Bio-Techne Corporation — Form 10-Q Summary
Period: Quarter and nine months ended March 31, 2018. Although the request identifies “2017 Q3,” the supplied filing covers fiscal 2018’s third quarter. Amounts below are U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context and reporting period
Bio-Techne develops and sells life-science research and diagnostic products through Biotechnology, Protein Platforms, and Diagnostics. The filing is unaudited. Fiscal 2017 comparative figures were revised for nonmaterial purchase-accounting errors related to the Advanced Cell Diagnostics acquisition.
Financial performance and position
| Metric | Quarter ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $164.0; up 14% | $462.7; up 14% |
| Organic sales growth | 7% | 9% |
| Gross margin | 67.2% vs. 67.1% | 67.0% vs. 67.0% |
| Operating income | $43.1 vs. $33.5 | $93.3 vs. $80.5 |
| Net earnings | $19.7 vs. $22.2 | $84.4 vs. $48.5 |
| Diluted EPS | $0.52 vs. $0.59 | $2.22 vs. $1.29 |
| Operating cash flow | Not provided for the quarter | $105.5 vs. $92.9 |
Quarterly reported net earnings declined 11%, principally because of a $16.2 million impairment of the Astute Medical investment; nine-month earnings increased 74%, primarily reflecting tax benefits. Non-GAAP adjusted net earnings were $46.1 million for the quarter, up 26.6%, and $121.2 million for nine months, up 23.1%. These non-GAAP figures exclude specified acquisition-related costs, stock compensation, investment impairment, and tax adjustments.
At March 31, 2018, cash and cash equivalents were $86.6 million, short-term available-for-sale investments were $89.8 million, and current assets were $393.5 million versus current liabilities of $70.9 million. Long-term debt was $392.5 million, drawn under a $400 million revolving facility; remaining availability was up to $207.5 million. Total assets were $1.62 billion. Nine-month capital expenditures were $15.1 million. The company paid $35.9 million in dividends during the nine months.
Consolidated adjusted gross margin, excluding acquired-inventory costs and acquisition-intangible amortization, was 72.0% for the quarter versus 70.8%, and 71.4% for nine months versus 70.9%.
Material changes versus the prior comparable period
- Sales growth reflected organic growth, acquisitions (3% of quarterly and 2% of nine-month growth), and favorable foreign-currency translation (4% and 3%, respectively).
- Quarterly operating income improved, but quarterly net earnings and EPS fell because of Astute impairment and higher interest expense. Nine-month earnings benefited substantially from the Tax Act.
- SG&A rose 7.8% for the quarter and 15.5% for nine months, reflecting commercial and infrastructure investment, stock compensation, and acquisition-related costs. R&D increased 0.9% and 3.9%, respectively.
- Cash and investments totaled $176.4 million, up from $157.7 million at June 30, 2017. The CCXI investment’s fair value rose to $86.6 million from $59.6 million.
- Inventories increased to $88.6 million from $60.2 million at June 30, 2017; goodwill increased to $610.7 million from $579.0 million.
Outlook, commentary, risks, and unusual items
- Management expects sufficient liquidity for operations, facility expansion, capital additions, and dividends for at least the next 12 months. It expected approximately $5.7 million of additional capital expenditures for the remainder of fiscal 2018.
- Excluding discrete items, management forecast a 24%–26% consolidated tax rate for the remainder of fiscal 2018. The company recorded a provisional $31.7 million net Tax Act benefit for the nine-month period; tax accounting and certain Tax Act effects remained under review.
- Acquisitions during the period were Trevigen ($10.6 million), Atlanta Biologicals ($51.3 million), and Eurocell Diagnostics ($4.5 million). Purchase-price allocations were preliminary and could change.
- The $16.2 million Astute impairment followed notice that Astute intended to accept a third-party sale offer. Bio-Techne received an initial $22.5 million payment from the sale in April 2018.
- The company reported that disclosure controls were not effective at March 31, 2018 because previously identified material weaknesses in internal control over financial reporting had not been fully remediated. Remediation actions were underway, with further testing still required.
- Risks noted include foreign-exchange movements, competition, product acceptance, manufacturing reliance, regulation, intellectual-property protection, investment-market volatility, and execution of facility improvements. A 10% decline in CCXI’s share price would have reduced its fair value by approximately $8.7 million. About 28% of quarterly sales were denominated in foreign currencies.
- The remaining $3.5 million Zephyrus contingent consideration payment was expected in fiscal 2018’s fourth quarter. The filing reported no material legal proceedings expected to adversely affect the company and no reportable off-balance-sheet arrangements.
Most important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing is for March 31, 2018, not 2017 Q3.
- Track remediation and testing of the material weaknesses, and whether management subsequently concluded controls were effective.
- Assess the final purchase accounting and integration performance for the three acquisitions.
- Review the final Astute sale proceeds and any resulting gain or loss, and monitor the value and concentration risk of the CCXI holding.
- Verify the eventual tax provision, including the provisional Tax Act estimates and the ongoing effects of new tax rules.
- Monitor debt, revolving-credit availability, working-capital growth, and cash generation alongside planned investment and dividends.