UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended MarchDecember 31, 2021, or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-17272
BIO-TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota | 41-1427402 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
614 McKinley Place N.E. Minneapolis, MN 55413 | (612) 379-8854 |
(Address of principal executive offices) (Zip Code) | (Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | TECH | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2). ☐ Yes ☒ No
At May 3rd, 2021, 38,891,663February 3, 2022, 39,288,254 shares of the Company's Common Stock (par value $0.01) were outstanding.
Page | ||
Item 1. | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
ITEM1. 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 March 31, | Nine Months Ended March 31, | Quarter Ended December 31, | Six Months Ended December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Net sales | $ | 243,552 | $ | 194,680 | $ | 672,004 | $ | 562,857 | $ | 269,276 | $ | 224,253 | $ | 526,995 | $ | 428,452 | ||||||||||||||||
Cost of sales | 75,278 | 64,617 | 215,098 | 192,977 | 85,585 | 73,353 | 172,307 | 139,821 | ||||||||||||||||||||||||
Gross margin | 168,274 | 130,063 | 456,906 | 369,880 | 183,691 | 150,900 | 354,688 | 288,631 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 82,596 | 66,318 | 238,310 | 203,358 | 100,693 | 83,116 | 186,868 | 155,714 | ||||||||||||||||||||||||
Research and development | 17,052 | 15,954 | 49,882 | 48,413 | 20,650 | 16,789 | 42,250 | 32,830 | ||||||||||||||||||||||||
Total operating expenses | 99,648 | 82,272 | 288,192 | 251,771 | 121,343 | 99,905 | 229,118 | 188,544 | ||||||||||||||||||||||||
Operating income | 68,626 | 47,791 | 168,714 | 118,109 | 62,348 | 50,995 | 125,570 | 100,087 | ||||||||||||||||||||||||
Other (expense) income | (23,272 | ) | (970 | ) | (27,652 | ) | 96,843 |
| ||||||||||||||||||||||||
Other income (expense) | 23,831 | 5,373 | 27,992 | (4,381 | ) | |||||||||||||||||||||||||||
Earnings before income taxes | 45,354 | 46,821 | 141,062 | 214,952 | 86,179 | 56,368 | 153,562 | 95,706 | ||||||||||||||||||||||||
Income taxes | (48 | ) | 10,389 | 16,121 | 44,501 | |||||||||||||||||||||||||||
Income taxes (benefit) | 14,120 | 10,224 | 12,522 | 16,168 | ||||||||||||||||||||||||||||
| Net earnings, including noncontrolling interest | 45,402 | 36,432 | 124,941 | 170,451 | 72,059 | 46,144 | 141,040 | 79,538 | ||||||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interest | (380 | ) | 0 | (509 | ) | 0 | (8,114 | ) | (130 | ) | (8,748 | ) | (130 | ) | ||||||||||||||||||
| Net earnings attributable to Bio-Techne | $ | 45,782 | $ | 36,432 | $ | 125,450 | $ | 170,451 | $ | 80,173 | $ | 46,274 | $ | 149,788 | $ | 79,668 | ||||||||||||||||
Other comprehensive (loss) income: | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (1,142 | ) | (19,403 | ) | 27,700 |
| (15,138 | ) | 1,924 | 16,928 | (6,722 | ) | 28,842 | |||||||||||||||||||
Derivative instruments - cash flow hedges | 1,288 |
| (5,702 | ) | 5,490 |
| (4,798 | ) | ||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8 | 2,884 | 2,059 | 4,566 | 4,202 | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | 146 |
| (25,105 | ) | 33,190 |
| (19,936 | ) | 4,808 | 18,987 | (2,156 | ) | 33,044 | |||||||||||||||||||
| Other comprehensive income (loss) attributable to noncontrolling interest | (69 | ) | 0 | 14 | 0 | 66 | 83 | 27 | 83 | |||||||||||||||||||||||
| Other comprehensive income attributable to Bio-Techne | 215 | (25,105 | ) | 33,176 | (19,936 | ) | ||||||||||||||||||||||||||
Other comprehensive income (loss) attributable to Bio-Techne | 4,742 | 18,904 | (2,183 | ) | 32,961 | |||||||||||||||||||||||||||
Comprehensive income attributable to Bio-Techne | $ | 45,997 | $ | 11,327 | $ | 158,626 | $ | 150,515 | $ | 84,915 | $ | 65,178 | $ | 147,605 | $ | 112,629 | ||||||||||||||||
Earnings per share attributable to Bio-Techne: | ||||||||||||||||||||||||||||||||
Basic | $ | 1.18 | $ | 0.95 | $ | 3.24 | $ | 4.46 | $ | 2.04 | $ | 1.20 | $ | 3.82 | $ | 2.06 | ||||||||||||||||
Diluted | $ | 1.12 | $ | 0.92 | $ | 3.11 | $ | 4.33 | $ | 1.94 | $ | 1.15 | $ | 3.64 | $ | 1.98 | ||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 38,856 | 38,303 | 38,693 | 38,167 | 39,310 | 38,691 | 39,202 | 38,614 | ||||||||||||||||||||||||
Diluted | 40,676 | 39,435 | 40,305 | 39,354 | 41,207 | 40,257 | 41,159 | 40,135 | ||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries
(in thousands, except share and per share data)
March 31, | June 30, | December 31, | June 30, | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 186,136 | $ | 146,625 | $ | 211,845 | $ | 199,091 | ||||||||
Short-term available-for-sale investments | 90,108 | 124,268 | 67,135 | 32,463 | ||||||||||||
Accounts receivable, net of $1,428 and $775 of reserves, respectively | 157,790 | 122,534 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $1,334 and $1,229, respectively | 152,896 | 145,385 | ||||||||||||||
Inventories | 109,990 | 103,152 | 121,858 | 116,748 | ||||||||||||
Other current assets | 22,582 | 24,341 | 36,496 | 16,919 | ||||||||||||
Total current assets | 566,606 | 520,920 | 590,230 | 510,606 | ||||||||||||
Property and equipment, net | 198,975 | 176,829 | 211,814 | 207,907 | ||||||||||||
Right of use asset | 71,830 | 71,465 | 64,293 | 73,834 | ||||||||||||
Goodwill | 746,460 | 728,308 | 832,056 | 843,067 | ||||||||||||
Intangible assets, net | 489,178 | 516,545 | 569,347 | 615,968 | ||||||||||||
Other assets | 11,593 | 13,522 | 37,106 | 11,575 | ||||||||||||
Total assets | $ | 2,084,642 | $ | 2,027,589 | $ | 2,304,846 | $ | 2,262,957 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Trade accounts payable | $ | 25,842 | $ | 23,090 | $ | 26,756 | $ | 29,384 | ||||||||
Salaries, wages and related accruals | 43,268 | 31,087 | 43,921 | 51,294 | ||||||||||||
Accrued expenses | 15,689 | 9,093 | 18,991 | 15,282 | ||||||||||||
Contract liabilities | 18,714 | 13,049 | 19,081 | 18,995 | ||||||||||||
Income taxes payable | 3,562 | 2,376 | 14,284 | 5,336 | ||||||||||||
Operating lease liabilities - current | 10,414 | 9,535 | 11,809 | 11,602 | ||||||||||||
Contingent consideration payable | 5,070 | 5,938 | 2,000 | 4,000 | ||||||||||||
Current portion of long-term debt obligations | 12,500 | 12,500 | 12,500 | 12,500 | ||||||||||||
Other current liabilities | 2,581 | 0 | 5,467 | 3,891 | ||||||||||||
Total current liabilities | 137,640 | 106,668 | 154,809 | 152,284 | ||||||||||||
Deferred income taxes | 98,401 | 101,090 | 101,423 | 93,125 | ||||||||||||
Long-term debt obligations | 202,931 | 344,243 | 269,618 | 328,827 | ||||||||||||
Long-term contingent consideration payable | 7,100 | 199 | 7,000 | 25,400 | ||||||||||||
Operating lease liabilities | 66,816 | 67,248 | 57,718 | 67,625 | ||||||||||||
Other long-term liabilities | 23,812 | 26,949 | 11,747 | 24,462 | ||||||||||||
Bio-Techne's shareholders' equity: | ||||||||||||||||
Bio-Techne's Shareholders' equity: | ||||||||||||||||
Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding | 0 | 0 | 0 | 0 | ||||||||||||
Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 38,854,000 and 38,453,046, respectively | 389 | 385 | ||||||||||||||
Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 39,319,766 and 38,955,484, respectively | 393 | 390 | ||||||||||||||
Additional paid-in capital | 514,299 | 420,536 | 616,429 | 534,411 | ||||||||||||
Retained earnings | 1,088,788 | 1,057,470 | 1,145,641 | 1,085,461 | ||||||||||||
Accumulated other comprehensive loss | (64,023 | ) | (97,199 | ) | (59,474 | ) | (57,291 | ) | ||||||||
Total Bio-Techne shareholders' equity | 1,539,453 | 1,381,192 | ||||||||||||||
Total Bio-Techne’s shareholders' equity | 1,702,989 | 1,562,971 | ||||||||||||||
Noncontrolling interest | 8,489 | 0 | (458 | ) | 8,263 | |||||||||||
Total shareholders’ equity | 1,547,942 | 1,381,192 | 1,702,531 | 1,571,234 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 2,084,642 | $ | 2,027,589 | $ | 2,304,846 | $ | 2,262,957 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
(unaudited)
Nine Months Ended | Six Months Ended | |||||||||||||||
March 31, | December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings | $ | 124,941 | $ | 170,451 | ||||||||||||
Net earnings, including noncontrolling interest | $ | 141,040 | $ | 79,538 | ||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 63,075 | 61,746 | 49,836 | 41,972 | ||||||||||||
Costs recognized on sale of acquired inventory | 91 | 0 | 1,596 | 23 | ||||||||||||
Deferred income taxes | (6,023 | ) | 8,641 |
| 7,233 | 216 | ||||||||||
Stock-based compensation expense | 39,174 | 26,350 | 25,706 | 28,531 | ||||||||||||
| Contingent consideration payments | (155 | ) | 0 | (3,300 | ) | (155 | ) | |||||||||
Fair value adjustment to contingent consideration payable | 6,188 |
| (605 | ) | (16,400 | ) | 4,600 | |||||||||
Fair value adjustment on available for sale investments | 10,234 | (111,267 | ) | (33,672 | ) | (6,356 | ) | |||||||||
Asset impairment restructuring | 546 | 0 | ||||||||||||||
| Eminence impairment | 18,715 | 0 | ||||||||||||||
| Leases, net | 83 | 191 | (501 | ) | 113 | |||||||||||
Other operating activity | (608 | ) | (865 | ) | 383 | 324 | ||||||||||
Change in operating assets and operating liabilities, net of acquisition: | ||||||||||||||||
Trade accounts and other receivables, net | (32,710 | ) | 2,692 |
| (9,347 | ) | (2,327 | ) | ||||||||
Inventories | (4,115 | ) | (10,009 | ) | (8,700 | ) | (586 | ) | ||||||||
Other current assets | 414 | (1,995 | ) | |||||||||||||
Prepaid expenses | (7,025 | ) | (1,508 | ) | ||||||||||||
Trade accounts payable, accrued expenses, contract liabilities, and other | 12,198 | 10,031 | (175 | ) | 8,624 | |||||||||||
Salaries, wages and related accruals | 13,829 | (5,090 | ) | (10,408 | ) | (1,713 | ) | |||||||||
Income taxes payable | 3,528 | 10,155 |
| (6,100 | ) | 3,982 | ||||||||||
Net cash provided by operating activities | 230,144 | 160,426 | ||||||||||||||
Net cash provided by (used in) operating activities | 149,427 | 155,278 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Proceeds from sale and maturities of available-for-sale investments | 66,377 | 122,667 | ||||||||||||||
Proceeds from maturities of available-for-sale investments | 12,450 | 43,146 | ||||||||||||||
Purchases of available-for-sale investments | (39,684 | ) | (50,728 | ) | (13,500 | ) | (27,184 | ) | ||||||||
Additions to property and equipment | (32,985 | ) | (34,371 | ) | (16,238 | ) | (22,383 | ) | ||||||||
| Investment in unconsolidated entity | (556 | ) | 0 | |||||||||||||
Acquisitions, net of cash acquired | (9,765 | ) | 0 |
| 0 | (9,765 | ) | |||||||||
| Investment of forward purchase contract | (25,000 | ) | 0 | |||||||||||||
Other investing activity | 0 | (556 | ) | |||||||||||||
Net cash provided by (used in) investing activities | (16,613 | ) | 37,568 |
| (42,288 | ) | (16,742 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Cash dividends | (37,174 | ) | (36,644 | ) | (25,069 | ) | (24,728 | ) | ||||||||
Proceeds from stock option exercises | 54,992 | 38,490 | 56,500 | 32,337 | ||||||||||||
Re-purchase of common stock | (43,178 | ) | (50,112 | ) | ||||||||||||
Proceeds from long-term debt | 0 | 40,000 | ||||||||||||||
| Re-purchases of common stock | (41,294 | ) | 0 | |||||||||||||
| Borrowings under line-of-credit agreement | 50,000 | 0 | ||||||||||||||
Repayments of long-term debt | (141,375 | ) | (125,375 | ) | (109,250 | ) | (125,250 | ) | ||||||||
| Contingent consideration payments | (700 | ) | 0 | |||||||||||||
Other financing activity | (13,504 | ) | (5,441 | ) | (23,247 | ) | (7,371 | ) | ||||||||
Net cash provided by (used in) financing activities | (180,239 | ) | (139,082 | ) | (93,060 | ) | (125,012 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 6,219 |
| (3,582 | ) | (1,325 | ) | 5,377 | |||||||||
Net increase (decrease) in cash and cash equivalents | 39,511 | 55,330 |
| |||||||||||||
Net change in cash and cash equivalents | 12,754 | 18,901 | ||||||||||||||
Cash and cash equivalents at beginning of period | 146,625 | 100,886 | 199,091 | 146,625 | ||||||||||||
Cash and cash equivalents at end of period | $ | 186,136 | $ | 156,216 | $ | 211,845 | $ | 165,526 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid for income taxes | $ | 17,957 | $ | 24,851 | $ | 15,368 | $ | 11,007 | ||||||||
Cash paid for interest | $ | 10,729 | $ | 14,196 | $ | 6,144 | $ | 7,779 | ||||||||
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, 2020,2021, included in the Company's Annual Report on Form 10-K for fiscal year 2020.2021. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal year 2020.2021. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.
