Bio-Rad Laboratories, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Bio-Rad sells life-science research and clinical-diagnostics products worldwide through its Life Science and Clinical Diagnostics segments. Amounts below are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $715.9 | $536.9 | $1,442.7 | $1,108.5 |
| Gross profit / margin | $401.6 / 56.1% | $293.0 / 54.6% | $802.2 / 55.6% | $610.4 / 55.1% |
| Operating income | $124.8 | $51.7 | $225.6 | $126.1 |
| Net income | $914.1 | $966.4 | $1,891.5 | $1,652.3 |
| Diluted EPS | $30.32 | $32.15 | $62.70 | $54.84 |
| Operating cash flow | Six-month period: $268.2 vs. $154.9 | — |
Sales and segments: Q2 sales increased 33.4% year over year, or approximately 27.5% excluding foreign-exchange effects. Life Science sales were $334.2 million (+32.6%; +27.1% currency neutral) and Clinical Diagnostics sales were $380.2 million (+34.3%; +28.0% currency neutral). For the first half, sales rose 30.1% (approximately 25.4% currency neutral); Life Science grew 46.2% and Clinical Diagnostics 18.5%.
Profit and unusual item: Net income includes large gains from Bio-Rad’s Sartorius AG equity investment: $1.03 billion in Q2 and $2.21 billion for the first half, versus $1.18 billion and $2.01 billion, respectively, in 2020. These fair-value gains are non-operating and substantially affect reported earnings; they do not represent operating performance or cash generated. Q2 net income declined despite higher sales and operating income, partly reflecting the smaller investment gain. Six-month operating income rose to $225.6 million from $126.1 million.
Cash, debt and liquidity: Cash and cash equivalents were $732.8 million and short-term investments were $428.6 million at June 30, 2021. Total debt was approximately $12.5 million; no borrowings were outstanding on the $200 million revolving credit facility, with $0.2 million used for letters of credit. Six-month investing cash outflow was $148.6 million and financing cash outflow was $44.5 million. The company repurchased $50.0 million of shares in Q1; $223.1 million remained under its repurchase authorization at June 30.
Changes, outlook and risks
- Gross margin improved year over year in Q2, reflecting favorable product mix and product costs. For the first half, Life Science margin improved, while Clinical Diagnostics margin fell about 3 percentage points, principally due to restructuring costs.
- Management attributed growth to strong demand across regions, including qPCR, Western Blotting, Droplet Digital PCR and Process Media in Life Science, and recovering laboratory utilization and quality-controls demand in Clinical Diagnostics. COVID-19-related demand remained moderate in Q2; a significant portion of first-half Life Science growth came from products supporting COVID-19 research and testing.
- A Europe-focused restructuring announced in February 2021 includes position eliminations, function consolidation and moving some manufacturing to Asia. It is expected to be substantially complete by the end of 2022. The restructuring accrual was $61.6 million at June 30.
- The filing gives no specific numerical full-year revenue or earnings guidance. Management said available liquidity and operating cash flow should support current operating, R&D, capital and acquisition objectives, while noting uncertainty from the pandemic and global conditions.
- Key risks include changing COVID-19 demand, supply and freight constraints and cost increases; foreign-exchange exposure; competition and customer funding or reimbursement pressure; regulatory, product-quality, cybersecurity and tax risks; and the potential impact of Sartorius share-price changes on earnings and access to capital. Bio-Rad cautioned that the value of its Sartorius holding could cause it to be deemed an investment company under the Investment Company Act, potentially limiting financing access.
- Subsequent event: On July 26, 2021, Bio-Rad and 10x Genomics settled outstanding litigation and entered cross-licenses. Bio-Rad expected to receive approximately $32 million in Q3 2021, primarily for royalties and interest on past sales; the agreement also provides for royalties on licensed products and services through 2030.
Investor verification priorities
- Separate operating trends from the large, volatile Sartorius fair-value gains when assessing earnings, EPS and valuation.
- Track whether segment growth persists as COVID-related demand changes and diagnostic markets continue recovering; compare reported growth with currency-neutral growth.
- Monitor restructuring charges, cash payments and expected completion through 2022, including any effects on Clinical Diagnostics margins and manufacturing capacity.
- Review the Sartorius investment’s valuation, concentration and potential implications for investment-company status and future access to financing.
- Confirm the timing and accounting treatment of the 10x settlement receipt and future royalty obligations or income, and monitor tax examinations and the possible reduction in unrecognized tax benefits.