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
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
( | |
(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 |
The |
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 February 2, 2024,
TABLE OF CONTENTS
| Page | |
| ||
1 | ||
| ||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
| ||
32 | ||
| ||
32 | ||
| ||
| ||
33 | ||
|
| |
33 | ||
|
| |
33 | ||
|
| |
33 | ||
|
| |
33 | ||
|
| |
33 | ||
|
| |
34 | ||
|
| |
37 |
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 | Six Months Ended | ||||||||||
December 31, | December 31, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
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 attributable to noncontrolling interest |
| — |
| — |
| — |
| | ||||
Net earnings attributable to Bio-Techne | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
| ||||
Foreign currency translation income (loss) |
| |
| |
| |
| ( | ||||
Foreign currency translation reclassified to earnings with Eminence deconsolidation | — | — | — | | ||||||||
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.
1
CONDENSED CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries
(in thousands, except share and per share data)
| December 31, | |||||
2023 | June 30, | |||||
(unaudited) | 2023 | |||||
ASSETS |
|
|
|
| ||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Short-term available-for-sale investments |
| |
| | ||
Accounts receivable, less allowance for doubtful accounts of $ |
| |
| | ||
Inventories |
| |
| | ||
Current assets held-for-sale | | — | ||||
Other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Property and equipment, net |
| |
| | ||
Right-of-use assets |
| |
| | ||
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 liabilities held-for-sale |
| |
| — | ||
Other current liabilities |
| |
| | ||
Total current liabilities |
| |
| | ||
Deferred income taxes |
| |
| | ||
Long-term debt obligations |
| |
| | ||
Operating lease liabilities |
| |
| | ||
Other long-term liabilities |
| |
| | ||
|
|
|
| |||
Bio-Techne’s Shareholders’ equity: | ||||||
Undesignated capital stock, |
| |
| | ||
Common stock, par value $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total Bio-Techne’s shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
(unaudited)
| Six Months Ended | |||||
December 31, | ||||||
2023 | 2022 | |||||
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 |
| ( |
| ( | ||
Gain on sale of CCXI investment |
| — |
| ( | ||
Fair value adjustment on available-for-sale investments |
| ( |
| ( | ||
(Gain) loss on equity method investment | | — | ||||
Gain on sale of Eminence | | ( | ||||
Leases, net |
| |
| | ||
Impairment of assets held-for-sale | | — | ||||
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 (used in) operating activities |
| |
| | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| ||
Proceeds from sale of available-for-sale investments |
| |
| | ||
Purchases of available-for-sale investments |
| ( |
| ( | ||
Proceeds from sale of CCXI investment | — | | ||||
Additions to property and equipment |
| ( |
| ( | ||
Acquisitions, net of cash acquired |
| ( |
| ( | ||
Distributions from (Investments in) Wilson Wolf | | — | ||||
Proceeds from sale of Eminence |
| — |
| | ||
Net cash provided by (used in) investing activities |
| ( |
| ( | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| ||
Cash dividends |
| ( |
| ( | ||
Proceeds from stock option exercises |
| |
| | ||
Re-purchases of common stock |
| ( |
| ( | ||
Borrowings under line-of-credit agreement |
| |
| | ||
Repayments of long-term debt |
| ( |
| ( | ||
Taxes paid on RSUs and net share settlements | ( | ( | ||||
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.
3
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, 2023, included in the Company's Annual Report on Form 10-K for fiscal 2023. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2023. The Company follows these policies in preparation of the interim unaudited Condensed Consolidated Financial Statements.
During the quarter ended December 31, 2023, the Company operated under
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 $
Investments: In December 2021, the Company paid $
Since the first part of the forward contract has been 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 of approximately
The investment in Wilson Wolf is accounted for as an equity method investment under ASC 323. The Company initially records its equity method investments at the amount of the Company’s investment and adjusts each period for the Company’s share of the investee’s income or loss and dividends paid. Distributions from the equity method investee are accounted for using the cumulative earnings approach on the Consolidated Statement of Cash Flows. There was $
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-related
4
and other charges include impairment of right-of-use assets, leasehold improvements, other asset write-downs associated with combining operations, disposal of assets and other exit costs. Other costs also includes restructuring-related charges, which are incremental costs incurred directly supporting business transformation initiatives tied to the restructuring action.
Fiscal Year 2024 Restructuring Actions:
In the second quarter of fiscal 2024, the Company announced enterprise-wide restructuring focused on recovering operating margins, optimizing our distribution footprint, and enhancing our organization efficiency. These actions impacted approximately
As part of these actions, certain assets and liabilities associated with a disposal group in our Protein Sciences segment were classified as held-for-sale, including $
The restructuring and restructuring-related charges, including the impairment of assets held-for-sale, for periods presented were recorded in the Condensed Consolidated Statements of Earnings as follows (in thousands):
Quarter Ended | Six Months Ended | |||||
December 31, | December 31, | |||||
2023 | 2023 | |||||
Cost of sales | $ | | $ | | ||
Selling, general and administrative(1) | | | ||||
Total | $ | | $ | | ||
(1) Restructuring actions impacting research and development are not material to separately disclose and have been included within Selling, general and administrative costs.
Restructuring and restructuring-related costs by segment are as follows (in thousands):
Employee | Asset-related | Impairment of | ||||||||||
severance | and other | assets held-for-sale | Total | |||||||||
Protein Sciences | $ | | $ | | $ | | $ | | ||||
Diagnostics and Genomics | | — | — | | ||||||||
Corporate | | | — | | ||||||||
Total | $ | | $ | | $ | | $ | |
The following table summarizes the changes in the Company’s accrued restructuring balance, which is included within Other current liabilities in the accompanying balance sheet. Other amounts reported as restructuring and restructuring-related costs in the accompanying statements of income have been summarized in the notes to the table (in thousands):
Employee | Asset-related | Impairment of | ||||||||||
severance(1) | and other(2) | assets held-for-sale | Total | |||||||||
Expense incurred in the second quarter of 2024 | $ | | $ | | $ | | $ | | ||||
Cash payments | ( | ( | — | ( | ||||||||
Non-cash adjustments | — | ( | ( | ( | ||||||||
Accrued restructuring actions balance as of December 31, 2023 | $ | | $ | | $ | — | $ | |
5
(1) Relates to impacted employees’ final paycheck, separation payments, outplacement services, legal fees, and retention packages related to the closure or sale of certain distribution and manufacturing sites.
