Bio-Rad Laboratories, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are with the same 2022 periods unless stated otherwise. Bio-Rad sells life-science research and clinical-diagnostics products worldwide. Amounts below are in millions except per-share data.
Key financial results
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Net sales | $681.1 | $691.1 | $1,358.0 | $1,391.2 |
| Gross profit / margin | $362.5 / 53.2% | $395.0 / 57.2% | $724.9 / 53.4% | $797.7 / 57.3% |
| Operating income / margin | $89.6 / 13.2% | $122.9 / 17.8% | $151.5 / 11.2% | $269.3 / 19.4% |
| Net loss | $(1,162.3) | $(925.1) | $(1,093.3) | $(4,292.5) |
| Loss per share | $(39.59) | $(31.05) | $(37.09) | $(143.74) |
| Operating cash flow | Not separately presented for quarter | $196.2 | $103.8 |
Business trends and changes
- Q2 sales decreased 1.4% reported and 0.3% currency-neutral. H1 sales decreased 2.4% reported and 0.3% currency-neutral. The sharp reduction in COVID-related sales was a major comparison factor: $0.4 million in Q2 2023 versus $33.2 million, and $3.1 million in H1 versus $78.5 million.
- Excluding COVID-related sales, currency-neutral revenue increased 4.6% in Q2 and 5.4% in H1. Life Science sales fell 6.9% in Q2 and 6.8% in H1, while Clinical Diagnostics rose 3.3% and 1.8%, respectively. Excluding COVID sales, both segments grew on a currency-neutral basis.
- Gross margin contracted, primarily due to product mix, higher material and logistics costs, and inventory reserves. SG&A was essentially flat in Q2 but higher for H1; R&D increased year over year in H1. Restructuring costs contributed to expense increases.
- Net losses primarily reflect unrealized fair-value declines in equity securities and the Sartorius-related loan, rather than operating losses. Fair-value losses were $1,595.4 million in Q2 2023 and $1,613.0 million in H1 2023, compared with $1,338.2 million and $5,883.3 million in the 2022 periods. Bio-Rad recorded a $1,578.5 million Q2 loss on its Sartorius investment.
Cash, debt and liquidity
- At June 30, 2023, cash and cash equivalents were $390.0 million and short-term investments were $1,332.7 million; together, approximately $1.72 billion. Total assets were $11.98 billion, down from $13.50 billion at year-end 2022, largely alongside the decline in the reported value of other investments.
- Long-term debt, net of current maturities, was $1,198.4 million, primarily $400 million of 3.3% Senior Notes due 2027 and $800 million of 3.7% Senior Notes due 2032. The $200 million revolving credit facility had no borrowings; $0.2 million was used for standby letters of credit.
- H1 operating cash flow was $196.2 million, versus $103.8 million. Investing activities used $42.5 million, including $70.4 million of capital expenditures; financing activities used $198.4 million, including $207.4 million of share repurchases. Cash, cash equivalents and restricted cash ended the period at $390.5 million.
- Management stated that cash flows, investment liquidity and credit availability should be adequate for current operating, development, capital and acquisition objectives.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management describes the global outlook as uncertain and identifies government funding and customer capital spending as demand factors.
- Supply constraints and production ramp-up challenges continued to contribute to order backlogs and product-development delays; raw-material cost increases and freight surcharges remained concerns. Management said logistics constraints were improving.
- Bio-Rad approved restructuring plans in February and June 2023; the new activities were expected to be substantially complete by year-end 2023. H1 restructuring expense was $28.4 million across the disclosed plans, and the related liability was $38.8 million at June 30.
- The Sartorius investment and related loan create substantial fair-value and earnings volatility independent of Bio-Rad’s operating performance. The filing also identifies potential Investment Company Act implications if the company could not rely on its stated exemption position.
- Other disclosed risks include foreign exchange exposure, competition, regulation, cybersecurity and ERP implementation, tax examinations, supply-chain dependence and geopolitical or macroeconomic disruption. The company is party to ordinary-course legal matters; it did not expect them to have a material adverse effect overall, but stated an individual period’s results could be affected.
- After quarter-end, the board authorized a discretionary share repurchase program of up to $500 million. The prior $650 million authorization had been completed.
Important facts for investors to verify
- Whether underlying growth excluding COVID-related sales persists, particularly in Life Science and across regions.
- Whether gross margins recover as product mix, input costs, logistics and inventory reserves change.
- The sensitivity of reported earnings, assets and taxes to Sartorius share prices and the fair value of the related loan and appreciation rights.
- Whether supply backlogs ease and the 2023 restructuring plans finish on schedule, including their ongoing costs and expected benefits.
- Capital allocation under the new $500 million repurchase authorization relative to liquidity, debt obligations and operating needs.