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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 June 30, 2020
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 July 27, 2020 was 52,502,590.
 
 
 
Table of Contents
 
 
  
PAGE
 
  
      
     
Item 1.
 
  
      
     
 
 
  
 
3
 
     
 
 
  
 
4
 
     
 
 
  
 
5
 
     
 
 
  
 
7
 
     
 
 
  
 
8
 
     
Item 2.
 
  
 
26
 
     
Item 3.
 
  
 
37
 
     
Item 4.
 
  
 
38
 
   
  
      
     
Item 1.
 
  
 
39
 
     
Item 1A.
 
  
 
39
 
     
Item 2.
 
  
 
39
 
     
Item 3.
 
  
 
39
 
     
Item 4.
 
  
 
39
 
     
Item 5.
 
  
 
39
 
     
Item 6.
 
  
 
40
 
   
  
 
41
 
 
2
PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except share data)
 
    
June 30,
    
December 31,
  
    
2020
    
2019
  
Assets
     
Current assets:
     
Cash and cash equivalents
    $ 560,364     $ 528,392  
Restricted cash
      —         9,015  
Accounts receivable, net of allowances of $538 and $525 at June 30, 2020 and December 31, 2019, respectively
      48,779       43,068  
Royalties and other receivables
      61       148  
Unbilled receivables
      456       456  
Inventories, net
      69,929       54,832  
Prepaid expenses and other current assets
      7,568       5,917  
  
 
 
    
 
 
  
Total current assets
      687,157       641,828  
Property, plant and equipment, net
      52,451       48,455  
Intangible assets, net
      204,741       212,552  
Goodwill
      468,725       468,413  
Deferred tax assets
      4,831       2,920  
Operating lease right of use assets
      23,830       25,707  
Other assets
      310       238  
  
 
 
    
 
 
  
Total assets
    $ 1,442,045     $ 1,400,113  
  
 
 
    
 
 
  
Liabilities and Stockholders’ Equity
     
Current liabilities:
     
Accounts payable
    $ 13,902     $ 11,425  
Operating lease liability
      3,970       3,557  
Accrued liabilities
      26,529       33,331  
  
 
 
    
 
 
  
Total current liabilities
      44,401       48,313  
Convertible senior notes, net
      238,183       232,767  
Deferred tax liabilities
      29,948       29,944  
Operating lease liability, long-term
      26,263       26,995  
Other liabilities, long-term
      3,223       2,326  
  
 
 
    
 
 
  
Total liabilities
      342,018       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; 52,494,884 shares at June 30, 2020 and 52,078,258 shares at December 31, 2019 issued and outstanding
      525       521  
Additional
paid-in
capital
      1,082,096       1,068,431  
Accumulated other comprehensive loss
      (14,113 )      (15,027 ) 
Accumulated earnings
      31,519       5,843  
  
 
 
    
 
 
  
Total stockholders’ equity
      1,100,027       1,059,768  
  
 
 
    
 
 
  
Total liabilities and stockholders’ equity
    $ 1,442,045     $ 1,400,113  
  
 
 
    
 
 
  
The accompanying notes are an integral part of these consolidated financial statements.
 
3
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, amounts in thousands, except per share data)
 
    
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
    
2020
    
2019
    
2020
    
2019
  
Revenue:
         
Products
    $ 87,432     $ 70,670     $ 163,492     $ 131,282  
Royalty and other revenue
      30       22       60       44  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total revenue
      87,462       70,692       163,552       131,326  
  
 
 
    
 
 
    
 
 
    
 
 
  
Costs and operating expenses:
           
Cost of product revenue
      36,863       30,708       68,845       57,553  
Research and development
      4,336       5,231       9,038       8,851  
Selling, general and administrative
      26,726       23,699       54,226       42,697  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total costs and operating expenses
      67,925       59,638       132,109       109,101  
  
 
 
    
 
 
    
 
 
    
 
 
  
Income from operations
      19,537       11,054       31,443       22,225  
  
 
 
    
 
 
    
 
 
    
 
 
  
Other income (expenses):
           
Investment income
      253       1,005       1,617       1,718  
Interest expense
      (3,004 )      (1,743 )      (5,980 )      (3,469 ) 
Other expenses
      (766 )      (697 )      (384 )      (339 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
Other expenses, net
      (3,517 )      (1,435 )      (4,747 )      (2,090 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
Income before income taxes
      16,020       9,619       26,696       20,135  
Income tax provision
      159       1,524       1,020       3,987  
  
 
 
    
 
 
    
 
 
    
 
 
  
Net income
    $ 15,861     $ 8,095     $ 25,676     $ 16,148  
  
 
 
    
 
 
    
 
 
    
 
 
  
Earnings per share:
           
Basic
    $ 0.30     $ 0.17     $ 0.49     $ 0.36  
  
 
 
    
 
 
    
 
 
    
 
 
  
Diluted
    $ 0.30     $ 0.17     $ 0.48     $ 0.34  
  
 
 
    
 
 
    
 
 
    
 
 
  
Weighted average common shares outstanding:
           
Basic
      52,381       46,367       52,260       45,174  
  
 
 
    
 
 
    
 
 
    
 
 
  
Diluted
      53,306       49,056       53,213       47,692  
  
 
 
    
 
 
    
 
 
    
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
    $ 15,861     $ 8,095     $ 25,676     $ 16,148  
Other comprehensive income (loss):
           
Foreign currency translation adjustment
      6,493       (1,269 )      914       (3,160 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income
    $ 22,354     $ 6,826     $ 26,590     $ 12,988  
  
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these consolidated financial statements.
 
