ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Repligen and its subsidiaries, collectively doing business as Repligen Corporation (“Repligen”, “we”, “our”, or the “Company”) is a global life sciences company that develops and commercializes highly innovative bioprocessing technologies and systems that increase efficiencies and flexibility in the process of manufacturing biological drugs.
As the overall market for biologics continues to grow and expand, our customers – primarily large biopharmaceutical companies and contract development and manufacturing organizations – 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 cell and gene therapies ("C>") – that are improving human health worldwide. For more information regarding our business, products and acquisitions, see Part I, Item 1, “Business” included in our 2021 Annual Report on Form 10-K (“Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on February 17, 2022.
We currently operate as one bioprocessing business, with a comprehensive suite of products to serve both upstream and downstream processes in biological drug manufacturing. Building on over 40 years of industry expertise, we have developed a broad and diversified product portfolio that reflects our passion for innovation and the customer-first culture that drives our entire organization. We continue to capitalize on opportunities to maximize the value of our product platform through both organic growth initiatives (internal innovation and commercial leverage) and targeted acquisitions.
2021 Acquisitions
Bio-Flex Solutions LLC and Newton T&M Corp.
On November 29, 2021, the Company entered into an Equity Purchase Agreement with Bio-Flex Solutions, L.L.C. ("BioFlex"), Newton T&M Corp ("NTM") and each of Ralph Meola and Jason Nisler, to acquire 100% of the outstanding securities of BioFlex and NTM (collectively, the “NTM Acquisition”). The transaction closed on December 16, 2021.
NTM, which is headquartered in Newton, New Jersey, is the parent company of BioFlex and focuses on manufacturing of products, while BioFlex, also headquartered in Newton, New Jersey, commercializes branded products to biotech customers. The NTM Acquisition complements and expands our filtration offering paths as the industry migrates to single-use flow paths solutions for mAb, vaccine and cell and gene therapy ("C>") applications, with a focus on single-use fluid management components, including single-use clamps, adapters, end caps and hose assemblies. The NTM Acquisition streamlines and increases control over many components in our single-use supply chain which ultimately should drive reduced lead-times for our customers in the coming years.
Acquisition of Avitide, Inc.
On September 16, 2021, we entered into an Agreement and Plan of Merger and Reorganization (“Avitide Merger Agreement”) with Avalon Merger Sub, Inc., a Delaware corporation and a wholly owned direct subsidiary of the Company, Avalon Merger Sub LLC, a Delaware limited liability company and a wholly owned direct subsidiary, and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative, agent and attorney-in-fact of Avitide's securityholders to purchase Avitide. The transaction closed on September 20, 2021 and on the terms set forth in the Avitide Merger Agreement (the “Avitide Acquisition”).
Avitide, which is headquartered in Lebanon, New Hampshire, offers diverse libraries and leading technology in affinity ligand discovery and development resulting in best-in-class ligand discovery and development lead-times. The acquisition gives us a new platform for affinity resin development, including C>, and advances and expands our proteins franchise to address the unique purification needs of gene therapies and other emerging modalities.
Acquisition of Polymem S.A.
28
On June 22, 2021, we entered into a Stock Purchase Agreement with Polymem S.A. (“Polymem”), a company organized under the laws of France, and Jean-Michel Espenan and Franc Saux, acting together jointly and severally as the representatives of the sellers, which subsequently closed on July 1, 2021.
Polymem, which is headquartered in Toulouse, France, is a manufacturer of hollow fiber membranes, membrane modules and systems for industrial and bioprocessing applications. Polymem products will complement and expand Repligen’s portfolio of hollow fiber systems and consumables. The acquisition substantially increases our membrane and module manufacturing capacity and establishes a world-class center of excellence in Europe to address the accelerating global demand for these innovative products.
Critical Accounting Policies and Estimates
A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 2 to the consolidated financial statements included in our Form 10-K.
Results of Operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto.
