0001558370-23-018018.txt : 20231107 0001558370-23-018018.hdr.sgml : 20231107 20231107163557 ACCESSION NUMBER: 0001558370-23-018018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 84 CONFORMED PERIOD OF REPORT: 20230930 FILED AS OF DATE: 20231107 DATE AS OF CHANGE: 20231107 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: 231384496 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 tmb-20230930x10q.htm 10-Q
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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 September 30, 2023, 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 November 1, 2023, 158,150,379 shares of the Company's Common Stock (par value $0.01) were outstanding.

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

September 30, 

2023

2022

Net sales

$

276,935

$

269,655

Cost of sales

 

91,744

 

90,060

Gross margin

 

185,191

 

179,595

Operating expenses:

 

  

Selling, general and administrative

 

105,331

 

99,375

Research and development

 

23,998

 

23,903

Total operating expenses

 

129,329

 

123,278

Operating income

 

55,862

 

56,317

Other income (expense)

(6,304)

47,399

Earnings before income taxes

 

49,558

 

103,716

Income taxes (benefit)

 

(1,435)

 

13,982

Net earnings, including noncontrolling interest

 

50,993

 

89,734

Net earnings attributable to noncontrolling interest

 

 

179

Net earnings attributable to Bio-Techne

$

50,993

$

89,555

Other comprehensive income (loss):

 

  

 

  

Foreign currency translation adjustments

 

(11,602)

 

(21,457)

Foreign currency translation reclassified to earnings with Eminence deconsolidation

119

Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8

 

(350)

 

4,695

Other comprehensive income (loss)

 

(11,952)

 

(16,643)

Other comprehensive income (loss) attributable to noncontrolling interest

 

 

(33)

Other comprehensive income (loss) attributable to Bio-Techne

 

(11,952)

 

(16,610)

Comprehensive income attributable to Bio-Techne

$

39,041

$

72,945

Earnings per share attributable to Bio-Techne(1):

Basic

$

0.32

$

0.57

Diluted

$

0.31

$

0.55

Weighted average common shares outstanding(1):

 

  

 

  

Basic

 

158,130

 

156,929

Diluted

 

161,940

 

162,172

(1)Prior period results have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend on November 29,2022. See Note 1 for details.

See Notes to Condensed Consolidated Financial Statements.

1

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

    

September 30, 

2023

June 30, 

(unaudited)

2023

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

148,663

$

180,571

Short-term available-for-sale investments

 

 

23,739

Accounts receivable, less allowance for doubtful accounts of $4,920 and $4,738, respectively

 

204,570

 

218,468

Inventories

 

186,080

 

171,638

Other current assets

 

52,164

 

27,066

Total current assets

 

591,477

 

621,482

Property and equipment, net

 

231,683

 

226,200

Right of use asset

 

102,277

 

98,326

Goodwill

 

969,376

 

872,737

Intangible assets, net

 

578,971

 

534,645

Other assets

 

281,576

 

285,302

Total assets

$

2,755,360

$

2,638,692

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Trade accounts payable

$

28,084

$

25,679

Salaries, wages and related accruals

 

34,891

 

36,747

Accrued expenses

 

15,937

 

14,880

Contract liabilities

 

24,516

 

23,069

Income taxes payable

 

5,938

 

12,022

Operating lease liabilities - current

 

12,198

 

11,199

Contingent consideration payable

 

1,750

 

3,500

Other current liabilities

 

4,440

 

1,413

Total current liabilities

 

127,754

 

128,509

Deferred income taxes

 

83,134

 

88,982

Long-term debt obligations

 

440,000

 

350,000

Operating lease liabilities

 

97,332

 

93,766

Other long-term liabilities

 

9,394

 

10,919

 

  

 

  

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 400,000,000; issued and outstanding 158,354,579 and 157,641,914 respectively

 

1,584

 

1,576

Additional paid-in capital

 

746,606

 

721,543

Retained earnings

 

1,327,572

 

1,309,461

Accumulated other comprehensive loss

 

(78,016)

 

(66,064)

Total Bio-Techne’s shareholders’ equity

 

1,997,746

 

1,966,516

Noncontrolling interest

 

 

Total shareholders’ equity

 

1,997,746

 

1,966,516

Total liabilities and shareholders’ equity

$

2,755,360

$

2,638,692

See Notes to Condensed Consolidated Financial Statements.

