# REPLIGEN CORP (RGEN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from REPLIGEN CORP's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/730272/000095017023003793/rgen-20221231.htm
Accession: 0000950170-23-003793
Filing date: 2023-02-22
Report date: 2022-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/RGEN/
All MD&A years: /company/RGEN/mda/
Previous year: /company/RGEN/mda/fy2021/ (FY 2021)
Next year: /company/RGEN/mda/fy2023/ (FY 2023)

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 revenues for years ended December 31, 2022, 2021 and 2020 were comprised of the following:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","2022 vs 2021","","","2021 vs 2020"],["","","2022","","","2021","","","2020","","","$ Change","","","% Change","","","$ Change","","","% Change"],["","","(Amounts in thousands, except for percentage data)"],["Revenue:"],["Product","","$","801,183","","","$","670,319","","","$","366,136","","","$","130,864","","","","19.5","%","","$","304,183","","","","83.1","%"],["Royalty and other","","","353","","","","215","","","","124","","","","138","","","","64.2","%","","","91","","","","73.4","%"],["Total revenue","","$","801,536","","","$","670,534","","","$","366,260","","","$","131,002","","","","19.5","%","","$","304,274","","","","83.1","%"]]
[[/GREPCENT_TABLE]]

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 have increased to approximately 88% of our total product revenue during 2022 from approximately 83% of our total product revenue in 2021. 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.

Product revenues were comprised of the following:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2022","","","2021(1)","","","2020(2)"],["","","(Amounts in thousands)"],["Filtration products","","$","495,930","","","$","403,505","","","$","174,851"],["Chromatography products(3)","","","131,680","","","","91,037","","","","70,677"],["Process analytics products","","","53,512","","","","48,019","","","","33,346"],["Proteins products(3)","","","114,320","","","","123,707","","","","83,317"],["Other","","","5,741","","","","4,051","","","","3,945"],["Total product revenue","","$","801,183","","","$","670,319","","","$","366,136"]]
[[/GREPCENT_TABLE]]

(1)
2021 revenue for filtration products includes revenue related to Polymem from July 1, 2021, as well as BioFlex Solutions LLC ("BioFlex") and Newton T&M Corp ("NTM") from December 16, 2021 through December 31, 2021. 2021 revenue for proteins products includes revenue related to Avitide from September 20, 2021 through December 31, 2021.

(2)
2020 revenue for filtration products includes revenue related to Engineered Molding Technology LLC ("EMT") from July 13, 2020, Non-Metallic Solutions, Inc. ("NMS") from October 20, 2020, and ARTeSYN from December 3, 2020 through December 31, 2020.

(3)
Revised 2020 revenue in the table above reflects a shift in product revenue from chromatography products to proteins products of approximately $3 million. This change is consistent with the 2022 and 2021 presentations of product revenue.

Revenue from the sale of our products which make up our filtration, chromatography, process analytics and proteins franchises comes from the sale of a number of products as described in Part I, Item 1. "Business - Our Products" of this report. Other revenue primarily consists of revenue from the sale of our operating room products to hospitals as well as freight revenue.

For 2022, product revenue increased by $130.9 million, or 19.5%, as compared to 2021, with robust demand for our filtration, chromatography and process analytics products in mAb and C manufacturing, which are not related to the manufacturing of COVID-19 vaccines. There is continued adoption of our products by key bioprocessing customers across all key product lines, though we are seeing a deceleration in demand from customers focused on manufacturing COVID-19 vaccinations. We also experienced an increase in revenue for 2022, compared to 2021, due to our 2021 acquisitions of Polymem, Avitide and BioFlex, which were acquired in July 2021, September 2021 and December 2021, respectively, and for which revenues related to these acquisitions were included in our results of operations from their respective date of acquisition.

