Bio-Rad Laboratories, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Bio-Rad makes and distributes life-science research and clinical-diagnostics products through its Life Science and Clinical Diagnostics segments.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Net sales | $700.1 million | $726.8 million | Down 3.7%; down about 0.8% excluding foreign currency effects |
| Gross profit / margin | $403.6 million / 57.6% | $400.6 million / 55.1% | Margin increased 2.5 percentage points |
| Operating income | $143.4 million | $100.9 million | Improved despite lower reported sales |
| Net income (loss) | $(3,369.6) million | $977.4 million | Primarily reflects a $4,545.1 million loss from changes in fair value of equity securities and loan receivable |
| Diluted EPS | $(112.57) | $32.38 | Highly affected by investment fair-value changes |
| Operating cash flow | $46.3 million | $113.6 million | Lower customer receipts and higher supplier and employee payments |
| Capital expenditures | $28.9 million | $19.5 million | Cash purchases of property, plant and equipment |
SG&A declined to $197.6 million from $225.9 million, and R&D declined to $62.5 million from $73.9 million. The year-over-year reductions were partly due to one-time restructuring expenses recorded in Q1 2021. Segment net sales were $347.2 million for Life Science (down 5.3%) and $351.8 million for Clinical Diagnostics (down 1.9%). On a currency-neutral basis, segment sales declined 2.5% and increased 1.1%, respectively. Segment profit was $86.9 million for Life Science and $52.8 million for Clinical Diagnostics; the latter compared with a $1.9 million segment loss in Q1 2021.
Balance sheet, debt and liquidity
- At March 31, 2022, cash and cash equivalents were $802.3 million and short-term investments were $1,271.2 million; management reported $2.08 billion in cash, cash equivalents and short-term investments.
- Total assets were $14.37 billion, versus $17.78 billion at December 31, 2021. The decrease largely reflected the lower carrying value of Bio-Rad’s Sartorius investment and related deferred tax balances.
- Long-term debt was $1.197 billion, compared with $10.5 million at year-end. In March, Bio-Rad issued $400 million of 3.3% senior notes due 2027 and $800 million of 3.7% senior notes due 2032, receiving approximately $1.186 billion net proceeds. The notes are unsecured; the company reported compliance with their covenants.
- The $200 million revolving credit facility had no borrowings outstanding; $0.2 million was used for standby letters of credit. Stockholders’ equity was $10.18 billion, down from $13.67 billion at year-end.
Material changes, outlook and risks
- Investment volatility: Bio-Rad’s Sartorius AG shareholding generated most of the Q1 fair-value loss; management said the movement reflected holding losses versus holding gains in the prior-year quarter. The company held approximately 37% of Sartorius ordinary shares and 28% of its preference shares. This investment’s market value can materially affect reported earnings and equity independently of Bio-Rad’s operating results.
- COVID-related demand: COVID-related revenue was approximately $45 million, down from $94 million. Excluding COVID-related sales, revenue grew 6.5% on a currency-neutral basis. Management described COVID-related demand as continuing but moderating.
- Supply constraints: Component and raw-material shortages, freight constraints and cost increases caused significant backorders and product-development delays; management expected backorders and delays to continue in 2022.
- Geography and segment drivers: Currency-neutral sales decreased in EMEA and APAC. Life Science weakness reflected lower COVID-related qPCR demand, partly offset by growth in Process Media and Droplet Digital PCR. Clinical Diagnostics benefited from recovery in immunohematology.
- Restructuring: The EMEA-focused plan, announced in 2021, was expected to be substantially complete by the end of 2022. The remaining restructuring liability was $42.5 million at March 31, 2022; cumulative plan expenses through that date were $64.5 million.
- Tax and legal matters: Gross unrecognized tax benefits were $75.1 million. Bio-Rad said up to $20.6 million could reasonably possibly decrease within 12 months. It reported ordinary-course legal matters and did not expect them to have a material adverse effect overall, while noting outcomes could affect results in a particular period.
- Broader risks: The filing highlights COVID-19 and supply-chain disruption, foreign-exchange exposure, geopolitical and macroeconomic uncertainty including Russia’s invasion of Ukraine, regulatory and reimbursement changes, competition, cybersecurity and ERP implementation risks, and potential effects of debt and investment valuation. China lockdowns introduced in late March and April could materially affect business there in Q2 and later periods, depending on duration.
- Guidance: The filing provides no specific quantitative full-year earnings or revenue guidance. Management said available liquidity and operating cash flow were expected to be adequate for current operating, investment and acquisition objectives.
Investor verification points
- Check the Sartorius investment’s valuation, sensitivity and resulting noncash earnings volatility; distinguish these effects from operating performance.
- Monitor whether COVID-related sales declines are offset by underlying growth, and whether Q2 China restrictions affect demand or operations.
- Track supply availability, backorders, freight and input costs, and any impact on revenue, margins or product launches.
- Review cash conversion and the use of proceeds from the 2027 and 2032 notes, alongside the increased interest burden and debt covenants.
- Follow completion costs and timing of the EMEA restructuring, and developments in tax examinations and the possible $20.6 million reduction in unrecognized tax benefits.