Repligen(US:RGEN)2024-07-30 21:04PART I - FINANCIAL INFORMATION Item 1. Financial Statements Unaudited condensed consolidated financial statements for June 30, 2024, show decreased revenue and net income, with slight asset growth and improved operating cash flow Condensed Consolidated Balance Sheets Total assets increased slightly to $2.86 billion as of June 30, 2024, with total liabilities rising to $875.6 million and equity reaching $1.986 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,158,918 | $1,111,043 | | Total Assets | $2,861,924 | $2,824,411 | | Total Current Liabilities | $174,307 | $158,162 | | Total Liabilities | $875,562 | $853,208 | | Total Stockholders' Equity | $1,986,362 | $1,971,203 | Condensed Consolidated Statements of Comprehensive Income (Loss) Net income significantly declined to $3.3 million for Q2 2024 and $5.4 million for the six-month period, driven by reduced revenue and higher SG&A expenses Key Performance Indicators (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $154,073 | $159,169 | $305,419 | $341,829 | | Income from Operations | $1,487 | $19,399 | $3,518 | $50,655 | | Net Income | $3,321 | $20,064 | $5,415 | $48,893 | | Diluted EPS | $0.06 | $0.35 | $0.10 | $0.86 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $1.986 billion by June 30, 2024, primarily due to net income and stock-based compensation, partially offset by translation adjustments Reconciliation of Stockholders' Equity for Six Months Ended June 30, 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2023 | $1,971,203 | | Net income | $5,415 | | Stock-based compensation expense | $17,990 | | Translation adjustment | ($6,812) | | Other (stock issuance, tax withholding, etc.) | ($1,434) | | Balance at June 30, 2024 | $1,986,362 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $86.9 million for the six months ended June 30, 2024, while investing activities used $15.8 million and financing used $14.7 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $86,898 | $45,622 | | Net Cash (Used in)/Provided by Investing Activities | ($15,762) | $55,400 | | Net Cash Used in Financing Activities | ($14,747) | ($18,388) | | Net Increase in Cash | $57,823 | $80,198 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, acquisitions, restructuring, and debt, highlighting $2.4 million in restructuring charges, $4.4 million in CEO transition stock compensation, 2019 convertible notes maturity, and the Tantti Laboratory Inc acquisition - The company initiated a restructuring plan in July 2023 to streamline operations, recording pre-tax charges of $1.0 million and $2.4 million for the three and six months ended June 30, 2024, respectively. The plan is expected to be completed by the end of Q3 2024243 - The transition of the CEO to Executive Chair resulted in a Type III accounting modification for his unvested stock awards, leading to the recognition of $4.4 million in incremental stock-based compensation expense for the three and six months ended June 30, 20246566 - The company's 0.375% Convertible Senior Notes from 2019 matured on July 15, 2024, and were settled with $69.6 million in cash and 100,942 shares of common stock104 - On July 29, 2024, the company announced a definitive agreement to acquire Tantti Laboratory Inc., with the transaction expected to close in Q4 2024105 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 10.7% revenue decline due to weak demand and COVID-19 related sales, compressed gross margins, and increased operating expenses, while maintaining strong liquidity with $809.1 million in cash Results of Operations Total revenue decreased 10.7% to $305.4 million for the six months ended June 30, 2024, driven by weak demand and reduced COVID-related sales, leading to gross margin compression and a 20.2% increase in SG&A expenses Revenue Comparison for Six Months Ended June 30 (in thousands) | Revenue Type | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Products | $305,348 | $341,754 | ($36,406) | (10.7%) | | Royalty and other | $71 | $75 | ($4) | (5.3%) | | Total Revenue | $305,419 | $341,829 | ($36,410) | (10.7%) | - The decrease in revenue was mainly due to weak demand in the proteins franchise, reflecting a drop-off from customer Cytiva producing in-house, and slower-than-expected inventory reduction by customers for COVID-19 related programs205 - Gross margin for the six months ended June 30, 2024, decreased to 49.7% from 52.9% in 2023, attributed to lower sales volumes, reduced production, and an unfavorable product mix with a decline in higher-margin consumable products114 - SG&A expenses for the six months ended June 30, 2024, increased by $21.2 million (20.2%), partly due to the inclusion of operations from the FlexBiosys and Metenova acquisitions and a $4.4 million stock compensation charge related to the CEO's transition141 Liquidity and Capital Resources The company maintains strong liquidity with $809.1 million in cash and equivalents as of June 30, 2024, supported by $86.9 million in operating cash flow, sufficient for at least the next 24 months - The company ended Q2 2024 with $809.1 million in cash and cash equivalents149 - Cash provided by operating activities for the first six months of 2024 was $86.9 million, a substantial increase from $45.6 million in the same period of 2023123 - The company issued $600.0 million of 1.00% Convertible Senior Notes due 2028 in December 2023, partly through an exchange of its 2019 Notes and partly for cash, bolstering its capital structure149 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure were reported for the three months ended June 30, 2024, remaining consistent with the 2023 Form 10-K disclosures - There were no material changes to the company's market risk exposure during the second quarter of 2024171 Item 4. Controls and Procedures Disclosure controls and procedures were deemed ineffective as of June 30, 2024, due to a material weakness in deferred income tax accounting, with remediation efforts underway - A material weakness was identified in controls over deferred income tax accounting for complex transactions, specifically related to the exchange and issuance of convertible senior notes in 2023131 - Due to this material weakness, the principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of the end of the quarter172 - Remediation efforts are ongoing, including enhanced use and oversight of third-party advisors and increased education for internal resources on complex transactions160 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any legal proceedings or claims expected to have a material adverse effect on its business or financial condition - The company reports no material legal proceedings162 Item 1A. Risk Factors No material changes to risk factors were reported, except for a data security incident on July 9, 2024, which management does not expect to materially impact financial condition or operations - On July 9, 2024, the company discovered an unauthorized third party had accessed certain files on its information systems175 - Management does not believe this data security incident will have a material impact on the company's financial condition and results of operations175 Other Items (2, 3, 4, 5) The report confirms no unregistered equity sales, no defaults on senior securities, mine safety disclosures are inapplicable, and no changes to Rule 10b5-1 trading plans by directors or officers - Item 2: No unregistered sales of equity securities163 - Item 3: No defaults upon senior securities176 - Item 5: No changes to director or officer Rule 10b5-1 trading plans during the quarter177 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, executive employment agreements, and required SEC certifications - Exhibits filed include an employment agreement for CEO Tony J. Hunt, dated June 12, 2024, and certifications required by the Sarbanes-Oxley Act178