4
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, amounts in thousands, except share data)
 
    
Six Months Ended June 30, 2020
  
    
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
      —          —          —          —         25,676       25,676  
Exercise of stock options and vesting of stock units
      416,626        4        5,398        —         —         5,402  
Stock-based compensation expense
      —          —          8,267        —         —         8,267  
Translation adjustment
      —          —          —          914       —         914  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance as of June 30, 2020
      52,494,884      $ 525      $ 1,082,096      $ (14,113 )    $ 31,519     $ 1,100,027  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
 
 
 
    
Three Months Ended June 30, 2020
  
    
Common Stock
                            
    
Number of
Shares
     
Par
Value
     
Additional
Paid-
In Capital
     
Accumulated
Other
Comprehensive
Loss
    
Accumulated
Earnings
    
Total
Stockholders’
Equity
  
Balance at March 31, 2020
      52,278,083      $ 523      $ 1,074,183      $ (20,606 )    $ 15,658     $ 1,069,758  
Net income
      —          —          —          —         15,861       15,861  
Exercise of stock options and vesting of stock units
      216,801        2        3,811        —         —         3,813  
Stock-based compensation expense
      —          —          4,102        —         —         4,102  
Translation adjustment
      —          —          —          6,493       —         6,493  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance as of June 30, 2020
      52,494,884      $ 525      $ 1,082,096      $ (14,113 )    $ 31,519     $ 1,100,027  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
    
Six Months Ended June 30, 2019
  
    
Common Stock
                            
    
Number of
Shares
     
Par
Value
     
Additional
Paid-
In Capital
     
Accumulated
Other
Comprehensive
Loss
    
Accumulated
(Deficit)/Earnings
    
Total
Stockholders’
Equity
  
Balance at December 31, 2018
      43,917,378      $ 439      $ 642,590      $ (11,893 )    $ (15,568 )    $ 615,568  
Net income
      —          —          —          —         16,148       16,148  
Issuance of common stock for debt conversion
      29        0        2        —         —         2  
Exercise of stock options and vesting of stock units
      245,263        3        563        —         —         566  
Issuance of common stock pursuant to the acquisition
 
of
C Technologies, Inc.
      779,221        8        53,930        —         —         53,938  
Proceeds from issuance of common stock, net of issuance
 
cost of
$0.5 million
      3,144,531        31        189,592        —         —         189,623  
Stock-based compensation expense
      —          —          6,283        —         —         6,283  
Translation adjustment
      —          —          —          (3,160 )      —         (3,160 ) 
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance as of June 30, 2019
      48,086,422      $ 481      $ 892,960      $ (15,053 )    $ 580     $ 878,968  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
5
    
Three Months Ended June 30, 2019
  
    
Common Stock
                            
    
Number of
Shares
     
Par
Value
     
Additional
Paid-
In Capital
     
Accumulated
Other
Comprehensive
Loss
    
Accumulated
(Deficit)/Earnings
    
Total
Stockholders’
Equity
  
Balance at March 31, 2019
      44,073,998      $ 441      $ 645,883      $ (13,784 )    $ (7,515 )    $ 625,025  
Net income
      —          —          —          —         8,095       8,095  
Issuance of common stock for debt conversion
      29        0        2        —         —         2  
Exercise of stock options and
vesting
of stock units
      88,643        1        522        —         —         523  
Issuance of common stock pursuant to the acquisition of
C Technologies
      779,221        8        53,930        —         —         53,938  
Proceeds from issuance of common stock, net of issuance cost of $0.5 million
      3,144,531        31        189,592        —         —         189,623  
Stock-based compensation expense
      —          —          3,031        —         —         3,031  
Translation adjustment
      —          —          —          (1,269 )      —         (1,269 ) 
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance as of June 30, 2019
      48,086,422      $ 481      $ 892,960      $ (15,053 )    $ 580     $ 878,968  
  
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these consolidated financial statements.
 
6
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
 
    
Six Months Ended
June 30,
  
    
2020
    
2019
  
Cash flows from operating activities:
     
Net income
    $ 25,676     $ 16,148  
Adjustments to reconcile net income to net cash provided by operating activities:
     
Depreciation and amortization
      12,869       9,053  
Non-cash
interest expense
      5,415       2,231  
Stock-based compensation expense
      8,267       6,283  
Deferred income taxes, net
     
(1,912
)
     889  
Other
      143       3  
Changes in operating assets and liabilities, excluding impact of acquisitions:
     
Accounts receivable
      (6,013 )      (7,317 ) 
Royalties and other receivables
      184       114  
Unbilled receivables
      —         2,142  
Inventories
      (14,964 )      (4,137 ) 
Prepaid expenses and other assets
      (1,633 )      114  
Operating lease right of use assets
      1,844       1,206  
Other assets
      (76 )      (65 ) 
Accounts payable
      2,884       495  
Accrued expenses
      (7,012 )      1,642  
Operating lease liability
      (304 )      (1,216 ) 
Long-term liabilities
      897       (8 ) 
  
 
 
    
 
 
  
Total cash provided by operating activities
      26,265       27,577  
  
 
 
    
 
 
  
Cash flows from investing activities:
     
Acquisition of C Technologies, Inc., net of cash acquired
      —         (182,176 ) 
Additions to capitalized software costs
      (2,226 )      (3,282 ) 
Purchases of property, plant and equipment
      (7,291 )      (5,847 ) 
  
 
 
    
 
 
  
Total cash used in investing activities
      (9,517 )      (191,305 ) 
  
 
 
    
 
 
  
Cash flows from financing activities:
     
Exercise of stock options and vesting of stock units
      5,412       566  
Payment of tax withholding obligation on vesting of restricted stock
      (10 )      —    
Proceeds from issuance of common stock, net
      —         189,623  
Repayment of senior convertible notes
      —         (17 ) 
  
 
 
    
 
 
  
Total cash provided by financing activities
      5,402       190,172  
  
 
 
    
 
 
  
Effect of exchange rate changes on cash, cash equivalents and restricted cash
      807       (2,449 ) 
  
 
 
    
 
 
  
Net increase in cash, cash equivalents and restricted cash
      22,957       23,995  
  
 
 
    
 
 
  
Cash, cash equivalents and restricted cash, beginning of period
      537,407       193,822  
  
 
 
    
 
 
  
Cash, cash equivalents and restricted cash, end of period
    $ 560,364     $ 217,817  
  
 
 
    
 
 
  
Supplemental disclosure of
non-cash
investing and financing activities:
     
Assets acquired under operating leases
    $ 17     $ —    
 
 
 
 
 
 
 
 
 
Fair value of common stock issued for acquisition of C Technologies, Inc.
    $ —       $ 53,938  
  
 
 
    
 
 
  
The accompanying notes are an integral part of these consolidated financial statements.
 
