Bio-Rad Laboratories, Inc. — 2022 Form 10-K
Reporting period: Year ended December 31, 2022. The filing is an annual report, not a standalone Q4 filing; unaudited quarterly results are also disclosed. Bio-Rad operates in Life Science and Clinical Diagnostics, which represented 48% and 52% of 2022 sales, respectively. About 41% of sales were in the U.S. and 59% internationally.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $2.802 billion | $2.923 billion |
| Gross profit / margin | $1.567 billion / 55.9% | $1.638 billion / 56.1% |
| Operating income | $482.6 million | $500.3 million |
| Net income (loss) | $(3.628) billion | $4.254 billion |
| Operating cash flow | $194.4 million | $669.5 million |
- Reported sales fell 4.1%; sales rose approximately 0.3% on a currency-neutral basis. Excluding COVID-related sales and the 2021 intellectual-property settlement royalty, currency-neutral sales increased 7.2%.
- Life Science sales were $1.347 billion, down 3.8% reported and up 0.3% currency-neutral. Clinical Diagnostics sales were $1.451 billion, down 4.3% reported and up 0.4% currency-neutral.
- The annual net loss primarily reflects a $5.07 billion unrealized holding loss on Bio-Rad’s Sartorius investment, within a $5.19 billion loss from changes in fair value of equity securities and the loan receivable. This non-operating item substantially outweighed operating income. The 2021 comparison included a $4.92 billion Sartorius holding gain.
- Cash, cash equivalents and short-term investments totaled approximately $1.791 billion at year-end, versus $869.9 million in 2021. Inventory increased to $719.3 million from $572.2 million.
- Long-term debt was $1.198 billion net of discounts and issuance costs; the company issued $1.2 billion principal amount of fixed-rate notes in 2022: $400 million due 2027 at 3.3% and $800 million due 2032 at 3.7%. The $200 million revolving facility had no borrowings; the company reported covenant compliance.
- Capital expenditures were $112.8 million. Financing cash flow was $973.6 million, largely reflecting note proceeds; Bio-Rad repurchased $215.7 million of shares.
Material changes versus the prior year
- Reported sales declined as COVID-related sales fell to approximately $109.2 million from $265.7 million, the U.S. dollar strengthened, and China lockdowns and supply constraints affected demand and instrument placements. The 2021 comparison also included $31.6 million of intellectual-property settlement royalty revenue.
- Operating income decreased to $482.6 million from $500.3 million. Gross margin eased 0.2 percentage points; SG&A declined to $827.8 million from $877.1 million, while R&D was $256.9 million versus $260.6 million.
- Interest expense rose to $38.1 million from $1.6 million, principally following the 2022 note issuance. Operating cash flow fell by $475.1 million, reflecting lower customer receipts and higher supplier, employee, tax and interest payments.
- Bio-Rad acquired Curiosity Diagnostics for $137.1 million, including $36.1 million estimated contingent consideration; up to an additional $70 million may be payable if specified development and sales milestones are achieved. The acquisition targets rapid molecular diagnostics.
Outlook, commentary, risks and unusual items
- Management said supply constraints were improving, but shortages had created significant order backlogs and delayed some product development. Bio-Rad made progress reducing the backlog in Q4 and anticipated normalizing it during 2023. No quantified revenue or earnings guidance is provided in the supplied filing text.
- COVID-related demand continued to moderate. Management identified supply-chain disruption, rising material and logistics costs, China restrictions, foreign-exchange movements, customer funding and capital spending, competitive pricing, and regulatory requirements as factors that could affect results.
- The Sartorius position was valued at approximately $8.474 billion at year-end and is a major source of earnings volatility unrelated to Bio-Rad’s operating performance. A 10% change in Sartorius share prices would, per the filing, produce an estimated $0.85 billion gain or loss. The related €400 million loan to SHB is collateralized by trust interests linked to Sartorius shares and is subject to valuation and collateral risk.
- In Q4 2022, Bio-Rad revised prior-period statements for software development costs that should have been capitalized; management judged the error immaterial. It also reassessed equipment acceptance criteria and concluded certain revenue should be recognized upon delivery rather than after installation and acceptance, determining the prior-period error was not material.
- The 2021 EMEA restructuring was expected to be substantially complete by mid-2023; the remaining reserve was $31.6 million. Ordinary-course legal claims were disclosed, with no material adverse effect anticipated by management, though outcomes are uncertain.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- How quickly the supply backlog and elevated inventory normalize, and whether delayed instrument placements and product launches recover.
- The sensitivity of reported earnings, equity and liquidity-related risks to Sartorius share prices, including the valuation and collateral supporting the SHB loan.
- Whether core operating growth persists after separating currency effects, COVID-related sales and the prior-year royalty settlement.
- Cash conversion and working-capital trends, given the sharp operating cash-flow decline and inventory increase.
- Curiosity’s development and commercial milestones, potential contingent payments, and progress toward a marketable rapid PCR platform.
- Final effects of the prior-period accounting revisions and the equipment revenue-recognition reassessment, notwithstanding management’s immateriality conclusions.