TECHNE Corporation (Bio-Techne) — Form 10-Q Summary
Business context and reporting period
Unaudited filing for the quarter and nine months ended March 31, 2013 (fiscal 2013 Q3), compared with the periods ended March 31, 2012. The company develops, manufactures, and sells biotechnology products and hematology calibrators and controls through its biotechnology and hematology segments. Amounts below are in millions of dollars unless stated otherwise.
Financial results
| Metric | Q3 FY2013 | Q3 FY2012 | Nine months FY2013 | Nine months FY2012 |
|---|---|---|---|---|
| Net sales | $81.0 | $83.6 | $231.1 | $235.9 |
| Gross margin | $61.1; 75.5% | $63.4; 75.8% | $172.0; 74.4% | $176.9; 75.0% |
| Operating income | $43.9 | $46.4 | $118.7 | $125.0 |
| Net earnings | $33.1 | $31.8 | $84.2 | $85.1 |
| Diluted EPS | $0.90 | $0.86 | $2.28 | $2.30 |
| Operating cash flow | Not separately reported by quarter | $93.6 | $89.3 |
- Q3 sales fell 3.1% year over year; net earnings increased 4.3%. For the nine-month period, sales fell 2.0% and net earnings fell 1.1%.
- Biotechnology sales were $75.3 million in Q3 and $214.4 million for nine months, down 3.7% and 2.7%, respectively. Hematology sales were $5.7 million and $16.7 million, up 4.9% and 7.0%.
- Cash and cash equivalents were $150.7 million at March 31, 2013; short- and long-term available-for-sale investments totaled $297.9 million. Combined cash and investments were approximately $449 million. Current assets were $390.2 million and current liabilities $32.5 million.
- The balance sheet reports no debt. Shareholders’ equity was $719.5 million. Nine-month capital expenditures were $17.1 million, compared with $4.9 million a year earlier; cash dividends were $32.4 million.
Material changes and management commentary
- Foreign currency movements reduced sales by $0.1 million in Q3 and $2.6 million over nine months. Excluding currency effects, sales still declined 3.0% for Q3 and 0.9% for nine months.
- Management cited fewer shipping days and the timing of Easter as factors affecting biotechnology sales. Regional biotechnology trends were mixed: China grew 24.9% in Q3, while U.S. academic sales declined 8.5% and Europe declined 10.3%.
- Consolidated gross margin decreased year over year, primarily reflecting lower biotechnology sales volumes and, for the nine-month period, unfavorable exchange rates. R&D expense rose 7.0% over nine months, mainly due to personnel and supply costs for product development; management expects R&D spending to continue increasing.
- Q3 and nine-month earnings benefited from the absence of the prior-year $3.3 million investment impairment charge. Prior-year nine-month tax expense also included a $3.0 million benefit from reversing a deferred-tax valuation allowance. Fiscal 2013 tax rates were 25.5% for Q3 and 29.8% for nine months; management expected a 30%–32% rate for the remainder of fiscal 2013.
- The company expected approximately $9.6 million of additional capital expenditures for the rest of fiscal 2013, including Minneapolis expansion and U.K. facility-related spending. Management said available funds, operating cash flow, and investment maturities or sales should cover needs for at least 12 months.
- A new CEO took office April 1, 2013. Management said higher executive compensation should not significantly affect fiscal 2013 but could affect results beginning in fiscal 2014.
Risks, contingencies, and other items
- The $87.5 million ChemoCentryx investment was exposed to market-price risk; a 10% decline in its value would reduce fair value by approximately $8.7 million. Fixed-income investments also carry interest-rate risk.
- Approximately 30% of nine-month sales were in foreign currencies. Management identified currency movements, economic conditions and competition, product acceptance, manufacturing reliance, regulation, intellectual property, staffing, investment-portfolio risk, and facility-project delays among relevant risks.
- No legal proceedings were identified as reasonably expected to have a material adverse effect; no material changes to previously disclosed risk factors or contractual obligations were reported. Disclosure controls were deemed effective, with no material change in internal control reported.
- The company announced a $0.30-per-share dividend payable May 24, 2013. It made no public-plan share repurchases during the quarter; $127 million remained authorized under the repurchase plan.
Important facts for investors to verify
- Whether biotechnology sales and margins stabilize, particularly in the U.S. and Europe, and whether China growth continues.
- Actual completion costs and timing for Minneapolis and U.K. facility projects, and the effect of planned higher R&D and CEO compensation costs.
- The valuation and concentration risk of the ChemoCentryx holding, and the effect of foreign-exchange and interest-rate movements on results and comprehensive income.
- Whether the expected 30%–32% tax rate and management’s liquidity assessment remain appropriate as the fiscal year progresses.