Bio-Rad Laboratories, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise noted. Bio-Rad operates in Life Science and Clinical Diagnostics, selling research and diagnostic products and services globally. Approximately 60% of Q1 sales were international.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparator |
|---|---|---|
| Net sales | $571.6 million | $554.0 million; up 3.2% reported and approximately 4.3% currency-neutral |
| Gross profit / gross margin | $317.4 million / 55.5% | $311.8 million / 56.3% |
| Operating income / margin | $74.4 million / approximately 13.0% | $56.6 million / approximately 10.2% |
| Net income | $685.9 million | $865.2 million |
| Diluted EPS | $22.72 | $28.74 |
| Operating cash flow | $62.8 million | $42.9 million |
| Capital expenditures | $21.6 million | $23.6 million |
Net income included an $827.7 million unrealized fair-value gain on equity securities, primarily Bio-Rad’s Sartorius AG investment, compared with a $1,059.2 million gain in Q1 2019. These non-operating gains substantially affected reported income; operating income better reflects the quarter’s underlying operating performance. Gross margin declined partly because Q1 2019 included a $7.4 million cost-of-sales benefit from an acquisition escrow release. SG&A fell to $193.7 million from $207.6 million, while R&D rose to $49.3 million from $47.6 million.
Segments: Life Science sales were $227.2 million, up 5.3% reported and 6.0% currency-neutral; segment profit was $25.4 million versus $22.8 million. Clinical Diagnostics sales were $340.3 million, up 1.9% reported and 3.2% currency-neutral; segment profit was $46.2 million versus $30.9 million. Other Operations sales were $4.1 million.
Balance sheet and funding: At March 31, cash and cash equivalents were $603.6 million and short-term investments were $433.2 million, totaling $1,036.7 million; current assets were $2.08 billion and current liabilities $869.3 million. Total assets were $8.68 billion. Debt and notes payable were $438.5 million, including $425 million principal of 4.875% Senior Notes due December 2020; $426.3 million of debt was classified as current. The company had no revolver borrowings and reported $200 million of revolving credit capacity, less $0.2 million used for letters of credit. Management said it believed resources were adequate to repay the notes and meet obligations, whether refinancing or not.
Cash and cash equivalents declined by $54.2 million during the quarter. Financing cash outflow was $98.6 million, primarily reflecting $100.0 million spent repurchasing 291,941 Class A shares. Stockholders’ equity was $6.29 billion at quarter-end.
Changes, outlook, and material risks
- COVID-19: The filing says the pandemic negatively affected and was expected to continue disrupting operations. Q1 sales were hurt mainly late in the quarter; demand declined as customer facilities closed and routine diagnostics slowed, although demand rose for some pandemic-related products. Raw-material availability, freight capacity, and transportation were also challenged. Management provided no numerical forecast and said the duration and full financial impact were uncertain.
- Sartorius investment: Changes in the investment’s market value can materially affect earnings independently of Bio-Rad’s operations. Bio-Rad held over 37% of Sartorius voting shares but reported it lacked significant influence. Sartorius dividends were $15.7 million lower year over year, as the annual meeting and dividend approval were delayed amid COVID-19.
- Cyberattack: The December 2019 attack disrupted affected Windows-based systems; critical systems returned online within days. Bio-Rad reported no evidence of unauthorized data transfer or misuse and no ransom payment, but anticipated related expenses into the first half of 2020 and expected losses to exceed insurance coverage. No insurance proceeds were recorded.
- Restructuring: A Europe/North America reorganization announced in November 2019 had incurred $22.9 million of expenses through March 31, 2020, with a $14.0 million accrued liability; the plan was expected to continue through 2020. A separate Paris-area facility closure had a $2.9 million liability.
- Subsequent events: In April 2020, Bio-Rad acquired Celsee for approximately $100 million plus potential sales-milestone payments of up to $60 million. It also received $12.2 million from selling its Informatics division.
- Other exposures: The filing identifies pandemic-related business and supply risks, foreign-exchange and international-market exposure, regulatory and product risks, and risks from competition and customer funding. Tax authorities were examining returns; gross unrecognized tax benefits were $51.7 million. Ordinary-course legal matters were disclosed, but the company could not estimate potential exposure.
Most important facts for investors to verify
- How COVID-19 affected subsequent-period demand, orders, supply availability, freight costs, and margins.
- Whether Bio-Rad refinanced or repaid the $425 million notes due December 2020, and the resulting funding cost and liquidity position.
- How Sartorius share-price movements and dividend timing affect reported net income, assets, and cash flows.
- The realized costs and savings from restructuring, and the financial contribution and purchase-price allocation of Celsee.
- Final cyberattack costs, insurance recovery, and whether any operational, customer, or data effects emerged.