BIO-TECHNE CORPORATION 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
OVERVIEW
Consistent with the prior year, we have operated with two segments - our
RECENT ACQUISITIONS
A key component of the Company's strategy is to augment internal growth at
existing businesses with complementary acquisitions. The Company did not make
any acquisitions in the nine months ended
RESULTS OF OPERATIONS
Operational Update
Consolidated net sales increased 19% and 22% for the quarter and nine months
ended
Consolidated net earnings attributable to
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Business Strategy Update
Environmental
The Company's key business strategies for long-term growth and profitability continue to be geographic expansion, core product innovation, acquisitions and talent retention and development. In fiscal 2022, the Company is also focused on evaluating how climate change impacts from our business operations might be measured and mitigated, with the plan of integrating consideration of greenhouse gas emissions and other climate variables into those key business strategies.
In response to the COVID-19 pandemic, the Company took additional steps to monitor and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services. The Company has maintained these procedures while incorporating additional considerations regarding potential adverse weather events associated with climate change.
The financial impact of potential environmental regulations pertaining to carbon emissions or the integration of climate change impacts into our core business strategies are not expected to materially alter the Company's near-term financial results. Additionally, the Company is creating a cross-functional internal council to evaluate potential long-term business impacts while driving long-term sustainability solutions.
Digital
In driving our four key business strategies, the Company utilizes digital networks and systems for data transmission, transaction processing, and storing of electronic information. As disclosed in Item 1A Risk Factors of the Company's 10-K, increased cybersecurity attack activity poses a risk for our business. In response to this risk, the Company actively completes system patching and required maintenance, performs internal and third-party employee training, monitors network and system activity, and completes data backups for our systems. However, even with the Company's procedures performed, our digital networks and systems are still potentially vulnerable to cyberattacks.
The financial impact of our cybersecurity initiatives and activities are ongoing and not expected to have a material impact on our financial results. However, the impact on our financial results from a material cyber breach would be unknown and dependent on the nature of the breach.
Consolidated net sales for the quarter and nine months ended
Gross Margins
Consolidated gross margins for the quarter and nine months ended
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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 Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
Consolidated gross margin percentage 69.4 % 69.1 % 68.0 % 68.0 %
Identified adjustments:
Costs recognized upon sale of acquired
inventory - % - % 0.2 % 0.0 %
Amortization of intangibles 3.5 % 3.6 % 3.7 % 3.9 %
Stock compensation expense - COGS 0.1 % 0.2 % 0.1 % 0.2 %
Impact of partially owned consolidated
subsidiaries(1) 0.2 % 0.1 % 0.3 % 0.1 %
Non-GAAP adjusted gross margin percentage 73.2 % 73.0 % 72.3 % 72.2 %
(1) Adjusted gross margin percentages for the third quarter and full year of fiscal 2021 have been updated for comparability to fiscal 2022 for the inclusion of the impact of partially owned consolidated subsidiaries on the Company's adjusted gross margin percentage.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 8% to
Research and Development Expenses
Research and development expenses increased 28% to$21.7 million and increased 28% to$64.0 million for the quarter and nine months endedMarch 31, 2022 , respectively, from the same prior year periods. The increase in expense was due to strategic growth investments and theAsuragen acquisition in the fourth quarter of fiscal 2021. Segment ResultsProtein Sciences Quarter Ended Nine Months Ended March 31, March 31, 2022 2021 2022 2021 Net sales (in thousands)$ 213,176 $ 185,623 $ 615,332 $ 512,248 Operating margin percentage 45.4 % 47.9 % 45.5 % 46.8 %
The operating margin was 45.4% and 45.5% for the quarter and nine months ended
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Diagnostics and Genomics
Quarter Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
Net sales (in thousands) $ 77,679 $ 58,093 $ 203,191 $ 160,687
Operating margin percentage 25.0 % 17.9 % 18.6 % 16.9 %
Diagnostics and Genomics' net sales for the quarter and nine months ended
The operating margin for the segment was 25.0% and 18.6% for the quarter and
nine months ended
Income Taxes
Income taxes were at an effective rate of 12.5% and 9.5% of consolidated
earnings for the quarter and nine month period ended
The forecasted tax rate as of the third fiscal quarter of 2022 before discrete items is 23.8% compared to the prior year forecasted tax rate before discrete items of 25.2%. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 2022 to range from 23% to 27%.
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Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows:
Quarter Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
Net earnings before taxes - GAAP $ 68,772 $ 45,354 $ 222,334 $ 141,062
Identified adjustments attributable to
Bio-Techne :
Costs recognized upon sale of acquired
inventory - 68 1,596 91
Amortization of intangibles 18,173 15,222 54,942 45,750
Acquisition related expenses (3,616) 1,825 (19,046) 6,571
Eminence impairment - - 18,715 -
Stock based compensation, inclusive of
employer taxes 9,056 11,968 37,731 41,525
Restructuring costs (291) - 1,638 142
Investment (gain) loss and other 18,100 16,590 (16,530) 10,232
Impact of partially owned subsidiaries(1) 1,028 591 3,595 798
Non-GAAP adjusted net earnings attributable
to Bio-Techne(1) $ 111,222 $ 91,618 $ 304,975 $ 246,171
Non-GAAP tax rate 21.2 % 20.2 % 21.2 % 20.2 %
Non-GAAP tax expense 23,656 18,577 64,732 49,551
Non-GAAP adjusted net earnings attributable
to Bio-Techne(1) $ 87,566 $ 73,041 $ 240,243 $ 196,620 Earnings per share - diluted - Adjusted
(1)Adjusted consolidated net earnings and earnings per share for the third quarter and full year of fiscal 2021 have been updated for comparability to fiscal 2022 for the inclusion of the impact of partially owned consolidated subsidiaries on the Company's adjusted consolidated net earnings and earnings per share.
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 nine months ended
Quarter Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
GAAP effective tax rate 12.5 % (0.1) % 9.5 % 11.4 %
Discrete items 9.1 25.7 14.3 13.8
Annual forecast update 2.2 (0.4) - -
Long-term GAAP tax rate 23.8 % 25.2 % 23.8 % 25.2 %
Rate impact items
Stock based compensation (1.7) (5.6) (1.8) (5.6)
Other (0.9) 0.6 (0.8) 0.6
Total rate impact items (2.6) % (5.0) % (2.6) % (5.0) %Non-GAAP adjusted tax rate(1) 21.2 % 20.2 % 21.2 % 20.2 %
(1) In our third quarter results of fiscal 2021, the Company recast our first quarter results using the non-GAAP tax rate for the first nine months of fiscal 2021, which normalized the tax rate impact on adjusted earnings resulting from return to growth patterns seen prior to the onset of the COVID-19 pandemic.
The difference between the reported GAAP tax rate and non-GAAP tax rate applied
to the identified non-GAAP adjustments for the quarter ended
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and available-for-sale investments were
The Company has a line-of-credit and term loan governed by a Credit Agreement
dated
The Company has remaining potential contingent consideration payments of up to
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
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures.
Capital expenditures for fixed assets for the nine months ended
During the nine months ended
Cash Flows From Financing Activities
During the nine months ended
Cash of
During the nine months ended
During the nine months ended
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During the nine months ended
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in the Company's
Annual Report on Form 10-K for fiscal 2021 and are incorporated herein by
reference. The application of certain of these policies requires judgments and
estimates that can affect the results of operations and financial position of
the Company. Judgments and estimates are used for, but not limited to, valuation
of available-for-sale investments, inventory valuation and allowances, valuation
of intangible assets and goodwill and valuation of investments in unconsolidated
entities. There have been no significant changes in estimates in the quarter or
nine months ended
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
?Organic Growth ?Adjusted gross margin ?Adjusted net earnings
?Adjusted effective tax rate
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure of organic growth represents revenue growth
excluding revenue from acquisitions within the preceding 12 months, the impact
of foreign currency, as well as the impact of partially owned consolidated
subsidiaries. Excluding these measures provides more useful period-to-period
comparison of revenue results as it excludes the impact of foreign currency
exchange rates, which can vary significantly from period to period, and revenue
from acquisitions that would not be included in the comparable prior
period. Revenues from partially owned subsidiaries consolidated in our financial
statements are also excluded from our organic revenue calculation, as those
revenues are not fully attributable to the Company. Revenue from partially owned
subsidiaries was
Our non-GAAP financial measures for adjusted gross margin, adjusted operating margin, and adjusted net earnings, in total and on a per share basis, exclude stock-based compensation, the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, acquisition related expenses inclusive of the changes in fair value of contingent consideration, and other non-recurring items including non-recurring costs, 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. 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.
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The Company's non-GAAP adjusted operating margin and adjusted net earnings, in total and on a per share basis, also excludes stock-based compensation expense, which is inclusive of the employer portion of payroll taxes on those stock awards, restructuring, impairments of equity method investments, gain and losses from investments, and certain adjustments to income tax expense. Impairments of equity investments are excluded as they are not part of our day-to-day operating decisions. Additionally, gains and losses from other investments that are either isolated or cannot be expected to occur again with any predictability are excluded. Costs related to restructuring activities, including reducing overhead and consolidating facilities, are excluded because we believe they are not indicative of our normal operating costs. The Company independently calculates a non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering the impact of discrete items on these adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other discrete and non-recurring charges which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax items can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results.
The Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and considers the use of these measures by our competitors and peers to ensure the adjustments are still relevant and meaningful.
Readers are encouraged to review the reconciliations of the adjusted financial measures used in management's discussion and analysis of the financial condition of the Company to their most directly comparable GAAP financial measures provided within the Company's consolidated financial statements.
FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS
This quarterly report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include those regarding the Company's expectations as to the effect of changes
to accounting policies, the amount of capital expenditures for the remainder of
the fiscal year, the source of funding for capital expenditure requirements, the
sufficiency of currently available funds for meeting the Company's needs, the
impact of fluctuations in foreign currency exchange rates, and expectations
regarding gross margin fluctuations, increasing research and development
expenses, increasing selling, general and administrative expenses and income tax
rates. These statements involve risks and uncertainties that may affect the
actual results of operations. The following important factors, among others,
have affected and, in the future, could affect the Company's actual results:
integration of newly acquired businesses, the introduction and acceptance of new
products, general national and international economic, political, regulatory,
and other conditions, increased competition, the reliance on internal
manufacturing and related operations, the impact of currency exchange rate
fluctuations, the recruitment and retention of qualified personnel, the impact
of governmental regulation, maintenance of intellectual property rights, credit
risk and fluctuation in the market value of the Company's investment portfolio,
and unseen delays and expenses related to facility construction and
improvements. For additional information concerning such factors, see the
Company's Annual Report on Form 10-K for fiscal 2021 as filed with the
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