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3 Important Things You Need to Know About Repligen Corporation's Q3 Results

By Keith Speights – Nov 3, 2016 at 12:22PM

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Repligen reported strong revenue growth in Q3 but a slide in earnings. Here's what investors need to know.

It's been an up-and-down year so far in 2016 for Repligen Corporation (RGEN -2.89%). Repligen's stock price is close to where it was in January despite plenty of big moves along the way. The bioprocessing company announced its third-quarter results before the market opened on Thursday. Are things looking more up than down for Repligen now? Here's what you need to know about the company's results.

Image source: Getty Images.

1. Strong demand driving strong revenue growth

Repligen reported third-quarter revenue of $24.7 million. That's better than Wall Street expected and represents a 25% year-over-year increase.

CEO Tony Hunt said that this impressive growth stemmed from strong demand for Repligen's products, especially its XCell ATF systems and OPUS columns. XCell ATF (which stands for alternating tangential flow) is a system used in "upstream" bioprocessing, where biologic drugs are grown in bioreactors. OPUS is the company's line of chromatography columns used in "downstream" bioprocessing, where biologics are separated and purified.

Repligen also announced improvements for XCell and OPUS during the third quarter. The company launched a single-use version of the XCell ATF system that provides a much faster implementation and 100% cell retention. Repligen also introduced a new resin recovery feature for its large OPUS chromatography columns.

2. Don't sweat the earnings decline

While revenue growth looked great, earnings didn't -- at least not on the surface. Repligen reported third-quarter net income of $1.2 million, or $0.03 per diluted share. That's a big drop from the $2.5 million, or $0.08 per diluted share, posted in the prior year period.

Things looked better on a non-GAAP basis, with Repligen reporting adjusted earnings of $0.08 per diluted share. This figure met investors' expectations and matched up exactly with what the company achieved in the third quarter of 2015. Repligen's non-GAAP numbers excluded the impact of the company's acquisition of German chromatography column manufacturer Atoll GmBH. The non-GAAP results also excluded contingent consideration fair value adjustments related to the Atoll acquisition and Repligen's 2014 purchase of Refine Technology's bioprocessing business.

What the non-GAAP numbers don't exclude, is Repligen's $1.55 million interest expense. This interest expense was the primary culprit behind the GAAP earnings decline and flat non-GAAP year-over-year earnings comparison. Investor's shouldn't worry about the interest costs, though. Repligen took on more debt to fund its Atoll acquisition. That investment should pay off for the company.

3. Full-year 2016 tracking pretty much as expected

Repligen said that its performance in full-year 2016 should be close to what the company has projected in the past. The company did adjust the low end of its 2016 revenue guidance to $102 million from its previous guidance of $101 million. The upper end of the revenue guidance range remains at $105 million.

As for full-year earnings, Repligen still expects GAAP net income between $8 million and $10 million. That translates to GAAP earnings per share of $0.23 to $0.29. Non-GAAP adjusted earnings per share is expected to come in between $0.42 and $0.48, in line with previous guidance.

There was one area where Repligen is now a little more pessimistic: gross margin. The company had previously projected product gross margin between 56% and 57%. Now, though, Repligen thinks that gross margin will be slightly lower -- between 55% and 56%.

Looking ahead

The consensus among Wall Street analysts is that Repligen's stock could move nearly 17% higher over the next 12 months. That seems like a reasonable expectation. The company's products should continue to see sales growth. I expect the Atoll acquisition to really begin providing a return on investment in 2017.

However, Repligen's fortunes depend heavily on how the broader biotech stock universe performs. The outcome of the upcoming U.S. elections could determine whether or not biotech stocks enjoy a resurgence. Also, Repligen's stock has a sky-high valuation. Any bumps in the road could feel more like craters for investors.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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