UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
BIO-TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) (Zip Code) |
(Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2).
At November 1, 2019,
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Item 1. |
1 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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Item 3. |
23 |
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Item 4. |
24 |
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Item 1. |
25 |
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Item 1A. |
25 |
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Item 2. |
26 |
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Item 3. |
26 |
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Item 4. |
26 |
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Item 5. |
26 |
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Item 6. |
27 |
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29 |
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 |
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September 30, |
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2019 |
2018 |
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Net sales |
$ | $ | ||||||
Cost of sales |
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Gross margin |
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Operating expenses: |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Operating income |
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Other (expense) income |
( |
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( |
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Earnings before income taxes |
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Income taxes |
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Net earnings |
$ | $ | ||||||
Other comprehensive (loss) income: |
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Foreign currency translation adjustments |
( |
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( |
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Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax of $154 in FY20 | ( |
) | ||||||
Other comprehensive (loss) income |
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( |
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Comprehensive income |
$ | $ | ||||||
Earnings per share: |
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Basic |
$ | $ | ||||||
Diluted |
$ | $ | ||||||
Weighted average common shares outstanding: |
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Basic |
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Diluted |
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries
(in thousands, except share and per share data)
September 30, |
June 30, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
Short-term available-for-sale investments |
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Accounts receivable, less allowance for doubtful accounts of $1,007 and $980, respectively |
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Inventories |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Right of use asset | ||||||||
Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
$ | $ | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Trade accounts payable |
$ | $ | ||||||
Salaries, wages and related accruals |
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Accrued expenses |
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Contract liabilities |
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Income taxes payable |
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Operating lease liabilities - current |
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Contingent consideration payable |
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Current portion of long-term debt obligations |
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Total current liabilities |
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Deferred income taxes |
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Long-term debt obligations |
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Long-term contingent consideration payable |
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Operating lease liabilities |
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Other long-term liabilities |
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Shareholders' equity: |
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Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding |
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Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 38,084,292 and 37,934,040, respectively |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
( |
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( |
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Total shareholders' equity |
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Total liabilities and shareholders’ equity |
$ | $ |
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
(unaudited)
Quarter Ended |
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September 30, |
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2019 |
2018 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings |
$ | $ | ||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
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Costs recognized on sale of acquired inventory |
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Deferred income taxes |
( |
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( |
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Stock-based compensation expense |
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Fair value adjustment to contingent consideration payable |
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Fair value adjustment on available for sale investments |
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Other operating activity |
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Change in operating assets and operating liabilities, net of acquisition: |
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Trade accounts and other receivables, net |
( |
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Inventories |
( |
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( |
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Other current assets |
( |
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Trade accounts payable, accrued expenses, contract liabilities, and other |
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Salaries, wages and related accruals |
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Income taxes payable |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from maturities of available-for-sale investments |
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Purchases of available-for-sale investments |
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Additions to property and equipment |
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Acquisitions, net of cash acquired |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Cash dividends |
( |
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( |
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Proceeds from stock option exercises |
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Proceeds from long-term debt |
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Repayments of long-term debt |
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Debt issuance costs |
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Other financing activity |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
( |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ | $ | ||||||
Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
$ | $ | ||||||
Cash paid for interest |
$ | $ |
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
(unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies:
The interim consolidated financial statements of Bio-Techne Corporation and subsidiaries, (the Company) presented here have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2019, included in the Company's Annual Report on Form 10-K/A for fiscal year 2019. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K/A for fiscal year 2019. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.
During the first quarter of fiscal 2020, the Company operated under two operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the company operated under were consistent with the Company's reportable segments disclosed in the Company's Annual Report on Form 10-K for fiscal 2019.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance to require lessees to recognize lease assets and lease liabilities from operating leases on the balance sheet. The FASB has issued narrow codification improvements to Leases (Topic 842) through ASU No. 2018-10 and ASU 2019-01. Additionally, the FASB issued ASU 2018-11, allowing an entity to elect a transition method where they do not recast prior periods presented in the financial statements in the period of adoption. The Company has elected the transition method allowed for under ASU 2018-11 when adopting Leases (Topic 842). The Company adopted the standard effective July 1, 2019 and correspondingly recorded incremental operating lease liabilities of $
Pronouncements Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is July 1, 2020. Entities may early adopt beginning after December 15, 2018. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is July 1, 2020 and may be adopted retrospectively or prospectively to eligible costs incurred on or after the date the guidance is first applied. We are currently evaluating the impact of the adoption of ASU 2018-15 on our consolidated financial statements and anticipate that we will adopt the standard prospectively.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. The vast majority of service revenues consist of extended warranty contracts, post contract support (“PCS”), 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. The remaining service revenues were not material to the period and consist of laboratory services recognized at point in time. Given the Company does not have significant historical experience collecting payments from Medicare or insurance providers, the Company considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Accordingly, the Company did not record revenue upon completion of the performance obligation, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. Royalty revenues are primarily based on net sales of the Company’s licensed products by a third party. 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 were not material as of September 30, 2019.
Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.
Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.
Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of September 30, 2019 are not material.
Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of September 30, 2019 and June 30, 2019 were approximately $
Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.
The following tables present our disaggregated revenue for the periods presented.
Revenue by type is as follows:
Quarter Ended |
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September 30, |
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2019 |
2018 |
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Consumables |
$ | $ | ||||||
Instruments |
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Services |
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Total product and services revenue, net |
$ | $ | ||||||
Royalty revenues |
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Total revenues, net |
$ | $ |
Revenue by geography is as follows:
Quarter Ended |
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September 30, |
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2019 |
2018 |
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United States |
$ | $ | ||||||
EMEA, excluding United Kingdom |
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United Kingdom |
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APAC, excluding Greater China |
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Greater China |
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Rest of World |
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Total revenues, net |
$ | $ |
Note 3. Selected Balance Sheet Data:
Inventories:
Inventories consist of (in thousands):
September 30, |
June 30, |
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2019 |
2019 |
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Raw materials |
$ | $ | ||||||
Finished goods(1) |
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Inventories, net |
$ | $ |
(1) Finished goods inventory of $
Property and Equipment:
Property and equipment consist of (in thousands):
September 30, |
June 30, |
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2019 |
2019 |
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Land |
$ | $ | ||||||
Buildings and improvements |
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Machinery and equipment |
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Property and equipment, cost |
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Accumulated depreciation and amortization |
( |
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( |
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Property and equipment, net |
$ | $ |
Intangible Assets:
Intangible assets consist of (in thousands):
September 30, |
June 30, |
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2019 |
2019 |
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Developed technology |
$ | $ | ||||||
Trade names |
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Customer relationships |
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Patents |
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Intangible assets |
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Accumulated amortization |
( |
) |
( |
) |
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Intangible assets, net |
$ | $ |
Changes to the carrying amount of net intangible assets for the quarter ended September 30, 2019 consist of (in thousands):
Beginning balance |
$ | |||
Acquisitions |
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Other additions |
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Amortization expense |
( |
) |
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Currency translation |
( |
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Ending balance |
$ |
The estimated future amortization expense for intangible assets as of September 30, 2019 is as follows (in thousands):
2020 remainder |
$ | |||
2021 |
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2022 |
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2023 |
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2024 |
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Thereafter |
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Total |
$ |
Goodwill:
Changes to the carrying amount of goodwill for the quarter ended September 30, 2019 consist of (in thousands):
Protein Sciences |
Diagnostics and Genomics |
Total |
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Beginning balance |
$ | $ | ||||||||||
Acquisitions (Note 4) |
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Currency translation |
( |
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) |
( |
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Ending balance |
$ | $ | $ |
We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2019. No indicators of impairment were identified as part of our assessment.
No triggering events were identified during the quarter ended September 30, 2019. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC 350 guidance for goodwill and other intangibles on July 1, 2002.
Note 4. Acquisitions:
We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and the results of operations of each acquired business are included in our consolidated statements of comprehensive income from their respective dates of acquisition. Acquisition costs are recorded in selling, general and administrative expenses as incurred.
