false2019Q300007302723512-31MassachusettsConstruction in progress as of September 30, 2019, includes $4.9 million, which is primarily related to various manufacturing expansion projects at our Waltham, Massachusetts and Rancho Dominguez, California facilities. Construction in progress as of December 31, 2018 includes $2.1 million of capitalized internal-use software development costs and $7.3 million for the buildout of our Marlborough, Massachusetts facility. Both projects have since been placed into service and as a result, $6.5 million of internal-use software development costs are now included in furniture and fixtures as of September 30, 2019.Represents the number of vested options as of September 30, 2019 plus the number of unvested options expected to vest as of September 30, 2019 based on the unvested outstanding options at September 30, 2019 adjusted for estimated forfeiture rates of 8% for awards granted to non-executive level employees and 3% for awards granted to executive level employees. 0000730272 2019-01-01 2019-09-30 0000730272 2019-09-30 0000730272 2018-12-31 0000730272 2019-07-01 2019-09-30 0000730272 2018-07-01 2018-09-30 0000730272 2018-01-01 2018-09-30 0000730272 2019-07-19 0000730272 2019-05-03 0000730272 2019-05-03 2019-05-03 0000730272 2019-07-19 2019-07-19 0000730272 2018-01-01 2018-12-31 0000730272 2017-01-01 2017-12-31 0000730272 2019-10-28 0000730272 2018-06-30 0000730272 2017-12-31 0000730272 2019-06-30 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
For the transition period from
                
to
                
Commission File Number
000-14656
 
REPLIGEN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
     
Delaware
 
04-2729386
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
     
41 Seyon Street, Bldg. 1, Suite 100
Waltham, MA
 
02453
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
 
 
 
 
 
 
 
(781)
 250-0111
Registrant’s Telephone Number, Including Area Code
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value $0.01 per share
 
RGEN
 
The Nasdaq Global Select Market
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.:
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated filer
 
 
Smaller reporting company
 
             
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act.):    Yes  
    No  
The number of shares outstanding of the registrant’s common stock on
October
 
28
, 2019 was 52,058,850.
 
 
 

Table of Contents
                 
 
 
 
PAGE
 
PART I—FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
28
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
 
37
 
 
 
 
 
 
 
 
 
 
 
Item 4.
 
 
 
 
37
 
 
 
 
 
PART II—OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
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)
                 
 
September 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
Assets
   
     
 
Current assets:
   
     
 
Cash and cash equivalents
  $
513,454
    $
193,822
 
Restricted cash
   
8,975
     
—  
 
Accounts receivable, less reserve for doubtful accounts of $420 and $227 at September 30, 2019 and
 

December
 
31, 2018, respectively
   
41,968
     
33,015
 
Royalties and other receivables
   
68
     
136
 
Unbilled receivables
   
555
     
2,602
 
Inventories, net
   
51,579
     
42,263
 
Prepaid expenses and other current assets
   
4,941
     
3,901
 
                 
Total current assets
   
621,540
     
275,739
 
Property, plant and equipment, net
   
43,034
     
32,180
 
Intangible assets, net
   
216,289
     
135,438
 
Goodwill
   
468,845
     
326,735
 
Deferred tax assets
   
3,917
     
4,355
 
Operating lease right of use assets
   
24,845
     
—  
 
Other assets
   
238
     
174
 
                 
Total assets
  $
1,378,708
    $
774,621
 
                 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
   
     
 
Accounts payable
  $
9,951
    $
10,489
 
Operating lease liability
   
3,044
     
—  
 
Accrued liabilities
   
25,770
     
15,865
 
Convertible senior notes, current portion
   
—  
     
103,488
 
                 
Total current liabilities
   
38,765
     
129,842
 
Convertible senior notes
   
230,182
     
—  
 
Deferred tax liabilities
   
38,059
     
25,086
 
Operating lease liability, long-term
   
26,056
     
—  
 
Other liabilities, long-term
   
528
     
4,125
 
                 
Total liabilities
   
333,590
     
159,053
 
                 
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; 52,052,581 shares at September 30, 2019 and 43,917,378 shares at December 31, 2018 issued and outstanding
   
521
     
439
 
Additional paid-in capital
   
1,064,152
     
642,590
 
Accumulated other comprehensive loss
   
(21,794
)    
(11,893
)
Accumulated earnings (deficit)
   
2,239
     
(15,568
)
                 
