MEETI NG OUR COMMITMENT S
After 2018’s successful year of 9% organic
into the Diagnostics and Genomics segment with
revenue growth, we could only do one thing for
the goal of making it a separate division in the
2019; target a goal of 10% revenue growth! We
near future. We have two great new external
achieved this milestone for our company along
executives to manage each.
with many more. Fiscal year 2019 was a great year
in which we achieved over 11% reported revenue
One other acquisition of note
is BMoGen
growth and over 10% organic growth, but the
Biotechnologies.
In the past couple years,
biggest highlight of the year was our acquisition
we have moved further and further into the
last August of Exosome Diagnostics. This liquid
bioprocessing and cell therapy markets, main-
biopsy asset
followed
the acquisition of
ly as a reagents and instruments supplier. With
Advanced Cell Diagnostics (ACD) earlier, a tissue
our GMP proteins, and the technologies coming
biopsy company that continues to grow at over
through our BMoGen and Quad Technologies
20% and in the very high growth oncology market
acquisitions, we now have excellent tools for
of tumor analysis.
a significant portion of the cell and gene thera-
py workflow. This business will take a few years
Company revenue this year topped $700MM for
to grow to a material level for the company, but
the first time and we can now see the elusive $1
we see explosive growth in this space and our
billion revenue goal just a few years or so away.
larger bio-pharma customers have been asking
This year also represented our first year of being
us to invest further in this direction. This year,
structured into two reporting segments, Protein
we intend to invest approximately $50 million
Sciences (home to the Analytical Solutions (ASD)
in a new state-of-the-art GMP proteins factory in
and Reagent Solutions (RSD) divisions), and
Minnesota as well as expand the workflow offer-
Diagnostics and Genomics
(home
to our
ing to our customers. We expect this business
Diagnostics and Genomics divisions). As of July
could be a $200MM division in five years.
1, 2018, we have rolled Exosome Diagnostics
THE SUBSIDIA RY MODE L
We operate with a subsidiary model; our two
This is key for reaching $1 Billion in revenue while
reporting segments that include the four op-
improving our operating margins to 40%. We be-
erating divisions and our geographic regions
lieve we are ahead of schedule in achieving these
are all organized under this model to maximize
targets. In the second half of this year, excluding
our synergies. The Americas region and Protein
the dilution impact of our Exosome Diagnostics
Sciences Segment, in particular, had a banner
acquisition, we did nearly achieve 40% operating
year. The Reagent Solutions Division ended the
margins. The success of our Analytical Solutions
year with over 10% organic growth. We dedicat-
Division is coming from three primary areas: Sim-
ed a lot of effort to enhance our go-to market
ple WesternTM, Assays, and Simple PlexTM. The
strategies for this division, which relies on having
Wes/Jess platform (Simple Western) has now
a superior web site that allows our customers to
reached a critical juncture in acceptance by the
perform complex product searches. We also in-
industry. We regularly ship over 100 instruments
troduced over 1300 new products in this division
per quarter, and we have now installed over 1500
and continued our partnership with Fisher as a
worldwide. The EllaTM platform (Simple Plex) has
sales channel in the U.S. The “tsunami” in oncolo-
achieved growth rates of 50% this past year and is
gy research and therapeutics, as well as solid NIH
becoming a more significant product line for our
and research funding, has led to a record year
company. We signed a strategic deal with Micro-
for us in this geography and division in 2019. We
point of Shenzhen China which could deliver rev-
have been so busy with demand for our products
enue between $50MM and $100MM in less than
that we had difficulty hiring enough talent this
three years. They are taking our leading-edge
year. The company now has over 2200 employ-
technology and launching a cFDA approved pa-
ees! The wonderful synergies between our Ana-
tient monitoring (Cytokine Release Storm syn-
lytical Solutions and Reagent Solutions divisions
drome) solution for large hospitals in China. Cell
also allowed ASD to put forward another year well
therapy holds a lot of promise to cure individuals
ahead of plan. Our small molecule business, Toc-
who have failed traditional therapy. Unfortunate-
ris, in Bristol England, delivered the best year in
ly, even cell therapy has some undesirable effects,
the past six. Our new PROTACs platform (chime-
one of them being the release of inflammatory
ric molecules for targeted proteolysis) and Jan-
cytokines following cell infusion. We will col-
elia fluorescent dyes delivered high single digit
laborate with Micropoint and others to make
growth. The Analytical Solutions Division ended
Ella cartridges to rapidly detect key cytokines.
2019 with approximately 15% organic growth.
Front Cover: Exosomes (upper) being actively secreted from a cell (lower).
Inside Spread: A cancer cell caught in the moment of cell division to form two daughter cells.
M EETI NG O UR COMMIT ME NT S
After 2018’s successful year of 9% organic
revenue growth, we could only do one thing for
2019; target a goal of 10% revenue growth! We
achieved this milestone for our company along
with many more. Fiscal year 2019 was a great year
in which we achieved over 11% reported revenue
growth and over 10% organic growth, but the
biggest highlight of the year was our acquisition
last August of Exosome Diagnostics. This liquid
biopsy asset
the acquisition of
Advanced Cell Diagnostics (ACD) earlier, a tissue
biopsy company that continues to grow at over
20% and in the very high growth oncology market
of tumor analysis.
followed
into the Diagnostics and Genomics segment with
the goal of making it a separate division in the
near future. We have two great new external
executives to manage each.
One other acquisition of note
is BMoGen
In the past couple years,
Biotechnologies.
we have moved further and further into the
bioprocessing and cell therapy markets, main-
ly as a reagents and instruments supplier. With
our GMP proteins, and the technologies coming
through our BMoGen and Quad Technologies
acquisitions, we now have excellent tools for
a significant portion of the cell and gene thera-
py workflow. This business will take a few years
to grow to a material level for the company, but
we see explosive growth in this space and our
larger bio-pharma customers have been asking
us to invest further in this direction. This year,
we intend to invest approximately $50 million
in a new state-of-the-art GMP proteins factory in
Minnesota as well as expand the workflow offer-
ing to our customers. We expect this business
could be a $200MM division in five years.
Company revenue this year topped $700MM for
the first time and we can now see the elusive $1
billion revenue goal just a few years or so away.
This year also represented our first year of being
structured into two reporting segments, Protein
Sciences (home to the Analytical Solutions (ASD)
and Reagent Solutions (RSD) divisions), and
Diagnostics and Genomics
to our
Diagnostics and Genomics divisions). As of July
1, 2018, we have rolled Exosome Diagnostics
(home
THE SUB SIDIA RY MODEL
We operate with a subsidiary model; our two
reporting segments that include the four op-
erating divisions and our geographic regions
are all organized under this model to maximize
our synergies. The Americas region and Protein
Sciences Segment, in particular, had a banner
year. The Reagent Solutions Division ended the
year with over 10% organic growth. We dedicat-
ed a lot of effort to enhance our go-to market
strategies for this division, which relies on having
a superior web site that allows our customers to
perform complex product searches. We also in-
troduced over 1300 new products in this division
and continued our partnership with Fisher as a
sales channel in the U.S. The “tsunami” in oncolo-
gy research and therapeutics, as well as solid NIH
and research funding, has led to a record year
for us in this geography and division in 2019. We
have been so busy with demand for our products
that we had difficulty hiring enough talent this
year. The company now has over 2200 employ-
ees! The wonderful synergies between our Ana-
lytical Solutions and Reagent Solutions divisions
also allowed ASD to put forward another year well
ahead of plan. Our small molecule business, Toc-
ris, in Bristol England, delivered the best year in
the past six. Our new PROTACs platform (chime-
ric molecules for targeted proteolysis) and Jan-
elia fluorescent dyes delivered high single digit
growth. The Analytical Solutions Division ended
2019 with approximately 15% organic growth.
This is key for reaching $1 Billion in revenue while
improving our operating margins to 40%. We be-
lieve we are ahead of schedule in achieving these
targets. In the second half of this year, excluding
the dilution impact of our Exosome Diagnostics
acquisition, we did nearly achieve 40% operating
margins. The success of our Analytical Solutions
Division is coming from three primary areas: Sim-
ple WesternTM, Assays, and Simple PlexTM. The
Wes/Jess platform (Simple Western) has now
reached a critical juncture in acceptance by the
industry. We regularly ship over 100 instruments
per quarter, and we have now installed over 1500
worldwide. The EllaTM platform (Simple Plex) has
achieved growth rates of 50% this past year and is
becoming a more significant product line for our
company. We signed a strategic deal with Micro-
point of Shenzhen China which could deliver rev-
enue between $50MM and $100MM in less than
three years. They are taking our leading-edge
technology and launching a cFDA approved pa-
tient monitoring (Cytokine Release Storm syn-
drome) solution for large hospitals in China. Cell
therapy holds a lot of promise to cure individuals
who have failed traditional therapy. Unfortunate-
ly, even cell therapy has some undesirable effects,
one of them being the release of inflammatory
cytokines following cell infusion. We will col-
laborate with Micropoint and others to make
Ella cartridges to rapidly detect key cytokines.
Front Cover: Exosomes (upper) being actively secreted from a cell (lower).
Inside Spread: A cancer cell caught in the moment of cell division to form two daughter cells.
O UR NEW S EGMENT STR UCT UR E
PROTEIN SCIENCES SEGMEN T
REAGENT SO LUTIONS
Develop and manufactures biological reagents
used in all aspects of life science research
ANALY TICAL SOLUTION S
Manual and automated protein analysis solutions
that improve the efficiency of process work streams &
quantitate secreted proteins
DIAG NOSTICS AND GENOM IC S SE GM EN T
GENO MICS
Advanced, tissue morphology friendly RNA in
situ hybridization (ISH) assay for transcriptome
analysis & prostate cancer molecular diagnostic
DIAGNOSTIC
Develops and manufactures controls,
calibrators and diagnostic assays for
the regulated diagnostic market
OE M
The Diagnostics Division overcame significant head-
led the company in finding and creating collaborative
winds to end the year relatively flat from the prior year.
synergies between the divisions and providing a good
Our Devens site, in particular, improved dramatically
impression and buying experience to our customers.
following a restructuring we concluded a year ago,
This in turn led to more growth. Growth in Europe is
and the negative impact of the erosion of our glucose
now slowing a bit, for most companies, but we remain
control business is largely behind us. The San Marcos
confident that we will still perform near the top of our
site has seen some delays in their pipeline of deals
industry. APAC also had an exceptional year. China
but over the course of the next couple years we are
delivered its typical 20+% organic growth and is now
confident that the business will grow at least mid-sin-
a business with 150 people and nearly $60MM in rev-
gle digit rates. San Marcos has completed a move to
enue, which is roughly 8% of the company. We see this
a new facility that is a showcase for diagnostics man-
strong growth in China continuing. A big story for us
ufacturing, which we expect will assist in obtaining
this year is India. We have opened an office and demo
new contract business. Our Antibody Diagnostics
lab and established a local country team. The initial
business in Emeryville had some tough comparable
growth is over 60% but it is still a small revenue base.
revenue numbers from fiscal year 2018 that stalled our
Our business in Japan and Korea continued to excel,
growth this year, but we are confident that even with
especially in ASD. Our goal for this coming year is to
only a small team of under 10 people it will be able
get more regional traction in genomics, through our
to achieve near $20MM in revenue this coming year!
investments in this region.
They have a strong pipeline. The Genomics Division
had a rocky start to the year following a blowout 2018,
As we do every year, we conducted a full prioritiza-
over-achieving their earnout milestone of $45MM in
tion review of all our projects and investments. This
revenue. We struggled in the first two quarters, but
included our divisions and regions but also our new-
in the last two quarters of the year this division grew
ly formed Digital Solutions group that manages our
near 25%, and we hope to see this continue. We now
data, websites, IT, security, ERP systems, corporate
have in excess of 25,000 probes in inventory, and we
marketing, trade shows, etc. All told, we were able to
see much more growth to come as pathologists and
identify 300 separate and distinct work streams in our
researchers transition from the antibody-driven immu-
company. In our prioritization meetings we discussed,
no-histochemistry approach to a molecular solution.
we fought, we compromised, and finally we decided
The revenue performance resulting from our diag-
what was important for the company and what was
nostics collaboration with Leica has also improved.
less important. It’s tough to say no to some good
The HPV test is now selling well and there is a healthy
projects but maintaining focus on growth requires a
pipeline of new tests in development for this channel.
strong commitment to only spending valuable time
and resources on projects that can deliver growth.
Both our APAC and EMEA regions have continued to
This prioritization exercise forms the basis of our
perform well this past year. Europe started with explo-
annual operating plan. In the six years I’ve been here,
sive growth but finished softer, ending the year with
we have never missed one. This process has been
a solid 8% with all four country subsidiaries perform-
key to our excellent results and growth, and we will
ing well. I couldn’t be prouder of the way Europe has
continue to use it.
PRIORITIZATION PRO CESS CHART
FILTE RS
Strategic Growth
Cust om er Experien ce
Long Term Revenu e ($)
Near Term Reven ue ( $)
The prioritization process scores each proposed proj-
ect based on Total Cost versus Total Benefits. Total
Costs include research expenses, staffing and any
additional resources required to bring the product to
market. The Total Benefits represent a summation of
both subjective and objective parameters and how
the project scores in the following areas: Strategic
fit, Competitive Differentiation of the product on the
market, Overall Customer Experience in dealing with
Bio-Techne, as well as both Long Term and Near Term
Revenue potential for the product. Plotting each prod-
uct on a Total Costs Vs Total Benefits graph provides a
visual of how each product ranks compared to other
products. The process lends itself to extracting maxi-
mal benefits from a defined cost profile of proposed
new products.
t
i
f
e
n
e
B
l
a
t
o
T
j
d
A
k
s
i
R
Cost-$, FTE $ other costs
OUR NEW S EG MEN T STR UCT U R E
PROTE IN SCIENCES S EGM EN T
RE AGENT SOLUT ION S
Develop and manufactures biological reagents
used in all aspects of life science research
ANALYTICAL SOLUTI ONS
Manual and automated protein analysis solutions
that improve the efficiency of process work streams &
quantitate secreted proteins
DIAGNOSTICS AND GEN OMIC S SEG MENT
GENOMICS
Advanced, tissue morphology friendly RNA in
situ hybridization (ISH) assay for transcriptome
analysis & prostate cancer molecular diagnostic
DIAGNOSTIC
Develops and manufactures controls,
calibrators and diagnostic assays for
the regulated diagnostic market
OEM
The Diagnostics Division overcame significant head-
winds to end the year relatively flat from the prior year.
Our Devens site, in particular, improved dramatically
following a restructuring we concluded a year ago,
and the negative impact of the erosion of our glucose
control business is largely behind us. The San Marcos
site has seen some delays in their pipeline of deals
but over the course of the next couple years we are
confident that the business will grow at least mid-sin-
gle digit rates. San Marcos has completed a move to
a new facility that is a showcase for diagnostics man-
ufacturing, which we expect will assist in obtaining
new contract business. Our Antibody Diagnostics
business in Emeryville had some tough comparable
revenue numbers from fiscal year 2018 that stalled our
growth this year, but we are confident that even with
only a small team of under 10 people it will be able
to achieve near $20MM in revenue this coming year!
They have a strong pipeline. The Genomics Division
had a rocky start to the year following a blowout 2018,
over-achieving their earnout milestone of $45MM in
revenue. We struggled in the first two quarters, but
in the last two quarters of the year this division grew
near 25%, and we hope to see this continue. We now
have in excess of 25,000 probes in inventory, and we
see much more growth to come as pathologists and
researchers transition from the antibody-driven immu-
no-histochemistry approach to a molecular solution.
The revenue performance resulting from our diag-
nostics collaboration with Leica has also improved.
The HPV test is now selling well and there is a healthy
pipeline of new tests in development for this channel.
Both our APAC and EMEA regions have continued to
perform well this past year. Europe started with explo-
sive growth but finished softer, ending the year with
a solid 8% with all four country subsidiaries perform-
ing well. I couldn’t be prouder of the way Europe has
led the company in finding and creating collaborative
synergies between the divisions and providing a good
impression and buying experience to our customers.
This in turn led to more growth. Growth in Europe is
now slowing a bit, for most companies, but we remain
confident that we will still perform near the top of our
industry. APAC also had an exceptional year. China
delivered its typical 20+% organic growth and is now
a business with 150 people and nearly $60MM in rev-
enue, which is roughly 8% of the company. We see this
strong growth in China continuing. A big story for us
this year is India. We have opened an office and demo
lab and established a local country team. The initial
growth is over 60% but it is still a small revenue base.
Our business in Japan and Korea continued to excel,
especially in ASD. Our goal for this coming year is to
get more regional traction in genomics, through our
investments in this region.
As we do every year, we conducted a full prioritiza-
tion review of all our projects and investments. This
included our divisions and regions but also our new-
ly formed Digital Solutions group that manages our
data, websites, IT, security, ERP systems, corporate
marketing, trade shows, etc. All told, we were able to
identify 300 separate and distinct work streams in our
company. In our prioritization meetings we discussed,
we fought, we compromised, and finally we decided
what was important for the company and what was
less important. It’s tough to say no to some good
projects but maintaining focus on growth requires a
strong commitment to only spending valuable time
and resources on projects that can deliver growth.
This prioritization exercise forms the basis of our
annual operating plan. In the six years I’ve been here,
we have never missed one. This process has been
key to our excellent results and growth, and we will
continue to use it.
PRIORITIZATION PR OCE SS CHART
F ILTERS
Strategic Growth
Cus tom er Exper ien c e
Long Term Reven u e ($)
Near Ter m Re ven ue ($)
The prioritization process scores each proposed proj-
ect based on Total Cost versus Total Benefits. Total
Costs include research expenses, staffing and any
additional resources required to bring the product to
market. The Total Benefits represent a summation of
both subjective and objective parameters and how
the project scores in the following areas: Strategic
fit, Competitive Differentiation of the product on the
market, Overall Customer Experience in dealing with
Bio-Techne, as well as both Long Term and Near Term
Revenue potential for the product. Plotting each prod-
uct on a Total Costs Vs Total Benefits graph provides a
visual of how each product ranks compared to other
products. The process lends itself to extracting maxi-
mal benefits from a defined cost profile of proposed
new products.
t
i
f
e
n
e
B
l
a
t
o
T
j
d
A
k
s
i
R
Cost-$ , F TE $ other costs
CELL AND GENE THERAPY;
A STRATEGIC DIRECTI ON
STRATEGIC DIRECT ION
IMMUNE CELL THERAPY OPPORTUNITIES
Our strategies still remain largely unchanged from
last year, or the year before. In fact, our strategic plan
has remained in place for the past 6 years and is
the following:
• Expand regionally with smaller, ”tuck-in” acquisitions
• Invest more deeply
into GMP grade reagents,
focusing on supporting the rapidly expanding im-
munotherapeutic markets. This includes GMP grade
proteins, GMP grade recombinant antibodies, and
cell expansion media, and other critical reagents.
