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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022, or

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 0-17272

BIO-TECHNE CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota

41-1427402

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

614 McKinley Place N.E.

Minneapolis, MN 55413

(612) 379-8854

(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

Common Stock, $0.01 par value

TECH

The NASDAQ Stock Market LLC

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.    Yes  ☒    No  ☐

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).    Yes  ☒    No  ☐

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.

Large accelerated filer

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).      Yes    ☒  No

At November 2, 2022, 39,242,384 shares of the Company's Common Stock (par value $0.01) were outstanding.

Table of Contents

TABLE OF CONTENTS

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

21

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29

 

Item 4.

Controls and Procedures

29

 

PART II: OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

 

 

Item 1A.

Risk Factors

30

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

Item 4.

Mine Safety Disclosures

30

 

 

Item 5.

Other Information

30

 

 

Item 6.

Exhibits

31

 

 

SIGNATURES

34

Table of Contents

PART I. FINANCIAL INFORMATION

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, 

2022

2021

Net sales

$

269,655

$

257,719

Cost of sales

 

90,060

 

86,722

Gross margin

 

179,595

 

170,997

Operating expenses:

 

  

 

  

Selling, general and administrative

 

99,375

 

86,175

Research and development

 

23,903

 

21,600

Total operating expenses

 

123,278

 

107,775

Operating income

 

56,317

 

63,222

Other income (expense)

 

47,399

4,161

Earnings before income taxes

 

103,716

 

67,383

Income taxes (benefit)

 

13,982

 

(1,598)

Net earnings, including noncontrolling interest

 

89,734

 

68,981

Net earnings (loss) attributable to noncontrolling interest

 

179

 

(634)

Net earnings attributable to Bio-Techne

$

89,555

$

69,615

Other comprehensive income (loss):

 

  

 

  

Foreign currency translation adjustments

 

(21,457)

 

(8,646)

Foreign currency translation reclassified to earnings with Eminence deconsolidation

119

Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8

 

4,695

 

1,682

Other comprehensive income (loss)

 

(16,643)

 

(6,964)

Other comprehensive income (loss) attributable to noncontrolling interest

 

(33)

 

(39)

Other comprehensive income (loss) attributable to Bio-Techne

 

(16,610)

 

(6,925)

Comprehensive income attributable to Bio-Techne

$

72,945

$

62,690

Earnings per share attributable to Bio-Techne:

 

Basic

$

2.28

$

1.78

Diluted

$

2.21

$

1.69

Weighted average common shares outstanding:

 

 

  

Basic

 

39,232

 

39,094

Diluted

 

40,543

 

41,158

See Notes to Condensed Consolidated Financial Statements.

1

Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

    

September 30, 

2022

June 30, 

(unaudited)

2022

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

165,257

$

172,567

Short-term available-for-sale investments

 

37,818

 

74,462

Accounts receivable, less allowance for doubtful accounts of $2,496 and $2,568, respectively

 

174,174

 

194,548

Inventories

 

150,009

 

141,123

Other current assets

 

24,773

 

22,856

Total current assets

 

552,031

 

605,556

Property and equipment, net

 

224,098

 

223,242

Right of use asset

 

69,745

 

65,556

Goodwill

 

865,418

 

822,101

Intangible assets, net

 

585,534

 

531,522

Other assets

 

53,895

 

46,828

Total assets

$

2,350,721

$

2,294,805

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Trade accounts payable

$

30,475

$

33,865

Salaries, wages and related accruals

 

32,557

 

61,953

Accrued expenses

 

13,790

 

17,886

Contract liabilities

 

22,059

 

23,406

Income taxes payable

 

17,270

 

13,237

Operating lease liabilities - current

 

12,115

 

11,928

Contingent consideration payable

 

7,400

 

Current portion of long-term debt obligations

 

 

12,500

Other current liabilities

 

1,963

 

1,243

Total current liabilities

 

137,629

 

176,018

Deferred income taxes

 

112,920

 

98,994

Long-term debt obligations

 

264,661

 

243,410

Long-term contingent consideration payable

 

8,100

 

