfer of control to the customer.

Filtration Products

The Company’s filtration products generate revenue through the sale of KrosFlo

hollow fiber TFF systems, KrosFlo flat sheet TFF systems, TangenX

™

flat sheet cassettes, Spectrum

hollow fiber filters, membranes and modules, XCell ATF

™

devices and related consummables and ProConnex

single-use

flow path assemblies.

The Company’s KrosFlo systems are used in the filtration, isolation, purification and concentration of biologics and diagnostic products. TFF is a rapid and efficient method for separation and purification of biomolecules that is widely used in laboratory, process development and process scale applications in biopharmaceutical manufacturing. Sales of large-scale systems generally include components and consumables as well as training and installation services at the request of the customer. Because the initial sale of components and consumables are necessary for the operation of the system, such items are combined with the systems as a single performance obligation. Training and installation services do not significantly modify or customize these systems and therefore represent a distinct performance obligation.

The Company’s TangenX flat sheet cassettes (SIUS

™

, SIUS Gamma and SIUS Pro) are not highly interdependent on one another and are therefore considered distinct products that represent separate performance obligations. Product revenue from the sale of TangenX flat sheet cassettes are generally recognized at a point in time upon transfer of control of the customer.

The Company’s other filtration product offerings are not highly interdependent of one another and are therefore considered distinct products that represent separate performance obligations. Revenue on these products is generally recognized at a point in time upon transfer of control to the customer. The Company invoices the customer for the installation and training services in an amount that directly corresponds with the value to the customer of the Company’s performance to date; therefore, revenue recognized is based on the amount billable to the customer in accordance with the practical expedient under ASC

606-10-55-18.

The Company also markets the XCell ATF system, a technologically advanced filtration device used in upstream processes to continuously remove cellular metabolic waste products during the course of a fermentation run, freeing healthy cells to continue producing the biologic drug of interest. XCell ATF systems typically include a filtration system and consumables (i.e., tube devices, metal stands) as well as training and installation services at the request of the customer. The filtration system and consumables are considered distinct products and therefore represent separate performance obligations. First time purchasers of the systems typically purchase a controller that is shipped with the tube device(s) and metal stand(s). The controller is not considered distinct as it is a proprietary product that is highly interdependent with the filtration system; therefore, the controller is combined with the filtration system and accounted for as a single performance obligation. The training and installation services do not significantly modify or customize the XCell ATF system and therefore represent a distinct performance obligation. XCell ATF system product revenue related to the filtration system (including the controller if applicable) and consumables is generally recognized at a point in time upon transfer of control to the customer. XCell ATF system service revenue related to training and installation services is generally recognized over time, as the customer simultaneously receives and consumes the benefits as the Company performs. The Company invoices the customer for the installation and training services in an amount that directly corresponds with the value to the customer of the Company’s performance to date; therefore, revenue recognized is based on the amount billable to the customer in accordance with the practical expedient under ASC

606-10-55-18.

Process Analytics Products

On May 31, 2019, the Company consummated its acquisition of C Technologies and added a fourth franchise, Process Analytics, to its bioprocessing business. The Process Analytics franchise generates revenue primarily through the sale of the SoloVPE and FlowVPE Slope Spectroscopy systems. These products complement and support the Company’s existing Filtration, Chromatography and Proteins franchises as they allow end users to make

in-line

protein concentration measurements in filtration, chromatography and fill-finish applications, designed to allow for real-time process monitoring.

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Protein Products

The Company’s Protein franchise generates revenue through the sale of Protein A affinity ligands and growth factors. Protein A ligands are an essential component of Protein A chromatography resins (media) used in the purification of virtually all

mAb-based

drugs on the market or in development. The Company manufactures multiple forms of Protein A ligands under long-term supply agreements with major life sciences companies, who in turn sell their Protein A chromatography media to end users (biopharmaceutical manufacturers). The Company also manufactures growth factors for sale under long-term supply agreements with certain life sciences companies as well as direct sales to its customers. Each protein product is considered distinct and therefore represents a separate performance obligation. Protein product revenue is generally recognized at a point in time upon transfer of control to the customer.