• Expand our assay portfolio, including Simple Plex
and other multiplex platforms, and obtain greater
value from resellers that use our content in their own
assay products.
• Expand in cancer diagnostics, leveraging the Ad-
vanced Cell Diagnostics and Exosome Diagnostics
platforms as well as therapeutic tools like those
offered by Quad Technologies and BMoGen to
support new areas like CAR T cell therapy.
• Acquire “new to the world” instrument technologies
that can leverage our reagents and offer researchers
full solutions.
• Acquire new talent and intellectual property to help
the company with its next phase of accelerated
growth.
• Inspire
innovation within the company through
scientific collaboration and support of key opinion
leaders, expanding our intellectual property and
product portfolios
We have come a long way from solely being a pro-
teins, antibodies and ELISA kits manufacturer. With
our strong brand and science presence, we have
moved closer to the clinic by diagnosing disease
conditions like cancer with our Exosome Diagnostics
acquisition, our automated immunoassay platform
Simple Plex, and ACD’s RNAscopeTM technology plat-
forms. We are now a company that can provide tools
for cancer research, diagnostics and therapeutics (CAR
T cell workflow). It’s an exciting time for our company.
The serendipity of the past 40 years of innovation in
cytokines that we have pioneered as research tools
have now proven their long-term value by becoming
key tools for diagnosis and therapies too!
The cell and gene therapy space has made tremen-
dous advances using retroviral vectors as the vehicle
to transport genetic information into the cell and inte-
grate it into the genome for long term expression of
the targeted gene(s) that deliver therapeutic value. The
retroviral vectors’ advantage is the ease of entry into
the cell and the ability to incorporate into the cellular
genome via viral genes they are carrying. Viral vectors
typically are RNA-based, and when inserted into a cell,
the RNA is reverse transcribed into DNA which then
allows integration into the cellular genome.
Limitations of viral vectors include the immunogenicity
of the vector itself if not highly purified, as well as the
non-specific integration into less favorable locations
within the genome, which can raise safety concerns
or lead to more pronounced silencing effects or dis-
ruption of normal cellular functions. Viral vectors are
also very costly to scale and carry lot to lot variations
because of vector titration variability. Since viral-based
technologies rely on viral mechanisms to enter the cell
this means that there is a limitation on the size of the
genetic material that can be incorporated in the viral
genome and made into a viral particle.
An alternative technology to viral vectors currently
being adopted is a transposon-based system for gene
delivery. Transposons are mobile genetic elements
that are present in most animal cells. BMoGen makes
use of the TcBusterTM system, where a transposon and
a transposase-based system are used as the “cut and
paste” mechanism to insert new genetic information
into a cell. The transposase enzyme cuts the genetic
cargo from the transposon plasmid and pastes it into
the genome. B-MoGen delivers the transposase en-
zyme as an mRNA template to prevent any uninten-
tional integration of the transposase enzyme into the
genome and reduce any toxic effects. Introduction of
the transposon and transposase is done simultane-
ously through electroporation, which allows both the
transposon plasmid and transposase mRNA to diffuse
into the cell. Once delivered, the enzyme mRNA is
made into a protein and starts its cut and paste mecha-
nism. Incorporation of the genetic cargo is complete in
~48-72 hours and at that point becomes permanently
incorporated into the genome for stable gene expres-
sion. Plasmid DNA as well as mRNA manufacturing
is more reproducible, scalable, faster, and much less
expensive. With our acquisition of B-MoGen, we now
have a nearly complete cell and gene therapy work-
flow. Starting with Quad QuickGellTM, we can select
and activate cells. We can feed them with our world
renowned GMP proteins and we can now conduct
gene editing. Our Ella platform can perform immune
assay testing to check for cytokine production and our
RNA-Scope technology can perform single cell imag-
ing analysis. With all this great technology, and a high
market demand, we feel confident we are on the way
to having a healthy Cell and Gene Therapy business.
IMMUNE CELL THERAPY OPPORTUNITIES
CELL AND GENE T HERAPY;
A STRAT EGIC DIRECTI ON
STRATEGIC DIR ECTIO N
The cell and gene therapy space has made tremen-
Our strategies still remain largely unchanged from
dous advances using retroviral vectors as the vehicle
last year, or the year before. In fact, our strategic plan
to transport genetic information into the cell and inte-
has remained in place for the past 6 years and is
grate it into the genome for long term expression of
the following:
the targeted gene(s) that deliver therapeutic value. The
retroviral vectors’ advantage is the ease of entry into
• Expand regionally with smaller, ”tuck-in” acquisitions
the cell and the ability to incorporate into the cellular
genome via viral genes they are carrying. Viral vectors
• Invest more deeply
into GMP grade reagents,
typically are RNA-based, and when inserted into a cell,
focusing on supporting the rapidly expanding im-
the RNA is reverse transcribed into DNA which then
munotherapeutic markets. This includes GMP grade
allows integration into the cellular genome.
proteins, GMP grade recombinant antibodies, and
cell expansion media, and other critical reagents.
Limitations of viral vectors include the immunogenicity
of the vector itself if not highly purified, as well as the
• Expand our assay portfolio, including Simple Plex
non-specific integration into less favorable locations
and other multiplex platforms, and obtain greater
within the genome, which can raise safety concerns
value from resellers that use our content in their own
or lead to more pronounced silencing effects or dis-
assay products.
ruption of normal cellular functions. Viral vectors are
also very costly to scale and carry lot to lot variations
• Expand in cancer diagnostics, leveraging the Ad-
because of vector titration variability. Since viral-based
vanced Cell Diagnostics and Exosome Diagnostics
technologies rely on viral mechanisms to enter the cell
platforms as well as therapeutic tools like those
this means that there is a limitation on the size of the
offered by Quad Technologies and BMoGen to
genetic material that can be incorporated in the viral
support new areas like CAR T cell therapy.
genome and made into a viral particle.
An alternative technology to viral vectors currently
that can leverage our reagents and offer researchers
• Acquire “new to the world” instrument technologies
being adopted is a transposon-based system for gene
full solutions.
delivery. Transposons are mobile genetic elements
that are present in most animal cells. BMoGen makes
• Acquire new talent and intellectual property to help
use of the TcBusterTM system, where a transposon and
the company with its next phase of accelerated
a transposase-based system are used as the “cut and
growth.
paste” mechanism to insert new genetic information
into a cell. The transposase enzyme cuts the genetic
• Inspire
innovation within the company through
cargo from the transposon plasmid and pastes it into
scientific collaboration and support of key opinion
the genome. B-MoGen delivers the transposase en-
leaders, expanding our intellectual property and
zyme as an mRNA template to prevent any uninten-
product portfolios
tional integration of the transposase enzyme into the
genome and reduce any toxic effects. Introduction of
We have come a long way from solely being a pro-
the transposon and transposase is done simultane-
teins, antibodies and ELISA kits manufacturer. With
ously through electroporation, which allows both the
our strong brand and science presence, we have
transposon plasmid and transposase mRNA to diffuse
moved closer to the clinic by diagnosing disease
into the cell. Once delivered, the enzyme mRNA is
conditions like cancer with our Exosome Diagnostics
made into a protein and starts its cut and paste mecha-
acquisition, our automated immunoassay platform
nism. Incorporation of the genetic cargo is complete in
Simple Plex, and ACD’s RNAscopeTM technology plat-
~48-72 hours and at that point becomes permanently
forms. We are now a company that can provide tools
incorporated into the genome for stable gene expres-
for cancer research, diagnostics and therapeutics (CAR
sion. Plasmid DNA as well as mRNA manufacturing
T cell workflow). It’s an exciting time for our company.
is more reproducible, scalable, faster, and much less
The serendipity of the past 40 years of innovation in
expensive. With our acquisition of B-MoGen, we now
cytokines that we have pioneered as research tools
have a nearly complete cell and gene therapy work-
have now proven their long-term value by becoming
flow. Starting with Quad QuickGellTM, we can select
key tools for diagnosis and therapies too!
and activate cells. We can feed them with our world
renowned GMP proteins and we can now conduct
gene editing. Our Ella platform can perform immune
assay testing to check for cytokine production and our
RNA-Scope technology can perform single cell imag-
ing analysis. With all this great technology, and a high
market demand, we feel confident we are on the way
to having a healthy Cell and Gene Therapy business.
FI NA NCI AL PERF OR MA NCE IN F ISCAL 20 19
This year marked our best year in the past six with
the company reaching organic growth of 10%. This
has happened for a number of reasons but primar-
ily due to strong performance in our core Proteins,
Antibodies and Assays platforms as well as the
newer platforms in the company, with instruments,
tissue biopsy products and regional growth like
China all supporting an outstanding year.
HIGHLIGHTS OF OUR FIS CAL 2019 PE R FOR M ANCE:
• Adjusted earnings were $175.5 million, about 2%
more than last year. Adjusted earnings per share
were $4.51, -1% under last year. Currency exchange
impacted earnings per share negatively by $0.14,
or 3%.
• Overall, revenue increased 11% to $714 million.
Organic revenue was 10% over the prior year, with
currency translation having a negative impact of 1%
and acquisitions contributing 2% to the revenue
growth.
• Adjusted operating margins for the year were
34.1%, down 3% from last year due to the impact of
acquisitions made in the current year and currency
translation.
• Cash from operations was $182 million for the year.
We returned $48 million to our shareholders in the
form of dividends.
(In thousands, except per
share data)
2019
2018
2017
2016
2015
Net Sales
$714M
$643M
$563M
$499M
$452M
Year Ended June 30,
Adjusted net earnings(1)
$175M
$173M
$140M
$134M
$131M
Adjusted diluted earnings
per share(1)
$4.51
$4.54
$3.72
$3.60
$3.51
Cash flow from operations
$182M
$170M
$143M
$144M
$139M
(1) Excludes intangible assets amortization, costs recognized upon the sale of inventory that was written-up to fair value as part of acquisitions,
professional fees related to acquisition activity and the impact of certain tax events. See Item 7 of the Company’s Annual Report on From 10-K,
following, for further details
(In thousands)
Cash, cash equivalents
and available-for-sale
investments
Total assets
Long term dept
obligations(1)
Year Ended June 30,
2019
2018
2017
2016
2015
$166M
$182M
$158M
$96M
$111M
$1,884M
$1,593M
$1,558M
$1,130M
$1,063M
$493M
$339M
$347M
$130M
$112M
Stockholder’s equity
$1,166M
$1,079M
$950M
$879M
$847M
Common shares
outstanding
37,934M
37,608M
37,356M
37,254M
37,153M
(1) Includes long-term contingent considerations payable.
DI GI TAL AN D C HAN NEL STRATE GIE S
The digitization of our company continues, and
almost 500 customer facing employees, all using
we are now working hard on creating a single
Salesforce.com. The data analytics we employ around
order point
for our customers and working
our website activities is impressive. In today’s world,
towards a single web-based customer experience.
a researcher, one of a million we attract each year to
This will take time, but the progress has been good.
our website, wants the ability to quickly search and
Six years ago, when we began the transformation
find reagents, assays and solutions for their research.
of this company, we had less than 50 people that
We offer unmatched science and value to assist the
we would consider customer facing (sales reps,
researcher in their work with our digital experience.
technical and customer service). We now have
F INANCIA L PERFORM A NCE I N F I SCAL 2019
This year marked our best year in the past six with
Antibodies and Assays platforms as well as the
the company reaching organic growth of 10%. This
newer platforms in the company, with instruments,
has happened for a number of reasons but primar-
tissue biopsy products and regional growth like
ily due to strong performance in our core Proteins,
China all supporting an outstanding year.
HIGHL IGHTS OF OUR FI SCAL 2019 PE RF OR MANCE :
• Adjusted earnings were $175.5 million, about 2%
• Adjusted operating margins for the year were
more than last year. Adjusted earnings per share
34.1%, down 3% from last year due to the impact of
were $4.51, -1% under last year. Currency exchange
acquisitions made in the current year and currency
impacted earnings per share negatively by $0.14,
translation.
• Overall, revenue increased 11% to $714 million.
We returned $48 million to our shareholders in the
Organic revenue was 10% over the prior year, with
form of dividends.
• Cash from operations was $182 million for the year.
currency translation having a negative impact of 1%
and acquisitions contributing 2% to the revenue
or 3%.
growth.
(In thousands, except per
share data)
2019
2018
2017
2016
2015
Net Sales
$714M
$643M
$563M
$499M
$452M
Year Ended June 30,
Adjusted net earnings(1)
$175M
$173M
$140M
$134M
$131M
Adjusted diluted earnings
per share(1)
$4.51
$4.54
$3.72
$3.60
$3.51
Cash flow from operations
$182M
$170M
$143M
$144M
$139M
(1) Excludes intangible assets amortization, costs recognized upon the sale of inventory that was written-up to fair value as part of acquisitions,
professional fees related to acquisition activity and the impact of certain tax events. See Item 7 of the Company’s Annual Report on From 10-K,
following, for further details
(In thousands)
Cash, cash equivalents
and available-for-sale
investments
Total assets
Long term dept
obligations(1)
Year Ended June 30,
2019
2018
2017
2016
2015
$166M
$182M
$158M
$96M
$111M
$1,884M
$1,593M
$1,558M
$1,130M
$1,063M
$493M
$339M
$347M
$130M
$112M
Stockholder’s equity
$1,166M
$1,079M
$950M
$879M
$847M
Common shares
outstanding
37,934M
37,608M
37,356M
37,254M
37,153M
(1) Includes long-term contingent considerations payable.
DI GI TAL A ND CHANNEL ST RATE GI ES
The digitization of our company continues, and
we are now working hard on creating a single
order point
for our customers and working
towards a single web-based customer experience.
This will take time, but the progress has been good.
Six years ago, when we began the transformation
of this company, we had less than 50 people that
we would consider customer facing (sales reps,
technical and customer service). We now have
almost 500 customer facing employees, all using
Salesforce.com. The data analytics we employ around
our website activities is impressive. In today’s world,
a researcher, one of a million we attract each year to
our website, wants the ability to quickly search and
find reagents, assays and solutions for their research.
We offer unmatched science and value to assist the
researcher in their work with our digital experience.
I have m
has allo
oncolo
P
R
or science-based co
entioned m
ed us to create m
fields. Just a short list of ne
gy, neuroscience, diagnostics, im
O
any tim
any ne
w pro
w
m
N
E
D
w pro
ducts w
es that innovation is the lifeblo
pany. The prioritization process w
ducts in all our ap
e deployed in 2019 are:
gy, ste
unolo
m
U
W
C
T
S
e use here at Bio-Techne
anufacturing
m cells and a host of other
d of any m
arkets. W
plied m
e sup
ort
p
o
• Human IL-39: a member of the IL-12 family of cytokines
with pro-inflammatory activity
• Biosimilars: a series of biosimilar antibodies for use as
research tools including the EGFR antibody Cetuximab
• Mouse IL-Y: a member of the IL-12 family of cytokines
with anti-inflammatory activity
• Human Thrombopoietin: this is a bacterially expressed
product with enhanced bioactivity
• Animal-free GMP grade proteins (SCF,IL-3, Tpo and
Flt-3L): key products for stem cell work
• Cynomolgus CD19: a B cells proteins as part of our
continued expansion of monkey products (69 total
products for monkey research)
• Avi-tagged proteins: recombinant proteins expressing
a biotin through the Avi-tag system (13 total products)
• Recombinant antibodies: conversion of hybridoma
derived antibodies to recombinant forms for greater
stability and performance
• GMP grade small molecules: a series of small molecules
from our Tocris product line used in tissue culture
• PROTACs: proteolysis targeting chimeric molecules,
such as dTAG-13, are used as a tool to target the degra-
dation of a specific protein via the E3 ligase recognition
sequence on the PROTACs
• RNAscope HiplexTM RNA assay: simultaneous detection
of up to 12 RNA transcripts in a tissue section
• Simple Plex (Ella): Open cartridge ELISA format allowing
customers to use their own antibodies
• Human Multiplex Assays: 7 additional premixed human
cytokine Luminex panels
• Duoset Products: Continued menu expansion of this
ELISA product line to include Human IFN-alpha 2, IL-21,
IL-27/IL-35 EBI3, Irisin, UCHL-1, and C-Peptide
• Quantikine Products: Continued menu expansion of
these gold standard immunoassays to include human
AXL, Granzyme B, GDNF and mouse ELA-2, IL-beta high
sensitivity kits
P
R
I have m
has allo
or science-based co
entioned m
oncolo
w
O
N
E
D
m
any tim
ed us to create m
fields. Just a short list of ne
gy, neuroscience, diagnostics, im
any ne
w pro
U
es that innovation is the lifeblo
pany. The prioritization process w
ducts in all our ap
ducts w
unolo
w pro
m
o
C
W
T
S
gy, ste
e deployed in 2019 are:
d of any m
plied m
e use here at Bio-Techne
m cells and a host of other
anufacturing
arkets. W
e sup
ort
p
• Human IL-39: a member of the IL-12 family of cytokines
with pro-inflammatory activity
• Biosimilars: a series of biosimilar antibodies for use as
research tools including the EGFR antibody Cetuximab
• Mouse IL-Y: a member of the IL-12 family of cytokines
with anti-inflammatory activity
• Human Thrombopoietin: this is a bacterially expressed
product with enhanced bioactivity
• Animal-free GMP grade proteins (SCF,IL-3, Tpo and
Flt-3L): key products for stem cell work
• Cynomolgus CD19: a B cells proteins as part of our
continued expansion of monkey products (69 total
products for monkey research)
• Avi-tagged proteins: recombinant proteins expressing
a biotin through the Avi-tag system (13 total products)
• Recombinant antibodies: conversion of hybridoma
derived antibodies to recombinant forms for greater
stability and performance
• GMP grade small molecules: a series of small molecules
from our Tocris product line used in tissue culture
• PROTACs: proteolysis targeting chimeric molecules,
such as dTAG-13, are used as a tool to target the degra-
dation of a specific protein via the E3 ligase recognition
sequence on the PROTACs
• RNAscope HiplexTM RNA assay: simultaneous detection
of up to 12 RNA transcripts in a tissue section
• Simple Plex (Ella): Open cartridge ELISA format allowing
customers to use their own antibodies
• Human Multiplex Assays: 7 additional premixed human
cytokine Luminex panels
• Duoset Products: Continued menu expansion of this
ELISA product line to include Human IFN-alpha 2, IL-21,
IL-27/IL-35 EBI3, Irisin, UCHL-1, and C-Peptide
• Quantikine Products: Continued menu expansion of
these gold standard immunoassays to include human
AXL, Granzyme B, GDNF and mouse ELA-2, IL-beta high
sensitivity kits
WHE RE SCI ENCE INT ER SECT S IN NOVATI ON !