5,000

Operating lease liabilities

 

64,756

 

58,133

Other long-term liabilities

 

11,501

 

12,239

 

  

 

  

Bio-Techne’s Shareholders’ equity:

Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding

 

 

Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 39,232,094 and 39,160,000, respectively

 

392

 

392

Additional paid-in capital

 

680,057

 

653,657

Retained earnings

 

1,162,515

 

1,122,921

Accumulated other comprehensive loss

 

(91,810)

 

(75,200)

Total Bio-Techne’s shareholders’ equity

 

1,751,154

 

1,701,770

Noncontrolling interest

 

 

(759)

Total shareholders’ equity

 

1,751,154

 

1,701,011

Total liabilities and shareholders’ equity

$

2,350,721

$

2,294,805

See Notes to Condensed Consolidated Financial Statements.

2

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

    

Quarter Ended

September 30, 

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net earnings, including noncontrolling interest

$

89,734

$

68,981

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization

 

26,641

 

24,734

Costs recognized on sale of acquired inventory

 

300

 

1,512

Deferred income taxes

 

(4,767)

 

5,407

Stock-based compensation expense

 

14,461

 

11,737

Fair value adjustment to contingent consideration payable

 

(100)

 

(2,800)

Contingent consideration payments - operating

 

 

(3,300)

(Gain) Loss on investment, net

 

(37,176)

 

(5,277)

Fair value adjustment on available for sale investments

 

(911)

 

Asset impairment restructuring

546

Gain on sale of Eminence

(11,682)

Leases, net

 

2,545

 

(79)

Other operating activity

 

(32)

 

497

Change in operating assets and operating liabilities, net of acquisition:

 

  

 

  

Trade accounts and other receivables, net

 

17,335

 

(3,637)

Inventories

 

(10,685)

 

(2,981)

Prepaid expenses

 

(2,760)

 

(5,852)

Trade accounts payable, accrued expenses, contract liabilities, and other

 

(1,401)

 

(2,303)

Salaries, wages and related accruals

 

(28,360)

 

(18,933)

Income taxes payable

 

2,939

 

(19,818)

Net cash provided by (used in) operating activities

 

56,081

 

48,434

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from maturities of available-for-sale investments

 

14,509

 

12,450

Purchases of available-for-sale investments

 

(14,500)

 

(13,500)

Proceeds from sale of CCXI investment

73,219

Additions to property and equipment

 

(9,556)

 

(6,070)

Acquisitions, net of cash acquired

 

(101,184)

 

Proceeds from sale of Eminence

 

17,824

 

Net cash provided by (used in) investing activities

 

(19,688)

 

(7,120)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Cash dividends

 

(12,545)

 

(12,493)

Proceeds from stock option exercises

 

11,950

 

37,880

Re-purchases of common stock

 

(19,562)

 

Borrowings under line-of-credit agreement

 

449,661

 

10,000

Repayments of long-term debt

 

(441,000)

 

(51,125)

Contingent consideration payments - financing

 

 

(700)

Taxes paid on RSUs and net share settlements

(17,853)

(23,246)

Other financing activity

 

(2,457)

 

Net cash provided by (used in) financing activities

 

(31,806)

 

(39,684)

Effect of exchange rate changes on cash and cash equivalents

 

(11,897)

 

(4,400)

Net change in cash and cash equivalents

 

(7,310)

 

(2,770)

Cash and cash equivalents at beginning of period

 

172,567

 

199,091

Cash and cash equivalents at end of period

$

165,257

$

196,321

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

14,892

$

12,070

Cash paid for interest

$

3,409

$

3,107

See Notes to Condensed Consolidated Financial Statements.

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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, 2022, included in the Company's Annual Report on Form 10-K for fiscal 2022. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2022. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

During the quarter ended September 30, 2022, the Company operated under two operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the Company operated under were consistent with the Company's operating segments disclosed in the Company's Annual Report on Form 10-K for fiscal 2022.