During the ninesix months ended MarchDecember 31, 2021, the Company operated under two operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the Company operated under were consistent with the Company's operating segments disclosed in the Company's Annual Report on Form 10-K for fiscal 2020.2021.
Recently Adopted Accounting PronouncementsGoodwill:
In June 2016, the FASB issued ASU 2016-13,second Financial Instruments - Credit Losses (Topicquarter of fiscal 3262022,) Changzhou Eminence Biotechnology Co., MeasurementLtd. (Eminence) notified the Company of Credit Losses on Financial Instruments. The amendment in this update replaced the previous incurred loss impairment methodology with a methodology that reflects expected credit losses on financial instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intendedneed for additional capital to provide financial statement users with more decision-useful information about the expected credit losses.execute its growth plan. The Company adopted this standard on July 1, 2020 firstusing a modified retrospective transition approach with a cumulative impact of $0.3 million attempted to retained earnings.find outside equity financing support for the Eminence investment but was unable to do so. The adoption of this ASUCompany then reviewed the additional financing needs required to successfully ramp Eminence’s business, which ultimately did not havemeet the Company’s return on capital requirements. Therefore, the Company did not provide additional funding to Eminence. As a materialresult of not obtaining additional financing, Eminence notified the Company of its plans to cease operations and liquidate its business.
Given the upcoming liquidation process to dispose of the Eminence assets, the Company identified a triggering event in the second quarter of fiscal 2022 and performed impairment testing. The impairment testing resulted in a full impairment of the Eminence goodwill and intangible assets, which resulted in charges of $8.3 million and $8.6 million, respectively. The Company also recognized inventory and fixed asset impairment charges of $0.9 million and $0.9 million, respectively.
The Company recorded the impairment charges within the General and Administrative line in the Consolidated Income Statement. The impact on net income attributable to Bio-Techne was approximately $8 million, after taking into effect non-controlling interest holders. The remaining net tangible assets of Eminence included in our Consolidated Balance Sheet were approximately $4 million and primarily consisted of fixed assets and related deposits of $3.7 million, inventory of $0.9 million, receivables of $0.6 million, and other current assets of $0.2 million. The Company also had $1.6 million related to current liabilities. The Company holds a financial interest of approximately 57.4% in those tangible assets in the Company's financial statements as the Company's primary financial instruments impacted by the ASU were trade accounts receivable, where we have high historical and expected future collections due to the length of receivables and the credit quality of our customers.liquidation process.
Investments: In August 2018,December 2021, the FASB issued ASUCompany paid $25 million to enter into a No.two2018-15,Customer's Accounting for Implementation Costs Incurred-part forward contract which requires the Company to make an initial ownership investment followed by purchase of full equity interest in a Cloud Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement thatWilson Wolf Corporation (Wilson Wolf) if certain annual revenue or EBITDA thresholds are met. Wilson Wolf is a serviceleading manufacturer of cell culture devices, including the G-Rex product line.
The first part of the forward contract withis triggered upon Wilson Wolf achieving approximately $92 million in annual revenue or $55 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) at any point prior to December 31, 2027. Once triggered, the requirementsCompany is required to make an additional investment of $231 million in exchange for capitalizing implementation costs incurreda 19.9% ownership stake. If Wilson Wolf doesn’t achieve the revenue and EBITDA targets by December 31, 2027, the agreement will expire.
Once the first part of the forward contract is triggered, the second part of the forward contract will automatically trigger, and requires the Company to developacquire the remaining equity interest in Wilson Wolf on December 31, 2027 based on a revenue multiple. The second part of the contract would be accelerated in advance of December 31, 2027, if Wilson Wolf meets its second milestone of approximately $226 million in annual revenue or obtain internal-use software.$136 million in annual EBITDA. If the second milestone is achieved, the forward contract requires the Company to pay approximately $1 billion plus potential consideration for revenue in excess of the revenue milestone. The accountingapproximate multiple for total expected payments of the second forward contract is 4.4 times the annual revenue of Wilson Wolf. The Company has elected to apply the measurement alternative as detailed under ASC 321-10-35-2 for the service element of a hosting arrangement that is a service contract is not affected by the new standard.Wilson Wolf investment. The Company adopted this standard onrecorded the $25 million payment as a prospectivecost basis on July 1, 2020. The Company will record eligible costs to be capitalizedinvestment within prepaidOther long-term assets or other non-current assets depending on the nature of the duration of the asset. Consolidated Balance Sheet.
Pronouncements Issued But Not Yet Adopted
In March 2020, the FASB issued ASU No.2020-04,Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021 issued ASU No.2021-01,Reference Rate Reform (Topic 848): Scope. These ASUs provide expedients and exceptions to existing guidance on contract modifications and hedge accounting that is optional to facilitate the market transition from a reference rate, including LIBOR which is being phased out in 2021, to a new reference rate. The provisions of the ASUs would impact contract modifications and other changes that occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within these ASUs and is also reviewing its debt and derivative instrument that utilizes LIBOR as the reference rate. The Company will continue to evaluate and monitor developments and our assessment of ASU 2020-04 and ASU 2021-01 during the LIBOR transition period.
Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairments and disposals of assets associated with such actions. Employee-related severance charges are based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Asset impairment and disposal charges include right of use assets, leasehold improvements, and other asset write-downs associated with combining operations and disposal of assets.
In September 2021, the Company informed employees of our decision to close our Exosome Diagnostics Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome Diagnostics business. The closure of the site is expected to be completed in the third quarter of fiscal 2022. As a result of the restructuring activities, an estimated pre-tax charge of $1.2 million was recorded within our Diagnostics and Genomics segment during the first quarter of fiscal 2022. Additional charges of approximately $0.5 million were recorded in the quarter ended December 31, 2021. These additional charges related to the refinement of our estimated close down costs as well as miscellaneous shut-down costs incurred during the quarter. Total restructuring charges for the closure of the Exosome Diagnostics Germany facility for the six months ended December 31, 2021 were recorded within operating income on the income statement as follows (in thousands):
Employee Severance | Asset Impairment and other | Total | ||||||||||
Selling, general and administrative | $ | 940 | $ | 750 | $ | 1,690 | ||||||
Restructuring actions, including cash and non-cash impacts, are as follows (in thousands):
Employee Severance | Other | Total | ||||||||||
| Accrued restructuring action balances as of September 31, 2021(1) | $ | 639 | $ | 364 | $ | 1,003 | ||||||
| Incremental expense incurred in the second quarter of fiscal 2022 | 0 | 242 | 242 | |||||||||
| Cash payments | (370 | ) | (242 | ) | (612 | ) | ||||||
| Adjustments | 301 | (37 | ) | 264 | ||||||||
Accrued restructuring actions balances as of December 31, 2021 | $ | 570 | $ | 327 | $ | 897 | ||||||
(1) The expense recorded for the three months ended September 31,2021 of $1.2 million included $0.2 million related to the non-cash impairment of fixed assets.
During the second quarter of fiscal 2022, the Company also incurred a restructuring charge of $0.2 million related to employee severance for the relocation of a US plant. This charge is recorded within Other current liabilities as of December 31, 2021. There were 0 cash payments related to this restructuring during the period ended December 31, 2021.
Recently Adopted Accounting Pronouncements
There were no accounting pronouncements adopted in the first and second quarter of fiscal 2022. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2021.
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. 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. Service revenues also include laboratory services recognized at point in time. Prior to fiscal year 2021, the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers and considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Given Medicare coverage for our laboratory services became effective on December 1, 2019,,the Company considered that it hadto have sufficient data to estimate variable consideration as of July 1, 2020 for laboratory services that are reimbursed by Medicare. The amount of cash received in fiscal year 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $0.5 million. The Company continues to record revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration remains constrained. 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 MarchDecember 31, 2021.
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 thethe 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 MarchDecember 31, 2021 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 MarchDecember 31, 2021 31,2021and June 30, 20202021 were approximately $appro19.7 ximately $20.8 mmillionillion and $14.2$20.0 million, respectively. Contract liabilities as of June 30, 20202021 subsequently recognized as revenue during the quarter and ninesix month period ended MarchDecember 31, 2021 were approximately $approxim1.6 ately $3.6 million and $9.7 $13.3 million, respectively.respectively. Contract liabilities in excess of one year are included in Other long-term liabilities on the consolidated balance sheet.
Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.
The following tables present our disaggregated revenue for the periods presented.
Revenue by type is as follows:
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Consumables | $ | 198,818 | $ | 161,958 | $ | 542,909 | $ | 462,660 | $ | 212,706 | $ | 177,464 | $ | 418,397 | $ | 344,091 | ||||||||||||||||
Instruments | 24,748 | 16,405 | 70,849 | 53,381 | 33,353 | 26,529 | 63,222 | 46,101 | ||||||||||||||||||||||||
Services | 14,503 | 11,426 | 45,142 | 32,917 | 17,354 | 15,175 | 33,611 | 30,639 | ||||||||||||||||||||||||
Total product and services revenue, net | $ | 238,069 | $ | 189,789 | $ | 658,900 | $ | 548,958 | $ | 263,413 | $ | 219,168 | $ | 515,230 | $ | 420,831 | ||||||||||||||||
Royalty revenues | 5,483 | 4,891 | 13,104 | 13,899 | 5,863 | 5,085 | 11,765 | 7,621 | ||||||||||||||||||||||||
Total revenues, net | $ | 243,552 | $ | 194,680 | $ | 672,004 | $ | 562,857 | $ | 269,276 | $ | 224,253 | $ | 526,995 | $ | 428,452 | ||||||||||||||||
Revenue by geography is as follows:
Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||||
Quarter Ended March 31, | Nine Months Ended March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
United States | $ | 131,586 | $ | 109,797 | $ | 359,586 | $ | 311,815 | $ | 142,367 | $ | 114,439 | $ | 283,069 | $ | 228,001 | ||||||||||||||||
EMEA, excluding United Kingdom | 54,552 | 39,108 | 147,622 | 115,993 | 57,159 | 49,936 | 108,702 | 93,070 | ||||||||||||||||||||||||
United Kingdom | 11,213 | 9,166 | 29,599 | 24,619 | 11,842 | 9,852 | 24,320 | 18,386 | ||||||||||||||||||||||||
APAC, excluding Greater China | 19,002 | 17,193 | 52,744 | 46,982 | 19,603 | 18,008 | 37,104 | 33,742 | ||||||||||||||||||||||||
Greater China | 20,467 | 13,781 | 63,685 | 49,655 | 31,009 | 25,165 | 59,442 | 43,218 | ||||||||||||||||||||||||
Rest of World | 6,732 | 5,635 | 18,768 | 13,793 | 7,296 | 6,853 | 14,358 | 12,035 | ||||||||||||||||||||||||
Total revenues, net | $ | 243,552 | $ | 194,680 | $ | 672,004 | $ | 562,857 | ||||||||||||||||||||||||
Net Sales | $ | 269,276 | $ | 224,253 | $ | 526,995 | $ | 428,452 | ||||||||||||||||||||||||
Note 3. Selected Balance Sheet Data:
Inventories:
Inventories consist of (in thousands):
March 31, | June 30, | December 31, | June 30, | |||||||||||||
2021 | 2020 | 2021 | 2021 | |||||||||||||
Raw materials | $ | 51,664 | $ | 51,530 | $ | 61,624 | $ | 55,096 | ||||||||
Finished goods(1) | 63,370 | 56,268 | ||||||||||||||
Finished goods(1) | 65,620 | 67,108 | ||||||||||||||
Inventories, net | $ | 115,034 | $ | 107,798 | $ | 127,244 | $ | 122,204 | ||||||||
(1)Finished goods inventory of $5,044$5,386 and $4,646$5,456 included within other long-term assets in the respective MarchDecember 31, 2021 and June 30, 2020,2021, consolidated balance sheet. The inventory is included in long-term assets as it is forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date.
