Bio-Rad Laboratories, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are U.S. dollars; financial statement figures are in millions unless noted.
Business context
Bio-Rad develops and sells life science research and clinical diagnostics products through its Life Science and Clinical Diagnostics segments. Sales are global, with approximately 59% of first-half 2022 revenue from outside the United States.
Key financial results
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $691.1 | $715.9 | $1,391.2 | $1,442.7 |
| Gross profit / margin | $396.0 / 57.3% | $401.6 / 56.1% | $799.5 / 57.5% | $802.2 / 55.6% |
| Operating income | $120.2 | $124.8 | $263.6 | $225.6 |
| Net income (loss) | $(927.2) | $914.1 | $(4,296.8) | $1,891.5 |
| Diluted EPS | $(31.12) | $30.32 | $(143.88) | $62.70 |
| Cash from operations | Not presented quarterly | $96.5 | $268.2 |
Reported revenue fell 3.5% in Q2 and 3.6% in the first half year over year. Excluding foreign-exchange effects, sales rose approximately 0.5% in Q2 and declined approximately 0.1% in the first half. Excluding COVID-related sales, currency-neutral revenue grew 5.7% and 6.0%, respectively.
At June 30, cash and cash equivalents were $596.6 million and short-term investments were $1,371.1 million. Long-term debt, net of discounts and issuance costs, was $1,196.9 million; the company also had $10.7 million of finance-lease and other debt. The $200 million revolving credit facility had no borrowings, with $0.2 million used for standby letters of credit. Total liabilities were $3,759.5 million and stockholders’ equity was $8,922.6 million.
Material changes and drivers
- Net losses primarily reflected noncash fair-value losses on Bio-Rad’s Sartorius AG equity position and related loan/value-appreciation rights: $1.34 billion in Q2 and $5.88 billion in the first half, versus gains in the comparable 2021 periods. Sartorius holding losses accounted for approximately $1.28 billion in Q2 and $5.73 billion in the first half.
- Segment sales declined year over year in reported dollars. First-half currency-neutral sales decreased 1.1% in Life Science and increased 0.9% in Clinical Diagnostics. COVID-related demand declined substantially in both periods.
- Gross margin improved, with management citing the stronger U.S. dollar, product mix and operational efficiencies; higher logistics costs were a partial offset. First-half Clinical Diagnostics margin also benefited from a prior-year restructuring charge.
- First-half operating cash flow declined to $96.5 million from $268.2 million, mainly because of lower customer receipts and higher payments to suppliers and employees.
- In March, Bio-Rad issued $1.2 billion of senior notes: $400 million due 2027 at 3.3% and $800 million due 2032 at 3.7%. Net proceeds were approximately $1.186 billion. Interest expense increased accordingly.
- In Q2, the company repurchased 255,284 Class A shares for $125 million. In July, the board authorized up to an additional $200 million for repurchases.
Outlook, risks and unusual items
- The filing provides no quantitative full-year revenue or earnings guidance. Management expected supply constraints to improve relative to the first half, but anticipated backorders to continue through the remainder of 2022.
- Management cited moderating demand for COVID-related products, China lockdown impacts, component and raw-material shortages, freight constraints and higher logistics costs. These factors also delayed some instrument placements and product-development activity.
- Bio-Rad’s large Sartorius holding and related loan are subject to market and foreign-exchange movements; valuation changes can dominate reported earnings independently of operating performance. The loan is a €400 million obligation due in 2029, secured by trust interests tied to Sartorius shares, and its valuation uses significant unobservable inputs.
- Other disclosed risks include foreign-currency fluctuations, global economic and geopolitical conditions, regulation, competition, customer funding and capital spending, cybersecurity and ERP implementation. The company reported ongoing tax examinations and $75.2 million of gross unrecognized tax benefits.
- The European restructuring plan was expected to be substantially complete by mid-2023; its remaining liability was $37.8 million at June 30, 2022. The company said ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain.
Most important facts for investors to verify
- How much operating performance and cash generation are obscured by the Sartorius-related fair-value swings, and how sensitive are those valuations to market movements?
- Whether supply constraints, China disruptions and reduced COVID-related demand ease as management expected, and whether instrument placements and backorders recover.
- Whether first-half operating cash flow weakness persists, given working-capital demands including the inventory increase.
- The use of senior-note proceeds, resulting interest burden, and the company’s capital-allocation plans, including the expanded share-repurchase authorization.
- Potential outcomes of tax examinations and other legal, regulatory and operational contingencies.