Bio-Rad Laboratories, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Bio-Rad manufactures and distributes life-science research and clinical-diagnostics products. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $472.8 | $509.3 |
| Gross profit / gross margin | $270.1 / 57.1% | $275.3 / 54.0% |
| Income from operations | $34.3 | $20.5 |
| Net income | $17.8 | $6.7 |
| Diluted earnings per share | $0.61 | $0.23 |
| Cash provided by operating activities | $29.4 | $65.6 |
| Capital expenditures | $27.1 | $22.6 |
At quarter-end, cash and cash equivalents were $425.7 and short-term investments were $285.0, totaling $710.7. Total debt was approximately $435.9, principally $425.0 principal amount of 4.875% senior notes due 2020. The company had no revolver borrowings and reported $198.6 of borrowing availability after standby letters of credit. Current assets were $1,701.8 versus current liabilities of $416.9.
Changes versus the prior-year quarter
- Reported sales declined 7.2%; excluding foreign-currency effects, sales increased approximately 1.4%. Management attributed the reported decline primarily to currency translation.
- Life Science sales were $155.9, down 3.4% reported but up 4.0% currency-neutral. Clinical Diagnostics sales were $313.6, down 8.9% reported but up 0.2% currency-neutral.
- Gross margin rose 3.1 percentage points to 57.1%. Management cited product mix, lower unfavorable manufacturing variances, cost reductions, facility consolidation, product-line closures and lower acquisition-related amortization.
- SG&A fell to $188.6 from $202.3, partly because Q1 2014 included an FCPA-related accrual; R&D declined to $47.2 from $52.5. Operating income and net income increased despite lower reported sales.
- Operating cash flow fell to $29.4 from $65.6. Management cited lower customer cash receipts, including currency effects and unusually strong prior-year collections, partly offset by lower supplier and employee payments and tax refunds.
- Q1 2014 cash-flow figures were reclassified by $3.4 to correct the presentation between operating and investing activities. The correction did not affect net income or the net change in cash.
Outlook, commentary and risks
- The filing provides no specific revenue or earnings guidance. Management said liquidity, operating cash flows and available credit were expected to support operations and planned investment.
- Bio-Rad expected capital expenditures to remain historically elevated for at least three years as it implements a global ERP system. The project was estimated to cost more than $350 million, take more than three years, and have its second phase implemented in the second half of 2015.
- Risks highlighted include foreign-exchange exposure, government funding and healthcare reimbursement constraints, competition and pricing pressure, international regulatory and compliance requirements, and ERP implementation or information-security disruptions. Approximately 63% of Q1 sales were international; about 45% of cash, cash equivalents and short-term investments were held in foreign subsidiaries.
- The company had settled DOJ and SEC FCPA investigations in November 2014, paying $55.1 million in the fourth quarter and accepting two years of compliance, reporting and cooperation obligations. New shareholder litigation and books-and-records inspection actions related to the FCPA matters were disclosed; outcomes were uncertain.
- Other notable items: contingent-consideration liabilities totaled $23.5 at quarter-end, including a $3.0 payment during the quarter; management reported a possible $6.1 reduction in unrecognized tax benefits within 12 months. A prior-period inventory/property accounting error affected cash-flow classifications but not net income.
Important facts for investors to verify
- Whether currency-neutral growth translates into sustained reported sales growth, particularly across the two segments.
- Whether gross-margin improvement and expense reductions are repeatable, given restructuring, facility and product-line actions.
- ERP project cost, timeline and operational risks, including whether elevated capital spending affects future cash generation.
- Progress on FCPA-related compliance obligations and the resolution or potential financial effect of related shareholder proceedings.
- Cash-flow trends, foreign-held liquidity and exposure to foreign exchange, sovereign receivables, tax examinations and contingent consideration.