Other Products

The Company’s other products include operating room products sold to hospitals. Other product revenue is generally recognized at a point in time upon transfer of control to the customer.

Transaction Price Allocated to Future Performance Obligations

Remaining performance obligations represents the transaction price of contracts for which work has not been performed or has been partially performed. The Company’s future performance obligations relate primarily to the installation and training of certain of its systems sold to customers. These performance obligations are completed within one year of receipt of a purchase order from its customers. Accordingly, the Company has elected to not disclose the value of these unsatisfied performance obligations as provided under ASC

606-10-50-14.

Contract Balances from Contracts with Customers

The following table provides information about receivables and deferred revenues from contracts with customers as of March 31, 2020 (amounts in thousands):


	2020
Balances from contracts with customers only:
Accounts receivable	$	44,726
Deferred revenue (included in accrued liabilities in the consolidated balance sheets)		6,305
Revenue recognized for the three months ended March 31, 2020 relating to:
The beginning deferred revenue balance	$	1,911
Changes in pricing related to products or services satisfied in previous periods		—

The timing of revenue recognition, billings and cash collections results in the accounts receivables and deferred revenue balances on the Company’s consolidated balance sheets. There were no impairment losses recognized on receivables during the three months ended March 31, 2020 or for the same period in 2019.

A contract asset is created when the Company satisfies a performance obligation by transferring a promised good to the customer. Contract assets may represent conditional or unconditional rights to consideration. The right is conditional, and recorded as a contract asset, if the Company must first satisfy another performance obligation in the contract before it is entitled to payment from the customer. Contract assets are transferred to billed receivables once the right becomes unconditional. If the Company has the unconditional right to receive consideration from the customer, the contract asset is accounted for as a billed receivable and presented separately from other contract assets. A right is unconditional if nothing other than the passage of time is required before payment of that consideration is due.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

Costs to Obtain or Fulfill a Customer Contract

The Company’s sales commission structure is based on achieving revenue targets. The commissions are driven by revenue derived from customer purchase orders which are short term in nature.

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Applying the practical expedient in paragraph

340-40-25-4,

the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses. When shipping and handling costs are incurred after a customer obtains control of the products, the Company accounts for these as costs to fulfill the promise and not as a separate performance obligation.

5.	Credit L o s ses

Effective January 1, 2020, the Company adopted ASU

2016-13,

“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”

prospectively. ASU

2016-13

replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The guidance requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due. Upon adoption, changes in the allowance were not material for the transition period starting January 1, 2020 through the three months ended March 31, 2020.

The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ trade accounts receivables. Customers are pooled based on sharing specific risk factors, including geographic location. Due to the short-term nature of such receivables, the estimated accounts receivable that may not be collected is based on aging of the accounts receivable balances.

Customers are assessed for credit worthiness upfront through a credit review, which includes assessment based on our analysis of their financial statements when a credit rating is not available. The Company evaluates contract terms and conditions, country and political risk, and may require prepayment to mitigate risk of loss. Specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company monitors changes to the receivables balance on timely basis, and balances are written off as they are determined to be uncollectable after all collection efforts have been exhausted. Estimates of potential credit losses are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.

The accounts receivable balance on our consolidated balance sheet as of March 31, 2020 was $44.7 million, net of $0.7 million of allowances. Changes in the allowance were not material for the three months ended March 31, 2020. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected (amounts in thousands):


	2020
Balance at January 1, 2020	$	(525	)
Current period change for expected credit losses		(133	)

Balance at March 31, 2020	$	(658	)

6.	Goodwill and Intangible Assets

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350. The following table represents the change in the carrying value of goodwill for the three months ended March 31, 2020 (amounts in thousands):


Balance as of December 31, 2019	$	468,413
Goodwill adjustment related to C Technologies, Inc.		293
Cumulative translation adjustment		(324	)

Balance as of March 31, 2020	$	468,382

During each of the fourth quarters of 2019, 2018 and 2017, we completed our annual impairment 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 months ended March 31, 2020.

