Repligen (RGEN) Reports Non-Reliance on Previously Issued Financial Statements

Repligen (NASDAQ: RGEN) disclosed:

Item 2.02

Results of Operations and Financial Condition.

The information contained in Item 7.01, including Exhibit 99.1, and paragraphs 6 and 7 of Item 4.02(a), in each case of this Current Report on Form 8-K is incorporated into this Item 2.02 by reference. The information incorporated by reference into this Item 2.02 is intended to be furnished under Item 2.02 and shall not be deemed “filed” under Item 2.02 for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 4.02

Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

(a) On September 12, 2024, the Audit Committee of the Board of Directors of Repligen Corporation (the “Company”), based on the recommendation of the Company’s management and after discussion with the Company’s independent registered public accounting firm, Ernst & Young LLP (“EY”), concluded that the timing of recognition of product revenue arising from a specific COVID-related cancellation payment, received in connection with a contract modification, was not recognized appropriately due to the misapplication of complex accounting principles under U.S. GAAP. As a result, the Company’s consolidated financial statements and related disclosures for the fiscal quarters ended March 31, 2023 through June 30, 2024 and for the year ended December 31, 2023 (collectively, the “Prior Period Financial Statements”) require restatement (the “Restatement”), as described below.

The Restatement changes the timing of recognition of revenue but does not change the total revenue recognized for this payment. The Company does not anticipate the Restatement will have any impact on the Company’s overall business operations, previously reported cash and cash equivalent balances, and strategic outlook. This misapplication did not result from any override of controls, misconduct, or fraud of any kind.

During the first quarter of 2023, a key customer cancelled two COVID-related, non-cancellable product purchase orders (“Cancelled PO’s”) in exchange for a $17.3 million one-time cash payment (the “Payment”), which was received in April 2023. At the time of cancellation, no product units had been delivered under the Cancelled PO’s and the Company had two other purchase orders from the same customer for the same product (“Open PO’s”).

Accounting for the Payment involves significant judgments in applying ASC 606, Revenue from Contracts with Customers (“ASC 606”), and the renegotiation of contract terms was complicated by the unprecedented COVID impacts on the businesses and operations of the Company and its customers. The Company originally accounted for the Cancelled PO’s as a single contract and recognized the $17.3 million payment as product revenue in the first quarter of 2023. The Company believed it applied the appropriate accounting treatment for this transaction under U.S. GAAP which was included in the Company’s 2023 audited consolidated financial statements.

The accounting treatment of the Payment was first called into question in connection with the Public Company Accounting Oversight Board’s (“PCAOB”) inspection of EY’s integrated audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2023. Upon being notified of this matter in August 2024, the Company initiated an internal review of the Company’s previously reported consolidated financial statements with the support of outside accounting experts and legal counsel and began a robust assessment of the Company’s internal controls and financial reporting related to the recognition of revenue. The Company reassessed the complex accounting treatment of the Payment and concluded that the Cancelled PO’s and Open PO’s represent a combined contract such that the February 2023 transaction should have been analyzed and accounted for as a contract modification, which required this Payment to be deferred and recognized as product units were delivered under the Open PO’s. All Open PO product units were fully delivered to the customer by June 30, 2024, thus there is no anticipated impact of this change beyond the second quarter of 2024.

The anticipated financial impact of this change on previously reported product revenues for each respective quarterly period are as follows: an overstatement of Q1 2023 product revenues of $17.3 million, an understatement of Q4 2023 product revenues of $10.7 million (aggregate overstatement of $6.6 million for the year ended December 31, 2023) , an understatement of Q1 2024 product revenues of $1.8 million and an understatement of Q2 2024 product revenues of $4.8 million (aggregate understatement of $6.6 million for the six months ended June 30, 2024). The Company’s deferred revenue balances are also affected in each respective quarterly period. The Company has not yet finalized the quantification of the income tax expense/benefit impact of this change in each respective quarterly or annual period.

As noted above, the Restatement does not impact the Company’s overall business operations, previously reported cash and cash equivalent balances, and strategic outlook. The Company is reaffirming our previously provided full year 2024 revenue guidance, with the understated $6.6 million in the first half of 2024 being added incrementally, thus updating the full year range to $627 million to $642 million.

The Company and the Audit Committee have determined that the Prior Period Financial Statements, and related investor communications, should no longer be relied upon and will require a restatement due to the quantitative impact on previously reported product revenues. As such, the Company will restate its consolidated financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K (the “2023 Annual Report”), (ii) each of the quarterly and year-to-date periods ended March 31, 2023, June 30, 2023 and September 30, 2023 and (iii) the quarterly and year-to-date periods ended March 31 and June 30, 2024.

In connection with the Restatement, the Company determined that it did not maintain effective controls over the appropriateness of revenue recognition related to the accounting treatment of non-standard terms and conditions within customer contracts, including modifications, under ASC 606, and has identified a material weakness in internal control over financial reporting.

The Restatement is not anticipated to have a material impact on the Company’s future business or operations. However, the Company’s internal review is ongoing, and the Company may identify further required changes to previously reported amounts or control findings. There can be no assurance that the actual effects of the Restatement will be only as described above.

The Audit Committee and Company management have discussed with EY the matters disclosed in this Item 4.02(a).

Item 7.01

Regulation FD Disclosure.

On September 18, 2024, the Company issued a supplemental slide presentation (the “Supplemental Slides”) to provide additional information regarding the Restatement and the impact of the change discussed above.

A copy of the Supplemental Slides is attached hereto as Exhibit 99.1 and is incorporated into this Item 7.01 by reference. The Supplement Slides will be accessible through the Investors section of the Company’s website at https://www.repligen.com/.

The information in this Item 7.01, including Exhibit 99.1 attached hereto, is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

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