Bio-Rad Laboratories, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022. Bio-Rad operates in Life Science and Clinical Diagnostics.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $676.8 million | $700.1 million |
| Gross profit / margin | $362.4 million / 53.5% | $402.6 million / 57.5% |
| Operating income / margin | $61.9 million / 9.1% | $146.4 million / 20.9% |
| Net income (loss) | $69.0 million | $(3,367.3) million |
| Diluted EPS | $2.32 | $(112.50) |
| Operating cash flow | $98.1 million | $50.5 million |
| Capital expenditures | $35.7 million | $33.1 million |
Cash and cash equivalents plus short-term investments totaled approximately $1.85 billion at March 31, 2023. Long-term debt was $1.20 billion, principally $400 million of 3.3% notes due 2027 and $800 million of 3.7% notes due 2032. The $200 million revolving credit facility had no borrowings; $0.2 million was used for standby letters of credit. Current liabilities were $589.6 million and total liabilities were $3.90 billion.
Material changes versus the prior period
- Sales fell 3.3% reported and approximately 0.3% excluding foreign currency effects. COVID-related sales declined to $2.6 million from approximately $45.3 million; excluding those sales, currency-neutral sales rose 6.1%.
- Life Science sales decreased 6.8% reported and 3.6% currency-neutral; excluding COVID-related sales, they increased 9.6% currency-neutral. Clinical Diagnostics sales increased 0.1% reported and 2.8% currency-neutral.
- Gross margin declined 4.0 percentage points, primarily due to product mix and higher logistics and material costs. Operating expenses increased: SG&A rose to $225.6 million from $196.7 million, and R&D to $75.0 million from $59.5 million.
- Operating income declined to $61.9 million from $146.4 million. Higher costs, including restructuring and R&D spending, contributed to the decrease.
- The prior-year net loss was dominated by a $4.55 billion fair-value loss on equity securities and the loan receivable, primarily Bio-Rad’s Sartorius position. The comparable Q1 2023 loss was $17.5 million. Net income comparisons and EPS are therefore not indicative of underlying operating growth.
- Operating cash flow improved by $47.6 million, reflecting higher customer receipts and lower supplier, employee and tax payments, partly offset by higher interest paid.
Outlook, commentary and notable risks
- Management expects the significant sales-order backlog caused by component and raw-material shortages, together with a slower manufacturing ramp-up in Asia, to continue through the remainder of 2023. Supply constraints also delayed some product-development activities; shortages had improved but were ongoing.
- COVID-related product demand was minimal in Q1. Management reported that sales excluding COVID-related products increased 6.1% on a currency-neutral basis.
- No specific full-year revenue, earnings or margin guidance is provided in the filing text.
- A new February 2023 restructuring plan incurred $14.9 million of expense through March 31; related reserves were $13.7 million. Combined with the earlier plan, restructuring liabilities were $37.3 million. The new plan is expected to be substantially complete by year-end 2023; the earlier plan by mid-2023.
- Bio-Rad held Sartorius equity securities valued at $8.57 billion and a related Level 3 loan and appreciation right valued at $324.5 million. Sartorius fair-value movements can materially affect reported earnings independently of operating performance. The company also identifies potential Investment Company Act status as a risk.
- Other risks highlighted include supply-chain disruption, foreign-exchange movements, international regulatory and economic conditions, competition, cybersecurity and ERP implementation. The company reported no material change in market-risk disclosures.
- Gross unrecognized tax benefits were $87.2 million; up to $17.6 million could decrease within 12 months based on examinations or statute expirations. Ordinary-course legal matters were disclosed; management did not believe they would have a material adverse effect, while noting outcomes cannot be assured.
Most important facts for investors to verify
- Whether supply constraints, manufacturing transition issues and the order backlog improve as anticipated, and whether backlog converts to recognized sales.
- Underlying sales trends by segment after separating COVID-related revenue, currency effects and changes in product mix.
- Whether gross margins recover as logistics and material costs change, and the effect of restructuring and higher R&D spending on operating profitability.
- The volatility, concentration and liquidity implications of the Sartorius holdings and related loan, including fair-value effects on earnings and investment-company status.
- Cash and short-term investment availability, debt servicing needs, and exposure to interest rates and foreign exchange.
- Restructuring charges and completion costs, tax examination outcomes, and any material developments in legal or regulatory matters.