Intangible Assets

Intangible assets with a definitive life are amortized over their useful lives using the straight-line method, and the amortization expense is recorded within cost of product revenue and selling, general and administrative expense

in the Company’s statements of comprehensive income. Intangible assets and their related useful lives are reviewed at least annually to determine if any

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adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at March 31, 2020.

Indefinite-lived assets are reviewed for impairment at least annually. There has been no impairment of our intangible assets for the periods presented.

Intangible assets, net consisted of the following at March 31, 2020:


	March 31, 2020
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in years)
	(Amounts in thousands)
Finite-lived intangible assets:
Technology—developed	$	82,095	$	(10,725	)	$	71,370		19
Patents		240		(240	)		—		8
Customer relationships		160,425		(27,970	)		132,455		15
Trademarks		3,752		(380	)		3,372		20
Other intangibles		1,696		(1,067	)		629		3

Total finite-lived intangible assets		248,208		(40,382	)		207,826		16
Indefinite-lived intangible asset:
Trademarks		700		—			700		—

Total intangible assets	$	248,908	$	(40,382	)	$	208,526

Intangible assets consisted of the following at December 31, 2019:


	December 31, 2019
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in years)
	(Amounts in thousands)
Finite-lived intangible assets:
Technology—developed	$	82,169	$	(9,669	)	$	72,500		19
Patents		240		(240	)		—		8
Customer relationships		160,825		(25,642	)		135,183		15
Trademarks		3,752		(333	)		3,419		20
Other intangibles		1,697		(947	)		750		3

Total finite-lived intangible assets		248,683		(36,831	)		211,852		16
Indefinite-lived intangible asset:
Trademarks		700		—			700		—

Total intangible assets	$	249,383	$	(36,831	)	$	212,552

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The increase in intangible assets during 2019 is related to the acquisition of C Technologies on May 31, 2019. See Note 3,

“Acquisition of C Technologies, Inc.”

for more information.

Amortization expense for finite-lived intangible assets was $

3.9

million and $

2.6

million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, the Company expects to record the following amortization expense (amounts in thousands):


	Estimated
	Amortization
For the Three Months Ended March 31,	Expense
2020 (remaining nine months)	$	11,348
2021		14,728
2022		14,726
2023		14,630
2024		14,188
2025 and thereafter		138,206

Total	$	207,826

7.	Consolidated Balance Sheet Detail

Inventories, net

Inventories, net consists of the following:


	As of
	March 31,		December 31,
	2020		2019
	(Amounts in thousands)
Raw materials	$	34,752	$	29,328
Work-in-process		7,227		8,360
Finished products		19,802		17,144

Total inventories, net	$	61,781	$	54,832

Property, Plant and Equipment

Property, plant and equipment consist of the following:


	As of
	March 31,			December 31,
	2020			2019
	(Amounts in thousands)
Land	$	1,023		$	1,023
Buildings		764			764
Leasehold improvements		28,652			23,905
Equipment		36,987			36,257
Furniture, fixtures and office equipment		6,441			6,312
Computer hardware and software		9,007			8,810
Construction in progress		4,703			6,707
Other		50			56

Total property, plant and equipment		87,627			83,834
Less—Accumulated depreciation		(37,254	)		(35,379	)

Total property, plant and equipment, net	$	50,373		$	48,455

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Depreciation expenses totaled $2.5 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively.

Accrued Liabilities

Accrued liabilities consist of the following:


	As of
	March 31,		December 31,
	2020		2019
	(Amounts in thousands)
Employee compensation	$	16,770	$	19,850
Taxes		2,148		3,874
Royalty and license fees		887		123
Warranties		762		1,500
Professional fees		546		1,081
Deferred revenue		6,305		5,005
Other		512		1,898

Total accrued liabilities	$	27,930	$	33,331

8.	Convertible Senior Notes

0.375% Convertible Senior Notes due 2024

On July 19, 2019, the Company issued $287.5 million aggregate principal amount of 0.375% Convertible Senior Notes due 2024 (“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. The initial conversion rate for the 2019 Notes is 8.6749 shares of the Company’s common stock per $1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of approximately $115.28 per share). Prior to the close of business on the business day immediately preceding April 15, 2024, the 2019 Notes will be convertible at the option of the holders of 2019 Notes only upon the satisfaction of specified conditions and during certain periods. Thereafter until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2019 Notes will be convertible at the options of the holders of 2019 Notes at any time regardless of these conditions. Conversion of the 2019 Notes will be settled in cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. The 2019 Notes are not redeemable by the Company prior to maturity.

