0001437749-21-011348.txt : 20210507 0001437749-21-011348.hdr.sgml : 20210507 20210507163203 ACCESSION NUMBER: 0001437749-21-011348 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO-TECHNE Corp CENTRAL INDEX KEY: 0000842023 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 411427402 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17272 FILM NUMBER: 21903319 BUSINESS ADDRESS: STREET 1: 614 MCKINLEY PL N E CITY: MINNEAPOLIS STATE: MN ZIP: 55413 BUSINESS PHONE: 6123798854 MAIL ADDRESS: STREET 1: 614 MCKINLEY PLACE NE CITY: MINNEAPOLIS STATE: MN ZIP: 55413 FORMER COMPANY: FORMER CONFORMED NAME: TECHNE CORP /MN/ DATE OF NAME CHANGE: 19920703 10-Q 1 tech20210331_10q.htm FORM 10-Q tech20210331_10q.htm
0000842023 BIO-TECHNE Corp false --06-30 Q3 2021 1,428 775 0 0 5,000,000 5,000,000 0 0 0 0 0.01 0.01 100,000,000 100,000,000 38,854,000 38,854,000 38,453,046 38,453,046 5 0.32 0.96 3 13 - 142 Increase in patents and other intangible assets is primarily due to $5.0 million recognized in intangible assets in the first quarter of fiscal 2021 for certain third party patented technology acquired. $4.0 million of the third party patented technology acquired was a non-cash activity within the condensed consolidated statement of cash flows as a cash payment was not made within the nine months ended March 31, 2021. The Company reclassified ($2,102) to interest expense and a related tax benefit tax of $488 during the nine months ended March 31, 2020. 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. 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. 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. Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at March 31, 2021 was $6.6 million and on June 30, 2020 it was $6.6 million. The Company has a warrant to purchase additional CCXI equity shares which was valued at $6.5 million and $8.0 million as of March 31, 2021 and June 30 2020, respectively. Included in available-for-sale investments on the balance sheet. The certificate of deposits have contractual maturity dates within one year. Finished goods inventory of $5,044 and $4,646 included within other long-term assets in the respective March 31, 2021 and June 30, 2020, consolidated balance sheet. 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Table of Contents

 


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 March 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, 38,891,663 shares of the Company's Common Stock (par value $0.01) were outstanding.

 

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II: OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

30

 

 

 

 

SIGNATURES

32

  

 

 
 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

Bio-Techne Corporation and Subsidiaries

(in thousands, except per share data)

(unaudited)

 

  

Quarter Ended

March 31,

  

Nine Months Ended

March 31,

 
  

2021

  2020  2021  2020 

Net sales

 $243,552  $194,680  $672,004  $562,857 

Cost of sales

  75,278   64,617   215,098   192,977 

Gross margin

  168,274   130,063   456,906   369,880 

Operating expenses:

                

Selling, general and administrative

  82,596   66,318   238,310   203,358 

Research and development

  17,052   15,954   49,882   48,413 

Total operating expenses

  99,648   82,272   288,192   251,771 

Operating income

  68,626   47,791   168,714   118,109 

Other (expense) income

  (23,272

)

  (970)  (27,652)  96,843

 

Earnings before income taxes

  45,354   46,821   141,062   214,952 

Income taxes

  (48)  10,389   16,121   44,501 
Net earnings, including noncontrolling interest  45,402   36,432   124,941   170,451 
Net earnings (loss) attributable to noncontrolling interest  (380)  -   (509)  - 
Net earnings attributable to Bio-Techne $45,782  $36,432  $125,450  $170,451 

Other comprehensive (loss) income:

                

Foreign currency translation adjustments

  (1,142

)

  (19,403)  27,700

 

  (15,138

)

Derivative instruments - cash flow hedges

  1,288

 

  (5,702

)

  5,490

 

  (4,798

)

Other comprehensive income (loss)

  146

 

  (25,105)  33,190

 

  (19,936

)

Other comprehensive income (loss) attributable to noncontrolling interest  (69)  -   14   - 
Other comprehensive income attributable to Bio-Techne  215   (25,105)  33,176   (19,936)

Comprehensive income attributable to Bio-Techne

 $45,997  $11,327  $158,626  $150,515 

Earnings per share attributable to Bio-Techne:

                

Basic

 $1.18  $0.95  $3.24  $4.46 

Diluted

 $1.12  $0.92  $3.11  $4.33 
                 

Weighted average common shares outstanding:

                

Basic

  38,856   38,303   38,693   38,167 

Diluted

  40,676   39,435   40,305   39,354 

 

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,
2021
(unaudited)

  

June 30,
2020

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $186,136  $146,625 

Short-term available-for-sale investments

  90,108   124,268 

Accounts receivable, net of $1,428 and $775 of reserves, respectively

  157,790   122,534 

Inventories

  109,990   103,152 

Other current assets

  22,582   24,341 

Total current assets

  566,606   520,920 
         

Property and equipment, net

  198,975   176,829 

Right of use asset

  71,830   71,465 

Goodwill

  746,460   728,308 

Intangible assets, net

  489,178   516,545 

Other assets

  11,593   13,522 

Total assets

 $2,084,642  $2,027,589 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Trade accounts payable

 $25,842  $23,090 

Salaries, wages and related accruals

  43,268   31,087 

Accrued expenses

  15,689   9,093 

Contract liabilities

  18,714   13,049 

Income taxes payable

  3,562   2,376 

Operating lease liabilities - current

  10,414   9,535 

Contingent consideration payable

  5,070   5,938 

Current portion of long-term debt obligations

  12,500   12,500 

Other current liabilities

  2,581   - 

Total current liabilities

  137,640   106,668 
         

Deferred income taxes

  98,401   101,090 

Long-term debt obligations

  202,931   344,243 

Long-term contingent consideration payable

  7,100   199 

Operating lease liabilities

  66,816   67,248 

Other long-term liabilities

  23,812   26,949 

Bio-Techne's shareholders' equity:

        
         

Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding

  -   - 

Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 38,854,000 and 38,453,046, respectively

  389   385 

Additional paid-in capital

  514,299   420,536 

Retained earnings

  1,088,788   1,057,470 

Accumulated other comprehensive loss

  (64,023

)

  (97,199

)

Total Bio-Techne shareholders' equity

  1,539,453   1,381,192 

Noncontrolling interest

  8,489   - 

Total shareholders’ equity

  1,547,942   1,381,192 

Total liabilities and shareholders’ equity

 $2,084,642  $2,027,589 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

 

  

Nine Months Ended

 
  

March 31,

 
  

2021

  2020 

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net earnings

 $124,941  $170,451 

Adjustments to reconcile net earnings to net cash provided by operating activities:

        

Depreciation and amortization

  63,075   61,746 

Costs recognized on sale of acquired inventory

  91   - 

Deferred income taxes

  (6,023)  8,641

 

Stock-based compensation expense

  39,174   26,350 
Contingent consideration payments  (155)   

Fair value adjustment to contingent consideration payable

  6,188

 

  (605

)

Fair value adjustment on available for sale investments

  10,234   (111,267

)

Leases, net  83   191 

Other operating activity

  (608

)

  (865)

Change in operating assets and operating liabilities, net of acquisition:

        

Trade accounts and other receivables, net

  (32,710)  2,692

 

Inventories

  (4,115

)

  (10,009

)

Other current assets

  414   (1,995

)

Trade accounts payable, accrued expenses, contract liabilities, and other

  12,198   10,031 

Salaries, wages and related accruals

  13,829   (5,090

)

Income taxes payable

  3,528   10,155

 

Net cash provided by operating activities

  230,144   160,426 
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Proceeds from sale and maturities of available-for-sale investments

  66,377   122,667 

Purchases of available-for-sale investments

  (39,684

)

  (50,728

)

Additions to property and equipment

  (32,985

)

  (34,371

)

Investment in unconsolidated entity  (556)  - 

Acquisitions, net of cash acquired

  (9,765)  -

 

Net cash provided by (used in) investing activities

  (16,613)  37,568

 

         

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Cash dividends

  (37,174

)

  (36,644

)

Proceeds from stock option exercises

  54,992   38,490 

Re-purchase of common stock

  (43,178

)

  (50,112

)

Proceeds from long-term debt

  -   40,000 

Repayments of long-term debt

  (141,375

)

  (125,375

)

Other financing activity

  (13,504

)

  (5,441

)

Net cash provided by (used in) financing activities

  (180,239

)

  (139,082)
         

Effect of exchange rate changes on cash and cash equivalents

  6,219

 

  (3,582)

Net increase (decrease) in cash and cash equivalents

  39,511   55,330

 

Cash and cash equivalents at beginning of period

  146,625   100,886 

Cash and cash equivalents at end of period

 $186,136  $156,216 
         

Supplemental disclosure of cash flow information:

        

Cash paid for income taxes

 $17,957  $24,851 

Cash paid for interest

 $10,729  $14,196 

 

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, included in the Company's Annual Report on Form 10-K for fiscal year 2020. 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. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

 

During the nine months ended March 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. 

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update 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 intended to provide financial statement users with more decision-useful information about the expected credit losses. The Company adopted this standard on July 1, 2020 using a modified retrospective transition approach with a cumulative impact of $0.3 million to retained earnings. The adoption of this ASU did not have a material impact on 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. 

 

In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. The Company adopted this standard on a prospective basis on July 1, 2020. The Company will record eligible costs to be capitalized within prepaid assets or other non-current assets depending on the nature of the duration of the asset.  

 

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.

 

 

 

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 had 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 March 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 the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of March 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  March 31, 2021 and June 30, 2020 were approximately $19.7 million and $14.2 million, respectively. Contract liabilities as of June 30, 2020 subsequently recognized as revenue during the quarter and nine month period ended March 31, 2021 were approximately $1.6 million and $9.7 million, respectively. Contract liabilities in excess of one year are included in Other long-term liabilities on the consolidated balance sheet.

 

5

 

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

 
  

March 31,

  

March 31,

 
  

2021

  2020  2021  2020 

Consumables

 $198,818  $161,958  $542,909  $462,660 

Instruments

  24,748   16,405   70,849   53,381 

Services

  14,503   11,426   45,142   32,917 

Total product and services revenue, net

 $238,069  $189,789  $658,900  $548,958 

Royalty revenues

  5,483   4,891   13,104   13,899 

Total revenues, net

 $243,552  $194,680  $672,004  $562,857 

 

Revenue by geography is as follows:

 

  

Quarter Ended

March 31,

  

Nine Months Ended

March 31,

 
  2021  2020  2021  2020 

United States

 $131,586  $109,797  $359,586  $311,815 

EMEA, excluding United Kingdom

  54,552   39,108   147,622   115,993 

United Kingdom

  11,213   9,166   29,599   24,619 

APAC, excluding Greater China

  19,002   17,193   52,744   46,982 

Greater China

  20,467   13,781   63,685   49,655 

Rest of World

  6,732   5,635   18,768   13,793 

Total revenues, net

 $243,552  $194,680  $672,004  $562,857 

  

 

 

Note 3. Selected Balance Sheet Data:

 

Inventories:

 

Inventories consist of (in thousands):

 

  

March 31,

  

June 30,

 
  

2021

  

2020

 

Raw materials

 $51,664  $51,530 

Finished goods(1)

  63,370   56,268 

Inventories, net

 $115,034  $107,798 

 

(1) Finished goods inventory of $5,044 and $4,646 included within other long-term assets in the respective March 31, 2021 and June 30, 2020, 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,

 
  2021  

2020

 

Land

 $8,596  $8,516 

Buildings and improvements

  189,443   184,430 

Machinery and equipment

  187,855   153,704 

Property and equipment, cost

  385,894   346,650 

Accumulated depreciation and amortization

  (186,919

)

  (169,821

)

Property and equipment, net

 $198,975  $176,829 

 

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 

 

 

(1)

Increase in patents and other intangible assets is primarily due to $5.0 million recognized in intangible assets in the first quarter of fiscal 2021 for certain third party patented technology acquired. $4.0 million of the third party patented technology acquired was a non-cash activity within the condensed consolidated statement of cash flows as a cash payment was not made within the nine months ended March 31, 2021.

 

7

 

Changes to the carrying amount of net intangible assets for the quarter ended March 31, 2021 consist of (in thousands):

 

Beginning balance

 $516,545 

Acquisitions

  8,917 

Other additions

  5,750 

Amortization expense

  (46,237

)

Currency translation

  4,203 

Ending balance

 $489,178 

 

The estimated future amortization expense for intangible assets as of March 31, 2021 is as follows (in thousands):

 

2021 remainder

 $15,060 

2022

  59,539 

2023

  57,647 

2024

  55,016 

2025

  51,959 

Thereafter

  249,957 

Total

 $489,178 

 

Goodwill:

 

Changes to the carrying amount of goodwill for the quarter ended March 31, 2021 consist of (in thousands):

 

  

Protein Sciences

  

Diagnostics and

Genomics

  

Total

 

Beginning balance

 $373,081  $355,229  $728,310 

Acquisitions

  7,848   -   7,848 

Currency translation

  10,186   116   10,302 

Ending balance

 $391,115  $355,345  $746,460 

 

We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2020. No indicators of impairment were identified as part of our assessment. 

 

No triggering events were identified during the quarter ended March 31, 2021. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC 350 guidance for goodwill and other intangibles on July 1, 2002.

 

 

 

Note 4. Acquisitions:

 

We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and the results of operations of each acquired business are included in our consolidated statements of comprehensive income from their respective dates of acquisition. Acquisition costs are recorded in selling, general and administrative expenses as incurred.

 

Eminence Biotechnology

 

On October 20, 2020, the Company acquired 47.6% of the outstanding equity shares of Changzhou Eminence Biotechnology Co., Ltd. (Eminence) 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 million, net of cash acquired and an additional $0.8 million loan made from the Company to Eminence in the third fiscal quarter of 2021. 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 result of the acquisition represents the strategic benefits of growing the Company’s 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 reportable segment in the second quarter of fiscal year 2021. 

 

Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize our purchasing accounting by the end of fiscal year 2021 when we have finalized our intangible assets valuations and income tax assessment of acquired net operating losses (NOLs). Amounts for intangible assets, deferred tax liabilities, acquired NOLs, and goodwill remain subject to change. The preliminary estimated fair values of the assets acquired and liabilities assumed and the updated preliminary amounts as of March 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. 

 

Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology and customer relationships was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The 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 13 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 10 years. 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.

 

 

 

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

 
  

March

31,

2021

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Equity securities (1)

 $77,608  $71,104  $6,504  $- 

Certificates of deposit (2)

  12,500   12,500   -   - 

Total assets

 $90,108  $83,604  $6504  $- 
                 

Liabilities

                

Contingent consideration

 $12,170  $-  $-  $12,170 

Derivative instruments - cash flow hedges

  10,281   -   10,281   - 

Total liabilities

 $22,451  $-  $10,281  $12,170 

 

  

Total

carrying

value as of

  

Fair Value Measurements Using

Inputs Considered as

 
  

June 30,

2020

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Equity securities (1)

 $87,842  $79,846  $7,996  $- 

Certificates of deposit (2)

  36,426   36,426   -   - 

Total assets

 $124,268  $116,272  $7,996  $- 
                 

Liabilities

                

Contingent consideration

 $6,137  $-  $-  $6,137 

Derivative instruments - cash flow hedges

  17,331   -   17,331   - 

Total liabilities

 $23,468  $-  $17,331  $6,137 

 

 

(1)

Included in available-for-sale investments on the balance sheet.   The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at March 31, 2021 was $6.6 million and on June 30, 2020 it was $6.6 million. The Company has a warrant to purchase additional CCXI equity shares which was valued at $6.5 million and $8.0 million as of March 31, 2021 and  June 30 2020, respectively.

 

(2)

Included in available-for-sale investments on the balance sheet.  The certificate of deposits have contractual maturity dates within one year.