I really love our new corporate tag line. It perfectly
describes who we are and how we think about
our company. We are a science-driven company,
but we operate with a strong sense of process
and devotion to innovation in all fields of the busi-
ness, not just research and development. Reach-
ing our goal of double-digit growth has been an
incredible journey for all of us. It has taken years
and a lot of hard work, ability to change, new tal-
ent, dedication and focus. We intend to build on
this foundation to drive these attributes to even
higher levels of performance. I see no reason for
us to not achieve revenue growth rates above
12% and EBITA levels near 40% in the near fu-
ture. If not 2020, then soon thereafter. The team
is energized, and we have a lot of momentum. In
speaking with employees, I am often asked what
we as a company care about the most. My first
response is always that we must put ethics at the
center of our business. We are an ethical team and
we strive to build a culture of ethical behavior first
and foremost, in every country we operate in. Our
reputation is everything, and if customers know this
about us, they will trust us and will seek our prod-
ucts. This is how we live each and every day. I am
proud of the team here at Bio-Techne, and of the
accomplishments we have made in 2019. 2020
is another year and we are ready to rise to the
challenges ahead of us. Thank you.
– Chuck
GLOBAL
FOOTPRINT
F IS CAL YEAR END S : JUNE 3 0
F Y 2 019 RE VENUES : $ 714 M
F Y 2 019 ADJ. GROS S MARGI N: 7 1.5 %
F Y 2 019 ADJ. OP INC .: $2 43.5 M
F Y 2 019 ADJUST ED E PS : $4 .5 1
F Y 2 019 MAR KET CAP: ~$ 7.9B
OUR BRAND S
BRING YOU
300,000
QUA LI TY
PRODUCTS
2,200+
EM PLOYEE S
GLOBALLY
42 YEARS
MAN UFACTURING
& SOURCIN G
REAGEN TS
600,000
CITATIONS
GE NER ATE D U SING
OUR PR OD UCTS
EMPOWERMENT
PASS ION
INNOVATION COLLA BO RATI ON
Release Potential
Develop People
Provide the Right Tools
Give It Everything
Make Something Brilliant
Share To Win
Make Work Enjoyable
Take Risks Worth Taking
Build Positive Relationships
Know Why Your Work
Is Important
Imagine The Possibilities
Connect Across Boundaries
6
INSTRUMEN T PLATFORMS
THAT LEV ERAGE
BI OLOGICAL CONTENT
WHERE SCIE NCE INTERSECT S I N N OVAT I O N !
I really love our new corporate tag line. It perfectly
is energized, and we have a lot of momentum. In
describes who we are and how we think about
speaking with employees, I am often asked what
our company. We are a science-driven company,
we as a company care about the most. My first
but we operate with a strong sense of process
response is always that we must put ethics at the
and devotion to innovation in all fields of the busi-
center of our business. We are an ethical team and
ness, not just research and development. Reach-
we strive to build a culture of ethical behavior first
ing our goal of double-digit growth has been an
and foremost, in every country we operate in. Our
incredible journey for all of us. It has taken years
reputation is everything, and if customers know this
and a lot of hard work, ability to change, new tal-
about us, they will trust us and will seek our prod-
ent, dedication and focus. We intend to build on
ucts. This is how we live each and every day. I am
this foundation to drive these attributes to even
proud of the team here at Bio-Techne, and of the
higher levels of performance. I see no reason for
accomplishments we have made in 2019. 2020
us to not achieve revenue growth rates above
is another year and we are ready to rise to the
12% and EBITA levels near 40% in the near fu-
challenges ahead of us. Thank you.
ture. If not 2020, then soon thereafter. The team
– Chuck
GLOBAL
FOOTPRINT
FI SCAL YEAR EN DS : JUNE 30
FY 201 9 RE VENU ES: $714M
FY 201 9 ADJ. G ROSS MARGIN: 71.5%
FY 201 9 ADJ. OP I NC. : $24 3.5 M
FY 201 9 ADJUSTE D EPS: $4. 51
FY 201 9 MAR K ET CAP: ~$7.9B
OUR BRANDS
BRING YOU
300,000
QUAL ITY
PRODUCTS
2,200+
EMPLOYEES
GLO BAL LY
42 YEARS
MANU FACTURI NG
& SOU RCIN G
REAGENTS
600,000
CITATIONS
GENERATED USIN G
OU R PRODU CTS
EMPOWERMENT
PASS ION
INNOVATION COLLABO R AT ION
Release Potential
Develop People
Give It Everything
Make Something Brilliant
Share To Win
Make Work Enjoyable
Take Risks Worth Taking
Build Positive Relationships
Provide the Right Tools
Know Why Your Work
Imagine The Possibilities
Connect Across Boundaries
Is Important
6
INSTRUMENT PLATFORMS
THAT LEVER AGE
BIOLOGICAL CON TENT
BIO-TECHNE VS. S&P 500 INDEX
Overall, Bio-Techne outperformed the S&P 500 index over the five-year period from the end of fiscal 2014 to the end of
fiscal 2019. We are proud of Bio-Techne’s long-term record but, as always, past performance should not be interpreted as
an indication of future performance.
FO RWARD LOO KIN G STATE MENTS
letter may constitute
in this
Certain statements
forward-looking statements as defined in the U.S.
Private Securities Litigation Reform Act of 1995.
Forward-looking statements reflect the Company’s
current views with respect to future events and
financial performance and include any statement that
does not directly relate to a current or historical fact.
Forward-looking statements can generally be
identified by the words “believe,” “expect,” “anticipate”
or “intend” or similar words. There are a number of
risks and uncertainties that could affect actual results.
For additional information concerning such risks and
uncertainties, see the section titled “Risk Factors” in
the Company’s annual report on Form 10-K and
quarterly reports on Form 10-Q as filed with the
Securities and Exchange Commission. We undertake
no obligation to update or revise any forward-looking
statements due to new information or future events.
Investors are cautioned not to place undue emphasis
on these statements.
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Robert V. Baumgartner
Chairman of the Board and Director
Charles Kummeth
President and Chief Executive Officer
Charles R. Kummeth
President, Chief Executive Officer and
James Hippel
Chief Financial Officer
David Eansor
President, Protein Sciences
Kim Kelderman
President, Diagnostics and Genomics
Brenda Furlow
General Counsel and Corporate Secretary
Director
John L. Higgins
Director
Joseph Keegan, Ph.D.
Director
Roeland Nusse, Ph.D.
Director
Alpna Seth, Ph.D,
Director
Randolph C. Steer, M.D., Ph.D.
Director
Rupert Vessey, M.A., B.M.,
B.Ch., F.R.C.P., D. Phil.
Director
Harold J. Wiens
Director
ANNUAL MEETING
The annual meeting of shareholders will be held at
Bio-Techne Corporation
614 McKinley Place NE
Minneapolis, MN 55413-2610, USA
Thursday, October 24, 2019, at 8:00 a.m. (Central Time).
TECH is Bio-Techne Corporation’s Nasdaq stock symbol, which is listed on the Nasdaq Global Select Market.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2019, 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
(State or other jurisdiction of
incorporation or organization)
41-1427402
(I.R.S. Employer
Identification No.)
614 McKinley Place N.E.
Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
(612) 379-8854
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Trading Symbol(s)
TECH
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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. (Check one):
Large accelerated filer ☒
Non-accelerated filer ☐
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 Rule 12b-2 of the Act). Yes ☐ No ☒
As of December 31, 2018 the aggregate market value of the Common Stock held by non-affiliates of the Registrant was $5.5
billion based upon the closing sale price as reported on The Nasdaq Stock Market ($144.72 per share). Shares of Common Stock
held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded.
As of August 26, 2019, 38,063,504 shares of the Company’s Common Stock ($0.01 par value) were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for its 2019 Annual Meeting of Shareholders are incorporated by reference into Part
III.
TABLE OF CONTENTS
Page
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
i
1
8
16
16
16
16
17
19
19
30
31
65
65
66
67
67
67
67
67
68
71
[This page intentionally left blank]
PART I
ITEM 1. BUSINESS
OVERVIEW
Bio-Techne and its subsidiaries, collectively doing business as Bio-Techne Corporation (Bio-Techne, we, our, us or the Company),
develop, manufacture and sell life science reagents, instruments and services for the research and clinical diagnostic markets
worldwide. With our deep product portfolio and application expertise, we sell integral components of scientific investigations into
biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our
products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.
During our fiscal year 2019, we operated with two reporting segments – our Protein Sciences segment and our Diagnostics and
Genomics segment. Our Protein Sciences segment is a leading developer and manufacturer of high-quality purified proteins and
reagent solutions, most notably cytokines and growth factors, antibodies, immunoassays, biologically active small molecule
compounds, tissue culture reagents and T-Cell activation technologies. This segment also includes protein analysis solutions that
offer researchers efficient and streamlined options for automated western blot and multiplexed ELISA workflow. Our Genomics and
Diagnostics segment develops and manufactures diagnostic products, including FDA-regulated controls, calibrators, blood gas and
clinical chemistry controls and other reagents for OEM and clinical customers, as well as a portfolio of clinical molecular diagnostic
oncology assays, including the ExoDx®Prostate(IntelliScore) test (EPI) for prostate cancer diagnosis. This segment also
manufactures and sells advanced tissue-based in-situ hybridization assays (ISH) for research and clinical use.
We are a Minnesota corporation with our global headquarters in Minneapolis, Minnesota. We were founded over forty years ago, in
1976, as Research and Diagnostic Systems, Inc. We became a publicly traded company in 1985 through a merger with Techne
Corporation, now Bio-Techne Corporation. Our common stock is listed on the NASDAQ under the symbol “TECH.” We operate
globally, with offices in many locations throughout North America, Europe and Asia. Today, our product line extends to over
300,000 products, most of which we manufacture ourselves in multiple locations in North America, England and China.
Our historical focus was on providing high quality proteins, antibodies and immunoassays to the life science research market and
hematology controls to the diagnostics market. Over the last six years, we implemented a disciplined strategy to accelerate growth
in part by acquiring businesses and product portfolios that leveraged and diversified our existing product lines, filled portfolio gaps
with differentiated high growth businesses, and expanded our geographic scope. From fiscal years 2013 through 2019 we have
acquired fifteen companies that have expanded the product offerings and geographic footprint of both reporting segments.
Recognizing the importance of an integrated, global approach to meeting our mission and accomplishing our strategies, we have
maintained many of the brands of the companies we have acquired, but unified under a single global brand -- Bio-Techne.
We are committed to providing the life sciences community with innovative, high-quality scientific tools that allow our customers
to make extraordinary discoveries. Our mission is to build “epic tools for epic science.” We intend to build on Bio-Techne’s past
accomplishments, high product quality reputation and sound financial position by executing strategies that position us to serve as
the standard for biological content in the research market, and to leverage that leadership position to enter the diagnostics and other
adjacent markets. Our strategies include:
Continued innovation in core products. Through collaborations with key opinion leaders, participation in scientific
discussions and societies, and leveraging our internal talent, we expect to be able to convert our continued significant
investment in our research and development activities to be first-to-market with quality products that are at the leading edge
of life science researchers’ needs, including expansion of our assay portfolios and products for cancer diagnostics and
therapeutics.
Market and geographic expansion. We will continue to expand our sales staff and distribution channels globally in order
to increase our global presence and make it easier for customers to transact with us. We will also leverage our existing
portfolio to expand our product offerings into novel research fields and further into diagnostics and therapeutics markets,
including in cell and gene therapy.
Culture development and talent recruitment and retention. As we continue to grow both organically and through acquisition,
we are intentionally fostering an “epic” culture based on the ideals of empowerment, passion, innovation and collaboration.
We strive to recruit, train and retain the most talented staff, who will live out those epic ideals and implement our strategies
effectively.
Targeted acquisitions and investments. We will continue to leverage our strong balance sheet to gain access to new
and differentiated technologies and products that improve our competitiveness in the current market, meet customers’
expanding work flow needs and allow us to enter adjacent markets, and to make investments in key technologies and product
lines such as the manufacture of GMP grade reagents to support rapidly expanding immunotherapy markets.
1 OUR PRODUCTS AND MARKETS
In fiscal 2019, net sales from Bio-Techne’s Protein Sciences and Diagnostics and Genomics segments represented 76% and 24% of
consolidated net sales, respectively. Financial information relating to Bio-Techne’s segments is incorporated herein by reference to
Note 12 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Protein Sciences Segment
The Protein Sciences segment is comprised of divisions with complementary product offerings serving many of the same
customers – the Reagent Solutions division and the Analytical Solutions division.
Protein Sciences Segment Products
The Reagents Solutions division consists of specialized proteins, such as cytokines and growth factors, antibodies, small molecules,
tissue culture sera and cell selection technologies traditionally used by researchers to further their life science experimental activities
and by companies developing next generation diagnostics and therapeutics, especially companies developing cell and gene-based
therapeutics. Key product brands include R&D Systems, Tocris Biosciences, Novus Biologicals, Atlanta Biologicals and Quad
Technologies. Most recently, we acquired B-MoGen Technologies, which has a non-viral, transposon-based technology for gene
editing, a key technology targeted for the cell and gene therapy market. Our combined chemical and biological reagents portfolio
provides high quality tools that customers can use in solving the complex biological pathways and glean knowledge that may lead
to a more complete understanding of biological processes, and, ultimately, to the development of novel therapeutic strategies to
address different pathologies.
The Analytical Solutions division includes manual and automated protein analysis instruments and immunoassays that are used in
quantifying proteins in a variety of biological fluids. Products in this division include traditional manual plate-based immunoassays,
fully automated multiplex immunoassays on various instrument platforms, and automated western blotting and isoelectric focusing
analysis of complex protein samples. Key product brands include R&D Systems and ProteinSimple. A number of our products have
been demonstrated to have the potential to serve as predictive biomarkers and therapeutic targets for a variety of human diseases and
conditions including cancer, autoimmunity, diabetes, hypertension, obesity, inflammation, neurological disorders, and kidney
failure. Immunoassays can also be useful in clinical diagnostics. In fact, we have received Food and Drug Administration (FDA)
marketing clearance for a few of our immunoassays for use as in vitro diagnostic devices.
Protein Sciences Segment Customers and Distribution Methods
Our customers for this segment include researchers in academia & government and industry (chiefly pharmaceutical and biotech
companies) as well as Diagnostic/Companion Diagnostic and Therapeutic customers, especially customers engaged in the
development of cell & gene based therapies. Our biologics line of products in the Analytical Solutions division is used primarily by
production and quality control departments at biotech and pharmaceutical companies. We sell our products directly to customers
who are primarily located in North America, Europe and China. We have a sales and marketing partnership agreement with Fisher
Scientific in order to bolster our market presence in North America and leverage the transactional efficiencies offered by the large
Fisher organization. We also sell through third party distributors in China, Japan, certain eastern European countries and the rest of
the world. Our sales are widely distributed, and no single end-user customer accounted for more than 10% of the Protein Sciences
segment's net sales during fiscal 2019, 2018 or 2017.
Protein Sciences Segment Competitors
With respect to the Reagent Solutions division of this segment, a number of large companies supply the worldwide market for
protein-related and chemically-based research and diagnostic reagents, including BD Biosciences, Merck KGaA/EMD Chemicals,
Inc., PeproTech, Inc., Abcam plc., and Thermo Fisher Scientific, Inc, as well as a number of smaller, niche competitors. Market
success is primarily dependent upon product innovation and quality, selection of products, price and reputation. We believe we are
one of the leading world-wide suppliers of cytokine and growth factors in the research market. We further believe that the expansion
of our product offering, the recognized quality of our products, and the ability to continue to bring novel, cutting edge products and
solutions to the market will allow us to remain competitive in the growing biotechnology research, diagnostic, and therapeutics
markets. Our Analytical Solutions division has a number of similar competitors. Our Simple Western platform is a complete
replacement for the traditional manual Western blotting technique. As a result, we face competition from the vendors that supply
instruments and reagents to traditional Western blot users. These competitors include Bio-Rad Laboratories, Merck KGaA,
PerkinElmer and Thermo Fisher Scientific. All of these vendors provide elements of the traditional work flow. Similarly, our
SimplePlex platform replaces the traditional manual ELISA assay and introduces an automated multiplex immunoassay feature.
Competitors include those who supply instruments and reagents for ELISAs, including Meso Scale Discovery, PerkinElmer, Thermo
Fisher, Luminex, Millipore, Molecular Devices, Tecan BioTek, Quanterix and Bio-Rad Laboratories. The primary competitors for
our Biologics instrumentation are Agilent Technologies, Danaher and PerkinElmer, as well as GE Healthcare, Shimadzu, Thermo
Fisher and Waters. We believe our competitive position is strong due to the unique aspects of our products and our product quality.
2
Protein Sciences Segment Manufacturing
We are not dependent on key or sole source suppliers for most of our products in the Protein Sciences segment. We develop and
manufacture the majority of our proteins using recombinant DNA technology, thus significantly reducing our reliance on outside
resources. Our antibodies are produced using a variety of technologies including traditional animal immunization and hybridoma
technology as well as recombinant antibody techniques. Our chemical-based small molecule products are synthesized from widely
available products.
We manufacture our Analytical Solutions division instrumentation products for this segment at various locations in the United States
and Canada. We manufacture our own components where we believe it adds significant value, but we rely on suppliers for the
manufacture of some of the consumables, components, subassemblies and autosamplers used with, or included in, our systems,
which are manufactured to our specifications. As with other products sold in this segment, we are not dependent on any one supplier
and are not required to carry significant amounts of inventory to assure ourselves of a continuous allotment of goods from suppliers.
We conduct all final testing and inspection of our products. We have established a quality control program, including a set of standard
manufacturing and documentation procedures. All of our Protein Sciences Segment manufacturing sites are ISO 9001 or ISO 13485
certified or are in the process of being ISO certified.
The majority of our Reagent Solutions division products are shipped within one day of receipt of the customers' orders, while most
of our Analytical Solutions products are shipped within one to two weeks of receipt of an order.
There was no significant backlog of orders for our Protein Sciences segment products as of the date of this Annual Report on Form
10-K or as of a comparable date for fiscal 2018.
Diagnostics and Genomics Segment
The Diagnostics and Genomics segment also includes two divisions focused primarily in the diagnostics market – the Diagnostics
division and the Genomics division.