Revenues
Total revenue for the three months ended March 31, 2022 and 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Increase/(Decrease) |
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Amounts in thousands, except for percentage data) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
206,363 |
|
|
$ |
142,737 |
|
|
$ |
63,626 |
|
|
|
44.6 |
% |
Royalty and other |
|
|
37 |
|
|
|
100 |
|
|
|
(63 |
) |
|
|
(63.0 |
%) |
Total revenue |
|
$ |
206,400 |
|
|
$ |
142,837 |
|
|
$ |
63,563 |
|
|
|
44.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
Since 2016, we have been increasingly focused on selling our products directly to customers in the pharmaceutical industry and to our contract manufacturers. These direct sales represented approximately 87% and 80% of our product revenue for each of the three months ended March 31, 2022 and 2021, respectively. We expect that direct sales will continue to account for an increasing percentage of our product revenues, as the largest customer of our OEM products diversified its supply chain in 2020. Sales of our bioprocessing products can be impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies, which may result in significant quarterly fluctuations.
Revenues from our filtration franchise include the sales of our XCell ATF® systems and consumables; Spectrum filtration systems, including KrosFlo®; SIUS® filtration products and systems; the fluid management assemblies and components offered by Engineered Molding Technology LLC, Non-Metallic Solutions, Inc. ARTeSYN Biosolutions Holdings Ireland Limited ("ARTeSYN") and BioFlex, the latter of which was acquired on December 16, 2021; the hollow fiber membrane technology offered by Polymem, which we acquired on July 1, 2021; and our ARTeSYN filtration systems. Revenue from our chromatography products includes the sale of our OPUS pre-packed chromatography columns, ELISA test kits and chromatography systems from Spectrum and ARTeSYN. Revenue from proteins products includes the sale of our Protein A ligands and cell culture growth factors, and sales of affinity products, including adeno-associated virus resins offered by Avitide, which we acquired on September 20, 2021. Revenue from our process analytics products includes the sale of our
29
SoloVPE®, FlowVPE® and FlowVPX® systems, consumables and service. Other revenue primarily consists of revenue from the sale of our operating room products to hospitals as well as freight revenue.
During the three months ended March 31, 2022, product revenue increased by $63.6 million, or 44.6% as compared to the same period of 2021, due to exceptionally robust demand for our filtration, chromatography and process analytics products. There is continued adoption of our products by key bioprocessing customers across all key product lines. Since the second quarter of 2020, we have experienced accelerated demand across all of our franchises due to the critical needs of customers working on the novel coronavirus pandemic (“COVID-19”) vaccines. However, fluctuations in vaccination rates will drive future demand of our products from these customers and the recognition of revenue related to COVID-19. In addition, we have recently seen an increased demand for C> and monoclonal antibody manufacturing. There was also an approximately $6 million increase in revenue due to our 2021 acquisitions which were acquired in the second half of 2021.
Royalty revenues
Royalty revenues in the three months ended March 31, 2022 and 2021 relate to royalties received from a third-party systems manufacturer associated with our OPUS PD chromatography columns. Royalty revenues are variable and are dependent on sales generated by our partner.
Costs of product revenue and operating expenses
Total costs and operating expenses for the three months ended March 31, 2022 and 2021 were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
Increase/(Decrease) |
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Amounts in thousands, except for percentage data) |
|
Cost of product revenue |
|
$ |
82,356 |
|
|
$ |
59,747 |
|
|
$ |
22,609 |
|
|
|
37.8 |
% |
Research and development |
|
|
12,155 |
|
|
|
7,612 |
|
|
|
4,543 |
|
|
|
59.7 |
% |
Selling, general and administrative |
|
|
54,300 |
|
|
|
39,095 |
|
|
|
15,205 |
|
|
|
38.9 |
% |
Contingent consideration |
|
|
(2,411 |
) |
|
|
— |
|
|
|
(2,411 |
) |
|
|
100.0 |
% |
Total costs and operating expenses |
|
$ |
146,400 |
|
|
$ |
106,454 |
|
|
$ |
39,946 |
|
|
|
37.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
Cost of product revenue increased 37.8% in the three months ended March 31, 2022, compared to the same period of 2021, due primarily to the increase in product revenue mentioned above and costs associated with higher product volume. In addition, in order to support our rapid growth and increased demand for our products, we continue to invest in our manufacturing infrastructure through increased manufacturing headcount and increased occupancy costs. Our depreciation expense increased during the three months ended March 31, 2022, as manufacturing equipment was placed in service during the second half of 2021. The impact on cost of product revenue from our three 2021 acquisitions was $4.8 million, which has also contributed to the increase in cost of product revenue as there were no comparable costs for these acquisitions in the first quarter of 2021.
