Bio-Techne Corporation (NASDAQ: TECH) — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2023 (second quarter of fiscal 2024). Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and results
Bio-Techne develops and sells biotechnology reagents, instruments, and services for research and clinical diagnostic markets. It reports two segments: Protein Sciences and Diagnostics and Genomics. The quarter included Lunaphore, acquired in July 2023 for $169.7 million.
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter | Six months ended Dec. 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $272.6 | $271.6 | $549.5 | $541.2 |
| Gross margin | 64.8% | 67.5% | 65.8% | 67.1% |
| Operating income | $38.0 | $67.9 | $93.9 | $124.2 |
| Net earnings attributable to Bio-Techne | $27.5 | $50.0 | $78.5 | $139.6 |
| Diluted EPS | $0.17 | $0.31 | $0.49 | $0.86 |
- Quarterly sales were essentially flat; six-month sales increased about 2%. Organic revenue declined 2% in the quarter and was flat for six months. Acquisitions and foreign exchange each contributed about 1% in both periods.
- Reported gross margin fell year over year. Management cited unfavorable volume and product mix and Lunaphore; adjusted gross margin was 69.7% for the quarter and 70.5% for six months, versus 71.7% and 71.3%, respectively.
- Protein Sciences sales declined 3% in the quarter and were flat for six months; operating margins fell to 40.3% and 41.7%, respectively. Diagnostics and Genomics sales rose 11% in the quarter and 7% for six months, while segment operating margins declined to 6.0% and 3.4%, partly reflecting Lunaphore.
- Quarterly SG&A expense rose 24% to $115.7 million; six-month SG&A rose 15% to $221.0 million. Drivers included restructuring, the held-for-sale asset impairment, and Lunaphore.
- Non-GAAP adjusted net earnings were $63.7 million for the quarter and $129.8 million for six months, versus $75.2 million and $147.4 million. Adjusted diluted EPS was $0.40 and $0.81, versus $0.47 and $0.91. These non-GAAP measures exclude specified items; see the filing’s reconciliations.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was $142.5 million, up from $120.5 million, which management attributed primarily to favorable timing of operating asset and liability payments. Investing cash outflow was $177.8 million, including $169.7 million for Lunaphore and $28.5 million of capital expenditures. Financing cash outflow was $9.9 million.
- Cash and short-term investments totaled $135.7 million at December 31, 2023, down from $204.3 million at June 30, 2023. Long-term debt was $447.0 million; $553 million remained available on the $1 billion revolving facility, maturing August 2027.
- Management expects available cash, operating cash generation, and remaining credit capacity to cover operating needs, facility expansion, capital additions, and dividends for at least the next 12 months. Capital expenditures for the remainder of fiscal 2024 were expected to be approximately $26 million.
- Six-month cash dividends were $25.2 million; the company announced a further $0.08-per-share dividend payable February 26, 2024. Share repurchases totaled $80.0 million in the six-month period.
Material changes, outlook, and risks
- Fiscal 2024 restructuring actions, announced in the second quarter, target operating-margin recovery, distribution footprint optimization, and organizational efficiency, and affected approximately 4% of the global workforce. The company recorded $11.4 million of restructuring and related costs, including a $6.0 million impairment on a Protein Sciences disposal group classified as held for sale. The assets were actively marketed, with sale expected within 12 months; related costs may continue through the first half of fiscal 2025.
- Lunaphore contributed $5.5 million in sales and a $14.2 million operating loss during the six months ended December 31, 2023. Its purchase price allocation remained preliminary.
- The company’s Wilson Wolf agreement could require purchase of the remaining equity interest on December 31, 2027, or earlier upon a milestone. Management forecast a payment of approximately $1 billion plus potential contingent consideration between fiscal 2026 and fiscal 2028. Wilson Wolf generated a $4.3 million equity-method loss for the six-month period.
- For the remainder of fiscal 2024, management expected an income tax rate of 23%–27%, excluding discrete items. Reported rates were reduced by discrete tax benefits: $2.8 million in the quarter and $16.3 million for six months.
- Key stated risks include acquisition integration, new-product acceptance, economic and political conditions, competition, manufacturing and supply-chain challenges, currency movements, talent retention, regulation, intellectual property, investment-market risk, and facility project delays or costs. About 39% of quarterly sales were in foreign currencies. The filing reported no material change in risk factors and no legal proceedings expected to have a material adverse effect.
Most important facts for investors to verify
- Whether organic demand improves, particularly among biotech customers and in China, and whether the weaker Protein Sciences trend reverses.
- Whether reported and adjusted margins recover as restructuring proceeds and Lunaphore is integrated.
- Cash generation, debt usage, and liquidity after acquisition spending, repurchases, and planned capital expenditures.
- Progress and valuation implications of the Wilson Wolf contract, including the potential approximately $1 billion future payment and milestone acceleration provisions.
- Completion and proceeds of the held-for-sale disposal, final Lunaphore purchase accounting, and the extent to which reported earnings continue to depend on discrete tax items.