Bio-Techne Corporation — Form 10-Q Summary
Business context and period. This unaudited filing covers the quarter and six months ended December 31, 2015, the second quarter of fiscal 2016. Bio-Techne serves life science and diagnostic markets through Biotechnology, Clinical Controls, and Protein Platforms. The company acquired Cliniqa in July 2015 for approximately $83 million, funded primarily with its revolving credit facility.
Financial results
| Metric | Quarter ended Dec. 31, 2015 | Prior-year quarter | Six months ended Dec. 31, 2015 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $120.9 million | $111.9 million | $233.3 million | $220.4 million |
| Gross margin | 67.5% | 67.7% | 67.6% | 67.5% |
| Operating income | $36.0 million | $34.6 million | $67.1 million | $69.8 million |
| Net earnings | $25.9 million | $33.2 million | $48.6 million | $57.1 million |
| Diluted EPS | $0.69 | $0.89 | $1.30 | $1.54 |
| Operating cash flow | — | $70.4 million | $71.4 million |
- Quarterly and six-month sales increased 8% and 6%, respectively. Organic growth, excluding acquisition timing and currency effects, was 6% and 4%; foreign exchange reduced sales by 4% in both periods.
- Reported gross margin was broadly stable. Adjusted gross margin, excluding acquired-inventory costs and acquisition-related intangible amortization, was 70.8% for the quarter and 71.0% year to date, down 0.2 and 0.5 percentage points year over year.
- Net earnings fell 22% for the quarter and 15% for the six months. Prior-year results included an $8.3 million pre-tax gain from remeasuring Bio-Techne’s earlier CyVek investment upon acquiring control. Management’s non-GAAP adjusted net earnings were $32.8 million for the quarter (+3.3%) and $62.3 million for the six months (-3.3%).
- At December 31, cash and cash equivalents were $62.5 million and short-term available-for-sale investments were $51.5 million; together, approximately $114 million. The portfolio included a $51.4 million investment in ChemoCentryx (CCXI).
- The revolving credit facility had $124 million outstanding against a $150 million commitment, with maturity in July 2019. The balance sheet separately reports $162.8 million of long-term debt obligations. Total assets were $1.13 billion and shareholders’ equity was $856.3 million.
- Six-month capital expenditures were $11.0 million. Management expected approximately $9.0 million more in the rest of fiscal 2016. Dividends paid during the six months were $23.8 million; the company announced a further $0.32-per-share dividend payable February 26, 2016.
Segment performance and changes
- Biotechnology: Quarterly sales were $75.9 million (+2% reported; 7% organic). Strong demand in China and bio/pharma markets helped; Japan was weak amid delayed release of government research funding. Quarterly operating margin rose to 52.7% from 51.1%.
- Clinical Controls: Quarterly sales were approximately $25.7 million, up 49% reported, including a 39% contribution from Cliniqa; organic growth was 10%. Heavy OEM orders benefited the quarter, while management cautioned that bulk ordering and longer shelf-life products can create quarter-to-quarter volatility. Quarterly operating margin was 28.4%, down from 29.6%, primarily due to product mix.
- Protein Platforms: Quarterly sales were $19.3 million (-6% reported; -2% organic). The company continued a commercial-plan transition to broaden the Simple Western customer base. Lead generation rose 20% and customer quotes increased in the mid-teens year over year, which management cited as signs of interest; quarterly operating margin declined to 7.9% from 16.8% amid acquisition mix and commercial investment.
Outlook, risks, and other notable items
- Management said available cash and expected operating cash generation should cover operating needs, facility expansion, capital additions, and dividends for at least the next 12 months. Protein Platforms’ outlook was described as favorable, based partly on early commercial-plan indicators; no specific earnings or revenue guidance was provided.
- Key risks discussed include currency movements, international economic conditions, new-product acceptance, competition, manufacturing and facility execution, regulation, intellectual property, personnel retention, and investment-portfolio and investee financing risks.
- A 10% decline in CCXI’s share price would reduce the investment’s fair value by approximately $5.1 million. A hypothetical 10% U.S. dollar appreciation against specified currencies was estimated to reduce annualized translated fiscal 2016 earnings by $3.5 million, foreign subsidiary net assets by $25.3 million, and result in $4.3 million of additional transaction losses.
- CyVek contingent consideration was recorded as a $35.0 million long-term liability; payments depend in part on product revenue. No material adverse legal proceedings or material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective; evaluation of controls for acquired businesses, including Cliniqa, was still in progress.
Investor verification priorities
- Assess underlying growth and earnings excluding acquisition effects, currency translation, acquisition accounting, and the prior-year CyVek gain; adjusted measures are non-GAAP.
- Check whether Clinical Controls’ unusually strong quarterly OEM orders recur, and track Cliniqa’s contribution and margin performance.
- Monitor Protein Platforms’ commercial transition, customer conversion, sales growth, and operating margins.
- Review the $124 million revolver balance, the separately presented $162.8 million long-term debt obligations, facility headroom, and the terms and expected timing of CyVek contingent payments.
- Track the valuation and concentration risk of the $51.4 million CCXI investment, as well as foreign-exchange effects and the still-incomplete internal-controls assessment for acquisitions.