Gross margin was 60.1% and 58.2% in the three months ended March 31, 2022 and 2021, respectively. The increase in gross margin in the three months ended March 31, 2022, as compared to the same period of 2021, is due primarily to the increase in revenue mentioned above, and favorable product mix, partially offset by an increase in employee-related costs from a rise in manufacturing headcount, an increase in occupancy costs due to added capacity in 2021 and an increase in depreciation expense mentioned above. The gross margin for the three months ended March 31, 2021 also includes $1.6 million of amortization of inventory step-up associated with the ARTeSYN Aquisition in December 2020. Gross margins may fluctuate in future quarters based on expected production volume and product mix.
Research and development expenses
Research and development (“R&D”) expenses are related to bioprocessing products, which include personnel, supplies and other research expenses. Due to the size of the Company and the fact that these various programs share personnel and fixed
30
costs, we do not track all of our expenses or allocate any fixed costs by program, and therefore, have not provided historical costs incurred by project.
R&D expenses increased $4.5 million, or 59.7%, during the three months ended March 31, 2022, compared to the same period of 2021. The increase during the period is primarily due to spending on new product development and investments newly acquired businesses during the period, for which there were no comparable costs in the first quarter of 2021. The increase during the period is also due in part to the increase in employee related costs, as the number of R&D employees has increased since March 31, 2021.
R&D expense also includes investments made to expand our proteins product offering through our development agreement with Navigo Proteins GmbH (“Navigo”). We invested $0.4 million for the three months ended March 31, 2022, as compared to $0.3 million in 2021, in the form of milestone payments to Navigo.
We expect our R&D expenses for the remainder of 2022 to gradually increase to support new product development.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our commercial products and costs required to support our marketing efforts, including legal, accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.
During the three months ended March 31, 2022, SG&A costs increased by $15.2 million, or 38.9%, as compared to the same period of 2021. The increase is partially due to the continued expansion of our customer-facing activities to drive sales of our bioprocessing products, and the continued buildout of our administrative infrastructure, primarily through increased headcount, to support expected future growth. Employee-related costs increased during the three months ended March 31, 2022, as compared to the same period in 2021, resulting from the 55% increase in general and administrative headcount period over the period and a 42% increase in selling and marketing headcount period over period. These costs include stock-based compensation, which increased $1.2 million for the three months ended March 31, 2022, as compared to the same period of 2021. In addition, SG&A costs increased for the three months ended March 31, 2022 due to the addition of Polymem, Avitide and BioFlex during the second half of 2021 for which there are no comparable costs in the three months ended March 31, 2021.
Contingent consideration expense
Contingent consideration expense represents the change in fair value of the contingent consideration obligation included in current and noncurrent contingent consideration on the consolidated balance sheets as of the end of each period. Re-measurement of the contingent consideration obligation is done each quarter and the carrying value of the obligation is adjusted to the current fair value through our consolidated statement of comprehensive income. We recorded an adjustment to the fair value of the contingent consideration obligation for the three months ended March 31, 2022 of ($2.4) million.
Other expenses, net
The table below provides detail regarding our other expenses, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Increase/(Decrease) |
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Amounts in thousands, except for percentage data) |
|
Investment income |
|
$ |
77 |
|
|
$ |
52 |
|
|
$ |
25 |
|
|
|
48.1 |
% |
Interest expense |
|
|
(292 |
) |
|
|
(2,754 |
) |
|
|
2,462 |
|
|
|
(89.4 |
%) |
Amortization of debt issuance costs |
|
|
(452 |
) |
|
|
(352 |
) |
|
|
(100 |
) |
|
|
28.4 |
% |
Other expenses |
|
|
(402 |
) |
|
|
(224 |
) |
|
|
(178 |
) |
|
|
79.5 |
% |
Total other expense, net |
|
$ |
(1,069 |
) |
|
$ |
(3,278 |
) |
|
$ |
2,209 |
|
|
|
(67.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
31
Investment income includes income earned on invested cash balances. Our investment income remained relatively stable for three months ended March 31, 2022, compared to the same period of 2021. We expect investment income to vary based on changes in the amount of funds invested and fluctuation of interest rates.
