Business context and reporting period
Bio-Rad Laboratories, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. The company sells life science research and clinical diagnostics products worldwide. Life Science generated 48% of 2021 sales and Clinical Diagnostics 52%; approximately 39% of sales were in the U.S. and 61% internationally.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2.923 billion | $2.546 billion |
| Gross profit / margin | $1.641 billion / 56.1% | $1.438 billion / 56.5% |
| Operating income | $489.4 million | $411.0 million |
| Net income | $4.246 billion | $3.806 billion |
| Cash from operations | $656.5 million | $575.3 million |
| Cash and short-term investments at year-end | $869.9 million | $991.1 million |
- Revenue increased 14.8% reported and approximately 12.7% currency-neutral. Excluding COVID-related sales, currency-neutral sales rose 17%.
- Operating margin was approximately 16.7%, compared with 16.1% in 2020. SG&A was $879.6 million (30.1% of sales); R&D was $271.7 million (9.3%).
- Reported net income was dominated by a $4.926 billion gain in fair value of equity and debt securities, chiefly a $4.92 billion unrealized gain on Sartorius AG shares. It is not a measure of operating performance; the filing reports a fourth-quarter net loss of $1.574 billion amid quarterly fair-value movements.
- Investing cash outflow was $784.4 million, including $453.4 million funded for the Sartorius-related loan and $125.5 million for the Dropworks acquisition. Capital expenditures were $120.8 million; operating cash flow less capital expenditures was approximately $535.7 million.
- Year-end long-term debt was $11.0 million, primarily finance leases. The $200 million revolving facility had no borrowings outstanding; $0.2 million was used for letters of credit. The company reported covenant compliance.
Material changes versus the prior year
- Life Science sales increased 13.7% to $1.401 billion; Clinical Diagnostics sales increased 16.1% to $1.516 billion. Diagnostics benefited from recovery in laboratory operations and testing utilization.
- Gross margin declined 0.4 percentage points. Life Science margin improved approximately 0.6 points, while Clinical Diagnostics margin declined approximately 1.1 points, partly reflecting restructuring costs.
- Operating income rose 19.1%; net income rose 11.5%, but the latter reflects substantial non-operating Sartorius valuation gains in both years.
- Operating cash flow increased $81.2 million. Financing cash outflow fell to $55.4 million from $523.0 million, largely because the $425 million senior notes were repaid in December 2020.
- Bio-Rad acquired digital-PCR developer Dropworks for $125.5 million and extended a €400 million loan to Sartorius-Herbst Beteiligungen II GmbH. The loan matures no later than January 31, 2029, bears 1.5% annual interest, and is collateralized by trust interests linked to Sartorius ordinary shares.
Outlook, risks and unusual items
- The filing gives no numerical revenue or earnings guidance. Management expected supply shortages, backorders and some product-development delays to continue into 2022; it also expected COVID-related product demand to decline as conditions improve, potentially offset by recovery in other business areas.
- A European restructuring announced in February 2021 is expected to be substantially complete by the end of 2022. FY2021 charges were $64.4 million across cost of goods sold, SG&A and R&D; the year-end accrual was $47.1 million.
- Supply-chain constraints, raw-material and freight cost inflation, foreign-exchange movements, customer funding and reimbursement pressures, competition, regulatory requirements (including EU IVDR implementation), cybersecurity and talent retention are cited risks.
- The Sartorius holding creates unusually large exposure to market-price changes and reported earnings volatility. The related loan is measured using Level 3 fair-value estimates; the value of its collateral may fall, and management notes potential investment-company status risk.
- FY2021 included $31.6 million of revenue from an intellectual-property litigation settlement. Ordinary-course legal matters were not expected by management to have a material adverse effect, but outcomes remain uncertain.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. No cash dividends have been paid, and Bio-Rad reported no current plan to pay them.
Important facts for investors to verify
- How much future revenue and earnings depend on Sartorius share-price gains, dividends and the related loan, and how those items are treated in forecasts and valuation.
- The loan’s repayment protections, trust-interest collateral value and downside recovery prospects if Sartorius shares decline.
- Whether 2022 supply shortages, backorders, input-cost inflation and lower COVID-related demand affect sales, margins and customer service.
- Restructuring execution, remaining charges and whether expected operating benefits materialize by the end of 2022.
- Underlying operating trends by segment, separated from investment gains and litigation-related revenue.
- Exposure to tax audits and uncertain tax positions; the company said unrecognized tax benefits could decrease by approximately $20.8 million within twelve months, subject to examination outcomes.