2

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

    

Quarter Ended

September 30, 

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net earnings, including noncontrolling interest

$

50,993

$

89,734

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

 

  

 

  

Depreciation and amortization

 

28,540

 

26,641

Costs recognized on sale of acquired inventory

 

181

 

300

Deferred income taxes

 

(11,591)

 

(4,767)

Stock-based compensation expense

 

10,093

 

14,461

Fair value adjustment to contingent consideration payable

 

(1,750)

 

(100)

Gain on sale of CCXI investment

 

 

(37,176)

Fair value adjustment on available-for-sale investments

 

(283)

 

(911)

(Gain) loss on equity method investment

2,382

Gain on sale of Eminence

(11,682)

Leases, net

 

613

 

2,545

Other operating activity

 

182

 

(32)

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

 

  

 

  

Trade accounts and other receivables, net

 

15,599

 

17,335

Inventories

 

(5,216)

 

(10,685)

Prepaid expenses

 

(2,572)

 

(2,760)

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

 

(2,695)

 

(1,401)

Salaries, wages and related accruals

 

(2,157)

 

(28,360)

Income taxes payable

 

(22,936)

 

2,939

Net cash provided by (used in) operating activities

 

59,383

 

56,081

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sale of available-for-sale investments

 

23,759

 

14,509

Purchases of available-for-sale investments

 

 

(14,500)

Proceeds from sale of CCXI investment

73,219

Additions to property and equipment

 

(13,592)

 

(9,556)

Acquisitions, net of cash acquired

 

(166,426)

 

(101,184)

Distributions from (Investments in) Wilson Wolf

2,149

Proceeds from sale of Eminence

 

 

17,824

Net cash provided by (used in) investing activities

 

(154,110)

 

(19,688)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Cash dividends

 

(12,654)

 

(12,545)

Proceeds from stock option exercises

 

14,394

 

11,950

Re-purchases of common stock

 

 

(19,562)

Borrowings under line-of-credit agreement

 

160,000

 

449,661

Repayments of long-term debt

 

(70,000)

 

(441,000)

Taxes paid on RSUs and net share settlements

(20,228)

(17,853)

Other financing activity

 

 

(2,457)

Net cash provided by (used in) financing activities

 

71,512

 

(31,806)

Effect of exchange rate changes on cash and cash equivalents

 

(8,693)

 

(11,897)

Net change in cash and cash equivalents

 

(31,908)

 

(7,310)

Cash and cash equivalents at beginning of period

 

180,571

 

172,567

Cash and cash equivalents at end of period

$

148,663

$

165,257

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

32,797

$

14,892

Cash paid for interest

$

4,506

$

3,409

See Notes to Condensed Consolidated Financial Statements.

3

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, 2023, included in the Company's Annual Report on Form 10-K for fiscal 2023. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2023. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

During the quarter ended September 30, 2023, 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 2023.

At the 2022 annual meeting of shareholders of the Company held on October 27, 2022, the shareholders approved an amendment and restatement of the Company’s articles of incorporation to increase the number of authorized shares of the Company’s common stock from 100,000,000 to 400,000,000. On November 1, 2022, the Company’s board of directors approved and declared a four-for-one split of the Company’s common stock in the form of a stock dividend. Each stockholder of record on November 14, 2022 received three additional shares of common stock for each then-held share, which were distributed after close of trading on November 29, 2022. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the stock split.

Partially-owned consolidated subsidiary: On September 1, 2022, the Company completed the sale of its equity shares of Changzhou Eminence Biotechnology Co., Ltd. (Eminence) for approximately $17.8 million to a third party. Eminence was considered a variable-interest entity that was fully consolidated in our financial statements. Prior to the sale, Eminence had revenue of $2.0 million for the first fiscal quarter of 2023 within our Protein Sciences segment. As a result of the sale of the business, the Company recorded a gain of $11.7 million within the Other income (expense) line in the Condensed Consolidated Statement of Earnings.

Investments: In December 2021, the Company paid $25 million to enter into a two-part forward contract which requires the Company to make an initial ownership investment followed by purchase of full equity interest in Wilson Wolf Corporation (Wilson Wolf) if certain annual revenue or annual earnings before interest, taxes, depreciation, and amortization (EBITDA) thresholds are met. Wilson Wolf is a leading manufacturer of cell culture devices, including the G-Rex product line. The first part of the forward contract is triggered upon Wilson Wolf achieving approximately $92 million in annual revenue or $55 million in EBITDA at any point prior to December 31, 2027. During the quarter ended March 31, 2023, the Company determined that Wilson Wolf had met the EBITDA target. On March 31, 2023, the Company paid an additional $232 million to acquire 19.9% of Wilson Wolf.