Interest expense
Interest expense in the three months ended March 31, 2022 and 2021 is primarily from our 0.375% Convertible Senior Notes due 2024 (the “2019 Notes”), which were issued in July 2019. Interest expense for the three months ended March 31, 2022 includes the contractual coupon interest on the 2019 Notes. For the three months ended March 31, 2021, interest expense includes the amortization of the debt discount as well as the contractual coupon interest. As a result of our adoption of ASU 2020-06, "Debt - Debt with Conversion Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)," effective January 1, 2022, the equity portion of the debt conversion feature recorded upon the issuance of the 2019 Notes, or the debt discount, was reversed along with the total amortization taken on that discount. Since there was no debt discount, no amortization was taken in the three months ended March 31, 2022.
Amortization of debt issuance costs
In accounting for the transaction costs related to the issuance of the 2019 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2019 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to amortization of debt issuance costs on the consolidated statements of comprehensive income. Amortization of debt issuance costs increased during the three months ended March 31, 2022, as compared to the same period of 2021. This is a result of the decrease in the balance of debt issuance costs that are being amortized. As these costs decrease, the carrying value of the debt increases and interest calculated based on the carrying value increases as well.
Other expenses
The change in other expenses, net during the three months ended March 31, 2022, compared to the same period of 2021, is primarily attributable to realized foreign currency losses related to amounts due from non-Swedish krona-based customers and vendors.
Income tax provision
Income tax provision for the three months ended March 31, 2022 and 2021 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Increase/(Decrease) |
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Amounts in thousands, except for percentage data) |
|
Income tax provision |
|
$ |
11,967 |
|
|
$ |
3,655 |
|
|
$ |
8,312 |
|
|
|
227.4 |
% |
Effective tax rate |
|
|
20.3 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
For the three months ended March 31, 2022, we recorded an income tax provision of $12.0 million. The effective tax rate was 20.3% for the three months ended March 31, 2022 and is based upon the estimated income for the year ending December 31, 2022 and the composition of income in different jurisdictions. The increase in effective tax rates was primarily due to higher income before income taxes and lower windfall benefits recognized on stock option exercises and the vesting of stock units. Our effective tax rate for the three months ended March 31, 2022 was lower than the U.S. statutory rate of 21% primarily due to windfall benefits on stock option exercises and the vesting of stock units. For the three months ended March 31, 2021, we recorded an income tax provision of $3.7 million. The effective tax rate was 11.0% for the three months ended March 31, 2021 and is based upon the estimated income for the year ending December 31, 2021 and the composition of income in different jurisdictions. Our effective tax rate for the three months ended March 31, 2021 was lower than the U.S. statutory rate of 21% primarily due to business tax credits and windfall benefits on stock option exercises and the vesting of stock units.
Non-GAAP Financial Measures
We provide non-GAAP adjusted income from operations; adjusted net income; and adjusted EBITDA as supplemental measures to GAAP measures regarding our operating performance. These financial measures exclude the items detailed below
32
and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure are provided below.
