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Section 1: 10-Q (10-Q)

10-Q
false2019Q20000730272three year--12-31MassachusettsConstruction in progress as of June 30, 2019 includes $5.6 million in capitalized internal-use software development costs and $0.3 million in manufacturing improvements at our Rancho Dominguez facility among other projects. Construction in progress as of December 31, 2018 included $7.3 million for the buildout of our Marlborough facility, which was put into service and began depreciating on January 1, 2019, $2.1 million in capitalized internal-use software development costs and $2.1 million for a casting machine, among other projects.Represents the number of vested options as of June 30, 2019 plus the number of unvested options expected to vest as of June 30, 2019 based on the unvested outstanding options at June 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 2019-06-30 0000730272 2019-06-30 0000730272 2018-12-31 0000730272 2019-04-01 2019-06-30 0000730272 2018-04-01 2018-06-30 0000730272 2018-01-01 2018-06-30 0000730272 2018-06-30 0000730272 2019-05-03 0000730272 2019-05-03 2019-05-03 0000730272 2017-01-01 2017-12-31 0000730272 2018-01-01 2018-12-31 0000730272 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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, 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 July 30, 2019 was
51,530,792
.
 
 
 
 
 
Table of Contents
             
 
 
PAGE
 
PART I -
     
 
             
Item 1.
     
 
             
     
3
 
             
     
4
 
             
     
5
 
             
     
7
 
             
     
8
 
             
Item 2.
     
28
 
             
Item 3.
     
36
 
             
Item 4.
     
37
 
             
PART II -
     
 
             
Item 1.
     
38
 
             
Item 1A.
     
38
 
             
Item 2.
     
38
 
             
Item 3.
     
38
 
             
Item 4.
     
38
 
             
Item 5.
     
38
 
             
Item 6.
     
39
 
         
   
40
 
 
 
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,
 
 
2019
   
2018
 
Assets
   
     
 
Current assets:
   
     
 
Cash and cash equivalents
  $
208,888
    $
193,822
 
Restricted cash
   
8,929
     
—  
 
Accounts receivable, less reserve for doubtful accounts of $330 and $227 at
June 30, 2019 and December 31, 2018, respectively
   
43,045
     
33,015
 
Royalties and other receivables
   
44
     
136
 
Unbilled receivables
   
460
     
2,602
 
Inventories, net
   
51,275
     
42,263
 
Prepaid expenses and other current assets
   
3,853
     
3,901
 
                 
Total current assets
   
316,494
     
275,739
 
Property, plant and equipment, net
   
38,125
     
32,180
 
Intangible assets, net
   
220,481
     
135,438
 
Goodwill
   
469,510
     
326,735
 
Deferred tax assets
   
3,917
     
4,355
 
Operating lease right of use assets
   
19,501
     
—  
 
Other assets
   
239
     
174
 
                 
Total assets
  $
1,068,267
    $
774,621
 
                 
Liabilities and Stockholders’ Equity
   
     
 
Current liabilities:
   
     
 
Accounts payable
  $
11,304
    $
10,489
 
Operating lease liability
   
3,287
     
—  
 
Accrued liabilities
   
20,618
     
15,865
 
Convertible senior notes, current portion
   
105,704
     
103,488
 
                 
Total current liabilities
   
140,913
     
129,842
 
Deferred tax liabilities
   
27,690
     
25,086
 
Operating lease liability, long-term
   
20,209
     
—  
 
Other liabilities, long-term
   
487
     
4,125
 
                 
Total liabilities
   
189,299
     
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; 48,086,422 shares at June 30, 2019 and 43,917,378
shares at December 31, 2018 issued and outstanding
   
481
     
439
 
Additional
paid-in
capital
   
892,960
     
642,590
 
Accumulated other comprehensive loss
   
(15,053
)    
(11,893
)
Accumulated earnings (deficit)
   
580
     
(15,568
)
                 
Total stockholders’ equity
   
878,968
     
615,568
 
                 
Total liabilities and stockholders’ equity
  $
 
 
1,068,267
    $
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
June 30,
   
Six Months Ended
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Revenue:
   
     
     
     
 
Products
  $
70,670
    $
47,743
    $
131,282
    $
92,542
 
Royalty and other revenue
   
22
     
(12
)    
44
     
19
 
                                 
Total revenue
   
70,692
     
47,731
     
131,326
     
92,561
 
                                 
Costs and operating expenses:
   
     
     
     
 
Cost of product revenue
   
30,708
     
21,088
     
57,553
     
40,756
 
Research and development
   
5,231
     
5,780
     
8,851
     
9,068
 
Selling, general and administrative
   
23,699
     
16,590
     
42,697
     
32,488
 
                                 
Total costs and operating expenses
   
59,638
     
43,458
     
109,101
     
82,312
 
                                 
Income from operations
   
11,054
     
4,273
     
22,225
     
10,249
 
                                 
Other income (expenses):
   
