Bio-Techne Corporation — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2021. The company develops and sells biotechnology reagents, instruments, and services for research and clinical diagnostic markets. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Key financial results
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $269.3; +20% year over year | $527.0; +23% |
| Operating income | $62.3 vs. $51.0 | $125.6 vs. $100.1 |
| Net earnings attributable to Bio-Techne | $80.2 vs. $46.3 | $149.8 vs. $79.7 |
| Diluted EPS | $1.94 vs. $1.15 | $3.64 vs. $1.98 |
| Gross margin | 68.2% vs. 67.3% | 67.3% vs. 67.4% |
Sales growth was primarily organic: 17% for the quarter and 19% for the six months, with acquisitions contributing 3% and 4%, respectively; currency impact was immaterial. Management cited strong biopharma demand, especially in Protein Sciences. Quarter earnings also benefited materially from a $28.4 million unrealized gain on the ChemoCentryx (CCXI) investment; the six-month gain was $33.7 million. Effective tax rates were 16.4% for the quarter and 8.2% year to date, reflecting discrete tax benefits, including stock-based compensation tax benefits.
Segments and operating performance
- Protein Sciences: Quarterly sales of $205.0 million, up 19%; six-month sales of $402.2 million, up 23%. Operating margins were 45.5% for the quarter and 45.6% year to date, below the prior-year periods, partly due to strategic growth investment.
- Diagnostics and Genomics: Quarterly sales of $64.5 million, up 23%; six-month sales of $125.5 million, up 22%. Acquisitions contributed 16% to growth in both periods, primarily reflecting Asuragen. Operating margins were 16.9% for the quarter and 14.6% year to date.
- Non-GAAP adjusted diluted EPS was $1.88 for the quarter and $3.71 for the six months, compared with $1.62 and $3.07, respectively. These measures exclude specified acquisition, investment, impairment, stock-compensation, and other items.
Cash flow, balance sheet, and capital allocation
- Six-month operating cash flow was $149.4 million, down from $155.3 million; management attributed the decline mainly to timing of operating asset and liability payments.
- Cash and cash equivalents were $211.8 million; short-term available-for-sale investments were $67.1 million. Together they totaled $279.0 million at December 31, 2021, versus $231.6 million at June 30, 2021.
- Debt outstanding under the credit agreement was approximately $282.3 million. The facility matures August 1, 2023. The company repaid $109.3 million and borrowed $50.0 million during the six-month period.
- Capital expenditures were $16.2 million for the six months; management expected approximately $45 million of additional fiscal 2022 capital expenditures. Management said available cash, operating cash flow, and remaining revolver capacity should cover requirements for at least the next 12 months.
- The company paid $25.1 million in dividends and repurchased $41.3 million of shares during the six months. A new share repurchase plan authorizing up to $400 million was approved February 2, 2022; no purchases had yet been made under that plan.
Material developments, outlook, and risks
- Eminence liquidation and impairment: After declining to provide additional funding, Bio-Techne said Changzhou Eminence Biotechnology planned to cease operations and liquidate. The company recorded $18.7 million of impairment charges, including goodwill, intangible assets, inventory, and fixed assets; the estimated impact on Bio-Techne-attributable net income was approximately $8 million after noncontrolling interests.
- Wilson Wolf forward contract: Bio-Techne paid $25 million in December 2021 for a two-part contract tied to revenue or EBITDA milestones. If the first milestone is met by December 31, 2027, the company must invest an additional $231 million for a 19.9% interest. The contract then provides for acquisition of the remaining equity, with a potential payment of approximately $1 billion plus possible additional consideration if a higher milestone is achieved. Management forecast the first payment in fiscal 2023 or 2024 and the second between fiscal 2026 and 2028.
- Other restructuring: The company is closing its Exosome Diagnostics Germany facility, with closure expected in fiscal Q3 2022. Six-month charges were $1.7 million; additional charges related to relocation of a U.S. plant were also recorded.
- Outlook: Excluding discrete items, management expected a 24%–28% effective tax rate for the remainder of fiscal 2022. No specific revenue or earnings guidance was provided in the filing.
- Risks and contingencies: The company identified exposure to investment-value and foreign-exchange movements. A 10% decline in CCXI’s share price would reduce investment fair value by an estimated $5.4 million. About 36% of quarterly sales were in foreign currencies. The filing reported no material change in previously disclosed risk factors and no legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- How much reported earnings growth reflects operating performance versus CCXI’s unrealized gain and discrete tax benefits.
- Progress and financial consequences of Eminence’s liquidation, including recoveries from its remaining assets.
- Wilson Wolf milestone likelihood, timing, and potential funding needs, particularly the approximately $1 billion later-stage payment.
- Whether organic growth, segment margins, and cash conversion remain consistent as strategic investment and acquisition costs continue.
- Available borrowing capacity and debt repayment needs ahead of the credit facility’s August 2023 maturity.