We include this financial information because we believe these measures provide a more accurate comparison of our financial results between periods and more accurately reflect how management reviews its financial results. We excluded the impact of certain acquisition-related items because we believe that the resulting charges do not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Non-GAAP adjusted income from operations
Non-GAAP adjusted income from operations is measured by taking income from operations as reported in accordance with GAAP and excluding inventory step-up charges, acquisition and integration costs, contingent consideration fair value adjustments, and intangible amortization booked through our consolidated statements of comprehensive income. The following is a reconciliation of income from operations in accordance with GAAP to non-GAAP adjusted income from operations for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(Amounts in thousands) |
|
GAAP income from operations |
|
$ |
60,000 |
|
|
$ |
36,383 |
|
Non-GAAP adjustments to income from operations: |
|
|
|
|
|
|
Inventory step-up charges |
|
|
— |
|
|
|
1,598 |
|
Acquisition and integration costs |
|
|
3,189 |
|
|
|
2,551 |
|
Contingent consideration |
|
|
(2,411 |
) |
|
|
— |
|
Intangible amortization |
|
|
6,593 |
|
|
|
5,162 |
|
Non-GAAP adjusted income from operations |
|
$ |
67,371 |
|
|
$ |
45,694 |
|
|
|
|
|
|
|
|
Non-GAAP adjusted net income
Non-GAAP adjusted net income is measured by taking net income as reported in accordance with GAAP and excluding acquisition and integration costs, intangible amortization, inventory step-up charges, loss on conversion of debt, non-cash interest expense, amortization of debt issuance costs, contingent consideration fair value adjustments and the tax effects of these items. The following are reconciliations of net income in accordance with GAAP to non-GAAP adjusted net income for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
Fully Diluted |
|
|
|
|
|
Fully Diluted |
|
|
|
|
|
|
Earnings per |
|
|
|
|
|
Earnings per |
|
|
|
Amount |
|
|
Share* |
|
|
Amount |
|
|
Share* |
|
|
|
(Amounts in thousands, except per share data) |
|
GAAP net income |
|
$ |
46,964 |
|
|
$ |
0.81 |
|
|
$ |
29,450 |
|
|
$ |
0.52 |
|
Non-GAAP adjustments to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up charges |
|
|
— |
|
|
|
— |
|
|
|
1,598 |
|
|
|
0.03 |
|
Acquisition and integration costs |
|
|
3,189 |
|
|
|
0.05 |
|
|
|
2,551 |
|
|
|
0.04 |
|
Contingent consideration |
|
|
(2,411 |
) |
|
|
(0.04 |
) |
|
|
— |
|
|
|
— |
|
Intangible amortization |
|
|
6,593 |
|
|
|
0.11 |
|
|
|
5,162 |
|
|
|
0.09 |
|
Loss on conversion of debt |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
0.00 |
|
Amortization of debt issuance costs(1) |
|
|
452 |
|
|
|
0.00 |
|
|
|
352 |
|
|
|
0.01 |
|
Non-cash interest expense(1) |
|
|
— |
|
|
|
— |
|
|
|
2,476 |
|
|
|
0.04 |
|
Tax effect of non-GAAP charges |
|
|
(1,042 |
) |
|
|
(0.02 |
) |
|
|
(2,822 |
) |
|
|
(0.05 |
) |
Non-GAAP adjusted net income |
|
$ |
53,745 |
|
|
$ |
0.92 |
|
|
$ |
38,768 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)See Note 12, "Earnings Per Share," for more information on the effects of adopting ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40),” which we adopted effective January 1, 2022, to these financial statement line items.
33
* Per share totals may not add due to rounding.
Adjusted EBITDA
Adjusted EBITDA is measured by taking net income as reported in accordance with GAAP, excluding investment income, interest expense, taxes, depreciation and amortization, acquisition and integration costs, inventory step-up charges, loss on conversion of debt and contingent consideration fair value adjustments booked through our consolidated statements of comprehensive income. The following is a reconciliation of net income in accordance with GAAP to adjusted EBITDA for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(Amounts in thousands) |
|
GAAP net income |
|
$ |
46,964 |
|
|
$ |
29,450 |
|
Non-GAAP EBITDA adjustments to net income: |
|
|
|
|
|
|
Investment income |
|
|
(77 |
) |
|
|
(52 |
) |
Interest expense |
|
|
292 |
|
|
|
278 |
|
Non-cash interest expense(1) |
|
|
— |
|
|
|
2,476 |
|
Amortization of debt issuance costs |
|
|
452 |
|
|
|
352 |
|
Income tax provision |
|
|
11,967 |
|
|
|
3,655 |
|
Depreciation |
|
|
5,213 |
|
|
|
3,255 |
|
Intangible amortization |
|
|
6,621 |
|
|
|
5,189 |
|
EBITDA |
|
$ |
71,432 |
|
|
$ |
44,603 |
|
Other non-GAAP adjustments: |
|
|
|
|
|
|
Inventory step-up charges |
|
|
— |
|
|
|
1,598 |
|
Acquisition and integration costs |
|
|
3,189 |
|
|
|
2,551 |
|
Contingent consideration |
|
|
(2,411 |
) |
|
|
— |
|
Loss on conversion of debt |
|
|
— |
|
|
|
1 |
|
Adjusted EBITDA |
|
$ |
72,210 |
|
|
$ |
48,753 |
|
|
|
|
|
|
|
|
(1)See Note 12, "Earnings Per Share," for more information on the effects of adopting ASU 2020-06, which we adopted effective January 1, 2022.
