Bio-Rad Laboratories, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited fourth-quarter results. Bio-Rad sells life science research and clinical diagnostics products globally; approximately 39% of 2019 sales were in the U.S. and 61% internationally.
Financial performance
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Net sales | $2.312 billion | $2.289 billion | Up 1.0% reported; up approximately 3.3% excluding foreign exchange |
| Gross profit / margin | $1.257 billion / 54.4% | $1.223 billion / 53.4% | Margin improved 1.0 percentage point |
| Operating income (loss) | $229.7 million | $(103.3) million | 2018 included $292.5 million of goodwill and long-lived asset impairments; none in 2019 |
| Net income | $1.759 billion | $365.6 million | 2019 includes a $2.031 billion gain from changes in fair value of equity securities, primarily Sartorius AG |
| Diluted EPS | $58.27 | $12.10 | Substantially affected by the Sartorius valuation gain |
| Cash from operations | $457.9 million | $285.5 million | Up $172.4 million |
| Capital expenditures | $98.5 million | $129.8 million | Lower, primarily due to smaller ERP implementation phases |
| Cash, cash equivalents and short-term investments | $1.115 billion | $844.8 million | Available at year-end |
| Total debt | $439.8 million | $439.4 million | $425 million of 4.875% notes due December 2020; $426.2 million of debt classified as current |
Reported net margin was 76.1%, but is not representative of underlying operating performance because of the large non-operating investment gain. The Sartorius investment had a reported fair value of approximately $4.664 billion at year-end. Bio-Rad reported $229.7 million of operating income, or approximately 9.9% of sales.
Segments and fourth quarter
- Life Science: 2019 sales were $885.9 million, up 2.8% reported and 4.6% currency-neutral. Growth was led by Droplet Digital PCR, Food Safety and Process Media.
- Clinical Diagnostics: Sales were $1.412 billion, essentially flat reported and up 2.8% currency-neutral. Growth included Quality Controls, Blood Typing, Immunology and Diabetes; management said European growth remained challenging amid healthcare cost controls and competition.
- Fourth quarter: Sales were $624.5 million versus $616.9 million in the prior-year quarter. Net income was $553.5 million versus a loss of $828.5 million, with the comparison heavily affected by quarterly changes in the fair value of equity securities. The 2019 quarter included a $646.0 million increase in fair value; the 2018 quarter included a $292.5 million impairment charge.
Material changes, outlook and risks
- Revenue growth was modest on a reported basis, while currency-neutral growth was stronger. Gross margin improved; SG&A declined to $824.6 million from $834.8 million, while R&D rose to $202.7 million from $199.2 million.
- The 2019 net income increase was primarily investment-mark valuation, not a comparable increase in operating earnings. Management warns that Sartorius share-price changes can materially affect reported results and Bio-Rad’s share price independently of operating performance.
- A November 2019 restructuring plan covering Europe, the U.S. and Canada recorded $25.3 million of severance and employee-benefit expense in 2019, with implementation expected through 2020. Management expects a significant portion of resulting net savings to be reinvested in line with its portfolio strategy; no quantified savings or earnings guidance is provided.
- A December 2019 cyberattack disrupted sales-order processing, particularly e-commerce. Critical systems were restored within days; the company reported no evidence of personal-data misuse or customer-system impact. It expects related expenses into the first half of 2020 and expects losses to exceed insurance coverage; the loss estimate was not yet quantified. No ransom was paid.
- Bio-Rad said cash and investment resources and operating cash flow should support operations and that it believed it had adequate resources to repay or finance the $425 million notes due in December 2020. The $200 million revolving credit facility had no borrowings at year-end, apart from $0.2 million used for letters of credit.
- Other risks include foreign-exchange exposure, competition and pricing pressure, dependence on government and customer funding, diagnostic regulation and reimbursement changes, ERP implementation, supply constraints, tax disputes, and geopolitical and economic uncertainty. COVID-19 was identified as a potential risk, without a quantified company-specific impact in this filing.
- The former general counsel’s whistleblower-related lawsuit was settled and dismissed with prejudice in September 2019; Bio-Rad said it had no material impact on 2019 results. Other ordinary-course legal matters remain, with exposure not reasonably estimable.
Investor verification priorities
- Separate operating performance from Sartorius-related fair-value gains and losses; confirm the investment’s valuation, concentration and potential tax effects.
- Track the cyberattack’s final costs, insurance recoveries, operational effects and any subsequent data-security disclosures.
- Confirm repayment or refinancing of the 4.875% notes due December 2020 and the company’s post-maturity liquidity.
- Assess whether the restructuring produces durable cost savings and whether reinvestment supports growth without further execution disruption.
- Monitor currency-neutral segment growth, European Clinical Diagnostics trends, margins, and cash conversion.
- Review tax examination outcomes and other contingencies. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2019.