Bio-Techne Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended June 30, 2019. The request metadata says “2018 Q4,” but this filing reports FY2019; quarterly figures below identify the fourth quarter of FY2019 and its FY2018 comparison. Dollar amounts are in millions unless noted.
Business context
Bio-Techne develops and sells life-science reagents, instruments, and services for research and clinical diagnostics. Its two reportable segments are Protein Sciences (76% of FY2019 sales) and Diagnostics and Genomics (24%). The company completed acquisitions of Quad, Exosome Diagnostics, and B-MoGen during FY2019.
Financial performance
| Metric | FY2019 | FY2018 | Change/comment |
|---|---|---|---|
| Revenue | $714.0 | $643.0 | +11%; organic growth +10%, acquisitions +2%, currency impact -1% |
| Gross margin | 66.3% | 67.2% | Down 0.9 percentage points; adjusted gross margin was 71.5% in both years |
| Operating income | $146.7 | $136.2 | +8%; GAAP operating margin about 20.5% versus 21.2% |
| Net earnings | $96.1 | $126.2 | Down 24% |
| Diluted EPS | $2.47 | $3.31 | Down 25% |
| Adjusted net earnings | $175.5 | $172.6 | +2%; non-GAAP measure |
| Operating cash flow | $181.6 | $170.4 | Up from prior year |
| Capital expenditures | $25.4 | $20.9 | FY2020 planned capex approximately $56 |
FY2019 GAAP earnings were affected by higher interest expense ($21.1 million net), a $12.4 million net other non-operating expense, including investment fair-value losses, and a 14.2% effective tax rate. FY2018 benefited from a $33.0 million discrete tax benefit tied primarily to U.S. tax reform and had a negative 0.2% effective tax rate. Management attributed adjusted earnings growth to volume leverage, partly offset by lower-margin acquisitions.
By segment, Protein Sciences sales rose 13% to $543.2 million, with 13% organic growth. Diagnostics and Genomics sales increased 7% to $171.7 million, including 4% organic growth; Exosome-related negative gross margins contributed to the segment’s gross margin decline to 41.8% from 46.3%. Protein Sciences gross margin was 73.9%, versus 74.1%.
In FY2019 Q4, revenue was $191.7 million versus $180.3 million in FY2018 Q4. Net earnings were $16.5 million versus $41.7 million, and diluted EPS was $0.42 versus $1.07.
Liquidity, debt, and capital allocation
At June 30, 2019, cash and cash equivalents were $100.9 million, short-term investments were $65.1 million, and working capital was $310.6 million. Long-term debt was $492.7 million, with $12.5 million current, for total reported debt of $505.2 million. Debt bears variable interest; the company entered into cash-flow interest-rate swaps covering $380 million of notional principal. The credit agreement matures August 1, 2023.
Cash and short-term investments totaled $166.0 million, down from $181.8 million. Operating cash flow was $181.6 million; acquisitions used $289.5 million of net cash. The company paid $48.4 million in dividends and repurchased $15.4 million of shares. Management said available funds, credit availability, and operating cash flow should meet foreseeable needs, including at least the next 12 months.
Material changes, outlook, and risks
- Revenue growth remained strong but slowed from FY2018’s 14%; organic growth improved to 10% from 9%, while currency shifted from a 2% tailwind to a 1% headwind. Currency translation reduced FY2019 revenue by $9.2 million.
- FY2019 acquisitions added substantial assets and liabilities, including up to $325 million of Exosome contingent consideration. Goodwill was $732.7 million, about 39% of total assets; management reported no goodwill impairment.
- Management provided no explicit revenue or earnings guidance in the supplied filing text. It forecast approximately $56 million of FY2020 capital expenditures and estimated FY2020 net tax expense at about $23 million.
- Key risks include acquisition integration and contingent-payment estimates; variable-rate debt and covenant restrictions; reimbursement, regulatory, and privacy risks for the Exosome EPI clinical test; currency exposure; competition and customer funding variability; and dependence on manufacturing and distribution operations. EPI reimbursement coverage remained uncertain.
- No legal proceedings were identified as reasonably expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls; acquired businesses representing 17.2% of assets and 0.5% of revenue were excluded from the year-end internal-control assessment.
Important facts for investors to verify
- Reconcile the sharp GAAP earnings decline with adjusted earnings growth, especially the tax, investment valuation, acquisition amortization, and stock-compensation adjustments.
- Review the Exosome EPI reimbursement trajectory and the assumptions behind up to $325 million of contingent consideration.
- Assess debt repayment capacity, variable-rate exposure, swap coverage, and compliance with credit-agreement covenants.
- Track the margin impact of acquisitions, particularly Diagnostics and Genomics, and whether organic growth remains broad-based.
- Monitor goodwill and acquired-intangible valuations, including their sensitivity to forecast assumptions and future amortization expense.