Liquidity and Capital Resources
We have financed our operations primarily through revenues derived from product sales, the issuance of the 2019 Notes in July 2019 and the issuance of common stock in our December 2020, July 2019 and May 2019 public offerings. Our revenue for the foreseeable future will primarily be limited to our bioprocessing product revenue.
At March 31, 2022, we had cash and cash equivalents of $584.6 million compared to cash and cash equivalents of $603.8 million at December 31, 2021.
During the first quarter of 2022, the closing price of the Company’s common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the 2019 Notes are convertible at the option of the holders of the 2019 Notes during the second quarter of 2022, the quarter immediately following the quarter when the conditions are met, as stated in the terms of the 2019 Notes. These conditions have been met since the fourth quarter of 2020. As a result, $15,000 in aggregate principal amount of the 2019 Notes have been converted by the noteholders since the issuance of the 2019 Notes, including $4,000 during the first quarter of 2022. The conversions resulted in the issuance of a nominal number of shares of the Company’s common stock to the noteholders. The Company continues to classify the carrying value of the 2019 Notes as current liabilities on the Company’s consolidated balance sheet at March 31, 2022.
34
Cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Increase/(Decrease) |
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
|
(Amounts in thousands) |
|
Operating activities |
|
$ |
23,113 |
|
|
$ |
9,262 |
|
|
$ |
13,851 |
|
Investing activities |
|
|
(28,214 |
) |
|
|
(8,997 |
) |
|
|
(19,217 |
) |
Financing activities |
|
|
(12,021 |
) |
|
|
507 |
|
|
|
(12,528 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(2,052 |
) |
|
|
(6,746 |
) |
|
|
4,694 |
|
Net decrease in cash and cash equivalents |
|
$ |
(19,174 |
) |
|
$ |
(5,974 |
) |
|
$ |
(13,200 |
) |
|
|
|
|
|
|
|
|
|
|
Operating activities
For the three months ended March 31, 2022, our operating activities provided cash of $23.1 million reflecting net income of $47.0 million and non-cash charges totaling $18.9 million primarily related to depreciation, amortization, inventory step-up amortization, contingent consideration adjustments, deferred income taxes and stock-based compensation charges. An increase in accounts receivable consumed $6.3 million of cash and was primarily driven by the 44.5% year-to-date increase in revenues. An increase in inventory manufactured of $30.0 million supports expected increases in future revenue. A decrease in accrued liabilities of $10.0 million relates to the payout of employee bonus and a decrease in our estimated income tax provision during the first quarter of 2022.
For the three months ended March 31, 2021, our operating activities provided cash of $9.3 million reflecting net income of $29.5 million and non-cash charges totaling $20.2 million primarily related to depreciation, amortization, deferred income taxes, amortization of debt discount and issuance costs, and stock-based compensation charges. An increase in accounts receivable, consumed $19.8 million of cash and was primarily driven by the 87.7% year-to-date increase in revenues. An increase in inventory manufactured of $17.0 million supports expected increases in future revenue. An increase in accounts payable of $3.7 million was primarily due to increased inventory purchases to support customer orders. These are offset by $4.9 million decrease in accrued liabilities primarily related to payment of employee bonuses during the three months ended March 31, 2021 and related to a decrease in deferred revenue related to products shipped during the first quarter of 2021. The remaining net cash used in operating activities resulted from unfavorable changes in various other working capital accounts.
Investing activities
Our investing activities consumed $28.2 million of cash during the three months ended March 31, 2022 mainly due to capital expenditures as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $1.0 million represented capitalized costs related to our internal-use software.
Financing activities
Our financing activities consumed $12.0 million of cash for the three months ended March 31, 2022, which included cash disbursed in relation to shares withheld to cover employee income tax due upon the vesting and release of restricted stock units of $12.3 million. This was partially offset by proceeds received from stock option exercises during the period of $0.3 million.
Working capital decreased by $36.0 million to $520.5 million at March 31, 2022 from $556.4 million at December 31, 2021 due to the various changes noted above.