Since the first part of the forward contract has been triggered, the second part of the forward contract will automatically trigger, and requires the Company to acquire the remaining equity interest in Wilson Wolf on December 31, 2027 based on a revenue multiple of approximately 4.4 times trailing twelve month revenue. 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 $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 investment in Wilson Wolf is accounted for as an equity method investment under ASC 323. The Company initially records its equity method investments at the amount of the Company’s investment and adjusts each period for the Company’s share of the investee’s income or loss and dividends paid. Distributions from the equity method investee are accounted for using the cumulative earnings approach on the Consolidated Statement of Cash Flows. For the quarter ended September 30, 2023, there was $2.3 million of

4

loss recorded on the Company’s Consolidated Statement of Earnings and Comprehensive Income related to the investment. The Company’s total investment of $252 million is included within Other assets on the Consolidated Balance Sheet.

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.

Fiscal Year 2023 Restructuring Actions:

Protein Sciences realignment

In December 2022, the Company informed employees it would undertake certain actions to strategically reallocate operations resources to high growth areas of the business. Additional actions were taken in June 2023 primarily related to the sales organization. The actions impacted a limited number of employees and are expected to be completed in the fourth quarter of fiscal 2024. As a result of the realignment, a pre-tax charge of $1.7 million related to employee severance was recorded in the Selling, general and administrative line of operating income within our Protein Sciences segment during the year ended June 30, 2023. Restructuring actions, including cash and non-cash impacts, are as follows (in thousands):

Employee

severance

Expense incurred in fiscal year 2023

$

1,677

Fiscal year 2023 cash payments

(762)

Fiscal year 2023 adjustments

(18)

Accrued restructuring actions balances as of June 30, 2023

$

897

Fiscal year 2024 cash payments

(707)

Fiscal year 2024 adjustments(1)

89

Accrued restructuring actions balances as of September 30, 2023(2)

$

279

(1) Fiscal year 2024 adjustments relate to the refinement of the accrual recorded in fiscal year 2023.

(2) The remaining balance as of September 30, 2023 relates to employee severance that is paid out over a one-year period.

QT Holdings Corporation (Quad)

In August 2022, the Company informed employees of our decision to close our QT Holdings Corporation (Quad) facility as part of a realignment of activities within our Reagent Solutions division. The closure of the site was completed in the fourth quarter of fiscal 2023. As a result of the restructuring activities, a pre-tax charge of $2.2 million was recorded within our Protein Sciences segment. The related restructuring charges for the year ended June 30, 2023 were recorded in the income statement as follows (in thousands):

Employee

Asset

    

severance

    

impairment and other

    

Total

Selling, general and administrative

$

1,328

$

842

$

2,170

Employee

Asset

    

severance

    

impairment and other

    

Total

Expense incurred in the first quarter of 2023

$

1,328

$

842

$

2,170

Cash payments

(1,233)

(772)

(2,005)

Adjustments

(95)

(70)

(165)

Accrued restructuring actions balances as of June 30, 2023

$

$

$

5

Recently Adopted Accounting Pronouncements

There were no accounting pronouncements adopted in the quarter ended September 30, 2023. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2023.

Note 2. Revenue Recognition:

Consumables revenues consist of specialized proteins, immunoassays, antibodies, reagents, blood chemistry and blood gas quality controls, and hematology instrument controls that are typically single-use products 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, 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.

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 for contracts with an original length greater than one year were not material as of September 30, 2023.

Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.

Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.

Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of September 30, 2023 are not material.

Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of September 30, 2023 and June 30, 2023 were approximately $25.8 million and $24.6 million, respectively. Contract liabilities as of June 30, 2023 subsequently recognized as revenue during the quarter ended September 30, 2023 were approximately $11.8 million. 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.

6

The following tables present our disaggregated revenue for the periods presented.

Revenue by type is as follows (in thousands):

    

Quarter Ended

September 30, 

    

2023

    

2022

Consumables

$

224,547

$

216,430

Instruments

 

24,860

 

26,458

Services

 

21,454

 

21,445

Total product and services revenue, net

$

270,861

$

264,333

Royalty revenues

 

6,074

 

5,322

Total revenues, net

$

276,935

$

269,655

Revenue by geography is as follows (in thousands):

    

Quarter Ended

September 30, 

    

2023

    

2022

 

  

 

  

United States

$

159,105

$

155,431

EMEA, excluding United Kingdom

 

54,798

 

46,021

United Kingdom

 

12,449

 

11,702

APAC, excluding Greater China

 

17,351

 

17,465

Greater China

 

25,485

 

31,521

Rest of World

 

7,747

 

7,515

Net Sales

$

276,935

$

269,655

Note 3. Selected Balance Sheet Data:

Inventories:

Inventories consist of (in thousands):

    

September 30, 

June 30, 

    

2023

    

2023

Raw materials

$

84,739

$

84,551

Finished goods(1)

 

106,539

 

92,474

Inventories, net

$

191,278

$

177,025

(1) Finished goods inventory of $5,198 and $5,387 included within other long-term assets in the respective September 30, 2023 and June 30, 2023, 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.

7

Property and Equipment:

Property and equipment consist of (in thousands):

    

September 30, 

June 30, 

    

2023

    

2023

Land

$

9,076

$

9,100

Buildings and improvements

 

245,161

 

245,302

Machinery and equipment

196,655

190,019

Construction in progress

 

21,769

 

15,491

Property and equipment, cost

 

472,661

 

459,912

Accumulated depreciation and amortization

 

(240,978)

 

(233,712)

Property and equipment, net

$

231,683

$

226,200

Intangible Assets:

Intangible assets consist of (in thousands):

September 30, 

June 30, 

2023

2023

Developed technology

$

674,274

$

616,311

Trade names

 

151,324

 

146,945

Customer relationships

 

214,601

 

213,878

Patents

 

3,985

 

3,815

Other intangibles

 

11,860

 

11,566

Definite-lived intangible assets

 

1,056,044

 

992,515

Accumulated amortization

 

(499,773)

 

(480,570)

Definite-lived intangibles assets, net

 

556,271

 

511,945

In process research and development

 

22,700

 

22,700

Total intangible assets, net

$

578,971

$

534,645

Changes to the carrying amount of net intangible assets for the period ended September 30, 2023 consist of (in thousands):

Beginning balance

$

534,645

Acquisitions

 

66,400

Other additions

 

433

Amortization expense

 

(20,231)

Currency translation

(2,276)

Ending balance

$

578,971

The estimated future amortization expense for intangible assets as of September 30, 2023 is as follows (in thousands):

Remainder 2024

    

$

60,132

2025

 

77,039

2026

 

73,092

2027

 

62,952

2028

 

59,308

Thereafter

 

223,748

Total

$

556,271

8

Goodwill:

Changes to the carrying amount of goodwill for the period ended September 30, 2023 consist of (in thousands):

    

    

Diagnostics and

    

Protein Sciences

 Genomics

Total

June 30, 2023

$

427,027

$

445,710

$

872,737

Acquisitions

 

102,560

102,560

Currency translation

 

(2,983)

(2,938)

(5,921)

September 30, 2023

$

424,044

$

545,332

$

969,376

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 qualitative goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2023. No indicators of impairment were identified as part of our assessment.

Other assets:

Other assets consist of (in thousands):

    

September 30, 

June 30, 

    

2023

2023

Investment in Wilson Wolf

$

251,644

$

255,857

Derivative instruments

17,491

16,857

Long-term inventory

5,198

5,387

Other

 

7,243

 

7,201

Other assets

$

281,576

$

285,302

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 be included in our consolidated statements of comprehensive income from their respective dates of acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred.

Fiscal year 2024 Acquisitions

Lunaphore Technologies SA.

On July 7, 2023, the Company acquired all of the ownership interests of Lunaphore Technologies SA (“Lunaphore”) for $170.1 million, in a cash-free, debt-free acquisition. Lunaphore is a leading developer of fully automated spatial biology solutions. The Lunaphore acquisition adds spatial biology instruments to Bio-Techne’s portfolio to accelerate our leadership position in translational and clinical research markets. The transaction was accounted for in accordance with ASC 805, Business Combinations. The goodwill recorded as a 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 goodwill is not deductible for income tax purposes. The business became part of the Diagnostics and Genomics operating segment in the first quarter of fiscal year 2024. 

