Bio-Rad Laboratories, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Bio-Rad sells life science research and clinical diagnostics products through its Life Science and Clinical Diagnostics segments. Financial amounts below are in U.S. dollars; millions unless noted.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $632.1 | $680.8 | $1,990.1 | $2,072.0 |
| Gross profit / margin | $335.7 / 53.1% | $372.6 / 54.7% | $1,060.6 / 53.3% | $1,170.2 / 56.5% |
| Operating income | $90.9 | $94.6 | $242.5 | $363.9 |
| Net income (loss) | $106.3 | $(162.8) | $(987.0) | $(4,455.3) |
| Basic EPS | $3.65 | $(5.48) | $(33.63) | $(149.41) |
- Cash flow: Nine-month operating cash flow was $293.9, up from $114.8. Capital expenditures were $114.4, versus $78.0; operating cash flow less capital expenditures was approximately $179.5, versus $36.8.
- Liquidity: Cash, cash equivalents and short-term investments totaled approximately $1.76 billion at September 30. Current assets were $3.15 billion and current liabilities $558.2 million. The company reported no borrowings under its $200 million revolving credit facility, with $0.2 million used for standby letters of credit.
- Debt: Long-term debt was $1.199 billion, primarily $400 million of 3.3% senior notes due 2027 and $800 million of 3.7% notes due 2032.
- Shareholder returns: The company repurchased $228.7 million of stock in the first nine months. A new $500 million repurchase authorization was approved in July; $478.7 million remained available at quarter-end.
Changes versus comparable periods
- Q3 sales declined 7.1% year over year; excluding currency effects, sales declined 7.9%. Excluding COVID-related sales, currency-neutral sales fell 5.5%. Nine-month sales fell 4.0% reported, but increased 1.6% currency-neutral excluding COVID-related sales.
- Life Science sales fell 17.1% in Q3 and 10.1% year to date. Clinical Diagnostics sales rose 1.7% in both periods. Q3 segment sales were $263.5 million and $368.1 million, respectively.
- Q3 gross margin decreased 1.6 percentage points; the nine-month margin decreased 3.2 points. Management cited product mix, higher material/manufacturing costs and inventory reserves; lower logistics costs partly offset Q3 pressures.
- Operating income declined despite lower SG&A in Q3. Nine-month SG&A increased to $634.6 million from $615.6 million, principally reflecting restructuring, marketing and travel costs. Nine-month R&D was $183.5 million versus $190.7 million.
- Net income comparisons are heavily affected by investment fair-value changes. The company recorded a $36.4 million Q3 fair-value gain, versus a $289.0 million loss in Q3 2022; for the first nine months it recorded a $1.577 billion loss, versus a $6.172 billion loss in 2022. The nine-month 2023 net loss therefore does not represent operating performance alone.
Outlook, commentary and risks
- Management said economic constraints in China and continued weakness among biopharma and small-biotech customers were negatively affecting results and expected these conditions to continue through at least the remainder of 2023. The filing provides no specific numerical earnings or revenue guidance.
- COVID-related sales were minimal in 2023 compared with 2022, creating a significant year-over-year comparison headwind, particularly in Life Science.
- Bio-Rad held Sartorius AG equity securities valued at approximately $6.95 billion at September 30 and a related €400 million principal loan due in 2029. Changes in Sartorius’ market value materially affect reported earnings; the loan and appreciation right also involve Level 3 valuation estimates. Bio-Rad disclosed risk that a substantial decline in Sartorius shares could reduce the loan collateral’s value.
- Restructuring plans approved in February and June 2023 generated $24.4 million of charges through September 30; the February plan was expected to be substantially complete by year-end, as was the June plan. The earlier 2021 plan was substantially complete.
- Other disclosed risks include supply constraints and costs, foreign-exchange exposure, geopolitical and economic conditions, regulation, cybersecurity and ERP implementation. Ordinary-course legal matters were not believed by management to have a material adverse effect, though outcomes remain uncertain.
- Deferred tax asset realizability remains subject to judgment; the valuation allowance increased $15.2 million during 2023. Gross unrecognized tax benefits were $92.0 million, and up to $18.8 million could decrease within twelve months based on examinations or statute expirations.
- Disclosure controls were assessed as effective; the filing reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether demand in China and biopharma improves, and how those conditions affect Life Science sales and margins.
- The contribution of Sartorius share-price and related loan fair-value movements to future reported earnings, and the value and liquidity of these holdings.
- Whether operating cash flow remains strong after capital spending, while monitoring inventory, restructuring costs and supply constraints.
- The status and cost of the 2023 restructuring plans, and progress against the stated year-end completion expectation.
- Developments in tax examinations, deferred tax asset valuation allowances, legal matters, and the company’s investment-company-status risk related to its Sartorius holdings.