43

For 2021, product revenue increased by $304.2 million, or 83.1%, as compared to 2020 with robust demand for our filtration, chromatography, process analytics and proteins products. The increase is due to the continued adoption of our products by key bioprocessing customers across all our key product lines. Beginning in the second quarter of 2020, we experienced an increase in overall sales as a result of accelerated demand across all our franchises due to the critical needs of customers working on COVID-19 vaccines and therapeutics. In addition, during 2021 we saw an increase in demand for C and monoclonal antibody manufacturing. Revenue for 2021 also increased due to revenue from Polymem, Avitide, BioFlex and NTM, which we acquired during the second half of 2021. During 2021, we also include twelve months of revenue from our acquisitions executed in the second half of 2020, EMT, NMS and ARTeSYN, for which there was only a partial year of revenue commencing from the respective acquisition dates in 2020, through December 31, 2020.

Sales of our bioprocessing products are impacted by the timing of orders, development efforts at our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such quarterly fluctuations are expected, but they may not be predictive of future revenue or otherwise indicate a trend.

Royalty revenues

Royalty revenues for all periods presented relate to royalties received from a third-party systems manufacturer associated with our OPUS® chromatography columns. Royalty revenues are variable and are dependent on sales generated by our partner.

Costs and operating expenses

Total costs and operating expenses for the years ended December 31, 2022, 2021 and 2020 were comprised of the following:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","2022 vs 2021","","","2021 vs 2020"],["","","2022","","","2021","","","2020","","","$ Change","","","% Change","","","$ Change","","","% Change"],["","","(Amounts in thousands, except for percentage data)"],["Cost of product revenue","","$","345,830","","","$","279,280","","","$","156,634","","","$","66,550","","","","23.8","%","","$","122,646","","","","78.3","%"],["Research and development","","","43,936","","","","34,274","","","","20,182","","","","9,662","","","","28.2","%","","","14,092","","","","69.8","%"],["Selling, general and administrative","","","215,829","","","","183,866","","","","119,621","","","","31,963","","","","17.4","%","","","64,245","","","","53.7","%"],["Contingent consideration expense","","","(28,729",")","","","5,865","","","","\u2014","","","","(34,594",")","","","(589.8",")%","","","5,865","","","","100.0","%"],["Total costs and operating expenses","","$","576,866","","","$","503,285","","","$","296,437","","","$","73,581","","","","14.6","%","","$","206,848","","","","69.8","%"]]
[[/GREPCENT_TABLE]]

Cost of product revenue

Cost of product revenue for 2022 increased $66.6 million, or 23.8%, compared to 2021, due primarily to the increase in product revenue mentioned above and costs associated with higher product volume. Also, in order to support our growth and demand for our products, we continue to invest in our manufacturing infrastructure through an increase in headcount related to manufacturing and occupancy costs. In addition, we experienced cost inflation, primarily in raw materials as well as freight charges due to increased fuel costs and carrier market conditions in 2022, compared to 2021. Our depreciation expense increased in 2022, as compared to 2021, due to manufacturing equipment being placed into service throughout 2021 and 2022. In addition, cost of product revenue increased in 2022 due to the acquisitions of Polymem, Avitide and BioFlex in the second half of 2021 and for which expenses related to these acquisitions were included in our results of operations from their respective dates of acquisition.

Gross margin was 56.9% in 2022, as compared to 58.3% in 2021. The reduction in gross margin in 2022, as compared to the 2021, is due primarily to the increase in employee-related costs from a rise in manufacturing headcount, an increase in occupancy costs due to added capacity in 2021 and 2022 and an increase in depreciation expense, as mentioned above. The gross margin for 2021 also includes $2.1 million of amortization of inventory step-up associated with Polymem Acquisition and ARTeSYN Acquisition in 2020. Gross margins may fluctuate in future quarters based on actual production volume and product mix.

In 2021, cost of product revenue increased $122.6 million, or 78.3%, as compared to 2020, due primarily to the increase in product revenue and costs associated with higher product volume. In addition, to support our rapid growth and increased demand for our products, we continued to invest in our manufacturing infrastructure through increased manufacturing headcount and increased occupancy costs. There was an approximately 84% increase in manufacturing headcount from December 31, 2020 to December 31, 2021, which resulted in higher employee-related costs. Our depreciation expense increased as manufacturing equipment was placed in service during 2021. The impact on cost of product revenue from our three acquisitions in 2021 was $7.4 million, which has also contributed to the increase in cost of product revenue as there were no comparable costs for these acquisitions in 2020.

