UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
BIO-TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
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| | ( |
| (Address of principal executive offices) (Zip Code) | (Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2).
At November 1, 2021,
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| Item 1. |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. |
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| Item 1A. |
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| Item 5. |
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| Item 6. |
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
Bio-Techne Corporation and Subsidiaries
(in thousands, except per share data)
(unaudited)
| Quarter Ended | ||||||||||
| September 30, | ||||||||||
|
| 2021 |
| 2020 | |||||||
| Net sales | $ | $ | ||||||||
| Cost of sales | ||||||||||
| Gross margin | ||||||||||
| Operating expenses: | ||||||||||
| Selling, general and administrative | ||||||||||
| Research and development | ||||||||||
| Total operating expenses | ||||||||||
| Operating income | ||||||||||
| Other income (expense) |
| ( | ) |
| ||||||
| Earnings before income taxes | ||||||||||
| Income taxes (benefit) | ( | ) | ||||||||
| Net earnings, including noncontrolling interest | $ | $ | ||||||||
| Net earnings (loss) attributable to noncontrolling interest | ( | ) | ||||||||
| Net earnings attributable to Bio-Techne | ||||||||||
| Other comprehensive income (loss): | ||||||||||
| Foreign currency translation adjustments | ( | ) |
| |||||||
| Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8 |
| |||||||||
| Other comprehensive income (loss) | ( | ) |
| |||||||
| Other comprehensive income (loss) attributable to noncontrolling interest | ( | ) | ||||||||
| Other comprehensive income (loss) attributable to Bio-Techne | ( | ) | ||||||||
| Comprehensive income attributable to Bio-Techne | $ | $ | ||||||||
| Earnings per share attributable to Bio-Techne: | ||||||||||
| Basic | $ | $ | ||||||||
| Diluted | $ | $ | ||||||||
| Weighted average common shares outstanding: | ||||||||||
| Basic | ||||||||||
| Diluted | ||||||||||
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries
(in thousands, except share and per share data)
| September 30, | June 30, | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term available-for-sale investments | ||||||||
| Accounts receivable, less allowance for doubtful accounts of $ and $, respectively | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Salaries, wages and related accruals | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities - current | ||||||||
| Contingent consideration payable | ||||||||
| Current portion of long-term debt obligations | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Deferred income taxes | ||||||||
| Long-term debt obligations | ||||||||
| Long-term contingent consideration payable | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Bio-Techne's Shareholders' equity: | ||||||||
| Undesignated capital stock, par; authorized shares; issued or outstanding | ||||||||
| Common stock, par value per share; authorized ; issued and outstanding and , respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Bio-Techne's shareholders' equity | ||||||||
| Noncontrolling interest | ||||||||
| Total shareholder's equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
(unaudited)
| Quarter Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net earnings, including noncontrolling interest | $ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Costs recognized on sale of acquired inventory | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Fair value adjustment to contingent consideration payable | ( | ) | ( | ) | ||||
| Contingent consideration payments | ( | ) | ||||||
| Fair value adjustment on available for sale investments | ( | ) | ||||||
| Asset impairment restructuring | ||||||||
| Leases, net | ( | ) | ||||||
| Other operating activity | ||||||||
| Change in operating assets and operating liabilities, net of acquisition: | ||||||||
| Trade accounts and other receivables, net | ( | ) |
| |||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Trade accounts payable, accrued expenses, contract liabilities, and other | ( | ) | ||||||
| Salaries, wages and related accruals | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from maturities of available-for-sale investments | ||||||||
| Purchases of available-for-sale investments | ( | ) | ( | ) | ||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash dividends | ( | ) | ( | ) | ||||
| Proceeds from stock option exercises | ||||||||
| Borrowings under line-of-credit agreement | ||||||||
| Repayments of long-term debt | ( | ) | ||||||
| Contingent consideration payments | ( | ) | ||||||
| Other financing activity | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) |
| |||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
(unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies:
The interim consolidated financial statements of Bio-Techne Corporation and subsidiaries, (the Company) presented here have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2021, included in the Company's Annual Report on Form 10-K for fiscal year 2021. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal year 2021. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.
During the first quarter of fiscal 2022, the Company operated under
Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairments and disposals of assets associated with such actions. Employee-related severance charges are based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Asset impairment and disposal charges include right of use assets, leasehold improvements, and other asset write-downs associated with combining operations and disposal of assets.