Total stockholders’ equity
   
1,045,118
     
615,568
 
                 
Total liabilities and stockholders’ equity
  $
1,378,708
    $
774,621
 
                 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
3
 
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, amounts in thousands, except per share data)
                                 
 
Three Months Ended September 30,
   

Nine Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenue:
   
     
     
     
 
Products
  $
69,419
    $
49,500
    $
200,701
    $
142,042
 
Royalty and other revenue
   
26
     
29
     
70
     
48
 
                                 
Total revenue
   
69,445
     
49,529
     
200,771
     
142,090
 
                                 
Costs and operating expenses:
   
     
     
     
 
Cost of product revenue
   
31,425
     
22,183
     
88,978
     
62,939
 
Research and development
   
5,427
     
3,601
     
14,278
     
12,669
 
Selling, general and administrative
   
24,629
     
15,859
     
67,326
     
48,347
 
                                 
Total costs and operating expenses
   
61,481
     
41,643
     
170,582
     
123,955
 
                                 
Income from operations
   
7,964
     
7,886
     
30,189
     
18,135
 
                                 
Other income (expenses):
   
     
     
     
 
Investment income
   
1,898
     
558
     
3,616
     
1,251
 
Loss on extinguishment of debt
   
(5,650
)    
—  
     
(5,650
)    
—  
 
Interest expense
   
(2,857
)    
(1,687
)    
(6,326
)    
(5,008
)
Other income (expenses)
   
316
     
(134
)    
(23
)    
187
 
                                 
Other expenses, net
   
(6,293
)    
(1,263
)    
(8,383
)    
(3,570
)
                                 
Income before income taxes
   
1,671
     
6,623
     
21,806
     
14,565
 
Income tax provision
   
12
     
1,829
     
3,999
     
3,586
 
                                 
Net income
  $
1,659
    $
4,794
    $
17,807
    $
10,979
 
                                 
Earnings per share:
   
     
     
     
 
Basic
  $
0.03
    $
0.11
    $
0.38
    $
0.25
 
                                 
Diluted
  $
0.03
    $
0.10
    $
0.37
    $
0.24
 
                                 
Weighted average common shares outstanding:
   
     
     
     
 
Basic
   
50,852
     
43,822
     
47,087
     
43,729
 
                                 
Diluted
   
51,809
     
45,828
     
47,930
     
45,132
 
                                 
Net income
  $
1,659
    $
4,794
    $
17,807
    $
10,979
 
Other comprehensive income (loss):
   
     
     
     
 
Foreign currency translation adjustment
   
(6,741
)    
(630
)    
(9,901
)    
(5,410
)
                                 
Comprehensive (loss) income
  $
(5,082
)   $
4,164
    $
7,906
    $
5,569
 
                                 
 
 
 
 
 
 
 
 
 
 
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)
                                                 
 
Nine Months Ended September 30, 2019
 
 
 
Common Stock
   
 
 
 
 
 
 
 
 
Number of Shares
 
 
Par Value
 
 
Additional Paid-
 

In Capital
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
Accumulated Earnings (Deficit)
 
 
Total Stockholders’ Equity
 
Balance at December 31, 2018
   
43,917,378
    $
439
    $
642,590
    $
(11,893
)   $
(15,568
)   $
615,568
 
Net income
   
—  
     
—  
     
—  
     
—  
     
17,807
     
17,807
 
Issuance of common stock for debt conversion
   
2,316,229
     
23
     
198,734
     
—  
     
—  
     
198,757
 
Reduction for equity component from debt conversion
, net of tax
   
—  
     
—  
     
(200,079
)    
—  
     
—  
     
(200,079
)
Exercise of stock options and releases of restricted stock
   
311,299
     
3
     
1,055
     
—  
     
—  
     
1,058
 
Issuance of common stock pursuant to the acquisition of C Technologies, Inc.
   
779,221
     
8
     
53,930
     
—  
     
—  
     
53,938
 
Tax withholding on vesting of restricted stock units
   
(3,077
)    
—  
     
(290
)    
 
 
     
 
 
     
(290
)
Equity component of 0.375% senior convertible notes, net
 of tax
   
—  
     
—  
     
38,088
     
 
 
     
 
 
     
38,088
 
Proceeds from issuance of common stock, net of issuance costs
of $18,607
   
4,731,531
     
48
     
320,665
     
—  
     
—  
     
320,713
 
Stock-based compensation expense
   
—  
     
—  
     
9,459
     
—  
     
—  
     
9,459
 
Translation adjustment
   
—  
     
—  
     
—  
     
(9,901
)    
—  
     
(9,901
)
                                                 