7
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 three and six months ended June 30, 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
the Company’s
consolidated financial statements. Updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on
the Company’s
consolidated financial position or results of operations. Recently issued Accounting Standards Updates that we feel may be applicable to
the Company
 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 and six months ended June 30, 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
 
8
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 and six months ended June 30, 2020.
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 did not have a material impact on its consolidated financial position, results of operations or cash flows as of and for the three and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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.
 
9
As of June 30, 2020 and December 31, 2019, cash and cash equivalents on the Company’s consolidated balance sheets included $418.5 million and $415.6 million, respectively, in a money market account. These funds are valued on a recurring basis using Level 1 inputs.
In July 2019, the Company issued $287.5 million aggregate principal amount of the Company’s 0.375% Convertible Senior Notes due July 15, 2024 (the “2019 Notes”). Interest is payable semi-annually in arrears on January 15 and July 15 of each year. The 2019 Notes will mature on July 15, 2024 unless earlier converted or repurchased in accordance with their terms. As of June 30, 2020, the carrying value of the 2019 Notes was $238.2 million, net of unamortized discount, and the fair value of the 2019 Notes was $364.0 million. The fair value of the 2019 Notes is a Level 1 valuation and was determined based on the most recent trade activity of the 2019 Notes as of June 30, 2020. The 2019 Notes are discussed in more detail in Note 8,
“Convertible Senior Notes”
to these consolidated financial statements.
During the three and six months ended June 30, 2020, there 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 May 31, 2019, Repligen acquired 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”).
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 for the six months ended June 30, 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 was paid to employees in the quarter ended June 30, 2020, based on their continued employment with the Company one year after the date of the close of the C Technologies Acquisition. For the three
 and six
months ended June 30, 2020, the Company recognized
$1.5 million and
$3.7 million of compensation expense associated with this amount due to employees. The Company has recognized a total of $9.0 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 obtained this information during due diligence and through other sources. In the months after closing, the Company obtained additional information about these assets and liabilities as it learned more about C Technologies. The Company refined the estimates of fair value to more accurately allocate the purchase price. Only items identified as of the acquisition date were considered for subsequent adjustment. We made appropriate adjustments to the purchase price allocation during the measurement period, which was one year from the acquisition date. The components and allocation of the purchase price consists of the following amounts (amounts in thousands):
 
10
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 2,
“
Summary of Significant Accounting Policies – Business Combinations, Goodwill and Intangible Assets,
”
of
the Company’s
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 March 2020, the Company recorded an 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.
Revenue, Net Income and Pro Forma Presentation
The Company recorded revenue from C Technologies of $7.7 million and $14.3 million for the three and six months ended June 30, 2020, respectively, 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 $0.7 million and $2.9 million for the three and six months ended June 30, 2020, respectively, 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 combined results of operations of Repligen and C Technologies as if the acquisition had occurred on January 1, 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.
 
11
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 (amounts in thousands, except per share data):
 
    
Six Months Ended
June 30, 2019
  
Total revenue
    $ 140,515  
Net income
    $ 20,560  
Earnings per share:
   
Basic
    $ 0.46  
  
 
 
  
Diluted
    $ 0.43  
  
 
 
  
 
4.
Revenue Recognition
The Company generates
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 and six months ended June 30, 2020 and 2019 were as follows:
 
    
Three Months
 
Ended
     
Six Months Ended
  
    
June 30,
     
June 30,
  
    
2020
     
2019
     
2020
     
2019
  
    
(Amounts in thousands)
  
Product revenue
    $ 87,432      $ 70,670      $ 163,492      $ 131,282  
Royalty and other income
      30        22        60        44  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total revenue
    $ 87,462      $ 70,692      $ 163,552      $ 131,326  
  
 
 
     
 
 
     
 
 
     
 
 
  
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:
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2020
     
2019
     
2020
     
201
9
  
    
(Amounts in thousands)
  
Cytiva (formerly GE Healthcare)
    $ 10,479      $ 11,083      $ 16,606      $ 18,749  
MilliporeSigma
    $ 10,674      $ 9,487      $ 21,566      $ 18,894  
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 are designed to be disposable following a production campaign. Each OPUS column is delivered
pre-packaged
with the customer’s choice of chromatography resin, which is either provided by the Company for the customer or customer supplied. 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.
 
12
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
®
systems and related consumables 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 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., tubing sets, 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 tubing set(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
The Process Analytics franchise generates revenue primarily through the sale of the SoloVPE and FlowVPE Slope Spectroscopy systems, consumables and service. 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.
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.
 
