Business context and reporting period
Bio-Techne Corporation’s unaudited Form 10-Q covers the quarter ended September 30, 2015, the first quarter of fiscal 2016. The company serves life-science research and diagnostics markets through its Biotechnology, Clinical Controls, and Protein Platforms segments. The filing’s fiscal-quarter designation differs from the request metadata label “2015 Q1.”
Key financial results
Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | Quarter ended Sep. 30, 2015 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $112.4 | $108.5 | +4% |
| Gross margin | $75.4; 67.1% | $73.1; 67.4% | Margin down 0.3 percentage points |
| Operating income | $31.0 | $35.2 | −12% |
| Net earnings | $22.7 | $23.9 | −5% |
| Diluted EPS | $0.61 | $0.64 | −5% |
| Operating cash flow | $31.8 | $35.7 | −11% |
Organic sales growth was 2%; acquisitions added 6% and currency translation reduced sales by 4%. Adjusted net earnings, a non-GAAP measure, were $29.4 million versus $32.6 million, down 10%. Adjusted gross margin was 70.6%, compared with 72.1%.
Segments
- Biotechnology: sales of $75.7 million, down 1% reported but up 4% organically; operating margin was 51.9% versus 52.9%.
- Clinical Controls: sales of $20.4 million, up 7% reported; organic sales declined 11%, partly reflecting OEM shipment timing. Operating margin fell to 23.1% from 31.9%.
- Protein Platforms: sales of $16.3 million, up 26% reported and 10% organically. Operating margin was −7.2%, versus 20.1%, reflecting acquisition-related timing and expenses.
Liquidity, debt and cash flow
At September 30, cash and cash equivalents were $48.8 million and available-for-sale investments were $38.4 million, totaling approximately $87 million, versus $111 million at June 30. Current assets were $241.0 million and current liabilities $45.0 million. Operating cash flow was $31.8 million; investing cash use was $85.2 million, including $83.0 million for Cliniqa; financing provided $41.9 million. Cash ended the quarter at $48.8 million.
The company reported $125.5 million outstanding under its $150 million revolving credit facility, which matures July 31, 2019. The acquisition was primarily funded through the facility. Balance-sheet long-term debt obligations were $164.4 million; the filing does not clearly reconcile this balance-sheet amount to the disclosed revolving-facility balance. Cash dividends paid were $11.9 million. Management said available cash and operating cash generation should meet needs for at least the next 12 months.
Material changes, outlook and risks
- On July 8, 2015, Bio-Techne acquired Cliniqa for approximately $83.0 million, net of cash acquired. Cliniqa contributed $3.4 million in sales and a $0.4 million net loss during the quarter. Purchase accounting increased acquired intangibles and goodwill; acquisition-related amortization and inventory costs weighed on reported results.
- Reported net earnings also reflected higher acquisition-related amortization and expenses. The effective tax rate was 28.7%, including a $0.8 million one-time benefit from foreign deferred-tax adjustments; management expected a 30%–32% rate for the rest of fiscal 2016.
- Capital expenditures for the remainder of fiscal 2016 were expected to be approximately $14 million. The filing provides no specific sales or earnings guidance.
- The company held a $38.4 million investment in ChemoCentryx; a 10% fall in its market value would reduce fair value by approximately $3.8 million. Foreign-exchange exposure was material: 27% of quarterly sales were denominated in foreign currencies, and a hypothetical 10% U.S. dollar appreciation was estimated to reduce annualized earnings translation by $3.3 million, foreign net assets by $24.8 million, and generate $4.5 million of additional transaction losses.
- Other risks cited include competition, product acceptance, manufacturing reliance, regulation, intellectual-property protection, currency and economic conditions, and investment-portfolio market and credit risk. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no reportable off-balance-sheet arrangements.
Important facts for investors to verify
- Whether organic sales growth and segment trends persisted after the quarter, particularly Clinical Controls’ OEM shipment timing and Protein Platforms’ profitability.
- Cliniqa’s final purchase-price allocation, integration costs, and contribution to sales and earnings.
- The level and terms of revolver borrowings, including reconciliation to balance-sheet debt obligations and remaining borrowing capacity.
- The valuation and concentration risk of the ChemoCentryx investment and the sensitivity of results to foreign-exchange movements.
- Progress against the approximately $14 million remaining-year capital-spending estimate and management’s liquidity assessment.