B-MoGen Biotechnologies
On June 4, 2019, the Company acquired the remaining interest in B-MoGen Biotechnologies Inc. (B-MoGen) for approximately $
Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize our purchasing accounting by the end of the second quarter of fiscal year 2020 when we have finalized our income tax assessment of acquired net operating losses (NOLs) with the completion of the stub period tax returns. Amounts for deferred tax liabilities, acquired NOLs, and goodwill remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed are as follows (in thousand's)
Preliminary Allocation at Acquisition Date |
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Current assets, net of cash |
$ | |||
Equipment and other long-term assets |
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Intangible assets: |
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Developed technology |
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Customer relationships |
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Goodwill |
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Total assets acquired |
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Liabilities |
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Deferred income taxes, net |
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Net assets acquired |
$ | |||
Cash paid, net of cash acquired |
$ | |||
Fair value of contingent consideration |
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Fair value of historical investment in B-MoGen |
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Net assets acquired |
$ |
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase price allocated to developed technology was estimated based on management's forecasted cash inflows and outflows and using a multi-period excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.
The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
Total carrying value as of |
Fair Value Measurements Using Inputs Considered as |
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September 30, 2019 |
Level 1 |
Level 2 |
Level 3 |
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Assets |
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Equity securities (1) |
$ | $ | $ | $ | ||||||||||||
Certificates of deposit (2) |
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Total assets |
$ | $ | $ | $ | ||||||||||||
Liabilities |
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Contingent consideration | $ | $ | $ | $ | ||||||||||||
Derivative instruments - cash flow hedges | ||||||||||||||||
Total liabilities |
$ | $ | $ | $ |
Total carrying value as of |
Fair Value Measurements Using Inputs Considered as |
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June 30, 2019 |
Level 1 |
Level 2 |
Level 3 |
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Assets |
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Equity securities (1) |
$ | $ | $ | $ | ||||||||||||
Certificates of deposit (2) |
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Total assets |
$ | $ | $ | $ | ||||||||||||
Liabilities |
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Contingent consideration | $ | $ | $ | $ | ||||||||||||
Derivative instruments - cash flow hedges | ||||||||||||||||
Total liabilities |
$ | $ | $ | $ |
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(1) |
Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at September 30, 2019 and June 30, 2019 was $ |
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(2) |
Included in available-for-sale investments on the balance sheet. The certificate of deposits have contractual maturity dates within one year. |
Fair value measurements of available for sale securities
Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets.
Fair value measurements of derivative instruments
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company will exchange, at specified intervals, the difference between floating and fixed interest amounts based on $
Fair value measurements of contingent consideration
In connection with the Exosome Diagnostics, Inc. (Exosome), QT Holdings Corporation (Quad), and B-MoGen acquisitions the Company is required to make contingent consideration payments of up to $
The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended September 30, 2019 (in thousands):
Quarter Ended |
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September 30, 2019 |
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Fair value at the beginning of period |
$ | |||
Purchase price contingent consideration (Note 4) |
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Change in fair value of contingent consideration |
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Payments |
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Fair value at the end of period |
$ |
The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility approximates fair value because our interest rate is variable and reflects current market rates.
Note 6. Debt and Other Financing Arrangements:
On August 1, 2018, the Company entered into a new revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $
The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of September 30, 2019, the outstanding balance under the Credit Agreement was $
Note 7. Leases:
As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on July 1, 2019.
The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is Bio-Techne’s incremental borrowing rate or, if available, the rate implicit in the lease. Bio-Techne determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the three months ended September 30, 2019, the Company recognized $
The following table summarizes the balance sheet classification of the Company’s operating leases and amounts of right of use assets and lease liabilities and the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):
Balance Sheet Classification |
As of: September 30, 2019 |
||||
Operating leases: |
|||||
Operating lease right of use assets |
Right of Use Asset |
$ | |||
Current operating lease liabilities |
Operating lease liabilities current |
$ | |||
Noncurrent operating lease liabilities |
Operating lease liabilities |
||||
Total operating lease liabilities |
$ | ||||
Weighted average remaining lease term (in years): |
|||||
Weighted average discount rate: |
% |
The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the three months ended (in thousands):
Three months ended September 30, 2019 |
||||
Cash amounts paid on operating lease liabilities |
$ | |||
Right of use assets obtained in exchange for lease liabilities |
The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):
Operating Leases |
||||
Remainder of 2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
||||
Total |
$ |
Certain leases include one or more options to renew, with terms that extend the lease term up to
years. Bio-Techne includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, Bio-Techne is not reasonably certain to exercise such options.