Balance as of September 30, 2019
   
52,052,581
    $
521
    $
 
1,064,152
    $
(21,794
)   $
2,239
    $
1,045,118
 
                                                 
       
 
Three Months Ended September 30, 2019
 
 
 
Common Stock
   
 
 
 
 
 
 
 
 
Number of Shares
 
 
Par Value
 
 
Additional Paid-
 

In Capital
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
Accumulated Earnings
 
 
Total Stockholders’ Equity
 
Balance at June 30, 2019
   
48,086,422
    $
481
    $
892,960
    $
(15,053
)   $
580
    $
878,968
 
Net income
   
—  
     
—  
     
—  
     
—  
     
1,659
     
1,659
 
Issuance of common stock for debt conversion
   
2,316,200
     
23
     
198,732
     
—  
     
—  
     
198,755
 
Reduction for equity component from debt conversion
, net of tax
   
—  
     
—  
     
(200,079
)    
—  
     
—  
     
(200,079
)
Exercise of stock options and releases of restricted stock
   
66,036
     
1
     
493
     
—  
     
—  
     
494
 
Tax withholding on vesting of restricted stock units
   
(3,077
)    
—  
     
(290
)    
—  
     
—  
     
(290
)
Equity component of 0.375% senior convertible notes, net
 of tax
   
—  
     
—  
     
38,088
     
 
 
     
 
 
     
38,088
 
Proceeds from issuance of common stock, net of issuance costs
of $6,981
 
 
1,587,000
 
 
 
16
 
 
 
131,073
 
 
 
—  
 
 
 
—  
 
 
 
131,089
 
Stock-based compensation expense
   
—  
     
—  
     
3,175
     
—  
     
—  
     
3,175
 
Translation adjustment
   
—  
     
—  
     
—  
     
(6,741
)    
—  
     
(6,741
)
                                                 
Balance as of September 30, 2019
   
52,052,581
    $
521
    $
1,064,152
    $
(21,794
)   $
2,239
    $
1,045,118
 
                                                 
       
 
Nine Months Ended September 30, 2018
 
 
 
Common Stock
   
 
 
 
 
 
 
 
 
Number of Shares
 
 
Par Value
 
 
Additional Paid-
 

In Capital
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
Accumulated Deficit
 
 
Total Stockholders’ Equity
 
Balance at December 31, 2017
   
43,587,079
    $
436
    $
628,983
    $
(6,363
)   $
(31,508
)   $
591,548
 
Net income
   
—  
     
—  
     
—  
     
—  
     
10,979
     
10,979
 
Issuance of common stock for debt conversion
   
2
     
0
     
0
     
—  
     
—  
     
0
 
Exercise of stock options and releases of restricted stock
   
266,308
     
3
     
2,372
     
—  
     
—  
     
2,375
 
Stock-based compensation expense
   
—  
     
—  
     
7,672
     
—  
     
—  
     
7,672
 
Cumulative effect of accounting changes
   
—  
     
—  
     
—  
     
—  
     
(677
)    
(677
)
Translation adjustment
   
—  
     
—  
     
—  
     
(5,410
)    
—  
     
(5,410
)
                                                 
Balance as of
September 30
, 2018
   
43,853,389
    $
439
    $
639,027
    $
(11,773
)   $
(21,206
)   $
606,487
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
 
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED
(Unaudited, amounts in thousands, except share data)
 
Three Months Ended September 30, 2018
 
 
 
Common Stock
   
 
 
 
 
 
 
 
 
   
 
 
Accumulated
 
 
 
 
 
 
   
Additional
 
 
Other
 
 
 
 
Total
 
 
Number of
 
 
Par
 
 
Paid-
 
 
Comprehensive
 
 
Accumulated
 
 
Stockholders’
 
 
Shares
 
 
Value
 
 
In Capital
 
 
Income (Loss)
 
 
Deficit
 
 
Equity
 
Balance at June 30, 2018
   
43,798,572
    $
 
 
 
 
 
 
438
    $
635,364
    $
(11,143
)   $
(26,000
)   $
598,659
 
Net income
   
—  
     
—  
     
—  
     
—  
     
4,794
     
4,794
 
Exercise of stock options and releases of restricted stock
   
54,817
     
1
     
884
     
—  
     
—  
     
885
 
Stock-based compensation expense
   
—  
     
—  
     
2,779
     
—  
     
—  
     
2,779
 
Translation adjustment
   
—  
     
—  
     
—  
     
(630
)    
—  
     
(630
)
                                                 
Balance as of
September 30
, 2018
   
43,853,389
    $
439
    $
639,027
    $
(11,773
)   $
(21,206
)   $
606,487
 
                                                 
The accompanying notes are an integral part of these consolidated financial statements.
 