     
     
     
 
Investment income
   
1,005
     
512
     
1,718
     
693
 
Interest expense
   
(1,743
)    
(1,669
)    
(3,469
)    
(3,321
)
Other (expenses) income
   
(697
)    
251
     
(339
)    
321
 
                                 
Other expenses, net
   
(1,435
)    
(906
)    
(2,090
)    
(2,307
)
                                 
Income before income taxes
   
9,619
     
3,367
     
20,135
     
7,942
 
Income tax provision
   
1,524
     
629
     
3,987
     
1,757
 
                                 
Net income
  $
8,095
    $
2,738
    $
16,148
    $
6,185
 
                                 
Earnings per share:
   
     
     
     
 
Basic
  $
0.17
    $
0.06
    $
0.36
    $
0.14
 
                                 
Diluted
  $
0.17
    $
0.06
    $
0.34
    $
0.14
 
                                 
Weighted average common shares outstanding:
   
     
     
     
 
Basic
   
46,367
     
43,743
     
45,174
     
43,683
 
                                 
Diluted
   
49,056
     
45,016
     
47,692
     
44,695
 
                                 
Net income
  $
8,095
    $
2,738
    $
16,148
    $
6,185
 
Other comprehensive income (loss):
   
     
     
     
 
Foreign currency translation adjustment
   
(1,269
)    
(5,031
)    
(3,160
)    
(4,780
)
                                 
Comprehensive income (loss)
  $
6,826
    $
(2,293
)   $
12,988
    $
1,405
 
                                 
 
 
 
 
 
 
 
 
 
 
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, 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
   
—  
     
     
—  
     
     
16,148
     
16,148
 
Issuance of common stock for debt conversion
   
29
     
0
     
2
     
     
     
2
 
Exercise of stock options and releases of restricted stock
   
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  costs 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 at June 30, 2019
   
48,086,422
    $
  481
    $
892,960
    $
(15,053
)   $
580
    $
  878,968
 
                                                 
       
 
Three Months Ended June 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 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 releases of restricted stock
   
88,643
     
1
     
522
     
     
     
523
 
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 costs 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 at June 30, 2019
   
48,086,422
    $
481
    $
892,960
    $
(15,053
)   $
580
    $
878,968
 
                                                 
       
 
Six Months Ended June 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
   
—  
     
—  
     
—  
     
—  
     
6,185
     
6,185
 
Issuance of common stock for debt conversion
   
2
     
0
     
0
     
—  
     
—  
     
0
 
Exercise of stock options and releases of restricted stock
   
211,491
     
2
     
1,488
     
—  
     
—  
     
1,490
 
Stock-based compensation expense
   
—  
     
—  
     
4,893
     
—  
     
—  
     
4,893
 
Cumulative effect of accounting changes
   
—  
     
—  
     
—  
     
—  
     
(677
)    
(677
)
Translation adjustment
   
—  
     
—  
     
—  
     
(4,780
)    
—  
     
(4,780
)
                                                 
Balance at June 30, 2018
   
43,798,572
    $
438
    $
635,364
    $
(11,143
)   $
(26,000
)   $
598,659
 
                                                 
 
 
 
 
 
 
 
 
  
5
  
 
 
 
 
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED
(Unaudited
, amounts in thousands, except share data
)
 
                                                 
 
Three Months Ended June 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 March 31, 2018
   
43,692,303
    $
437
    $
631,595
    $
(6,112
  $
(28,737
  $
597,183
 
Net income
   
     
     
     
     
2,737
     
2,737
 
Issuance of common stock for debt conversion
   
—  
     
0
     
0
     
—  
     
—  
     
—  
 
Exercise of stock options and releases of restricted stock
   
106,269
     
1
     
1,144
     
—  
     
—  
     
1,145
 
Stock-based compensation expense
   
—  
     
—  
     
2,625
     
—  
     
—  
     
2,625
 
Translation adjustment
   
—  
     
—  
     
—  
     
(5,031
)    
—  
     
(5,031
)
                                                 
Balance at June 30, 2018
   
43,798,572
    $
438
    $
635,364
    $
(11,143
)   $
(26,000
)   $
598,659
 
                                                 
 
 
 
 
 
 
 
 
 
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,
 
 
2019
   
2018
 
Cash flows from operating activities:
   
     
 
Net income
  $
16,148
    $
6,185
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Depreciation and amortization
   
9,053
     
7,894
 
Non-cash
interest expense
   
2,231
     
2,089
 
Stock-based compensation expense
   
6,283
     
4,893
 
Deferred tax expense
   
889
     
325
 
Other
   
3
     
1
 
Changes in operating assets and liabilities, excluding impact of acquisitions:
   
     
 
