Bio-Techne Corporation — Form 10-Q Summary
Period clarification: The supplied filing covers the quarter and nine months ended March 31, 2020 (fiscal 2020 third quarter), not 2019 Q3 as stated in the request metadata. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Business context and reporting period
Bio-Techne develops and sells biotechnology reagents, instruments and services for research and clinical diagnostic markets. It reports two segments: Protein Sciences and Diagnostics and Genomics. The interim financial statements are unaudited.
Financial performance
| Metric | Quarter ended Mar. 31, 2020 | Prior-year quarter | Nine months ended Mar. 31, 2020 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $194.7m | $184.9m | $562.9m | $522.3m |
| Gross margin | 66.8% | 67.4% | 65.7% | 66.1% |
| Operating income | $47.8m | $44.1m | $118.1m | $103.5m |
| Net earnings | $36.4m | $44.7m | $170.5m | $79.6m |
| Diluted EPS | $0.92 | $1.15 | $4.33 | $2.05 |
| Operating cash flow | Not separately stated | Not separately stated | $160.4m | $125.7m |
- Quarterly sales increased 5%; organic growth was 6%. Nine-month sales increased 8%; organic growth was 8%. Foreign exchange reduced growth by 1% in both comparisons.
- Quarterly net earnings fell mainly because the prior-year quarter included approximately $12m of investment gains. Nine-month net earnings rose mainly because the current period included approximately $110m of gains on available-for-sale investments, primarily related to the CCXI investment.
- Quarterly adjusted gross margin was 71.5%, versus 71.3%; nine-month adjusted gross margin was 70.6%, versus 71.3%. These non-GAAP measures exclude specified acquisition-related costs and other items.
- Quarterly adjusted net earnings were $55.0m, up 16.8%; nine-month adjusted net earnings were $139.5m, up 10.3%, as defined by the company’s non-GAAP reconciliation.
Liquidity, debt and capital resources
- At March 31, 2020, cash and cash equivalents were $156.2m and short-term available-for-sale investments were $104.9m, totaling $261.1m. Total current assets were $491.9m and current liabilities were $105.0m.
- Outstanding borrowings under the credit agreement were reported as $420.1m. The agreement includes a $600m revolving facility, with potential for an additional $200m subject to conditions, and a $250m term loan; it matures August 1, 2023. The filing says the company had sufficient liquidity and expects to meet its needs for at least the next 12 months.
- Nine-month investing cash flow was positive $37.6m, reflecting investment sales and maturities and no acquisition cash payments, partly offset by $34.4m of capital expenditures. Financing cash flow was negative $139.1m, including $125.4m of debt repayments, $50.1m of share repurchases and $36.6m of dividends.
- Management expected approximately $13m of capital expenditures for the remainder of fiscal 2020. A $0.32-per-share dividend, approximately $12.3m in total, was announced for payment in May 2020.
Material changes and segment results
- Protein Sciences quarterly sales were $145.5m, up 6%; nine-month sales were $428.0m, up 7%. Segment operating margins were 44.7% for the quarter and 43.3% for the nine months, down from 45.1% and 44.0%.
- Diagnostics and Genomics quarterly sales were $49.4m, up from $47.1m; nine-month sales were $135.8m, up from $123.1m. Segment operating margins improved to 14.3% quarterly and 6.6% year to date, versus 7.6% and 4.1%.
- Reported gross margin declined year over year in both periods. Management cited unfavorable product mix and foreign exchange; Protein Sciences margins were also affected by sales mix and the B-MoGen acquisition.
- The company adopted lease accounting standard ASC 842 on July 1, 2019, recognizing a $73.8m right-of-use asset and $79.0m of operating lease liabilities at March 31, 2020.
Outlook, risks and unusual items
- COVID-19-related customer site shutdowns, particularly in academia and biopharma, reduced third-quarter sales by an estimated 3% and reduced EPS and adjusted EPS by an estimated $0.07–$0.09. Management could not forecast the impact’s duration or full extent. It anticipated possible longer-term research funding increases and was pursuing COVID-19-related product and partnership opportunities.
- The company reported remaining operational while using remote work where possible, protective measures at sites, and additional supply-chain monitoring. It reported no material COVID-19-related balance-sheet changes, such as new reserves or impairments, as of March 31, 2020.
- For the remainder of fiscal 2020, management expected an effective tax rate of 24%–28%, excluding discrete items. The filing does not provide specific sales or earnings guidance.
- CCXI shares were carried at a fair value of $70.2m; a 10% decline in market value would reduce fair value by an estimated $7.0m. The investment valuation drove substantial period-to-period volatility in reported non-operating income and net earnings.
- Potential risks include pandemic-related demand, operations and supply-chain disruption; foreign exchange exposure; investment-value volatility; acquisition integration and contingent consideration; and LIBOR transition exposure in debt and hedging arrangements. No material legal proceedings were reported, and no subsequent events were disclosed.
Important facts for investors to verify
- Confirm the reporting period: this is fiscal 2020 Q3, ended March 31, 2020.
- Review the composition and realization of investment gains, especially the CCXI holding, when assessing underlying earnings and cash generation.
- Track customer shutdown effects, recovery in academia and biopharma demand, and any changes to management’s COVID-19 outlook.
- Monitor segment margins, especially the improvement in Diagnostics and Genomics and the decline in Protein Sciences.
- Review debt repayments, remaining revolver availability, lease obligations and contingent acquisition payments, including the potential maximum obligations disclosed in the filing.