Property and Equipment:
Property and equipment consist of (in thousands):
| March 31, | June 30, | December 31, | June 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2021 | |||||||||||||
Land | $ | 8,596 | $ | 8,516 | $ | 8,587 | $ | 8,612 | ||||||||
Buildings and improvements | 189,443 | 184,430 | 225,501 | 190,661 | ||||||||||||
Machinery and equipment | 187,855 | 153,704 | 161,431 | 149,410 | ||||||||||||
| Construction in progress | 17,386 | 49,073 | ||||||||||||||
Property and equipment, cost | 385,894 | 346,650 | 412,905 | 397,756 | ||||||||||||
Accumulated depreciation and amortization | (186,919 | ) | (169,821 | ) | (201,091 | ) | (189,849 | ) | ||||||||
Property and equipment, net | $ | 198,975 | $ | 176,829 | $ | 211,814 | $ | 207,907 | ||||||||
Intangible Assets:
Intangible assets consist of (in thousands):
| March 31, | June 30, | |||||||
| 2021 | 2020 | |||||||
Developed technology | $ | 444,664 | $ | 434,653 | ||||
Trade names | 145,421 | 146,713 | ||||||
Customer relationships | 219,575 | 211,750 | ||||||
Patents and other intangibles(1) | 8,158 | 2,475 | ||||||
Intangible assets | 817,818 | 795,591 | ||||||
Accumulated amortization | (328,640 | ) | (279,046 | ) | ||||
Intangible assets, net | $ | 489,178 | $ | 516,545 | ||||
|
|
December 31, | June 30, | |||||||
2021 | 2021 | |||||||
Developed technology | $ | 544,388 | $ | 552,160 | ||||
Trade names | 147,327 | 147,640 | ||||||
Customer relationships | 228,419 | 232,493 | ||||||
Patents | 3,116 | 2,926 | ||||||
Other intangibles | 6,309 | 6,316 | ||||||
Definite-lived intangible assets | 929,559 | 941,535 | ||||||
Accumulated amortization | (382,912 | ) | (348,267 | ) | ||||
Definite-lived intangibles assets, net | 546,647 | 593,268 | ||||||
In process research and development | 22,700 | 22,700 | ||||||
Total intangible assets, net | $ | 569,347 | $ | 615,968 | ||||
Changes to the carrying amount of net intangible assets for the quarter ended MarchDecember 31, 2021 consist of (in thousands):
Beginning balance | $ | 516,545 | $ | 615,968 | ||||
Acquisitions | 8,917 | 0 | ||||||
Other additions | 5,750 | 171 | ||||||
Amortization expense | (46,237 | ) | (37,258 | ) | ||||
Currency translation | 4,203 | (971 | ) | |||||
| Eminence impairment (1) | (8,563 | ) | ||||||
Ending balance | $ | 489,178 | $ | 569,347 | ||||
The estimated future amortization expense for intangible assets as of MarchDecember 31, 2021 is as follows (in thousands):
2021 remainder | $ | 15,060 | ||||||
2022 | 59,539 | |||||||
2022 remainder | $ | 36,927 | ||||||
2023 | 57,647 | 71,669 | ||||||
2024 | 55,016 | 68,818 | ||||||
2025 | 51,959 | 65,579 | ||||||
2026 | 61,819 | |||||||
Thereafter | 249,957 | 241,835 | ||||||
Total | $ | 489,178 | $ | 546,647 | ||||
(1)As disclosed in Note 1, the Company recorded an impairment charge of $8.6 million related to Eminence in Q2 of FY'22.
Goodwill:
Changes to the carrying amount of goodwill for the quarter ended MarchDecember 31, 2021 consist of (in thousands):
Protein Sciences | Diagnostics and Genomics | Total | Protein Sciences | Diagnostics and Genomics | Total | |||||||||||||||||||
Beginning balance | $ | 373,081 | $ | 355,229 | $ | 728,310 | $ | 392,717 | $ | 450,350 | $ | 843,067 | ||||||||||||
Acquisitions | 7,848 | 0 | 7,848 | 0 | 0 | 0 | ||||||||||||||||||
| Eminence impairment | (8,275 | ) | 0 | (8,275 | ) | |||||||||||||||||||
Currency translation | 10,186 | 116 | 10,302 | (2,610 | ) | (126 | ) | (2,736 | ) | |||||||||||||||
Ending balance | $ | 391,115 | $ | 355,345 | $ | 746,460 | $ | 381,832 | $ | 450,224 | $ | 832,056 | ||||||||||||
We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a quantitative goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2020.2021. No indicators of impairment were identified as part of our assessment.
During the quarter ended September 30, 2021, the Company combined the management of the Exosome Diagnostics and Asuragen reporting units, both of which are included in the Diagnostics and Genomics operating segment. In conjunction with the combination of the reporting units, a qualitative goodwill impairment assessment was performed. The qualitative assessment identified no indicators of impairment.
As disclosed in Note 1, the Company identified a triggering event and a goodwill impairment charge of $8.3 million in the quarter ended December 31, 2021. No additional triggering events or items beyond the upcoming Eminence liquidation were identified during the quarter ended MarchDecember 31, 2021. There has been noThe impairment of the Eminence goodwill is the only impairment of goodwill recorded since the adoption of Financial Accounting Standards Board (“FASB”("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 that the results of operations of each acquired business arebe included in our consolidated statements of comprehensive income from their respective dates of acquisition.acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred.
2021 Acquisitions
Eminence BiotechnologyAsuragen, Inc.
On October 20, 2020,April 6, 2021, the Company acquired 47.6%all of the outstanding equity sharesownership interests of Changzhou Eminence Biotechnology Co., Ltd. (Eminence)Asuragen, Inc. (Asuragen) for approximately $9.8 million, net of cash acquired. The fair value of the noncontrolling interest of $9.0 million included in the consolidated balance sheet was a non-cash activity within the statement of cash flows. Eminence is considered a variable interest entity as it is an early stage biotechnology company that will require additional funding through a subsequent equity investment, which will be used to fund Eminence’s expansion and GMP manufacturing capabilities within China. Both at the initial time of our investment and at March 31, 2021, the Company expects to participate in one or more rounds of additional equity funding, with a total additional investment in the range of $6 million to $12 million which will likely result in an increase in the Company’s ownership percentage of Eminence. The Company was considered the primary beneficiary at the time of initial acquisition given the Company was the largest shareholder coupled with its ability to exercise significant influence over the entity. As of March 31, 2021, the Company’s investment at risk is limited to the initial investment of $9.8$216 million, net of cash acquired, plus contingent consideration of up to $105.0 million, subject to certain revenue thresholds. The Asuragen acquisition adds a leading portfolio of best in-class molecular diagnostic and an additional $0.8 million loan made from the Company to Eminence in the third fiscal quarter of 2021.research products, including genetic screening, oncology testing kits, molecular controls, a GMP compliant manufacturing facility, and a CLIA-certified laboratory. The Company’s investment at risk is expected to increase in subsequent periods given the additional financing expected to be provided as further discussed above.
As Eminence was considered a variable interest entity with the Company being the primary beneficiary, the transaction was accounted for in accordance with ASC 805, Business Combinations. In applying ASC 805 to the transaction, the Company has elected to include Eminence in our consolidated financial statements on a one month lag.
The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’sCompany’ product portfolio and the expected revenue growth from increased market penetration. The fair value of the noncontrolling interest in Eminence was calculated utilizing cash flow projections discounted to the acquisition date and control premiums calculated using market data. Acquired goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences reportableDiagnostics and Genomics operating segment in the secondfourth quarter of fiscal year 2021.
Certain estimated fair values arePurchase accounting remained open as of notDecember 31, 2021 yet finalized and are subject to change, which could be significant. The Company expects to finalizefor our purchasing accounting by the end of fiscal year 2021 when we have finalized our intangible assets valuations and income tax assessment of acquired net operating losses (NOLs). Amountswith the completion of the stub period tax returns and the corresponding goodwill impact. The Company expects to finalize the allocation of purchase price in the third quarter of fiscal 2022. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations for intangible assets, deferred tax liabilities, acquired NOLs,the quarter ended December 31, 2021 were approximately $8.8 million and goodwill remain subject to change.$0.4 million, respectively. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations for the six months ended December 31, 2021 were approximately $16.4 million and $3.6 million, respectively. The preliminary estimated fair values of the assets acquired and liabilities assumed and the updated preliminary amounts as of the acquisition date and at MarchDecember 31, 2021 are as follows (in thousands):
Preliminary Allocation at Acquisition Date | Adjustments to Fair Value | Adjusted Preliminary Allocation at March 31, 2021 | ||||||||||
Current assets, net of cash | $ | 3,145 | $ | - | $ | 3,145 | ||||||
Equipment and other long-term assets | 1,639 | - | 1,639 | |||||||||
Intangible assets: | ||||||||||||
Developed technology | 6,778 | - | 6,778 | |||||||||
Customer relationships | 2,133 | - | 2,133 | |||||||||
Goodwill | 8,811 | (963 | ) | 7,848 | ||||||||
Total assets acquired | 22,506 | (963 | ) | 21,543 | ||||||||
Liabilities | 1,436 | - | 1,436 | |||||||||
Deferred income taxes, net | 2,320 | (963 | ) | 1,357 | ||||||||
Net assets acquired | $ | 18,750 | $ | - | $ | 18,750 | ||||||
Cash paid, net of cash acquired | $ | 9,765 | $ | - | $ | 9,765 | ||||||
Fair value of noncontrolling interest in Eminence | 8,985 | - | 8,985 | |||||||||
Net assets acquired | $ | 18,750 | $ | - | $ | 18,750 | ||||||
As summarized in the table, there were adjustments totaling $1.0 million to goodwill during the measurement period. These adjustments relate to refinements within our deferred tax amounts based on factors existing on the acquisition date.
Preliminary allocation at acquisition date and at December 31, 2021 | ||||
Current assets, net of cash | $ | 10,422 | ||
Equipment and other long-term assets | 3,762 | |||
Intangible assets: | ||||
Developed technology | 107,000 | |||
In-process research and development | 22,700 | |||
Customer relationships | 11,700 | |||
Trade names | 2,000 | |||
Non-competition agreement | 1,000 | |||
Goodwill | 94,970 | |||
Total assets acquired | 253,554 | |||
Liabilities | 4,003 | |||
Deferred income taxes, net | 15,664 | |||
Net assets acquired | $ | 233,887 | ||
Cash paid, net of cash acquired | 215,587 | |||
Contingent consideration payable | 18,300 | |||
Net assets acquired | $ | 233,887 | ||
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology, in-process research and development, and customer relationships was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The 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 1314 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 1016 years. The amount recorded for trade names and the non-competition agreement is being amortized with the expense reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for trade names and the non-competition agreement is estimated to be 5 years and 3 years, respectively. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes, offset by the deferred tax asset for the preliminary calculation of acquired NOLs.net operating losses.
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on 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 | Total carrying value as of | Fair Value Measurements Using Inputs Considered as | |||||||||||||||||||||||||||||
March 31, 2021 | Level 1 | Level 2 | Level 3 | December 31, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Equity securities (1) | $ | 77,608 | $ | 71,104 | $ | 6,504 | $ | 0 | $ | 53,635 | $ | 50,525 | $ | 3,110 | $ | 0 | ||||||||||||||||
Certificates of deposit (2) | 12,500 | 12,500 | 0 | 0 | 13,500 | 13,500 | 0 | 0 | ||||||||||||||||||||||||
Derivative instruments – cash flow hedges | 2,254 | 0 | 2,254 | 0 | ||||||||||||||||||||||||||||
Total assets | $ | 90,108 | $ | 83,604 | $ | 6504 | $ | 0 | $ | 69,389 | $ | 64,025 | $ | 5,364 | $ | 0 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Contingent consideration | $ | 12,170 | $ | 0 | $ | 0 | $ | 12,170 | $ | 9,000 | $ | 0 | $ | 0 | $ | 9,000 | ||||||||||||||||
Derivative instruments - cash flow hedges | 10,281 | 0 | 10,281 | 0 | 4,382 | 0 | 4,382 | 0 | ||||||||||||||||||||||||
Total liabilities | $ | 22,451 | $ | 0 | $ | 10,281 | $ | 12,170 | $ | 13,382 | $ | 0 | $ | 4,382 | $ | 9,000 | ||||||||||||||||
Total carrying value as of | Fair Value Measurements Using Inputs Considered as | Total carrying value as of | Fair Value Measurements Using Inputs Considered as | |||||||||||||||||||||||||||||
June 30, 2020 | Level 1 | Level 2 | Level 3 | June 30, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Equity securities (1) | $ | 87,842 | $ | 79,846 | $ | 7,996 | $ | 0 | $ | 19,963 | $ | 18,581 | $ | 1,382 | $ | 0 | ||||||||||||||||
Certificates of deposit (2) | 36,426 | 36,426 | 0 | 0 | 12,500 | 12,500 | 0 | 0 | ||||||||||||||||||||||||
Derivative instruments – cash flow hedges | 275 | 0 | 275 | 0 | ||||||||||||||||||||||||||||
Total assets | $ | 124,268 | $ | 116,272 | $ | 7,996 | $ | 0 | $ | 32,738 | $ | 31,081 | $ | 1,657 | $ | 0 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Contingent consideration | $ | 6,137 | $ | 0 | $ | 0 | $ | 6,137 | $ | 29,400 | $ | 0 | $ | 0 | $ | 29,400 | ||||||||||||||||
Derivative instruments - cash flow hedges | 17,331 | 0 | 17,331 | 0 | 8,376 | 0 | 8,376 | 0 | ||||||||||||||||||||||||
Total liabilities | $ | 23,468 | $ | 0 | $ | 17,331 | $ | 6,137 | $ | 37,776 | $ | 0 | $ | 8,376 | $ | 29,400 | ||||||||||||||||
(1) | Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) was $6.6 million at both | |
(2) | Included in available-for-sale investments on the balance sheet. The |
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. The Company's warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset.
Fair value measurements of derivative instruments
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial $380 million of notional principal amount. The notional amount decreased by $100 million in October 2020, and will further decrease by $80 million in October 2021 and will further decrease by $200 million in October 2022. In June 2020, the Company de-designated $80 million of the notional amount set to expire in October 2020. The net loss associated with the June 2020 de-designated portion of the derivative instrument was not reclassified into earnings based on the amount of probable variable interest payments to occur within a two month-month time period of the forecasted hedged transaction. In December 2020, the Company de-designated an additional $80 million of notional amount set to expire in October 2021. The fair value ofnet loss associated with theDecember 2020 de-designated portion of the de-designated derivative instrument was $1.4 millionrecorded as of March 31, 2021. The Company recognized a loss in other non-operating income related to variable interest debt payments in certain months on a portion of the de-designated derivative that was not expected to occur. The fair value of the designated derivative instrument is $4.4 million and is recorded within short-term liabilities on the Consolidated Balance Sheet as itof December 31, 2021. The fair value of the designated derivative instrument was considered probable that$7.6 million as of June 30, 2021 and was recorded within other long-term liabilities on the Consolidated Balance Sheet.