Diagnostics and Genomics Segment Products
The Diagnostic division consists of regulated products traditionally used as calibrators and controls in the clinical setting. Also
included are instrument and process control products for hematology, blood chemistry, blood gases, coagulation controls and
reagents used in various diagnostic applications. Often we manufacture these reagents on a custom basis, tailored to a customer's
specific diagnostic assay technology. We supply these reagents in various formats including liquid, frozen, or in lyophilized form.
Most of these products are sold on an Original Equipment Manufacturer (OEM) basis to instrument manufacturers with most
products being FDA-cleared products.
The Genomics division includes products aimed at nucleic acid (RNA or DNA) analysis that can be used for diagnostic or research
applications. Key product brands include Advanced Cell Diagnostics, or ACD, and Exosome Diagnostics. ACD products are aimed
at RNA analysis of tissue while Exosome Diagnostics focuses on exosome-based liquid biopsy techniques that analyze genes or their
transcripts. The first commercialized test from Exosome Diagnostics is a non-invasive urine-based assay for prostate cancer used as
an aid in deciding the need for an initial biopsy.
Diagnostics and Genomics Segment Customers and Distribution Methods
Original Equipment Manufacturer (OEM) agreements represent the largest market for our Diagnostics division products. The
majority of diagnostics sales are through OEM agreements, but we sell some of our diagnostics products directly to customers and,
in Europe and Asia, also through distributors. The customers for the ACD research products include researchers in academia as well
as investigators in pharmaceutical and biotech companies. We sell our products directly to those customers who are primarily located
in North America, Europe and China, and through distributors elsewhere. In addition to being useful research tools, our RNA in situ
hybridization assays have diagnostics applications as well, and several are currently under review by the FDA in partnership with
diagnostics instrument manufacturers and pharmaceutical companies. We offer test services using our non-invasive urine-based
assays for prostate cancer detection in the United States through a diagnostic laboratory regulated under the Clinical Laboratory
Improvement Amendments, or CLIA. Customers are patients prescribed such tests by their physicians.
No customers accounted for 10% or more of the reporting segment's consolidated net sales during fiscal years 2019, 2018, or 2017.
Diagnostics and Genomics Segment Competitors
In the Diagnostics division, the competitors for our hematology controls product line include Danaher Beckman Coulter and Streck.
For our other control and calibrator products sold in this division, the principal competitors are Abbott Diagnostics, Beckman Coulter,
Inc., Bio-Rad Laboratories, Inc., Siemens Healthcare Diagnostics Inc. and Sysmex Corporation. We compete based primarily on
product performance, quality, and price in this division. SeraCare, HyTest Ltd and Thermo Fisher Scientific are additional
competitors in the clinical diagnostic manufacturing and reagents markets.
3
Competitors in the Genomics division are varied, depending on the product line. While there are not any direct competitors for the
RNA-based in situ hybridization products sold under the ACD brand, they are intended to be an alternative to immunohistochemistry
assays and PCR-based diagnostic tests in certain circumstances. The non-invasive urine-based assay offered under our Exosome
Diagnostics brand and used for prostate cancer biopsy decisions is supplemental to blood-based prostate-specific antigen (PSA) tests,
and is competitive with some other smaller companies that offer liquid biopsy-based alternatives such as 4kscore offered by Opko
Health and SelectMDx offered by MDxHealth.
Diagnostics and Genomics Segment Manufacturing
The primary raw material for our hematology controls products is whole blood. We purchase human blood from commercial blood
banks, and porcine and bovine blood from nearby meat processing plants. Although the cost of human blood has increased due to
the requirement that it be tested for certain diseases and pathogens prior to use, the higher cost of these materials has not had a
material adverse effect on our business thus far. Other controls are derived from various bodily fluids or cells from different animal
species, which are then processed in-house to isolate the product of interest or from other bulk reagent suppliers that specialize in
certain products. Our other reagent products are manufactured using a variety of suppliers, with no supplier representing a material
portion of our business.
Most of the hematology controls products are shipped based on a preset, recurring schedule. However, the majority of our business
in this segment are large orders shipped based on our customers' needs; we are highly dependent on our customers’ demand and
inventory controls. Consequently, our revenues can vary significantly from quarter to quarter and year to year.
Our Genomics division products and services are all synthesized from widely available products. We typically have several outside
sources for all critical raw materials necessary for the manufacture of our products in this division.
There was no significant backlog of orders for our Diagnostics and Genomics segment as of the date of this Annual Report on Form
10-K or as of a comparable date for fiscal 2018.
Geographic Information
Following is financial information relating to geographic areas (in thousands):
Net sales:
United States
EMEA, excluding U.K.
U.K.
APAC, excluding Greater China
Greater China
Rest of world
Total net sales
Long-lived assets:
United States and Canada
Europe
China
Total long-lived assets
Intangible assets:
United States and Canada
Europe
China
Total intangible assets
2019
Year Ended June 30,
2018
2017
$
$
391,191 $
155,821
34,975
52,913
57,799
21,307
714,006 $
346,293 $
148,599
33,704
48,392
47,950
18,055
642,993 $
313,195
125,126
28,401
41,463
39,078
15,740
563,003
Year ended June 30,
2019
2018
$
$
$
$
138,016 $
14,439
1,584
154,039 $
556,951 $
16,637
5,841
579,429 $
129,360
14,597
1,391
145,348
417,430
21,386
7,516
446,332
4
Net sales are attributed to countries based on the location of the customer or distributor. Long-lived assets are comprised of land,
buildings and improvements and equipment, net of accumulated depreciation. See the description of risks associated with the
Company's foreign subsidiaries in Item 1A of this Annual Report on Form 10-K.
PRODUCTS UNDER DEVELOPMENT
Bio-Techne is engaged in continuous research and development in all of our major product lines. We believe that our future success
depends, to a large extent, on our ability to keep pace with changing technologies and market needs.
In fiscal 2019, Bio-Techne introduced approximately 1,400 new products. We also expect to significantly expand our portfolio of
products through acquisitions as well as continued product development in our existing businesses. However, there is no assurance
that any of the products in the research and development phase can be successfully completed or, if completed, can be successfully
introduced into the marketplace.
Research and development expense:
Protein Sciences Segment
Diagnostics & Genomics Segment
Corporate
Total research and development expense
$
Percent of net sales
INTELLECTUAL PROPERTY
2019
Year Ended June 30,
2018
2017
40,735
21,678
-
62,413 $
40,996
14,095
239
55,329 $
41,334
12,180
-
53,514
9 %
9 %
10 %
Our success depends in part upon our ability to protect our core technologies and intellectual property. To accomplish this, we rely
on a combination of intellectual property rights, including patents, trade secrets and trademarks, as well as customary contractual
protections.
As of June 30, 2019, we had rights to 211 granted patents and approximately 175 pending patent applications. In particular, products
in the Analytical Solutions and Genomics divisions are protected primarily through pending patent applications and issued patents.
In addition, certain of our products are covered by licenses from third parties to supplement our own patent portfolio. Patent
protection, if granted, generally has a life of 20 years from the date of the patent application or patent grant. We cannot provide
assurance that any of our pending patent applications will result in the grant of a patent, whether the examination process will require
us to narrow our claims, and whether our claims will provide adequate coverage of our competitors' products or services.
In addition to pursuing patents on our products, we also preserve much of our innovation as trade secrets, particularly in the Reagent
Solutions division of our Protein Sciences segment. We have taken steps to protect our intellectual property and proprietary
technology, in part by entering into confidentiality agreements and intellectual property assignment agreements with our employees,
consultants, corporate partners and, when needed, our advisors. See the description of risks associated with the Company's
intellectual property in Item 1A of this Annual Report on form 10-K.
No assurance can be given that Bio-Techne's products do not infringe upon patents or proprietary rights owned or claimed by others.
Bio-Techne has not conducted a patent infringement study for each of its products. Where we have been contacted by patent holders
with certain intellectual property rights, Bio-Techne typically has entered into licensing agreements with patent holders under which
it has the exclusive and/or non-exclusive right to use patented technology as well as the right to manufacture and sell certain patented
products to the research and/or diagnostics markets.
Bio-Techne has obtained trademark registration in certain countries for certain of its brand and product names. Bio-Techne believes
it has common law trademark rights to certain marks in addition to those which it has registered.
SEASONALITY OF BUSINESS
Bio-Techne believes there is some seasonality as a result of vacation and academic schedules of its worldwide customer base,
particularly for the Protein Sciences segment. A majority of Diagnostics division products are manufactured in large bulk lots and
sold on a schedule set by the customer. Consequently, sales for that segment can be unpredictable, and not necessarily based on
seasonality. As a result, we can experience material and sometimes unpredictable fluctuations in our revenue from this segment.
5
LAWS AND REGULATIONS
Our operations, and some of the products we offer, are subject to a number of complex and stringent laws and regulations governing
the production, marketing, handling, transportation and distribution of chemicals, drugs and other similar products, including the
operating and security standards of the Food and Drug Administration, the Drug Enforcement Administration, and various
comparable state and foreign agencies. As Bio-Techne’s businesses also include export and import activities, we are subject to
pertinent laws enforced by the U.S. Departments of Commerce, State and Treasury. Privacy laws in various jurisdictions impact our
business in a number of ways, including requiring us to take care when processing employee and customer data. One of our products
under our Exosome Diagnostics brand is offered as a test under a CLIA-certified laboratory; consequently, we must comply with
governmental regulations relating to billing practices and financial relationships with physicians, hospitals, and health systems.
While we believe we are in compliance in all material respects with such laws and regulations, any noncompliance could result in
substantial fines or otherwise restrict our ability to provide competitive distribution services and thereby have an adverse effect on
our financial condition. To date, none has had a material impact on our operations.
We are subject to laws and regulations governing government contracts, and failure to address these laws and regulations or comply
with government contracts could harm our business by a reduction in revenue associated with these customers. We have agreements
relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply
to companies doing business with the government. We are also subject to investigation for compliance with the regulations governing
government contracts. A failure to comply with these regulations could result in suspension of these contracts, criminal, civil and
administrative penalties or debarment.
EMPLOYEES
Through its subsidiaries, Bio-Techne employed approximately 2,250 full-time and part-time employees as of June 30, 2019.
INVESTOR INFORMATION
We are subject to the information requirements of the Securities Exchange Act of 1934 (the Exchange Act). Therefore, we file
periodic reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). The SEC maintains
an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers
that file electronically.
Financial and other information about us is available on our web site (http://www.bio-techne.com/investors). We make available on
our web site copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably practicable
after filing such material electronically or otherwise furnishing it to the SEC.
EXECUTIVE OFFICERS OF THE REGISTRANT
Currently, the names, ages, positions and periods of service of each executive officer of the Company are as follows:
Name
Charles Kummeth
James T. Hippel
David Eansor
Kim Kelderman
Brenda Furlow
Age
59
48
58
52
61
Position
Officer Since
President, Chief Executive Officer and Director
Chief Financial Officer
President, Protein Sciences
President, Diagnostics and Genomics
General Counsel and Corporate Secretary
2013
2014
2014
2018
2014
Set forth below is information regarding the business experience of each executive officer. There are no family relationships among
any of the officers named, nor is there any arrangement or understanding pursuant to which any person was selected as an officer.
Charles Kummeth has been President and Chief Executive Officer of the Company since April 1, 2013. Prior to joining the Company,
he served as President of Mass Spectrometry and Chromatography at Thermo Fisher Scientific Inc. from September 2011. He was
President of that company's Laboratory Consumables Division from 2009 to September 2011. Prior to Thermo Fisher, Mr. Kummeth
served in various roles at 3M Corporation, most recently as the Vice President of the company's Medical Division from 2006 to
2008.
6
James T. Hippel has been Chief Financial Officer of the Company since April 1, 2014. Prior to joining the Company, Mr. Hippel
served as Senior Vice President and Chief Financial Officer for Mirion Technologies, Inc., a $300 million global company that
provides radiation detection and identification products. Prior to Mirion, Mr. Hippel served as Vice President, Finance at Thermo
Fisher Scientific, Inc., leading finance operations for its Mass Spectrometry & Chromatography division and its Laboratory
Consumables division. In addition, Mr. Hippel's experience includes nine years of progressive financial leadership at Honeywell
International, within its Aerospace Segment. Mr. Hippel started his career with KPMG LLP.
David Eansor has been the President of the Protein Sciences segment in fiscal 2019. Prior to that, he served as Senior Vice President,
Biotechnology Division and as Senior Vice President, Novus Biologicals since the Company completed its acquisition of Novus on
July 2, 2014. From January 2013 until the date of the acquisition, Mr. Eansor was the Senior Vice President of Corporate
Development of Novus Biologicals. Prior to joining Novus Biologicals, Mr. Eansor was the President of the Bioscience Division of
Thermo Fisher Scientific. Mr. Eansor was promoted to Division President in early 2010 after 5 years as President of Thermo Fisher's
Life Science Research business.
Kim Kelderman joined Bio-Techne on April 30, 2018 as President, Diagnostics and Genomics. Prior to Bio-Techne, Mr. Kelderman
was employed at Thermo Fisher Scientific where he led three different businesses of increasing scale and complexity. For the last
three years, Mr. Kelderman managed the Platforms and Content of the Genetic Sciences Division, where he was responsible for the
Instrumentation, Software, Consumables and Assays businesses, and brands such as Applied Biosystems and legacy Affymetrix.
Before joining Thermo Fisher, Kim served as Senior Segment Leader at Becton Dickinson, managing the global Blood Tubes
“Vacutainer” business.
Brenda Furlow joined the Company as General Counsel and Corporate Secretary on August 4, 2014. Prior to joining Bio-Techne,
Ms. Furlow served as general counsel to emerging growth technology companies. Ms. Furlow was General Counsel for
TomoTherapy, a global, publicly traded company that manufactured and sold radiation therapy equipment, from 2007 to 2011. From
1998 to 2007, Ms. Furlow served as General Counsel for Promega Corporation, a global life sciences company.
FORWARD-LOOKING INFORMATION AND CAUTIONARY STATEMENTS
This report contains forward-looking statements, which are based on the Company's current assumptions and expectations. The
principal forward-looking statements in this report include the Company's expectations regarding product releases and strategy,
future financial results, acquisition activity, the competitive environment, currency fluctuation and exchange rates, capital
expenditures, the performance of the Company's investments, future dividend declarations, the construction and lease of certain
facilities, the adequacy of owned and leased property for future operations, anticipated financial results and sufficiency of capital
resources to meet the Company's foreseeable future cash and working capital requirements.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, as amended. Although the Company believes there is a reasonable basis for
the forward-looking statements, the Company's actual results could be materially different. The most important factors which could
cause the Company's actual results to differ from forward-looking statements are set forth in the Company's description of risk
factors in Item 1A to this Annual Report on Form 10-K.
Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update
any forward-looking statements.
7
ITEM 1A. RISK FACTORS
Statements in this Annual Report on Form 10-K and elsewhere that are forward-looking involve risks and uncertainties which may
affect the Company's actual results of operations. Certain of these risks and uncertainties, which have affected and, in the future,
could affect the Company's actual results are discussed below. The Company undertakes no obligation to update or revise any
forward-looking statements made due to new information or future events. Investors are cautioned not to place undue emphasis on
these statements.
The following risk factors should be read carefully in connection with evaluation of the Company's business and any forward-looking
statements made in this Annual Report on Form 10-K and elsewhere. See the section entitled “forward-looking statements” set forth
above. Any of the following risks or others discussed in this Annual Report on Form 10-K or the Company's other SEC filings could
materially adversely affect the Company's business, operating results and financial condition.
It may be difficult for us to implement our strategies for revenue growth in light of competitive challenges.
We face significant competition across many of our product lines. Competitors include companies ranging from start-up
companies, which may be able to more quickly respond to customers' needs, to large multinational companies, which may have
greater financial, marketing, operational, and research and development resources than the Company. In addition, consolidation
trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to
concentrate purchasing decisions for some customers, resulting in increased pricing pressure on the Company. Moreover,
customers may believe that consolidated businesses are better able to compete as sole source vendors, and therefore prefer to
purchase from such businesses. The entry into the market by manufacturers in China, India and other low-cost manufacturing
locations is also creating increased pricing and competitive pressures, particularly in developing markets. Failure to anticipate
and respond to competitors' actions may impact the Company's future sales and earnings.
To address this issue, we are pursuing a number of strategies to maintain and improve our revenue growth, including:
•
•
•
•
•
•
•
strengthening our presence in selected geographic markets;
allocating research and development funding to products with higher growth prospects;
developing new applications for our technologies;
continuing key opinion leader initiatives;
finding new markets for our products;
acquiring new products and business in growing or novel markets; and
continuing the development of commercial tools and infrastructure to increase and support cross-selling opportunities of
products and services to take advantage of our depth in product offerings.
We may not be able to successfully implement these strategies, and these strategies may not result in the expected growth of
our business.
Our acquisition growth strategy poses financial, management and other risks and challenges.
We routinely explore acquiring other businesses and assets, and have completed sixteen acquisitions and several investments in
the last seven years. However, we may be unable to identify or complete promising acquisitions for many reasons, including
competition among buyers, the high valuations of businesses in our industry, the need for regulatory and other approvals, and
availability of capital. There can be no assurance that we will engage in any additional acquisitions or that we will be able to do
so on terms that will result in any expected benefits. In addition, acquisitions financed with borrowings could make us more
vulnerable to business downturns and could negatively affect our earnings due to higher leverage and interest expense.
Our inability to complete acquisitions or to successfully integrate any new or previous acquisitions could have a material
adverse effect on our business.
Our business strategy includes the acquisition of technologies and businesses that complement or augment our existing products
and services. Certain acquisitions may be difficult to complete for a number of reasons, including the need for antitrust and/or
other regulatory approvals. Any acquisition we may complete may be made at a substantial premium over the fair value of the
net identifiable assets of the acquired company. When we do identify and consummate acquisitions, we may face financial,
managerial and operational challenges, including diversion of management attention, difficulty with integrating acquired
businesses, integration of different corporate cultures, increased expenses, assumption of unknown liabilities, indemnities,
potential disputes with the sellers, and the need to evaluate the financial systems of and establish internal controls for acquired
entities. Further, we may not be able to integrate acquired businesses successfully into our existing businesses, make such
8
businesses profitable, or realize anticipated cost savings or synergies, if any, from these acquisitions, which could adversely
affect our overall business.
We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets, or
other investments become impaired.
We are required under generally accepted accounting principles to test goodwill for impairment at least annually and to review
our goodwill, amortizable intangible assets, and other assets acquired through merger and acquisition activity, for impairment
when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to
impairment of goodwill, amortizable intangible assets, and other assets acquired via acquisitions include significant adverse
changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any
particular segment) and declines in the financial condition of our business. We may be required in the future to record additional
charges to earnings if our goodwill, amortizable intangible assets or other investments become impaired. Any such charge would
adversely impact our financial results.