In September 2021, the Company informed employees of our decision to close our Exosome Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome business. The closure of the site is expected to be completed in the third quarter of fiscal 2022. As a result of the restructuring activities, an estimated pre-tax charge of $
| Employee Severance | Asset Impairment | Total | |||||||
| Selling, general and administrative | $ | $ | | $ | |||||
| Total operating income impact(1) |
| |
| ||||||
(1)The charges recorded above are accrued within Other current liabilities as of September 30, 2021. There were
Recently Adopted Accounting Pronouncements
There were no accounting pronouncements adopted in the first fiscal quarter of 2022. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2021.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues consist of extended warranty contracts, post contract support, and custom development projects that are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the performance completed. Service revenues also include laboratory services recognized at point in time. Prior to fiscal year 2021, the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers and considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Given Medicare coverage for our laboratory services became effective on December 1, 2019, the Company considered it to have sufficient data to estimate variable consideration as of July 1, 2020 for laboratory services that are reimbursed by Medicare. The amount of cash received in fiscal year 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $
The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations were not material as of September 30, 2021.
Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.
Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.
Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of September 30, 2021 are not material.
Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of September 30, 2021 and June 30, 2021 were approximately $
Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.
The following tables present our disaggregated revenue for the periods presented.
Revenue by type is as follows:
| Quarter Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Consumables | $ | $ | ||||||
| Instruments | ||||||||
| Services | ||||||||
| Total product and services revenue, net | $ | $ | ||||||
| Royalty revenues | ||||||||
| Total revenues, net | $ | $ | ||||||
Revenue by geography is as follows:
| Quarter Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| United States | $ | $ | ||||||
| EMEA, excluding United Kingdom | ||||||||
| United Kingdom | ||||||||
| APAC, excluding Greater China | ||||||||
| Greater China | ||||||||
| Rest of World | ||||||||
| Net sales | $ | $ | ||||||
Note 3. Selected Balance Sheet Data:
Inventories:
Inventories consist of (in thousands):
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods(1) | ||||||||
| Inventories, net | $ | $ | ||||||
(1) Finished goods inventory of $
Property and Equipment:
Property and equipment consist of (in thousands):
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Property and equipment, cost | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Intangible Assets:
Intangible assets consist of (in thousands):
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Developed technology | $ | $ | ||||||
| Trade names | ||||||||
| Customer relationships | ||||||||
| Patents | ||||||||
| Other intangibles | ||||||||
| Definite-lived intangible assets | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Definite-lived intangibles assets, net | ||||||||
| In process research and development | ||||||||
| Total intangible assets, net | $ | $ | ||||||
|
|
|
Changes to the carrying amount of net intangible assets for the quarter ended September 30, 2021 consist of (in thousands):
| Beginning balance | $ | |||
| Acquisitions | ||||
| Other additions | ||||
| Amortization expense | ( | ) | ||
| Currency translation | ( | ) | ||
| Ending balance | $ |
The estimated future amortization expense for intangible assets as of September 30, 2021 is as follows (in thousands):
| 2022 remainder | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
Goodwill:
Changes to the carrying amount of goodwill for the quarter ended September 30, 2021 consist of (in thousands):
| Protein Sciences | Diagnostics and Genomics | Total | ||||||||||
| Beginning balance | $ | $ | ||||||||||
| Currency translation | ( | ) | ( | ) | ( | ) | ||||||
| Ending balance | $ | $ | $ | |||||||||
We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a quantitative goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2021. No indicators of impairment were identified as part of our assessment.
During the quarter ended September 30, 2021, the Company combined the management of the Exosome and Asuragen reporting units, both of which are included in the Diagnostics and Genomics operating segment. In conjunction with the combination of the reporting units, a qualitative goodwill impairment assessment was performed. The qualitative assessment identified no indicators of impairment. No triggering events or items beyond the reporting unit combination that would require a goodwill impairment assessment were identified during the quarter ended September 30, 2021. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC 350 guidance for goodwill and other intangibles on July 1, 2002.
Note 4. Acquisitions:
We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and that the results of operations of each acquired business be included in our consolidated statements of comprehensive income from their respective dates of acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred.
2021 Acquisitions
Asuragen, Inc.
On April 6, 2021, the Company acquired all of the ownership interests of Asuragen, Inc. (Asuragen) for approximately $
The allocation of purchase consideration related to Asuragen Inc is considered preliminary with provisional amounts primarily related to goodwill and income tax assessment of acquired net operating losses. The Company expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations as of September 30, 2021 were approximately $
| Preliminary allocation at acquisition date and at September 30, 2021 | ||||
| Current assets, net of cash | $ | |||
| Equipment and other long-term assets | ||||
| Intangible assets: | ||||
| Developed technology | ||||
| In-process research and development | ||||
| Customer relationships | ||||
| Tradenames | ||||
| Non-competition agreement | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Liabilities | ||||
| Deferred income taxes, net | ||||
| Net assets acquired | $ | |||
| Cash paid, net of cash acquired | ||||
| Contingent consideration payable | ||||
| Net assets acquired | $ | |||
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology, in-process research and development, and customer relationships was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.