44

Gross margin was 58.3% in 2021, as compared to 57.2% in 2020. The gross margin in 2021 included $2.1 million of amortization of inventory step-up associated with the Polymem Acquisition and ARTeSYN Acquisition and 2020 included $0.7 million of amortization of inventory step-up associated with the ARTeSYN Acquisition and the acquisition of EMT. Excluding the step-up amortization, gross margin for 2021 and 2020 was 58.7% and 57.4%, respectively. The increase in gross margin, excluding the inventory step-up amortization, in 2021, as compared to 2020, was due primarily to the increase in revenue mentioned above, and favorable product mix, partially offset by an increase in employee costs related to an increase in manufacturing headcount subsequent to December 31, 2020, an increase in occupancy costs due to added capacity in 2021 and an increase in depreciation expense mentioned above. 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 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 in 2022 increased $9.7 million, or 28.2%, compared to 2021. The increase during the periods is primarily due to increased spending on new product development, increased employee-related costs due to additional headcount, increased depreciation related to R&D assets that were put into service and increased occupancy costs due to added capacity in 2021 and 2022. In addition, the increase in R&D costs in 2022, as compared to 2021, was due to the costs related to our 2021 acquisitions, primarily Polymem and Avitide in July 2021 and September 2021, respectively.

R&D expenses increased $14.1 million, or 69.8%, during 2021, as compared to 2020. The increase was due to the addition of R&D expenses related to operations of Avitide, Polymem and ARTeSYN, from their respective acquisition dates to December 31, 2021, including a full year of costs related to ARTeSYN programs for which there were costs from one month in 2020. Additionally, R&D costs increased, due to a rise in R&D headcount and the ramp up of project spending for new product development during 2021.

R&D expense also includes investments made to expand our proteins product offering through our development agreement with Navigo Proteins GmbH (“Navigo”). The Company invested $2.6 million in 2022, $2.3 million in 2021 and $0.9 million in 2020 in the form of milestone payments to Navigo.

We expect our R&D expenses in 2023 to modestly 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 2022, SG&A costs increased by $32.0 million, or 17.4%, as compared to 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 current and future growth. In addition, SG&A costs increased in 2022 due to the addition of Polymem, Avitide and BioFlex during the second half of 2021. A full year of costs from these acquisitions is included in SG&A expenses in 2022, but only from the date of each respective acquisition for fiscal year 2021.

During 2021, SG&A costs increased by $64.2 million, or 53.7%, as compared to 2020. 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 and increased occupancy costs as well as an increase in depreciation related to assets placed in service during the year, all to support expected future growth. Employee-related costs during 2021, as compared to the same periods in 2020, resulted from the increase in headcount period over period. These costs include stock-based compensation expense, which increased $9.1 million in 2021, as compared to 2020. In addition, SG&A costs increased in 2021, due to the addition of EMT, NMS and ARTeSYN in the second half of 2020 and the addition of Polymem, Avitide, BioFlex and NTM during the second half of 2021, for which there were no comparable costs in 2020.

45

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 sheet 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. In 2022 and 2021, a change in market inputs and shifts in revenue and volume projections due to the expected timing of achievement over the three-year performance period resulted in adjustments to the fair value of the contingent consideration obligation for the years ended December 31, 2022 and 2021 of ($28.7) million and $5.9 million, respectively.