Disclosures related to periods prior to adoption of new lease standard:
At June 30, 2019, aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of more than one year are payable as follows (in thousands):
Operating Leases |
||||
2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
||||
Total |
$ |
Total rent expense was approximately $
Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):
Supplemental Equity
The Company has declared cash dividends per share of $
Consolidated Changes in Equity (amounts in thousands)
|
|
Accumulated |
||||||||||||||||||||||
Additional |
Other |
|||||||||||||||||||||||
Common Stock | Paid-in |
Retained | Comprehensive |
|||||||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Income(Loss) |
Total |
|||||||||||||||||||
Balances at June 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
Cumulative effect adjustments due to adoption of new accounting standards and other |
( |
) | ( |
) | ||||||||||||||||||||
Net earnings |
||||||||||||||||||||||||
Other comprehensive loss |
( |
) | ( |
) | ||||||||||||||||||||
Common stock issued for exercise of options |
||||||||||||||||||||||||
Common stock issued for restricted stock awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Cash dividends |
( |
) | ( |
) | ||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||
Common stock issued to employee stock purchase plan |
||||||||||||||||||||||||
Employee stock purchase plan expense |
||||||||||||||||||||||||
Balances at September 30, 2019 |
$ | $ | $ | $ | ( |
) | $ |
|
|
Accumulated |
||||||||||||||||||||||
Additional |
Other |
|||||||||||||||||||||||
Common Stock | Paid-in |
Retained | Comprehensive |
|||||||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Income(Loss) |
Total |
|||||||||||||||||||
Balances at June 30, 2018 |
$ | $ | $ | $ | ( |
) |
$ | |||||||||||||||||
Cumulative effect adjustments due to adoption of new accounting standards and other |
( |
) |
||||||||||||||||||||||
Net earnings |
||||||||||||||||||||||||
Other comprehensive loss |
( |
) |
( |
) |
||||||||||||||||||||
Common stock issued for exercise of options |
||||||||||||||||||||||||
Common stock issued for restricted stock awards |
( |
) |
( |
) |
||||||||||||||||||||
Cash dividends |
( |
) |
( |
) |
||||||||||||||||||||
Stock-based compensation expense |
||||||||||||||||||||||||
Common stock issued to employee stock purchase plan |
||||||||||||||||||||||||
Employee stock purchase plan expense |
||||||||||||||||||||||||
Balances at September 30, 2018 |
$ | $ | $ | $ | ( |
) |
$ |
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 entered into in the second quarter of fiscal 2019. There were
The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:
Unrealized Gains (Losses) on Derivative Instruments |
Foreign Currency Translation Adjustments |
Total |
||||||||||
Balance as of June 30, 2019 |
$ | ( |
) | $ | ( |
) |
$ | ( |
) |
|||
Other comprehensive income (loss), net of tax before reclassifications |
( |
) | ( |
) |
( |
) |
||||||
Balance as of September 30, 2019(1) |
$ | ( |
) | $ | ( |
) |
$ | ( |
) |
Unrealized Gains (Losses) on Derivative Instruments |
Foreign Currency Translation Adjustments |
Total |
||||||||||
Balance as of June 30, 2018(2) |
$ | $ | ( |
) |
$ | ( |
) |
|||||
Other comprehensive income (loss), net of tax before reclassifications |
( |
) |
( |
) |
||||||||
Balance as of September 30, 2018 |
$ | $ | ( |
) |
$ | ( |
) |
(1) The gain (loss) on the forward starting interest rate swap will be reclassified into earnings beginning October 31, 2019. Approximately ($
(2) As previously disclosed in our 10-K/A, unrealized gains of $
Note 9. Earnings Per Share:
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
Quarter Ended September 30, |
||||||||
2019 |
2018 |
|||||||
Earnings per share – basic: |
||||||||
Net Income |
$ | $ | ||||||
Income allocated to participating securities |
( |
) |
( |
) |
||||
Income available to common shareholders |
$ | $ | ||||||
Weighted-average shares outstanding |
||||||||
Earnings per share-basic |
$ | $ | ||||||
Earnings per share – diluted: |
||||||||
Net Income |
$ | $ | ||||||
Income allocated to participating securities |
( |
) |
( |
) |
||||
Income available to common shareholders |
$ | $ | ||||||
Weighted average common shares outstanding-basic |
||||||||
Dilutive effect of stock options and restricted stock units |
||||||||
Weighted average common shares outstanding-diluted |
||||||||
Earnings per share-diluted |
$ | $ |
The dilutive effect of stock options and restricted stock units in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was
Note 10. Share-based Compensation:
During the quarter ended September 30, 2019 and 2018, the Company granted
Stock options for
Stock-based compensation expense of $
Note 11. Other Income / (Expense):
The components of other income (expense) in the accompanying Statement of Earnings and Comprehensive Income are as follows:
Quarter Ended |
||||||||
September 30, |
||||||||
2019 |
2018 |
|||||||
Interest expense |
$ | ( |
) |
$ | ( |
) |
||
Interest income |
||||||||
Other non-operating income (expense), net |
( |
) |
( |
) |
||||
Total other income (expense) |
$ | ( |
) |
$ | ( |
) |
Note 12. Income Taxes:
The Company’s effective income tax rate for the first quarter of fiscal 2020 and 2019 was
The Company recognized total net benefits related to discrete tax items of $
The Company continues to monitor changes in interpretations, assumptions guidance, and additional regulations regarding the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017. The Company recognizes potential changes to these items could have a material impact on our effective tax rate in future periods.