13
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.
As of June 30, 2020, the Company has not accrued any future performance obligations.
Contract Balances from Contracts with Customers
The following table provides information about receivables and deferred revenues from contracts with customers as of June 30, 2020 (amounts in thousands):
 
    
2020
  
Balances from contracts with customers only:
   
Accounts receivable
    $ 48,779  
Deferred revenue (included in accrued liabilities in the consolidated balance sheets)
      7,276  
 
 
Revenue recognized during the six month period end
ed
 June 30, 2020 relating to:
   
The beginning deferred revenue balance
    $ 2,747  
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 and six months ended June 30, 2020 or for the same periods 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.
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 Losses
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 six months ended June 30, 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
 
14
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
the Company’s
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 a 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
the Company’s
consolidated balance sheet as of June 30, 2020 was $48.8 million, net of $0.5 million of allowances. The following table provides a roll-forward of the allowance for credit losses
 in 2020
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 ) 
Change for expected credit losses
 
 
(133
) 
Balance at March 31, 2020
 
 
(658
) 
Current period change for write-offs
 
 
37
 
Current period change for recoveries
 
 
—  
 
Current period change for expected credit losses
      83  
  
 
 
  
Balance at June 30, 2020
    $ (538 ) 
  
 
 
  
 
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 six months ended June 30, 2020 (amounts in thousands):
 
Balance as of December 31, 2019
    $ 468,413  
Goodwill adjustment related to C Technologies, Inc.
      293  
Cumulative translation adjustment
      19  
  
 
 
  
Balance as of June 30, 2020
    $ 468,725  
  
 
 
  
During each of the fourth quarters of 2019, 2018 and 2017,
the Company
completed
its
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 and six months ended June 30, 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 expenses in the Company’s statements of comprehensive income. Intangible assets and their related useful lives are reviewed at least annually to determine if any 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
the Company’s
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 June 30, 2020.
Indefinite-lived assets are reviewed for impairment at least annually. There has been no impairment of
the Company’s
intangible assets for the periods presented.
 
15
Intangible assets, net consisted of the following at June 30, 2020:
 
    
June 30, 2020
  
    
Gross
Carrying
Value
     
Accumulated
Amortization
     
Net
Carrying
Value
     
Weighted
Average
Useful Life
(in years)
  
    
(Amounts in thousands)
         
Finite-lived intangible assets:
            
Technology - developed
    $ 82,172      $ (11,863 )     $ 70,309        19  
Patents
      240        (240 )       —          8  
Customer relationships
      160,834        (30,934 )       129,900        15  
Trademarks
      3,752        (427 )       3,325        20  
Other intangibles
      1,697        (1,190 )       507        3  
  
 
 
     
 
 
     
 
 
     
Total finite-lived intangible assets
      248,695        (44,654 )       204,041        16  
Indefinite-lived intangible asset:
            
Trademarks
      700        —          700        —    
  
 
 
     
 
 
     
 
 
     
Total intangible assets
    $ 249,395      $ (44,654 )     $ 204,741     
  
 
 
     
 
 
     
 
 
     
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     
  
 
 
     
 
 
     
 
 
     
Amortization expense for finite-lived intangible assets was $3.9 million and $3.1 million for the three months ended June 30, 2020 and 2019, respectively. Amortization expense was $7.8 million and $5.7 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the Company expects to record the following amortization expense in future periods (amounts in thousands):
 
For the Six Months Ended June 30,
   
Estimated

Amortization

Expense
  
2020 (remaining six months)
    $ 7,396  
2021
      14,738  
2022
      14,736  
2023
      14,640  
2024
      14,198  
2025 and thereafter
      138,333  
  
 
 
  
Total
    $ 204,041  
  
 
 
  
16
7.
Consolidated Balance Sheet Detail
Inventories, net
Inventories, net consists of the following:
 
    
As of
  
    
June 30,
     
December 31,
  
    
2020
     
2019
  
    
(Amounts in thousands)
  
Raw materials
    $ 40,196      $ 29,328  
Work-in-process
      5,873        8,360  
Finished products
      23,860        17,144  
  
 
 
     
 
 
  
Total inventories, net
    $ 69,929      $ 54,832  
  
 
 
     
 
 
  
Property, Plant and Equipment
Property, plant and equipment consist of the following:
 
    
As of
  
    
June 30,
     
December 31,
  
    
2020
     
2019
  
    
(Amounts in thousands)
  
Land
    $ 1,023      $ 1,023  
Buildings
      764        764  
Leasehold improvements
      28,824        23,905  
Equipment
      37,808        36,257  
Furniture, fixtures and office equipment
      6,873        6,312  
Computer hardware and software
      10,057        8,810  
Construction in progress
      7,565        6,707  
Other
      50        56  
  
 
 
     
 
 
  
Total property, plant and equipment
      92,964        83,834  
Less - Accumulated depreciation
      (40,513 )       (35,379 ) 
  
 
 
     
 
 
  
Total property, plant and equipment, net
    $ 52,451      $ 48,455  
  
 
 
     
 
 
  
Depreciation expense totaled $2.6 million and $1.8 million for the three months ended June 30, 2020 and 2019, respectively.
Depreciation expenses totaled $5.1 million and $3.3 million for the six months ended June 30, 2020 and 2019, respectively.
Accrued Liabilities
Accrued liabilities consist of the following:
 
    
As of
  
    
June 30,
     
December 31,
  
    
2020
     
2019
  
    
(Amounts in thousands)
  
Employee compensation
    $ 12,320      $ 19,850  
Taxes
      3,330        3,874  
Royalty and license fees
      248        123  
Warranties
      833        1,500  
Professional fees
      1,120        1,081  
Deferred revenue
      7,276        5,005  
Other
      1,402        1,898  
  
 
 
     
 
 
  
Total accrued liabilities
    $ 26,529      $ 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.
17
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 June 30, 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
the Company’s
consolidated balance sheet at June 30, 2020. No 2019 Notes were converted by the holders of such notes in the second quarter of 2020. In the event the closing price conditions are met in the third 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
the Company’s
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.
The Company allocates 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
the Company’s
consolidated balance sheet
 
at June 30, 2020.
The net carrying value of the liability component of the 2019 Notes is as follows:
 
