BIO-TECHNE Corp annual report, FY2022

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BIO-TECHNE Corporation — FY2022 Form 10-K

Period note: The request metadata says “2021 Q4,” but this filing is the annual report for the fiscal year ended June 30, 2022. Comparisons below are primarily with fiscal 2021.

Business context and reporting period

Bio-Techne develops and sells life-science reagents, instruments, and services for research, diagnostics, and bioprocessing markets. It reports two segments: Protein Sciences (about 75% of FY2022 sales) and Diagnostics and Genomics (about 25%). The company cited broad-based organic growth and execution of its long-term growth strategy.

Financial performance and liquidity

  • Revenue: $1.106 billion, up 19% year over year. Organic growth was 17%; acquisitions added 3%, while foreign currency reduced growth by 1%.
  • Segments: Protein Sciences revenue was $832.3 million, up 18% (19% organic, partly offset by currency). Diagnostics and Genomics revenue was $274.8 million, up 21% (10% organic and 11% from acquisitions).
  • Profit: GAAP operating income was $296.6 million, up from $237.3 million; operating margin was about 26.8%. Net earnings attributable to Bio-Techne were $272.1 million versus $140.4 million; diluted EPS was $6.63 versus $3.47.
  • Non-GAAP results: Adjusted net earnings were $323.5 million and adjusted diluted EPS was $7.89, up 18% in adjusted earnings. These measures exclude specified items and are not GAAP results.
  • Margins: GAAP gross margin was 68.4%, compared with 68.0% in FY2021. Adjusted gross margin was 72.5%, compared with 72.3%. Segment gross margins were 75.5% for Protein Sciences and 63.1% for Diagnostics and Genomics.
  • Cash flow and investment: Operating cash flow was $325.3 million, down from $352.2 million. Capital expenditures were $44.9 million, implying roughly $280.4 million of operating cash flow after capital expenditures. FY2023 planned capital additions were about $62 million.
  • Liquidity: Cash and cash equivalents were $172.6 million and short-term available-for-sale investments were $74.5 million, totaling $247.0 million. Current assets were $605.6 million and current liabilities $176.0 million.
  • Debt: Long-term debt obligations totaled about $255.9 million at June 30, 2022, including $12.5 million current. The credit facility is variable-rate and matures August 1, 2023. The company reported $346 million drawn under the facility as of August 19, 2022.
  • Capital returns: Cash dividends were $50.2 million ($1.28 per share). The company repurchased 394,238 shares for approximately $161.0 million and had $280.3 million remaining under its $400 million repurchase authorization at year-end.

Material changes versus the prior comparable period

  • Revenue growth moderated to 19% from 26% in FY2021, while organic growth was 17% versus 22%.
  • GAAP earnings rose sharply, but comparison is affected by investment fair-value movements: FY2022 included a $15.2 million net investment gain, versus a $68.0 million loss in FY2021. FY2022 also included a $20.4 million benefit from contingent-consideration fair-value changes, versus a $5.3 million charge in FY2021.
  • FY2022 operating cash flow declined, partly because of timing of payments and working-capital movements; receivables and inventory uses of cash increased.
  • Reported SG&A increased 15% and R&D increased 23%, reflecting business investments and the full-year impact of Asuragen, among other items.
  • Diagnostics and Genomics gross margin improved to 63.1% from 60.5%, primarily from volume leverage; Protein Sciences margin was 75.5%, down from 76.0%, primarily reflecting product mix.

Outlook, management commentary, risks, and unusual items

  • Management said available funds, the credit line, and cash from operations should meet operating, facility, capital-addition, and dividend needs for at least the next 12 months. The filing provides no specific consolidated revenue or earnings guidance.
  • Management plans to continue geographic expansion, product innovation, targeted acquisitions, and talent development. More than 1,000 products were introduced in FY2022.
  • The company paid $25 million for a forward contract tied to Wilson Wolf. If specified thresholds are met, Bio-Techne expects a $231 million payment for a 19.9% stake; the subsequent purchase of the remaining equity could require approximately $1 billion plus possible contingent consideration. Management forecast the first option payment in FY2023, subject to the agreement’s conditions.
  • After year-end, Bio-Techne acquired Namocell on July 1, 2022 for about $100 million plus up to $25 million in contingent consideration, and sold its remaining ChemoCentryx shares on August 4, 2022 for approximately $73.3 million.
  • Eminence notified the company it planned to cease operations and liquidate after additional funding was not provided. FY2022 included impairment charges for goodwill, intangible assets, inventory, and fixed assets; the filing reports total Eminence impairment of $18.7 million.
  • Key risks include economic and customer-spending volatility, inflation and labor constraints, supply-chain and manufacturing disruption, foreign-exchange exposure, competition, acquisition integration, cybersecurity and privacy, and extensive FDA, laboratory, and other regulatory requirements. The company cited China pandemic restrictions and the Ukraine conflict as potential sources of disruption.
  • Foreign-currency translation reduced FY2022 revenue by $12.5 million. Approximately 42% of sales revenue came from outside the U.S.; 34% of consolidated sales were denominated in foreign currencies.
  • The independent auditor issued an unqualified opinion on the financial statements and internal controls. Goodwill impairment testing for Molecular Diagnostics was identified as a critical audit matter because of judgment in revenue-growth and discount-rate assumptions.

Important facts for investors to verify

  • Reconcile the sharp increase in GAAP earnings with investment valuation changes, contingent-consideration benefits, tax benefits, and the company’s non-GAAP adjustments.
  • Review the Wilson Wolf contract’s performance thresholds, timing, funding requirements, and potential total purchase price.
  • Track organic growth, acquisition contribution, and margins separately in the two operating segments.
  • Assess cash conversion and working-capital trends, particularly the increase in accounts receivable and inventory, alongside planned FY2023 capital spending.
  • Confirm debt drawn, variable-rate exposure, refinancing or repayment plans ahead of the August 2023 credit-facility maturity, and the effect of repurchases and dividends on capital flexibility.
  • Monitor the Namocell integration, Eminence liquidation recoveries, and reimbursement and regulatory progress for diagnostic tests.