(2) Primarily relates to impairment of right-of-use assets, lease termination fees, consulting fees, and expenses for changes to supporting IT systems that are enabling the Company to complete the restructuring initiatives.
Fiscal Year 2023 Restructuring Actions:
QT Holdings Corporation (Quad)
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 was completed in the fourth quarter of fiscal 2023. As a result of the restructuring activities, a pre-tax charge of $
Employee | Asset | ||||||||
| severance |
| impairment and other |
| Total | ||||
Selling, general and administrative | $ | | $ | | $ | |
Employee | Asset | ||||||||
| severance |
| impairment and other |
| Total | ||||
Expense incurred in the first quarter of 2023 | $ | | $ | | $ | | |||
Cash payments | ( | ( | ( | ||||||
Adjustments | ( | ( | ( | ||||||
Accrued restructuring actions balances as of June 30, 2023 | $ | — | $ | — | $ | — |
Protein Sciences Realignment
In December 2022, the Company informed employees it would undertake certain actions to strategically reallocate operations resources to high growth areas of the business. Additional actions were taken in June 2023 primarily related to the sales organization. The actions impacted a limited number of employees and are expected to be completed in the fourth quarter of fiscal 2024. As a result of the realignment, a pre-tax charge of $
Employee | |||
severance | |||
Expense incurred in fiscal year 2023 | $ | | |
Fiscal year 2023 cash payments | ( | ||
Fiscal year 2023 adjustments | ( | ||
Accrued restructuring actions balances as of June 30, 2023 | $ | | |
Fiscal year 2024 cash payments | ( | ||
Fiscal year 2024 adjustments(1) | | ||
Accrued restructuring actions balances as of December 31, 2023(2) | $ | |
(1) Fiscal year 2024 adjustments relate to the refinement of the accrual recorded in fiscal year 2023.
(2) The remaining balance as of December 31, 2023 relates to employee severance that is paid out over a one-year period.
Recently Adopted Accounting Pronouncements
There were no accounting pronouncements adopted in the quarter ended December 31, 2023. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2023.
6
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.
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 December 31, 2023.
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 December 31, 2023 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 December 31, 2023 and June 30, 2023 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.
7
The following tables present our disaggregated revenue for the periods presented.
Revenue by type is as follows (in thousands):
| Quarter Ended | Six Months Ended | ||||||||||
December 31, | December 31, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
Consumables | $ | | $ | | $ | | $ | | ||||
Instruments |
| |
| |
| |
| | ||||
Services |
| |
| |
| |
| | ||||
Total product and services revenue, net | $ | | $ | | $ | | $ | | ||||
Royalty revenues |
| |
| |
| |
| | ||||
Total revenues, net | $ | | $ | | $ | | $ | |
Revenue by geography is as follows (in thousands):
| Quarter Ended | Six Months Ended | ||||||||||
December 31, | December 31, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
|
|
|
|
|
|
| ||||||
United States | $ | | $ | | $ | | $ | | ||||
EMEA, excluding United Kingdom |
| |
| |
| |
| | ||||
United Kingdom |
| |
| |
| |
| | ||||
APAC, excluding Greater China |
| |
| |
| |
| | ||||
Greater China |
| |
| |
| |
| | ||||
Rest of World |
| |
| |
| |
| | ||||
Net Sales | $ | | $ | | $ | | $ | |
8
Note 3. Selected Balance Sheet Data:
Inventories:
Inventories consist of (in thousands):
| December 31, | June 30, | ||||
| 2023 |
| 2023 | |||
Raw materials | $ | | $ | | ||
Finished goods(1) |
| |
| | ||
Inventories, net | $ | | $ | |
(1) Finished goods inventory of $
Property and Equipment:
Property and equipment consist of (in thousands):
| December 31, | June 30, | ||||
| 2023 |
| 2023 | |||
Land | $ | | $ | | ||
Buildings and improvements |
| |
| | ||
Machinery and equipment | | | ||||
Construction in progress |
| |
| | ||
Property and equipment, cost |
| |
| | ||
Accumulated depreciation and amortization |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | |
Intangible Assets:
Intangible assets consist of (in thousands):
December 31, | June 30, | |||||
2023 | 2023 | |||||
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 | $ | | $ | |
9
Changes to the carrying amount of net intangible assets for the period ended December 31, 2023 consist of (in thousands):
Beginning balance | $ | | |
Acquisitions |
| | |
Other additions |
| | |
Held-for-sale intangibles(1) | ( | ||
Amortization expense |
| ( | |
Currency translation | | ||
Ending balance | $ | |
(1) Refer to Note 1 for further detail on held-for-sale intangibles.
The estimated future amortization expense for intangible assets as of December 31, 2023 is as follows (in thousands):
Remainder 2024 |
| $ | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
Thereafter |
| | |
Total | $ | |
Goodwill:
Changes to the carrying amount of goodwill for the period ended December 31, 2023 consist of (in thousands):
|
| Diagnostics and |
| ||||||
Protein Sciences | Genomics | Total | |||||||
June 30, 2023 | $ | | $ | | $ | | |||
Acquisitions |
| — | | | |||||
Held-for-sale goodwill(1) | ( | — | ( | ||||||
Currency translation |
| | | | |||||
December 31, 2023 | $ | | $ | | $ | |
(1)Refer to Note 1 for further detail on goodwill reclassified to current assets held-for-sale.
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 qualitative goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2023. No indicators of impairment were identified as part of our assessment.
