Bio-Rad Laboratories, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. Bio-Rad sells life science research and clinical diagnostics products through two reportable segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $610.8 million | $676.8 million | Down 9.8% (down 9.6% currency-neutral) |
| Gross profit / margin | $326.0 million / 53.4% | $362.4 million / 53.5% | Margin down 0.1 percentage point |
| Operating income | $44.7 million | $61.9 million | Down 27.8% |
| Net income | $383.9 million | $69.0 million | Includes a large investment fair-value gain |
| Diluted earnings per share | $13.45 | $2.32 | Similarly affected by investment valuation gains |
| Operating cash flow | $69.8 million | $98.1 million | Down $28.3 million |
| Capital expenditures | $40.2 million | $35.7 million | Up $4.5 million |
Research and development expense declined to $66.4 million from $75.0 million. Selling, general and administrative expense declined to $214.9 million from $225.6 million, but rose as a share of sales to 35.2% from 33.3%. The reported effective tax rate was 21.8%, versus 18.7%.
Segments and drivers
- Life Science: Sales fell 25.3% to $241.7 million (25.2% currency-neutral). Segment operating loss was $8.2 million, versus operating profit of $35.7 million. Management cited broad weakness in biotech and biopharma markets and China; lower volumes, product mix and higher material costs pressured gross margin.
- Clinical Diagnostics: Sales increased 4.7% to $368.6 million (4.8% currency-neutral). Segment operating profit rose to $53.1 million from $26.3 million. Management cited demand for quality controls, blood typing and diabetes products; favorable mix and cost controls supported margin improvement.
- By geography, U.S. sales were $252.9 million, EMEA $200.2 million, APAC $117.2 million and other regions $40.5 million. U.S. and APAC sales declined year over year; EMEA declined modestly, while other regions increased.
Cash, liquidity and debt
- Cash and cash equivalents were $433.3 million and short-term investments were $1.212 billion at March 31, 2024, together totaling approximately $1.646 billion. Management reported $1.65 billion in cash, cash equivalents and short-term investments.
- Long-term debt was approximately $1.199 billion, principally $400 million of 3.3% senior notes due 2027 and $800 million of 3.7% senior notes due 2032. No revolver borrowings were outstanding; approximately $0.2 million of capacity was used for letters of credit. The company reported compliance with credit agreement covenants.
- Bio-Rad entered a new $200 million unsecured revolving credit agreement, maturing February 2029. Management believes available liquidity and operating cash flow will be adequate for current operating, investment and acquisition objectives.
- Operating cash flow decreased as customer receipts fell and supplier and employee payments increased, partly offset by lower income-tax payments. Cash and cash equivalents increased by $29.4 million during the quarter.
Material changes, outlook and notable items
- Investment gains materially lifted reported earnings. The income statement recorded a $422.2 million net gain from changes in fair value of equity securities and the loan receivable, versus a $17.5 million loss in Q1 2023. Management attributed the change mainly to a $402.3 million holding gain on its Sartorius AG position and a $12.3 million gain on the Sartorius-related loan and appreciation right. These valuation changes are non-operating and do not reflect the underlying operating trend.
- Bio-Rad held approximately 38% of Sartorius AG ordinary shares and 27% of its preference shares. The Sartorius equity securities were valued at $7.722 billion at quarter-end. The related €400 million loan is due in 2029 and is carried at fair value using significant unobservable inputs.
- Management said ongoing economic constraints in China and challenges in biotech and biopharma are expected to continue affecting the business in 2024. The filing provides no numerical full-year revenue or earnings guidance.
- A restructuring plan approved in 2023 continued into 2024 and is expected to be substantially complete by year-end 2024. A new phase generated $5.3 million of employee termination-benefit expense in the quarter. Accrued reserves for the disclosed restructuring plans totaled $18.7 million at March 31.
- Gross unrecognized tax benefits were $86.1 million. The company said up to $17.2 million could reasonably possibly decrease within the next twelve months, substantially all of which would affect the effective tax rate if recognized. Tax examinations are ongoing in the U.S. and several foreign jurisdictions.
- Bio-Rad disclosed ordinary-course legal matters but did not expect them to have a material adverse effect overall; it cautioned that a resolution could materially affect results in a particular period. The filing also highlights foreign-exchange, regulatory, supply, geopolitical, cybersecurity and market risks.
Most important facts for investors to verify
- Whether the sharp Life Science sales decline and segment operating loss persist, particularly in biotech, biopharma and China.
- How much reported earnings and equity value depend on Sartorius share prices and the fair-value assumptions for the related loan and appreciation right.
- Whether Clinical Diagnostics growth and improved segment profitability continue, and whether cost controls can offset weaker volumes and material costs elsewhere.
- Whether operating cash flow recovers and capital spending, restructuring payments and working-capital movements remain consistent with management’s liquidity assessment.
- Potential outcomes and timing of tax examinations, legal matters, restructuring actions and evolving regulatory requirements.