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 acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses. The Protein Sciences and Diagnostics and Genomics segments both include consumables, instruments, services and royalty revenue.
The following is financial information relating to the Company's reportable segments (in thousands):
Quarter Ended |
||||||||
September 30, |
||||||||
2019 |
2018 |
|||||||
Net sales: |
||||||||
Protein Sciences |
$ | $ | ||||||
Diagnostics and Genomics |
||||||||
Intersegment |
( |
) |
( |
) |
||||
Consolidated net sales |
$ | $ | ||||||
Operating income: |
||||||||
Protein Sciences |
$ | $ | ||||||
Diagnostics and Genomics |
||||||||
Segment operating income |
||||||||
Costs recognized on sale of acquired inventory |
|
( |
) |
|||||
Amortization of acquisition related intangible assets |
( |
) |
( |
) |
||||
Acquisition related expenses |
( |
) |
( |
) |
||||
Stock-based compensation, inclusive of employer taxes |
( |
) |
( |
) |
||||
Corporate general, selling, and administrative expenses |
( |
) |
( |
) |
||||
Consolidated operating income |
$ | $ |
Note 14. Subsequent Events:
None.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis (“MD&A”) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide quantitative information about discrete tax items and other significant factors we believe are useful for understanding our results. The MD&A should be read in conjunction with both the unaudited 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, 2019. This discussion contains various “Non-GAAP Financial Measures” and also contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP Financial Measures” and “Forward-Looking Information and Cautionary Statements” located at the end of Item 2 of this report.
OVERVIEW
Bio-Techne and its subsidiaries, collectively doing business as Bio-Techne Corporation (Bio-Techne, we, our, us or the Company) develop, manufacture and sell biotechnology reagents, instruments and services for the research and clinical diagnostic markets worldwide. With our deep product portfolio and application expertise, we strive to provide the life sciences community with innovative, high-quality scientific tools to better understand biological processes and drive discovery of diagnostic and therapeutic products.
Consistent with prior year, we have operated with two segments – our Protein Sciences segment and our Diagnostics and Genomics segment during fiscal year 2020. Our Protein Sciences segment is a leading developer and manufacturer of high-quality purified proteins and reagent solutions, most notably cytokines and growth factors, antibodies, immunoassays, biologically active small molecule compounds, tissue culture reagents and T-Cell activation technologies. This segment also includes protein analysis solutions that offer researchers efficient and streamlined options for automated western blot and multiplexed ELISA workflow. Our Genomics and Diagnostics segment develops and manufactures diagnostic products, including FDA-regulated controls, calibrators, blood gas and clinical chemistry controls and other reagents for OEM and clinical customers, as well as a portfolio of clinical molecular diagnostic oncology assays, including the ExoDx®Prostate(IntelliScore) test (EPI) for prostate cancer diagnosis. This segment also manufactures and sells advanced tissue-based in-situ hybridization assays (ISH) for research and clinical use.
RECENT ACQUISITIONS
A key component of the Company's strategy is to augment internal growth at existing businesses with complementary acquisitions. The Company did not make any acquisitions in the three months ended September 30, 2019. Refer to the prior year Annual Report on form 10-K for additional disclosure regarding the Company's recent acquisitions.