    
As of
  
    
June 30,
     
December 31,
  
    
2020
     
2019
  
    
(Amounts in thousands)
  
0.375% convertible senior notes due 2024:
      
Principal amount
    $ 287,500      $ 287,500  
Less: unamortized debt discount
      (43,179 )       (47,921 ) 
Less: unamortized debt issuance costs
      (6,138 )       (6,812 ) 
  
 
 
     
 
 
  
Total debt
      238,183        232,767  
Less: current portion
      —          —    
  
 
 
     
 
 
  
Net carrying amount
    $ 238,183      $ 232,767  
  
 
 
     
 
 
  
Interest expense recognized on the 2019 Notes for the three months ended June 30, 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. Interest expense recognized on the 2019 Notes for the six months ended June 30, 2020 was $0.5 million, $4.7 million and $0.7 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,
18
amortization of the debt discount and debt issuance costs. As of June 30, 2020, the carrying value of the 2019 Notes was $238.2 million and the fair value of the principal was $364.0 million. The fair value of the 2019 Notes was determined based on the most recent trade activity of the 2019 Notes as of June 30, 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 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 June 30, 2019 was $0.6 million, $1.0 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. Interest expense recognized on the 2016 Notes for the six months ended June 30, 2019 was $1.2 million, $1.9 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 2016 Notes
was
 6.6%, which included the interest on the 2016 Notes, amortization of the debt discount and debt issuance costs. As of June 30, 2019, the carrying value of the 2016 Notes was $105.7 million and the fair value of the principal was $310.5 million. The fair value of the 2016 Notes was determined based on the most recent trade activity of the 2016 Notes as of June 30, 2019.
19
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
the Company’s
2018 annual meeting of shareholders held on May 16, 2018,
the Company’s
shareholders approved the 2018 Stock Option and Incentive Plan (the “2018 Plan”). Under the 2018 Plan the number of shares of
the Company’s
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
the Company’s
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 June 30, 2020, 2,370,882 shares were available for future grant under the 2018 Plan.
Stock-Based Compensation
For the three months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense of $4.1 million and $3.0 million, respectively, for share-based awards granted under the Plans. For the six months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense of $8.3 million and $6.3 million, respectively. The following table presents stock-based compensation expense in the Company’s consolidated statements of comprehensive income:
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2020
     
2019
     
2020
     
2019
  
    
(Amounts in thousands)
  
Cost of product revenue
    $ 425      $ 292      $ 858      $ 616  
Research and development
      394        319        766        641  
Selling, general and administrative
      3,283        2,420        6,643        5,026  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total stock-based compensation
    $ 4,102      $ 3,031      $ 8,267      $ 6,283  
  
 
 
     
 
 
     
 
 
     
 
 
  
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 (“RSUs”) 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 June 30, 2020, options to purchase 768,904 shares and 696,098 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. Over the past three years, performance stock units have been issued to certain employees which are tied to the achievement of 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.
20
Information regarding option activity for the six months ended June 30, 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
      57,698      $ 100.53        
Exercised
      (246,353 )     $ 21.97        
Forfeited/expired/cancelled
      —        $ —          
  
 
 
           
Options outstanding at June 30, 2020
      768,904      $ 38.87        7.14      $ 65,243  
  
 
 
           
Options exercisable at June 30, 2020
      392,181      $ 30.64        6.26      $ 36,463  
  
 
 
           
Vested and expected to vest at June 30, 2020
(1)
      738,412           7.10      $ 62,833  
  
 
 
           
 
  (1)
Represents the number of vested options as of June 30, 2020 plus the number of unvested options expected to vest as of June 30, 2020 based on the unvested outstanding options at June 30, 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 June 30, 2020, the last business day of the 
secon
d
 quarter of 2020, of $123.61 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 June 30, 2020. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2020 and 2019 was $2.5 million and $3.6 million, respectively.
The weighted average grant date fair value of options granted during the six months ended June 30, 2020 and 2019 was $46.56 and $30.07, respectively. The total fair value of stock options that vested during the six months ended June 30, 2020 and 2019 was $2.5 million and $2.7 million, respectively.
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 six months ended June 30, 2020 under the Plans is summarized below:
 
    
Shares
     
Weighted-
Average
Remaining
Contractual
Term

(in Years)
     
Aggregate
Intrinsic Value

(in Thousands)
  
Unvested at December 31, 2019
      734,984        
Awarded
      149,755        
Vested
      (170,778 )       
Forfeited/expired/cancelled
      (17,863 )       
Unvested at June 30, 2020
      696,098        3.59      $ 86,045  
  
 
 
          
Vested and expected to vest at June 30, 2020
(1)
      641,476        3.28      $ 79,293  
  
 
 
        
 
  (1)
Represents the number of vested stock units as of June 30, 2020 plus the number of unvested stock units expected to vest as of June 30, 2020 based on the unvested outstanding stock units at June 30, 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 (equal to the closing price of the common stock on June 30, 2020, the last business day of the second quarter of 2020, of $123.61 per share, as stock units do not have an exercise price) that would have been received by the stock unit holders had all holders exercised on June 30, 2020. The aggregate intrinsic value of stock units vested during the six months ended June 30, 2020 and 2019 was $16.6 million and $11.7 million, respectively.
21
The weighted average grant date fair value of stock units vested during the six months ended June 30, 2020 and 2019 was $59.84 and $31.97, respectively. The total fair value of stock units that vested during the six months ended June 30, 2020 and 2019 was $7.3 million and $6.0 million, respectively.
As of June 30, 2020, there was $42.8 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 3.83 years. The Company expects 1,761,586 unvested options and stock units to vest over the next five years.
 