Other expenses, net

The table below provides detail regarding our other expenses, net:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","2022 vs 2021","","","2021 vs 2020"],["","","2022","","","2021","","","2020","","","$ Change","","","% Change","","","$ Change","","","% Change"],["","","(Amounts in thousands, except for percentage data)"],["Investment income","","$","6,978","","","$","176","","","$","1,741","","","$","6,802","","","","3,864.8","%","","$","(1,565",")","","","(89.9",")%"],["Interest expense","","","(1,162",")","","","(11,278",")","","","(10,768",")","","","10,116","","","","(89.7",")%","","","(510",")","","","4.7","%"],["Amortization of debt issuance costs","","","(1,815",")","","","(1,436",")","","","(1,365",")","","","(379",")","","","26.4","%","","","(71",")","","","5.2","%"],["Other expenses","","","(9,531",")","","","(1,168",")","","","(214",")","","","(8,363",")","","","716.0","%","","","(954",")","","","445.8","%"],["Total other expenses, net","","$","(5,530",")","","$","(13,706",")","","$","(10,606",")","","$","8,176","","","","(59.7",")%","","$","(3,100",")","","","29.2","%"]]
[[/GREPCENT_TABLE]]

Investment income

Investment income includes income earned on invested cash balances and short-term investments. Our investment income increased by $6.8 million in 2022, compared to 2021, due to an increase in interest rates on average invested cash balances since December 31, 2021, as well as interest earned on U.S. treasury bills purchased in 2022. We expect investment income to vary based on changes in the amount of funds invested and fluctuation of interest rates.

The decrease of $1.6 million in 2021, as compared to 2020, is attributable to a decrease in interest rates on our invested cash balances and to a decrease in our average invested cash balances. In March 2020, in response to the outbreak of COVID-19 and to stay ahead of disruptions and economic slowdown, the Federal Reserve reduced federal funds rates to a range of 0.0% to 0.25%, which affected our investment income.

Interest expense

Interest expense in 2022 and 2021 is primarily from the 2019 Notes, which were issued in July 2019. Interest expense in 2022 includes the contractual coupon interest on the 2019 Notes. In 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 2022.

Interest expense in 2021 and 2020 is primarily from our 2019 Notes. Interest expense, which includes the amortization of debt issuance costs and contractual coupon interest, increased $0.6 million in 2021, as compared to 2020. 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.

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 2022, as compared to 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.

46

Other expenses, net

The change in other expenses, net in 2022, compared to 2021, is primarily attributable to realized foreign currency losses related to transactions with customers and vendors.

The change in other expenses, net in 2021, as compared to 2020, is primarily attributable to realized foreign currency losses related to amounts due from non-Swedish krona-based customers and vendors.

Income tax provision (benefit)

Income tax provision (benefit) for the years ended December 31, 2022, 2021 and 2020 was as follows:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","2022 vs 2021","","","2021 vs 2020"],["","","2022","","","2021","","","2020","","","$ Change","","","% Change","","","$ Change","","","% Change"],["","","(Amounts in thousands, except for percentage data)"],["Income tax provision (benefit)","","$","33,181","","","$","25,252","","","$","(709",")","","$","7,929","","","","31.4","%","","$","25,961","","","","(3,661.6",")%"],["Effective tax rate","","","15.1","%","","","16.4","%","","","(1.2",")%"]]
[[/GREPCENT_TABLE]]

For 2022, we recorded an income tax provision of $33.2 million. The effective tax rate was 15.1% for 2022 and is based upon the income for the year ending December 31, 2022, and the composition of income in different jurisdictions. The difference in effective tax rates between 2022 and 2021 was primarily due to increased benefits from business tax credits and nontaxable contingent consideration partially offset by lower windfall benefits recognized on stock option exercises and vesting of stock units. Our effective tax rate for 2022 was lower than the U.S. statutory rate of 21% primarily due to business tax credits, windfall benefits on stock option exercises and the vesting of stock units, benefits from foreign-derived intangible income and nontaxable contingent consideration.

On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 ("IRA"), which, among other things, implements a 15% alternative minimum tax on global adjusted financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy and will become effective beginning in 2023. We evaluated the provisions of the IRA, and no provision had a material effect on our consolidated financial position or results of operations as of December 31, 2022.

