Bio-Techne Corporation — FY2018 Form 10-K
Reporting period: Fiscal year ended June 30, 2018, with comparisons to fiscal 2017 and fiscal 2016. The request metadata says “2017 Q4,” but the supplied filing is the FY2018 annual report, not a fiscal 2017 quarterly filing.
Business context and reporting period
Bio-Techne develops, manufactures, and sells biotechnology research reagents, protein-analysis instruments and consumables, and clinical diagnostic products worldwide. Its three reporting segments are Biotechnology, Protein Platforms, and Diagnostics. FY2018 sales mix was 66%, 17%, and 17%, respectively. The company reported approximately 2,000 employees and introduced about 1,500 products during the year.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net sales | $643.0 million | $563.0 million |
| Operating income | $136.2 million | $120.6 million |
| Net earnings | $126.2 million | $76.1 million |
| Diluted EPS | $3.31 | $2.03 |
| Operating cash flow | $170.4 million | $143.7 million |
| Capital expenditures | $20.9 million | $15.2 million |
| Cash, cash equivalents and short-term investments | $181.8 million | $157.7 million |
| Working capital | $318.9 million | $212.5 million |
| Long-term debt | $339.0 million | $343.8 million |
Consolidated sales grew 14%: 9% organic growth, 3% from acquisitions, and 2% from favorable currency translation. Reported gross margin was 67.2%, versus 66.5%; management’s non-GAAP adjusted gross margin was 71.5%, versus 71.2%. Segment sales were $421.5 million for Biotechnology (+16%), $111.9 million for Protein Platforms (+22%), and $110.1 million for Diagnostics (+3%).
GAAP net earnings rose 65%, while non-GAAP adjusted net earnings rose 24% to $172.6 million. The effective tax rate was negative 0.2%, versus 32.0%, primarily reflecting a $33.0 million net benefit from U.S. tax reform. The filing reports no dividends reduction: cash dividends were $1.28 per share for both years, totaling about $48.0 million in FY2018.
Material changes versus FY2017
- Protein Platforms had the fastest segment growth, driven by demand for Simple Western and Simple Plex instruments and consumables.
- Biotechnology growth reflected organic expansion, acquisitions, and currency benefits; Diagnostics growth was modest and included acquisition contributions.
- FY2018 operating cash flow increased by about $26.6 million. Management attributed the increase mainly to higher earnings, stronger receivable collections, and higher operating liabilities.
- SG&A rose 20% to $240.6 million, reflecting acquisitions, commercial and administrative investment, and $13.6 million of additional stock-based compensation, including $8.3 million related to a revised retirement policy.
- Interest expense increased as rates rose. Reported earnings also benefited from the tax-law change; the prior-year comparison included acquisition-related and tax items.
Outlook, risks, contingencies, and unusual items
- Management expected available funds, operating cash generation, and credit availability to cover operations, facility expansion, capital additions, and dividends for at least the next 12 months. Planned FY2019 capital expenditures were approximately $30.7 million. No specific sales or earnings guidance was provided.
- Subsequent to year-end, Bio-Techne acquired QT Holdings for about $20 million plus up to $51 million contingent consideration, and Exosome Diagnostics for about $250 million plus up to $325 million contingent consideration. The Exosome transaction was funded in part through a new variable-rate credit facility, with $330 million drawn as of August 24, 2018; the facility provides a $600 million revolving line and a $250 million term loan.
- FY2018 included a $16.2 million impairment loss on the Astute Medical investment, largely offset in the year’s results by a $16.1 million gain on a partial sale of ChemoCentryx shares. The ChemoCentryx investment was valued at $54.3 million at year-end and is subject to share-price volatility and limited trading.
- Key risks include competitive and pricing pressure, acquisition integration and impairment exposure, regulatory compliance, foreign-exchange movements, changing research and healthcare funding, operational or manufacturing disruption, cybersecurity, intellectual-property disputes, and uncertainty around Brexit and trade policy. About 46% of sales were outside the U.S.; currency translation added $12.7 million to FY2018 revenue.
- The company said it had remediated previously reported material weaknesses in internal control; management and the auditor concluded controls were effective as of June 30, 2018. Controls at the three FY2018 acquisitions, representing 5.3% of assets and 1.7% of revenue, were excluded from the assessment.
- The company reported no legal proceedings expected to have a material adverse effect and no material off-balance-sheet arrangements. Its annual goodwill testing found substantial headroom, though valuations depend on forecast cash flows and discount rates.
Important facts for investors to verify
- Separate recurring operating performance from the one-time tax benefit, acquisition accounting costs, stock compensation, and investment gains or losses; review the company’s non-GAAP reconciliations.
- Track organic growth and margins by segment, particularly continued Protein Platforms growth and Diagnostics’ exposure to the timing of large OEM orders.
- Assess the financing, variable-rate interest burden, contingent consideration, integration progress, and expected returns from the Quad and Exosome acquisitions.
- Monitor the ChemoCentryx investment’s fair value and liquidity, and confirm the remaining Astute escrow proceeds.
- Review the final tax-reform calculations and the effect of new tax rules, as management stated estimates remained under analysis.
- Reconcile the reported FY2018 debt balance and cash resources with borrowing and repayment activity and the post-year-end credit facility.