Bio-Techne Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2020 (three months ended; comparative quarter ended September 30, 2019). Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted.
Business context
Bio-Techne develops, manufactures and sells biotechnology reagents, instruments and services for research and clinical diagnostic markets. It reports two segments: Protein Sciences and Diagnostics and Genomics.
Financial performance
| Metric | Quarter ended Sep. 30, 2020 | Quarter ended Sep. 30, 2019 | Change |
|---|---|---|---|
| Net sales | $204.2 million | $183.2 million | +11%; organic growth +10% |
| Gross margin | $137.7 million; 67.4% | $118.4 million; 64.6% | Margin +2.8 percentage points |
| Operating income | $49.1 million | $33.3 million | +47% |
| Net earnings | $33.4 million | $14.4 million | +132% |
| Diluted earnings per share | $0.83 | $0.37 | +124% |
| Operating cash flow | $66.0 million | $40.5 million | +$25.5 million |
| Capital expenditures | $10.9 million | $10.5 million | +$0.4 million |
Gross margin improvement reflected product mix and volume leverage. Management reported non-GAAP adjusted gross margin of 71.9%, versus 69.5%, and adjusted net earnings of $57.1 million, up 37.2%; these non-GAAP measures include specified exclusions and should be considered alongside GAAP results. GAAP effective tax rate was 15.1%, compared with 19.1%, reflecting $4.2 million of net discrete tax benefits, including stock-based compensation tax benefits.
Segment results: Protein Sciences sales were $154.4 million, up 10% as reported and 8% organically; operating margin was 45.6%, versus 42.2%. Diagnostics and Genomics sales were $50.1 million, up 17% organically; operating margin was 17.3%, versus 2.1%. The filing attributes stronger margins to volume leverage and cost management. Simple Western and Simple Plex were cited as strong in Protein Sciences, and RNAscope in Diagnostics and Genomics.
Liquidity, debt and capital allocation
At September 30, 2020, cash and cash equivalents were $169.4 million and short-term available-for-sale investments were $118.0 million. Current assets were $541.9 million and current liabilities $105.4 million. Total debt obligations were approximately $323.6 million on the balance sheet; the filing separately reports $323.9 million outstanding under the credit agreement. The revolving facility is $600 million, with a potential additional $200 million subject to conditions, and matures August 1, 2023.
Operating cash flow was $66.0 million; investing activities used $8.1 million and financing activities used $34.9 million. Debt repayments were $33.1 million and dividends paid were $12.3 million. Management expected approximately $35 million of capital expenditures for the remainder of fiscal 2021 and said available cash, operating cash generation and remaining revolver capacity should cover needs for at least the next 12 months. A $0.32-per-share dividend was announced for payment in November 2020.
Material changes, outlook and risks
- Sales, earnings and operating cash flow improved substantially year over year. Management cited broad-based growth, customer-site reopenings, volume leverage and cost management.
- Management said customer sites had reopened sufficiently for sales volumes to return to levels before the pandemic, but could not forecast whether sites might close again as COVID-19 cases rose. It expected a positive long-term sales outlook from potential increases in life-science research funding, while noting pandemic impacts remained uncertain.
- The company remained operational, with employee safety measures and supply-chain monitoring. It reported no material COVID-19-related balance-sheet changes such as additional reserves or asset impairments.
- Excluding discrete items, management expected a fiscal 2021 tax rate of 24%–28%. No specific revenue or earnings guidance was provided in the filing.
- Market exposures include foreign exchange and the $83.5 million ChemoCentryx investment; a 10% decline in that investment’s value would reduce fair value by an estimated $8.4 million. The company also has variable-rate LIBOR debt and was evaluating the transition away from LIBOR.
- Contingent consideration related to the Quad and B-MoGen acquisitions had a fair value of $6.0 million; payments of up to $51 million and $38 million, respectively, depend on milestones and revenue thresholds.
- On October 20, 2020, after quarter-end, the company acquired 47.6% of Changzhou Eminence Biotechnology Co., Ltd. for approximately $10 million.
The filing reported no material change to risk factors, no material legal proceedings, and no reportable off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2020.
Important facts for investors to verify
- Reconcile the MD&A liquidity sentence, which describes $169.4 million versus $146.6 million as cash and cash equivalents plus investments, with the balance sheet, which reports those amounts as cash alone and separately lists $118.0 million and $124.3 million of investments.
- Assess the sustainability of the quarter’s growth and margins, given COVID-19 reopening uncertainty and management’s reliance on volume leverage and product mix.
- Review the composition and future volatility of other non-operating expense, including investment-related gains or losses, and the effect of discrete tax benefits on reported earnings.
- Monitor the market value and concentration risk of the ChemoCentryx investment, foreign-exchange exposures, variable-rate debt and LIBOR transition.
- Track contingent acquisition payments and the financial impact of the post-quarter Changzhou Eminence investment.