 

10

 

Fair value measurements of available for sale securities

Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets.

 

Fair value measurements of derivative instruments

In  October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company 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 $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 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 of the portion of the de-designated derivative was $1.4 million as of March 31, 2021. The Company recognized a loss in other non-operating income on a portion of the de-designated derivative as it was considered probable that a portion of the variable interest debt payments related to the derivative would not occur. The remaining variable interest payments for the portion of the de-designated derivative are considered probable of occurring and therefore remain in accumulated other comprehensive income as of March 31, 2021.  

 

Changes in the fair value of the designated hedged instrument 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 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 million during the nine months ended March 31, 2021. The Company reclassified $2.1 million to interest expense and a related tax benefit of $0.5 million during the nine 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 was valued using observable market inputs in active markets and therefore classified as a Level 2 liability.

 

11

 

Fair value measurements of contingent consideration

In connection with the QT Holdings Corporation (Quad) and B-MoGen Biotechnologies Inc. (B-MoGen) acquisitions the Company is required to make contingent consideration payments of up to $51.0 million and $38.0 million, respectively. The contingent consideration payments are subject to Quad and B-Mogen meeting certain product development milestones and revenue thresholds. The preliminary fair value of 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 based model discounted to present value. Assumptions used in these calculations included units sold, expected revenue, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. 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.

 

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 thousands):

 

  

Quarter Ended

  

Nine Months Ended

 
  

March 31,

2021

  

March 31,

2021

 

Fair value at the beginning of period

 $10,582  $6,137 

Change in fair value of contingent consideration

  1,588   6,188 

Payments

  -

 

  (155

)

Fair value at the end of period

 $12,170  $12,170 

 

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 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 20 basis points.

 

The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of March 31, 2021, the outstanding balance under the Credit Agreement was $215.6 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 nine months ended March 31, 2021, the Company recognized $2.4 million in variable lease expense and $9.9 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

 

Operating leases:

     

Operating lease right of use assets

Right of Use Asset

 $71,830 
      

Current operating lease liabilities

Operating lease liabilities current

 $10,414 

Noncurrent operating lease liabilities

Operating lease liabilities

  66,816 

Total operating lease liabilities

 $77,230 
      

Weighted average remaining lease term (in years):

  8.35 
      

Weighted average discount rate:

  4.15

%

 

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 nine 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 

 

 

The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):

 

  

Operating

Leases

 

Remainder of 2021

 $4,498 

2022

  13,081 

2023

  12,138 

2024

  11,202 

2025

  10,278 

Thereafter

  41,544 

Total

 $92,741 

Less: Amounts representing interest

  15,511 

Total Lease obligations

 $77,230 

 

Certain leases include one or more options to renew, with terms that extend the lease term up to five years. Bio-Techne includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, Bio-Techne is not reasonably certain to exercise such options.

 

13

  
 

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 in both the three and nine months ended March 31, 2021 and 2020, respectively. 

 

Consolidated Changes in Equity (amounts in thousands)

 

  

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

)

 $-  $1,381,192 

Cumulative effect adjustments due to adoption of new accounting standards

              (276

)

          (276

)

Net earnings

              33,395           33,395 

Other comprehensive income

                  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

)

 $-  $1,439,285 

Non-controlling interest in Eminence

                      8,985   8,985 

Net earnings

              46,274       (130

)

  46,144 

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 
Share repurchases  (120)  (1)      (43,177)          (43,178)
Common stock issued for exercise of options  195   2   21,324   (4,332)          16,994 
Common stock issued for restricted stock awards  10   0   (0)  (1,801)          (1,801)
Cash dividends              (12,446)          (12,446)
Stock-based compensation expense          10,232               10,232 
       Common Stock issued to employee stock purchase plan  4   0   1,328               1,328 

Employee stock purchase plan expense

          411               411 
Balances at March 31, 2021  38,854  $389  $514,299  $1,088,788  $(64,023) $8,489  $1,547,942 

 

14

 
                  

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

)

     (1,926

)

Cash dividends

              (12,169

)

     (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