In May 2021, the Company entered into a portionnew forward starting swap designated as a cash flow hedge on forecasted debt. The forward starting swap reduces the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s forecasted variable interest long-term debt payments related to that of a fixed interest rate. Accordingly, as part of the forward starting swap, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on $200 million of notional principal amount. The effective date of the swap is November 2022 with the full swap maturing in November 2025. The fair value of the derivative would not occur. The remaining variable interest payments for the portion of the de-designated derivative are considered probable of occurringinstrument was $2.3 million and therefore remain in accumulated other comprehensive income$0.3 million as of MarchDecember 31, 2021.2021 and June 30, 2021, respectively, which is recorded within other long-term assets on the Consolidated Balance Sheet.
Changes in the fair value of the designated hedged instrumentinstruments are reported as a component of other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $6.7$3.8 million to interest expense and related tax benefits of $0.9 million during the six months ended December 31, 2021. The Company reclassified $5.0 million to interest expense, $0.5 million to non-operating income for the portion of de-designated variable payments considered probable to not occur, and related tax benefits of $1.7$1.3 million during the ninesix months ended MarchDecember 31, 2021. The Company reclassified $2.1 million to interest expense and a related tax benefit of $0.5 million during the nine2020.The months ended March 31, 2020. The liability related to the derivative instrument was recorded within other current and long-term liabilities on the consolidated balance sheet. The instrument wasinstruments were valued using observable market inputs in active markets and therefore are classified as a Level 2 liability.liabilities.
Fair value measurements of contingent consideration
In connection withThe Company has $9 million in contingent consideration recorded as of December 31, 2021, which is the QT Holdings Corporation (Quad)fair value of contingent consideration related to the Asuragen and B-MoGen Biotechnologies Inc. (B-MoGen) acquisitions theInc ("B-MoGen") acquisitions. The Company is required to make contingent consideration payments of up to $51.0$105.0 million and $38.0 million, respectively.respectively, as part of these acquisition agreements. The contingent consideration payments are subject to Quad and B-Mogenagreement for Asuragen is based on achieving certain revenue thresholds. The opening balance sheet fair value of the liabilities for the Asuragen acquisition was $18.3 million, as discussed in Note 4. The contingent agreement for B-MoGen is based on meeting certain product development milestones and revenue thresholds. The preliminary fair value ofamount recorded on the liabilities for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $10.8 million ($5.3 million for Quad and $5.5 million for B-MoGen). The preliminary fair value of the development milestone payments was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculations were probability of success, duration of the earn-out, and discount rate. The preliminary fair value for the revenue milestone payments was determined using a Monte Carlo simulation basedsimulation-based model discounted to present value. Assumptions used in these calculations includedare units sold, expected revenue, expected expenses, discount rate, and various probability factors.
The ultimate settlement of contingent consideration liabilities for the Asuragen and B-Mogen acquisitions could deviate from current estimates based on the actual results of thesethe financial measures.measures described above. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.
During the first quarter of fiscal 2022, the Company made a $4.0 million payment on the QT Holdings Corporation contingent consideration agreement relating to certain product development milestones. The cash paid was consistent with the related accrual as of June 30, 2021.
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 and nine months ended March 31, 2021 (in(in thousands):
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||
March 31, 2021 | March 31, 2021 | December 31, 2021 | December 31, 2021 | |||||||||||||
Fair value at the beginning of period | $ | 10,582 | $ | 6,137 | $ | 22,600 | $ | 29,400 | ||||||||
Change in fair value of contingent consideration | 1,588 | 6,188 | (13,600 | ) | (16,400 | ) | ||||||||||
Payments | 0 |
| (155 | ) | 0 | (4,000 | ) | |||||||||
Fair value at the end of period | $ | 12,170 | $ | 12,170 | $ | 9,000 | $ | 9,000 | ||||||||
The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio.
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates.
Note 6. Debt and Other Financing Arrangements:
On August 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 $600.0 million, which can be increased by an additional $200.0 million subject to certain conditions, and a term loan of $250.0 million. Borrowings under the Credit Agreement may be used for working capital and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. Borrowings under the Credit Agreement bear interest at a variable rate. The current outstanding debt is based on the Eurodollar Loans term for which the interest rate is calculated as the sum of LIBOR plus an applicable margin. The applicable margin is determined from the total leverage ratio of the Company and updated on a quarterly basis. The annualized fee for any unused portion of the credit facility is currently 2012.5 basis points.
The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of MarchDecember 31, 2021, the outstanding balance under the Credit Agreement was $215.6$282.3 million.
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 ninesix months ended MarchDecember 31, 2021, the Company recognized $2.4 millionrecognized $2.1 million in variable lease expense and $9.9$7.3 million relating to fixed lease expense in the Condensed Consolidated Statements of Earnings and Comprehensive Income.
The following table summarizes the balance sheet classification of the Company’s operating leases and amounts of right of use assets and lease liabilities and the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):
Balance Sheet Classification | As of: March 31, 2021 | Balance Sheet Classification | As of: December 31, 2021 | |||||||
Operating leases: | ||||||||||
Operating lease right of use assets | Right of Use Asset | $ | 71,830 | Right of Use Asset | $ | 64,293 | ||||
Current operating lease liabilities | Operating lease liabilities current | $ | 10,414 | Operating lease liabilities current | $ | 11,809 | ||||
Noncurrent operating lease liabilities | Operating lease liabilities | 66,816 | Operating lease liabilities | 57,718 | ||||||
Total operating lease liabilities | Total operating lease liabilities | $ | 77,230 | $ | 69,527 | |||||
Weighted average remaining lease term (in years): | Weighted average remaining lease term (in years): | 8.35 | 7.25 | |||||||
Weighted average discount rate: | Weighted average discount rate: | 4.15 | % | 3.87 | % | |||||
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 ninesix months ended (in thousands):
Nine months ended March 31, 2021 | ||||
Cash amounts paid on operating lease liabilities | $ | 9,898 | ||
Right of use assets obtained in exchange for lease liabilities | 7,793 | |||
Six months ended December 31, 2021 | ||||
Cash amounts paid on operating lease liabilities | $ | 7,504 | ||
Right of use assets obtained in exchange for lease liabilities | 575 | |||
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 | Operating Leases | |||||||
Remainder of 2021 | $ | 4,498 | ||||||
2022 | 13,081 | |||||||
Remainder of fiscal 2022 | $ | 7,176 | ||||||
2023 | 12,138 | 13,191 | ||||||
2024 | 11,202 | 11,511 | ||||||
2025 | 10,278 | 10,353 | ||||||
2026 | 9,628 | |||||||
Thereafter | 41,544 | 27,902 | ||||||
Total | $ | 92,741 | $ | 79,761 | ||||
Less: Amounts representing interest | 15,511 | 10,234 | ||||||
Total Lease obligations | $ | 77,230 | $ | 69,527 | ||||
Certain leases include one or more options to renew, with terms that extend the lease term up to five years. Bio-Techne includes the option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, Bio-Techne is not reasonably certain to exercise such options.
Note 8.Supplemental Equity and Accumulated Other Comprehensive Income (Loss):
Supplemental Equity
The Company has declared cash dividends per share of $0.32 and $ 0.96$0.64 in both the three and ninesix months ended MarchDecember 31, 2021 and 2020, respectively.
Consolidated Changes in Equity (amounts in thousands)
Bio-Techne Shareholders | Bio-Techne Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Additional | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income(Loss) | Interest | Total | Shares | Amount | Capital | Earnings | Income(Loss) | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2020 | 38,453 | $ | 385 | $ | 420,536 | $ | 1,057,470 | $ | (97,199 | ) | $ | 0 | $ | 1,381,192 | ||||||||||||||||||||||||||||||||||||||||||
Cumulative effect adjustments due to adoption of new accounting standards | (276 | ) | (276 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | 38,955 | $ | 390 | $ | 534,411 | $ | 1,085,461 | $ | (57,291 | ) | $ | 8,263 | $ | 1,571,234 | ||||||||||||||||||||||||||||||||||||||||||
Net earnings | 33,395 | 33,395 | 69,615 | (634 | ) | 68,981 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 14,057 | 14,057 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (6,925 | ) | (39 | ) | (6,964 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for exercise of options | 117 | 1 | 13,727 | 13,728 | 295 | 3 | 36,345 | (13,481 | ) | 22,867 | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for restricted stock awards | 25 | 0 | (0 | ) | (4,890 | ) | (4,890 | ) | 20 | 0 | 0 | (9,765 | ) | (9,765 | ) | |||||||||||||||||||||||||||||||||||||||||
Cash dividends | (12,336 | ) | (12,336 | ) | �� | (12,493 | ) | (12,493 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 12,667 | 12,667 | 11,396 | 11,396 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued to employee stock purchase plan | 6 | 0 | 1,463 | 1,463 | 3 | 0 | 1,358 | 1,358 | ||||||||||||||||||||||||||||||||||||||||||||||||
Employee stock purchase plan expense | 286 | 286 | 341 | 341 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2020 | 38,601 | $ | 386 | $ | 448,679 | $ | 1,073,362 | $ | (83,142 | ) | $ | - | $ | 1,439,285 | ||||||||||||||||||||||||||||||||||||||||||
Non-controlling interest in Eminence | 8,985 | 8,985 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 | 39,273 | $ | 393 | $ | 583,851 | $ | 1,119,337 | $ | (64,216 | ) | $ | 7,590 | $ | 1,646,955 | ||||||||||||||||||||||||||||||||||||||||||
Net earnings | 46,274 | (130 | ) | 46,144 | 80,173 | 0 | (8,114 | ) | 72,059 | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 18,904 | 83 | 18,987 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for exercise of options | 161 | 2 | 16,748 | (2,482 | ) | 14,268 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for restricted stock awards | 3 | 0 | (0 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends | (12,392 | ) | (12,392 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 15,471 | 15,471 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee stock purchase plan expense | 106 | 106 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | 38,765 | $ | 388 | $ | 481,004 | $ | 1,104,762 | $ | (64,238 | ) | $ | 8,938 | $ | 1,530,854 | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings | 45,782 | (380 | ) | 45,402 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 215 | (69 | ) | 146 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | 4,742 | 66 | 4,808 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | (120 | ) | (1 | ) | (43,177 | ) | (43,178 | ) | (89 | ) | (1 | ) | (41,293 | ) | (41,294 | ) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for exercise of options | 195 | 2 | 21,324 | (4,332 | ) | 16,994 | 134 | 1 | 18,604 | 18,605 | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for restricted stock awards | 10 | 0 | (0 | ) | (1,801 | ) | (1,801 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends | (12,446 | ) | (12,446 | ) | (12,576 | ) | (12,576 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 10,232 | 10,232 | 13,701 | 13,701 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock issued to employee stock purchase plan | 4 | 0 | 1,328 | 1,328 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | 6 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee stock purchase plan expense | 411 | 411 | 267 | 267 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | 38,854 | $ | 389 | $ | 514,299 | $ | 1,088,788 | $ | (64,023 | ) | $ | 8,489 | $ | 1,547,942 | ||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | 39,319 | 393 | 616,429 | 1,145,641 | (59,474 | ) | (458 | ) | 1,702,531 | |||||||||||||||||||||||||||||||||||||||||||||||
Bio-Techne Shareholders | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | ||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income(Loss) | Interest | Total | ||||||||||||||||||||||
Balances at June 30, 2020 | 38,453 | $ | 385 | $ | 420,536 | $ | 1,057,470 | $ | (97,199 | ) | $ | 0 | $ | 1,381,192 | ||||||||||||||
