Bio-Rad Laboratories, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Bio-Rad sells life science research and clinical diagnostics products worldwide through its Life Science and Clinical Diagnostics segments. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $647.3 | $560.6 | $1,755.8 | $1,687.2 |
| Gross profit / margin | $367.3 / 56.7% | $307.0 / 54.8% | $977.7 / 55.7% | $926.6 / 54.9% |
| Operating income / margin | $109.6 / 16.9% | $57.5 / 10.2% | $235.7 / 13.4% | $170.5 / 10.1% |
| Net income (loss) | $1,314.8 | $(258.8) | $2,967.2 | $1,205.2 |
| Diluted EPS | $43.64 | $(8.68) | $98.46 | $39.97 |
| Operating cash flow | Not stated separately for the quarter | $290.6 | $298.1 |
Revenue and operations: Q3 sales increased 15.5% year over year, or 14.9% on a currency-neutral basis. Nine-month sales rose 4.1%, or 5.0% currency-neutral. Operating income improved in both periods; operating margins shown above are calculated from reported sales and operating income.
- Life Science: Q3 sales grew 50.2% reported and 48.8% currency-neutral to $324.0 million, led by PCR, Droplet Digital PCR and Process Media, including products supporting COVID-19 testing and research. Nine-month sales rose 24.7% reported to $803.2 million.
- Clinical Diagnostics: Q3 sales declined 5.7% reported to $322.2 million; nine-month sales fell 8.5% to $945.6 million. The filing attributes declines broadly to COVID-19-related reductions in customer activity and routine testing.
- Q3 gross margin expanded 1.9 percentage points. Management cited Life Science product mix, lower production costs and volume absorption; Clinical Diagnostics margin declined about 1.9 points amid lower sales, freight costs and customs duties.
- SG&A fell to $198.2 million in Q3 and $581.1 million year to date, with lower travel, marketing and communications costs, largely related to COVID-19. R&D rose to $59.5 million and $160.8 million, respectively, including Life Science investment and Celsee-related headcount.
Balance sheet, cash flow and debt
- At September 30, 2020, cash and cash equivalents were $840.3 million and short-term investments were $314.1 million. Management reported $1.15 billion in cash, cash equivalents and short-term investments, approximately 25% held by foreign subsidiaries.
- Total assets were $12.02 billion, including $8.44 billion in other investments, primarily Bio-Rad’s Sartorius AG equity position. Total liabilities were $3.20 billion and stockholders’ equity was $8.83 billion.
- Nine-month operating cash flow was $290.6 million, versus $298.1 million a year earlier. Investing activities used $10.1 million; financing activities used $101.2 million, including $100.0 million of share repurchases. Capital expenditures were $59.7 million.
- Reported debt was approximately $438.8 million, principally $425.0 million of 4.875% senior notes due December 2020. The notes were classified as current. Bio-Rad said it intended to repay them at maturity and believed it had adequate resources. Its $200 million revolving facility had no borrowings, with $0.2 million used for letters of credit.
Material changes, outlook and risks
- Investment-driven earnings: The fair-value change in equity securities was a $1.58 billion Q3 gain, compared with a $390.6 million loss in Q3 2019; the nine-month gain was $3.59 billion, versus $1.38 billion. These gains primarily reflected Sartorius AG shares and substantially drove reported net income. Sartorius represented approximately 37% of its ordinary voting shares and 28% of its preference shares held by Bio-Rad at quarter end.
- COVID-19: The pandemic supported demand for some Life Science products but reduced broader demand, especially in Clinical Diagnostics. Management cited customer closures or reduced capacity, supply constraints, freight challenges and uncertainty about the duration and financial effects. No quantitative full-year forecast or formal guidance is provided in the supplied filing text.
- Other unusual items: Bio-Rad acquired Celsee on April 1 for $99.3 million, including contingent consideration potentially payable up to $60 million based on 2021–2022 revenue targets. It sold its Informatics division for $12.2 million and recorded an $11.7 million gain. Restructuring plans remained in progress, including a finance and administrative consolidation expected to finish by March 2021.
- Key risks: Significant uncertainty from COVID-19, Sartorius share-price volatility and possible investment-company status, foreign exchange exposure, international regulatory and economic conditions, supply disruptions, cybersecurity and IT/ERP risks, competition, and tax examinations. Bio-Rad disclosed ordinary-course legal matters but said it could not reasonably estimate potential exposure; it did not expect them to have a material adverse effect overall, while noting an individual resolution could affect a period.
Important facts for investors to verify
- How much reported earnings and balance-sheet value depend on Sartorius share prices, and the potential implications of Bio-Rad’s investment-company risk disclosure.
- Whether COVID-19-related product demand persists and whether Clinical Diagnostics demand recovers as customer activity normalizes.
- Repayment of the $425 million notes due December 2020 and subsequent liquidity and debt levels.
- Cash conversion and working-capital trends, including the year-to-date inventory increase and lower operating cash flow.
- Progress and costs of restructuring, Celsee integration and earn-out conditions, and any material developments in tax or legal matters.