For 2021, we recorded an income tax provision of $25.3 million. The effective tax rate in 2021 was 16.4% and is based upon the income for the year ending December 31, 2021, and the composition of income in different jurisdictions. The increase in effective tax rates was primarily due to higher income before income taxes, lower windfall benefits recognized on stock option exercises and the vesting of stock units, partially offset by lower U.S. taxation of foreign earnings. Our effective tax rate for 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.

In 2020, we recorded an income tax benefit of $0.7 million. Our effective tax rate in 2020 was (1.2%) and was based upon the income for the year ending December 31, 2020, and the composition of income in different jurisdictions. Our effective tax rate in 2020 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.

Non-GAAP Financial Measures

In addition to our key financial metrics presented above, 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 and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each non-GAAP financial measures to its most comparable GAAP financial measures are described below.

We include this financial information because we believe these measures are helpful to investors in providing a comparison of our financial results between periods that more accurately reflects how management reviews its financial results. We excluded the impact of certain acquisition-related items and items related to the issuance of conversion of our 2019 Notes 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.

47

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 years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2022","","","2021"],["","","(Amounts in thousands)"],["GAAP income from operations","","$","224,670","","","$","167,249"],["Non-GAAP adjustments to income from operations:"],["Inventory step-up charges","","","\u2014","","","","2,130"],["Acquisition and integration costs","","","9,253","","","","18,001"],["Contingent consideration expense","","","(28,729",")","","","5,865"],["Intangible amortization","","","27,016","","","","21,941"],["Non-GAAP adjusted income from operations","","$","232,210","","","$","215,186"]]
[[/GREPCENT_TABLE]]

Non-GAAP adjusted net income and adjusted earnings per share

Non-GAAP adjusted net income and adjusted earnings per share is measured by taking net income as reported in accordance with GAAP and excluding acquisition and integration costs, intangible asset 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 on these items. The following are reconciliations of net income and fully diluted earnings per share in accordance with GAAP to non-GAAP adjusted net income and adjusted fully diluted earnings per share for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 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","","$","185,959","","","$","3.24","","","$","128,291","","","$","2.24"],["Non-GAAP adjustments to net income:"],["Inventory step-up charges","","","\u2014","","","","\u2014","","","","2,130","","","","0.04"],["Acquisition and integration costs","","","9,514","","","","0.17","","","","18,001","","","","0.31"],["Contingent consideration expense","","","(28,729",")","","","(0.50",")","","","5,865","","","","0.10"],["Intangible amortization","","","27,016","","","","0.47","","","","21,941","","","","0.38"],["Loss on conversion of debt","","","\u2014","","","","\u2014","","","","13","","","","0.00"],["Amortization of debt issuance costs(1)","","","1,815","","","","0.03","","","","1,436","","","","0.02"],["Non-cash interest expense(1)","","","\u2014","","","","\u2014","","","","10,094","","","","0.18"],["Tax effect on non-GAAP charges","","","(7,002",")","","","(0.12",")","","","(12,515",")","","","(0.22",")"],["Non-GAAP adjusted net income","","$","188,573","","","$","3.28","","","$","175,256","","","$","3.06"]]
[[/GREPCENT_TABLE]]

(1)
See Note 2, "Summary of Significant Accounting Policies - Earnings Per Share," in this report, 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.

* Note that earnings per share amounts may not add due to rounding.

48

Adjusted EBITDA

Adjusted EBITDA is measured by taking net income as reported in accordance with GAAP, excluding investment income, interest expense, taxes, depreciation and intangible 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 years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2022","","","2021"],["","","(Amounts in thousands)"],["GAAP net income","","$","185,959","","","$","128,291"],["Non-GAAP EBITDA adjustments to net income:"],["Investment income","","","(6,978",")","","","(176",")"],["Interest expense","","","1,162","","","","1,184"],["Non-cash interest expense","","","\u2014","","","","10,094"],["Amortization of debt issuance costs","","","1,815","","","","1,436"],["Income tax provision","","","33,181","","","","25,252"],["Depreciation","","","23,859","","","","16,395"],["Amortization","","","27,126","","","","22,052"],["EBITDA","","","266,124","","","","204,528"],["Other non-GAAP adjustments:"],["Inventory step-up charges","","","\u2014","","","","2,130"],["Acquisition and integration costs","","","9,514","","","","18,001"],["Contingent consideration expense","","","(28,729",")","","","5,865"],["Loss on conversion of debt","","","\u2014","","","","13"],["Adjusted EBITDA","","$","246,909","","","$","230,537"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

