Bio-Rad Laboratories, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020 unless otherwise noted. Bio-Rad operates in Life Science and Clinical Diagnostics. Results are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $726.8 million | $571.6 million | Up 27.1%; up approximately 23.4% on a currency-neutral basis |
| Gross profit / gross margin | $400.6 million / 55.1% | $317.4 million / 55.5% | Margin down 0.4 percentage points |
| Operating income | $100.9 million | $74.4 million | Up approximately 35.6% |
| Net income | $977.4 million | $685.9 million | Includes large unrealized gains on equity securities |
| Diluted EPS | $32.38 | $22.72 | Also substantially affected by equity-security valuation gains |
| Operating cash flow | $113.6 million | $62.8 million | Increase attributed mainly to higher customer receipts and Sartorius dividends |
| Capital expenditures | $19.5 million | $21.6 million | Net cash used in investing activities was $48.3 million |
Non-operating items: The change in fair value of equity securities was a $1.179 billion gain, compared with an $827.7 million gain in Q1 2020, primarily reflecting Bio-Rad’s Sartorius AG investment. Other income was $17.4 million, including $19.0 million of Sartorius dividends. Interest expense fell to $0.4 million from $5.7 million, mainly after repayment of $425 million of Senior Notes in December 2020. The effective tax rate was 24.7%, versus 23.7%.
Segments and material changes
- Life Science: Sales of $366.5 million, up 61.3% reported and 56.9% currency-neutral. Growth was led by qPCR, Western Blotting, Droplet Digital PCR and Process Media; the company said a significant portion related to COVID-19 research and testing.
- Clinical Diagnostics: Sales of $358.5 million, up 5.4% reported and 2.2% currency-neutral, supported by recovery in diabetes monitoring and continued quality-controls performance, particularly in Asia Pacific.
- Restructuring: A February 2021 plan affecting mainly Europe includes position eliminations, function consolidation and moving certain manufacturing operations from Europe to Asia. Q1 charges were $23.9 million in cost of goods sold, $34.7 million in SG&A and $17.0 million in R&D. The March 31 restructuring accrual was $71.2 million; the plan is expected to be substantially complete by the end of 2022. Estimates are preliminary and could change.
- Consolidated gross margin declined slightly. Life Science gross margin improved approximately 6.0 percentage points, while Clinical Diagnostics gross margin fell approximately 7.7 percentage points, with restructuring costs a significant factor.
Liquidity, balance sheet and capital allocation
- At March 31, 2021, cash and cash equivalents were $673.5 million and short-term investments were $346.4 million. Management separately reported $1.03 billion of cash, cash equivalents and short-term investments available.
- Total assets were $13.93 billion, including $10.50 billion of other investments, principally the Sartorius position. Deferred income taxes were $2.31 billion.
- Total liabilities were $3.32 billion and stockholders’ equity was $10.61 billion. Debt and notes payable totaled approximately $12.6 million, including current maturities; operating lease liabilities totaled $207.6 million.
- The $200 million revolving credit facility had no borrowings outstanding; $0.2 million was used for standby letters of credit. The company reported compliance with its covenants.
- Q1 financing cash use was $47.3 million, including $50.0 million for repurchases of 89,506 Class A shares. $223.1 million remained under the repurchase authorization at quarter-end.
Outlook, risks and contingencies
- The filing provides no specific numerical revenue, earnings or cash-flow guidance. Management said liquidity, operating cash flow and available credit were expected to be adequate for current operating, investment and acquisition needs.
- COVID-19’s duration and effects remained uncertain. Demand for pandemic-related products supported growth, but management cautioned that improving conditions could reduce that demand; some other businesses faced weaker demand. The filing also cites supply, component and transportation constraints.
- Bio-Rad said its Sartorius investment’s market value can materially affect reported earnings and share price independently of operating performance. The company also warned it might be deemed an investment company based on that holding, potentially limiting access to capital markets or additional financing.
- Other stated risks include foreign exchange and international regulatory exposure, competition and pricing pressure, reliance on government and customer funding, product quality and supply risks, cybersecurity and ERP implementation, and changes in healthcare reimbursement.
- The company is undergoing tax-authority examinations. Gross unrecognized tax benefits were $57.5 million; management said up to $16.7 million could reasonably possibly decrease within 12 months. Ordinary-course legal matters were disclosed, but the company could not reasonably estimate a range of exposure.
Important facts for investors to verify
- How much of Life Science growth and future demand depends on COVID-19-related products, and whether that demand persists as pandemic conditions change.
- The operating performance of the two segments apart from the $1.179 billion Sartorius fair-value gain and related dividend income.
- The final costs, cash-payment timing and operational effects of the European restructuring plan.
- The market value and liquidity of the Sartorius holding, and any resulting Investment Company Act or financing implications.
- Whether supply-chain constraints, tax examinations, regulatory developments or other disclosed risks materially affect subsequent results.