10.
Commitments and Contingencies
Licensing and Research 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 which 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 six months ended June 30, 2020 and 2019.
In September 2018, the Company entered into a collaboration agreement with Sartorius Stedim Biotech (“SSB”), a leading international supplier for the biopharmaceutical industry, to integrate our XCell ATF cell retention control technology into Sartorius’s BIOSTAT
®
STR large-scale,
single-use
bioreactors to create novel perfusion-enabled bioreactors. As a result of this collaboration,
end-users
will stand to benefit from a single control system for 50L to 2,000L bioreactors used in perfusion cell culture applications. The single interface is designed to control cell growth, fluid management and cell retention in continuous and intensified bioprocessing and, ultimately, simplify the development and manufacture of biotechnological drugs under current good manufacturing practices.
In June 2018, the Company secured an agreement with Navigo for the exclusive
co-development
of multiple affinity ligands for which Repligen holds commercialization rights. The Company is manufacturing and has agreed to supply the first of these ligands,
NGL-Impact
®
, exclusively to Purolite Life Sciences (“Purolite”), who will pair the Company’s high-performance ligand with Purolite’s agarose jetting base bead technology used in their Jetted A50 Protein A resin product. We 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. The Navigo and Purolite agreements are supportive of the Company’s strategy to secure and reinforce the Company’s proteins business. The Company made no payments to Navigo during the three and six months ended June 30, 2020 and 2019.
 
11.
Accumulated Other Comprehensive Loss
The following shows the changes in the components of accumulated other comprehensive loss for the six months ended June 30, 2020 which consisted of only foreign currency translation adjustments for the periods shown (amounts in thousands):
 
    
Foreign
Currency
Translation
Adjustment
  
 
 
 
 
Balance as of December 31, 2019
    $ (15,027 ) 
Other comprehensive 
income
      914  
  
 
 
  
Balance as of June 30, 2020
    $ (14,113 ) 
  
 
 
  
 
12.
Income Taxes
The Company’s effective tax rate for the three and six months ended June 30, 2020 was 1.0% and 3.8%,
 
respectively,
compared to 15.8% and 19.8%
,
re
s
pectively,
 
for the corresponding periods in the prior year. The effective tax rates for the three and six months ended June 30, 2020 and 2019 were lower than the U.S. statutory rate of 21% primarily
due
to windfall benefits on stock option exercises and the vesting of stock units.
The Company is subject to a territorial tax system under the Tax Cuts and Jobs Act (“TCJA”) enacted in December 2017, in which the Company is required to provide for tax on the Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company has adopted an accounting policy to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense.
22
On March 27, 2020, President Trump signed the $2.2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act, the third congressional bill to address
COVID-19,
provides for loans and other benefits to businesses, expanded unemployment insurance, direct payments to those with middle-income and below wages, new appropriations funding for healthcare and other priorities, and tax changes, including deferrals of employer payroll tax liabilities, coupled with an employee retention tax credit and rollbacks of TCJA limitations on net operating losses (“NOLs”) and the Section 163(j) business interest limitation and a TCJA technical correction on qualified improvement property. The Company evaluated the provisions of the CARES Act and no provision had a material effect on the Company’s financial position or results of operations at June 30, 2020 and the three and six months then ended.
The Company’s tax returns are subject to examination by federal, state and international tax authorities for the following periods:
 
Jurisdiction
   
Fiscal Years
Subject to
Examination
United States - federal and state
   
2016-2019
Sweden
    2013-2019
Germany
    2019
Netherlands
    2013-2019
 
13.
Earnings Per Share
The Company reports earnings per share in accordance with ASC 260,
“Earnings Per Share,”
which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Potential common share equivalents consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options. Under the treasury stock method, unexercised
“in-the-money”
stock options and warrants are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common shares at the average market price during the period. In periods when the Company has a net loss, stock awards are excluded from the calculation of earnings per share as their inclusion would have an antidilutive effect.
Basic and diluted weighted average shares outstanding were as follows:
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2020
     
2019
     
2020
     
2019
  
    
(Amounts in thousands, except per share data)
  
Net income
    $ 15,861      $ 8,095      $ 25,676      $ 16,148  
  
 
 
     
 
 
     
 
 
     
 
 
  
Weighted average shares used in computing net income per share - basic
      52,381        46,367        52,260        45,174  
Effect of dilutive shares:
            
Stock options and restricted stock awards
      925        791        953        760  
Convertible senior notes
      —          1,898        —          1,758  
  
 
 
     
 
 
     
 
 
     
 
 
  
Dilutive potential common shares
      925        2,689        953        2,518  
  
 
 
     
 
 
     
 
 
     
 
 
  
Weighted average shares used in computing net income per share - diluted
      53,306        49,056        53,213        47,692  
  
 
 
     
 
 
     
 
 
     
 
 
  
Earnings per share:
            
Basic
    $ 0.30      $ 0.17      $ 0.49      $ 0.36  
  
 
 
     
 
 
     
 
 
     
 
 
  
Diluted
    $ 0.30      $ 0.17      $ 0.48      $ 0.34  
  
 
 
     
 
 
     
 
 
     
 
 
  
At June 30, 2020, there were outstanding options to purchase 768,904 shares of the Company’s common stock at a weighted average exercise price of $38.87 per share and 696,098 shares of common stock issuable upon the vesting of stock units, which include RSUs and performance stock units. For the three and six months ended June 30, 2020, 11,578 and 12,328 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share 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.
 