Cumulative effect adjustments due to adoption of new accounting standards | (276 | ) | (276 | ) | ||||||||||||||||||||||||
Net earnings | 33,395 | 33,395 | ||||||||||||||||||||||||||
Other comprehensive income (loss) | 14,057 | 14,057 | ||||||||||||||||||||||||||
Common stock issued for exercise of options | 117 | 1 | 13,727 | 13,728 | ||||||||||||||||||||||||
Common stock issued for restricted stock awards | 25 | 0 | (0 | ) | (4,890 | ) | (4,890 | ) | ||||||||||||||||||||
Cash dividends | (12,336 | ) | (12,336 | ) | ||||||||||||||||||||||||
Stock-based compensation expense | 12,667 | 12,667 | ||||||||||||||||||||||||||
Common stock issued to employee stock purchase plan | 6 | 0 | 1,463 | 1,463 | ||||||||||||||||||||||||
Employee stock purchase plan expense | 286 | 286 | ||||||||||||||||||||||||||
Balances at September 30, 2020 | 38,601 | $ | 386 | $ | 448,679 | $ | 1,073,362 | $ | (83,142 | ) | $ | 0 | $ | 1,439,285 | ||||||||||||||
Non-controlling interest in Eminence | 8,985 | 8,985 | ||||||||||||||||||||||||||
Net earnings | 46,274 | 0 | (130 | ) | 46,144 | |||||||||||||||||||||||
Other comprehensive income (loss) | 18,904 | 83 | 18,987 | |||||||||||||||||||||||||
Common stock issued for exercise of options | 161 | 2 | 16,748 | (2,482 | ) | 14,268 | ||||||||||||||||||||||
Common stock issued for restricted stock awards | 3 | 0 | (0 | ) | 0 | 0 | ||||||||||||||||||||||
Cash dividends | (12,392 | ) | (12,392 | ) | ||||||||||||||||||||||||
Stock-based compensation expense | 15,471 | 15,471 | ||||||||||||||||||||||||||
Employee stock purchase plan expense | 106 | 106 | ||||||||||||||||||||||||||
Balances at December 31, 2020 | 38,765 | $ | 388 | $ | 481,004 | $ | 1,104,762 | $ | (64,238 | ) | $ | 8,938 | $ | 1,530,854 | ||||||||||||||
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income(Loss) | Total | |||||||||||||||||||
Balances at June 30, 2019 | 37,934 | $ | 379 | $ | 316,797 | $ | 931,934 | $ | (83,521 | ) | $ | 1,165,589 | ||||||||||||
Cumulative effect adjustments due to adoption of new accounting standards and other | (879 | ) | (879 | ) | ||||||||||||||||||||
Net earnings | 14,398 | 14,398 | ||||||||||||||||||||||
Other comprehensive loss | (8,106 | ) | (8,106 | ) | ||||||||||||||||||||
Common stock issued for exercise of options | 94 | 1 | 7,854 | 7,855 | ||||||||||||||||||||
Common stock issued for restricted stock awards | 50 | 0 | (0 | ) | (1,926 | ) | 0 | (1,926 | ) | |||||||||||||||
Cash dividends | (12,169 | ) | 0 | (12,169 | ) | |||||||||||||||||||
Stock-based compensation expense | 8,267 | 8,267 | ||||||||||||||||||||||
Common stock issued to employee stock purchase plan | 6 | 0 | 1,096 | 1,096 | ||||||||||||||||||||
Employee stock purchase plan expense | 99 | 99 | ||||||||||||||||||||||
Balances at September 30, 2019 | 38,084 | $ | 381 | $ | 334,112 | $ | 931,358 | $ | (91,627 | ) | $ | 1,174,224 | ||||||||||||
Net earnings | 119,622 | 119,622 | ||||||||||||||||||||||
Other comprehensive loss | 13,275 | 13,275 | ||||||||||||||||||||||
Common stock issued for exercise of options | 195 | 2 | 18,293 | 18,295 | ||||||||||||||||||||
Common stock issued for restricted stock awards | 4 | 0 | (0 | ) | 0 | |||||||||||||||||||
Cash dividends | (12,197 | ) | (12,197 | ) | ||||||||||||||||||||
Stock-based compensation expense | 10,017 | 10,017 | ||||||||||||||||||||||
Common stock issued to employee stock purchase plan | ||||||||||||||||||||||||
Employee stock purchase plan expense | 112 | 112 | ||||||||||||||||||||||
Balances at December 31, 2019 | 38,283 | $ | 383 | $ | 362,534 | $ | 1,038,783 | $ | (78,352 | ) | $ | 1,323,348 | ||||||||||||
| Net earnings | 36,432 | 36,432 | ||||||||||||||||||||||
| Other comprehensive income (loss) | (25,105 | ) | (25,105 | ) | ||||||||||||||||||||
| Share Repurchases | (279 | ) | (3) | 0 | (50,109 | ) | (50,112 | ) | ||||||||||||||||
| Common stock issued for exercise of options | 100 | 1 | 10,026 | 10,027 | ||||||||||||||||||||
| Common stock issued for restricted stock awards | 1 | 0 | (0 | ) | (114 | ) | (114 | ) | ||||||||||||||||
| Cash dividends | (12,279 | ) | (12,279 | ) | ||||||||||||||||||||
| Stock-based compensation expense | 7,745 | 7,745 | ||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | 8 | 0 | 1,216 | 1,216 | ||||||||||||||||||||
| Employee stock purchase plan expense | 110 | 110 | ||||||||||||||||||||||
| Balances at March 31, 2020 | 38,112 | $ | 381 | $ | 381,632 | $ | 1,012,713 | $ | (103,458 | ) | $ | 1,291,268 | ||||||||||||
Accumulated Other Comprehensive Income
The components of other comprehensive income (loss) consist of changes in foreign currency translation adjustments and changes in net unrealized gains (losses) on derivative instruments designated as cash flow hedges. The Company reclassified $5.5$2.9 million, net of taxes, from accumulated other comprehensive income (loss) to earnings during the ninesix months ended MarchDecember 31, 2021. The Company reclassified $1.6$4.2 million, net of taxes, from accumulated other comprehensive income (loss) to earnings during the ninesix months ended MarchDecember 31, 2020.
The accumulated balances related to each component of other comprehensive income (loss) attributable to Bio-Techne, net of tax, are summarized as follows:
Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | ||||||||||
Balance as of June 30, 2020 attributable to Bio-Techne | $ | (13,253 | ) | $ | (83,946 | ) | $ | (97,199 | ) | |||
Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne | (13 | ) | 27,686 | 27,673 | ||||||||
Reclassification from loss on derivatives to earnings, net of taxes, attributable to Bio-Techne(1) | 5,503 | 0 | 5,503 | |||||||||
Balance as of March 31, 2021 attributable to Bio-Techne(3) | $ | (7,763 | ) | $ | (56,260 | ) | $ | (64,023 | ) | |||
Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | ||||||||||
Balance as of June 30, 2021 | $ | (6,193 | ) | $ | (51,098 | ) | $ | (57,291 | ) | |||
Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne | 1,682 | (6,750 | ) | (5,068 | ) | |||||||
Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1) | 2,884 | $ | 0 | $ | 2,884 | |||||||
Balance as of December 31, 2021(2) | $ | (1,626 | ) | (57,848 | ) | (59,474 | ) | |||||
Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | |||||||||||||||||||
Balance as of June 30, 2019 attributable to Bio-Techne | $ | (9,537 | ) | $ | (73,983 | ) | $ | (83,521 | ) | |||||||||||||||
Balance as of June 30, 2020 attributable to Bio-Techne | $ | (13,253 | ) | $ | (83,946 | ) | $ | (97,199 | ) | |||||||||||||||
Other comprehensive income (loss), net of tax before reclassifications, attributable to Bio-Techne | (6,413 | ) | (15,138 | ) | (21,551 | ) | (47 | ) | 28,759 | 28,712 | ||||||||||||||
Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne | 1,614 | 0 | 1,614 | 4,249 | 0 | 4,249 | ||||||||||||||||||
Balance as of March 31, 2020 attributable to Bio-Techne(3) | $ | (14,336 | ) | $ | (89,121 | ) | $ | (103,458 | ) | |||||||||||||||
Balance as of December 31, 2020(2) | $ | (9,051 | ) | $ | (55,187 | ) | $ | (64,238 | ) | |||||||||||||||
(1) | Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $3,777 to interest expense and a related tax benefit of $892 during the six months ended December 31, 2021. |
(1) Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $6,662 to interest expense and $512 to non-operating income relating to variable interest payments that were probable not to occur as further discussed in Note 5 in the nine months ended March 31, 2021. The Company also recorded a related tax benefit of $1,670 during the nine months ended March 31, 2021.
(2) | The Company had net deferred tax benefits of $502 and $2,886 included in the accumulated other comprehensive income loss as of December 31, 2021 and 2020, respectively. |
(2) The Company reclassified ($2,102) to interest expense and a related tax benefit tax of $488 during the nine months ended March 31, 2020.
(3) The Company had deferred tax benefits of $2,394 and $4,390 included in the accumulated other comprehensive income loss as of March 31, 2021 and March 31, 2020, respectively.
(3) | Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $5,026 to interest expense and $512 to non-operating income relating to variable interest payments that were probable not to occur in the six months ended December 31, 2020. The Company also recorded a related tax benefit of $1,289 during the six months ended December 31, 2020. |
Note 9.EarningsPerEarningsShare:PerShare:
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Earnings per share – basic: | ||||||||||||||||||||||||||||||||
| Net earnings, including noncontrolling interest | $ | 45,402 | $ | 36,432 | $ | 124,941 | $ | 170,451 | $ | 72,059 | $ | 46,144 | $ | 141,040 | $ | 79,538 | ||||||||||||||||
| Less net earnings (loss) attributable to noncontrolling interest | (380 | ) | 0 | (509 | ) | 0 | (8,114 | ) | (130 | ) | (8,748 | ) | (130 | ) | ||||||||||||||||||
Net earnings attributable to Bio-Techne | $ | 45,782 | $ | 36,432 | $ | 125,450 | $ | 170,451 | $ | 80,173 | $ | 46,274 | $ | 149,788 | $ | 79,668 | ||||||||||||||||
Income allocated to participating securities | (27 | ) | (26 | ) | (77 | ) | (126 | ) | (34 | ) | (37 | ) | (70 | ) | (50 | ) | ||||||||||||||||
Income available to common shareholders | $ | 45,755 | $ | 36,406 | $ | 125,373 | $ | 170,325 | $ | 80,139 | $ | 46,237 | $ | 149,718 | $ | 79,618 | ||||||||||||||||
Weighted-average shares outstanding – basic | 38,856 | 38,303 | 38,693 | 38,167 | 39,310 | 38,691 | 39,202 | 38,614 | ||||||||||||||||||||||||
Earnings per share – basic | $ | 1.18 | $ | 0.95 | $ | 3.24 | $ | 4.46 | $ | 2.04 | $ | 1.20 | $ | 3.82 | $ | 2.06 | ||||||||||||||||
Earnings per share – diluted: | ||||||||||||||||||||||||||||||||
| Net earnings, including noncontrolling interest | $ | 45,402 | $ | 36,432 | $ | 124,941 | $ | 170,451 | $ | 72,059 | $ | 46,144 | $ | 141,040 | $ | 79,538 | ||||||||||||||||
Less net earnings (loss) attributable to noncontrolling interest | (380 | ) | 0 | (509 | ) | 0 | (8,114 | ) | (130 | ) | (8,748 | ) | (130 | ) | ||||||||||||||||||
Net earnings attributable to Bio-Techne | $ | 45,782 | $ | 36,432 | $ | 125,450 | $ | 170,451 | $ | 80,173 | $ | 46,274 | $ | 149,788 | $ | 79,668 | ||||||||||||||||
Income allocated to participating securities | (27 | ) | (26 | ) | (77 | ) | (126 | ) | (34 | ) | (37 | ) | (70 | ) | (50 | ) | ||||||||||||||||
Income available to common shareholders | $ | 45,755 | $ | 36,406 | $ | 125,373 | $ | 170,325 | $ | 80,139 | $ | 46,237 | $ | 149,718 | $ | 79,618 | ||||||||||||||||
Weighted-average shares outstanding – basic | 38,856 | 38,303 | 38,693 | 38,167 | 39,310 | 38,691 | 39,202 | 38,614 | ||||||||||||||||||||||||
Dilutive effect of stock options and restricted stock units | 1,820 | 1,132 | 1,612 | 1,187 | 1,897 | 1,566 | 1,957 | 1,521 | ||||||||||||||||||||||||
Weighted-average common shares outstanding – diluted | 40,676 | 39,435 | 40,305 | 39,354 | 41,207 | 40,257 | 41,159 | 40,135 | ||||||||||||||||||||||||
Earnings per share – diluted | $ | 1.12 | $ | 0.92 | $ | 3.11 | $ | 4.33 | $ | 1.94 | $ | 1.15 | $ | 3.64 | $ | 1.98 | ||||||||||||||||
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 1.80.7 million and 1.11.6 million for the quarter ended MarchDecember 31, 2021 and 2020, respectively and 1.60.5 million and 1.21.5 million for the ninesix months ended MarchDecember 31, 2021 and 2020 respectively.
Note 10. Share-based Compensation:
During the ninesix months ended MarchDecember 31, 2021 and 2020, the Company granted 0.70.3 million and 0.80.7 million stock options at weighted average grant prices of $269.64$483.48 and $190.80$267.59 and weighted average fair values of $57.50$119.27 and $37.01,$56.88, respectively. During the ninesix months ended MarchDecember 31, 2021 and 2020, the Company granted 23,36721,218 and 30,85822,367 restricted stock units at a weighted average fair value of $269.87$485.94 and $192.08,$267.87, respectively. During the ninesix months ended MarchDecember 31, 2021 and 2020, the Company granted 11,8036,896 and 15,39811,803 shares of restricted common stock shares at a weighted average fair value of $264.73$489.34 and $193.48.$264.73.
Stock options for 505,137470,942 and 398,320293,262 shares of common stock with total intrinsic values of $108.0$170.7 million and $48.6$50.6 million were exercised during the ninesix months ended MarchDecember 31, 2021 and 2020, respectively.
Stock-based compensation expense, inclusive of employer payroll tax,taxes, of $11.1$14.1 million and $7.6$15.6 million was included in selling, general and administrative expenses for the quarter ended MarchDecember 31, 2021 and 2020, respectively. Stock-based compensation expense,expenses, inclusive of employer payroll tax,taxes, of $36.0$27.3 million and $26.1$28.5 million was included in selling, general, and administrative expenses for the ninesix months ended MarchDecember 31, 2021 and 2020, respectively. Additionally, the company recognized $0.4 million and $1.5$0.8 million of stock-based compensation costs in cost of goods sold in the quarter and ninesix months ended MarchDecember 31, 2021 respectively.respectively, compared to $0.6 million and $1 million in cost of goods sold in the comparative prior year periods. As of MarchDecember 31, 2021, there was $35.4$54.1 million of unrecognized compensation cost related to non-vested stock options, non-vested restricted stock units and non-vested restricted stock. The weighted average period over which the compensation cost is expected to be recognized is 2.02.2 years.