Accounts receivable
   
(7,317
)    
(4,788
)
Royalties and other receivables
   
114
     
60
 
Unbilled receivables
   
2,142
     
—  
 
Inventories
   
(4,137
)    
(3,096
)
Prepaid expenses and other assets
   
114
     
(144
)
Operating lease right of use assets
   
1,206
     
—  
 
Other assets
 
 
(65
)
 
 
(1,241
)
Accounts payable
   
495
     
(701
)
Accrued expenses
   
1,642
     
(3,985
)
Operating lease liability
   
(1,216
)    
—  
 
Long-term liabilities
   
(8
)    
43
 
                 
Total cash provided by operating activities
   
27,577
     
7,535
 
                 
Cash flows from investing activities:
   
     
 
Acquisition of C Technologies, Inc., net of cash acquired
   
(182,176
)
   
—  
 
Additions to capitalized software costs
   
(3,282
)    
—  
 
Purchases of property, plant and equipment
   
(5,847
)    
(4,412
)
                 
Total cash used in investing activities
   
(191,305
)    
(4,412
)
                 
Cash flows from financing activities:
   
     
 
Exercise of stock options
   
566
     
1,490
 
Proceeds from issuance of common stock, net
   
189,623
 
 
 
—  
 
Repayment of senior convertible notes
   
(17
)    
(11
)
                 
Total cash provided by financing activities
   
190,172
     
1,479
 
                 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
   
(2,449
)    
(2,750
)
                 
Net increase in cash, cash equivalents and restricted cash
   
23,995
     
1,852
 
                 
Cash, cash equivalents and restricted cash, beginning of period
   
193,822
     
173,759
 
                 
Cash, cash equivalents and restricted cash, end of period
  $
217,817
    $
175,611
 
                 
Supplemental disclosure of cash flow information:
   
     
 
Income taxes paid
  $
2,705
    $
1,458
 
Supplemental disclosure of
non-cash
investing and financing activities:
   
     
 
Fair value of common stock issued for acquisition of C Technologies, Inc.
  $
53,938
    $
—  
 
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
 
 
(35,326
)
 
 
—  
 
Fair value of stock issued
 
 
(53,938
)
 
 
—  
 
Cost in excess of fair value of assets acquired (goodwill)
 
 
142,881
 
 
 
—  
 
Acquired identifiable intangible assets
 
 
90,830
 
 
 
—  
 
Net cash paid for business acquisitions
 
$
182,176
 
 
$
—  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,” acquired on August 1, 2017), 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.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 June 30, 2019 and December 31, 2018, cash and cash equivalents on the Company’s consolidated balance sheets included $118.4 million and $126.6 million, respectively, in a money market account. These funds are valued on a recurring basis using Level 1 inputs.
 
9
 
 
 
 
 
In May 2016, the Company issued $115.0 million aggregate principal amount of the Notes due June 1, 2021 (the “2016 Notes”). Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016. As of June 30, 2019, the carrying value of the 2016 Notes was $105.7 million, net of unamortized discount, and the fair value of the 2016 Notes was $310.5 million. The fair value of the 2016 Notes is a Level 1 valuation and was determined based on the most recent trade activity of the 2016 Notes as of June 30, 2019. The 2016 Notes are discussed in more detail in Note 8,
“Convertible Senior Notes”
to these consolidated financial statements.
There were no remeasurements to fair value during the three months ended June 30, 2019 of financial assets and liabilities that are not measured at fair value on a recurring basis.
3.
Acquisition of C Technologies, Inc.
 
 
 
 
 
 
On April 25, 2019, Repligen agreed to acquire C Technologies, pursuant to the terms of a Stock Purchase Agreement (the “Agreement”), by and among Repligen, C Technologies and Craig Harrison, an individual and sole stockholder of C Technologies (such acquisition, the “C Technologies Acquisition”).
 
C Technologies’ business consists of two major product categories (i) biotechnology, or Biotech, and (ii) Legacy and Other. Through its Biotech category, C Technologies sells instruments, consumables and accessories that are designed to allow bioprocessing technicians to measure the protein concentration of a liquid sample using C Technologies’ Slope Spectroscopy method, which eliminates the need for manual sample dilution. C Technologies’ lead product, the SoloVPE instrument platform, was launched in 2008 for off-line and at-line protein concentration measurements conducted in quality control, process development and manufacturing labs in the production of biological therapeutics. C Technologies’ FlowVPE platform, an extension of the SoloVPE technology, was designed to allow end users to make in-line protein concentration measurements in filtration, chromatography and fill-finish applications, designed to allow for real-time process monitoring.
 
Consideration Transferred
The C Technologies Acquisition was accounted for as a purchase of a business under Accounting Standards Codification No. (“ASC”) 805,
“Business Combinations”
. The C Technologies Acquisition was funded through payment of approximately $195.0 million in cash, $186.0 million of which will be 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.
Total consideration transferred is as follows (amounts in thousands):
         
Cash consideration
  $
185,971
 
Equity consideration
   
53,938
 
         
Fair value of net assets acquired