Partially-owned consolidated subsidiary: On September 1, 2022, the Company completed the sale of its equity shares of Changzhou Eminence Biotechnology Co., Ltd. (Eminence) for approximately $17.8 million to a third party. Eminence was considered a variable-interest entity that was fully consolidated in our financial statements. Prior to the sale, Eminence had revenue of $2.0 million for the first fiscal quarter of 2023 within our Protein Sciences segment. Fiscal 2022 revenues were $4.6 million. As a result of the sale of the business, the Company recorded a gain of $11.7 million within the Other income (expense) line in the Condensed Consolidated Statement of Earnings. Prior to the sale of Eminence, a triggering event was identified in the second quarter of fiscal 2022 and impairment testing was performed as Eminence was forecasted to not have sufficient cash to execute on their growth plan combined with their inability to secure additional financing. Our impairment testing resulted in a full impairment of the Eminence goodwill and intangibles assets for charges of $8.3 million and $8.6 million, respectively, for the year ended June 30, 2022. The Company also recognized inventory and fixed asset impairment charges of $0.9 million and $0.9 million, respectively. These impairment charges were recorded within the General and Administrative line in the Consolidated Statement of Earnings for fiscal 2022. In the fourth quarter of fiscal 2022, Eminence was able to secure cash deposits on future orders to provide funding for their operations. This delay in liquidation allowed time for securing of additional investor financing which coincided with the sale of the Company's investment.

Investments: In December 2021, the Company paid $25 million to enter into a two-part forward contract which requires the Company to make an initial ownership investment followed by purchase of full equity interest in Wilson Wolf Corporation (Wilson Wolf) if certain annual revenue or EBITDA thresholds are met. Wilson Wolf is a leading manufacturer of cell culture devices, including the G-Rex product line.

The first part of the forward contract is triggered upon Wilson Wolf achieving approximately $92 million in annual revenue or $55 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) at any point prior to December 31, 2027. Once triggered, the Company is required to make a payment of $231 million in exchange for a 19.9% ownership stake. If Wilson Wolf doesn’t achieve the revenue and EBITDA targets by December 31, 2027, the agreement will expire.

Once the first part of the forward contract is triggered, the second part of the forward contract will automatically trigger, and requires the Company to acquire the remaining equity interest in Wilson Wolf on December 31, 2027 based on a revenue multiple. The second part of the contract would be accelerated in advance of December 31, 2027, if Wilson Wolf meets its second milestone of approximately $226 million in annual revenue or $136 million in annual EBITDA. If the second milestone is achieved, the forward contract requires the Company to pay approximately $1 billion plus potential consideration for revenue in excess of the revenue milestone. The approximate multiple for total expected payments of the second forward contract is 4.4 times the annual revenue of Wilson Wolf. The Company has elected to apply the measurement alternative as detailed under ASC 321-10-35-2 for the Wilson Wolf investment. The Company recorded the $25 million payment as a cost basis investment within Other long-term assets on the Consolidated Balance Sheet.

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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.

Fiscal Year 2023 Restructuring Actions:

In August 2022, the Company informed employees of our decision to close our QT Holdings Corporation (Quad) facility as part of a realignment of activities within our Reagent Solutions division. The closure of the site is expected to be substantially completed in the third quarter of fiscal 2023. As a result of the restructuring activities, an estimated pre-tax charge of $2.2 million was recorded within our Protein Sciences segment. The related first quarter of fiscal 2023 restructuring charges were recorded in the income statement as follows (in thousands):

Employee

Asset

    

severance

    

related and other

    

Total

Selling, general and administrative

$

1,328

$

842

$

2,170

Restructuring actions, including cash and non-cash impacts, are as follows (in thousands):

Employee

Asset

    

severance

    

related and other

    

Total

Expense incurred in the first quarter of 2023

$

1,328

$

842

$

2,170

Cash payments

(420)

(431)

(851)

Adjustments

(72)

(72)

Accrued restructuring actions balances as of September 30, 2022

$

908

339

1,247

Fiscal Year 2022 Restructuring Actions:

In September 2021, the Company informed employees of our decision to close our Exosome Diagnostics Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome Diagnostics business. The restructuring activities were complete as of June 30, 2022. As a result of the restructuring activities, a pre-tax charge of $1.4 million was recorded within our Diagnostics and Genomics segment during the year ended June 30, 2022. Total restructuring charges for the closure of the Exosome Diagnostics Germany facility for the year ended June 30, 2022 were recorded within operating income on the income statement as follows (in thousands):

:

Employee

Asset

    

severance

    

Impairment and other

    

Total

Selling, general and administrative

$

649

$

750

$

1,399

Employee

Asset

    

severance

    

Impairment and other

    

Total

Expense incurred in the first quarter of 2022

$

639

$

546

$

1,185

Incremental expense incurred during fiscal 2022

242

242

Cash payments

(589)

(554)

(1,143)

Adjustments(1)

(50)

(234)

(284)

Accrued restructuring actions balances as of June 30, 2022

$

(1)Adjustments include refinements to our estimated close down costs as well as the impacts from foreign currency exchange.

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Recently Adopted Accounting Pronouncements

There were no accounting pronouncements adopted in the quarter ended September 30, 2022. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2022.

Note 2. Revenue Recognition:

Consumables revenues consist of specialized proteins, immunoassays, antibodies, reagents, blood chemistry and blood gas quality controls, and hematology instrument controls that are typically single-use products 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 had 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 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $0.5 million.

Prior to fiscal year 2023, the Company recorded revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration was constrained since we did not have significant historical experience collecting payments not reimbursed by Medicare or other insurance providers and it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. During the first half of fiscal 2022, we began to see an increase in claim volume due to strategic initiatives, including broader messaging around the importance of cancer screenings during the COVID-19 pandemic, and the acute phase of the COVID-19 pandemic subsiding. Given these factors, the Company considered it to have sufficient data to estimate variable consideration as of July 1, 2022 for laboratory services that are not reimbursed by Medicare. The amount of cash received in fiscal 2023 for non-Medicare laboratory services that were performed prior to July 1, 2022 was approximately $0.7 million.  

We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected the "right to invoice" practical expedient based on the Company's right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date.

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 for contracts with an original length greater than one year were not material as of September 30, 2022.

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, 2022 are not material.

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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, 2022 and June 30, 2022 were approximately $24.0 million and $25.5 million, respectively. Contract liabilities as of June 30, 2022 subsequently recognized as revenue during the quarter ended September 30, 2022 were approximately $10.6 million. Contract liabilities in excess of one year are included in Other long-term liabilities on the consolidated balance sheet.

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, 

    

2022

    

2021

Consumables

$

216,430

$

205,691

Instruments

 

26,458

 

29,869

Services

 

21,445

 

16,257

Total product and services revenue, net

$

264,333

$

251,817

Royalty revenues

 

5,322

 

5,902

Total revenues, net

$

269,655

$

257,719

Revenue by geography is as follows:

    

Quarter Ended

September 30, 

    

2022

    

2021

 

  

 

  

United States

$

155,431

$

140,702

EMEA, excluding United Kingdom

 

46,021

 

51,543

United Kingdom

 

11,702

 

12,478

APAC, excluding Greater China

 

17,465

 

17,501

Greater China

 

31,521

 

28,433

Rest of World

 

7,515

 

7,062

Net Sales

$

269,655

$

257,719

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Note 3. Selected Balance Sheet Data:

Inventories:

Inventories consist of (in thousands):

    

September 30, 

June 30, 

    

2022

    

2022

Raw materials

$

76,724

$

79,291

Finished goods(1)

 

78,177

 

66,943

Inventories, net

$

154,901

$

146,234

(1) Finished goods inventory of $4,892 and $5,111 included within other long-term assets in the respective September 30, 2022 and June 30, 2022, consolidated balance sheet. The inventory is included in long-term assets as it is forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date.

Property and Equipment:

Property and equipment consist of (in thousands):

    

September 30, 

June 30, 

    

2022

    

2022

Land

$

8,509

$

8,572

Buildings and improvements

 

230,295

 

229,551

Machinery and equipment

176,746

174,813

Construction in progress

 

24,490

 

21,729

Property and equipment, cost

 

440,040

 

434,665

Accumulated depreciation and amortization

 

(215,942)

 

(211,423)

Property and equipment, net

$

224,098

$

223,242

Intangible Assets:

Intangible assets consist of (in thousands):

September 30, 

June 30, 

2022

2022

Developed technology

$

613,655

$

542,038

Trade names

 

146,035

 

146,457

Customer relationships

 

222,131

 

225,882

Patents

 

3,418

 

3,313

Other intangibles

 

6,391

 

6,306

Definite-lived intangible assets

 

991,630

 

923,996

Accumulated amortization

 

(428,796)

 

(415,174)

Definite-lived intangibles assets, net

 

562,834

 

508,822

In process research and development

 

22,700

 

22,700

Total intangible assets, net

$

585,534

$

531,522

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Changes to the carrying amount of net intangible assets for the period ended September 30, 2022 consist of (in thousands):

Beginning balance

$

531,522

Acquisitions

 

75,600

Other additions

 

63

Amortization expense

 

(19,504)

Currency translation

(2,147)

Ending balance

$

585,534

The estimated future amortization expense for intangible assets as of September 30, 2022 is as follows (in thousands):

Remainder 2023

    

$

57,712

2024

 

74,475

2025

 

71,089

2026

 

67,285

2027

 

57,177

Thereafter

 

235,096

Total

$

562,834

Goodwill:

Changes to the carrying amount of goodwill for the period ended September 30, 2022 consist of (in thousands):

    

    

Diagnostics and

    

Protein Sciences

 Genomics

Total

June 30, 2022

$

376,493

$

445,608

$

822,101

Acquisitions

 

51,051

51,051

Currency translation

 

(7,582)

(152)

(7,734)

June 30, 2023

$

419,962

$

445,456

$

865,418

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 2022. No indicators of impairment were identified as part of our assessment.

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.

Fiscal year 2023 Acquisitions

Namocell, Inc.

On July 1, 2022, the Company acquired all of the ownership interests of Namocell, Inc. for $101.2 million, net of cash acquired, plus contingent consideration of up to $25 million upon the achievement of certain future revenue thresholds. The Namocell acquisition adds easy-to-use single cell sorting and dispensing platforms that are gentle to cells and preserve cell viability and integrity. The transaction was accounted for in accordance with ASC 805, Business Combinations. The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences operating segment in the first quarter of fiscal year 2023. 

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The allocation of purchase consideration related to Namocell, Inc is considered preliminary with provisional amounts primarily related to goodwill, intangible assets, working capital, certain tax-related, and contingent liability amounts. 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, 2022 were approximately $2.4 million and $0.7 million, respectively. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date and as of September 30, 2022 are as follows (in thousands):

 

Preliminary allocation at acquisition date and at September 30, 2022

Current assets, net of cash

$

3,248

Equipment and other long-term assets

 

405

Intangible assets:

Developed technologies

 

73,900

Tradenames

 

700

Customer relationships

 

900

Non-competition agreement

 

100

Goodwill

 

51,051

Total assets acquired

 

130,304

Liabilities

 

546

Deferred income taxes, net

 

17,974

Net assets acquired

$

111,784

Cash paid, net of cash acquired

 

101,184

Contingent consideration payable

 

10,600

Net assets acquired

$

111,784

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 was based on management’s preliminary forecasted cash inflows and outflows and using a relief from royalty method to calculate the fair value of assets purchased. The purchase price allocated to customer relationships and trade names was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method. 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 13 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 4 years. The amount recorded for trade names and the non-competition agreement is being amortized with the expense reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for both trade names and the non-competition agreement is estimated to be 3 years. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes, offset by the deferred tax asset for the preliminary calculation of acquired net operating losses.

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

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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 

September 30, 

Inputs Considered as

2022

Level 1

Level 2

Level 3

 

Assets

 

  

 

  

 

  

 

  

Exchange traded securities(1)

$

23,318

$

23,318

$

$

Certificates of deposit(2)

 

14,500

 

14,500

 

 

Derivative instruments - cash flow hedges

 

16,685

 

 

16,685

 

Total assets

$

54,503

$

37,818

$

16,685

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

15,500

$

$

$

15,500

Total liabilities

$

15,500

$

$

$

15,500

    

Total

    

 carrying 

value as of

Fair Value Measurements Using 

June 30, 

Inputs Considered as

    

2022

    

Level 1

    

Level 2

    

Level 3

Assets

 

  

 

  

 

  

 

  

Exchange traded securities(1)

$

59,962

$

59,962

$

$

Certificates of deposit(2)

 

14,500

 

14,500

 

 

Derivative instruments - cash flow hedges

 

11,026

 

 

11,026

 

Total assets

$

85,488

$

74,462

$

11,026

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

5,000

$

$

$

5,000

Derivative instruments - cash flow hedges

 

476

 

 

476

 

Total liabilities

$

5,476

$

$

476

$

5,000

(1)

Included in available-for-sale investments on the balance sheet. During the quarter ended September 30, 2022, the Company sold all of its outstanding shares of ChemoCentryx Inc (CCXI). The cost basis and fair value of the Company’s available-for-sale equity investment in CCXI was $6.6 million and $36.0 million at June 30, 2022, respectively. The cost basis and fair value of the exchange traded investment grade bond funds as of September 30, 2022 was $25.0 million and $23.3 million, respectively. The cost basis and fair value of the exchange traded investment grade bond funds as of June 30, 2022 was $25.0 million and $23.9 million, respectively.

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(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.

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 $200 million of notional principal as of September 30, 2022, which expired in October 2022. During the first fiscal quarter of 2023, the Company entered into an amended and restated credit agreement. The terms of the amended and restated agreement did not impact the effectiveness of the forward starting swaps as the Company continues to carry variable rate debt with a principal greater than the notional amount of the swap. The fair value of the designated derivative instrument is immaterial and is recorded within other short-term assets on the Consolidated Balance Sheet as of September 30, 2022. The fair value of the designated derivative instrument was $0.5 million, and was recorded within short-term liabilities on the Consolidated Balance Sheet as of June 30, 2022. 

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 $200 million of notional principal amount. The effective date of the swap is November 2022 with the full swap maturing in November 2025. The fair value of the derivative instrument was $16.7 million and $11.0 million as of September 30, 2022 and June 30, 2022, respectively, which is recorded within other long-term assets on the Consolidated Balance Sheet.

Changes in the fair value of the designated hedged instruments 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 $0.4 million to interest expense and related tax benefits of $0.1 million during the quarter ended September 30, 2022. The Company reclassified $2.1 million to interest expense and related tax benefits of $0.5 million during the three months ended  September 30, 2021. The instruments were valued using observable market inputs in active markets and therefore are classified as Level 2 liabilities.

Fair value measurements of contingent consideration

The Company has $15.5 million in contingent consideration recorded as of September 30, 2022, which is the fair value of contingent consideration related to the Asuragen and Namocell acquisitions. The Company is required to make contingent consideration payments of up to $105.0 million as part of the Asuragen acquisition agreement and up to $25.0 million as part of the Namocell acquisition agreement.

The Asuragen contingent agreement is based on achieving certain revenue thresholds by December 31, 2022 and December 31, 2023. The opening balance sheet fair value of the liabilities was $18.3 million, which was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculations are units sold, expected revenue, expected expenses, discount rate, and various probability factors. The contingent consideration related to Asuragen was $4.5 million and $5.0 million as of September 30, 2022 and June 30, 2022, respectively.

The Namocell contingent agreement is based on achieving certain revenue thresholds by December 31, 2022 and December 31, 2023. The opening balance sheet fair value of the liabilities was $10.6 million, which was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculations are units sold, expected revenue, expected expenses, discount rate, and various probability factors. As of September 30, 2022, the contingent consideration related to Namocell was $11.0 million.