The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| Total carrying value as of | Fair Value Measurements Using Inputs Considered as | ||||||||||||||||
| September 30, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets | |||||||||||||||||
| Equity securities (1) | $ | $ | $ | $ | |||||||||||||
| Certificates of deposit (2) | |||||||||||||||||
| Derivative instruments - cash flow hedges | |||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||
| Liabilities | |||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | |||||||||||||
| Derivative instruments - cash flow hedges | |||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||
| Total carrying value as of | Fair Value Measurements Using Inputs Considered as | |||||||||||||||
| June 30, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Equity securities (1) | $ | $ | $ | $ | ||||||||||||
| Certificates of deposit (2) | ||||||||||||||||
| Derivative instruments - cash flow hedges | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Derivative instruments - cash flow hedges | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| (1) | Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at September 30, 2021 and June 30, 2021 was $ | |
| (2) | Included in available-for-sale investments on the balance sheet. The certificates of deposit have contractual maturity dates within one year. |
Fair value measurements of available for sale securities
Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. The Company's warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset.
Fair value measurements of derivative instruments,
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial $
In May 2021, the Company entered into a new forward starting swap designated as a cash flow hedge on forecasted debt. The forward starting swap reduces the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s forecasted variable interest long-term debt to that of a fixed interest rate. Accordingly, as part of the forward starting swap, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on $
Changes in the fair value of the designated hedged instrument are reported as a component of other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $
Fair value measurements of contingent consideration
The Company has $
The ultimate settlement of contingent consideration liabilities for the Asuragen and B-Mogen acquisitions could deviate from current estimates based on the actual results of the financial measures described above. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.
During the first quarter of fiscal 2022, the Company made a $
The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
| Quarter Ended | ||||
| September 30, 2021 | ||||
| Fair value at the beginning of period | $ | |||
| Payments | ( | ) | ||
| Change in fair value of contingent consideration | ( | ) | ||
| Fair value at the end of period | $ | |||
The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates.
Note 6. Debt and Other Financing Arrangements:
On August 1, 2018, the Company entered into a new revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $
The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of September 30, 2021, the outstanding balance under the Credit Agreement was $
Note 7. Leases:
As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on July 1, 2019.
The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is Bio-Techne’s incremental borrowing rate or, if available, the rate implicit in the lease. Bio-Techne determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the three months ended September 30, 2021, the Company recognized $
The following table summarizes the balance sheet classification of the Company’s operating leases and amounts of right of use assets and lease liabilities and the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):
| Balance Sheet Classification | As of September 30, 2021 | ||||
| Operating leases: | |||||
| Operating lease right of use assets | Right of Use Asset | $ | |||
| Current operating lease liabilities | Operating lease liabilities current | $ | |||
| Noncurrent operating lease liabilities | Operating lease liabilities | ||||
| Total operating lease liabilities | $ | ||||
| Weighted average remaining lease term (in years): | |||||
| Weighted average discount rate: | % | ||||
The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the three months ended (in thousands):
| Three months ended September 30, 2021 | ||||
| Cash amounts paid on operating lease liabilities | $ | |||
| Right of use assets obtained in exchange for lease liabilities | ||||
The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):
| Operating Leases | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| Less: Amounts representing interest | ||||
| Total Lease obligations | $ | |||
Certain leases include one or more options to renew, with terms that extend the lease term up to years. Bio-Techne includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, Bio-Techne is not reasonably certain to exercise such options.
Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):
Supplemental Equity
The Company has declared cash dividends per share of $
Consolidated Changes in Equity (amounts in thousands)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Non-Controlling | ||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income(Loss) | Interest |
| Total | |||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net earnings | (634 | ) | ||||||||||||||||||||||||||
| Other comprehensive income | ( | ) | (39 | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for exercise of options | (13,481 | ) | ||||||||||||||||||||||||||
| Common stock issued for restricted stock awards | ( | ) | ( | ) | ||||||||||||||||||||||||
| Cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | ||||||||||||||||||||||||||||
| Employee stock purchase plan expense | ||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income(Loss) | Total | |||||||||||||||||||
| Balances at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Cumulative effect adjustments due to adoption of new accounting standards and other | ( | ) | ( | ) | ||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Other comprehensive loss |
|
| ||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||
| Common stock issued for restricted stock awards |
| ( | ) | ( | ) | |||||||||||||||||||
| Cash dividends | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | ||||||||||||||||||||||||