RESULTS OF OPERATIONS
Consolidated net sales increased 12% for the quarter ended September 30, 2019 compared to the same prior year period. Organic growth was 13% for the quarter ended September 30, 2019 compared to the same prior year period, with foreign currency exchange having an unfavorable impact of 1% and acquisitions contributing less than 1% to revenue growth.
Consolidated net earnings decreased 17% for the quarter ended September 30, 2019 compared to the same prior year period due to an unrealized loss on our CCXI investment, which was partially offset by the timing of stock compensation expense recognized as a result of adding new requirements for certain vesting eligibility.
Net Sales
Consolidated net sales for the quarter ended September 30, 2019 were $183.2 million, an increase of 12% from the same prior year period. Organic growth was 13% for the quarter ended September 30, 2019 compared to the same prior year period, with foreign currency exchange having an unfavorable impact of 1% and acquisitions contributing less than 1% to revenue growth.
For the quarter ended September 30, 2019 by geography, the Company experienced broad based revenue growth across products and end markets with each major geographical region achieving double-digit organic growth and with China obtaining nearly 20% organic growth.
Gross Margins
Consolidated gross margins for the quarter ended September 30, 2019 and September 30, 2018 were 64.6% and 66.0%, respectively. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold. Excluding the impact of acquired inventory sold, stock compensation expense, and amortization of intangibles, adjusted gross margins were 69.5% and 72.0% for the quarter ended September 30, 2019 and 2018, respectively. Both consolidated gross margins and non-GAAP adjusted gross margins were negatively impacted by product mix and unfavorable foreign exchange rates for the quarter ended September 30, 2019 as compared to the prior year.
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, |
||||||||
2019 |
2018 |
|||||||
Consolidated gross margin percentage |
64.6 | % |
66.0 | % |
||||
Identified adjustments: |
||||||||
Costs recognized upon sale of acquired inventory |
- | % |
0.6 | % |
||||
Amortization of intangibles |
4.7 | % |
5.4 | % |
||||
Stock compensation expense - COGS | 0.2 | % | - | % | ||||
Non-GAAP adjusted gross margin percentage |
69.5 | % |
72.0 | % |
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.0 million (3%) for the quarter ended September 30, 2019 from the same prior year period. The increase was driven by recent acquisitions, which was partially offset by the timing of stock compensation expense recognized as a result of adding new requirements for certain vesting eligibility.
Research and Development Expenses
Research and development expenses for the quarter ended September 30, 2019 increased $1.3 million (9%) from the same prior year period. The increase was driven by additional expense from the ExosomeDx acquisition, which was acquired in August of 2019.
Segment Results
Protein Sciences
Quarter Ended |
||||||||
September 30, |
||||||||
2019 |
2018 |
|||||||
Net sales (in thousands) |
$ | 140,995 | $ | 126,391 | ||||
Operating margin percentage |
42.2 | % |
43.2 | % |
Protein Science’s net sales for the quarter ended September 30, 2019 were $141.0 million with reported growth of 12% compared to the same prior year period. Organic growth for the quarter ended September 30, 2019 was 12% with acquisitions contributing 1% and currency exchange having an unfavorable impact of 1%. Segment growth was broad-based and especially strong in the proteins, antibodies, and the Simple Western product categories.
The operating margin for the quarter ended September 30, 2019 was 42.2% compared to 43.2% for the same prior year period. Operating income margin was negatively impacted by product mix and unfavorable foreign exchange.
Diagnostics and Genomics
Quarter Ended |
||||||||
September 30, |
||||||||
2019 |
2018 |
|||||||
Net sales (in thousands) |
$ | 42,552 | $ | 36,747 | ||||
Operating margin percentage |
2.1 | % |
6.9 | % |
Diagnostics and Genomics’ net sales for the quarter ended September 30, 2019 were $42.6 million compared to $36.7 million for the same prior year period. Organic growth for the quarter ended September 30, 2019 was 16% with acquisitions contributing 1% and currency exchange having an unfavorable impact of 1%. Segment growth was broad-based and especially strong in our RNAscope and hematology products.
The operating margin for the segment was 2.1% for the quarter ended September 30, 2019 compared to 6.9% for the same prior year period. Operating income margin was negatively impacted by the acquisition of ExosomeDx, which was acquired in August of 2019.