In fiscal 2015, the Company established the Bio-Techne Corporation 2014 Employee Stock Purchase Plan (ESPP), which was approved by the Company's shareholders on October 30, 2014, and which is designed to comply with IRS provisions governing employee stock purchase plans. 200,000 shares were allocated to the ESPP. The Company recorded expense of $0.3 million and $0.1 million for the ESPP for the quarter ended December 31, 2021 and 2020, respectively. The Company recorded expense of $0.6 million and $0.4 million for the ESPP for the six months ended December 31, 2021 and 2020, respectively.
Note 11. Other Income / (Expense):
The components of other income (expense) in the accompanying Statement of Earnings and Comprehensive Income are as follows (in thousands):follows:
Quarter Ended | Nine Months | Quarter Ended | Six Months | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Interest expense | (2,660 | ) | $ | (4,486 | ) | (10,661 | ) | $ | (14,580 | ) | $ | (2,902 | ) | $ | (3,585 | ) | $ | (6,311 | ) | $ | (8,002 | ) | ||||||||||
Interest income | 114 | 144 | 306 | 486 | 245 | 78 | 438 | 192 | ||||||||||||||||||||||||
Other non-operating income (expense), net(1) | (20,726 | ) | 3,372 | (17,297 | ) | 110,937 | ||||||||||||||||||||||||||
Other non-operating income (expense), net(1) | 26,488 | 8,880 | 33,865 | 3,429 | ||||||||||||||||||||||||||||
Total other income (expense) | (23,272 | ) | $ | (970 | ) | (27,652 | ) | $ | 96,843 |
| $ | 23,831 | $ | 5,373 | $ | 27,992 | $ | (4,381 | ) | |||||||||||||
(1) The changes in other non-operating income (expense) were driven by changes in the fair value of our CCXI investment as further described in Note 5 above.
(1) | Primarily due to a $28.4 million and $33.7 million gain in the fair value of our CCXI investment for the quarter and six months ended December 31, 2021, respectively, as compared to a $10.7 million and $6.4 million gain in the comparative periods. |
Note 12. Income Taxes:
The Company’s effective income tax rate for the thirdsecond quarter of fiscal 20212022 and 20202021 was (0.1)% and 22.2%was 16.4% and 18.1% of consolidated earningsearnings before income taxes, and 11.4% 8.2% and 20.7%16.9% for the first ninesix months of fiscal 20212022 and 2020,2021, respectively. The change in the company’s tax rate for the quarter and ninesix months ended MarchDecember 31, 2021 compared to the quarter and ninesix months ended March 31, December 31,2020were was driven by changes in discrete tax items and changes in the composition and amount of the Company’s taxable income.items.
The Company recognized total net benefits related to discrete tax itemsitems of $11.6$7.6 million and $19.5$25.3 million during the quarter and six months ended December 31, 2021, respectively, compared to $3.7 million and $7.8 million during the quarter and ninesix months ended March 31, 2021, respectively, compared to $1.4 million and $8.1 million during the quarter and nine months ended MarchDecember 31, 2020, respectively. Share-based compensation excess tax benefit contributed $11.7contributed $6.1 million and $19.7$24.4 million in the quarter and six months ended December 31, 2021, respectively, compared to $4.8 million and $8.0 million in the quarter and ninesix months, ended MarchDecember 31, 2021,2020, respectively, compared to $1.5 million and $8.5 million in the quarter and nine months, ended March 31,2020,respectively. The Company recognized total other immaterial net discrete tax expensebenefit of $0.1$1.5 million and $0.2$0.9 million in the quarter and ninesix months ended MarchDecember 31, 2021, respectively, compared to $1.1 million and $0.2 million of other immaterial net discrete tax expenses of $0.1 million and $0.4 millionexpense in the quarter and ninesix months ended MarchDecember 31, 2020, respectively.
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 the impact of partially owned consolidated subsidiaries as well as acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses. The Protein Sciences and Diagnostics and Genomics segments both include consumables, instruments, services and royalty revenue.
The following is financial information relating to the Company's reportable segments (in thousands):
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||||||||||
Protein Sciences | $ | 185,623 | $ | 145,509 | $ | 512,248 | $ | 428,021 | $ | 204,971 | $ | 172,179 | $ | 402,156 | $ | 326,625 | ||||||||||||||||
Diagnostics and Genomics | 58,093 | 49,411 | 160,687 | 135,808 | 64,527 | 52,469 | 125,512 | 102,595 | ||||||||||||||||||||||||
Intersegment | (164 | ) | (240 | ) | (931 | ) | (972 | ) | (222 | ) | (395 | ) | (673 | ) | (768 | ) | ||||||||||||||||
Consolidated net sales | $ | 243,552 | $ | 194,680 | $ | 672,004 | $ | 562,857 | $ | 269,276 | $ | 224,253 | $ | 526,995 | $ | 428,452 | ||||||||||||||||
Operating income: | ||||||||||||||||||||||||||||||||
Protein Sciences | $ | 88,392 | $ | 65,046 | $ | 238,991 | $ | 185,456 | $ | 93,281 | $ | 80,453 | $ | 183,381 | $ | 150,803 | ||||||||||||||||
Diagnostics and Genomics | 10,417 | 7,062 | 27,197 | 8,937 | 10,880 | 8,107 | 18,344 | 16,781 | ||||||||||||||||||||||||
Segment operating income | $ | 98,809 | $ | 72,108 | $ | 266,188 | $ | 194,393 | $ | 104,161 | $ | 88,560 | $ | 201,725 | $ | 167,584 | ||||||||||||||||
Costs recognized on sale of acquired inventory | (68 | ) | 0 |
| (91 | ) | 0 |
| (84 | ) | (23 | ) | (1,595 | ) | (23 | ) | ||||||||||||||||
Amortization of acquisition related intangible assets | (15,222 | ) | (15,459 | ) | (45,750 | ) | (45,467 | ) | (18,380 | ) | (15,027 | ) | (36,769 | ) | (30,528 | ) | ||||||||||||||||
Impact of partially owned consolidated subsidiaries(1) | (1,004 | ) | (207 | ) | (2,567 | ) | (207 | ) | ||||||||||||||||||||||||
Acquisition related expenses | (1,731 | ) | 322 | (6,289 | ) | (107 | ) | 13,262 | (4,421 | ) | 15,618 | (4,558 | ) | |||||||||||||||||||
| Eminence impairment | (18,715 | ) | 0 | (18,715 | ) | 0 | ||||||||||||||||||||||||||
Stock based compensation, inclusive of employer taxes | (11,968 | ) | (8,088 | ) | (41,525 | ) | (27,505 | ) | (14,815 | ) | (16,225 | ) | (28,675 | ) | (29,557 | ) | ||||||||||||||||
| Restructure costs | - | 0 | (142 | ) | 0 | |||||||||||||||||||||||||||
Restructuring costs | (743 | ) | (142 | ) | (1,928 | ) | (142 | ) | ||||||||||||||||||||||||
Corporate general, selling, and administrative expenses | (1,194 | ) | (1,092 | ) | (3,677 | ) | (3,205 | ) | (1,334 | ) | (1,520 | ) | (1,524 | ) | (2,482 | ) | ||||||||||||||||
Consolidated operating income | $ | 68,626 | $ | 47,791 | $ | 168,714 | $ | 118,109 | $ | 62,348 | $ | 50,995 | $ | 125,570 | $ | 100,087 | ||||||||||||||||
(1) Adjusted operating income for the second quarter and full year of fiscal 2021 have been updated for comparability to fiscal 2022 for the inclusion of the impact of partially owned consolidated subsidiaries on the Company’s adjusted operating income.
Note 14. Subsequent Events:
On April 6, 2021, None.the Company acquired Asuragen, Inc. for approximately $215 million, plus contingent consideration of up to $105 million upon the achievement of certain future milestones.
On April 2, 2021, the Company invested approximately $6 million of additional funding into Eminence, increasing our percentage of outstanding equity shares to 57.42%.
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis (“MD&A”) provides information that we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide quantitative information about discrete tax items and other significant factors we believe are useful for understanding our results. The MD&A should be read in conjunction with both the unaudited condensed consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended June 30, 2020.2021. 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-qualitysell integral components of scientific tools to better understandinvestigations into biological processes and drivemolecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our products aid in drug discovery of diagnosticefforts and therapeutic products.provide the means for accurate clinical tests and diagnoses.
Consistent with the above,prior year, we have operated with two segments – our Protein Sciences segment and our Diagnostics and Genomics segment -– during the second quarter of fiscal year 2021.2022. 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)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 obtained a controlling interestdid not make any acquisitions in Eminence as disclosed in Note 4 during the ninesix months ended MarchDecember 31, 2021. Refer to the prior year Annual Report on form 10-K for additional disclosure regarding the Company's recent acquisitions.
On April 6, 2021, the Company acquired Asuragen, Inc. for approximately $215 million, plus contingent consideration of up to $105 million upon the achievement of certain future milestones.
RESULTS OF OPERATIONS
Operational Update
Consolidated net sales increased 25%20% and 19%23% for the quarter and ninesix months ended MarchDecember 31, 2021, respectively, compared to the same prior year periods. Organic growth for the quarter and nine months ended MarchDecember 31, 2021 was 22% and 17%, respectively, compared to the same prior year, periods. Foreignwith acquisitions contributing 3% to revenue growth and foreign currency translationexchange having a favorable impact of 3%an immaterial impact. Organic growth for the quartersix months ended MarchDecember 31, 2021 and a 2% favorable impact for the nine months ended March 31, 2021 aswas 19% compared to the same prior year periods. Acquisitions contributedsame period with acquisitions contributing 4% to revenue growth and foreign currency exchange having an immaterial amount in both the three and nine months ended March 31, 2021. impact.
Consolidated net earnings attributable to Bio-Techne was $45.8increased to $80.2 million and $125.5 million$149.8 million for the quarter and ninesix months ended MarchDecember 31, 2021, respectively, as compared to $36.4$46.3 million and $170.5$79.7 million in the same prior year periods. periods. The increase in net earnings attributable to Bio-Techne for the quarter and six months ended MarchDecember 31, 2021 is primarily due to an increase in net sales and operating margin expansion, as a resultchanges in the fair value of volume leverage and cost management. The decrease in net earnings attributable to Bio-Techne for the nine months ended March 31, 2021 is driven by non-recurring gains from our CCXI investment during the nine month period ended March 31, 2020 as further described in Note 5.ChemoCentryx investment.
COVID-19 Business Strategy Update
During the last several weeks of the quarter ended March 31, 2020, we experienced numerous customer site shutdowns due to the onset of the COVID-19 pandemic, which negatively impacted sales growth by approximately 3%. During the first nine months 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 the onset of the COVID-19 pandemic. The reopening of our customer sites, the development of a robust COVID-19 product and service offering, and the Company's ongoing efforts to utilize and expand upon our portfolio of products and services to enable solutions for this evolving pandemic have helped the Company achieve record growth in both the three and nine months ended March 31, 2021. COVID-19 product offerings favorably impacted the three and nine months ended March 31, 2021 by approximately 3% and 4%, respectively. We are currently unable to forecast future short-term impacts related to COVID-19 due to the ongoing and evolving nature of the pandemic, but anticipate a positive long-term outlook for sales growth resulting from expected future funding increases within life science research in response to the current pandemic.
Adjusted EPS for the quarter and nine months ended March 31, 2021 was favorably impacted by our COVID-19 product offerings due to increased sales volumes as described above. The adjusted EPS in the prior year comparative periods was negatively impacted by a reduction in sales volume due to the customer site shutdowns experienced. We anticipate the short- and long-term impacts of COVID-19 on adjusted EPS to be similar to that of sales growth.
The Company’s key business strategies for long-term growth and profitability continue to be geographic expansion, core product innovation, acquisitions and talent retention and development. In fiscal 2022, the Company remains in a strong financial positionis also focused on evaluating how climate change impacts from our business operations might be measured and mitigated, 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 March 31, 2021 Balance Sheet resulting from COVID-19 for items such as additional reserves or asset impairments.the plan of integrating consideration of greenhouse gas emissions and other climate variables into those key business strategies.
The Company remains fully operational as we abide by localIn response to the COVID-19 safety regulations across the world. To achieve this, certain employees are currently working remotely andpandemic, the Company has adopted protective measures for our employees on site, including staggered shifts, social distancing and hygiene best practices recommended by the Centers for Disease Control (CDC). Additionally, we are educating employees on the importance of vaccination, offering paid time off to be vaccinated and cope with any health effects, sponsoring on-site vaccine clinics in key locations, and are beginning to plan for our employees working remotely to return to site in various locations as vaccinations become more widely available. In addition to our safety measures implemented, the Company has also takentook additional steps to monitor and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services. The Company has maintained these procedures while incorporating additional considerations regarding potential adverse weather events associated with climate change.
The financial impact of potential environmental regulations pertaining to carbon emissions or the integration of climate change impacts into our core business strategies are not expected to materially alter the Company’s near-term financial results. Additionally, the Company is creating a cross-functional internal council to evaluate potential long-term business impacts while driving long-term sustainability solutions.
Net Sales
Consolidated net sales for the quarter and ninesix months ended MarchDecember 31, 2021 were $243.6$269.3 million and $672.0$527.0 million, respectively, an increase of 25%20% and 19%23% from the same prior year periods. Organic growth for the quarter and nine months ended MarchDecember 31, 2021 was 22% and 17%, respectively, compared to the same prior year, periods. Foreignwith acquisitions contributing 3% to revenue growth and foreign currency translationexchange having a favorable impact of 3%an immaterial impact. Organic growth for the six months ended December 31, 2021 was 19% compared to the prior year same period with acquisitions contributing 4% to revenue growth and foreign currency exchange having an immaterial impact. Organic growth for the quarter and six months ended MarchDecember 31, 2021 is primarily driven by strong biopharma demand, especially for products, services and a 2% favorable impact forsolutions from the nine months ended March 31, 2021 as compared toProtein Sciences segment and by overall execution of the same prior year periods. Acquisitions contributed an immaterial amount in the three months and nine months ended March 31, 2021. For the quarter and nine months ended March 31, 2021 the Company experienced broad based revenueCompany's long-term growth with each major region achieving double digit organic growth. strategy.