| Employee stock purchase plan expense | ||||||||||||||||||||||||
| Balances at September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Accumulated Other Comprehensive Income
The components of other comprehensive income (loss) consist of changes in foreign currency translation adjustments and changes in net unrealized gains (losses) on derivative instruments designated as cash flow hedges. The Company reclassified $
The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:
| Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | ||||||||||
| Balance as of June 30, 2021 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne | ( | ) | ( | ) | ||||||||
| Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1) | ||||||||||||
| Balance as of September 30, 2021(2) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | ||||||||||
| Balance as of June 30, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss), net of tax before reclassifications, attributable to Bio-Techne |
|
|
| |||||||||
| Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne (3) | ||||||||||||
| Balance as of September 30, 2020(2) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
(1) Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified ($
(2) The Company had net deferred tax benefits of $
(3) Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified ($
Note 9. Earnings Per Share:
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
| Quarter Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Earnings per share – basic: | ||||||||
| Net earnings, including noncontrolling interest | $ | $ | ||||||
| Less net earnings (loss) attributable to noncontrolling interest | ( | ) |
| |||||
| Net earnings attributable to Bio-Techne | $ | $ | ||||||
| Income allocated to participating securities | ( | ) | ||||||
| Income available to common shareholders | $ | $ | ||||||
| Weighted-average shares outstanding - basic | ||||||||
| Earnings per share - basic | $ | $ | ||||||
| Earnings per share – diluted: | ||||||||
| Net earnings, including noncontrolling interest | $ | $ | ||||||
| Less net earnings (loss) attributable to noncontrolling interest | ( | ) | ||||||
| Net earnings attributable to Bio-Techne | $ | $ | ||||||
| Income allocated to participating securities | ( | ) | ( | ) | ||||
| Income available to common shareholders | $ | $ | ||||||
| Weighted average shares outstanding - basic | ||||||||
| Dilutive effect of stock options and restricted stock units | ||||||||
| Weighted average common shares outstanding - diluted | ||||||||
| Earnings per share - diluted | $ | $ | ||||||
The dilutive effect of stock options and restricted stock units in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was
Note 10. Share-based Compensation:
During the quarter ended September 30, 2021 and 2020, the Company granted
Stock options for
Stock-based compensation expense, inclusive of payroll taxes, of $
In fiscal year 2015, the Company established the Bio-Techne Corporation 2014 Employee Stock Purchase Plan (ESPP), which was approved by the Company's shareholders on October 30, 2014, and which is designed to comply with IRS provisions governing employee stock purchase plans.
Note 11. Other Income / (Expense):
The components of other income (expense) in the accompanying Statement of Earnings and Comprehensive Income are as follows:
| Quarter Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Interest expense | $ | ( | ) | $ | ( | ) | ||
| Interest income | ||||||||
| Other non-operating income (expense), net(1) |
| ( | ) | |||||
| Total other income (expense) | $ |
| $ | ( | ) | |||
(1) Primarily due to a $
Note 12. Income Taxes:
The Company’s effective income tax rate for the first quarter of fiscal 2022 and 2021 was (
The Company recognized total net benefits related to discrete tax items of $
Note 13. Segment Information:
The Company's management evaluates segment operating performance based on operating income before certain charges to cost of sales and selling, general and administrative expenses, principally associated with the impact of partially owned consolidated subsidiaries as well as acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses. The Protein Sciences and Diagnostics and Genomics segments both include consumables, instruments, services and royalty revenue.
The following is financial information relating to the Company's reportable segments (in thousands):
| Quarter Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net sales: | ||||||||
| Protein Sciences | $ | $ | ||||||
| Diagnostics and Genomics | ||||||||
| Intersegment | ( | ) | ( | ) | ||||
| Consolidated net sales | $ | $ | ||||||
| Operating income: | ||||||||
| Protein Sciences | $ | $ | ||||||
| Diagnostics and Genomics | ||||||||
| Segment operating income | ||||||||
| Costs recognized on sale of acquired inventory | ||||||||
| Amortization of acquisition related intangible assets | ( | ) | ( | ) | ||||
| Impact of partially owned consolidated subsidiaries | ( | ) | ||||||
| Acquisition related expenses |
| ( | ) | |||||
| Stock-based compensation, inclusive of employer taxes | ( | ) | ( | ) | ||||
| Restructuring costs | ( | ) | ||||||
| Corporate general, selling, and administrative expenses | ( | ) | ( | ) | ||||
| Consolidated operating income | $ | $ | ||||||
Note 14. Subsequent Events:
None.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis (“MD&A”) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide quantitative information about discrete tax items and other significant factors we believe are useful for understanding our results. The MD&A should be read in conjunction with both the unaudited condensed consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended June 30, 2021. This discussion contains various “Non-GAAP Financial Measures” and also contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP Financial Measures” and “Forward-Looking Information and Cautionary Statements” located at the end of Item 2 of this report.
OVERVIEW
Bio-Techne and its subsidiaries, collectively doing business as Bio-Techne Corporation (Bio-Techne, we, our, us or the Company) develop, manufacture and sell biotechnology reagents, instruments and services for the research and clinical diagnostic markets worldwide. With our deep product portfolio and application expertise, we sell integral components of scientific investigations into biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.
