Bio-Techne Corporation — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended December 31, 2019; filed February 6, 2020. The interim financial statements are unaudited. Bio-Techne develops and sells biotechnology reagents, instruments and services through its Protein Sciences and Diagnostics and Genomics segments.
Financial performance
| Metric | Quarter ended Dec. 31, 2019 | Six months ended Dec. 31, 2019 | Comparison with prior year |
|---|---|---|---|
| Revenue | $184.9 million | $368.2 million | Up 6% and 9%, respectively |
| Gross margin | 65.6% | 65.1% | Prior year: 64.8% and 65.4% |
| Operating income | $37.0 million | $70.3 million | Prior year: $33.6 million and $59.4 million |
| Net earnings | $119.6 million | $134.0 million | Prior year: $17.6 million and $35.0 million |
| Diluted EPS | $3.02 | $3.40 | Prior year: $0.45 and $0.90 |
| Operating cash flow | Not separately stated for quarter | $111.0 million | Prior-year six months: $86.0 million |
Reported earnings include a large gain from the company’s ChemoCentryx (CCXI) investment: management attributed approximately $121 million of quarterly and $110 million of six-month earnings to investment gains. Accordingly, reported net earnings are not a straightforward indicator of operating growth. Company-reported non-GAAP adjusted net earnings were $42.9 million for the quarter, up 4%, and $84.5 million for the six months, up 6.4%. These measures exclude investment gains and specified acquisition-related, amortization, stock-compensation and tax items.
Organic revenue growth was 6% for the quarter and 9% for the six months; acquisitions contributed 1%, while foreign currency reduced growth by 1% in both periods. Protein Sciences revenue rose 4% and 8%, respectively; Diagnostics and Genomics organic revenue rose 12% and 14%. Management cited broad-based North American growth, China organic growth above 20%, and strength in consumables, RNAscope, BaseScope and hematology products.
Quarterly adjusted gross margin was 70.6% versus 70.9% a year earlier; six-month adjusted gross margin was 70.0% versus 71.4%. Management cited unfavorable product mix and foreign exchange. SG&A increased 7% for the quarter and 5% for the six months, reflecting staffing and, in the quarter, stock-compensation timing. R&D increased 4% and 6%, primarily due to recent acquisitions.
Liquidity, debt and capital allocation
- At December 31, cash and cash equivalents were $110.3 million and short-term available-for-sale investments were $133.7 million, totaling $244.0 million. The investments included $100.0 million of CCXI shares and a warrant, making the investment balance subject to market-price risk.
- Debt was approximately $383.0 million on the balance sheet, including $12.5 million current and $370.5 million long-term; the company reported $383.3 million outstanding under its credit agreement. The agreement matures August 1, 2023. Remaining borrowing availability is not quantified in the filing text.
- Six-month investing cash flow was positive $18.2 million, including proceeds from investment sales and maturities; capital expenditures were $25.1 million. Financing cash flow was negative $121.3 million, including $122.3 million of debt repayments and $24.4 million of dividends. Cash increased $9.4 million over the six months.
- Management expected to meet operating, expansion, capital-addition and dividend needs for at least the next 12 months using available cash, operating cash flow and remaining revolving credit. Fiscal 2020 remaining-period capital expenditures were expected to be approximately $35 million.
Outlook, risks and other notable items
- No specific revenue or earnings guidance was provided. Management expected the income tax rate, excluding discrete items, to range from 24% to 28% for the remainder of fiscal 2020.
- The company adopted lease accounting standard ASC 842 on July 1, 2019, recognizing $81.1 million of operating lease liabilities and a $75.8 million right-of-use asset at December 31, 2019.
- Potential contingent consideration payments tied to the Exosome, Quad and B-MoGen acquisitions can total up to $414 million; the recorded fair value of the remaining liability was $12.6 million. Payments depend on specified performance thresholds and milestones.
- A 10% decline in CCXI’s share price would reduce the investment’s fair value by an estimated $10 million. The filing also identifies foreign-exchange exposure; approximately 34% of quarterly sales were made in foreign currencies.
- Management cited risks including acquisition integration, product acceptance and competition, manufacturing operations, currency fluctuations, regulation, intellectual property, investment-market volatility, personnel retention and facility-project delays. The company reported no material change to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls.
- On February 4, 2020, the company announced a $0.32 per-share dividend payable February 28, 2020. No share repurchases occurred during the six-month period.
Important facts for investors to verify
- How much of the reported earnings increase reflects CCXI investment gains versus recurring operations, and how the investment’s fair value has changed since period-end.
- The assumptions and exclusions behind adjusted earnings and adjusted gross margin, and the continuing trend in reported versus adjusted margins.
- Segment growth and profitability, particularly the low Diagnostics and Genomics operating margin and the effect of foreign exchange and product mix.
- Current revolving-credit availability, debt repayment plans, and the timing and potential amount of acquisition-related contingent payments.
- Whether planned capital spending, dividends and other cash needs remain covered by operating cash flow and available liquidity.