Holders of 2019 Notes may require the Company to repurchase their 2019 Notes upon the occurrence of a fundamental change prior to maturity at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events, the Company will, under certain circumstances, increase the conversion rate for holders of 2019 Notes who elect to convert their 2019 Notes in connection with such corporate events.

As of March 31, 2020, the conditions allowing holders of the 2019 Notes to convert have not been met and therefore the 2019 Notes are not yet convertible and are recorded as a long-term liability in our consolidated balance sheet at March 31, 2020.

o 2019 Notes were converted by the holders of such notes in the first quarter of 2020. In the event the closing price conditions are met in the second quarter of 2020 or a future fiscal quarter, the 2019 Notes will be convertible at a holder’s option during the immediately following fiscal quarter.

The Company accounts for the 2019 Notes as separate liability and equity components. We determined the carrying amount of the liability component as the present value of its cash flows using a discount rate of 4.5% based on comparative convertible transactions for similar companies. The proceeds allocated to the debt conversion feature were $52.1 million. This amount was calculated by deducting the carrying value of the liability component from the principal amount of the 2019 Notes as a whole. The difference represents a debt discount that is amortized to interest expense on our consolidated statement of comprehensive income over the term of the 2019 Notes using the effective interest rate method. The Company will assess the equity classification of the cash conversion feature quarterly, and it is not

re-measured

as long as it continues to meet the conditions for equity classification.

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The Company

allocate

transaction costs related to the issuance of the 2019 Notes to the liability and equity components using the same proportions as the initial carrying value of the 2019 Notes. Transaction costs related to the liability component were $7.4 million and are being amortized to interest expense using the effective interest method over the term of the 2019 Notes. Transaction costs attributable to the equity component were $1.6 million and are netted with the equity component of the 2019 Notes in stockholders’ equity of our consolidated balance sheet at March 31, 2020.

The net carrying value of the liability component of the 2019 Notes is as follows:


	As of
	March 31,			December 31,
	2020			2019
	(Amounts in thousands)
0.375% convertible senior notes due 2024:
Principal amount	$	287,500		$	287,500
Less: unamortized debt discount		(45,565	)		(47,921	)
Less: unamortized debt issuance costs		(6,477	)		(6,812	)

Total debt		235,458			232,767
Less: current portion		—			—

Net carrying amount	$	235,458		$	232,767

The net carrying value of the equity component of the 2019 Notes is as follows:


	March 31,			December 31,
	2020			2019
	( Amounts in thousands)
Proceeds allocated to the conversion feature	$	52,062		$	52,062
Less: transaction costs allocated to the conversion feature		(1,621	)		(1,621	)
Less: deferred taxes		(11,371	)		(11,371	)

Net carrying value	$	39,070		$	39,070

Interest expense recognized on the 2019 Notes for the three months ended March 31, 2020 was $0.3 million, $2.4 million and $0.3 million for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. The effective interest rate on the 2019 Notes is 5.1%, which included the interest on the 2019 Notes, amortization of the debt discount and debt issuance costs. As of March 31, 2020, the carrying value of the 2019 Notes was $235.5 million and the fair value of the principal was $304.1 million. The fair value of the 2019 Notes was determined based on the most recent trade activity of the 2019 Notes as of March 31, 2020.

Conversion of the 2.125% Convertible Senior Notes due 2021

The Company utilized a portion of the proceeds from the issuance of the 2019 Notes to settle its outstanding 2.125% Convertible Senior Notes due 2021 (the “2016 Notes”) during the third quarter of 2019. On July 16, 2019, the Company entered into separate privately negotiated agreements with certain holders of the 2016 Notes to exchange an aggregate of $92.0 million principal aggregate amount of the 2016 Notes for shares of the Company’s common stock, together with cash, in private placement transactions (the “Note Exchanges”). On July 19, 2019 and July 22, 2019, the Company used approximately $92.3 million (including $0.3 million of accrued interest) and 1,850,155 shares of its common stock valued at $161.0 million to settle the Note Exchanges for total consideration of $253.3 million, of which $163.6 million was allocated to reacquiring the equity component of the 2016 Notes. The Company allocated the consideration transferred to the liability and equity components using the same proportions as the initial carrying value of the 2016 Notes. The transaction resulted in a loss on extinguishment of debt of $4.6 million in the Company’s consolidated statements of comprehensive income in 2019.