Income Taxes
Income taxes for the quarter ended September 30, 2019 were at an effective rate of 19.1% of consolidated earnings before income taxes compared to 1.0% for the quarter ended September 30, 2018. The change in the Company’s tax rate for the quarter ended September 30, 2019 was driven by discrete tax items of $1.3 million compared to prior year discrete tax items of $4.2 million as further discussed in Note 12.
The forecasted tax rate as of the first fiscal quarter of 2020 before discrete items is 26.3% compared to the prior year forecasted tax rate before discrete items of 24.6%. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 2020 to range from 24% to 28%.
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows:
Quarter Ended |
||||||||
September 30, |
||||||||
2019 |
2018 |
|||||||
Net earnings |
$ | 14,398 | $ | 17,403 | ||||
Identified adjustments: |
||||||||
Costs recognized upon sale of acquired inventory |
- | 935 | ||||||
Amortization of acquisition intangibles |
14,901 | 14,276 | ||||||
Acquisition related expenses |
1,404 | 2,722 | ||||||
Stock-based compensation, inclusive of employer taxes |
8,800 | 11,565 | ||||||
Realized and unrealized (gain)loss on investments |
10,401 | 2,202 | ||||||
Tax impact of above adjustments |
(6,982 | ) |
(6,712 | ) |
||||
Tax impact of discrete tax items |
(1,271 | ) |
(4,176 | ) |
||||
Non-GAAP adjusted net earnings |
$ | 41,651 | $ | 38,215 | ||||
Non-GAAP adjusted net earnings growth |
9.0 | % |
12.5 | % |
Depending on the nature of discrete tax items, our reported tax rate may not be consistent on a period to period basis. The Company independently calculates a non-GAAP adjusted tax rate considering the impact of discrete items and jurisdictional mix of the identified non-GAAP adjustments. The following table summarizes the reported GAAP tax rate and the effective Non-GAAP adjusted tax rate for the quarter ended September 30, 2019 and September 30, 2018.
Quarter Ended |
||||||||
September 30, |
||||||||
2019 |
2018 |
|||||||
Reported GAAP tax rate |
19.1 | % |
1.0 | % |
||||
Tax rate impact of: |
||||||||
Identified non-GAAP adjustments |
(4.3 | )% |
(2.1 | )% |
||||
Discrete tax items |
7.1 | % |
23.6 | % |
||||
Non-GAAP adjusted tax rate |
21.9 | % |
22.5 | % |
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the quarter ended September 30, 2019 is primarily a result of discrete tax items, including the tax benefit of stock option exercises.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2019, cash and cash equivalents and available-for-sale investments were $158.4 million compared to $166.0 million as of June 30, 2019. Included in available-for-sale-investments as of September 30, 2019 was the fair value of the Company's investment in ChemoCentryx, Inc. (CCXI) of $27.8 million. The fair value of the Company's CCXI investment at June 30, 2019 was $38.2 million.
The Company has a line-of-credit and term loan governed by a Credit Agreement dated August 1, 2018. See Note 6 to the Condensed Consolidated Financial Statements for a description of the Credit Agreement.
The Company has contingent consideration payments of up to $325 million, $51 million, and $38 million relating to the Exosome, Quad, and B-MoGen acquisitions. The fair value of the remaining payments is $13.3 million as of September 30, 2019.
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 $40.5 million from operating activities in the first quarter of fiscal 2020 compared to $39.4 million in the first quarter of fiscal 2019. The increase from the prior year was primarily due to timing of cash payments on operating assets and liabilities.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures. The Company did not make any cash payments for acquisitions in the first quarter of fiscal 2020 compared to $272.2 million paid in the first quarter of fiscal 2019 for the Quad and ExosomeDx acquisitions.
Capital expenditures for fixed assets for the first quarter of fiscal 2020 and 2019 were $10.5 million and $4.1 million, respectively. Capital expenditures for the remainder of fiscal 2020 are expected to be approximately $50 million. Capital expenditures are expected to be financed through currently available funds and cash generated from operating activities.
Cash Flows From Financing Activities
During the first quarter of fiscal 2020 and 2019, the Company paid cash dividends of $12.2 million and $12.1 million, respectively, to all common shareholders. On October 29, 2019, the Company announced the payment of a $0.32 per share cash dividend, or approximately $12.1 million, will be payable November 22, 2019 to all common shareholders of record on November 8, 2019.