Consistent with prior year, we have operated with two segments – our Protein Sciences segment and our Diagnostics and Genomics segment during the first quarter of fiscal year 2022. Our Protein Sciences segment is a leading developer and manufacturer of high-quality purified proteins and reagent solutions, most notably cytokines and growth factors, antibodies, immunoassays, biologically active small molecule compounds, tissue culture reagents and T-Cell activation technologies. This segment also includes protein analysis solutions that offer researchers efficient and streamlined options for automated western blot and multiplexed ELISA workflow. Our Genomics and Diagnostics segment develops and manufactures diagnostic products, including FDA-regulated controls, calibrators, blood gas and clinical chemistry controls and other reagents for OEM and clinical customers, as well as a portfolio of clinical molecular diagnostic oncology assays, including the ExoDx® Prostate (IntelliScore) test (EPI) for prostate cancer diagnosis. This segment also manufactures and sells advanced tissue-based in-situ hybridization assays (ISH) for research and clinical use.
RECENT ACQUISITIONS
A key component of the Company's strategy is to augment internal growth at existing businesses with complementary acquisitions. The Company did not make any acquisitions in the three months ended September 30, 2021. Refer to the prior year Annual Report on form 10-K for additional disclosure regarding the Company's recent acquisitions.
RESULTS OF OPERATIONS
Operational Update
Consolidated net sales increased 26% for the quarter ended September 30, 2021 compared to the same prior year period. Organic growth was 21% for the quarter ended September 30, 2021 compared to the same prior year period, with foreign currency exchange having a favorable impact of 1% on revenue growth and acquisitions contributing a favorable impact of 4% to revenue growth.
Consolidated net earnings attributable to Bio-Techne increased to $69.6 million for the quarter ended September 30, 2021 compared to the $33.4 million in same prior year period. The increase in net earnings attributable to Bio-Techne for the quarter ended September 30, 2021 is primarily due to an increase in net sales and changes in the fair value of our ChemoCentryx investment.
Business Strategy Update
The Company’s key business strategies for long-term growth and profitability continue to be geographic expansion, core product innovation, acquisitions and talent retention and development. In fiscal year 2022, the Company is also focused on evaluating how climate change impacts from our business operations might be measured and mitigated, with the plan of integrating consideration of greenhouse gas emissions and other climate variables into those key business strategies. The financial impact of this initiative is not expected to materially alter the Company’s financial results in the fiscal year, but we expect it to provide positive long-term financial benefit.
Net Sales
Consolidated net sales for the quarter ended September 30, 2021 were $257.7 million, an increase of 26% from the same prior year period. Organic growth was 21% for the quarter ended September 30, 2021 compared to the same prior year period, with foreign currency exchange having a favorable impact of 1% on sales growth and acquisitions contributing a favorable impact of 4% to revenue growth. Organic revenue growth was mainly driven by strong biopharma demand, especially for products, services and solutions from the Protein Sciences segment and by overall execution of the Company's long-term growth strategy.
Gross Margins
Consolidated gross margins for the quarter ended September 30, 2021 and September 30, 2020 were 66.4% and 67.4%, respectively. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold. Excluding the impact of costs recognized upon the sale of acquired inventory, stock compensation expense, amortization of intangibles, and impact of partially owned consolidated subsidiaries, adjusted gross margins were 71.2% and 71.9% for the quarter ended September 30, 2021 and 2020, respectively. Both consolidated gross margins and non-GAAP adjusted gross margins were negatively impacted by product mix and additional investments made in the business to support future growth for the quarter ended September 30, 2021 as compared to the prior year.
A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold, intangible amortization, stock compensation expense, and impact of partially owned consolidated subsidiaries included in cost of sales, is as follows:
| Quarter Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Consolidated gross margin percentage |
66.4 | % |
67.4 | % |
||||
| Identified adjustments: |
||||||||
| Costs recognized upon sale of acquired inventory | 0.6 | % | - | % | ||||
| Amortization of intangibles |
4.0 | % |
4.2 | % |
||||
| Stock compensation expense - COGS |
0.1 | % |
0.3 | % |
||||
| Impact of partially owned consolidated subsidiaries | 0.1 | % | - | % | ||||
| Non-GAAP adjusted gross margin percentage |
71.2 | % |
71.9 | % |
||||
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $13.6 million (19%) for the quarter ended September 30, 2021 from the same prior year period. The increase in expense was due to strategic growth investments and the Asuragen acquisition in the fourth quarter of fiscal year 2021.
Research and Development Expenses
Research and development expenses were $21.6 million for the quarter ended September 30, 2021 compared to $16.0 million from the same prior year period. The increase in expense was due to strategic growth investments and the Asuragen acquisition in the fourth quarter of fiscal year 2021.
Segment Results
Protein Sciences
| Quarter Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Net sales (in thousands) |
$ | 197,186 | $ | 154,446 | ||||
| Operating margin percentage |
45.7 | % |
45.6 | % |
||||
Protein Science’s net sales for the quarter ended September 30, 2021 were $197.2 million with reported growth of 28% compared to the same prior year period. Organic growth for the quarter ended September 30, 2021 was 26% with foreign currency having a favorable impact of 2%. Segment growth was driven by strong BioPharma demand resulting in broad-based growth across our proteomic research reagents and analytical tools.