We have financed our operations primarily through revenues derived from product sales, the issuance of the 2016 Notes in May 2016 and our 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 December 31, 2022, we had cash and cash equivalents of $523.5 million compared to cash and cash equivalents of $603.8 million at December 31, 2021. Our cash equivalents and short-term investments held to maturity portfolio as of December 31, 2022, consisted of money market funds and U.S. treasury securities. In December 2022, we invested $100.0 million in short-term U.S. treasury bills which we classified as held to maturity because we have the positive intent and ability to hold until maturity. There were no restrictions on cash as of December 31, 2022.

On September 19, 2022, we entered into the Daylight Agreement, giving us exclusive license and commercialization rights to use certain technology and intellectual property subject to conditions set forth in the Daylight Agreement. We agreed to pay Daylight (i) an initial, one-time, non-refundable, non-creditable upfront cash payment and (ii) certain quarterly royalty payments.

In 2021 we acquired three companies for an aggregate of $149.9 million in cash, net of cash acquired. In connection with the acquisitions, the Company has an obligation to pay up to $62.5 million (undiscounted) in contingent consideration earnout payments in cash over a three-year performance period beginning January 1, 2022 and ending December 31, 2024. See Note 3, “Fair Value Measurements,” and Note 4, “Acquisitions,” for additional information. In 2020, we acquired three companies for an aggregate of $175.0 million in cash, net of cash acquired. All obligations related to these acquisitions have been settled.

On July 19, 2019, the Company issued $287.5 million aggregate principal amount of 2019 Notes, which includes the underwriters’ exercise in full of an option to purchase an additional $37.5 million aggregate principal amount of 2019 Notes (the “Notes Offering” and, together with the July Stock Offering, the “Offerings”). The net proceeds of the Notes Offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were $278.5 million. See Note 13, “Convertible Senior Notes,” included in this report for more information on this transaction.

49

During the fourth 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 first quarter of 2023 per the First Supplemental Indenture underlying the 2019 Notes. The 2019 Notes have a face value of $287.5 million and a carrying value of $284.6 million. The Company expects to continue meeting these terms and has again classified the carrying value of the 2019 Notes as current liabilities on the Company’s balance sheet as of December 31, 2022 and 2021. As of the date of this filing, the Company has received requests to convert $30,000 aggregate principal amount of 2019 Notes all of which have been settled. Under the Second Supplemental Indenture to the Base Indenture which we entered into on March 4, 2022, we irrevocably elected to pay the settlement amount to be determined in cash – paying the amount in excess of the aggregate principal portion of the converted notes in shares of our common stock.

In 2022, we had lease arrangements for certain equipment and facilities including corporate and manufacturing sites. As of December 31, 2022, the Company had fixed lease payment obligations of $138.3 million, with $7.0 million payable within 12 months. See Note 5, “Leases”, for additional information.

In 2022, we had other purchase obligations primarily consisting of purchase commitments with certain vendors and open purchase orders for the procurement of raw materials for manufacturing. As of December 31, 2022, the Company had other purchase obligations of $72.1 million, payable within 12 months.

Cash flows

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","","2022 vs 2021","","","2021 vs 2020"],["","","2022","","","2021","","","2020","","","$ Change","","","$ Change"],["","","(Amounts in thousands)"],["Cash provided by (used in):"],["Operating activities","","$","172,083","","","$","119,016","","","$","62,625","","","$","53,067","","","$","56,391"],["Investing activities","","","(233,236",")","","","(221,169",")","","","(201,385",")","","","(12,067",")","","","(19,784",")"],["Financing activities","","","(13,337",")","","","961","","","","305,916","","","","(14,298",")","","","(304,955",")"],["Effect of exchange rate changes on cash, cash equivalents and restricted cash","","","(5,866",")","","","(12,286",")","","","12,729","","","","6,420","","","","(25,015",")"],["Net (decrease) increase in cash, cash equivalents and restricted cash","","$","(80,356",")","","$","(113,478",")","","$","179,885","","","$","33,122","","","$","(293,363",")"]]
[[/GREPCENT_TABLE]]

Operating activities

For 2022, our operating activities provided cash of $172.1 million reflecting net income of $186.0 million and non-cash charges totaling $49.9 million primarily related to depreciation, amortization, contingent consideration adjustments, amortization of debt discount and issuance costs, deferred income taxes and stock-based compensation charges. An increase in accounts receivable consumed $3.6 million of cash and was primarily driven by the 19.5% year-to-date increase in revenue in 2022, as compared to 2021. Additionally, we had an increase in inventory manufactured of $57.2 million to support expected increases in future revenue. Accounts payable decreased $8.2 million due to the timing of payments to vendors and accrued expenses decreased $2.0 million due to corporate income taxes paid. Offsetting these uses of cash was a $4.1 million net increase in operating lease liabilities due to new operating leases entered into during 2022 and a $2.4 million decrease in prepaid expenses, including corporate income taxes. The remaining cash used in operating activities resulted from unfavorable changes in various other working capital accounts.

For 2021, our operating activities provided cash of $119.0 million reflecting net income of $128.3 million and non-cash charges totaling $92.9 million primarily related to depreciation, amortization, inventory step-up amortization, contingent consideration expense, deferred income taxes, amortization of debt discount and issuance costs and stock-based compensation charges. An increase in accounts receivable consumed $46.5 million of cash and was primarily driven by the 83.1% year-to-date increase in total revenues. An increase in inventory manufactured of $89.8 million supports expected increases in future revenue and an increase in prepaid expenses, specifically insurance and taxes of $10.2 million. The increases in accounts receivable, prepaid expenses and inventory manufactured are offset by an increase in accounts payable of $19.5 million, which is primarily due to increased inventory purchases to support customer orders, an increase in accrued liabilities of $23.2 million, which was due to an increase in the accrual for expected costs, taxes payable, and to a decrease in deferred revenue related to products shipped during the first half of 2021. The remaining net cash used in operating activities resulted from unfavorable changes in various other working capital accounts.

50

For 2020, our operating activities provided cash of $62.6 million reflecting net income of $59.9 million and non-cash charges totaling $51.3 million primarily related to depreciation, amortization, non-cash interest expense, deferred taxes and stock-based compensation charges. An increase in accounts receivable consumed $21.0 million of cash and was primarily driven by the 35.5% year-to-date increase in total revenues and an increase in inventory manufactured of $29.3 million to support expected continued growth in future revenues. In addition, $4.9 million was consumed for increases in prepaid expenses for annual software and network contracts, as well as the renewal of the Company’s global insurance policies. These were offset by an increase in accounts payable and accrued liabilities of $3.5 million due primarily to increased inventory purchases to support customer orders and year-end tax adjustments, offset by payment of acquisition-related bonuses for C Technologies, Inc. during the second quarter of 2020. The remaining cash source of operating activities resulted from favorable changes in various other working capital accounts.

Investing activities

Our investing activities consumed $233.2 million of cash during 2022, mainly due to $88.3 million of capital expenditures in 2022 as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $3.5 million represented capitalized costs related to our internal-use software for 2022. In addition, in September 2022, the Company paid a one-time, non-refundable, non-creditable upfront payment to Daylight as required under the Daylight Agreement for the commercialization and sale of Culpeo®QCL-IR Liquid Analyzer. In December 2022, the Company invested $100.0 million in short-term U.S. treasury securities.