23
At June 30, 2019, there were outstanding options to purchase 985,266 shares of the Company’s common stock at a weighted average exercise price of $30.16 per share and 766,986 shares issuable upon the vesting of stock units. For the three and six months ended June 30,
2019
, 119,026 and 180,160 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share 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.
As provided by the terms of the indenture underlying the 2016 Notes, the Company had a choice to settle the conversion obligation for the 2016 Notes in cash, shares or any combination of the two. During the third quarter of 2019, the Company settled the remaining 2016 Notes for a total aggregate principal of $115.0 million and 2,316,200 shares of its common stock. As of March 31, 2019, the par value of the 2016 Notes is not included in the calculation of diluted earnings per share, but the dilutive effect of the conversion premium is considered in the calculation of diluted earnings per share using the treasury stock method. The dilutive impact of the 2016 Notes was based on the difference between the Company’s current period average stock price and the conversion price of the 2016 Notes, provided there was a premium.
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, 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. As of June 30, 2020, the 2019 Notes were not convertible. The Company currently intends to settle the par value of the 2019 Notes in cash and any excess conversion premium in shares. The Company applies the provisions of ASC 260,
“Earnings Per Share”,
Subsection 10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on the 2019 Notes. Accordingly, the par value of the 2019 Notes is not included in the calculation of diluted income per share, but the dilutive effect of the conversion premium is considered in the calculation of diluted net income per share using the treasury stock method. The dilutive impact of the 2019 Notes is based on the difference between the Company’s current period average stock price and the conversion price of the 2019 Notes, provided there is a premium. Pursuant to this accounting standard, there is no dilution from the accreted principal of the 2019 Notes for the three and six months ended June 30, 2020.
 
14.
Related Party Transactions
Certain facilities leased by Spectrum are owned by Roy Eddleman, the former owner of Spectrum. As of June 30, 2020, Mr. Eddleman owned greater than 5% of the Company’s outstanding shares and the Company considers him to be a related party. The
 
lease amounts paid to this shareholder prior to the public offering were negotiated in connection with the Spectrum Acquisition. The Company incurred rent expense totaling $
0.2
 million and $
0.3
 million for the three and six months ended June 
30
,
2020
related to these leases.
 
15.
Segment Reporting
The Company views its operations, makes decisions regarding how to allocate resources and manages its business as one reportable segment and one reporting unit. As a result, the financial information disclosed herein represents all of the material financial information related to the Company.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
 
    
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
    
2020
    
2019
    
2020
    
2019
  
Revenue by customers’ geographic locations:
         
North America
      47 %      51 %      47 %      49 % 
Europe
      37 %      38 %      39 %      39 % 
APAC
      16 %      11 %      14 %      12 % 
Other
      0 %      0 %      0 %      0 % 
  
 
 
    
 
 
    
 
 
    
 
 
  
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 June 30, 2020 and December 31, 2019, the Company had no investments associated with foreign exchange contracts, options contracts or other foreign hedging arrangements.
 
24
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.
Revenue from significant customers that represent 10% or more of the Company’s total revenue is as follows:
 
    
Three Months Ended

June 30,
    
Six Months Ended

June 30,
  
    
2020
    
2019
    
2020
    
2019
  
Cytiva
(formerly GE Healthcare)
      12 %      16 %      10 %      14 % 
MilliporeSigma
      12 %      13 %      13 %      14 % 
Significant accounts receivable balances representing 10% or more of the Company’s total trade accounts receivable and royalties and other receivable balances are as follows:
 
 
  
June 30,

2020
 
 
December 31,
2019
 
Cytiva (formerly GE Healthcare)
  
 
12
% 
 
 
18
% 
MilliporeSigma
  
 
10
% 
 
 
 N/A
 
 
16.
Subsequent Event
Acquisition of Engineered Molding Technology
On June 26, 2020, the Company entered into a Membership Interest Purchase Agreement with Engineered Molding Technology LLC (“EMT”), a New York limited liability company, and Michael Pandori and Todd Etesse, the legal and beneficial owners of EMT, to purchase EMT, which transaction subsequently closed on July 13, 2020 (the “EMT Acquisition”).
EMT, which is headquartered in Clifton Park, New York, is an innovator and manufacturer of
single-use
silicone assemblies and components used in the manufacturing of biologic drugs. EMT’s standard and customer molding and over-molded connectors and silicone tubing products are key components in
single-use
filtration and chromatography systems.
EMT’s
products will complement and expand Repligen’s
single-use
product offerings.
The Company will account for the EMT Acquisition as a purchase of a 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 EMT
 Acquisition
 
will be included in the Quarterly Report on
Form 10-Q
for the quarter
ended September 30,
2020.
Early Compliance to Amendments of the Regulation
S-X
Rules for Accounting for Acquired Businesses
On May 21, 2020, the SEC announced that it would adopt amendments to the financial disclosure requirements for acquisitions and dispositions of businesses in
Rules 3-05,
3-14,
8-04,
8-05,
8-06,
and Article 11 of Regulation
S-X,
all of which relate to financial statement disclosure requirements. In conjunction with the changes to amendments to these rules, the SEC also amended the significance tests in the “significant subsidiary” definition in
Rule 1-02(w),
Securities Act Rule 405, and Exchange Act
Rule 12b-2
to improve their application and to assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed of business is significant.
Specific changes to the significance test include changes to the investment test component, which compares the registrant’s and its other subsidiaries’ investment in and advances to the tested subsidiary to the registrant’s aggregate worldwide market value if available, instead of the registrant’s total assets on a consolidated basis under the unamended Rule. The amendments also changed the income test component by adding a revenue component to it.
The amendments will be effective on January 1, 2021. However, voluntary compliance with the final amendments will be permitted in advance of the effective date. As a result of the EMT Acquisition on July 13, 2020, the Company voluntarily adopted the amendments prior to their effective date and determined the acquired business, EMT, is not a significant subsidiary and therefore no separate financial statements are required.
 