Cash of $9.0 million and $16.5 million was received during the first quarter of fiscal 2020 and 2019, respectively, from the exercise of stock options.
During the first quarter of fiscal 2020, the Company made payments of $19.1 million payment towards the balance of its line-of-credit facility. During the first quarter of fiscal 2019, the Company made payments of $339.0 million towards the balance of its previous line-of-credit facility and borrowed $330.0 million and $250.0 million under its new line-of-credit facility and term loan, respectively.
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 Exosome, Quad, and B-MoGen and acquisitions, there were no material changes outside the ordinary course of business in the Company's contractual obligations during the quarter ended September 30, 2019.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K/A for fiscal 2019 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 U.S. (GAAP). These non-GAAP measures include:
• Organic Growth
• Adjusted gross margin
• Adjusted net earnings
• Adjusted effective tax rate
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months 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 and adjusted net earnings exclude the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, and acquisition related expenses. The Company excludes amortization of purchased intangible assets and purchase accounting adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses, 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 net earnings also excludes stock-based compensation expense, 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, and the variety of award types. 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.
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 2019 as filed with the Securities and Exchange Commission and Part II. Item 1A below.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2019, the Company held an investment in the common stock of CCXI. The investment was included in short-term available-for-sale investments at its fair value of $28 million. As of September 30, 2019, the potential loss in fair value due to a 10% decrease in the market value of CCXI was $2.8 million.
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the quarter ended September 30, 2019, approximately 28% of consolidated net sales were made in foreign currencies, including 13% in euros, 4% in British pound sterling, 5% in Chinese yuan and the remaining 6% in other currencies. The Company is exposed to market risk mainly from foreign exchange rate fluctuations of the euro, British pound sterling, the Chinese yuan, and the Canadian dollar, as compared to the U.S. dollar as the financial position and operating results of the Company's foreign operations are translated into U.S. dollars for consolidation.
Month-end average exchange rates between the British pound sterling, euro, Chinese yuan and Canadian dollar, which have not been weighted for actual sales volume in the applicable months in the periods, to the U.S. dollar were as follows:
Quarter Ended |
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September 30, |
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2019 |
2018 |
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Euro |
$ | 1.10 | $ | 1.17 | ||||
British pound sterling |
1.22 | 1.31 | ||||||
Chinese yuan |
0.14 | 0.15 | ||||||
Canadian dollar |
0.76 | 0.77 |
The Company's exposure to foreign exchange rate fluctuations also arises from trade receivables, trade payables and intercompany payables denominated in one currency in the financial statements, but receivable or payable in another currency. The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from September 30, 2019 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) |
$ | 2,699 | ||
Decrease in translation of net assets of foreign subsidiaries |
43,142 | |||
Additional transaction losses |
903 |
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). The Company's management has evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered in this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, our disclosure controls and procedures were effective.
(b) Changes in internal controls over financial reporting.
There were no changes in the Company's internal control over financial reporting during the first quarter of fiscal year 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
As of November 6, 2019, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.
During the three months ended September 30, 2019, 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, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There was no share repurchase activity by the Company in the quarter ended September 30, 2019.
ITEM 3. DEFAULT ON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
EXHIBIT INDEX
TO
FORM 10-Q
BIO-TECHNE CORPORATION
Exhibit Number |
Description |
3.1 |
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3.2 |
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10.1** |
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10.2** |
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10.3** |
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10.4** |
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10.5** |
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10.6** |
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10.7** |
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10.8** |
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10.9** |
Exhibit Number |
Description |
10.10** |
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10.11 |
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10.12** |
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10.13 |
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10.14 |
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21 |
31.1 |
Certificate of Chief Executive Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002 |
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31.2 |
Certificate of Chief Financial Officer pursuant to section 302 of the Sarbanes Oxley Act of 2002 |
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32.1 |
Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
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32.2 |
Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
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101 |
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, 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) |
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* Incorporated by reference; SEC File No. 000-17272
** Management contract or compensatory plan or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BIO-TECHNE CORPORATION |
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(Company) |
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Date: November 6, 2019 |
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/s/ Charles R. Kummeth |
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Charles R. Kummeth |
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Principal Executive Officer |
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Date: November 6, 2019 |
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/s/ James Hippel |
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James Hippel |
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Principal Financial Officer |
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29