On July 19, 2019, the Company issued a Notice of Redemption in respect of the 2016 Notes, which provided that, on September 23, 2019, the Company would redeem all 2016 Notes that had not been converted, repurchased or exchanged prior to such date at a redemption price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest. On September 23, 2019, the Company used $23.0 million and 466,045 shares of its common stock valued at $37.8 million to settle the remaining 2016 Notes for a total of $60.8 million, of which $38.3 million was allocated to reacquiring the equity component of the 2016 Notes. This transaction resulted in a loss on extinguishment of debt of $1.1 million recorded on the Company’s consolidated statements of comprehensive income. The total loss in 2019 of $5.7 million represents the difference between the fair value of the liability component of the 2016 Notes and its related carrying value immediately before the exchange.

The fair value of the liability component was calculated using a discounted cash flow technique with an effective interest rate of 3.9%, representing the estimated nonconvertible debt borrowing rate with a maturity as of the measurement date consistent with the 2016 Notes maturity date of June 1, 2021. In addition, in accordance with this guidance, a portion of the fair value of the

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consideration transferred is allocated to the reacquisition of the equity component, which is the difference between the fair value of the consideration transferred and the fair value of the liability component immediately before the exchange. As a result, on a gross basis, $200.1 million was allocated to the reacquisition of the equity component of the original instrument, which is recorded net of deferred taxes within additional

paid-in

capital on the Company’s consolidated balance sheet.

The cash conversion feature of the 2016 Notes required bifurcation from the 2016 Notes and was initially accounted for as an equity instrument classified to stockholders’ equity, as the conversion feature was determined to be clearly and closely related to the Company’s stock. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and asset base and with similar maturity, the Company estimated the implied interest rate, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the 2016 Notes, which resulted in a fair value of the liability component of $96.3 million upon issuance, calculated as the present value of implied future payments based on the $115.0 million aggregate principal amount. The equity component of the 2016 Notes was recognized as a debt discount, recorded in additional

paid-in

capital, and represents the difference between the aggregate principal of the 2016 Notes and the fair value of the 2016 Notes without conversion option on their issuance date. The debt discount was amortized to interest expense using the effective interest method over five years, or the life of the 2016 Notes.

Interest expense recognized on the 2016 Notes for the three months ended March 31, 2019 was $0.6 million, $0.9 million and $0.2 million for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. The effective interest rate on the 2016 Notes was 6.6%, which included the interest on the 2016 Notes, amortization of the debt discount and debt issuance costs.

9.	Stockholders’ Equity

Public Offerings of Common Stock

On July 19, 2019, the Company completed a public offering in which 1,587,000 shares of its common stock, including the underwriters’ exercise in full of an option to purchase an additional 207,000 shares, were sold to the public at a price of $87.00 per share (the “Stock Offering”). The net proceeds of the Stock Offering, after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $131.1 million.

On May 3, 2019, the Company completed a public offering in which 3,144,531 shares of its common stock, which includes the underwriters’ exercise in full of an option to purchase up to an additional 410,156 shares, were sold to the public at a price of $64.00 per share. The total proceeds received by the Company from this offering, net of underwriting discounts and commissions and other estimated offering expenses payable by the Company, totaled approximately $189.6 million.

Stock Option and Incentive Plans

At our 2018 annual meeting of shareholders held on May 16, 2018, our shareholders approved the 2018 Stock Option and Incentive Plan (the “2018 Plan”). Under the 2018 Plan the number of shares of our common stock that are reserved and available for issuance is 2,778,000 plus the number of shares of common stock available for issuance under our Amended and Restated 2012 Stock Option and Incentive Plan (the “2012 Plan”). The shares of common stock underlying any awards under the 2018 Plan and 2012 Plan (

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. At March 31, 2020, 2,419,406 shares were available for future grant under the 2018 Plan.