25
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 innovated 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 – face critical production cost, capacity, quality and time pressures. Built to address these concerns, our products are helping to 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 (“mAb”), recombinant proteins, vaccines and gene therapies – that are improving human health worldwide.
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 35 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.
Our Products
Our bioprocessing business is comprised of four main franchises, three of which we sell directly to
end-users
(Chromatography, Filtration and Process Analytics) and one that we sell primarily through supply agreements (Proteins).
Direct-to-Customer
Products
Since 2012, we have significantly expanded our
direct-to-customer
presence through our Chromatography, Filtration and Process Analytics franchises, each of which includes novel and differentiated technologies. We have diversified and grown our
direct-to-customer
product offering through internal innovation and through strategic, accretive acquisitions of assets or businesses that leverage existing product lines and/or expand our customer and geographic scope.
To support our sales growth goals for these products, we make ongoing investments in our commercial organization, our research and development (“R&D”) team and our manufacturing capacity. Our commercial and R&D teams work together to develop and launch new products and applications that address specific biomanufacturing challenges, and to build new markets for acquired technologies. We have six key manufacturing sites across the United States, Sweden and Germany, with additional capacity being added by the end of 2020 in the Netherlands. We regularly evaluate and invest in capacity as needed to ensure timely deliveries and to stay ahead of increased customer demand for our products.
A substantial piece of our revenue comes from consumable and/or single-campaign
(“single-use”)
products as compared to associated equipment. The customization, scalability and
plug-and-play
convenience of consumable and/or
single-use
products, and in many cases the closed nature of our technologies, make them ideal for use in biologics manufacturing processes where contamination risk is a critical concern of our customers.
Chromatography
Our Chromatography franchise includes a number of products used in downstream purification, development, manufacturing and quality control of biological drugs. The main driver of growth in this portfolio is our OPUS
®
pre-packed
column product line.
Additional chromatography products include our affinity capture resins, such as CaptivA
®
Protein A resins, that are used in a small number of commercial drug processes and our ELISA test kits, used by quality control departments to detect and measure the presence of leached Protein A and/or growth factor in the final product.
OPUS
Pre-Packed
Columns
Our Chromatography franchise features a wide range of OPUS columns, which we deliver to our customers sealed and
pre-packed
with their choice of resin. These are
single-use
or
multiple-use
disposable columns that replace the use of customer-packed glass columns used in downstream purification processes. By designing OPUS columns to be a technologically advanced and flexible option for the purification of biologics from process development through clinical and commercial-scale manufacturing, Repligen has become a leader in the
pre-packed
column (“PPC”) market. Our biomanufacturing customers value the significant cost savings that OPUS columns deliver by reducing set up time, labor, equipment and facility costs – in addition to delivering product consistency and “plug and play” convenience.
 
26
We launched our first production-scale OPUS columns in 2012 and have since added larger diameter options that scale up to use with 2,000 liter bioreactors. Our OPUS 80R column is the largest available PPC on the market for use in late-stage clinical or commercial purification processes. We have also introduced next-generation features such as a resin recovery port on our larger columns, which allows our customers to remove and reuse the recovered resin in other applications. We believe the OPUS
5-80R
product line is the most flexible and platformable PPC product offered in the marketplace today, and is serving the purification needs of customers manufacturing monoclonal antibodies (“mAb”) and other biologics such as cell and gene therapies (“C&GT”).
In addition to our larger scale OPUS columns, our portfolio includes our smaller-scale OPUS columns, including specifically RoboColumn
®
, MiniChrom
™
and ValiChrom
™
columns for process development and validation. These columns are used in high-throughput process development screening, viral clearance validation studies and scale down validation of chromatography processes.
We maintain customer-facing centers in both the United States and Europe for OPUS columns, and offer our customers an unmatched ability to pack any of over 100 resins in our OPUS
5-80R
range and any of over 300 resin choices in our small-scale OPUS columns.
Other Chromatography
Our Chromatography portfolio also includes ELISA kits, which are analytical test kits to quantitate the proteins and growth factors, and chromatography resins, including our CaptivA brand.
Filtration
XCell ATF
®
Cell Retention Systems
Our Filtration products offer a number of advantages to manufacturers of biologic drugs and are used in development, clinical and commercial-scale production. Our XCell Alternating Tangential Flow (“ATF”) systems are used primarily in upstream perfusion (continuous) cell culture processing.
XCell ATF is a cell retention technology. The system is comprised of an advanced hollow fiber (“HF”) filtration device, a low shear pump and a controller. The XCell ATF system is connected to a bioreactor and enables the cell culture to be run continuously, with cells being retained in the bioreactor, fresh nutrients (cell culture media) being fed into the reactor continuously and clarified biological product and cell waste being removed continuously. The cells are maintained in a consistent nutrient-rich environment and can reach cell densities
two-
and three-times higher than those achieved by standard
fed-batch
culture. By continuously removing waste products from the fermenter, the XCell ATF systems routinely increases cell densities to
two-
or three-times the levels achieved by standard
fed-batch
culture. As a result, product yield is increased, which improves facility utilization and can reduce the size of a bioreactor required to manufacture a given volume of biologic drug product. XCell ATF systems are available in a wide range of sizes that can easily scale from laboratory use through full production with bioreactors as large as 5,000 liters.
Through internal innovation, we developed and launched
single-use
formats of the original stainless steel XCell ATF devices to address increasing industry demand for
single-use
sterile systems with
“plug-and-play”
technology. The XCell ATF device is now available to customers in both its original configuration (steel housing and
single-use
filters) in all sizes (2, 4, 6 and 10), and/or as a
single-use
device (disposable housing/filter combination) in most sizes (2, 6, and 10). The availability of XCell ATF technology in a
single-use
format eliminates the time intensive workflow associated with autoclaving, leading to an 80% reduction in implementation speed. The
single-use
format also enables our customers to accelerate evaluations of the product with a lower initial overall cost of ownership.
In September 2018, we entered into a collaboration agreement with industry leader Sartorius Stedim Biotech (“SSB”) to integrate our XCell ATF controller technology into SSB’s BIOSTAT
®
STR large-scale,
single-use
bioreactors, to create novel perfusion-enabled bioreactors.