Bio-Techne Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2022, the second quarter and first half of fiscal 2023. Comparative periods ended December 31, 2021. Bio-Techne develops and sells biotechnology reagents, instruments and services through Protein Sciences and Diagnostics and Genomics. Dollar amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Quarter ended Dec. 31, 2022 | Prior-year quarter | Six months ended Dec. 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $271.6 | $269.3 | $541.2 | $527.0 |
| Gross margin | 67.5% | 68.2% | 67.1% | 67.3% |
| Operating income | $67.9 | $62.3 | $124.2 | $125.6 |
| Net earnings attributable to Bio-Techne | $50.0 | $80.2 | $139.6 | $149.8 |
| Diluted EPS | $0.31 | $0.49 | $0.86 | $0.91 |
| Operating cash flow | Not provided separately | Not provided separately | $120.5 | $149.4 |
- Quarterly reported sales rose 1%; organic growth was 4%, with acquisitions adding 1% and foreign exchange reducing growth by 4%. First-half reported sales rose 3%; organic growth was 5%, acquisitions added 1%, and foreign exchange reduced growth by 3%.
- Quarterly operating income increased despite slightly lower gross margin. Six-month operating income was broadly flat to lower year over year. Adjusted diluted EPS, a non-GAAP measure, was $0.47 for the quarter (unchanged) and $0.91 for the first half (versus $0.93).
- Quarterly GAAP earnings fell mainly because the prior-year quarter included a $28.4 million gain from the CCXI investment. First-half earnings also reflected foreign exchange, inflation and Namocell costs, partly offset by gains on the CCXI investment and Eminence sale.
- Protein Sciences sales were $203.9 million for the quarter, approximately flat; segment operating margin was 43.8%, versus 45.5%. Diagnostics and Genomics sales increased 5% to $68.0 million; margin declined to 12.2% from 16.9%. Management attributed margin pressure to foreign exchange, inflation and investment in growth.
Cash, debt and liquidity
- At December 31, 2022, cash and cash equivalents were $164.7 million and short-term available-for-sale investments were $32.1 million, totaling $196.8 million, compared with $247.0 million at June 30, 2022. Current assets were $565.2 million and current liabilities $128.4 million.
- Long-term debt was $200.0 million, with no current portion reported. The amended revolving credit facility provides up to $1.0 billion, with possible increases of $400 million subject to conditions, and matures August 1, 2027. Borrowings bear variable interest based on SOFR plus a leverage-based margin.
- First-half operating cash flow was $120.5 million, down from $149.4 million, primarily due to lower operating income and unfavorable working-capital timing, including supply-chain-related inventory investment. Investing cash flow was a $19.8 million outflow; financing cash flow was a $104.0 million outflow.
- First-half capital expenditures were $15.7 million; the company expected approximately $28 million more for the remainder of fiscal 2023. Management said cash, operating cash generation and remaining revolving-credit availability should cover operating needs, facility expansion, capital additions and dividends for at least the next 12 months.
Material changes, outlook and notable items
- Bio-Techne acquired Namocell on July 1, 2022, for $101.2 million net of cash acquired, plus up to $25 million contingent consideration. Purchase-price allocation remained preliminary. Namocell contributed $2.2 million of quarterly sales and a $1.6 million operating loss.
- The company sold its Eminence investment for approximately $17.8 million in September 2022 and recorded an $11.7 million gain. It sold its remaining CCXI shares for $73.2 million, recognizing a $37.2 million gain in the first half. These items make reported earnings less directly comparable across periods.
- Management forecasts a potential first Wilson Wolf forward-contract payment of $231 million in fiscal 2023 or 2024 if specified milestones are met. A subsequent purchase could require approximately $1 billion plus potential additional consideration, potentially during fiscal 2026–2028. The obligations depend on Wilson Wolf achieving revenue or EBITDA thresholds.
- Remaining maximum contingent consideration for Asuragen and Namocell was $100 million; its recorded fair value was $7.0 million. Both companies missed December 31, 2022 revenue milestones, and the related accruals were reversed; further payments depend on future milestones.
- Restructuring charges included $2.2 million for the planned Quad facility closure and $0.8 million for a Protein Sciences workforce realignment. Management expected these actions to be substantially complete in the third fiscal quarter of 2023.
- The effective tax rate was 24.7% for the quarter and 17.9% for the first half, affected by discrete tax items, including $5.7 million of expense associated with a planned distribution from the China entity. Excluding discrete items, management expected a 21%–26% tax rate for the remainder of fiscal 2023. No specific revenue or earnings guidance was provided.
- Risk factors were reported as unchanged from the fiscal 2022 Form 10-K. The filing highlights foreign-exchange, inflation, supply-chain, acquisition-integration, cybersecurity and investment-value risks. A hypothetical 10% U.S. dollar appreciation against specified currencies would reduce annualized translated foreign earnings by $7.1 million and translated foreign net assets by $73.1 million, and cause estimated transaction losses of $4.3 million.
- The company completed a four-for-one stock split in November 2022; share and per-share figures were retrospectively adjusted. Management reported effective disclosure controls and no material change in internal control over financial reporting. No material legal proceedings or subsequent events were reported.
Important facts for investors to verify
- Underlying demand and margin trends, particularly whether organic growth continues and whether foreign exchange, inflation and growth investment pressure segment margins.
- The timing, milestone assumptions and potential funding needs for the Wilson Wolf contract, including the possible approximately $1 billion later payment.
- Namocell integration, final purchase-price allocation, operating performance and remaining contingent consideration; also the status of Asuragen milestones.
- Cash conversion and working-capital needs, capital expenditure plans, variable-rate debt exposure and available borrowing capacity.
- The effect of one-time investment and divestiture gains, discrete taxes and non-GAAP exclusions when assessing sustainable earnings.