Stock-Based Compensation

For the three months ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense of $4.2 million and $3.3 million, respectively, for share-based awards granted under the Plans. The following table presents stock-based compensation expense in the Company’s consolidated statements of comprehensive income:

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	Three Months Ended March 31,
	2020		2019
	(Amounts in thousands)
Cost of product revenue	$	433	$	324
Research and development		372		321
Selling, general and administrative		3,360		2,606

Total stock-based compensation	$	4,165	$	3,251

The 2018 Plan allows for the granting of incentive and nonqualified options to purchase shares of common stock, restricted stock and other equity awards. Employee grants under the Plans generally vest over a three to five-year period, with

20%-33%

vesting on the first anniversary of the date of grant and the remainder vesting in equal yearly installments thereafter. Nonqualified options issued to

non-employee

directors and consultants under the Plans generally vest over one year. In the first quarter of 2018, to create a longer-term retention incentive, the Company’s Compensation Committee granted long-term incentive compensation awards to its Chief Executive Officer consisting of both stock options and restricted stock units

(

“

RSU

s”

)

that are subject to time-based vesting over nine years. Options granted under the Plans have a maximum term of ten years from the date of grant and generally, the exercise price of the stock options equals the fair market value of the Company’s common stock on the date of grant. At March 31, 2020, options to purchase 915,518 shares and 716,630 stock units were outstanding under the Plans.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards on the grant date, and the Company uses the value of the common stock as of the grant date to value RSUs. The Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. The Company recognizes expense on awards with service-based vesting over the employee’s requisite service period on a straight-line basis. In the third quarter of 2017, the Company issued performance stock units to certain employees related to the Spectrum Acquisition which were tied to the achievement of certain 2018 revenue and gross margin metrics and the passage of time. Additionally, in the first quarter of 2018 and again in the first quarter of 2019, the Company issued performance stock units to certain individuals which are tied to the achievement of certain annual revenue and return on invested capital metrics. The Company recognizes expense on performance-based awards over the vesting period based on the probability that the performance metrics will be achieved. The Company recognizes stock-based compensation expense for options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted for estimated forfeitures.

Information regarding option activity for the three months ended March 31, 2020 under the Plans is summarized below:


	Shares			Weighted average exercise price		Weighted- Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Options outstanding at December 31, 2019		957,559		$	30.81
Granted		25,836		$	86.10
Exercised		(67,877	)	$	23.56
Forfeited/expired/cancelled		—		$	—

Options outstanding at March 31, 2020		915,518		$	32.91		6.64	$	58,257

Options exercisable at March 31, 2020		555,159		$	26.77		5.65	$	38,734

Vested and expected to vest at March 31, 2020 (1)		885,461					6.59	$	56,522

(1)

Represents the number of vested options as of March 31, 2020 plus the number of unvested options expected to vest as of March 31, 2020 based on the unvested outstanding options at March 31, 2020 adjusted for estimated forfeiture rates of 8% for awards granted to

non-executive

level employees and 3% for awards granted to executive level employees.

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 March 31, 2020, the last business day of the first quarter of 2020, of $96.54 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 March 31, 2020. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2020 and 2019 was $4.7 million and $0.1 million, respectively.

The weighted average grant date fair value of options granted during the three months ended March 31, 2020 and 2019 was $41.77 and $30.21, respectively. The total fair value of stock options that vested during the three months ended March 31, 2020 and 2019 was $2.0 million and $2.2 million, respectively.

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The fair value of stock units is calculated using the closing price of the Company’s common stock on the date of grant. Information regarding stock unit activity, which includes activity for restricted stock units and performance stock units, for the three months ended March 31, 2020 under the Plans is summarized below:

Weighted-
Average
Remaining
Contractual
Term

(in Years)

Aggregate
Intrinsic Value

(in Thousands)

Unvested at December 31, 2019

734,984

Awarded

127,286

Vested

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company