Gross Margins
Consolidated gross margins for the quarter and ninesix months ended MarchDecember 31, 2021 were 69.1%68.2% and 68.0%67.3% respectively, compared to 66.8%67.3% and 65.7%67.4% for the same prior year periods. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold. Excluding the impact of costs recognized upon the sale of acquired inventory, sold, stock compensation expense, and amortization of intangibles, and impact of partially owned consolidated subsidiaries, adjusted gross margins for the quarter and ninesix months ended MarchDecember 31, 2021 were 72.9%72.3% and 72.1% 71.8%, respectively compared to 71.5% and 70.6%71.7% for the quarter and ninesix months ended MarchDecember 31, 2020, respectively. Both consolidated gross marginsmargin and non-GAAP adjusted gross margins were positively impacted by volume leverage and favorable product mix as compared to the prior year.year, partially offset by additional investments made in the business to support future growth for the quarter ended December 31, 2021. Consolidated gross margin for the six months ended December 31, 2021 was negatively impacted by product mix and additional investments made in the business to support future growth. Non-GAAP adjusted gross margin for the six months ended December 31, 2021 was positively impacted by volume leverage, partially offset by additional investments made in the business to support future growth.
A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold, and intangible amortization, stock compensation expense, and impact of partially owned consolidated subsidiaries included in cost of sales, is as follows:
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Consolidated gross margin percentage | 69.1 | % | 66.8 | % | 68.0 | % | 65.7 | % | 68.2 | % | 67.3 | % | 67.3 | % | 67.4 | % | ||||||||||||||||
Identified adjustments: | ||||||||||||||||||||||||||||||||
Costs recognized upon sale of acquired inventory | 0.0 | % | - |
| 0.0 | % | - |
| 0.0 | % | 0.0 | % | 0.3 | % | 0.0 | % | ||||||||||||||||
Amortization of intangibles | 3.6 | % | 4.5 | % | 3.9 | % | 4.7 | % | 3.8 | % | 3.9 | % | 3.9 | % | 4.0 | % | ||||||||||||||||
Stock compensation expense - COGS | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | 0.3 | % | 0.1 | % | 0.3 | % | ||||||||||||||||
Impact of partially owned consolidated subsidiaries(1) | 0.1 | % | 0.0 | % | 0.2 | % | 0.0 | % | ||||||||||||||||||||||||
Non-GAAP adjusted gross margin percentage | 72.9 | % | 71.5 | % | 72.1 | % | 70.6 | % | 72.3 | % | 71.5 | % | 71.8 | % | 71.7 | % | ||||||||||||||||
(1) Adjusted gross margin percentages for the second quarter and full year of fiscal 2021 have been updated for comparability to fiscal 2022 for the inclusion of the impact of partially owned consolidated subsidiaries on the Company’s adjusted gross margin percentage.
Selling, General and Administrative Expenses
Selling, general and administrativeadministrative expenses increased $16.3$17.6 million (25%(21%) and $35.0$31.2 million (17%(20%) for thethe quarter and ninesix months ended MarchDecember 31, 2021, respectively, from the same prior year periods. Selling, general,The increase in expense was due to strategic growth investments and administrative expense for both the quarter and nine months ended March 31, 2021 was impacted by additional stock compensation expense and increasesAsuragen acquisition in the numberfourth quarter of employees to support sales growth.fiscal 2021.
Research and Development Expenses
Research and development expenses were $17.1$20.7 million and $49.9$42.3 million for the quarter and ninesix months ended MarchDecember 31, 2021, respectively, compared to $16.0$16.8 million and $48.4$32.8 million for the comparative prior year periods. The increase in expense remained relatively consistent across periodswas due to similarstrategic growth investments into new products and services madethe Asuragen acquisition in each comparative period.the fourth quarter of fiscal 2021.
Segment Results
Protein Sciences
Quarter Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales (in thousands) | $ | 185,623 | $ | 145,509 | $ | 512,248 | $ | 428,021 | ||||||||
Operating income margin percentage | 47.6 | % | 44.7 | % | 46.7 | % | 43.3 | % | ||||||||
Quarter Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales (in thousands) | $ | 204,971 | $ | 172,179 | $ | 402,156 | $ | 326,625 | ||||||||
Operating margin percentage | 45.5 | % | 46.7 | % | 45.6 | % | 46.2 | % | ||||||||
Protein Science’s net sales for the quarter and ninesix months ended MarchDecember 31, 2021 were $185.6$205.0 million and $512.2$402.2 million, respectively, with reported growth of 28%19% and 20%23% compared to the same respective prior year periods. Organic growth for the quarter and ninesix months ended MarchDecember 31, 2021 were 24%was 19% and 17% 23%, respectively, with acquisitions contributingwhen compared to the prior year. Currency exchange had an immaterial amount and currency exchange having a favorable impact of 4% and 3% respectively. Segment growth was broad-based across all regions and product categories for both the quarter and ninesix months ended March 31,2021.
The operating margin was 45.5% and 45.6% for the quarter and ninesix months ended MarchDecember 31, 2021, were 47.6% and 46.7%, respectively,respectively, compared to 44.7%46.7% and 43.3%46.2% for the quarter and six month periods, respectively, for the same prior year periods. Operating incomeThe segment’s operating margin compared to the prior year was positivelynegatively impacted by volume leverage and cost management.strategic investments to support future growth.
Diagnostics and Genomics
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Net sales (in thousands) | $ | 58,093 | $ | 49,411 | $ | 160,687 | $ | 135,808 | $ | 64,527 | $ | 52,469 | $ | 125,512 | $ | 102,595 | ||||||||||||||||
Operating income margin percentage | 17.9 | % | 14.3 | % | 16.9 | % | 6.6 | % | ||||||||||||||||||||||||
Operating margin percentage | 16.9 | % | 15.5 | % | 14.6 | % | 16.4 | % | ||||||||||||||||||||||||
Diagnostics and Genomics’Genomics' net sales for the quarter and ninesix months ended MarchDecember 31, 2021 were $58.1$64.5 million and $160.7$125.5 million, respectively, with reported growth of 23% and 22% compared to $49.4 million and $135.8 millionthe same respective prior year periods. Organic growth for the samequarter and six months ended December 31, 2021 was 7% and 6%, respectively, when compared to the prior year period. Organicyear. Acquisitions contributed 16% to revenue growth for both the quarter and ninesix months ended MarchDecember 31, 2021 was 17%, with currency2021. Currency exchange having a 1%had an immaterial impact in both periods. Segment growth was broad-based and especially strong in our RNAscope products for both the quarter and ninesix months ended MarchDecember 31, 2021. Segment growth was driven by the Asuragen acquisition in the fourth quarter of fiscal 2021. Organic growth was driven by continued strength in our diagnostic reagent product lines.
The operating margin for the segment was 17.9%16.9% and 16.9%14.6% for the quarter and ninesix months ended MarchDecember 31, 2021, respectively, compared to 14.3%15.5% and 6.6%, respectively, for the quarter and nine months ended March 31, 2020. Operating income16.4% in both comparative prior year periods. The segment’s operating margin was positivelyfavorably impacted by volume leverage and cost management.product mix, which were partially offset by additional investments made in the business to support future growth for the quarter ended December 31, 2021. Operating margin for the six months ended December 31, 2021 was negatively impacted by acquisitions and strategic investments to support future growth.
Income Taxes
Income taxes were at an effective raterate of (0.1)%16.4% and 11.4%8.2% of consolidatedconsolidated earnings for the quarter and ninesix month period ended MarchDecember 31, 2021, respectively, compared to 22.2%18.1% and 20.7%16.9% for the same respective prior year periods. The change in the Company’s tax rate for the quarter and ninesix months ended MarchDecember 31, 2021 was driven by the composition and amount of net income across periods and the impact of discrete taxtax items of $11.6$7.6 million and $19.5$25.3 million, respectively,respectively, compared to prior year net discrete tax benefitsitems of $1.4$3.7 million and $8.1$7.8 million as further discussed in Note 12.
The annual forecasted tax rate as of the thirdsecond fiscal quarter of 20212022 before discrete items is 25.2%24.6% compared to the prior year forecasted tax rate before discrete items of 26.2%25.1%. Excluding the impact of discrete items, the Company expects the consolidated income tax rate for the remainder of fiscal 20212022 to range from 24% to 28%.
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows:
Quarter Ended | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Net earnings before taxes - GAAP | $ | 45,354 | $ | 46,821 | $ | 141,062 | $ | 214,952 | $ | 86,179 | $ | 56,368 | $ | 153,562 | $ | 95,706 | ||||||||||||||||
Identified adjustments attributable to Bio-Techne: | ||||||||||||||||||||||||||||||||
| Costs recognized upon sale of acquired inventory | 68 | - | 91 | - | 84 | 23 | 1,596 | 23 | ||||||||||||||||||||||||
| Amortization of intangibles | 15,222 | 15,459 | 45,750 | 45,467 | 18,380 | 15,027 | 36,769 | 30,528 | ||||||||||||||||||||||||
Acquisition related expenses | 1,825 |
| (228 | ) | 6,571 | 389 | (13,168 | ) | 4,514 |
| (15,430 | ) | 4,746 |
| ||||||||||||||||||
| Stock-based compensation, inclusive of employer taxes | 11,968 | 8,088 | 41,525 | 27,505 | ||||||||||||||||||||||||||||
| Eminence impairment | 18,715 | - | 18,715 | - | ||||||||||||||||||||||||||||
Stock based compensation, inclusive of employer taxes | 14,815 | 16,225 | 28,675 | 29,558 | ||||||||||||||||||||||||||||
Restructuring costs | - | 87 | 142 | 87 | 743 | 142 | 1,928 | 142 | ||||||||||||||||||||||||
| (Gain) loss on investments and Other | 16,590 |
| (410 | ) | 10,232 |
| (110,458 | ) | ||||||||||||||||||||||||
| Impact of non-controlling interest (pre-tax) | 445 |
| - |
| 598 | - |
| |||||||||||||||||||||||||
Non-GAAP adjusted net earnings attributable to Bio-Techne | $ | 91,472 | $ | 69,817 | $ | 245,971 | $ | 177,942 | ||||||||||||||||||||||||
Investment (gain) loss and other | (28,395 | ) | (10,197 | ) | (34,630 | ) | (5,846 | ) | ||||||||||||||||||||||||
Impact of partially owned subsidiaries(1) | 1,004 | 207 | 2,567 | 207 | ||||||||||||||||||||||||||||
Non-GAAP adjusted net earnings attributable to Bio-Techne(1) | $ | 98,357 | $ | 82,309 | $ | 193,752 | $ | 155,064 | ||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
| Non-GAAP tax rate | 20.2 | % | 21.3 | % | 20.2 | % | 21.6 | % | 21.4% | 20.6 | % | 21.2 | % | 20.6 | % | |||||||||||||||||
| Non-GAAP tax expense | 18,541 | 14,847 | 49,511 | 38,462 | 21,048 | 16,956 | 41,076 | 31,969 | ||||||||||||||||||||||||
| Non-GAAP adjusted net earnings attributable to Bio-Techne | $ | 72,931 | $ | 54,970 | $ | 196,460 | $ | 139,480 | ||||||||||||||||||||||||
| Non-GAAP adjusted net earnings growth attributable to Bio-Techne | 32.7 | % | 16.8 | % | 40.9 | % | 10.3 | % | ||||||||||||||||||||||||
Non-GAAP adjusted net earnings attributable to Bio-Techne(1) | $ | 77,309 | $ | 65,353 | $ | 152,676 | $ | 123,095 | ||||||||||||||||||||||||
Earnings per share – diluted - Adjusted | $ | 1.88 | $ | 1.62 | $ | 3.71 | $ | 3.07 | ||||||||||||||||||||||||
(1)Adjusted consolidated net earnings and earnings per share for the second quarter and full year of fiscal 2021 have been updated for comparability to fiscal 2022 for the inclusion of the impact of partially owned consolidated subsidiaries on the Company’s adjusted consolidated net earnings.
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-GAAPnon-GAAP adjusted tax rate for the quarter and ninesix months ended MarchDecember 31, 2021 and MarchDecember 31, 2020.