6
 
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
                 
 
Nine Months Ended September 30,
 
 
 
2019
 
 
2018
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income
  $
17,807
    $
10,979
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Depreciation and amortization
   
14,791
     
11,775
 
Non-cash interest expense
   
4,863
     
3,160
 
Stock-based compensation expense
   
9,459
     
7,672
 
Deferred tax
es
   
(9,680
)    
472
 
Loss on extinguishment of debt
   
5,650
     
—  
 
Other
   
114
     
108
 
Changes in operating assets and liabilities, excluding impact of acquisitions:
   
     
 
Accounts receivable
   
(6,734
)    
(1,583
)
Royalties and other receivables
   
26
     
(149
)
Unbilled receivables
   
2,047
     
—  
 
Inventories
   
(4,891
)    
(4,805
)
Prepaid expenses and other assets
   
(1,075
)    
(1,437
)
Operating lease right of use assets
   
787
     
—  
 
Other assets
   
(66
)    
(1,348
)
Accounts payable
   
(780
)    
3,354
 
Accrued expenses
   
7,263
     
(1,070
)
Operating lease liability
   
(607
)    
—  
 
Long-term liabilities
   
10,568
     
87
 
                 
Total cash provided by operating activities
   
49,542
     
27,215
 
                 
Cash flows from investing activities:
 
 
 
 
 
 
Acquisition of C Technologies, Inc., net of cash acquired
   
(182,154
)    
—  
 
Additions to capitalized software costs
   
(4,630
)     (1,212
)
Purchases of property, plant and equipment
   
(11,413
)    
(7,368
)
                 
Total cash used in investing activities
   
(198,197
)    
(8,580
)
                 
Cash flows from financing activities:
 
 
 
 
 
 
Exercise of stock options
   
1,058
     
2,374
 
Payment of tax withholding obligation on vesting of restricted stock
   
(290
)    
—  
 
Proceeds from issuance of convertible debt, net
   
278,555
     
—  
 
Proceeds from issuance of common stock, net
   
320,713
     
—  
 
Repayment of senior convertible notes
   
(114,989
)    
(11
)
                 
Total cash provided by financing activities
   
485,047
     
2,363
 
                 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
   
(7,785
)    
(4,453
)
                 
Net increase in cash, cash equivalents and restricted cash
   
328,607
     
16,545
 
                 
Cash, cash equivalents and restricted cash, beginning of period
   
193,822
     
173,759
 
                 
Cash, cash equivalents and restricted cash, end of period
  $
522,429
    $
190,304
 
                 
Supplemental disclosure of cash flow information:
   
     
 
Income taxes paid
  $
4,206
    $
3,120
 
                 
Interest paid
  $
1,484
    $
1,222
 
                 
Supplemental disclosure of non-cash investing and financing activities:
   
     
 
Fair value of 2,316,229 shares of common stock issued for conversion of convertible notes
  $
198,757
    $
—  
 
                 
Fair value of common stock issued for acquisition of C Technologies, Inc.
  $
53,938
    $
—  
 
                 
Property, plant and equipment related to lease incentives
  $
—  
    $
2,270
 
                 
Non-cash effect of adoption of ASU 2016-16
  $
—  
    $
5,609
 
                 
Business Acquisitions:
 
 
 
 
 
 
Fair value of tangible assets acquired
  $
30,756
    $
—  
 
Fair value of accounts receivables
   
3,044
     
—  
 
Fair value of other assets
   
3,929
     
—  
 
Liabilities assumed
   
(35,370
)    
—  
 
Fair value of stock issued
   
(53,938
)    
—  
 
Cost in excess of fair value of assets acquired (goodwill)
   
142,903
     
—  
 
Acquired identifiable intangible assets
   
90,830
     
—  
 
                 
Net cash paid for business acquisitions
  $
182,154
    $
—  
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
7
 