In addition, the Company's expansion strategies include collaborations and investments in joint ventures and companies
developing new products related to the Company's business. These strategies carry risks that objectives will not be achieved and
future earnings will be adversely affected. For example, the Company has an approximate 7% equity investment in publicly
traded ChemoCentryx, Inc. (Nasdaq: CCXI) that is valued at $38.2 million as of June 30, 2019. The ownership of CCXI shares
is very concentrated, the share price is highly volatile and there is limited trading of the shares. In fiscal 2017, we also invested
and held a minority interest in privately-held Astute Medical, Inc. (Astute), a diagnostics company developing new diagnostics
tests relating to kidney injury. In fiscal 2018, Astute was acquired by a third party and we realized a $16.2 million loss on our
investment.
Significant developments stemming from the U.S. administration or the U.K.’s referendum on membership in the EU could
have an adverse effect on us.
The U.S. administration has called for substantial changes to trade agreements and is imposing significant increases on tariffs
on goods imported into the United States, particularly from China. Other countries have responded similarly, with tariffs on
goods entering their countries. The U.S. administration has also indicated an intention to ask Congress to make significant
changes, replacement or elimination of the Patient Protection and Affordable Care Act, and government negotiation/regulation
of drug prices paid by government programs. Changes in U.S. social, political, regulatory and economic conditions or laws and
policies governing the health care system and drug prices, foreign trade, manufacturing, and development and investment in the
territories and countries where we or our customers operate could adversely affect our operating results and our business.
Additionally, in a referendum vote held on June 23, 2016, the United Kingdom (UK) voted to leave the European Union (EU).
This referendum has created political and economic uncertainty, particularly in the United Kingdom and the EU, and this
uncertainty may last for years. Our business could be affected during this period of uncertainty, and perhaps longer, by the
impact of the United Kingdom’s referendum. In addition, our business could be negatively affected by new trade agreements
between the United Kingdom and other countries, including the United States, and by the possible imposition of trade or other
regulatory barriers in the United Kingdom. Any of these factors could adversely affect customer demand, our relationships with
customers and suppliers, and our business and financial results, particularly since our European headquarters and shipping
facilities are currently located in the UK. Additionally, attracting and retaining qualified employees who are citizens of EU
countries to our UK facilities may be more difficult given the uncertainties resulting from the UK withdrawal.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in many markets in which we and our customers must comply with federal, state, local and international regulations,
such as environmental, health and safety and food and drug regulations. We develop, configure and market our products to meet
customer needs created by those regulations. Any significant change in regulations could reduce demand for our products or
increase our expenses. For example, many of our instruments are marketed to the pharmaceutical industry for use in discovering
and developing drugs. Changes in the U.S. Food and Drug Administration’s regulation of the drug discovery and development
process could have an adverse effect on the demand for these products.
We are subject to laws and regulations governing government contracts, and failure to address these laws and regulations
or comply with government contracts could harm our business by leading to a reduction in revenue associated with these
customers.
We have agreements relating to the sale of our products to government entities in the U.S. and elsewhere and, as a result, we
are subject to various statutes and regulations that apply to companies doing business with the government. The laws governing
9
government contracts differ from the laws governing private contracts and government contracts may contain pricing terms and
conditions that are not applicable to private contracts. We are also subject to investigation for compliance with the regulations
governing government contracts. A failure to comply with these regulations could result in suspension of these contracts,
criminal, civil and administrative penalties or debarment.
We are required to comply with a wide variety of laws and regulations, and are subject to regulation by various federal, state
and foreign agencies.
We are subject to various local, state, federal, foreign and transnational laws and regulations, which include the operating and
security standards of the U.S. Federal Drug Administration (the FDA), the U.S. Drug Enforcement Agency (the DEA), the U.S.
Department of Health and Human Services (the DHHS), and other comparable agencies and, in the future, any changes to such
laws and regulations could adversely affect us. In particular, we are subject to laws and regulations concerning current good
manufacturing practices and drug safety. Our subsidiaries may be required to register for permits and/or licenses with, and may
be required to comply with the laws and regulations of, the DEA, the FDA, the DHHS, foreign agencies and/or comparable state
agencies as well as certain accrediting bodies depending upon the type of operations and location of product distribution,
manufacturing and sale. The manufacture, distribution and marketing of many of our products and services, including medical
devices and pharma services, are subject to extensive ongoing regulation by the FDA, the DEA, and other equivalent local, state,
federal and non-U.S. regulatory authorities. In addition, we are subject to inspections by these regulatory authorities. Failure by
us or by our customers to comply with the requirements of these regulatory authorities, including without limitation, remediating
any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls
or seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal
sanctions, or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition,
such a failure could expose us to contractual or product liability claims, contractual claims from our customers, including claims
for reimbursement for lost or damaged active pharmaceutical ingredients, as well as ongoing remediation and increased
compliance costs, any or all of which could be significant. We are the sole manufacturer of a number of products for many of
our customers and a negative regulatory event could impact our customers' ability to provide products to their customers.
We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things,
the importation and exportation of products, the handling, transportation and manufacture of substances that could be classified
as hazardous, and our business practices in the U.S. and abroad such as anti-corruption and anti-competition laws. Any
noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and
licenses could result in criminal, civil and administrative penalties and could have an adverse effect on our results of operations.
We are subject to financial, operating, legal and compliance risk associated with global operations.
We engage in business globally, with approximately 45% of our sales revenue in fiscal 2019 coming from outside the U.S. In
addition, one of our strategies is to expand geographically, particularly in China, India and in developing countries, both through
distribution and through direct operations. This subjects us to a number of risks, including international economic, political, and
labor conditions; currency fluctuations; tax laws (including U.S. taxes on foreign subsidiaries); increased financial accounting
and reporting burdens and complexities; unexpected changes in, or impositions of, legislative or regulatory requirements; failure
of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing
international operations; delays resulting from difficulty in obtaining export licenses for certain technology; tariffs, quotas and
other trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and
fraudulent business practices; and other factors beyond our control, including terrorism, war, natural disasters, climate change
and diseases.
The application of laws and regulations implicating global transactions is often unclear and may at times conflict. Compliance
with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced
revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions, prohibited business conduct,
and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could
become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which may be
substantially different from those in the U.S.
We continue to expand our operations in countries with developing economies, where it may be common to engage in business
practices that are prohibited by U.S. regulations applicable to the Company, such as the Foreign Corrupt Practices Act. Although
we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our
employees, contractors, and agents, as well as those companies to which we outsource certain aspects of our business operations,
including those based in foreign countries where practices which violate such U.S. laws may be customary, will comply with
our internal policies. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our
business and result in significant fines or penalties.
10
Changes in economic conditions could negatively impact our revenues and earnings.
Our Protein Sciences segment products are sold primarily to research scientists at pharmaceutical and biotechnology companies
and at university and government research institutions. Research and development spending by our customers and the
availability of government research funding can fluctuate due to changes in available resources, mergers of pharmaceutical and
biotechnology companies, spending priorities, general economic conditions and institutional and governmental budgetary
policies. Our diagnostics segment products are intended primarily for the medical diagnostics market, which relies largely on
government healthcare-related policies and funding. Changes in government reimbursement for certain diagnostic tests or
reductions in overall healthcare spending could negatively impact us directly or our customers and, correspondingly, our sales
to them. Several years ago, the U.S. and global economies experienced a period of economic downturn and have been slow to
recover in some parts of the world. Such downturns, and other reductions or delays in governmental funding, could cause
customers to delay or forego purchases of our products. We carry essentially no backlog of orders and changes in the level of
orders received and filled daily can cause fluctuations in quarterly revenues and earnings.
Several years ago we identified and remediated material weaknesses in our internal control over financial reporting which,
if recurring, could harm our operating results or cause us to fail to meet our reporting obligations.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as
defined in Rule 13a-15(f) under the Securities Exchange Act. During fiscal 2016, management identified material weaknesses
in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our
management concluded that our internal control over financial reporting was not effective based on criteria set forth by the
Committee of Sponsoring Organization of the Treadway Commission in Internal Control-An Integrated Framework (2013
Framework) for the years ended June 30, 2016 and 2017. In fiscal 2018 we completed a remediation plan that addressed these
material weaknesses. As we continue to grow and acquire additional business, we may fail to implement effective internal
controls for our recently acquired operations that result in additional material weaknesses, and harm our operating results or
cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause investors to lose confidence in
our reported financial information, which could have a negative effect on the trading price of our common shares.
Our success will be dependent on recruiting and retaining highly qualified personnel and creating a new culture that includes
the employees joining through acquisition.
Recruiting and retaining qualified scientific, production, sales and marketing, and management personnel are critical to our
success. Our anticipated growth and its expected expansion into areas and activities requiring additional expertise will require
the addition of new personnel and the development of additional expertise by existing personnel. We also operate in several
geographic locations where competition for talent is strong, making employee retention particularly challenging in those
locations. For example, some of our fastest growing businesses are located in northern California and eastern Massachusetts,
both of which currently are experiencing low unemployment and a competitive environment for finding and retaining talent.
Our growth by acquisition also creates challenges in retaining employees. As we integrate past and future acquisitions and
evolve our corporate culture to incorporate the new workforces, some employees may not find such integration or cultural
changes appealing. The failure to attract and retain such personnel could adversely affect our business.
Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware,
software, and Internet applications and related tools and functions, could result in damage to our reputation, data integrity
and/or subject us to costs, fines, or lawsuits under data privacy or other laws or contractual requirements.
The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The regulatory
environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining
compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability
to market our products and services to customers. Although our computer and communications hardware are protected through
physical and software safeguards, they are still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications
failures, physical or software break-ins, software viruses, and similar events. These events could lead to the unauthorized access,
disclosure and use of non-public information. The techniques used by criminal elements to attack computer systems are
sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not
be able to address these techniques proactively or implement adequate preventative measures. If our computer systems are
compromised, we could be subject to fines, damages, litigation, and enforcement actions, customers could curtail or cease using
its applications, and we could lose trade secrets, the occurrence of which could harm our business.
11
If we are unable to maintain reliable information technology systems and appropriate controls with respect to global data privacy
and security requirements and prevent data breaches, we may suffer regulatory consequences in addition to business
consequences. As a global organization, we are subject to data privacy and security laws, regulations, and customer-imposed
controls in numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in
the course of our business. For example, in the United States, individual states regulate data breach and security requirements
and multiple governmental bodies assert authority over aspects of the protection of personal privacy. European laws require us
to have an approved legal mechanism to transfer personal data out of Europe, and the recently-enacted EU General Data
Protection Regulation, which took effect in May 2018, imposes significantly stricter requirements in how we collect and process
personal data. Several countries, such as China and Russia, have passed laws that require personal data relating to their citizens
to be maintained on local servers and impose additional data transfer restrictions. Government enforcement actions can be costly
and interrupt the regular operation of our business, and data breaches or violations of data privacy laws can result in fines,
reputational damage and civil lawsuits, any of which may adversely affect our business, reputation and financial statements.
We are dependent on maintaining our intellectual property rights.
Our success depends in part on our ability to protect and maintain our intellectual property, including trade secrets. If we fail to
protect our intellectual property, third parties may be able to compete more effectively against us, we may lose our technological
or competitive advantage, or we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual
property. We attempt to protect trade secrets in part through confidentiality agreements, but those agreements can be breached,
and if they are, there may not be an adequate remedy. If trade secrets become publicly known, we could lose our competitive
position.
We also attempt to protect and maintain intellectual property through the patent process. As of June 30, 2019, we owned or
exclusively licensed over 400 granted patents and pending patent applications. We cannot be confident that any of our currently
pending or future patent applications will result in granted patents, and we cannot predict how long it will take for such patents
to be granted. It is possible that, if patents are granted to us, others will design around our patented technologies. Further, other
parties may challenge any patents granted to us and courts or regulatory agencies may hold our patents to be invalid or
unenforceable. We may not be successful in defending challenges made against our patents and patent applications. Any
successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents. Our ability to
establish or maintain a technological or competitive advantage over our competitors may be diminished because of these
uncertainties. To the extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we
would be exposed to a greater risk of direct competition. If our intellectual property does not provide adequate coverage of our
competitors' products, our competitive position could be adversely affected, as could our business. Both the patent application
process and the process of managing patent disputes can be time consuming and expensive.
We may be involved in disputes to determine the scope, coverage and validity of others' proprietary rights, or to defend
against third-party claims of intellectual property infringement, any of which could be time-intensive and costly and may
adversely impact our business.
Our success depends in part on its ability to operate without infringing the proprietary rights of others, and to obtain licenses
where necessary or appropriate. We have obtained and continue to negotiate licenses to produce a number of products claimed
to be owned by others. Since we have not conducted a patent infringement study for each of our products, it is possible that
some of our products may unintentionally infringe patents of third parties.
We have been and may in the future be sued by third parties alleging that we are infringing their intellectual property rights.
These lawsuits are expensive, take significant time, and divert management's focus from other business concerns. If we are
found to be infringing the intellectual property of others, we could be required to cease certain activities, alter our products or
processes or pay licensing fees. This could cause unexpected costs and delays which may have a material adverse effect on us.
If we are unable to obtain a required license on acceptable terms, or unable to design around any third party patent, we may be
unable to sell some of our products and services, which could result in reduced revenue. In addition, if we do not prevail, a court
may find damages or award other remedies in favor of the opposing party in any of these suits, which may adversely affect our
earnings.
Our ExoDx Prostate(IntelliScore), or EPI test, may not receive or maintain government or private reimbursement coverage
for clinical laboratory testing as planned, which may have a material adverse effect upon the revenue and profits for this
product line.
In August 2018, we acquired Exosome Diagnostics, which sells the EPI test, a non-invasive urine test that predicts the
aggressiveness of prostate cancer. We are currently seeking coverage decisions regarding reimbursement from both public and
private payers. However, the process and timeline for obtaining coverage decisions is uncertain and difficult to predict.
12
Moreover, federal and state government payers, such as Medicare and Medicaid, as well as insurers, including managed care
organizations, continue to increase their efforts to control the cost, utilization and delivery of healthcare services. From time to
time, Congress considers and implements changes in Medicare fee schedules affecting reimbursement rates in conjunction with
budgetary legislation. Further, reimbursement reductions due to changes in policy regarding coverage of tests or other
requirements for payment (such as prior authorization, diagnosis code and other claims edits, or a physician or qualified
practitioner’s signature on test requisitions) may be implemented from time to time. Still further, changes in third-party payer
regulations, policies, or laboratory benefit or utilization management programs, as well as actions by federal and state agencies
regulating insurance, including healthcare exchanges, or changes in other laws, regulations, or policies, may have a material
adverse effect on revenue and earnings associated with Exosome Diagnostics’ EPI product.
The Company could face significant monetary damages and penalties and/or exclusion from government programs if its
Exosome Diagnostics’ EPI business violates federal, state, local or international laws including, but not limited to, anti-
fraud and abuse laws.
As a healthcare provider, the Company’s Exosome Diagnostics’ EPI business is subject to extensive regulation at the federal,
state, and local levels in the U.S. and other countries where it operates. The Company’s failure to meet governmental
requirements under these regulations, including those relating to billing practices and financial relationships with physicians,
hospitals, and health systems, could lead to civil and criminal penalties, exclusion from participation in Medicare and Medicaid,
and possibly prohibitions or restrictions on the use of its laboratories. While the Company believes that it is in material
compliance with all statutory and regulatory requirements, there is a risk that government authorities might take a contrary
position. Such occurrences, regardless of their outcome, could damage the Company’s reputation and adversely affect important
business relationships it has with third parties.
The Company’s Exosome Diagnostics EPI business could be harmed from the loss or suspension of a license or imposition
of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of the Clinical Laboratory
Improvement Act of 1967, and the Clinical Laboratory Improvement Amendments of 1988 (CLIA), or those of Medicare,
Medicaid or government agencies where the Company operates its laboratory.
The commercial laboratory testing industry is subject to extensive U.S. regulation, and many of these statutes and regulations
have not been interpreted by the courts. CLIA extends federal oversight to virtually all clinical laboratories operating in the U.S.
by requiring that they be certified by the federal government or by a federally approved accreditation agency. The sanction for
failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which
is necessary to conduct business, as well as significant fines and/or criminal penalties. In addition, the Company’s EPI business
is subject to regulation under state law. State laws may require that laboratories and/or laboratory personnel meet certain
qualifications, specify certain quality controls or require maintenance of certain records. Applicable statutes and regulations
could be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect the
Company's EPI business. Potential sanctions for violation of these statutes and regulations include significant fines and the
suspension or loss of various licenses, certificates and authorizations, which could have a material adverse effect on the
Company’s EPI business. In addition, compliance with future legislation could impose additional requirements on the Company,
which may be costly.
Failure to comply with privacy and security laws and regulations could result in fines, penalties and damage to the
Company’s reputation and have a material adverse effect upon the Company’s business, a risk that has been elevated with
the acquisition of Exosome Diagnostics, whose laboratory testing service is a healthcare provider that obtains and uses
protected health information.
If the Company does not comply with existing or new laws and regulations related to protecting the privacy and security of
personal or health information, it could be subject to monetary fines, civil penalties or criminal sanctions. In the U.S., the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) privacy and security regulations, including the expanded
requirements under U.S. Health Information Technology for Economic and Clinical Health Act (HITECH), establish
comprehensive standards with respect to the use and disclosure of protected health information (PHI) by covered entities, in
addition to setting standards to protect the confidentiality, integrity and security of PHI. HIPAA restricts the Company’s ability
to use or disclose PHI, without patient authorization, for purposes other than payment, treatment or healthcare operations (as
defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes outlined in the
privacy regulations. If the laboratory operations for the Company’s EPI business use or disclose PHI improperly under these
privacy regulations, they may incur significant fines and other penalties for wrongful use or disclosure of PHI in violation of
the privacy and security regulations, including potential civil and criminal fines and penalties
13
The Company relies heavily on internal manufacturing and related operations to produce, package and distribute its
products which, if disrupted, could materially impair our business operations.
The Company's internal quality control, packaging and distribution operations support the majority of the Company's sales.
Since certain Company products must comply with Food and Drug Administration Quality System Regulations and because in
all instances, the Company creates value for its customers through the development of high-quality products, any significant
decline in quality or disruption of operations for any reason, particularly at the Minneapolis facility, could adversely affect sales
and customer relationships, and therefore adversely affect the business. While the Company has taken certain steps to manage
these operational risks, and while insurance coverage may reimburse, in whole or in part, for losses related to such disruptions,
the Company's future sales growth and earnings may be adversely affected by perceived disruption risks or actual disruptions.