Our future capital requirements will depend on many factors, including the following:
•the expansion of our bioprocessing business;
•the ability to sustain sales and profits of our bioprocessing products;
•our ability to acquire additional bioprocessing products;
•the scope of and progress made in our R&D activities;
•contingent consideration earnout payments resulting from our acquisitions;
35
•the extent of any share repurchase activity; and
•the success of any proposed financing efforts.
Absent acquisitions of additional products, product candidates or intellectual property, we believe our current cash balances are adequate to meet our cash needs for at least the next 24 months from the date of this filing. We expect operating expenses for the rest of the year to increase as we continue to expand our bioprocessing business. We expect to incur continued spending related to the development and expansion of our bioprocessing product lines and expansion of our commercial capabilities for the foreseeable future. Our future capital requirements may include, but are not limited to, purchases of property, plant and equipment, the acquisition of additional bioprocessing products and technologies to complement our existing manufacturing capabilities, and continued investment in our intellectual property portfolio.
We plan to continue to invest in our bioprocessing business and in key R&D activities associated with the development of new bioprocessing products. We actively evaluate various strategic transactions on an ongoing basis, including acquiring complementary products, technologies or businesses that would complement our existing portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of equity and convertible debt securities may result in dilution to our shareholders, and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, if at all.
Net Operating Loss Carryforwards
At December 31, 2021, the Company had federal net operating loss carryforwards of $46.2 million, state net operating loss carryforwards of $4.0 million, and foreign net operating loss carryforwards of $6.1 million. Federal net operating loss carryforwards of $19.1 million will expire at various dates through 2037. The other $27.1 million of the federal net operating loss carryforwards have unlimited carryforward periods. The total state net operating loss carryforwards will expire at various dates through 2041, while the foreign net operating loss carryforwards do not expire. We had business tax credits carryforwards of $2.7 million available to reduce future federal and state income taxes, if any. The business tax credits carryforwards will continue to expire at various dates through December 2041. Net operating loss carryforwards and available tax credits are subject to review and possible adjustment by the Internal Revenue Service, state and foreign jurisdictions and may be limited in the event of certain changes in the ownership interest of significant shareholders.
Effects of Inflation
Our assets are primarily monetary, consisting of cash, cash equivalents and marketable securities. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture and fixtures and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and contract services, which could increase our level of expenses and the rate at which we use our resources.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position, potential impairment of future earnings, management’s strategy, plans and objectives
36
for future operations or acquisitions, product development and sales, product candidate research, development and regulatory approval, SG&A expenditures, intellectual property, development and manufacturing plans, availability of materials and product and adequacy of capital resources, our financing plans, and the projected continued impact of, and response to, COVID-19 constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management’s beliefs and assumptions. The Company undertakes no obligation to publicly update or revise the statements in light of future developments. In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company’s behalf. Words such as “expect,” “seek,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation, risks associated with the following: the impact of COVID-19 on demand for our products and on our business or financial results; the success of current and future collaborative or supply relationships, including our agreements with Cytiva, MilliporeSigma and Purolite; our ability to successfully grow our bioprocessing business, including as a result of acquisitions, commercialization or partnership opportunities, and our ability to develop and commercialize products; our ability to obtain required regulatory approvals; our compliance with all U.S. Food and Drug Administration regulations, our ability to obtain, maintain and protect intellectual property rights for our products; the risk of litigation regarding our patent and other intellectual property rights; the risk of litigation with collaborative partners; our manufacturing capabilities and our dependence on third-party manufacturers and value-added resellers; the effect of COVID-19, including mitigation efforts and economic effects, on our business operations and the operations of our customers and suppliers; our ability to hire and retain skilled personnel; the market acceptance of our products, reduced demand for our products that adversely impacts our future revenues, cash flows, results of operations and financial condition; our ability to integrate Polymem, Avitide and BioFlex businesses successfully into our business and achieve the expected benefits of the acquisitions; our ability to compete with larger, better financed life sciences companies; our history of losses and expectation of incurring losses; our ability to generate future revenues; our ability to successfully integrate our recently acquired businesses; our ability to raise additional capital to fund potential acquisitions; our volatile stock price; and the effects of our anti-takeover provisions. Further information on potential risk factors that could affect our financial results are included in the filings made by us from time to time with the SEC including under the sections entitled “Risk Factors” in our Form 10-K.