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 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 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 three months ended
RESULTS OF OPERATIONS Operational Update
Consolidated net sales increased 11% for the quarter ended
Consolidated net earnings increased to
COVID-19 Business Update
During the first quarter of fiscal year 2021, we experienced a significant increase in the number of customer sites that were either fully or partially opened when compared to prior periods during the COVID-19 pandemic. The reopening of customer sites and demand for our portfolio of life science tools and diagnostic reagents enabled the Company to return to sales volumes experienced prior to the onset of the pandemic. However, we are unable to forecast if any customer sites may reclose given rising COVID-19 cases occurring in certain regions. We are anticipating a positive long-term outlook for sales growth resulting from expected future funding increases within life-science research in response to the current pandemic.
The Company has responded to the pandemic by leveraging our deep product portfolio and scientific expertise to develop a robust COVID-19 product and service offering that provides critical support for both clinical care and therapeutic development. The Company's ongoing efforts to utilize and expand upon our portfolio of products and services to enable solutions for this evolving pandemic may partially offset the impacts of any future customer site closures.
Adjusted EPS was favorably impacted in the current quarter when compared to prior periods during the COVID-19 pandemic due to increased sales volumes as described above. We anticipate the short- and long-term impacts of COVID-19 on adjusted EPS to be similar to that of sales growth.
The Company remains in a strong financial position with sufficient available
cash as well as access to additional funding, if necessary, through our
long-term debt agreement. We did not experience any material changes to our
The Company remains fully operational as we abide by local COVID-19 safety
regulations across the world. To achieve this, certain employees are working
remotely and the Company has adopted significant protective measures for our
employees on site, including staggered shifts, social distancing and hygiene
best practices recommended by the
Net Sales
Consolidated net sales for the quarter ended
For the quarter ended
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Consolidated gross margins for the quarter ended
A reconciliation of the reported consolidated gross margin percentages, adjusted
for acquired inventory sold and intangible amortization included in cost of
sales, is as follows:
Quarter Ended
September 30,
2020 2019
Consolidated gross margin percentage 67.4 % 64.6 %
Identified adjustments:
Amortization of intangibles 4.2 % 4.7 %
Stock compensation expense - COGS 0.3 % 0.2 %
Non-GAAP adjusted gross margin percentage 71.9 % 69.5 %
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
Research and Development Expenses
Research and development expenses were
Segment ResultsProtein Sciences Quarter Ended September 30, 2020 2019 Net sales (in thousands)$ 154,446 $ 140,995 Operating margin percentage 45.6 % 42.2 %
Protein Science's net sales for the quarter ended
The operating margin for the quarter ended
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Diagnostics and Genomics
Quarter Ended
September 30,
2020 2019
Net sales (in thousands) $ 50,125 $ 42,552
Operating margin percentage 17.3 % 2.1 %
Diagnostics and Genomics' net sales for the quarter ended
The operating margin for the segment was 17.3% for the quarter ended
Income Taxes
Income taxes for the quarter ended
The forecasted tax rate as of the first fiscal quarter of 2021 before discrete items is 25.7% compared to the prior year forecasted tax rate before discrete items of 26.3%. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 2021 to range from 24% to 28%.
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows:
Quarter Ended
September 30,
2020 2019
Net earnings $ 33,395 $ 14,398
Identified adjustments:
Amortization of acquisition intangibles 15,501 14,901
Acquisition related expenses 230 1,404
Stock-based compensation, inclusive of employer taxes 13,333 8,800 Realized and unrealized (gain)loss on investments 4,351 10,401 Tax impact of above adjustments
(5,514 ) (6,982 )
Tax impact of discrete tax items (4,151 ) (1,271 )
Non-GAAP adjusted net earnings $ 57,145 $ 41,651
Non-GAAP adjusted net earnings growth 37.2 % 9.0 %
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Depending on the nature of discrete tax items, our reported tax rate may not be
consistent on a period to period basis. The Company independently calculates a
non-GAAP adjusted tax rate considering the impact of discrete items and
jurisdictional mix of the identified non-GAAP adjustments. The following table
summarizes the reported GAAP tax rate and the effective Non-GAAP adjusted tax
rate for the quarter ended
Quarter Ended
September 30,
2020 2019
Reported GAAP tax rate 15.1 % 19.1 %
Tax rate impact of:
Identified non-GAAP adjustments (4.2 )% (4.3 )%
Discrete tax items 10.6 % 7.1 %
Non-GAAP adjusted tax rate 21.5 % 21.9 %
The difference between the reported GAAP tax rate and non-GAAP tax rate applied
to the identified non-GAAP adjustments for the quarter ended
LIQUIDITY AND CAPITAL RESOURCES
As of
The Company has a line-of-credit and term loan governed by a Credit Agreement
dated
The Company has 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 first quarter of fiscal 2021 and
2020 were
Cash Flows From Financing Activities
During the first quarter of fiscal 2021 and 2020, the Company paid cash
dividends of
Cash of
During the first quarter of fiscal 2021, the Company made payments of
During the first quarter of fiscal 2021, the Company made
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OFF-BALANCE SHEET ARRANGEMENTS
The Company has no reportable off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
CONTRACTUAL OBLIGATIONS
Other than the contingent consideration associated with the Quad and
B-MoGen acquisitions, there were no material changes outside the ordinary course
of business in the Company's contractual obligations during the quarter ended
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K for fiscal 2020 and are incorporated herein by reference. The application of certain of these policies requires judgments and estimates that can affect the results of operations and financial position of the Company. Judgments and estimates are used for, but not limited to, valuation of available-for-sale investments, inventory valuation and allowances, valuation of intangible assets and goodwill and valuation of investments in unconsolidated entities. There have been no significant changes in estimates in the first quarter of fiscal 2020 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
• 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 as well as the impact of foreign currency. 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.
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 the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, acquisition related expenses inclusive of the changes in fair value of contingent consideration, and other non-recurring items including non-recurring costs and gains. The Company excludes amortization of purchased intangible assets, purchase accounting adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses inclusive of the changes in fair value contingent consideration, and other non-recurring items including gains or losses on legal settlements and one-time assessments from this measure because they occur as a result of specific events, and are not reflective of our internal investments, the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support our operating structure. Additionally, these amounts can vary significantly from period to period based on current activity.
The Company'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. Stock-based compensation is excluded from non-GAAP adjusted net earnings because of the nature of this charge, specifically the varying available valuation methodologies, subjective assumptions, variety of award types, and unpredictability of amount and timing of employer related tax obligations. 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.
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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 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 2020 as
filed with the
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