Our business could be adversely affected by disruptions at our sites.
We rely upon our manufacturing operations to produce many of the products we sell and our warehouse facilities to store
products, pending sale. Any significant disruption of those operations for any reason, such as strikes or other labor unrest, power
interruptions, fire, hurricanes or other events beyond our control could adversely affect our sales and customer relationships and
therefore adversely affect our business. We have significant operations in California, near major earthquake faults, which make
us susceptible to earthquake risk. Although most of our raw materials are available from a number of potential suppliers, our
operations also depend upon our ability to obtain raw materials at reasonable prices. If we are unable to obtain the materials we
need at a reasonable price, we may not be able to produce certain of our products or we may not be able to produce certain of
these products at a marketable price, which could have an adverse effect on our results of operations.
Fluctuations in our effective tax rate may adversely affect our results of operations and cash flows.
As a global company, we are subject to taxation in numerous countries, states and other jurisdictions. In particular, we are
affected by the impact of changes to tax laws or related authoritative interpretations in the United States, including tax reform
under the Tax Cuts and Jobs Act (the “Tax Act”) signed by the President of the United States on December 22, 2017, which
includes broad and complex changes to the United States tax code and the state tax response to the Tax Act. Reasonable
estimates were used in determining several of the components of the impact of the Tax Act, including our fiscal 2018 deferred
income tax activity and the amount of post-1986 foreign deferred earnings subject to the repatriation toll charge. In addition,
certain provisions of the Tax Act including the Base Erosion Anti-abuse Tax (BEAT) and the provision designed to tax currently
global intangible low-tax income (GILTI) were effective for the Company in the year beginning July 1, 2018. In addition, the
Company anticipates changes in interpretations, assumptions and guidance regarding the Tax Act to be issued by the U.S.
Treasury Department, which could have a material impact on our effective tax rate in future periods.
In preparing our financial statements, we record the amount of tax that is payable in each of the countries, states and other
jurisdictions in which we operate. Our future effective tax rate, however, may be lower or higher than experienced in the past
due to numerous factors, including a change in the mix of our profitability from country to country, changes in accounting for
income taxes and recently enacted and future changes in tax laws in jurisdictions in which we operate. Any of these factors
could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which
could have an adverse effect on our business, results of operations and cash flows.
Because we rely heavily on third-party package-delivery services, a significant disruption in these services or significant
increases in prices may disrupt our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery companies, such as FedEx
in the U.S. and DHL in Europe. If one or more of these third-party package-delivery providers were to experience a major work
stoppage, preventing our products from being delivered in a timely fashion or causing us to incur additional shipping costs we
could not pass on to our customers, our costs could increase and our relationships with certain of our customers could be
adversely affected. In addition, if one or more of these third-party package-delivery providers were to increase prices, and we
were not able to find comparable alternatives or make adjustments in our delivery network, our profitability could be adversely
affected.
As a multinational corporation, we are exposed to fluctuations in currency exchange rates, which could adversely affect
our cash flows and results of operations.
International markets contribute a substantial portion of our revenues, and we intend to continue expanding our presence in
these regions. The exposure to fluctuations in currency exchange rates takes on different forms. International revenues and costs
are subject to the risk that fluctuations in exchange rates could adversely affect our reported revenues and profitability when
translated into U.S. dollars for financial reporting purposes. These fluctuations could also adversely affect the demand for
14
products and services provided by us. As a multinational corporation, our businesses occasionally invoice third-party customers
in currencies other than the one in which they primarily do business (the "functional currency"). Movements in the invoiced
currency relative to the functional currency could adversely impact our cash flows and our results of operations. As our
international sales grow, exposure to fluctuations in currency exchange rates could have a larger effect on our financial results.
In fiscal 2019, currency translation had an unfavorable effect of $9.2 million on revenues due to the strengthening of the U.S.
dollar relative to other currencies in which the company sells products and services.
We have entered into and drawn on a revolving credit facility. The burden of this additional debt could adversely affect us,
make us more vulnerable to adverse economic or industry conditions, and prevent us from funding our expansion strategy.
In connection with the acquisition of Exosome Diagnostics on August 1, 2018, we used a new credit facility governed by a
Credit Agreement entered into on July 28, 2018. The Credit Agreement provides for a revolving credit facility of $600 million,
which can be increased by an additional $200 million subject to certain conditions, and a term loan of $250 million. Borrowings
under the Credit Agreement bear interest at a variable rate. As of August 22, 2019, the Company had drawn $330 million under
the Credit Agreement.
The terms of the Credit Agreement and the burden of the indebtedness incurred thereunder could have negative consequences
for us, such as:
•
•
•
limiting our ability to obtain additional financing to fund our working capital, capital expenditures, debt service requirements,
expansion strategy, or other needs;
increasing our vulnerability to, and reducing our flexibility in planning for, adverse changes in economic, industry and
competitive conditions; and
increasing our vulnerability to increases in interest rates.
The Credit Agreement also contains negative covenants that limit our ability to engage in specified types of transactions. These
covenants limit our ability to, among other things, sell, lease or transfer any properties or assets, with certain exceptions; and
enter into certain merger, consolidation or other reorganization transactions, with certain exceptions.
A breach of any of these covenants could result in an event of default under our credit facility. Upon the occurrence of an event
of default, the lender could elect to declare all amounts outstanding under such facility to be immediately due and payable and
terminate all commitments to extend further credit. In addition, the Company would be subject to additional restrictions if an
event of default exists under the Credit Agreement, such as a prohibition on the payment of cash dividends.
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and
volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to
significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding
our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our
common stock may be affected by:
•
•
•
•
•
operating results that vary from our financial guidance or the expectations of securities analysts and investors;
the financial performance of the major end markets that we target;
the operating and securities price performance of companies that investors consider to be comparable to us;
announcements of strategic developments, acquisitions and other material events by us or our competitors; and
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange
rates, commodity and equity prices and the value of financial assets.
Dividends on our common stock could be reduced or eliminated in the future.
For the past 10 years, our Board has consistently declared quarterly dividends of $0.25 to $0.32 cents per share. In the future,
our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase
shares or conserve capital resources.
15
ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments as of the date of this report.
ITEM 2. PROPERTIES
The Company owns the facilities that its headquarters and R&D Systems subsidiary occupy in Minneapolis, Minnesota. The
Minneapolis facilities are utilized by both the Company's Protein Sciences and Diagnostics and Genomics segments.
The Minneapolis complex includes approximately 800,000 square feet of space in several adjoining buildings. Bio-Techne uses
approximately 625,000 square feet of the complex for administrative, research, manufacturing, shipping and warehousing activities.
The Company is currently leasing the remaining space in the complex as retail and office space.
The Company owns a 17,000 square foot facility that its Bio-Techne Europe subsidiary occupies in Abingdon, England. This facility
is utilized by the Company's Protein Sciences and Diagnostics and Genomics segments.
Additionally, the Company owns a 34,000 square foot facility that its Atlanta Biologicals subsidiary occupies in Flowery Branch,
Georgia. This facility is utilized by the Company’s Protein Sciences.
The Company leases the following material facilities, all of which are primarily utilized by the Company's Protein Sciences segment
with the exception of the locations used by the Company's ProteinSimple and CyVek subsidiaries, which support both the Protein
Sciences segment and the Diagnostics & Genomics segment). Certain locations are not named because they were not significant
individually or in the aggregate as of the date of this report.
Subsidiary
Location
Type
Square Feet
Bio-Techne Europe
Bio-Techne China
Boston Biochem
Tocris
PrimeGene
Bionostics
Novus Biologicals
ProteinSimple
ProteinSimple Canada
CyVek
Cliniqa
Advanced Cell Diagnostics Newark, California
Eurocell Diagnostics
Exosome Diagnostics
Langley, United Kingdom
Shanghai and Beijing, China
Cambridge, Massachusetts
Bristol, United Kingdom
Shanghai, China
Devens, Massachusetts
Littleton, Colorado
San Jose, California
Ottawa and Toronto, Canada
Wallingford, Connecticut
San Marcos, California
Rennes, France
Waltham, Massachusetts
Warehouse
Office/warehouse
Office/lab
Office/manufacturing/lab/warehouse
Office/manufacturing/lab
Office/manufacturing
Office/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/warehouse
Office/manufacturing/warehouse
14,300
10,700
7,400
30,000
20,600
48,000
22,500
167,000
13,900
17,500
62,200
46,500
11,000
28,000
The Company believes the owned and leased properties are adequate to meet its occupancy needs in the foreseeable future.
As of August 28, 2019, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably
expected to have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
16
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Holders of Common Stock and Dividends Paid
As of August 26, 2019, there were over 43,000 beneficial shareholders of the Company's common stock and over 150 shareholders
of record. The Company paid annual cash dividends totaling $48.4 million, $48.0 million, and $47.7 million in fiscal 2019, 2018
and 2017, respectively. The Board of Directors periodically considers the payment of cash dividends, and there is no guarantee that
the Company will pay comparable cash dividends, or any cash dividends, in the future.
In connection with the acquisition of Exosome Diagnostics, Inc. on August 1, 2018, the Company entered into a new credit facility
that provides for a revolving credit facility of $600 million, which can be increased by an additional $200 million subject to certain
conditions, and a term loan of $250 million. The credit facility is governed by a Credit Agreement dated August 1, 2018 and matures
on August 1, 2023. The Credit Agreement that governs the revolving line of credit contains customary events of default and would
prohibit payment of dividends to Company shareholders in the event of a default thereunder.
Issuer Purchases of Equity Securities
The Company repurchased 95,000 shares during fiscal 2019 for $15.4 million at an average share price of $162.15. The Company
did not repurchase any shares in fiscal 2018 or 2017. As of June 30, 2018, the maximum approximate dollar value of shares that
could have been purchased under the Company's then existing stock repurchase plan was approximately $125 million, with no
specified end period. During fiscal 2019, the Board rescinded the existing stock repurchase plan and implemented a new repurchase
plan, which grants management the discretion to mitigate the dilutive effect of stock option exercises by authorizing repurchase of
shares up to the amount of stock returned to the corporation through stock option exercises of $19.2 million, the dilutive effect of
stock option exercises in fiscal 2018, which is then adjusted for the dilutive effect of additional stock option exercises occurring
subsequent to June 30, 2018. As of June 30, 2019, we have authorization of approximately $42 million that may yet be used to
purchase additional shares under the newly implemented stock repurchase program.
Stock Performance Graph
The following chart compares the cumulative total shareholder return on the Company's common stock with the S&P Midcap 400
Index and the S&P 400 MidCap Life Sciences Tools and Services Index.The comparison assumes $100 was invested on the last
trading day before July 1, 2014 in the Company's common stock and in each of the foregoing indices and assumes reinvestment of
dividends.
17
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Bio-Techne Corporation, the S&P Midcap 400 Index,
and S&P 400 Mid-Cap Life Sciences Tools and Services Index
*$100 invested on 6/30/14 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2019 Standard & Poor's, a division of S&P Global. All rights reserved.
18
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
Income and Share Data:
2019(1)
2018(2)
2017(3)
2016(4)
2015(5)
Net sales
Operating income
Earnings before income taxes (6)
Net earnings
Diluted earnings per share
$
714,006 $
146,719
112,015
96,072
2.47
642,993 $
136,178
125,952
126,150
3.31
563,003 $
120,584
111,961
76,086
2.03
499,023 $
150,593
147,481
104,476
2.80
452,246
147,023
154,162
107,735
2.89
Average common and common equivalent shares -
diluted (in thousands)
38,892
38,055
37,500
37,326
37,231
Balance Sheet Data as of June 30:
2019
2018
2017
2016
2015
Cash, cash equivalents and short-term available-for-
sale investments
Working capital
Total assets
Total shareholders' equity
$
166,033 $
310,622
110,921
208,515
1,884,410 1,593,202 1,558,219 1,129,581 1,063,360
846,935
1,165,589 1,079,061
157,714 $
212,503
95,835 $
199,744
181,754 $
318,856
879,280
949,627
Cash Flow Data:
2019
2018
2017
2016
2015
Net cash provided by operating activities
Capital expenditures
Cash dividends declared per share
181,619 $
25,411
1.28
170,367 $
20,934
1.28
143,721 $
15,179
1.28
144,157 $
16,898
1.28
139,359
19,905
1.27
Employee Data as of June 30:
2019
2018
2017
2016
2015
Employees
2,255
1,943
1,789
1,560
1,356
The Company acquired Quad Technologies on July 2, 2018, Exosome Diagnostics on August 1, 2018 and B-Mogen on June 4,
2019.
(1)
(2)
The Company acquired Trevigen on September 5, 2017, Atlanta Biologicals on January 2, 2018, and Eurocell Diagnostics on
February 1, 2018.
(3) The Company acquired Space on July 1, 2016, and Advanced Cell Diagnostics on August 1, 2016.
(4) The Company acquired Cliniqa on July 8, 2015, and Zephyrus on March 21, 2016.
(5) The Company acquired Novus Biologicals on July 2, 2014, ProteinSimple on July 31, 2014, and CyVek on November 3, 2014.
(6) Earnings before income taxes included acquisition related expenses related to amortization of intangibles, costs recognized on sale
of acquired inventories and professional fees associated with acquisition activity, as follows: 2019 - $64.9 million; 2018 - $74.2
million; 2017 - $73.2 million; 2016 - $37.6 million; 2015 - $37.6 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis (“MD&A”) provides information that we believe is useful in understanding our
operating results, cash flows and financial condition. We provide quantitative information about the material sales drivers including
the effect of acquisitions and changes in foreign currency at the corporate and segment level. We also provide quantitative
information about discrete tax items and other significant factors we believe are useful for understanding our results. The MD&A
should be read in conjunction with the consolidated financial information and related notes included in this Form 10-K. This
discussion contains various “Non-GAAP Financial Measures” and also contains various “Forward-Looking Statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP Financial
Measures” located at the end of this MD&A and “Forward-Looking Information and Cautionary Statements” and “Risk Factors”
within Items 1 and 1A of this Form 10-K.
19
OVERVIEW
Bio-Techne develops, manufactures and sells life science reagents, instruments and services for the research and clinical diagnostic
markets worldwide. With our deep product portfolio and application expertise, we sell integral components of scientific
investigations into biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of
specific diseases. Our products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.
During our fiscal year 2019, we operated with two reporting segments – our Protein Sciences segment and our Diagnostics and
Genomics segment. Our Protein Sciences segment is a leading developer and manufacturer of high-quality purified proteins and
reagent solutions, most notably cytokines and growth factors, antibodies, immunoassays, biologically active small molecule
compounds, tissue culture reagents and T-Cell activation technologies. This segment also includes protein analysis solutions that
offer researchers efficient and streamlined options for automated western blot and multiplexed ELISA workflow. Our Genomics and
Diagnostics segment develops and manufactures diagnostic products, including FDA-regulated controls, calibrators, blood gas and
clinical chemistry controls and other reagents for OEM and clinical customers, as well as a portfolio of clinical molecular diagnostic
oncology assays, including the ExoDx®Prostate(IntelliScore) test (EPI) for prostate cancer diagnosis. This segment also
manufactures and sells advanced tissue-based in-situ hybridization assays (ISH) for research and clinical use.
OVERALL RESULTS
For fiscal 2019, consolidated net sales increased 11% as compared to fiscal 2018. Organic growth for the year was 10% with currency
translation having an unfavorable impact of 1% and acquisitions contributing 2%. The organic growth was broad-based with double
digit organic growth in the United States, high single digit organic growth in Europe, and over 25% organic growth in China.
Consolidated GAAP net earnings decreased 24% for fiscal 2019 as compared to fiscal 2018. After adjusting for acquisition related
costs, stock-based compensation, and certain income tax items in both years, adjusted net earnings increased 2% in fiscal 2019 as
compared to fiscal 2018. Adjusted earnings growth was driven by volume leverage, which was partially offset by negative margin
acquisitions.
For fiscal 2018, consolidated net sales increased 14% as compared to fiscal 2017. Organic sales for the year increased 9% with
currency translation contributing 2% and acquisitions contributing 3%. The organic growth was broad-based as the Company
achieved high-single digit growth in the US with contributions from both the Academic and Bio-Pharma end-markets. Europe sales
grew in the mid-teens with growth in both the Academic and Bio-Pharma end-markets. China sales grew nearly 25% and Japan sales
grew in the mid-teens while the rest of the Asia-Pacific region grew in the high-teens.
Consolidated GAAP net earnings increased 65% for fiscal 2018 as compared to fiscal 2017. After adjusting for acquisition related
costs, stock-based compensation, and certain income tax items in both years, adjusted net earnings increased 24% in fiscal 2018 as
compared to fiscal 2017. Adjusted earnings growth was driven by strong volume leverage and the benefit from tax reform, which
was partially offset by negative business mix, lower margin acquisitions, and investments in global commercial resources and
administrative infrastructure.
RESULTS OF OPERATIONS
Net Sales
Consolidated organic net sales exclude the impact of net sales contributed by companies acquired during the fiscal year and the effect
of the change from the prior year in exchange rates used to convert sales in foreign currencies (primarily the euro, British pound
sterling, and Chinese yuan) into U.S. dollars.
Consolidated net sales growth was as follows:
Organic sales growth
Acquisitions sales growth
Impact of foreign currency fluctuations
Consolidated net sales growth
2019
Year Ended June 30,
2018
2017
10 %
2 %
(1 )%
11 %
9 %
3 %
2 %
14 %
6 %
8 %
(1 )%
13 %
20
Consolidated net sales by reportable segment were as follows (in thousands):
Protein Sciences
Diagnostics and Genomics
Intersegment
Consolidated net sales
2019
Year Ended June 30,
2018
2017
$
$
543,159 $
171,674
(827 )
714,006 $
482,378 $
161,151
(536 )
642,993 $
419,365
143,742
(104 )
563,003
In fiscal 2019, Protein Sciences segment net sales increased 13% compared to fiscal 2018. Organic growth for the segment was 13%
for the fiscal year, with acquisitions contributing 2% and foreign currency translation having an unfavorable impact of 2%. Growth
was broad-based and especially strong in the antibodies and cell therapy consumables as well as the Simple Western and Simple
Plex instrument product categories.
In fiscal 2019, the Diagnostics and Genomics segment net sales increased 7% compared to fiscal 2018. Organic growth for the
segment was 4% with acquisitions contributing 3%. Growth in this segment was primarily driven by strong RNAscope product
sales.
In fiscal 2018, Protein Sciences segment net sales increased 15% compared to fiscal 2017. Organic growth for the segment was 10%
for the fiscal year, with acquisitions contributing 2% and foreign currency translation contributing 3%. Antibody and assay product
categories drove growth. The growth in antibodies was led by double-digit growth in the Novus brand. The growth in assays was
led by Luminex-based products the Company makes and sells and royalties received from Luminex assay suppliers who use the
Company’s content in the production of their assays.
