BIO-TECHNE Corp annual report, FY2020

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Business context and reporting period

Bio-Techne Corporation’s Form 10-K covers the fiscal year ended June 30, 2020, not calendar 2019 or a standalone 2019 fourth quarter. The company develops and sells life-science reagents, instruments and services through Protein Sciences (75% of FY2020 sales) and Diagnostics and Genomics (25%).

Financial results and liquidity

  • Revenue: $738.7 million, up 4% from $714.0 million in FY2019; organic growth was 4%, with acquisitions and currency having immaterial effects overall.
  • Profit: Operating income was $157.4 million versus $146.7 million. Net earnings were $229.3 million versus $96.1 million; diluted EPS was $5.82 versus $2.47. The increase chiefly reflected a $137.5 million gain from the ChemoCentryx investment and a roughly $7.2 million Exosome escrow settlement gain.
  • Adjusted results: Non-GAAP adjusted net earnings were $179.3 million, up 2% from $175.5 million. The filing’s adjusted figures exclude specified acquisition, stock-compensation, investment and tax items; they are not GAAP measures.
  • Margins: GAAP gross margin was 65.4%, down from 66.3%; adjusted gross margin was 70.3%, down from 71.5%, primarily reflecting product mix. Operating margin was approximately 21.3%.
  • Cash flow and investment: Operating cash flow was $205.2 million, up from $181.6 million. Capital expenditures were $51.7 million, versus $25.4 million, largely for new facilities including a cGMP manufacturing facility.
  • Liquidity: Cash and cash equivalents were $146.6 million and short-term available-for-sale investments were $124.3 million, totaling $270.9 million. Working capital was $414.3 million. Available-for-sale investments included $87.8 million of ChemoCentryx securities and a warrant.
  • Debt and capital returns: Debt obligations totaled approximately $356.7 million at June 30, 2020, down from $505.2 million a year earlier. The credit agreement matures August 2023 and borrowings bear variable interest, partly hedged. FY2020 dividends paid were $48.9 million; the company repurchased $50.1 million of shares.

Changes versus the prior comparable period

  • Revenue growth slowed to 4% from 11% in FY2019. Protein Sciences sales rose 2% to $555.4 million; Diagnostics and Genomics sales rose 8% to $184.5 million.
  • COVID-19-related customer-site closures and limits on non-essential medical procedures weighed on research, RNA-scope and ExoDx sales in the latter half of FY2020. Specialty diagnostic antibodies and other COVID-testing inputs partly offset weakness.
  • FY2020 reported net earnings benefited significantly from the ChemoCentryx investment gain; adjusted net earnings growth was only 2%. Interest expense declined to $18.6 million from $21.1 million.
  • Cash and short-term investments increased from $166.0 million to $270.9 million, while debt declined. Capital spending increased substantially.

Outlook, commentary and risks

  • Management said customer-site reopenings had improved by the end of FY2020 and in summer 2020, but warned that renewed closures and the duration of the pandemic made sales impacts uncertain. It anticipated a favorable long-term research-funding outlook after the pandemic, without providing formal revenue or EPS guidance.
  • Planned FY2021 capital expenditures were approximately $45 million. Management said available funds, operating cash flow and credit access should meet foreseeable operating, investment and dividend needs, including at least the next 12 months.
  • The company developed COVID-19 products, including a serology assay with Mount Sinai and Kantaro Biosciences. Adoption and its ability to meet unexpectedly high demand were uncertain.
  • Key risks include pandemic-related demand and supply disruption; competitive and pricing pressure; acquisition integration and impairment risk; foreign-exchange exposure; regulatory, reimbursement and privacy requirements affecting diagnostic products; and variable-rate debt. A hypothetical 10% strengthening of the U.S. dollar was estimated to reduce translated FY2020 earnings by $4.3 million.
  • Goodwill was $728.3 million, including $105.4 million for Exosome. The company reported no impairment, but the auditor identified Exosome goodwill valuation—particularly revenue-growth and discount-rate assumptions—as a critical audit matter. No material legal proceedings were reported as of August 26, 2020.

Important facts for investors to verify

  • Reconcile GAAP earnings growth with the $137.5 million ChemoCentryx gain and assess the investment’s value and volatility.
  • Track post-pandemic demand recovery by segment, especially research products, RNA-scope and ExoDx, and evaluate the adoption and capacity requirements of COVID-19 offerings.
  • Review adjusted earnings and margin reconciliations alongside GAAP results, including acquisition amortization and product-mix effects.
  • Monitor debt repayment, interest-rate exposure and hedge terms, as well as the liquidity contribution of marketable securities.
  • Assess Exosome reporting-unit forecasts and assumptions, and the reimbursement, regulatory and commercial risks for the EPI test.

The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of June 30, 2020.