Other Assets:
Other assets consist of (in thousands):
| December 31, | June 30, | ||||
| 2023 | 2023 | ||||
Investment in Wilson Wolf | $ | | $ | | ||
| | |||||
Long-term inventory | | | ||||
Other |
| |
| | ||
Other assets | $ | | $ | |
10
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 Earnings and Comprehensive Income from their respective dates of acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred.
Fiscal year 2024 Acquisitions
Lunaphore Technologies SA.
On July 7, 2023, the Company acquired all of the ownership interests of Lunaphore Technologies SA (“Lunaphore”) for $
The allocation of purchase consideration related to Lunaphore is considered preliminary with provisional amounts primarily related to intangible assets, certain tax-related amounts, and goodwill. The Company expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition. Net sales of this business included in Bio-Techne's consolidated results of operations for the quarter and six month period ended December 31, 2023 were $
The preliminary estimated fair values of the assets acquired and liabilities assumed as of December 31, 2023 are as follows (in thousands):
Preliminary allocation at December 31, 2023 | ||
Current assets | $ | |
Equipment and other long-term assets |
| |
Intangible assets: | ||
Developed technologies |
| |
Tradenames |
| |
Customer relationships |
| |
Goodwill |
| |
Total assets acquired |
| |
Liabilities |
| |
Deferred income taxes, net |
| |
Net assets acquired | $ | |
Cash paid |
| |
Net assets acquired | $ | |
11
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 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 purchase price allocated to trade names was based on management's preliminary forecasted cash inflows and outflows and using a relief from royalty 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
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.
12
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 | ||||||||||||
Balance Sheet Location | December 31, | Inputs Considered as | |||||||||||
2023 | Level 1 | Level 2 | Level 3 | ||||||||||
| |||||||||||||
Assets |
|
|
|
|
|
|
|
| |||||
Certificates of deposit(1) | Short-term available-for-sale investments | $ | | $ | | $ | — | $ | — | ||||
Derivatives designated as hedging instruments - cash flow hedges | Other assets |
| |
| — |
| |
| — | ||||
Total assets | $ | | $ | | $ | | $ | — | |||||
Liabilities |
|
|
|
|
|
|
|
| |||||
Derivatives designated as hedging instruments - net investment hedge | Other long-term liabilities | $ | | $ | — | $ | | $ | — | ||||
Total liabilities | $ | | $ | — | $ | | $ | — |
| Total |
| |||||||||||
carrying | |||||||||||||
value as of | Fair Value Measurements Using | ||||||||||||
Balance Sheet Location | June 30, | Inputs Considered as | |||||||||||
| 2023 |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
Assets |
|
|
|
|
|
|
|
| |||||
Exchange traded securities(2) | Short-term available-for-sale investments | $ | | $ | | $ | — | $ | — | ||||
Derivative instruments - cash flow hedges | Other assets |
| |
| — |
| |
| — | ||||
Total assets | $ | | $ | | $ | | $ | — | |||||
Liabilities |
|
|
|
|
|
|
|
| |||||
Contingent consideration | Contingent consideration payable | $ | | $ | — | $ | — | $ | | ||||
Total liabilities | $ | | $ | — | $ | — | $ | |
(1) | The certificates of deposit have contractual maturity dates within one year. |
(2) | During the quarter ended September 30 2023, the Company sold all of its outstanding shares of its exchange traded investment grade bond funds that it held at June 30, 2023. The cost basis and fair value of the Company’s exchange traded investment grade bond funds were $ |
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.
13
Fair value measurements of derivative instruments
The Company utilizes forward starting swaps designated as a cash flow hedge on forecasted 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 forecasted variable interest long-term debt 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 a notional principal amount. The Company also uses a cross-currency swap contract to manage its exposure to foreign currency risk associated with the Company's net investment in its Swiss subsidiary.
The following table presents the contractual amounts of the Company's outstanding instruments (in millions):
| December 31, | June 30, | ||||||
Instruments | Designation |
| 2023 | 2023 | ||||
Forward starting swaps(1) | Cash flow hedge | $ | | $ | ||||
Cross-currency swap(2) | Net investment hedge | | — |
(1) In May 2021, the Company entered into a forward starting swap designated as a cash flow hedge on forecasted debt based on $
(2) In July 2023, the Company entered into a pay-fixed rate, receive-fixed rate cross-currency swap contract with a total notional amount of $
The pretax amount of the gains and losses on our hedging instruments and the classification of those gains and losses within our Consolidated Financial Statements for the three and six months ended December 31, 2023 and December 31, 2022 were as follows (in thousands):
(Gain) Loss Recognized in Accumulated Other Comprehensive Loss | |||||||||||||
| Quarter Ended | Six Months Ended | |||||||||||
December 31, | December 31, | ||||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | |||||||
Cash flow hedges | |||||||||||||
Forward starting swaps | $ | |
| $ | | $ | |
| $ | ( | |||
Net investment hedges | |||||||||||||
Cross-currency swap | |
| — | |
| — | |||||||
Total | $ | | $ | | $ | | $ | ( |
14
(Gain) Loss Reclassified into Income | |||||||||||||||||||
| Quarter Ended | Six Months Ended | |||||||||||||||||
December 31, | December 31, | Location of (Gain) Loss | |||||||||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | in Income Statement | ||||||||||||
Cash flow hedges | |||||||||||||||||||
Forward starting swaps | $ | ( |
| $ | ( | $ | ( |
| $ | ( | Interest expense | ||||||||
Net investment hedges | |||||||||||||||||||
Cross-currency swap | ( |
| — | ( |
| — | Interest expense | ||||||||||||
Total | $ | ( | $ | ( | $ | ( | $ | ( |
Gains or losses related to the net investment hedges are classified as foreign currency translation adjustments in the schedule of changes in Accumulated Other Comprehensive Income (“AOCI”) in Note 8, as these items are attributable to the Company’s hedges of its net investment in foreign operations. Gains or losses related to the cash flow hedges are classified as Unrealized gains (losses) on cash flow hedges in the schedule of changes in AOCI in Note 8.
Fair value measurements of contingent consideration
The Company does not have outstanding contingent consideration as of December 31, 2023 as the Asuragen and Namocell acquisitions did not meet their respective revenue milestones as of December 31, 2023.
The Asuragen contingent agreement required the Company to make contingent consideration payments of up to $
The Namocell contingent agreement required the Company to make contingent consideration payments of up to $
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 selling, 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 | Six Months Ended | ||||
December 31, | December 31, | |||||
2023 | 2023 | |||||
Fair value at the beginning of period | $ | | $ | | ||
| ( |
| ( | |||
Payments |
| — |
| — | ||
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.
15
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 a revolving line-of-credit and term loan by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $
The Credit Agreement matures on August 1, 2027 and contains customary restrictive and financial covenants and customary events of default. As of December 31, 2023, 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 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 six months ended December 31, 2023, 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 (in thousands):
|
| As of | |||||
December 31, | |||||||
Balance Sheet Classification | 2023 | ||||||
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 (%): |
|
| |
16
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 six months ended December 31, 2023 (in thousands):
Six months ended | |||
December 31, | |||
| 2023 | ||
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):
| December 31, 2023 | ||
Operating | |||
Leases | |||
Remainder 2024 | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
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
17
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):
| Bio-Techne Shareholders |
| |||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | ||||||||||||||
Shares | Amount | Capital | Earnings | Income(Loss) | Total | ||||||||||||
Balances at June 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net earnings |
|
|
| |
|
| | ||||||||||
Other comprehensive income (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, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Net earnings |
| |
| | |||||||||||||
Other comprehensive income (loss) | | | |||||||||||||||
Share repurchases |
| ( | ( | ( |
| ( | |||||||||||
Common stock issued for exercise of options |
| | | | ( |
| | ||||||||||
Common stock issued for restricted stock awards |
| |
| ||||||||||||||
Cash dividends |
| ( |
| ( | |||||||||||||
Stock-based compensation expense |
| |
| | |||||||||||||
Employee stock purchase plan expense | | | |||||||||||||||
Balances at December 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | |
18
| 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 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net earnings |
|
|
| |
|
| |
| | |||||||||||
Other comprehensive income (loss) |
|
|
|
| ( |
|
| ( | ||||||||||||
Reclassification of cumulative translation adjustment for Eminence to non-operating income | | ( | | |||||||||||||||||
Elimination of noncontrolling equity interest from sale of Eminence |
|
|
|
|
|
| |
| | |||||||||||
Share repurchases |
| ( |
| ( |
|
| ( |
|
|
| ( | |||||||||
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, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | — | $ | | ||||||
Net earnings |
| |
| | ||||||||||||||||
Other comprehensive income (loss) | | | ||||||||||||||||||
Common stock issued for exercise of options |
| | | |
| | ||||||||||||||
Common stock issued for restricted stock awards |
| | | |
| | ||||||||||||||
Cash dividends |
| ( |
| ( | ||||||||||||||||
Stock-based compensation expense |
| |
| | ||||||||||||||||
Employee stock purchase plan expense | | | ||||||||||||||||||
Balances at December 31, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | — | $ | |
19
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 a $
Changes in Accumulated Other Comprehensive Income (Loss) attributable to Bio-Techne by component:
Three months ended December 31, 2023 (in thousands): | Unrealized | ||||||||
Gains | Foreign | ||||||||
(Losses) on | Currency | ||||||||
Derivative | Translation | ||||||||
| Instruments |
| Adjustments |
| Total | ||||
Balance as of September 30, 2023, net of tax: | $ | | $ | ( | $ | ( | |||
Other comprehensive income (loss), before tax: | |||||||||
Amounts before reclassifications | ( | | | ||||||
Amounts reclassified out | | | | ||||||
Total other comprehensive income (loss), before tax | ( | | | ||||||
Tax (expense)/benefit | ( | ( | ( | ||||||
Total other comprehensive income (loss), net of tax |
| ( | | | |||||
Balance as of December 31, 2023, net of tax | $ | | $ | ( | $ | ( |
Three months ended December 31, 2022 (in thousands): | Unrealized | ||||||||
Gains | Foreign | ||||||||
(Losses) on | Currency | ||||||||
Derivative | Translation | ||||||||
| Instruments |
| Adjustments |
| Total | ||||
Balance as of September 30, 2022, attributable to Bio-Techne, net of tax: | $ | | $ | ( | $ | ( | |||
Other comprehensive income (loss), before tax: | |||||||||
Amounts before reclassifications, attributable to Bio-Techne | ( | | | ||||||
Amounts reclassified out | | | | ||||||
Total other comprehensive income (loss), before tax | ( | | | ||||||
Tax (expense)/benefit | ( | | ( | ||||||
Total other comprehensive income (loss), net of tax |
| ( | | | |||||
Balance as of December 31, 2022, net of tax | $ | | $ | ( | $ | ( |
Six months ended December 31, 2023 (in thousands): | Unrealized | ||||||||
Gains | Foreign | ||||||||
(Losses) on | Currency | ||||||||
Derivative | Translation | ||||||||
| Instruments |
| Adjustments |
| Total | ||||
Balance as of June 30, 2023, net of tax: | $ | | $ | ( | $ | ( | |||
Other comprehensive income (loss), before tax: | |||||||||
Amounts before reclassifications | ( | | ( | ||||||
Amounts reclassified out | | | | ||||||
Total other comprehensive income (loss), before tax | ( | | | ||||||
Tax (expense)/benefit | ( | ( | ( | ||||||
Total other comprehensive income (loss), net of tax |
| ( | | | |||||
Balance as of December 31, 2023, net of tax(1) | $ | | $ | ( | $ | ( |
20
Six months ended December 31, 2022 (in thousands): | Unrealized | ||||||||
Gains | Foreign | ||||||||
(Losses) on | Currency | ||||||||
Derivative | Translation | ||||||||
| Instruments |
| Adjustments |
| Total | ||||
Balance as of June 30, 2022, attributable to Bio-Techne, net of tax: | $ | | $ | ( | $ | ( | |||
Other comprehensive income (loss), before tax: | |||||||||
Amounts before reclassifications, attributable to Bio-Techne | | ( | ( | ||||||
Amounts reclassified out | | | | ||||||
Total other comprehensive income (loss), before tax | | ( | | ||||||
Tax (expense)/benefit | ( | — | ( | ||||||
Total other comprehensive income (loss), net of tax |
| | ( | | |||||
Balance as of December 31, 2022, net of tax(1) | $ | | $ | ( | $ | ( |
(1) The Company had a net deferred tax liability for its cash flow hedge of $
Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but tax effects within foreign currency translation adjustments do include impacts from the net investment hedge.
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 | Six Months Ended | ||||||||||
December 31, | December 31, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
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
21
Note 10. Share-based Compensation:
During the six months ended December 31, 2023 and 2022, the Company granted
Stock options for
Stock-based compensation expense, inclusive of payroll taxes, of $
22
In fiscal 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 (in thousands):
Quarter Ended | Six Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
Interest expense | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Interest income | | | | | ||||||||
Gain (loss) on investment(1) | — | — | | | ||||||||
Gain (loss) on equity method investment | ( | — | ( | — | ||||||||
Other non-operating income (expense), net |
| |
| ( | |
| | |||||
Total other income (expense) | $ | ( | $ | ( | $ | ( | $ | |
(1) Primarily due to a $ |
Note 12. Income Taxes:
The Company’s effective income tax rate for the second quarter of fiscal 2024 and 2023 was
The Company recognized total net benefits related to discrete tax items of $
23
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 | Six Months Ended | |||||||||||
December 31, | December 31, | |||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 | ||||||
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 intangibles |
| ( |
| ( |
| ( |
| ( | ||||
Impact of partially-owned consolidated subsidiaries(1) |
| — |
| — |
| — |
| | ||||
Acquisition related expenses and other |
| |
| |
| |
| | ||||
Impairment of assets held-for-sale | ( | — | ( | — | ||||||||
Stock based compensation, inclusive of employer taxes |
| ( |
| ( |
| ( |
| ( | ||||
Restructuring and restructuring-related costs |
| ( |
| ( |
| ( |
| ( | ||||
Corporate general, selling, and administrative expenses |
| ( |
| ( |
| ( |
| ( | ||||
Consolidated operating income | $ | |
| $ | | $ | |
| $ | |
(1) Includes the quarterly results of the partially-owned consolidated subsidiary prior to the sale of this partially-owned consolidated subsidiary to a third party in the first fiscal quarter of 2023.
Note 14. Subsequent Events:
None.
24
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, 2023. 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. We use our deep product portfolio and application expertise to develop and 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.
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. As a Company, we are integrating consideration of greenhouse gas emissions and other environmental variables into our key business strategies. The Company also strives to innovate and improve all aspects of Bio-Techne’s operations, including reducing the environmental impacts of our manufacturing operations. As described in our Corporate Sustainability report, the Company is currently focused on establishing a baseline for emissions so that we can develop appropriate emission reduction targets, as well as reducing our environmental footprint through changes in packaging and shipping materials.
Consistent with the prior year, we have operated with two segments – our Protein Sciences segment and our Diagnostics and Genomics segment – during the second quarter of fiscal 2024. 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 Diagnostics and Genomics 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. On July 7, 2023, the Company completed the acquisition of Lunaphore Technologies SA (Lunaphore) for $169.7 million in a cash-free, debt-free acquisition. The Lunaphore acquisition adds spatial biology instruments to Bio-Techne’s portfolio to accelerate our leadership position in translational and clinical research markets. Refer to Note 4 for additional disclosure regarding the Company's recent acquisitions.
RESULTS OF OPERATIONS
Operational Update
Consolidated net sales remained flat and increased 2% for the quarter and six months ended December 31, 2023, respectively, compared to the same prior year periods. Organic revenue for the quarter ended December 31, 2023 declined 2% compared to the prior year with acquisitions and foreign currency exchange both having a favorable 1% impact. Organic revenue for the six months ended December
25
31, 2023 remained flat compared to the same prior year period with acquisitions and foreign currency exchange both having a favorable impact of 1%.
Consolidated net earnings attributable to Bio-Techne decreased to $27.5 million for the quarter ended December 31, 2023 as compared to $50.0 million for the quarter ended December 31, 2022. The decrease in net earnings attributable to Bio-Techne is primarily due to an impairment of assets held-for-sale, restructuring charges, the Lunaphore acquisition, unfavorable volume, and product mix. Consolidated net earnings attributable to Bio-Techne decreased to $78.5 million for the six months ended December 31, 2023 as compared to $139.6 million for the six months ended December 31, 2022. Prior year net earnings attributable to Bio-Techne was favorably impacted by a non-recurring gain of $37.2 million on the sale of our ChemoCentryx investment and a non-recurring gain of $11.7 million on the sale of our Eminence investment.
Net Sales
Consolidated net sales for the quarter ended December 31, 2023 remained flat at $272.6 million compared to the same prior year period. Consolidated net sales for the six months ended December 31, 2023 were $549.5 million, an increase of 2% from the same prior year period. Organic revenue for the quarter ended December 31, 2023 declined 2% compared to the prior year with acquisitions and foreign currency exchange both having favorable impact of 1%. Organic revenue for the six months ended December 31, 2023 remained flat compared to the prior year same period with acquisitions and foreign currency exchange both having a favorable impact of 1%. Organic revenue for the quarter and six months ended December 31, 2023 was primarily driven by lower sales from biotech customers and from customers in China.
Gross Margins
Consolidated gross margins for the quarter and six months ended December 31, 2023 were 64.8% and 65.8% respectively, compared to 67.5% and 67.1% for the same prior year periods. 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, restructuring and restructuring-related expenses, and impact of partially-owned consolidated subsidiaries, adjusted gross margins for the quarter and six months ended December 31, 2023 were 69.7% and 70.5%, respectively compared to 71.7% and 71.3% for the quarter and six months ended December 31, 2022, respectively. Both consolidated gross margins and non-GAAP adjusted gross margins for the quarter and six months ended December 31, 2023 were impacted by unfavorable volume and product mix as well as the acquisition of Lunaphore.
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 | Six Months Ended | |||||||||
December 31, | December 31, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||
Consolidated gross margin percentage |
| 64.8 | % | 67.5 | % | 65.8 | % | 67.1 | % | ||
Identified adjustments: |
|
|
|
|
|
|
|
|
| ||
Costs recognized upon sale of acquired inventory |
| 0.1 | % | 0.0 | % | 0.1 | % | 0.1 | % | ||
Amortization of intangibles |
| 4.3 | % | 4.1 | % | 4.3 | % | 4.1 | % | ||
Stock compensation expense | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | |||
Restructuring and restructuring-related expense | 0.4 | % | — | % | 0.2 | % | — | % | |||
Impact of partially-owned consolidated subsidiaries(1) |
| — | % | — | % | — | % | (0.1) | % | ||
Non-GAAP adjusted gross margin percentage |
| 69.7 | % | 71.7 | % | 70.5 | % | 71.3 | % |
(1)Includes the quarterly results of the partially-owned consolidated subsidiary prior to the sale of this partially-owned consolidated subsidiary to a third party in the first fiscal quarter of 2023.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 24% to $115.7 million and increased 15% to $221.0 million for the quarter and six months ended December 31, 2023, respectively, from the same prior year periods. The increase in expense for the quarter and six
26
months ended December 31, 2023 was primarily due to impairment of assets held-for-sale, restructuring and restructuring-related charges, and the Lunaphore acquisition.
Research and Development Expenses
Research and development expenses increased 2% to $22.9 million and increased 1% to $46.9 million for the quarter and six months ended December 31, 2023, respectively, from the same prior year periods. The increase in expense was due to the timing of strategic growth investments.
Segment Results
Protein Sciences
| Quarter Ended | Six Months Ended | ||||||||||||
December 31, | December 31, | |||||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||||
Net sales (in thousands) |
| $ | 197,670 | $ | 203,887 | $ | 402,325 | $ | 403,836 | |||||
Operating margin percentage |
|
| 40.3 | % |
| 43.8 | % |
| 41.7 | % |
| 43.6 | % |
Protein Sciences’ net sales for the quarter and six months ended December 31, 2023 were $197.7 million and $402.3 million, respectively, with results decreasing 3% and remaining flat, respectively, compared to the same respective prior year periods. Organic revenue for the segment declined 4% for the quarter ended December 31, 2023, with foreign currency exchange having a favorable impact of 1%. Organic growth for the segment declined 1% for the six months ended December 31, 2023, with foreign currency exchange having a favorable impact of 1%. Segment revenue was impacted by unfavorable volume.
The operating margin was 40.3% and 41.7% for the quarter and six months ended December 31, 2023, respectively, compared to 43.8% and 43.6% in both comparative prior year periods. The segment’s operating margin impacted by unfavorable volume and product mix.
Diagnostics and Genomics
| Quarter Ended | Six Months Ended | ||||||||||||
December 31, | December 31, | |||||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||||
Net sales (in thousands) |
| $ | 75,408 | $ | 68,003 | $ | 148,204 | $ | 137,907 | |||||
Operating margin percentage |
|
| 6.0 | % |
| 12.2 | % |
| 3.4 | % |
| 12.3 | % |
Diagnostics and Genomics' net sales for the quarter and six months ended December 31, 2023 were $75.4 million and $148.2 million, respectively, with increased net sales of 11% and 7% compared to the same respective prior year periods. Organic growth for the segment for the quarter ended December 31, 2023 was 5% from the prior year, with acquisitions contributing 5% and foreign currency exchange having a favorable impact of 1%. Organic growth for the six months ended December 31, 2023 was 3% compared to the prior year, with acquisitions contributing 4% and foreign currency exchange having an immaterial impact. Segment results were driven by Spatial Biology and Molecular Diagnostics products, as well as the Lunaphore acquisition.
The operating margin for the segment was 6.0% and 3.4% for the quarter and six months ended December 31, 2023, respectively, compared to 12.2% and 12.3% in both comparative prior year periods. The segment’s operating margin was unfavorably impacted due to the acquisition of Lunaphore.
Income Taxes
Income taxes were at an effective rate of 17.7% and 5.4% of consolidated earnings for the quarter and six month period ended December 31, 2023, respectively, compared to 24.7% and 17.9% for the same respective prior year periods. The change in the Company’s tax rate for the quarter and six months ended December 31, 2023 was driven by the composition and amount of net income across periods and the impact of discrete tax benefits of $2.8 million and $16.3 million, respectively, compared to prior year discrete tax expense of $4.6 million and benefit of $3.2 million as further discussed in Note 12.
27
The forecasted tax rate as of the second fiscal quarter of 2024 before discrete items is 23.4% compared to the prior year forecasted tax rate before discrete items of 21.2%. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 2024 to range from 23% to 27%.
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows (in thousands):
| Quarter Ended | Six Months Ended | ||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Net earnings before taxes - GAAP | $ | 33,387 | $ | 66,429 | $ | 82,945 | $ | 170,146 | ||||||||||||||
Identified adjustments attributable to Bio-Techne: |
|
|
|
|
|
|
|
| ||||||||||||||
Costs recognized upon sale of acquired inventory |
| 183 |
| 100 |
| 364 |
| 400 | ||||||||||||||
Amortization of intangibles |
| 19,769 |
| 19,125 |
| 39,620 |
| 38,408 | ||||||||||||||
Amortization of Wilson Wolf intangible assets and acquired inventory | 4,208 | — | 8,416 | — | ||||||||||||||||||
Acquisition related expenses and other |
| (381) |
| (8,162) |
| (822) |
| (7,484) | ||||||||||||||
Gain on sale of partially-owned consolidated subsidiaries | — | — | — | (11,682) | ||||||||||||||||||
Stock based compensation, inclusive of employer taxes |
| 12,958 |
| 16,878 |
| 24,453 |
| 32,336 | ||||||||||||||
Restructuring and restructuring-related costs |
| 5,518 |
| 780 |
| 5,607 |
| 2,950 | ||||||||||||||
Investment (gain) loss and other non-operating |
| — |
| 74 |
| (283) |
| (38,013) | ||||||||||||||
Impairment of assets held-for-sale | 6,038 | — | 6,038 | — | ||||||||||||||||||
Impact of partially-owned subsidiaries(1) |
| — |
| — |
| — |
| (420) | ||||||||||||||
Net earnings before taxes - Adjusted | $ | 81,680 | $ | 95,224 | $ | 166,338 | $ | 186,641 | ||||||||||||||
Non-GAAP tax rate |
| 22.0 | % |
| 21.0 | % |
| 22.0 | % |
| 21.0 | % | ||||||||||
Non-GAAP tax expense | $ | 17,964 | $ | 19,998 | $ | 36,579 | $ | 39,195 | ||||||||||||||
Non-GAAP adjusted net earnings attributable to Bio-Techne(1) | $ | 63,716 | $ | 75,226 | $ | 129,759 | $ | 147,446 | ||||||||||||||
Earnings per share - diluted - Adjusted | $ | 0.40 | $ | 0.47 | $ | 0.81 | $ | 0.91 |
(1)Includes the quarterly results of the partially-owned consolidated subsidiary prior to the sale of this partially-owned consolidated subsidiary to a third party.
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 and six months ended December 31, 2023 and December 31, 2022.
| Quarter Ended | Six Months Ended | |||||||
December 31, | December 31, | ||||||||
2023 | 2022 | 2023 | 2022 | ||||||
GAAP effective tax rate |
| 17.7 | % | 24.7 | % | 5.4 | % | 17.9 | % |
Discrete items |
| 8.3 |
| (7.0) |
| 18.0 |
| 1.9 |
|
Impact of non-taxable net gain | — | (0.2) | — | 1.4 | |||||
Annual forecast update | (2.6) | 3.7 | — | — | |||||
Long-term GAAP tax rate |
| 23.4 | % | 21.2 | % | 23.4 | % | 21.2 | % |
Rate impact items |
|
|
|
|
|
|
|
|
|
Stock based compensation |
| (2.1) | (2.0) | (2.4) | (2.5) | ||||
Other |
| 0.7 |
| 1.8 |
| 1.0 |
| 2.3 |
|
Total rate impact items |
| (1.4) | % | (0.2) | % | (1.4) | % | (0.2) | % |
Non-GAAP adjusted tax rate |
| 22.0 | % | 21.0 | % | 22.0 | % | 21.0 | % |
28
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the quarter ended December 31, 2023 is primarily a result of discrete tax items, including the tax benefit of stock option exercises.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and available-for-sale investments were $135.7 million as of December 31, 2023, compared to $204.3 million as of June 30, 2023. Included in the available-for-sale-investments as December 31, 2023 is $5.5 million of short-term certificates of deposit. Included in the available-for-sale investments as of June 30, 2023 was the fair value of the Company’s investment in exchange traded investment grade bond funds of $23.7 million. During the first fiscal quarter of 2024, the Company sold its investment in exchange traded investment grade bond funds.
The Company has a line-of-credit governed by a Credit Agreement dated August 31, 2022 that will mature on August 1, 2027. This Credit Agreement amended and restated the Company’s previous credit agreement that was entered into on August 1, 2018 and would have matured on August 1, 2023. As of December 31, 2023, there is $553 million available on the line-of-credit. See Note 6 to the Condensed Consolidated Financial Statements for a description of the Credit Agreement.
During fiscal year 2022, the Company paid $25 million to enter into a two-part forward contract which requires the Company to purchase the full equity interest in Wilson Wolf if certain annual revenue or EBITDA thresholds are met. During the third fiscal quarter of 2023, Wilson Wolf met the required threshold for the first part of the forward contract. A payment of $232 million was made during the third fiscal quarter of 2023. The Company is currently forecasting the second option payment of approximately $1 billion plus potential contingent consideration to occur between fiscal 2026 and fiscal 2028.
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 $142.5 million from operating activities in the six months ended December 31, 2023 compared to $120.5 million in the six months ended December 31, 2022. The increase from the prior year was primarily due to favorable timing of payments on certain operating assets and liabilities.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures.
Capital expenditures for fixed assets for the six months ended December 31, 2023 and December 31, 2022 were $28.5 million and $15.7 million, respectively. Capital expenditures for the remainder of fiscal 2024 are expected to be approximately $26 million. Capital expenditures are expected to be financed through currently available funds and cash generated from operating activities. Expected additions in fiscal 2024 are related to increasing capacity to meet expected sales growth across the Company.
During the first fiscal quarter of 2024, the Company acquired Lunaphore Technologies SA for $169.7 million, compared to the acquisition of Namocell, Inc for $101.2 million, net of cash acquired, in the comparative prior year period. There was a net working capital payment to the Lunaphore shareholders as part of the acquisition of $3.3 million during the quarter ended December 31, 2023.
During the six months ended December 31, 2022, the Company sold its remaining shares in Eminence, its partially-owned consolidated subsidiary, for $17.8 million. There were no comparable transactions in the six months ended December 31, 2023.
During the first fiscal quarter of 2024, the Company sold its exchange traded investment grade bond funds for $23.8 million. In the first fiscal quarter of 2023, the Company sold its remaining shares in its investment in CCXI for $73.2 million. The Company also sold certificates of deposit for $26.5 million during the six months ended December 31, 2022.
During the six months ended December 31, 2023 and December 31, 2022, purchase of available-for-sale investments was $5.5 million and $20.5 million, respectively.
29
During the first fiscal quarter of 2024, the Company received a $2.1 million tax distribution from its equity method investee. There were no comparable activities in the comparative period.
Cash Flows From Financing Activities
During the six months ended December 31, 2023 and December 31, 2022, the Company paid cash dividends of $25.2 million and $25.1 million, respectively, to all common shareholders. On February 1, 2024, the Company announced the payment of an $0.08 per share cash dividend, or approximately $12.6 million, will be payable February 26, 2024, to all common shareholders of record on February 12, 2024.
Cash of $19.7 million and $17.0 million was received during the six months ended December 31, 2023 and December 31, 2022, respectively, from the exercise of stock options.
During the six months ended December 31, 2023 and December 31, 2022, the Company made repayments of $128.0 million and $505.7 million, respectively, on its long-term debt balance. The Company drew $225.0 million and $449.7 million under its revolving line-of-credit facility during the six months ended December 31, 2023 and December 31, 2022, respectively.
There were $80.0 million of share repurchases during the six months ended December 31, 2023 included as a cash outflow within financing activities. During the six months ended December 31, 2022, the Company repurchased $19.6 million in share repurchases included as a cash outflow within financing activities.
During the six months ended December 31, 2023 and December 31, 2022, the Company paid $21.3 million and $17.9 million related to taxes on restricted stock units and stock options exercised through net share settlements classified as financing activities.
The decrease in other financing activity during the six months ended December 31, 2023 compared to the six months ended December 31, 2022 is primarily related to fees for the amended Credit Agreement that occurred in the first quarter of fiscal 2023. There were no such payments during the six months ended December 31, 2023.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K for fiscal 2023 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 quarter or six months ended December 31, 2023 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:
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
30
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 revenue 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. There was no revenue from partially-owned consolidated subsidiaries for the quarter ended December 31, 2023 due to the sale of Changzhou Eminence Biotechnology Co., Ltd. (Eminence) in the first quarter of fiscal 2023. Revenue from partially-owned consolidated subsidiaries was $2.0 million for the six months ended December 31, 2022.
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, which is inclusive of the employer portion of payroll taxes on those stock awards, the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, restructuring and restructuring-related costs, and other non-recurring items including non-recurring costs, goodwill and long-lived asset impairments, 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, goodwill and long-lived asset impairment charges, 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. Costs related to restructuring and restructuring-related activities, including reducing overhead and consolidating facilities, are excluded because we believe they are not indicative of our normal operating costs. 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 acquisition related expenses inclusive of the changes in fair value of contingent consideration, gain and losses from investments, as they are not part of our day-to-day operating decisions (excluding our equity method investment in Wilson Wolf as it is certain to be acquired in the future) and certain adjustments to income tax expense. Additionally, gains and losses from other investments that are either isolated or cannot be expected to occur again with any predictability are excluded. 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
31
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, supply chain challenges, 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 2023 as filed with the Securities and Exchange Commission and Part II. Item 1A below.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the quarter ended December 31, 2023, approximately 39% of consolidated net sales were made in foreign currencies, including 15% in euros, 4% in British pound sterling, 6% in Chinese yuan, 3% in Canadian dollars, and the remaining 11% 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, Canadian dollar, and Swiss franc 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 | Six Months Ended | ||||||||||
December 31, | December 31, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Euro |
| $ | 1.09 |
| $ | 1.03 | $ | 1.09 |
| $ | 1.02 | |
British pound sterling |
| 1.25 |
| 1.19 |
| 1.26 |
| 1.18 | ||||
Chinese yuan |
| 0.14 |
| 0.14 |
| 0.14 |
| 0.14 | ||||
Canadian dollar |
| 0.74 |
| 0.74 | 0.74 | 0.75 | ||||||
Swiss franc | 1.15 | 1.04 | 1.14 | 1.04 |
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 December 31, 2023 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) |
| $ | 5,783 |
Decrease in translation of net assets of foreign subsidiaries |
| 87,036 | |
Additional transaction losses |
| 5,433 |
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 December 31, 2023, 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 second quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of February 7, 2024, 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.
ITEM 1A. RISK FACTORS
During the quarter and six months ended December 31, 2023, 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, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company’s repurchase plan approved by the Board on February 2, 2022, granted management the discretion to mitigate the dilutive effect of stock option exercises. The plan authorizes the Company to purchase up to $400 million in stock. The table below sets forth certain information regarding our purchases of common stock in open market transactions during the quarter ended December 31, 2023.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total number of shares purchased as part of publicly announced plans or programs | Maximum dollar amount of shares that may yet be purchased under the plans or programs | ||||
October 1-31, 2023 | — | — | — | 260,780,968 | ||||
November 1-30, 2023 |
| 1,397,471 | 57.28 | 1,397,471 | 180,739,094 | |||
December 1-31, 2023 | — | — | — | 180,739,094 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended December 31, 2023, certain of our directors and officers of the Company adopted a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in item 408(a) of Regulation S-K as follows.
33
ITEM 6. EXHIBITS
EXHIBIT INDEX
TO
FORM 10-Q
BIO-TECHNE CORPORATION
Exhibit Number |
| Description |
3.1 | ||
|
| |
3.2 | ||
|
| |
4.1 | ||
|
| |
10.1** | ||
|
| |
10.2** | ||
|
| |
10.3** | ||
|
| |
10.4** | ||
|
| |
10.5** | ||
|
| |
10.6** | ||
|
| |
10.7** | ||
|
| |
10.8** | ||
|
| |
10.9** |
34
Exhibit Number |
| Description |
10.10** | ||
---|---|---|
|
| |
10.11** | ||
|
| |
10.12** | ||
|
| |
10.13** | ||
|
| |
10.14** | ||
|
| |
10.15** | ||
|
| |
10.16 | ||
|
| |
10.17** | ||
|
| |
10.18** | ||
|
| |
10.20 | ||
10.21** | ||
10.22** | ||
10.23** | ||
10.24** | ||
10.25** | ||
10.26** | ||
10.27** |
35
10.28** |
| |
10.29** | ||
10.30** | ||
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 and six months ended December 31, 2023, 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
36
SIGNATURES
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: February 7, 2024 | /s/ Kim Kelderman | |
Kim Kelderman | ||
President and Chief Executive Officer | ||
Date: February 7, 2024 | /s/ James Hippel | |
James Hippel | ||
Executive Vice President, Chief Financial Officer |
37