In fiscal 2018, Diagnostics & Genomics segment net sales increased 12% compared to fiscal 2017. Organic growth was 9% with
acquisitions and foreign currency impacting revenue by 2% and 1%, respectively.
Gross Margins
Consolidated gross margins were 66.3%, 67.2%, and 66.5% in fiscal 2019, 2018 and 2017, respectively. Consolidated gross margins
were negatively impacted as a result of purchase accounting related to inventory and intangible assets acquired during fiscal 2019,
2018, 2017 and prior years. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs,
resulting in reduced margins in future periods as the inventory is sold. Excluding the impact of acquired inventory sold and
amortization of intangibles, adjusted gross margins were 71.5%, 71.5%, and 71.2% in fiscal 2019, 2018 and 2017, respectively.
A reconciliation of the reported consolidated gross margin percentages, adjusted for acquired inventory sold and intangible
amortization included in cost of sales, is as follows:
Consolidated gross margin percentage
Identified adjustments:
Costs recognized upon sale of acquired inventory
Amortization of intangibles
Non-GAAP adjusted gross margin percentage
2019
Year Ended June 30,
2018
2017
66.3 %
67.2 %
0.5 %
4.7 %
71.5 %
0.4 %
3.9 %
71.5 %
66.5 %
0.6 %
4.1 %
71.2 %
Fluctuations in adjusted gross margins, as a percentage of net sales, have primarily resulted from changes in foreign currency
exchange rates and changes in product mix. We expect that, in the future, gross margins will continue to be impacted by the mix of
our portfolio growing at different rates as well as future acquisitions.
21
Management uses adjusted operating results to monitor and evaluate performance of the Company’s two segments. Since these
results are used for this purpose, they are also considered to be prepared in accordance with GAAP. Segment gross margins, as a
percentage of net sales, were as follows:
Protein Sciences
Diagnostics and Genomics
2019
Year Ended June 30,
2018
2017
73.9 %
41.8 %
74.1 %
46.3 %
75.4 %
40.6 %
The small decrease in the Protein Sciences segment’s gross margin percentage for fiscal 2019 was primarily attributable to mix of
product sales made in this segment. The decrease in the Diagnostics and Genomics gross margin percentages for fiscal 2019 as
compared to fiscal 2018 were due to negative gross margins for acquisitions made in the segment, namely ExosomeDx.
The Protein Sciences segment decrease for fiscal 2018 as compared to fiscal 2017 was primarily attributable to mix of product sales
made in this segment. The Diagnostics and Genomics segment gross margin percentages for fiscal 2018 as compared to fiscal 2017
were positively impacted by higher volume leverage and operational productivity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $23.7 million (10%) and $40.2 million (20%) in fiscal 2019 and 2018,
respectively.
The increase in fiscal 2019 was primarily driven by an additional cost base from our fiscal 2019 acquisitions, additional stock-based
compensation expense, and additional amortization expense associated with intangible assets recorded from our fiscal 2019
acquisitions. These increases were partially offset by a reduction in acquisition related expenses.
The increase in fiscal 2018 was driven by additional investments in global commercial resources and administrative infrastructure,
a larger cost base due to acquisitions and $13.6 million of additional stock-based compensation expense of which $8.3 million is
from a new retirement policy that permits retirees to continue vesting in certain time-based stock options granted during employment,
resulting in accelerated stock compensation expense for those employees meeting the definition of retirement eligible.
Consolidated selling, general and administrative expenses were composed of the following (in thousands):
Protein Sciences
Diagnostics and Genomics
Total segment expenses
Amortization of intangibles
Acquisition related expenses
Restructuring costs
Stock-based compensation
Corporate selling, general and administrative expenses
Total selling, general and administrative expenses
Research and Development Expenses
2019
Year Ended June 30,
2018
2017
$
$
135,513 $
61,646
197,159
25,210
2,282
-
33,057
6,651
264,359 $
119,649 $
40,255
159,904
21,650
24,429
376
28,240
6,037
240,636 $
100,881
32,862
133,743
21,328
25,789
-
14,631
4,952
200,443
Research and development expenses increased $7.1 million (13%) and $1.8 million (3%) in fiscal 2019 and 2018, respectively, as
compared to prior year periods. The increase in research and development expense in fiscal 2019 as compared to fiscal 2018 was
primarily attributable to our ExosomeDx acquisition. The increase in research and development from 2018 as compared to fiscal
2017 was primarily attributable to additional expenses from our 2017 acquisition, Advanced Cell Diagnostics.
22
Protein Sciences
Diagnostics and Genomics
Total segment expenses
Unallocated corporate expenses
Total research and development expenses
Net Interest Income / (Expense)
2019
Year Ended June 30,
2018
2017
$
$
40,735 $
21,678
62,413
-
62,413 $
40,996 $
14,095
55,091
238
55,329 $
41,334
12,180
53,514
-
53,514
Net interest income/(expense) for fiscal 2019, 2018 and 2017 was $(21.1) million, $(9.8) million, and $(7.1) million respectively.
Net interest expense in fiscal 2019 increased due to a change in our average long-term debt outstanding for fiscal 2019. Net interest
expense in fiscal 2018 increased due to changes in interest rates.
Other Non-Operating Expense, Net
Other non-operating expense, net, consists of foreign currency transaction gains and losses, rental income, building expenses related
to rental property and the Company's gains and losses on investments as follows (in thousands):
Foreign currency (losses) gains
Rental income
Real estate taxes, depreciation and utilities
Gain (loss) on investment
Miscellaneous (expense) income
Other non-operating income (expense), net
2019
Year Ended June 30,
2018
2017
$
$
(455 ) $
1,141
(1,897 )
(12,370 )
13
(13,568 ) $
(227 ) $
1,177
(1,803 )
397
9
(447 ) $
(636 )
947
(1,818 )
-
(59 )
(1,566 )
During fiscal 2019, the company recognized losses of $16.1 million related to unrealized changes in fair value related to changes in
the stock price of our ChemoCentryx, Inc. (CCXI) investment, which were partially offset by a $3.7 million gain realized upon
acquisition from our historical investment in B-MoGen.
During the third quarter of fiscal 2018, the Company recognized a $16.2 million impairment on the write-down of its investment in
Astute Medical, Inc. (Astute) in anticipation of the amount of cash to be received upon completion of the sale of Astute to a third
party. The Astute sale closed in the fourth quarter of fiscal 2018 at the anticipated amount. This loss was offset by a $16.1 million
gain on the sale of a portion of the Company’s investment in ChemoCentryx, Inc. (CCXI) and a $0.5 million gain on the sale of
investment property in the fourth quarter of fiscal 2018. These gains and losses are included in other income (expense) in the
accompanying Consolidated Statements of Earnings and Comprehensive Income.
Income Taxes
Income taxes for fiscal 2019, 2018 and 2017 were at effective rates of 14.2%, (0.2)%, and 32.0%, respectively, of consolidated
earnings before income taxes. The change in the effective tax rate was driven by discrete tax items. The Company's discrete tax
benefits in fiscal 2019 primarily related to share-based compensation excess tax benefits of $7.2 million, $3.2 million related to
deductible acquisition payments made
to
certain state apportionments. In fiscal 2018, the Company recognized net discrete tax benefits of $34.4 million. The primary driver
in fiscal 2018 discrete tax benefits was a discrete net tax benefit of $33.0 million related to the Tax Act (as described in Note 11).
Also impacting the Company’s fiscal 2018 effective tax rate was a $2.2 million tax benefit related to share-based compensation
excess tax benefits offset by a net discrete tax expense of $4.2 million related to the revaluation of contingent consideration, which
is not a tax deductible expense.
third parties, and 2.0 million for
tax refunds relating
to employees and
The Company's effective income tax rate was (0.2%) in fiscal 2018 compared to 32.0% in fiscal 2017. The decrease in the
Company’s tax rate for fiscal 2018 was due to the impact of discrete items which were $33.6 million in fiscal 2018 compared to $3.9
million in fiscal 2018. The primary driver of discrete items was the net tax benefit of $33.0 million related to the Tax Act discussed
above recorded in fiscal 2018.
23
Net Earnings
Non-GAAP adjusted consolidated net earnings are as follows (in thousands):
Net earnings
Identified adjustments:
Costs recognized upon sale of acquired inventory
Amortization of intangibles
Acquisition related expenses
Restructuring costs
Stock-based compensation
Gain (loss) on investment
Tax impact of above adjustments
Tax impact of discrete tax items and other foreign adjustments
Non-GAAP adjusted net earnings
$
2019
Year Ended June 30,
2018
2017
$
96,072 $
126,150 $
76,086
3,739
58,550
2,656
33,057
12,370
(18,323 )
(12,665 )
175,456 $
2,455
46,983
24,774
376
28,240
(397 )
(21,625 )
(34,360 )
172,596 $
3,037
44,393
25,789
-
14,631
-
(20,483 )
(3,920 )
139,533
Non-GAAP adjusted net earnings growth
2 %
24 %
4 %
Depending on the nature of discrete tax items, our reported tax rate may not be consistent on a period to period basis. The Company
independently calculates a non-GAAP adjusted tax rate considering the impact of discrete items and jurisdictional mix of the
identified non-GAAP adjustments. The following table summarizes the reported GAAP tax rate and the effective Non-GAAP
adjusted tax rate for the periods ended June 30, 2019, 2018, and 2017.
Reported GAAP tax rate
Tax rate impact of:
Identified non-GAAP adjustments
Discrete tax items
Non-GAAP adjusted tax rate
2019
Year Ended June 30,
2018
2017
14.2 %
(0.2 )%
(4.3 )
11.2
21.1 %
(2.7 )
27.3
24.4 %
32.0 %
(3.8 )
2.0
30.2 %
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the
fiscal years ended June 30, 2019 is primarily a result of discrete tax items. Refer to Note 11 for additional discussion relating to the
change in discrete tax items between fiscal 2019 and fiscal 2018.
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the
fiscal years ended June 30, 2018 is due primarily to recording the items attributable to the new tax legislation in the U.S. which
resulted in a $33.0 million tax benefit. Offsetting this benefit is the impact of the revaluation of contingent consideration which is
not tax deductible. For the fiscal year ended June 30, 2018, the Company recorded acquisition related expense of $20.1 million
related to the change in fair value of contingent consideration.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and available-for-sale investments at June 30, 2019 were $166.0 million compared to $181.8 million at June
30, 2018. Included in available-for-sale investments at June 30, 2019 and June 30, 2018 was the fair value of the Company's
investment in CCXI of $38.2 million and $54.3 million, respectively.
At June 30, 2019, approximately 34% of the Company's cash and equivalent account balances of $100.9 million were located in the
U.S., with the remainder located in primarily in Canada, China, the U.K. and other European countries.
At June 30, 2019, approximately 59% of the Company's available-for-sale investment account balances of $65.1 million were located
in the U.S., with the remaining 41% in China.
24
The Company has either paid U.S. taxes on its undistributed foreign earnings or intends to indefinitely reinvest the undistributed
earnings in the foreign operations or expects the earnings will be remitted in a tax neutral transaction. Management of the Company
expects to be able to meet its cash and working capital requirements for operations, facility expansion, capital additions, and cash
dividends for the foreseeable future, and at least the next 12 months, through currently available funds, including funds available
through our line-of-credit and cash generated from operations.
During fiscal 2019, the Company acquired QT Holdings Corporation (Quad), Exosome Diagnostics, Inc. (Exosome), and the
outstanding shares of our B-MoGen investment for approximately $20 million plus $51 million in potential contingent
consideration, approximately $250 million plus $325 million in potential contingent consideration, and $17 million plus $38 million
in potential contingent consideration, respectively. In connection with the acquisition of Exosome Diagnostics on August 1, 2018,
the Company entered into a new credit facility governed by a Credit Agreement entered into on August 1, 2018 that matures on
August 1, 2023. The Credit Agreement provides for a revolving credit facility of $600 million, which can be increased by an
additional $200 million subject to certain conditions, and a term loan of $250 million. Borrowings under the Credit Agreement bear
interest at a variable rate.
During fiscal 2018, the Company acquired Trevigen, Atlanta Biologicals and Eurocell Diagnostics for approximately $10.6 million,
$51.3 million and $7.3 million, respectively. The acquisitions were financed through a combination of cash on hand and our revolving
line of credit facility.
During fiscal 2017, the Company acquired Space and ACD for approximately $9.0 million and $258.0 million, respectively. The
acquisitions were financed through a combination of cash on hand and our revolving line of credit facility that the Company obtained
prior to the closing of the ACD acquisition. The ACD acquisition also included certain future contingent payments of up to $75.0
million due upon the achievement of certain revenue milestones. Additionally, the Company made a $40.0 million equity investment
in Astute Medical, Inc.
Future acquisition strategies may or may not require additional borrowings under the line-of-credit facility or other outside sources
of funding.
Cash Flows From Operating Activities
The Company generated cash from operations of $181.6 million, $170.4 million, $143.7 million in fiscal 2019, 2018 and 2017,
respectively. The increase in cash generated from operating activities in fiscal 2019 as compared to fiscal 2018 was mainly the result
of higher depreciation and amortization and adjustments to available-for-sale securities included with our GAAP earnings, partially
offset by a reduction in GAAP earnings. The increase in cash generated from operating activities in fiscal 2018 as compared to fiscal
2017 was mainly the result of higher earnings and decreases in operating assets.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures. Net cash paid for acquisitions of Quad, Exosome,
and B-MoGen was $289.5 million in fiscal 2019, a substantial increase from the net cash paid of $67.9 million for the Trevigen,
Atlanta Biologicals and Eurocell Diagnostics acquisitions in fiscal 2018. The Company paid net cash of $253.8 million for the ACD
and Space acquisitions in fiscal 2017.
The Company's net proceeds (outflow) from the purchase, sale and maturity of available-for-sale investments in fiscal 2019, 2018,
and 2017 were ($21.9 million), $27.8 million, $3.0 million, respectively. The decrease in fiscal 2019 as compared to fiscal 2018 was
driven by the sale of a portion of the Company’s investment in CCXI in fiscal 2018 and additional purchases of bonds in fiscal 2019.
The Company's investment policy is to place excess cash in municipal and corporate bonds with the objective of obtaining the highest
possible return while minimizing risk and keeping the funds accessible.
Capital additions in fiscal year 2019, 2018, and 2017 were $25.4 million, $20.9 million, $15.2 million. Capital additions planned for
fiscal 2020 are approximately $56 million and are expected to be financed through currently available cash and cash generated from
operations.
Cash Flows From Financing Activities
In fiscal 2019, 2018, and 2017, the Company paid cash dividends of $48.4 million, $48.0 million, $47.3 million, respectively. The
Board of Directors periodically considers the payment of cash dividends.
The Company received $38.0 million, $19.2 million, $5.3 million, for the exercise of options for 382,000, 204,000, 63,000 shares
of common stock in fiscal 2019, 2018 and 2017, respectively.
25
During fiscal 2019, the Company drew $580.0 million under its revolving line-of-credit facility to fund its acquisition of Quad,
Exosome, and B-MoGen and made repayments on its line-of-credit of $413.5 million.
During fiscal 2018, the Company drew $55.0 million under its revolving line-of-credit facility to fund its acquisition of Atlanta
Biologicals and made repayments on its line-of-credit of $59.5 million.
During fiscal 2017, the Company drew $368.5 million under its revolving line-of-credit facility to partially fund its acquisition of
ACD and investment in Astute. The Company made payments on the line-of-credit and other debt of $116.5 million
During fiscal 2019, the Company made no cash payments towards the Quad, Exosome, and B-MoGen contingent consideration
liabilities.
During fiscal 2018, the Company made $88.5 million ($50 million for ACD, $35 million for CyVek, and $3.5 million for Zephyrus)
in cash payments towards the ACD, CyVek and Zephyrus contingent consideration liabilities. Of the $88.5 million in total payments,
$61.9 million is classified as financing on the statement of cash flows. The remaining $26.6 million is recorded as operating on the
statement of cash flows as it represents the consideration liability that exceeds the amount of the contingent consideration liability
recognized at the acquisition date.
In accordance with the terms of the purchase agreement, during fiscal 2019, the Company made the final payment of $1.4 million
related to Eurocell. In accordance with the terms of the purchase agreement, during the first quarter of fiscal 2018, the Company
made the final $2.3 million payment for the Space acquisition. These payments were included within other financing activities.
During fiscal 2019, the Company repurchased $15.4 million in share repurchases included as a cash outflow within Financing
Activities. The Company did not repurchase any shares in fiscal 2018 or 2017.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not a party to any off-balance sheet transactions, arrangements or obligations that have, or are reasonably likely to
have, a current or future material effect on the Company's financial condition, changes in the financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations and commercial commitments as of June 30, 2019 (in
thousands):
Long-term debt
Lease obligations
Total contractual obligations
Payments Due by Period
Total
505,160
116,333 $
621,493 $
$
$
$
Less than
1 Year
1-2
Years
3-4
Years
After
5 Years
12,500
13,707 $
26,207 $
25,000
26,623 $
51,623 $
467,660
24,108 $
491,768 $
-
51,895
51,895
The interest rate on the Company's long-term debt is calculated as the sum of LIBOR plus an applicable margin. The Company's
estimated net tax expense for fiscal 2020 is approximately $23 million. The applicable margin is determined for the total leverage
ratio of the Company and updated on a quarterly basis. Additionally, there is an annualized fee for any unused portion of the credit
facility is currently 20 basis points as further described in Note 6.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of the Company's financial condition and results of operations are based upon the Company's
Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, management evaluates its estimates. Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
26
The Company has identified the policies outlined below as critical to its business operations and an understanding of results of
operations. The listing is not intended to be a comprehensive list of all accounting policies; investors should also refer to Note 1 to
the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Business Combinations
We allocate the purchase price of acquired businesses to the estimated fair values of the assets acquired and liabilities assumed as of
the date of the acquisition. The calculations used to determine the fair value of the long-lived assets acquired, primarily intangible
assets, can be complex and require significant judgment. We weigh many factors when completing these estimates including, but
not limited to, the nature of the acquired company’s business; its competitive position, strengths, and challenges; its historical
financial position and performance; estimated customer retention rates; discount rates; and future plans for the combined entity. We
may also engage independent valuation specialists, when necessary, to assist in the fair value calculations for significant acquired
long-lived assets.
