BIO-TECHNE CORPORATION — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2015 (fiscal 2015 Q3), compared with the corresponding prior-year periods. The request metadata says “2014 Q3,” but the filing itself covers fiscal 2015 Q3.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $114.2 million, up 19% | $334.6 million, up 26% |
| GAAP gross margin | 69.5%, versus 71.3% | 68.2%, versus 70.8% |
| Operating income | $39.4 million, versus $45.8 million | $109.2 million, versus $120.9 million |
| Net earnings | $24.3 million, down 23% | $81.4 million, down 3% |
| Diluted EPS | $0.65, versus $0.85 | $2.19, versus $2.27 |
| Operating cash flow | Not presented by quarter | $102.2 million, versus $98.8 million |
Acquisitions contributed $21.9 million of quarterly sales and $68.2 million for the nine-month period. Organic sales growth was 0% for the quarter and 2% year to date; foreign exchange reduced reported sales growth by 4 and 2 percentage points, respectively. Adjusted gross margin, excluding acquired-inventory costs and acquisition-related intangible amortization, was 72.5% for the quarter and 71.9% year to date, below prior-year adjusted margins of 73.6%.
Quarterly operating expenses rose substantially, including SG&A of $29.1 million versus $14.7 million and R&D of $10.9 million versus $7.7 million. Management attributed much of the expense increase to acquired businesses, acquisition-related amortization, and investment in commercial resources and infrastructure. Nine-month earnings included an $8.3 million non-taxable gain from remeasuring the prior CyVek investment.
Segments and material changes
- Biotechnology: Quarterly sales were $83.2 million, up 4% reported and approximately flat organically. Quarterly operating income was essentially flat; operating margin fell to 55.6% from 57.6%, primarily reflecting Novus-related product mix.
- Clinical Controls: Quarterly sales were $15.4 million, flat year over year; operating income declined 6% and margin was 30.0%, versus 31.8%.
- Protein Platforms: Quarterly sales were $15.7 million, largely acquired. Pro forma revenue grew 23% year over year; the segment placed more than 200 instruments in the quarter. Reported quarterly operating margin was negative 10.9%.
The company acquired Novus in July 2014 for approximately $60 million, ProteinSimple in July 2014 for approximately $300 million, and CyVek in November 2014. These transactions materially increased goodwill and intangible assets and affected comparability through purchase-accounting charges. CyVek’s reported results included only a short post-acquisition period.
Cash, debt, liquidity, and capital allocation
- At March 31, 2015, cash and cash equivalents were $106.4 million; available-for-sale investments were $53.5 million, for combined cash and investments of approximately $160 million, versus $363 million at June 30, 2014.
- Long-term debt was $144 million under a $150 million revolving credit facility maturing July 31, 2019. The facility may be increased by up to an additional $150 million subject to conditions.
- Nine-month acquisition spending, net of cash acquired, was $420.1 million; investing cash outflow was $421.0 million. Financing provided $117.0 million, including $163 million of credit-line borrowings and $21.0 million of repayments and other payments.
- Capital expenditures were $13.0 million for the first nine months; management expected approximately $5.0 million more in the remainder of fiscal 2015. Dividends paid were $35.2 million. A further $0.32-per-share dividend was announced for payment in May 2015.
Management said available cash and expected operating cash generation should cover operations, facility expansion, capital additions, and dividends for at least the next 12 months. No earnings or sales guidance was provided.
Outlook, risks, and unusual items
- Management cited acquisition integration and purchase-accounting effects, product mix, foreign-exchange movements, and higher SG&A, R&D, and tax costs as factors affecting results. The quarterly effective tax rate was 37.3%, versus 31.3%; management cited state tax-return finalization and a greater share of income in higher-tax jurisdictions.
- CyVek consideration includes up to $35 million tied to product revenue through May 3, 2017, plus a potential payment equal to 50% of revenue above $100 million in calendar 2020. The company recorded $35 million of contingent consideration at March 31, 2015.
- The $48.0 million ChemoCentryx investment represented a significant market-value exposure; a 10% decline would reduce fair value by $4.8 million. Foreign-currency translation produced a $45.0 million nine-month loss in other comprehensive income.
- Management identified risks including product acceptance and competition, manufacturing dependence, currency and economic conditions, regulation, intellectual-property protection, personnel retention, investment-portfolio credit and market risk, and facility-project delays. It reported no material legal proceedings, no material change in disclosed risk factors, and no reportable off-balance-sheet arrangements.
Important facts for investors to verify
- Whether organic growth and acquired revenue contributions develop as expected, especially within Protein Platforms.
- How acquisition integration, amortization, acquired-inventory charges, and product mix affect future margins and earnings.
- Debt repayment capacity and liquidity after the acquisitions, dividends, and planned capital expenditures.
- The assumptions and possible ultimate payout for CyVek contingent consideration.
- Exposure to the ChemoCentryx investment and foreign exchange, and the final purchase-price allocations for recent acquisitions.
- Management’s stated cash sufficiency outlook and any subsequent operating or financing developments.