Our investing activities consumed $221.2 million of cash during 2021. We used $149.9 million in cash (net of cash received) for the acquisitions of Polymem, Avitide, BioFlex and NTM, in the aggregate. Capital expenditures consumed $71.3 million as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $4.2 million represented capitalized costs related to our internal-use software.

Our investing activities consumed $201.4 million of cash during 2020. We used $175.0 million in cash (net of cash received) for the EMT, NMS and ARTeSYN Acquisitions. Capital expenditures consumed $26.3 million as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $3.9 million represented capitalized costs related to our internal-use software.

Financing activities

Our financing activities consumed $13.3 million of cash in 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 $17.0 million. This was partially offset by proceeds received from stock option exercises during the period of $3.7 million.

In 2021, cash provided by financing activities of $1.0 million included proceeds from stock option exercises, offset by cash disbursed in relation to shares withheld to cover employee income taxes due upon the vesting and release of restricted stock units. Proceeds from stock option exercises during 2021 were $3.9 million offset by $2.9 million of cash disbursed to pay tax obligation on the vesting of restricted stock units.

In 2020, cash provided by financing activities of $305.9 million included $297.8 million from the issuance of our common stock resulting from our public offerings completed in December 2020. Proceeds from stock option exercises during 2020 were $8.2 million.

Effect of exchange rate changes on cash, cash equivalents and restricted cash

The effect of exchange rate changes on cash during 2022 is a result of the weakening of the Swedish krona against the U.S. dollar by 15%, the weakening of the Euro against the U.S. dollar by 6% and the weakening of the British pound against the U.S. dollar by 12%.

Off-Balance Sheet Arrangements

We do not have any special purpose entities or off-balance sheet financing arrangements.

Capital Requirements

Our future capital requirements will depend on many factors, including the following:

•
the expansion of our bioprocessing business;

51

•
the ability to sustain sales and profits of our bioprocessing products and successfully integrate them into our business;

•
our ability to acquire additional bioprocessing products;

•
the scope of and progress made in our R&D activities;

•
the scope of investment in our intellectual property portfolio;

•
contingent consideration earnout payments resulting from our acquisitions;

•
the extent of any share repurchase activity;

•
the success of any proposed financing efforts;

•
general economic and capital markets;

•
change in accounting standards;

•
the impact of inflation on our operations, including our expenditures on raw material and freight charges;

•
fluctuations in foreign currency exchange rates; and

•
costs associated with our ability to comply with emerging environmental, social and governance standards.

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. We expect operating expenses in 2023 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 licensing or 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, for example, due to acquisition-related financing needs or lower demand for our products, among potential other events, 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, 2022, we had federal net operating loss carryforwards of $42.9 million, state net operating loss carryforwards of $0.8 million, and foreign net operating loss carryforwards of $4.9 million. Federal net operating loss carryforwards of $7.3 million will expire at various dates through 2037. The state net operating loss carryforwards will expire at various dates through 2041, while the foreign net operating loss carryforwards do not expire. The other $35.6 million of federal net operating loss carryforwards have unlimited carryforward periods. We had business tax credits carryforwards of $3.8 million available to reduce future federal and state income taxes, if any. The business tax credits carryforwards will expire at various dates through December 2042. 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 stockholders.

52

Foreign Earnings

As of December 31, 2022, we have accumulated undistributed earnings generated by our foreign subsidiaries of approximately $148.2 million. Because $5.7 million of such earnings have previously been subject to the one-time transition tax on foreign earnings required by the Tax Cuts and Jobs Act enacted in December 2017, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign and state taxes. At December 31, 2022, we have not provided for taxes on outside basis differences of our foreign subsidiaries as it is not practicable and we have the ability and intent to indefinitely reinvest the undistributed earnings of our foreign subsidiaries, and there are no needs for such earnings in the United States that would contradict our plan to indefinitely reinvest.

Effects of Inflation

Our assets are primarily monetary, consisting of cash and 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, fixtures and office equipment, computer hardware and software 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.