The fair value of acquired technology is generally the primary asset identified and therefore estimated using the multi-period excess
earnings method. The multi-period excess earnings method model estimates revenues and cash flows derived from the primary asset
and then deducts portions of the cash flow that can be attributed to supporting assets, such as Trade Names, that contributed to the
generation of the cash flows. The resulting cash flow, which is attributable solely to the primary asset acquired, is then discounted
at a rate of return commensurate with the risk of the asset to calculate a present value. The Trade Name is generally calculated using
the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the technology.
Assumed royalty rates are applied to the projected revenues for the remaining useful life of the technology to estimate the royalty
savings. In circumstances that Customer Relationship assets are identified that are not the primary asset, they are valued using the
distributor model income approach, which isolates revenues and cash flow associated with the sales and distribution function of the
entity and attributable to customer-related assets, which are then discounted at a rate of return commensurate with the risk of the
asset to calculate a present value.
We estimate the fair value of liabilities for contingent consideration by discounting to present value the probability weighted
contingent payments expected to be made. For potential payments related to financial performance based milestones, projected
revenue and/or EBITDA amounts, volatility and discount rates assumptions are included in the estimated amounts. For potential
payments related to product development milestones, the fair value is based on the probability of achievement of such
milestones. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. Goodwill
is not amortized, but is subject to impairment testing on at least an annual basis.
We are also required to estimate the useful lives of the acquired intangible assets, which determines the amount of acquisition-related
amortization expense we will record in future periods. Each reporting period, we evaluate the remaining useful lives of our
amortizable intangibles to determine whether events or circumstances warrant a revision to the remaining period of amortization.
While we use our best estimates and assumptions, our fair value estimates are inherently uncertain and subject to refinement. As a
result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the
assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement
period are recorded in the consolidated statements of earnings.
The judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets and
liabilities acquired can significantly affect net income. For example, different classes of assets will have useful lives that differ.
Consequently, to the extent a longer-lived asset is ascribed greater value than a shorter-lived asset, net income in a given period may
be higher. Additionally, assigning a lower value to amortizable intangibles would result in a higher amount assigned to goodwill. As
goodwill is not amortized, this would benefit net income in a given period, although goodwill is subject to annual impairment
analysis.
Impairment of Goodwill
Goodwill
Goodwill was $732 million as of June 30, 2019, which represented 38.9% of total assets. Goodwill is tested for impairment on an
annual basis in the fourth quarter of each year, or more frequently if events occur or circumstances change that could indicate a
possible impairment.
To analyze goodwill for impairment, we must assign our goodwill to individual reporting units. Identification of reporting units
includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the
manner in which we operate our business and the availability of discrete financial information. Components of an operating segment
are aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review our
reporting units to ensure that they continue to reflect the manner in which we operate our business.
27
2019 Goodwill Impairment Analyses
At the beginning of the quarter ended March 31, 2019, the Company realigned the management of certain business processes between
reporting units within the same reportable segment. A goodwill allocation was performed between the impacted reporting units based
on the relative fair value of the processes realigned. In conjunction with the realignment, a quantitative goodwill impairment
assessment was performed both prior to and subsequent to the realignment. The quantitative assessment indicated that all of the
impacted reporting units had substantial headroom both prior to and subsequent to the realignment.
Because our quantitative analysis performed as of January 1, 2019 included all of our reporting units, except for our recent
acquisition, Exosome, which is a separate reporting unit that was not impacted by the business process realignment, the summation
of the calculated reporting units’ fair values combined with the fair value of the Exosome acquisition, was compared to our
consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations.
The quantitative assessments completed as of January 1, 2019 indicated that all tested reporting units had a substantial amount of
headroom. Changes in the reporting unit’s results, forecast assumptions and estimates could materially affect the estimation of the
fair value of the reporting units.
The Company has elected April 1 as our annual goodwill impairment date for the Exosome reporting unit. The Company has
historically completed our goodwill impairment assessment of our legacy reporting units as of June 30. To better align with our
annual internal planning and operating cycle and the underlying changes in our organizational model and business, we changed our
annual goodwill impairment assessment as of April 1. Given the substantial headroom in our legacy reporting units and the time
period the assessment was performed relative to the most recent quantitative analysis, management does not consider the change in
our annual impairment assessment to be material to the consolidated financial statements or to constitute a material change in the
application of our goodwill accounting principle.
In conducting our annual goodwill impairment test, we elected to perform a qualitative assessment to determine whether changes in
events or circumstances since our most recent quantitative test for goodwill impairment indicated that it is more likely than not that
the fair value of a reporting unit is less than its carrying amount.
Based on its annual analysis, the Company determined there was no indication of impairment of goodwill. Further, no triggering
events or items beyond the realignment discussed above were identified in the year ended June 30, 2019 that would require an
additional goodwill impairment assessment beyond our required annual goodwill impairment assessment.
2018 and 2017 Goodwill Impairment Analyses
In completing our 2018 and 2017 annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of
our reporting units. A quantitative assessment involves comparing the carrying value of the reporting unit, including goodwill, to its
estimated fair value. Carrying value is based on the assets and liabilities associated with the operations of the reporting unit, which
often requires the allocation of shared or corporate items among reporting units. In accordance with ASU 2017-04, a goodwill
impairment charge is recorded for the amount by which the carrying value of a reporting unit exceeds the fair value of the reporting
unit. In determining the fair values of our reporting units, we utilized the income approach. The income approach is a valuation
technique under which we estimated future cash flows using the reporting unit's financial forecast from the perspective of an
unrelated market participant. Using historical trending and internal forecasting techniques, we projected revenue and applied our
fixed and variable cost experience rates to the projected revenue to arrive at the future cash flows. A terminal value was then applied
to the projected cash flow stream. Future estimated cash flows were discounted to their present value to calculate the estimated fair
value. The discount rate used was the value-weighted average of our estimated cost of capital derived using both known and estimated
customary market metrics. In determining the estimated fair value of a reporting unit, we were required to estimate a number of
factors, including projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, the discount
rate and the allocation of shared or corporate items.
Because our 2018 and 2017 quantitative analyses included all of our reporting units, the summation of our reporting units' fair values
was compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our
calculations.
The quantitative assessment completed as of June 30, 2018 and 2017 indicated that all of the reporting units had a substantial amount
of headroom. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate.
Changes in the reporting unit's results, forecast assumptions and estimates could materially affect the estimation of the fair value of
the reporting units.
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.
28
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding the accounting policies adopted during fiscal 2018 and those not yet adopted can be found under caption
“Note 1: Description of Business and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial
Statements appear in Item 8 of this report.
SUBSEQUENT EVENTS
None
NON-GAAP FINANCIAL MEASURES
This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7, contains financial measures that have not been calculated in accordance with accounting principles generally
accepted in the U.S. (GAAP). These non-GAAP measures include:
● Organic growth
● Adjusted gross margin
● Adjusted net earnings
● Adjusted net earnings growth
● Adjusted effective tax rate
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally
to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation.
We believe that our presentation of these measures provides investors with greater transparency with respect to our results of
operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the
preceeding 12 months as well as the impact of foreign currency. Excluding these measures provides more useful period-to-period
comparison of revenue results as it excludes the impact of foreign currency exchange rates, which can vary significantly from period
to period, and revenue from acquisitions that would not be included in the comparable prior period.
Our non-GAAP financial measures for adjusted gross margin, adjusted operating margin, and adjusted net earnings, in total and on
a per share basis, exclude the costs recognized upon the sale of acquired inventory, amortization of acquisition intangibles, and
acquisition related expenses. The Company excludes amortization of purchased intangible assets and purchase accounting
adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses, from this measure
because they occur as a result of specific events, and are not reflective of our internal investments, the costs of developing, producing,
supporting and selling our products, and the other ongoing costs to support our operating structure. Additionally, these amounts can
vary significantly from period to period based on current activity.
The Company’s non-GAAP adjusted operating margin and adjusted net earnings, in total and on a per share basis, also excludes
stock-based compensation expense, which is inclusive of the employer portion of payroll taxes on those stock awards, restructuring,
impairments of equity method investments, gain and losses from investments, and certain adjustments to income tax expense. Stock-
based compensation is excluded from non-GAAP adjusted net earnings because of the nature of this charge, specifically the varying
available valuation methodologies, subjective assumptions, variety of award types, and unpredictability of amount and timing of
employer related tax obligations. Impairments of equity investments are excluded as they are not part of our day-to-day operating
decisions. Additionally, gains and losses from other investments that are either isolated or cannot be expected to occur again with
any predictability are excluded. Costs related to restructuring activities, including reducing overhead and consolidating facilities,
are excluded because we believe they are not indicative of our normal operating costs. The Company independently calculates a
non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering the impact of discrete items on these
adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other discrete and non-recurring charges
which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax items can significantly affect the
period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends
and future results.
The Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate our
performance, changes in how we make financial and operational decisions, and considers the use of these measures by our
competitors and peers to ensure the adjustments are still relevant and meaningful.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company operates internationally, and thus is subject to potentially adverse movements in foreign currency exchange rates.
Approximately 27% of the Company's consolidated net sales in fiscal 2019 were made in foreign currencies, including 13% in euro,
4% in British pound sterling, 4% in Chinese yuan and the remaining 6% in other currencies. The Company is exposed to market risk
primarily from foreign exchange rate fluctuations of the euro, British pound sterling, Chinese yuan and Canadian dollar as compared
to the U.S. dollar as the financial position and operating results of the Company's foreign operations are translated into U.S. dollars
for consolidation.
Month-end exchange rates between the euro, British pound sterling, Chinese yuan, Canadian dollar and the U.S. dollar, which have
not been weighted for actual sales volume in the applicable months in the periods, were as follows:
Euro:
High
Low
Average
British pound sterling:
High
Low
Average
Chinese yuan:
High
Low
Average
Canadian dollar:
High
Low
Average
Year Ended June 30,
2019
2018
2017
$
$
$
$
1.17 $
1.12
1.14
1.32 $
1.27
1.29
0.15 $
0.14
0.15
0.77 $
0.74
0.76
1.24 $
1.16
1.20
1.42 $
1.29
1.35
0.16 $
0.15
0.15
0.81 $
0.76
0.79
1.14
1.05
1.09
1.32
1.22
1.27
0.15
0.14
0.15
0.77
0.73
0.75
The Company's exposure to foreign exchange rate fluctuations also arises from trade receivables and intercompany payables
denominated in one currency in the financial statements, but receivable or payable in another currency.
The Company does not enter into foreign currency forward contracts to reduce its exposure to foreign currency rate changes on
forecasted intercompany sales transactions or on intercompany foreign currency denominated balance sheet positions. Foreign
currency transaction gains and losses are included in "Other non-operating expense, net" in the Consolidated Statement of Earnings
and Comprehensive Income. The effect of translating net assets of foreign subsidiaries into U.S. dollars are recorded on the
Consolidated Balance Sheet as part of "Accumulated other comprehensive income (loss)."
The effects of a hypothetical simultaneous 10% appreciation in the U.S. dollar from June 30, 2019 levels against the euro, British
pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):
Decrease in translation of 2019 earnings into U.S. dollars
Decrease in translation of net assets of foreign subsidiaries
Additional transaction losses
$
3,810
43,242
4,484
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Bio-Techne Corporation and Subsidiaries
(in thousands, except per share data)
2019
Year Ended June 30,
2018
2017
Net sales
Cost of sales
Gross margin
Operating expenses:
Selling, general and administrative
Research and development
Total operating expenses
Operating income
Other income (expense):
Interest expense
Interest income
Other non-operating income (expense), net
Total other income (expense), net
Earnings before income taxes
Income taxes (benefit)
Net earnings
Other comprehensive income (loss):
Foreign currency translation adjustments
Unrealized gains (losses) on derivative instruments - cash flow hedges,
net of tax of $2,921 in FY19
Unrealized gains (losses) on available-for-sale investments, net of tax
of $398 in FY18 and $(6,501) in FY17
Other comprehensive income (loss)
Comprehensive income
Earnings per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
See Notes to Consolidated Financial Statements.
$
714,006 $
240,515
473,491
642,993 $
210,850
432,143
563,003
188,462
374,541
200,443
53,514
253,957
120,584
(7,361 )
304
(1,566 )
(8,623 )
111,961
35,875
76,086
240,636
55,329
295,965
136,178
(10,188 )
409
(447 )
(10,226 )
125,952
(198)
126,150
(1,572 )
(3,061 )
-
-
5,693
4,121
130,271 $
24,531
21,470
97,556
264,359
62,413
326,772
146,719
(21,705 )
569
(13,568 )
(34,704 )
112,015
15,943
96,072
(4,487 )
(9,537 )
-
(14,024 )
82,048
2.54 $
2.47 $
3.36 $
3.31 $
2.04
2.03
37,781
38,892
37,476
38,055
37,313
37,500
31
CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries
(in thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term available-for-sale investments
Accounts receivable, less allowance for doubtful accounts of $980 and $839, respectively
Inventories
Other current assets
$
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable
Salaries, wages and related accruals
Accrued expenses
Contract liabilities
Income taxes payable
Contingent consideration payable
Current portion of long-term debt obligations
Total current liabilities
Deferred income taxes
Long-term debt obligations
Long-term contingent consideration payable
Other long-term liabilities
Shareholders' equity:
$
$
Undesignated capital stock, no par; authorized 5,000,000 shares; none issued or outstanding
Common stock, par value $.01 a share; authorized 100,000,000 shares; issued and
outstanding 37,934,040 and 37,607,500 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
June 30,
2019
2018
100,886 $
65,147
137,466
91,050
18,058
412,607
154,039
732,667
579,429
5,668
1,884,410 $
16,210 $
28,638
26,389
9,084
5,764
3,400
12,500
101,985
89,754
492,660
9,200
25,222
121,990
59,764
120,296
85,648
10,668
398,366
145,348
597,890
446,332
5,266
1,593,202
18,452
23,710
20,361
8,109
8,878
-
-
79,510
86,293
339,000
-
9,338
-
-
379
316,797
376
246,568
931,934
(83,521 )
1,165,589
1,884,410 $
876,931
(44,814 )
1,079,061
1,593,202
$
32
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Bio-Techne Corporation and Subsidiaries
(in thousands)
Additional
Accumulated
Other
Common Stock
Comprehensive
Shares Amount Capital Earnings Income(Loss)
Paid-in Retained
Total
Balances at June 30, 2016
Net earnings
37,254 $
372 $ 178,760 $ 770,553 $
76,086
Other comprehensive income (loss)
Surrender and retirement of stock to exercise
options
Common stock issued for exercise of options
Common stock issued for restricted stock awards
Cash dividends
Stock-based compensation expense
Tax benefit from exercise of stock options
Common stock issued to employee stock purchase
plan
(3 )
63
31
11
Employee stock purchase plan expense
Balances at June 30, 2017
37,356 $
Net earnings
Other comprehensive income (loss)
Common stock issued for exercise of options
Common stock issued for restricted stock awards
Cash dividends
Stock-based compensation expense
Common stock issued to employee stock purchase
plan
Employee stock purchase plan expense
Balances at June 30, 2018
Cumulative effect adjustments due to adoption of
new accounting standards and other
Net earnings
Other comprehensive income (loss)
Share repurchases
Common stock issued for exercise of options
Common stock issued for restricted stock awards
Cash dividends
Stock-based compensation expense
Common stock issued to employee stock purchase
plan
Employee stock purchase plan expense
Balances at June 30, 2019
204
34
14
37,608 $
(95 )
382
29
10
37,934 $
-
2
-
(275 )
4,509
(287 )
-
(47,325 )
14,418
514
(70,405 ) $ 879,280
76,086
21,470
21,470
(275 )
4,511
(287 )
(47,325 )
14,418
514
-
1,022
213
374 $ 199,161 $ 799,027 $
126,150
2 17,661
-
-
(273 )
-
(47,973 )
27,959
1,022
213
(48,935 ) $ 949,627
126,150
4,121
17,663
(273 )
(47,973 )
27,959
4,121
-
1,506
281
376 $ 246,568 $ 876,931 $
1,506
281
(44,814 ) $ 1,079,061
25,276
(24,682 )
594
96,072
(14,024 )
(15,404 )
(1 )
4 36,272
-
31,775
(2,575 )
(48,366 )
96,072
(14,024 )
(15,405 )
36,276
(2,575 )
(48,364 )
31,775
-
1,676
505
379 $ 316,797 $ 931,934 $
1,676
505
(83,521 ) $ 1,165,589
See Notes to Consolidated Financial Statements.
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
2019
Year Ended June 30,
2018
2017
$
96,072 $
126,150 $
76,086
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization
Costs recognized on sale of acquired inventory
Deferred income taxes
Stock-based compensation expense
Fair value adjustment to contingent consideration payable
Contingent consideration payments
Gain on investment, net
Fair value adjustment on available for sale investments
Other operating activity
Change in operating assets and liabilities, net of acquisitions:
Trade accounts and other receivables
Inventories
Prepaid expenses
Trade accounts payable and accrued expenses
Salaries, wages and related accruals
Income taxes payable
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale and maturities of available-for-sale investments
Purchase of available-for-sale investments
Additions to property and equipment
Acquisitions, net of cash acquired
Investment in unconsolidated entity
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Cash dividends
Proceeds from stock option exercises
Re-purchases of common stock
Excess tax benefit from stock option exercises
Borrowings under line-of-credit agreement
Payments on line-of-credit
Contingent consideration payments
Other financing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
78,171
3,739
(13,582 )
32,280
(2,000 )
-
(3,702 )
16,067
2,325
(15,000 )
(13,647 )
(698 )
6,101
5,013
(9,520 )
181,619
21,579
(43,475 )
(25,411 )
(289,492 )
-
-
(336,799 )
(48,364 )
37,950
(15,405 )
-
580,000
(413,500 )
-
(6,297 )
134,384
(308 )
(21,104 )
121,990
100,886 $
64,463
2,455
(46,716 )
28,240
20,100
(26,600 )
(397 )
-
776
(2,700 )
(13,327 )
2,782
5,026
(89 )
10,204
170,367
36,390
(8,571 )
(20,934 )
(67,851 )
21,574
680
(38,712 )
(47,973 )
19,170
-
-
55,000
(59,500 )
(61,900 )
(3,985 )
(99,188 )
(2,089 )
30,378
91,612
121,990 $
60,036
3,037
(3,433 )
14,631
18,400
(11,800 )
-
-
2,215
(19,686 )
(732 )
(2,088 )
5,695
661
699
143,721
6,079
(3,069 )
(15,179 )
(253,785 )
(40,000 )
-
(305,954 )
(47,325 )
5,257
-
514
368,500
(116,500 )
(20,316 )
(1,017 )
189,113
495
27,375
64,237
91,612
See Notes to Consolidated Financial Statements.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
Years ended June 30, 2019, 2018 and 2017
Note 1. