Bio-Techne Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2019 (fiscal 2019 third quarter). The request metadata says “2018 Q3,” but the filing covers 2019 Q3.
Business context
Bio-Techne supplies life-science and diagnostic products through Protein Sciences and Diagnostics and Genomics. During the period it acquired Quad Technologies and Exosome Diagnostics, and reorganized its five divisions into these two reporting segments.
Financial performance
| Metric | Quarter ended Mar. 31, 2019 | Prior-year quarter | Nine months ended Mar. 31, 2019 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $184.9 million | $164.0 million | $522.3 million | $462.7 million |
| Gross margin | 67.4% | 67.2% | 66.1% | 67.0% |
| Operating income | $44.1 million | $43.1 million | $103.5 million | $93.3 million |
| Net earnings | $44.7 million | $19.7 million | $79.6 million | $84.4 million |
| Diluted EPS | $1.15 | $0.52 | $2.05 | $2.22 |
| Operating cash flow | Not presented separately | Not presented separately | $125.7 million | $105.5 million |
- Quarter sales increased 13% reported; organic growth was 14%, with acquisitions adding 1% and currency reducing growth by 2%. Nine-month sales also rose 13% reported, with 12% organic growth.
- Quarter operating income rose about 2%; nine-month operating income increased about 11%. Reported gross margin was down 90 basis points for the nine months, partly reflecting acquisition-related inventory and intangible-asset accounting. Adjusted gross margin, a non-GAAP measure, was 71.3% for both the quarter and nine-month period.
- Quarter net earnings benefited from a $12.3 million gain on investments and comparison with a $16.2 million prior-year investment impairment. Nine-month earnings declined partly because the prior-year period included a $31.7 million Tax Act benefit; current-period investment gains and improved operating income partially offset that comparison.
- Cash from operations increased $20.1 million year over year for the nine months. Investing cash use was $306.5 million, including $272.3 million for acquisitions; financing provided $154.3 million.
Balance sheet, debt and liquidity
- At March 31, 2019, cash and cash equivalents were $95.6 million and short-term available-for-sale investments were $83.2 million, totaling $178.8 million. Total current assets were $423.4 million and current liabilities $98.0 million.
- Outstanding debt under the August 2018 credit agreement was $522.6 million, including $12.5 million classified as current. The agreement includes a $600 million revolving facility and a $250 million term loan and matures August 1, 2023. Debt is variable-rate; the company entered into $380 million-notional interest-rate swaps.
- Total assets were $1.873 billion, including goodwill of $719.6 million and net intangible assets of $579.1 million. Shareholders’ equity was $1.146 billion.
- Management said available cash, operating cash flow and remaining revolving-credit availability should meet expected needs for at least the next 12 months. Nine-month dividends were $36.2 million; the quarterly dividend remained $0.32 per share.
Material changes, outlook and risks
- Quad was acquired for about $20.5 million, plus up to $51 million of contingent consideration. Exosome Diagnostics was acquired for about $251.8 million, plus up to $325 million contingent consideration. Acquisition purchase-price allocations remained preliminary and subject to change.
- Protein Sciences reported strong organic growth and improved operating margins, which management attributed to volume leverage and productivity. Diagnostics and Genomics margins fell sharply, which management attributed to lower-margin ExosomeDx acquisition effects.
- No sales or earnings guidance was provided. Management expected approximately $11 million of capital expenditures for the remainder of fiscal 2019. Excluding discrete items, the expected tax rate for the rest of fiscal 2019 was 23%–26%.
- ExosomeDx’s EPI prostate test faces uncertainty over public and private reimbursement coverage. The filing also identifies regulatory, billing, anti-fraud, laboratory-certification and health-information privacy risks associated with the testing business. Other disclosed risks include acquisition integration, foreign exchange, competition, manufacturing reliance and investment-value fluctuations.
- The company adopted accounting standards affecting revenue recognition and equity-investment accounting. Adoption of the latter moved fair-value changes on qualifying equity investments into earnings, increasing potential net-income volatility. The filing says the new revenue standard did not materially affect current-period results.
- Management reported effective disclosure controls. It had not yet fully evaluated internal-control changes associated with the two acquisitions. No material legal proceedings were reported; no subsequent events were disclosed.
Important facts for investors to verify
- Confirm the reporting-period label: the filing is for the quarter ended March 31, 2019, despite the request metadata’s “2018 Q3.”
- Check the Diagnostics and Genomics nine-month comparison: the segment table lists prior-year sales of $144.6 million, while the filing’s reported 7% growth and other segment information appear inconsistent with that figure. The filing text does not provide a clear reconciliation.
- Assess the assumptions and potential payout exposure behind up to $376 million of acquisition contingent consideration; the recorded fair value was $5.6 million at quarter-end.
- Monitor EPI reimbursement decisions, regulatory compliance and commercial adoption, as well as ExosomeDx integration and its impact on segment margins.
- Review variable-rate debt, swap coverage and the market risk of the $57.2 million CCXI investment; the filing estimates a $5.7 million loss from a 10% decline in its value.