As of September 30, 2022, the Company's obligation for potential contingent consideration payments related to the Quad acquisition was relieved as both parties in the purchase agreement agreed the threshold would not be met. The Company’s obligation for potential

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contingent consideration payments related to the B-Mogen acquisition was relieved as there is a remote likelihood that the revenue thresholds and product milestones would be achieved in the timeframe established within the purchase agreement. The Company reversed an accrual for the fair value of the contingent liabilities at the date of settlement during fiscal 2022.

The ultimate settlement of contingent consideration liabilities 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.

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, 

2022

Fair value at the beginning of period

$

5,000

Change in fair value of contingent consideration

 

(100)

Additions

 

10,600

Payments

 

Fair value at the end of period

$

15,500

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.

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 31, 2022, the Company entered into an amended and restated Credit Agreement (the Amended Credit Agreement). This replaced the revolving line-of-credit and term loan (the prior Credit Agreement), which provided for a revolving credit facility of $600.0 million and could be increased by an additional $200.0 million subject to certain conditions, and a term loan of $250.0 million. The prior Credit Agreement was bearing interest at a variable rate and would have matured on August 1, 2023.

The Amended Credit Agreement provides for a revolving credit facility of $1 billion, which can be increased by an additional $400 million subject to certain conditions. Borrowings under the Amended Credit Agreement may be used for working capital and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. At the closing on August 31, 2022, the Company borrowed approximately $350 million pursuant to the Amended Credit Agreement for working capital and for payment of outstanding debt under the Company’s prior credit agreement that was entered into on August 1, 2018. Borrowings under the Amended Credit Agreement bear interest at a variable rate.The current outstanding debt is based on the one-month Secured Overnight Financing rate (SOFR) plus an applicable margin. The applicable margin is determined from the total leverage ratio of the Company and updated on a quarterly basis. The annualized fee for any unused portion of the credit facility is currently 10 basis points.

The amended and restated Credit Agreement matures on August 1, 2027 and contains customary restrictive and financial covenants and customary events of default. As of September 30, 2022, the outstanding balance under the Credit Agreement was $264.7 million.

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Note 7. Leases:

As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. 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, 2022, the Company recognized $0.9 million in variable lease expense and $3.8 million relating to fixed lease expense in the Condensed Consolidated Statements of Earnings and Comprehensive Income.

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):

    

    

As of

 

September 30, 

 

Balance Sheet Classification

2022

 

Operating leases:

 

  

 

  

Operating lease right of use assets

 

Right of Use Asset

$

69,745

Current operating lease liabilities

 

Operating lease liabilities current

$

12,115

Noncurrent operating lease liabilities

 

Operating lease liabilities

 

64,756

Total operating lease liabilities

$

76,871

Weighted average remaining lease term (in years):

 

 

8.47

Weighted average discount rate:

 

 

4.00

%  

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):

Quarter ended

September 30, 

    

2022

Cash amounts paid on operating lease liabilities

$

3,660

Right of use assets obtained in exchange for lease liabilities

 

10,520

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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):

    

September 30, 2022

Operating

Leases

Remainder 2023

$

14,201

2024

 

12,044

2025

 

10,907

2026

 

9,542

2027

 

7,724

Thereafter

 

24,900

Total

$

79,318

Less: Amounts representing interest

 

2,447

Total Lease obligations

$

76,871

Certain leases include one or more options to renew, with terms that extend the lease term up to five years. Bio-Techne includes the 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.

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Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):

Supplemental Equity

The Company has declared cash dividends per share of $0.32 in the three months ended September 30, 2022 and 2021.

Consolidated Changes in Equity (amounts in thousands)

    

Bio-Techne Shareholders    

    

    

  

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Noncontrolling

Shares

Amount

Capital

Earnings

Income(Loss)

Interest  

Total

Balances at June 30, 2022

 

39,160

392

653,657

1,122,921

(75,200)

(759)

1,701,011

Net earnings

 

-

-

 

-

 

89,555

 

-

 

179

 

89,734

Other comprehensive loss

 

-

-

 

-

 

-

 

(16,762)

 

0

 

(16,762)

Reclassification of cumulative translation adjustment for Eminence to non-operating income

-

-

-

-

152

(33)