Quarter Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| GAAP effective tax rate | (0.1 | )% | 22.2 | % | 11.4 | % | 20.7 | % | ||||||||
| Discrete items | 25.7 | 3.1 | 13.8 | 3.8 | ||||||||||||
| Annual tax forecast update | (0.4 | ) | (0.8 | ) | - |
| - |
| ||||||||
| Long-term GAAP tax rate | 25.2 | % | 24.5 | % | 25.2 | % | 24.5 | % | ||||||||
| Rate impact items | ||||||||||||||||
| Stock based compensation | (5.6 | )% | (2.6 | )% | (5.6 | )% | (2.5 | )% | ||||||||
| Acquisition costs | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
| Change in fair value of investments | 0.0 | (0.5 | ) | 0.0 | (0.3 | ) | ||||||||||
| Other(1) | 0.6 | (0.1 | ) | 0.6 | (0.1 | ) | ||||||||||
| Total rate impact items | (5.0 | )% | (3.2 | )% | (5.0 | )% | (2.9 | )% | ||||||||
| Non-GAAP tax rate | 20.2 | % | 21.3 | % | 20.2 | % | 21.6 | % | ||||||||
Quarter Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
GAAP effective tax rate | 16.4 | % | 18.1 | % | 8.2 | % | 16.9 | % | ||||||||
| Discrete items | 7.5 | 6.5 | 16.4 | 8.2 | ||||||||||||
| Annual forecast update | 0.7 | 0.5 | - | - | ||||||||||||
| Long-term GAAP tax rate | 24.6 | % | 25.1 | % | 24.6 | % | 25.1 | % | ||||||||
| ||||||||||||||||
Rate impact items | ||||||||||||||||
Stock based compensation | (1.7 | ) | (4.2 | ) | (1.9 | ) | (4.2 | ) | ||||||||
Other | (1.5 | ) | (0.3 | ) | (1.5 | ) | (0.3 | ) | ||||||||
| Total rate impact items | (3.2 | )% | (4.5 | )% | (3.4 | )% | (4.5 | )% | ||||||||
| ||||||||||||||||
Non-GAAP adjusted tax rate(1) | 21.4 | % | 20.6 | % | 21.2 | % | 20.6 | % | ||||||||
(1) For theIn our second quarter ended March 31, results of fiscal 2021, the other rate impact items includes a normalization ofCompany re-casted our first quarter results using the non-GAAP tax rate for the first six months of fiscal 2021, which was included in our non-GAAPnormalized the tax rate as theimpact on adjusted earnings resulting from return to historical growth patterns seen prior to the onset of the COVID-19 pandemic occurred on a more condensed timeline than previously forecasted. The impact of re-casting the Non-GAAP tax rate for the third quarter of fiscal 2021 increased the non-GAAP tax rate by 0.6%.pandemic.
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the quarter ended MarchDecember 31, 2021 is primarily a result of discrete tax items, including the tax benefit of stock option exercises.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and available-for-sale investments were $186.1 million and $90.1$279.0 million as of MarchDecember 31, 2021, respectively, compared to $146.6 million and $124.3$231.6 million as of June 30, 2020.2021. Included in available-for-sale-investments was the fair value of the Company's investment in ChemoCentryx, Inc. (CCXI) which was $77.6$53.6 million as of MarchDecember 31, 2021 and $87.8$20.0 million as of June 30, 2020.2021.
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 remaining potential contingent consideration payments of up to $47$105 million and $38 million relating to the QuadAsuragen and B-MoGen acquisitions respectively, as of MarchDecember 31, 2021. The fair value of the remaining payments is $12.2 $9.0 million as of MarchDecember 31, 2021.
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 $230.1$149.4 million from operating activities in the ninesix months ended MarchDecember 31, 2021 compared to $160.4$155.3 million in the ninesix months ended MarchDecember 31, 2020. The increasedecrease from the prior year was primarily due to changes in the timing of cash payments on certain operating assets and liabilities.liabilities, largely offset by an increase in year over year net earnings.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures. The Company received $66.4 million from the maturities of certificates of deposit compared to $42.1 million from proceeds from the maturity of certificates of deposit in the nine months ended March 31, 2020. Additionally, the Company received $78.7 million relating to the selling a portion of our CCXI shares during the nine months ended March 31, 2020. The Company made cash payments of $9.8 million net of cash acquired for the Eminence acquisition in the first three quarters of fiscal 2021 and did not make any cash payments for acquisitions during the prior year period.
Capital expenditures for fixed assets for the ninesix months ended MarchDecember 31, 2021 and MarchDecember 31, 2020 were $33.0 $16.2 million and $34.3$22.4 million, respectively. Capital expenditures for the remainder of fiscal 20212022 are expected to be approximately $10.8 45 mmillion.illion. Capital expenditures are expected to be financed through currently available funds and cash generated from operating activities. Expected additions in fiscal 2022 is related to increasing capacity to meet expected sales growth across the Company.
During the six months ended December 31, 2021, the Company paid $25 million to enter into a two-part forward contract which requires the Company to purchase the full equity interest in Wilson Wolf Corporation (Wilson Wolf) if certain annual revenue or EBITDA thresholds are met. The Company is currently forecasting the first option payment of $231 million to occur in either fiscal 2023 or fiscal 2024 with the second option payment of approximately $1 billion plus potential contingent consideration occurring between fiscal 2026 and fiscal 2028.
Cash Flows From Financing Activities
During the ninesix months ended MarchDecember 31, 2021 and MarchDecember 31, 2020, the Company paid cash dividends of $37.2 $25.1 million and $36.6$24.7 million, respectively, to all common shareholders.
During the nine months ended March 31, 2021 and March 31, 2020, the Company repurchased $43.2 million and $50.1 million, respectively, in share repurchases included as a cash outflow within Financing Activities.
On May 6, 2021,February 1, 2022, the Company announced the payment of a $0.32 per share cash dividend, or approximately $12.4$12.6 million, which will be payable on May 28, 2021February 25, 2022 to all common shareholders of record as of May 17, 2021.on February 11, 2022.
Cash of $55.0 $56.5 million and $38.5$32.3 million was received during the ninesix months ended MarchDecember 31, 2021 and 2020, respectively, from the exercise of stock options.
During the ninesix months ended MarchDecember 31, 2021, and December 31, 2020, the Company made payments of $141.4 $109.3 million and $125.3 million, respectively, towards the balance of its line-of-credit facility and term loan. During the ninesix months ended MarchDecember 31, 2021, the Company borrowed $50.0 million of its line-of-credit facility. There were no borrowings for the six months ended December 31, 2020.
During the six months ended December 31, 2021, the Company repurchased $41.3 million of common stock. There were no repurchases for the six months ended December 31, 2020.
During the six months ended December 31, 2021 and December 31, 2020, the Company made $23.2 million and $7.4 million in other financing payments, of $125.4 million towards the balance of its line-of-credit facilityrespectively, related to taxes paid on restricted stock units and term loan and withdrew $40.0 million on the line-of-credit facility.stock options exercised through a net share settlement.
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 and acquisitions, there were no material changes outside the ordinary course of business in the Company's contractual obligations during the quarter or nine months ended March 31, 2021.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in the Company's Annual Report on Form 10-K for fiscal 20202021 and are incorporated herein by reference. The application of certain of these policies requires judgments and estimates that can affect the results of operations and financial position of the Company. Judgments and estimates are used for, but not limited to, valuation of available-for-sale investments, inventory valuation and allowances, valuation of intangible assets and goodwill and valuation of investments in unconsolidated entities. There have been no significant changes in estimates in the quarter or ninesix months ended MarchDecember 31, 2021 that would require disclosure nor have there been any material 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 | |
• | Adjusted gross margin | |
• | Adjusted net earnings | |
• | Adjusted effective tax rate |
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months, the impact of foreign currency, as well as the impact of foreign currency.partially owned consolidated subsidiaries. Excluding these measures provides more useful period-to-period comparison of revenue results as it excludes the impact of foreign currency exchange rates, which can vary significantly from period to period, and revenue from acquisitions that would not be included in the comparable prior periodperiod. Revenues from partially owned subsidiaries consolidated in our financial statements are also excluded from our organic revenue calculation, as those revenues are not fully attributable to the Company. Revenue from partially owned subsidiaries was $0.5 million and $0.9 million for the quarter and six months ended December, 31, 2021.
Our non-GAAP financial measures for adjusted gross margin, adjusted operating margin, and adjusted net earnings, in total and on a per share basis, exclude stock-based compensation, the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, and acquisition related expenses inclusive of the changes in the fair value of contingent consideration, and other non-recurring items including non-recurring costs, goodwill and long-lived asset impairments, and gains. Stock-based compensation is excluded from non-GAAP adjusted net earnings because of the nature of this charge, specifically the varying available valuation methodologies, subjection assumptions, variety of award types, and unpredictability of amount and timing of employer related tax obligations. The Company excludes amortization of purchased intangible assets, purchase accounting adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses inclusive of the changes in fair value contingent consideration, and other non-recurring items including gains or losses on legal settlements, goodwill and long-lived asset impairment charges, and one-time assessments from this measure because they occur as a result of specific events, and are not reflective of our internal investments, the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support our operating structure. Additionally, these amounts can vary significantly from period to period based on current activity. The Company also excludes revenue and expense attributable to partially owned consolidated subsidiaries in the calculation of our non-GAAP financial measures as the revenues and expenses are not fully attributable to the Company.
The Company’s non-GAAP adjusted net earningsoperating margin and adjusted gross margin also excludes,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 and adjusted gross margin 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. For the Eminence acquisition, amortization expense and costs of acquired inventory were adjusted in the net earnings calculation based on the Company's ownership percentage to calculate the adjusted net earnings per share attributable to Bio-Techne. 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.
the adjusted financial measures used in management's discussion and analysis of the financial condition of the Company to their most directly comparable GAAP financial measures provided within the Company's consolidated financial statements.
FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS
This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those regarding the Company's expectations as to the effect of changes to accounting policies, the amount of capital expenditures for the remainder of the fiscal year, the source of funding for capital expenditure requirements, the sufficiency of currently available funds for meeting the Company's needs, the impact of fluctuations in foreign currency exchange rates, and expectations regarding gross margin fluctuations, increasing research and development expenses, increasing selling, general and administrative expenses and income tax rates. These statements involve risks and uncertainties that may affect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the Company's actual results: integration of newly acquired businesses, the introduction and acceptance of new products, general national and international economic, political, regulatory, and other conditions, customer site closures or supply chain issues resulting from the COVID-19 pandemic, 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 20202021 as filed with the Securities and Exchange Commission and Part II. Item 1A below.
ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of MarchDecember 31, 2021, 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 $77.6$53.6 million. As of MarchDecember 31, 2021, the potential loss in fair value due to a 10% decrease in the market value of CCXI was $7.8$5.4 million.
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates. For the quarter ended MarchDecember 31, 2021, approximately 31%36% of consolidated net sales were made in foreign currencies, including 13% in euros, 5% in British pound sterling, 6%8% in Chinese yuan and the remaining 7%10% 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 the 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 | Nine Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Euro | $ | 1.20 | $ | 1.10 | $ | 1.19 | $ | 1.11 | $ | 1.14 | $ | 1.19 | $ | 1.16 | $ | 1.19 | ||||||||||||||||
British pound sterling | 1.38 | 1.28 | 1.33 | 1.27 | 1.35 | 1.32 | 1.36 | 1.32 | ||||||||||||||||||||||||
Chinese yuan | 0.15 | 0.14 | 0.15 | 0.14 | 0.16 | 0.15 | 0.16 | 0.15 | ||||||||||||||||||||||||
Canadian dollar | 0.79 | 0.74 | 0.77 | 0.75 | 0.79 | 0.76 | 0.79 | 0.76 | ||||||||||||||||||||||||
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 MarchDecember 31, 2021 levels against the euro, British pound sterling, Chinese yuan and the Canadian dollar are as follows (in thousands):
Decrease in translation of earnings of foreign subsidiaries (annualized) | $ | 4,391 | $ | 5,525 | ||||
Decrease in translation of net assets of foreign subsidiaries | 54,183 | 61,002 | ||||||
Additional transaction losses | 2,485 | 3,002 | ||||||
ITEM4. 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 MarchDecember 31, 2021, our disclosure controls and procedures were effective.
(b) Changes in internal controls over financial reporting.
As previously announced, we acquired 47.6% of the outstanding equity interest in Eminence on October 20, 2020 and are accounting for the investment in accordance with ASC 805 Business Combinations as disclosed in Note 4. We have not fully evaluated any changes in internal control over financial reporting associated with this acquisition and therefore any material changes that may result from this acquisition have not been disclosed in this report. We intend to disclose all material changes resulting from this acquisition within or prior to the time of our first annual assessment of internal control over financial reporting that is required to include this entity.
Other than the acquisition discussed above, thereThere were no changes in the Company's internal control over financial reporting during the thirdsecond quarter of fiscal year 20212022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
As of MayFebruary 7, 2021,2022, 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 quarter and ninesix months ended MarchDecember 31, 2021, 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, 2020.2021.
ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended March 31, 2021, the Company only repurchased shares during the month of March 2021. During the nine months ended March 31, 2021, the Company repurchased 120,000 shares for $43.2 million at an average share price of $359.81. The Company repurchased 26,000 shares in February 2020 at an average share price of $186.99 and repurchased 253,381 shares in March 2020 at an average share price of $178.58. In total, the Company purchased 279,381 shares during the third quarter of fiscal 2020 for $50.1 million at an average share price of $179.37. The Company's repurchase plan approved by the Board for the period prior to February 2, 2022 granted management the discretion to mitigate the dilutive effect of stock option exercises for fiscal 2018, which then increases in each period subsequent to June 30, 2018 for additional dilutive impacts of stock option exercised in those future periods. As of March 31, 2021, we have authorization of approximately $67 millionFebruary 2, 2022, the Company replaced the prior share repurchase plan with a new share repurchase plan that authorizes the Company to purchase additionalup to $400 million in stock. The Company repurchased 89,238 shares in fiscal 2022 under the Company's previously disclosedprevious plan. No shares have yet been repurchased under the new share repurchase plan.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Cash Paid (thousands) | |||
| November 1-30, 2021 | 900 | 468.90 | 422 | |||
| December 1-31, 2021 | 88,338 | 462.67 | 40,872 |
ITEM 3. DEFAULT ON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
EXHIBIT INDEX
TO
FORM 10-Q
BIO-TECHNE CORPORATION
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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.
BIO-TECHNE CORPORATION | ||||
(Company) | ||||
Date: | /s/ Charles R. Kummeth | |||
Charles R. Kummeth | ||||
Principal Executive Officer | ||||
Date: | /s/ James | |||
James | ||||
Principal Financial Officer |