Bio-Techne Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2024 (fiscal 2024 Q3). The filing was signed May 6, 2024. Bio-Techne develops and sells biotechnology reagents, instruments, and services for research and clinical diagnostic markets. Its two segments are Protein Sciences and Diagnostics and Genomics.
Financial performance
| Metric | Quarter ended March 31, 2024 | Prior-year quarter | Nine months ended March 31, 2024 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $303.4 million | $294.1 million | $853.0 million | $835.4 million |
| Gross margin | 67.4% | 68.7% | 66.4% | 67.6% |
| Operating income | $67.0 million | $80.2 million | $160.9 million | $204.4 million |
| Net earnings attributable to Bio-Techne | $49.1 million | $70.2 million | $127.5 million | $209.8 million |
| Diluted EPS | $0.31 | $0.43 | $0.79 | $1.30 |
- Quarterly sales increased 3%; organic revenue grew 2%, with acquisitions contributing 1%. Nine-month sales increased 2%; organic revenue was flat, while acquisitions and foreign exchange each contributed 1%.
- Quarterly operating expenses rose 13% to $137.6 million, including higher SG&A and R&D. Operating income declined 16% for the quarter and 21% for the nine-month period.
- Quarterly and nine-month adjusted gross margins, a non-GAAP measure, were 71.9% and 71.0%, respectively, versus 72.6% and 71.8% in the comparable periods.
- Operating cash flow was $223.5 million for the nine months, compared with $171.0 million. Capital expenditures were $44.9 million.
- At March 31, cash and cash equivalents were $139.9 million and short-term investments were $5.4 million, versus combined cash and investments of $204.3 million at June 30, 2023. Long-term debt was $389.0 million; $611 million remained available under the $1 billion revolving credit facility.
- Total assets were $2.72 billion and shareholders’ equity was $2.01 billion at March 31, 2024. Cash dividends paid in the nine-month period were $37.8 million; share repurchases were $80.0 million.
Material changes and business developments
- Protein Sciences quarterly sales fell 2% to $214.6 million; organic revenue declined 1%. Segment operating margin decreased to 44.2% from 45.1%, attributed to unfavorable volume leverage and product mix, including weaker sales to customers in China and Europe.
- Diagnostics and Genomics quarterly sales rose 16% to $87.5 million, with 10% organic growth and a 6% contribution from acquisitions. Segment operating margin fell to 9.3% from 15.2%, primarily reflecting the Lunaphore acquisition.
- Bio-Techne acquired spatial-biology company Lunaphore in July 2023 for $169.7 million. Lunaphore contributed $9.9 million of sales and an operating loss of $21.0 million in the nine months ended March 31, 2024.
- Prior-year nine-month earnings included $37.2 million from the sale of the ChemoCentryx investment and $11.7 million from the sale of Eminence. These nonrecurring gains contributed to the reported year-over-year earnings decline.
Outlook, risks, and unusual items
- Management expects to meet cash and working-capital needs for the foreseeable future, and at least the next 12 months, using available cash, operating cash flow, and undrawn credit capacity.
- Fiscal 2024 capital expenditures are expected to be approximately $16 million for the remainder of the year, primarily to expand capacity. The company expects its income tax rate, excluding discrete items, to range from 23% to 27% for the remainder of fiscal 2024.
- A fiscal 2024 restructuring program affecting approximately 4% of the global workforce is intended to recover operating margins, optimize distribution, and improve organizational efficiency. Costs are expected through the first half of fiscal 2025. Nine-month restructuring and related charges were $13.0 million, including a $6.0 million impairment of assets held for sale.
- The Wilson Wolf forward contract requires purchase of the remaining equity interest on December 31, 2027, with acceleration possible if specified milestones are achieved. Management forecasts a second-option payment of approximately $1 billion, plus potential contingent consideration, between fiscal 2026 and fiscal 2028.
- Reported results were affected by Lunaphore integration and operating losses, CEO transition and restructuring costs, unfavorable Protein Sciences volume, foreign-currency movements, and discrete tax items. Foreign-currency exposure is material: approximately 32% of quarterly sales were in foreign currencies.
- The filing identifies risks including acquisition integration, product acceptance, competition, supply chain and manufacturing reliance, currency fluctuations, regulation, intellectual property, and talent retention. It reports no material changes to previously disclosed risk factors and no legal proceedings expected to have a material adverse effect.
Most important facts for investors to verify
- Whether organic growth and margin trends improve, particularly in Protein Sciences and following Lunaphore’s integration.
- The drivers and expected duration of Lunaphore’s operating losses and the decline in Diagnostics and Genomics’ margin.
- Progress, total costs, and cash requirements of the restructuring and the planned sale of the held-for-sale business.
- Wilson Wolf’s milestone performance, purchase timing, and potential funding needs for the approximately $1 billion future payment.
- Available liquidity and debt levels, including the effect of variable-rate borrowing and future cash demands from acquisitions, capital spending, dividends, and repurchases.
- How discrete tax benefits affect reported earnings and the company’s tax rate as those items change.