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
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, 2018.
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,” acquired on May 31, 2019), 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.
Recent Accounting Standards Updates
We consider the applicability and impact of all Accounting Standards Updates on our consolidated financial statements. Updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations. Recently issued Accounting Standards Updates which we feel may be applicable to us are as follows:
Recently Issued Accounting Standard Updates – Not Yet Adopted
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 amendments become effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
In August 2018, the FASB issued ASU
2018-15,
“Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”
ASU
2018-15
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an
internal-use
software license). The guidance also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The guidance becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
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
 
8
 

the scope of Topic 606 together with revenue accounted for under Topic 606. The guidance becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
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. ASU 2016-13 becomes effective for the Company in the year ending December 31, 2020, including interim periods. Early adoption is permitted. The Company is currently assessing the potential impact of the adoption of ASU 2016-13 on its consolidated financial statements.
Recently Issued Accounting Standard Updates – Adopted During the Period
In February 2016, the FASB issued ASU
2016-02,
 “Leases (Topic 842).”
ASU
2016-02,
along with subsequent ASUs issued to clarify certain provisions of ASU
2016-02
(collectively known as “ASC 842”), establishes a
right-of-use
(“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Certain qualitative and quantitative disclosures are also required. The Company adopted ASU
2016-02
and related amendments on January 1, 2019 using an optional transition method allowed with the issuance of ASU
2018-11,
“Leases – Targeted Improvements (Topic 842),”
in July 2018. ASU
2018-11
gives entities the option to not provide comparative period financial statements and instead apply the transition requirements as of the effective date of the new standard. Pursuant to additional guidance under ASC 842, the Company also elected the optional package of practical expedients, which allowed the Company to not reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC 840,
“Leases”,
which did not require the recognition of operating lease liabilities on the consolidated balance sheet, and is not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases, which is determined at the inception of the lease. The lease classification affects the expense recognition in the consolidated statements of comprehensive income (loss). The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. Therefore, there is no significant difference in our results of operations presented in our consolidated statements of comprehensive income (loss) for each period presented. The Company also elected under the package of practical expedients, to combine lease and
non-lease
components and not to record leases with an initial term of 12 months or less on the consolidated balance sheet. The Company adopted ASC 842 using the optional transition method for all leases existing at January 1, 2019. The adoption had a substantial impact on our balance sheet. The most significant impact was the recognition of the operating lease ROU assets and lease liabilities for operating leases. Upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded ROU assets of $17.0 million and lease liabilities of $21.0 million, before considering deferred taxes. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date January 1, 2019. The difference between the ROU assets and the lease liabilities is due to $4.0 million of unamortized lease incentives and deferred rent at the Company’s Marlborough and Waltham facilities as of December 31, 2018. There was no impact to our beginning retained earnings upon adoption of ASC 842. See Note 5,
“Leases,”
below for more information on the Company’s adoption of ASC 842.
2.
Fair Value Measurements
In determining the fair value of its assets and liabilities, the Company uses various valuation approaches. 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.
 
 
9
 
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.
 
As of September 30, 2019 and December 31, 2018, cash and cash equivalents on the Company’s consolidated balance sheets included $414.7 million and $126.6 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 September
 
30, 2019, the carrying value of the 2019 Notes was $230.2
 
million, net of unamortized discount, and the fair value of the 2019 Notes was $287.9
 
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 September
 
30, 2019. The 2019 Notes are discussed in more detail in Note 8,
“Convertible Senior Notes”
to these consolidated financial statements.
Nonrecurring Fair Value Measurements
We hold certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Refer to Note 8,
“Convertible Senior Notes,”
to these consolidated financial statements for disclosure of the nonrecurring fair value measurement related to the $5.6 million loss on extinguishment of debt recorded in the third quarter of 2019.
3.
Acquisition of C Technologies, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On April 25, 2019, Repligen agreed to acquire C Technologies, pursuant to the terms of a Stock Purchase Agreement (the “Agreement”), by and among Repligen, C Technologies and Craig Harrison, an individual and sole stockholder of C Technologies (such acquisition, the “C Technologies Acquisition”).
C Technologies’ business consists of two major product categories (i) biotechnology, or Biotech, and (ii) Legacy and Other. Through its Biotech category, C Technologies sells instruments, consumables and accessories that are designed to allow bioprocessing technicians to measure the protein concentration of a liquid sample using C Technologies’ Slope Spectroscopy method, which eliminates the need for manual sample dilution. C Technologies’ lead product, the SoloVPE instrument platform, was launched in 2008 for
off-line
and
at-line
protein concentration measurements conducted in quality control, process development and manufacturing labs in the production of biological therapeutics. C Technologies’ FlowVPE platform, an extension of the SoloVPE technology, was designed to allow end users to make
in-line
protein concentration measurements in filtration, chromatography and fill-finish applications, designed to allow for real-time process monitoring.
Consideration Transferred
The C Technologies Acquisition was accounted for as a purchase of a business under Accounting Standards Codification No. (“ASC”) 805,
“Business Combinations”
. The C Technologies Acquisition was funded through payment of approximately $195.0 million in cash, $186.0 million of which
 is
consideration transferred pursuant to ASC 805, and $9.0 million of which will be compensation expense for future employment, and 779,221 unregistered shares of the Company’s common stock totaling $53.9 million for a total purchase price of $239.9 million. Under the acquisition method of accounting, the assets of C Technologies were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net tangible assets acquired is estimated to be approximately $6.2 million, the fair value of the intangible assets acquired is estimated to be approximately $90.8 million, and the residual goodwill is estimated to be approximately $142.9 million. The estimated consideration and preliminary purchase price information has been prepared using a preliminary valuation. The final purchase price allocation will be completed upon closing of the transaction. The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that Repligen believes to be reasonable. However, actual results may differ from these estimates.
 
10
 

Total consideration transferred is as follows (amounts in thousands):
         
Cash consideration
 
$
185,949
 
Equity consideration
 
 
53,938
 
 
 
 
 
 
Fair value of net assets acquired
 
$
239,887
 
 
 
 
 
 
 
Acquisition related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred an immaterial amount of acquisition related costs in the third quarter of 2019 and $4.0 million in transaction costs for the nine-month period ended September 30, 2019. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of comprehensive income (loss)
. In connection with the transaction, an additional $9.0 million in cash will be due to employees based on their continued employment with the Company one year after the date of the close of the C Technologies Acquisition.
Fair Value of Net Assets Acquired
The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, based on the preliminary valuation. The Company obtains this information during due diligence and through other sources. In the months after closing, the Company may obtain additional information about these assets and liabilities as it learns more about C Technologies and will refine the estimates of fair value to more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. We will make appropriate adjustments to the purchase price allocation, if any, prior to the completion of the measurement period, which is up to one year from the acquisition date. The components and allocation of the purchase price consists of the following amounts (amounts in thousands):
         
Cash and cash equivalents
  $
3,795
 
Restricted cash
   
26,933
 
Accounts receivable
   
3,044
 
Inventory
   
3,783
 
Prepaid expenses and other current assets
   
93
 
Fixed assets
   
40
 
Operating lease right of use asset
   
3,836
 
Customer relationships
   
59,680
 
Developed technology
   
28,920
 
Trademark and tradename
   
1,570
 
Non-competition
agreements
   
660
 
Goodwill
   
142,903
 
Accounts payable
   
(436
)
Accrued liabilities
   
(2,461
)
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 $142.9 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.
 
11
 

Intangible Assets
The following table sets forth the components of the identified intangible assets associated with the C Technologies Acquisition and their estimated useful lives:
                 
 
Useful Life
 
 
Fair Value
 
 
 
 
(Amounts in thousands)
 
Customer relationships
 
 
17 years
 
 
$
59,680
 
Developed technology
 
 
18 years
 
 
 
28,920
 
Trademark and tradename
 
 
20 years
 
 
 
1,570
 
Non-competition
agreements
 
 
4 years
 
 
 
660
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
90,830
 
 
 
 
 
 
 
 
 
 
 
Revenue, Net Income and Pro Forma Presentation
The Company recorded revenue from C Technologies of $7.0 million and a net loss of $1.2 million for the three months ended September 30, 2019 and revenue of $9.1 million and a net loss of $2.7 million from May 31, 2019
,
the date of acquisition
,
 
to September 30, 2019. The Company has included the operating results of C Technologies in its consolidated statements of comprehensive (loss) 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, 2018 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 a $3.6 million and a $4.0 million net increase in amortization expense in 2019 and 2018, respectively, to record amortization expense for the $90.8 million of acquired identifiable intangible assets, adjustments to stock-based compensation of $0.5 million in both years, for equity compensation issued to C Technologies employees and the income tax effect of the adjustments made at the
blended federal and state 
statutory tax rate (approximately 25%). In addition, acquisition-related transaction costs of $4.0 million and a $1.5 million purchase accounting adjustment to record inventory at fair value were excluded from pro forma net income in 2019.
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, 2018 or of future results:
 
Nine Months Ended
September 30,
 
 
2019