The operating margin for the quarter ended September 30, 2021 was 45.7% compared to 45.6% for the same prior year period. Operating income margin was positively impacted by volume leverage largely offset by strategic investments to support future growth.
Diagnostics and Genomics
| Quarter Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Net sales (in thousands) |
$ | 60,985 | $ | 50,125 | ||||
| Operating margin percentage |
12.2 | % |
17.3 | % |
||||
Diagnostics and Genomics’ net sales for the quarter ended September 30, 2021 were $61.0 million with reported growth of 22% compared to the same prior year period. Organic growth for the quarter ended September 30, 2021 was 6% with acquisitions contributing 15% to revenue growth and foreign currency exchange having a favorable impact of 1%. Total segment revenue increased primarily due to the Asuragen acquisition in the fourth quarter of fiscal year 2021. Organic growth was driven by continued strength in our diagnostic reagent product lines.
Income Taxes
Income taxes for the quarter ended September 30, 2021 were at an effective rate of (2.4)% of consolidated earnings before income taxes compared to 15.1% for the quarter ended September 30, 2020. The change in the Company’s tax rate for the quarter ended September 30, 2021 was driven by discrete tax items of $17.7 million compared to prior year discrete tax items of $4.2 million as further discussed in Note 12.
The forecasted tax rate as of the first fiscal quarter of 2022 before discrete items is 23.9% compared to the prior year forecasted tax rate before discrete items of 25.7%. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 2022 to range from 23% to 28%.
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows:
| Quarter Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Net earnings before taxes - GAAP |
$ | 67,383 | $ | 39,339 | ||||
| Identified adjustments attributable to Bio-Techne: |
||||||||
| Costs recognized upon sale of acquired inventory | 1,512 | - | ||||||
| Amortization of intangibles |
18,389 | 15,501 | ||||||
| Acquisition related expenses |
(2,262 | ) | 230 | |||||
| Stock-based compensation, inclusive of employer taxes |
13,860 | 13,333 | ||||||
| Restructuring costs | 1,185 | - | ||||||
| Realized (gain) loss on investments and other |
(6,235 | ) | 4,351 | |||||
| Impact of non-controlling interest (pre-tax) |
1,562 |
|
|
|||||
| Non-GAAP adjusted net earnings attributable to Bio-Techne |
$ | 95,394 | $ | 72,754 | ||||
| Non-GAAP tax rate | 21.0 | % | 21.5 | % | ||||
| Non-GAAP tax expense |
20,033 | 15,609 | ||||||
| Non-GAAP adjusted net earnings attributable to Bio-Techne | 75,361 | 57,145 | ||||||
| Earnings per share - diluted - Adjusted | $ | 1.83 | $ | 1.43 | ||||
Depending on the nature of discrete tax items, our reported tax rate may not be consistent on a period to period basis. The Company independently calculates a non-GAAP adjusted tax rate considering the impact of discrete items and jurisdictional mix of the identified non-GAAP adjustments. The following table summarizes the reported GAAP tax rate and the effective Non-GAAP adjusted tax rate for the quarter ended September 30, 2021 and September 30, 2020.
| Quarter Ended |
|||||||||
| September 30, |
|||||||||
| 2021 |
2020 |
||||||||
| GAAP effective tax rate | (2.4 | )% | 15.1 | % | |||||
| Discrete items | 26.3 | 10.6 | |||||||
| Annual tax forecast update |
- |
|
- |
|
|||||
| Long-term GAAP tax rate |
23.9 | % | 25.7 | % | |||||
| Rate impact items | |||||||||
| Stock based compensation | (2.1 | ) | (3.7 | )% | |||||
| Other |
(0.8
|
) | (0.5 | ) | |||||
| Total rate impact items | (2.9 | )% | (4.2 | )% | |||||
| Non-GAAP adjusted tax rate |
21.0 | % |
21.5 | % |
|||||
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the quarter ended September 30, 2021 is primarily a result of discrete tax items, including the tax benefit of stock option exercises.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021, cash and cash equivalents and available-for-sale investments were $235.1 million compared to $231.6 million as of June 30, 2021. Included in available-for-sale-investments as of September 30, 2021 was the fair value of the Company's investment in CCXI of $25.2 million. The fair value of the Company's CCXI investment at June 30, 2021 was $20.0 million.
The Company has a line-of-credit and term loan governed by the Credit Agreement. See Note 5 to the Condensed Consolidated Financial Statements for a description of the Credit Agreement.
The Company has contingent consideration payments of up to $105 million and $38 million relating to the Asuragen and B-MoGen acquisitions, respectively. The fair value of the remaining payments is $22.6 million as of September 30, 2021.
Management of the Company expects to be able to meet its cash and working capital requirements for operations, facility expansion, capital additions, and cash dividends for the foreseeable future, and at least the next 12 months, through currently available cash, cash generated from operations, and remaining credit available on its existing revolving line of credit.