The allocation of purchase consideration related to Lunaphore is considered preliminary with provisional amounts primarily related to the finalization of the working capital adjustment, current assets and liabilities, equipment, intangible assets, certain tax-related amounts, and goodwill. The Company expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations as of September 30, 2023 were approximately $2.1 million and $7.3 million, respectively. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date and as of September 30, 2023 are as follows (in thousands):

9

 

Preliminary allocation at acquisition date and at September 30, 2023

Current assets

$

12,512

Equipment and other long-term assets

 

1,470

Intangible assets:

Developed technologies

 

60,300

Tradenames

 

4,900

Customer relationships

 

1,200

Goodwill

 

102,560

Total assets acquired

 

182,942

Liabilities

 

7,096

Deferred income taxes, net

 

5,768

Net assets acquired

$

170,078

Cash paid

 

166,426

Estimated net working capital payable

 

3,652

Net assets acquired

$

170,078

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 purchase price allocated to trade names was based on management's preliminary forecasted cash inflows and outflows and using a relief from royalty method. 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 14 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 8 years. The amount recorded for trade names 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 ranges from 4 years to 8 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 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.

10

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 

Balance Sheet Location

September 30, 

Inputs Considered as

2023

Level 1

Level 2

Level 3

 

Assets

 

  

 

  

 

  

 

  

Exchange traded securities(1)

Short-term available-for-sale investments

$

$

$

$

Derivatives designated as hedging instruments - cash flow hedges

Other assets

 

16,398

 

 

16,398

 

Derivatives designated as hedging instruments - net investment hedge

Other assets

1,093

1,093

Total assets

$

17,491

$

$

17,491

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

Contingent consideration payable

$

1,750

$

$

$

1,750

Total liabilities

$

1,750

$

$

$

1,750

    

Total

    

 carrying 

value as of

Fair Value Measurements Using 

Balance Sheet Location

June 30,

Inputs Considered as

    

2023

    

Level 1

    

Level 2

    

Level 3

Assets

 

  

 

  

 

  

 

  

Exchange traded securities(1)

Short-term available-for-sale investments

$

23,739

$

23,739

$

$

Derivative instruments - cash flow hedges

Other assets

 

16,857

 

 

16,857

 

Total assets

$

40,596

$

23,739

$

16,857

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

Contingent consideration payable

$

3,500

$

$

$

3,500

Total liabilities

$

3,500

$

$

$

3,500

(1)

During the quarter ended September 30, 2023, the Company sold all of its outstanding shares of its exchange traded investment grade bond funds that it held at June 30, 2023. The cost basis and fair value of the Company’s exchange traded investment grade bond funds were $25.0 million and $23.7 million at June 30, 2023, respectively. 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

The Company utilizes forward starting swaps designated as a cash flow hedge on forecasted 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 forecasted variable interest long-term debt 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 a notional principal amount. The Company also uses a cross-currency swap contract to manage its exposure to foreign currency risk associated with the Company's net investment in its Swiss subsidiary.

11

The following table presents the contractual amounts of the Company's outstanding instruments (in millions):

    

September 30, 

June 30, 

Instruments

Designation

    

2023

2023

Forward starting swaps(1)

Cash flow hedge

$

300

$

300

Cross-currency swap(2)

Net investment hedge

150

(1) In May 2021, the Company entered into a forward starting swap designated as a cash flow hedge on forecasted debt based on $200 million of notional principal. The effective date of the swap was November 2022 with the full swap maturing in November 2025. In March 2023, the Company entered into a forward starting swap designated as a cash flow hedge on forecasted debt based on $100 million of notional principal. The effective date of the swap was April 2023 with the full swap maturing in April 2025.

(2) In July 2023, the Company entered into a pay-fixed rate, receive-fixed rate cross-currency swap contract with a total notional amount of $150 million that was designated as a hedge to lock in the Swiss franc (CHF) rate for a portion of the Company's CHF net investment in its Lunaphore subsidiary in Switzerland. The objective of the hedge is to protect the net investment in the Company's CHF-denominated operations against changes in the spot exchange rates, on a pre-tax basis. The hedging instrument has four interim settlement dates, which will reduce the notional on the hedging instrument by $10 million at each interim date, and will reduce the notional to $110 million at maturity.

