BIO-TECHNE CORPORATION — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019, the first quarter of Bio-Techne’s fiscal 2020 (not calendar-year 2019 Q1). The filing is unaudited. Bio-Techne develops and sells biotechnology reagents, instruments, and services through its Protein Sciences and Diagnostics and Genomics segments. Unless otherwise noted, amounts are in U.S. dollars.
Key financial metrics
| Metric | Quarter ended September 30, 2019 | Prior-year quarter | Change / context |
|---|---|---|---|
| Net sales | $183.2 million | $163.0 million | Up 12%; organic growth 13%, with currency reducing growth by 1% and acquisitions contributing less than 1% overall |
| Gross margin | 64.6% | 66.0% | Down 1.4 percentage points; management cited product mix and unfavorable foreign exchange |
| Operating income | $33.3 million | $25.8 million | Up approximately 29% |
| Net earnings | $14.4 million | $17.4 million | Down 17% |
| Diluted EPS | $0.37 | $0.45 | Down 18% |
| Operating cash flow | $40.5 million | $39.4 million | Up modestly; attributed primarily to timing of operating asset and liability payments |
| Cash and cash equivalents | $99.9 million | $100.9 million at June 30, 2019 | Short-term available-for-sale investments were $58.5 million; combined cash and investments were $158.4 million |
| Debt | $486.4 million outstanding | — | Company repaid $19.1 million during the quarter; facility matures August 1, 2023 |
Performance and material changes
- Revenue grew across major regions, with each major geography achieving double-digit organic growth; China organic growth was nearly 20%.
- Protein Sciences sales were $141.0 million, up 12% reported; segment operating margin declined to 42.2% from 43.2%, with product mix and foreign exchange cited as pressures.
- Diagnostics and Genomics sales were $42.6 million, with 16% organic growth. Segment operating margin fell to 2.1% from 6.9%; management attributed the decline to ExosomeDx, acquired in August 2019.
- GAAP net earnings were pressured by a $10.4 million unrealized loss on the ChemoCentryx (CCXI) investment, partly offset by lower stock-based compensation expense. CCXI’s fair value fell to $27.8 million from $38.2 million at June 30, 2019.
- Non-GAAP adjusted net earnings were $41.7 million, up 9% from $38.2 million. This measure excludes specified items, including acquisition-related amortization and expenses, stock compensation, investment gains or losses, and tax adjustments; it is not comparable to GAAP net earnings without considering those exclusions.
- Investing cash outflow was $15.1 million, versus $288.1 million in the prior-year quarter, which included $272.2 million of acquisition spending. Capital expenditures were $10.5 million, compared with $4.2 million.
Liquidity, outlook, risks, and unusual items
- Management said available cash, operating cash flow, and remaining revolving-credit capacity should meet operating, expansion, capital expenditure, and dividend needs for at least the next 12 months. The revolving facility is $600 million, with a potential $200 million increase subject to conditions.
- Capital expenditures for the remainder of fiscal 2020 were expected to be approximately $50 million. The company also announced a $0.32-per-share dividend payable November 22, 2019.
- Management expected a 24%–28% consolidated income tax rate for the remainder of fiscal 2020, excluding discrete items. The quarter’s effective tax rate was 19.1%, versus 1.0% a year earlier, reflecting differences in discrete tax items.
- Adoption of lease accounting on July 1, 2019 added operating lease right-of-use assets and liabilities. At September 30, lease assets were $77.0 million and total lease liabilities were $82.1 million.
- Potential risks identified include acquisition integration, new-product acceptance, competition, manufacturing and operational reliance, foreign-exchange movements, regulation, intellectual property, investment-market and credit risks, and facility-construction delays or costs. Management reported no material changes to previously disclosed risk factors, no material legal proceedings, and no reportable off-balance-sheet arrangements.
- CCXI investment exposure was material to earnings and market risk: the filing estimated a $2.8 million fair-value decline from a 10% decrease in CCXI’s market price. About 28% of quarterly sales were made in foreign currencies; a hypothetical 10% U.S. dollar appreciation was estimated to reduce annualized translated foreign-subsidiary earnings by $2.7 million.
Most important facts for investors to verify
- Whether the CCXI investment’s market value and related gains or losses materially affect subsequent earnings.
- Whether organic sales growth and China demand continue, and whether the margin pressures from mix and foreign exchange persist.
- Whether Diagnostics and Genomics margins recover as ExosomeDx is integrated and its operating contribution develops.
- Actual fiscal 2020 capital spending versus the approximately $50 million remaining-year expectation, and the company’s capacity to fund it alongside dividends and debt service.
- Final B-MoGen acquisition accounting and contingent consideration outcomes. The filing states that purchase accounting remained preliminary; contingent consideration liabilities had a fair value of $13.3 million, while maximum possible payments for Exosome, Quad, and B-MoGen were substantially higher.