Cash Flows From Operating Activities
The Company generated cash of $48.4 million from operating activities in the first quarter of fiscal 2022 compared to $66.0 million in the first quarter of fiscal 2021. The decrease from the prior year was primarily due to the timing of cash payments on certain operating assets and liabilities, partially offset by an increase in year over year net earnings.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures.
Capital expenditures for fixed assets for the first quarter of fiscal 2022 and 2021 were $6.1 million and $10.9 million, respectively. Capital expenditures for the remainder of fiscal 2022 are expected to be approximately $60 million. Capital expenditures are expected to be financed through currently available funds and cash generated from operating activities. Expected additions in fiscal 2022 is related to increasing capacity to meet expected sales growth across the Company.
Cash Flows From Financing Activities
During the first quarter of fiscal 2022 and 2021, the Company paid cash dividends of $12.5 million and $12.3 million, respectively, to all common shareholders. On November 2, 2021, the Company announced the payment of a $0.32 per share cash dividend, or approximately $12.6 million, will be payable November 26, 2021 to all common shareholders of record on November 12, 2021.
Cash of $37.9 million and $15.4 million was received during the first quarter of fiscal 2022 and 2021, respectively, from the exercise of stock options.
During the first quarter of fiscal 2022 and 2021, the Company made repayments of $51.1 million and $33.1 million, respectively, on its long-term debt balance. The Company drew $10.0 million under its revolving line-of-credit facility during the first quarter of fiscal 2022. There were no withdrawals on the line-of-credit facility during the first quarter of fiscal 2021.
During the first quarter of fiscal 2022, the Company made payments of $0.7 million of contingent consideration payments classified as financing activities. The Company made $3.3 million in contingent consideration payments, which were classified within operating activities. No contingent consideration payments classified as either financing or operating activities were made in the first quarter of fiscal 2021.
During the first quarter of fiscal 2022 and 2021, the Company made $23.2 million and $4.9 million in other financing payments, respectively, related to taxes paid on restricted stock units and stock options exercised through a net share settlement.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K for fiscal 2021 and are incorporated herein by reference. The application of certain of these policies requires judgments and estimates that can affect the results of operations and financial position of the Company. Judgments and estimates are used for, but not limited to, valuation of available-for-sale investments, inventory valuation and allowances, valuation of intangible assets and goodwill and valuation of investments in unconsolidated entities. There have been no significant changes in estimates in the first quarter of fiscal 2022 that would require disclosure nor have there been any changes to the Company's policies.
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Item 2, contains financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP). These non-GAAP measures include:
| • |
Organic Growth |
|
| • |
Adjusted gross margin |
|
| • |
Adjusted net earnings |
|
| • |
Adjusted effective tax rate |
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months, the impact of foreign currency, as well as the impact of partially owned consolidated subsidiaries. Excluding these measures provides more useful period-to-period comparison of revenue results as it excludes the impact of foreign currency exchange rates, which can vary significantly from period to period, and revenue from acquisitions that would not be included in the comparable prior period. Revenues from partially owned subsidiaries consolidated in our financial statements are also excluded from our organic revenue calculation, as those revenues are not fully attributable to the Company. Revenue from partially owned subsidiaries was $413 thousand for the quarter ended September 30, 2021.
Our non-GAAP financial measures for adjusted gross margin, adjusted operating margin, and adjusted net earnings, in total and on a per share basis, exclude stock-based compensation, the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, acquisition related expenses inclusive of the changes in fair value of contingent consideration, and other non-recurring items including non-recurring costs and gains. Stock-based compensation is excluded from non-GAAP adjusted net earnings because of the nature of this charge, specifically the varying available valuation methodologies, subjection assumptions, variety of award types, and unpredictability of amount and timing of employer related tax obligations. The Company excludes amortization of purchased intangible assets, purchase accounting adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses inclusive of the changes in fair value contingent consideration, and other non-recurring items including gains or losses on legal settlements and one-time assessments from this measure because they occur as a result of specific events, and are not reflective of our internal investments, the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support our operating structure. Additionally, these amounts can vary significantly from period to period based on current activity. The Company also excludes revenue and expense attributable to partially owned consolidated subsidiaries in the calculation of our non-GAAP financial measures as the revenues and expenses are not fully attributable to the Company.
The Company’s non-GAAP adjusted operating margin and adjusted net earnings, in total and on a per share basis, also excludes stock-based compensation expense, which is inclusive of the employer portion of payroll taxes on those stock awards, restructuring, impairments of equity method investments, gain and losses from investments, and certain adjustments to income tax expense. Impairments of equity investments are excluded as they are not part of our day-to-day operating decisions. Additionally, gains and losses from other investments that are either isolated or cannot be expected to occur again with any predictability are excluded. Costs related to restructuring activities, including reducing overhead and consolidating facilities, are excluded because we believe they are not indicative of our normal operating costs. The Company independently calculates a non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering the impact of discrete items on these adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other discrete and non-recurring charges which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax items can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results.
The Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and considers the use of these measures by our competitors and peers to ensure the adjustments are still relevant and meaningful.
Readers are encouraged to review the reconciliations of the adjusted financial measures used in management's discussion and analysis of the financial condition of the Company to their most directly comparable GAAP financial measures provided within the Company's consolidated financial statements.
FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS
This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those regarding the Company's expectations as to the effect of changes to accounting policies, the amount of capital expenditures for the remainder of the fiscal year, the source of funding for capital expenditure requirements, the sufficiency of currently available funds for meeting the Company's needs, the impact of fluctuations in foreign currency exchange rates, and expectations regarding gross margin fluctuations, increasing research and development expenses, increasing selling, general and administrative expenses and income tax rates. These statements involve risks and uncertainties that may affect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the Company's actual results: integration of newly acquired businesses, the introduction and acceptance of new products, general national and international economic, political, regulatory, and other conditions, increased competition, the reliance on internal manufacturing and related operations, the impact of currency exchange rate fluctuations, the recruitment and retention of qualified personnel, the impact of governmental regulation, maintenance of intellectual property rights, credit risk and fluctuation in the market value of the Company's investment portfolio, and unseen delays and expenses related to facility construction and improvements. For additional information concerning such factors, see the Company's Annual Report on Form 10-K for fiscal 2021 as filed with the Securities and Exchange Commission and Part II. Item 1A below.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2021, the Company held an investment in the common stock of CCXI. The investment was included in short-term available-for-sale investments at its fair value of $25.2 million. As of September 30, 2021, the potential loss in fair value due to a 10% decrease in the market value of CCXI was $2.5 million.
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the quarter ended September 30, 2021, approximately 35.0% of consolidated net sales were made in foreign currencies, including 12% in euros, 5% in British pound sterling, 8% in Chinese yuan and the remaining 10% in other currencies. The Company is exposed to market risk mainly from foreign exchange rate fluctuations of the euro, British pound sterling, the Chinese yuan, and the Canadian dollar, as compared to the U.S. dollar as the financial position and operating results of the Company's foreign operations are translated into U.S. dollars for consolidation.
Month-end average exchange rates between the British pound sterling, euro, Chinese yuan and Canadian dollar, which have not been weighted for actual sales volume in the applicable months in the periods, to the U.S. dollar were as follows:
| Quarter Ended |
||||||||
| September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Euro |
$ | 1.18 | $ | 1.18 | ||||
| British pound sterling |
1.37 | 1.31 | ||||||
| Chinese yuan |
0.15 | 0.15 | ||||||
| Canadian dollar |
0.79 | 0.75 | ||||||
The Company's exposure to foreign exchange rate fluctuations also arises from trade receivables, trade payables and intercompany payables denominated in one currency in the financial statements, but receivable or payable in another currency. The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from September 30, 2021 levels against the euro, British pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):
| Decrease in translation of earnings of foreign subsidiaries (annualized) |
$ | 6,250 | ||
| Decrease in translation of net assets of foreign subsidiaries |
81,990 | |||
| Additional transaction losses |
2,947 |
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The Company's management has evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered in this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, our disclosure controls and procedures were effective.
(b) Changes in internal controls over financial reporting.
There were no changes in the Company's internal control over financial reporting during the first quarter of fiscal year 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
As of November 8, 2021, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.
During the three months ended September 30, 2021, there have been no material changes from the risk factors found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended June 30, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There was no share repurchase activity by the Company in the quarter ended September 30, 2021.
ITEM 3. DEFAULT ON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
EXHIBIT INDEX
TO
FORM 10-Q
BIO-TECHNE CORPORATION
| 10.14** |
|
| 10.15** |
Form of Amendment No. 1 to Executive Employment Agreement – incorporated by reference to Exhibit 10.15 of the Company’s Form 10-Q dated May 11, 2020* |
| 10.16 |
| Exhibit Number |
Description |
| 10.17** | Form of Indemnification Agreement entered into with each director and executive officer of the Company - incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q dated February 8, 2018* |
| 10.20 |
|
| 21 |
|
| 31.1 |
Certificate of Chief Executive Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002 |
| 31.2 |
Certificate of Chief Financial Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002 |
| 32.1 |
Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
| 32.2 |
Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
| 101 |
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements. |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
-------------
* Incorporated by reference; SEC File No. 000-17272
** Management contract or compensatory plan or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BIO-TECHNE CORPORATION |
||
| (Company) |
||
| Date: November 8, 2021 |
/s/ Charles R. Kummeth |
|
| Charles R. Kummeth |
||
| Principal Executive Officer |
||
| Date: November 8, 2021 |
/s/ James T. Hippel |
|
| James T. Hippel |
||
| Principal Financial Officer |
||