The pretax amount of the gains and losses on our hedging instruments and the classification of those gains and losses within our consolidated financial statements for the three months ended September 30, 2023 and September 30, 2022 were as follows (in thousands):

(Gain) Loss Recognized in Accumulated Other Comprehensive Loss

(Gain) Loss
Reclassified into Income

    

Quarter Ended

Quarter Ended

September 30, 

September 30, 

Location of (Gain) Loss

    

2023

    

2022

2023

    

2022

in Income Statement

Cash flow hedges

Forward starting swaps

$

(1,587)

 

$

(4,376)

$

(2,539)

 

$

417

Interest expense

Net investment hedges

Cross-currency swap

(1,366)

 

(698)

 

Interest expense

Total

$

(2,953)

$

(4,376)

$

(3,237)

$

417

Gains or losses related to the net investment hedges are classified as foreign currency translation adjustments in the schedule of changes in Accumulated Other Comprehensive Income (“AOCI”) in Note 8, as these items are attributable to the Company’s hedges of its net investment in foreign operations. Gains or losses related to the cash flow hedges are classified as Unrealized gains (losses) on cash flow hedges in the schedule of changes in AOCI in Note 8.

Fair value measurements of contingent consideration

The Company has $1.8 million in contingent consideration recorded as of September 30, 2023, which is the fair value of contingent consideration related to the Asuragen and Namocell acquisitions. The Company is required to make contingent consideration payments of up to $105.0 million as part of the Asuragen acquisition agreement and up to $25.0 million as part of the Namocell acquisition agreement. As of September 30, 2023, the maximum payout for the Asuragen and Namocell agreements is $100.0 million as both Asuragen and Namocell did not achieve their respective December 31, 2022 revenue milestones.

The Asuragen contingent agreement is based on achieving certain revenue thresholds by December 31, 2023. The opening balance sheet fair value of the liabilities was $18.3 million, which was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculations are units sold, expected revenue, expected expenses, discount rate, and various probability

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factors. The contingent consideration related to Asuragen was $1.0 million and $2.0 million as of September 30, 2023 and June 30, 2023, respectively.

The Namocell contingent agreement is based on achieving certain revenue thresholds by December 31, 2023. The opening balance sheet fair value of the liabilities was $10.6 million, which was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculations are units sold, expected revenue, expected expenses, discount rate, and various probability factors. The contingent consideration related to Namocell was $0.8 million and $1.5 million as of September 30, 2023 and June 30, 2023, respectively.

The ultimate settlement of contingent consideration liabilities could deviate from current estimates based on the actual results of the financial 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.

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

    

Quarter Ended

September 30, 

2023

Fair value at the beginning of period

$

3,500

Change in fair value of contingent consideration

 

(1,750)

Fair value at the end of period

$

1,750

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 31, 2022, the Company entered into a 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 $1 billion, which can be increased by an additional $400 million subject to certain conditions. 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 one-month Secured Overnight Financing Rate (SOFR) 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 10 basis points.

The Credit Agreement matures on August 1, 2027 and contains customary restrictive and financial covenants and customary events of default. As of September 30, 2023, the outstanding balance under the Credit Agreement was $440 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 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

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used to calculate present value is Bio-Techne’s incremental borrowing rate or, if available, the rate implicit in the lease. Bio-Techne determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the three months ended September 30, 2023, the Company recognized $1.2 million in variable lease expense and $4.5 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):

    

    

As of

September 30, 

Balance Sheet Classification

2023

Operating leases:

 

  

 

  

Operating lease right of use assets

 

Right of use asset

$

102,277

Current operating lease liabilities

 

Operating lease liabilities - current

$

12,198

Noncurrent operating lease liabilities

 

Operating lease liabilities

 

97,332

Total operating lease liabilities

$

109,530

Weighted average remaining lease term (in years):

 

 

9.05

Weighted average discount rate (%):

 

 

4.21

The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the three months ended (in thousands):

Quarter ended

September 30, 

    

2023

Cash amounts paid on operating lease liabilities

$

3,884

Right of use assets obtained in exchange for lease liabilities

$

7,923

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):

    

September 30, 2023

Operating

Leases

Remainder 2024

$

12,166

2025

 

15,927

2026

 

16,076

2027

 

13,448

2028

 

13,444

Thereafter

 

62,491

Total

$

133,552

Less: Amounts representing interest

 

24,022

Total lease obligations

$

109,530

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.

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Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):

Supplemental Equity

The Company has declared cash dividends per share of $