Bio-Techne Corporation — Form 10-Q summary
Reporting period: Quarter and nine months ended March 31, 2023. The filing covers Bio-Techne’s fiscal third quarter of 2023; the request metadata’s “2022 Q3” does not match the period stated in the filing. Amounts below are USD millions unless otherwise noted.
Business context and financial performance
Bio-Techne develops and sells biotechnology reagents, instruments and services for research and clinical diagnostic markets. It reports two segments: Protein Sciences and Diagnostics and Genomics.
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $294.1 | $290.4 | $835.4 | $817.4 |
| Gross margin | 68.7% | 69.4% | 67.6% | 68.0% |
| Operating income | $80.2 | $90.4 | $204.4 | $216.0 |
| Net earnings attributable to Bio-Techne | $70.2 | $60.7 | $209.8 | $210.5 |
| Diluted EPS | $0.43 | $0.37 | $1.30 | $1.28 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $171.0 | $222.6 |
Quarterly sales rose 1% reported and 3% organically; foreign exchange reduced growth by 2%, while acquisitions had an immaterial effect. Nine-month sales rose 2% reported and 4% organically; acquisitions added 1% to growth and foreign exchange reduced it by 3%. The four-for-one stock split in November 2022 is reflected retrospectively in share and per-share figures.
- Segments: Protein Sciences sales were $218.9 million for the quarter (+3% reported; 5% organic) and $622.7 million for nine months (+1% reported; 3% organic). Segment operating margins were 45.1% and 44.1%, versus 45.4% and 45.5% in the comparable periods.
- Diagnostics and Genomics sales were $75.7 million for the quarter (-3% reported; -2% organic) and $213.6 million for nine months (+5% reported; 7% organic). Segment operating margins were 15.2% and 13.3%, versus 25.0% and 18.6%.
- Non-GAAP context: Adjusted gross margin was 72.6% for the quarter and 71.8% for nine months, down from 73.2% and 72.3%. Adjusted diluted EPS was $0.53 for the quarter (unchanged) and $1.44 for nine months versus $1.46. These are company-defined non-GAAP measures.
Balance sheet, liquidity and capital allocation
At March 31, 2023, cash and cash equivalents were $127.3 million and short-term available-for-sale investments were $29.9 million, totaling $157.2 million, compared with $247.0 million at June 30, 2022. Long-term debt was $370.0 million, with no current portion reported. The revolving credit facility is $1 billion, potentially expandable by $400 million, matures August 1, 2027, and carries variable interest based on one-month SOFR plus a leverage-based margin.
Nine-month operating cash flow was $171.0 million. Investing cash outflow was $260.9 million, including the $232.0 million Wilson Wolf investment and $101.2 million net cash paid for Namocell, partly offset by $73.2 million proceeds from the CCXI investment sale. Financing cash inflow was $46.8 million, including net borrowing activity. Capital expenditures were $27.4 million; management expected approximately $14 million more for the remainder of fiscal 2023.
Material changes, outlook, risks and unusual items
- Operating income declined despite higher sales, amid higher SG&A and R&D costs, including acquisition-related spending, inflation and strategic growth investments. Reported gross margins also declined, with foreign exchange among the cited pressures.
- Quarterly net earnings benefited from comparison with a prior-year non-recurring loss of about $17.2 million on the ChemoCentryx (CCXI) investment. Nine-month results included a $37.2 million gain on the CCXI sale and an $11.7 million gain on the Eminence sale; these items contributed to the comparison in net earnings.
- Bio-Techne acquired Namocell on July 1, 2022 for $101.2 million net of cash acquired, plus potential contingent consideration. It sold its Eminence shares in September 2022 for approximately $17.8 million.
- Wilson Wolf commitment: After Wilson Wolf met the first milestone, Bio-Techne paid $232 million for a 19.9% equity-method interest. The contract requires purchase of the remaining interest on December 31, 2027, or earlier if a second milestone is met. The company forecast that payment at approximately $1 billion plus potential additional consideration, between fiscal 2026 and 2028. This is a significant future funding commitment.
- Management said available cash, operating cash flow and remaining revolver capacity should meet operating, investment, facility, and dividend needs for at least the next 12 months. No consolidated revenue or earnings guidance was provided in the supplied filing text. Management expected the remaining-fiscal-2023 tax rate, excluding discrete items, to range from 20% to 24% and forecast about $14 million of remaining-year capital expenditures.
- Other disclosed risks include currency movements, supply-chain challenges, integration and acceptance of acquired/new products, competition, regulation, talent retention, investment-market and credit risks, and cybersecurity. The company stated cybersecurity systems remain potentially vulnerable; the impact of a material breach is unknown. Approximately 36% of quarterly sales were in foreign currencies.
- Restructuring charges included $2.2 million for the Quad facility closure and $0.8 million for a Protein Sciences realignment during the nine months. Management reported effective disclosure controls and no material change in internal controls. It reported no material legal proceedings as of May 8, 2023 and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended reporting period: this filing is for the quarter ended March 31, 2023, not 2022 Q3.
- Review the Wilson Wolf agreement’s second milestone, timing, valuation formula and potential approximately $1 billion-plus funding requirement.
- Assess the causes and persistence of declining reported and adjusted margins, particularly in Diagnostics and Genomics.
- Reconcile operating cash flow’s year-over-year decline and the reduction in cash and investments against acquisition, investment and debt activity.
- Monitor variable-rate debt, available revolver capacity, contingent acquisition payments and management’s stated liquidity outlook.
- Separate recurring operating performance from CCXI and Eminence gains, prior-period investment losses, tax items and non-GAAP adjustments.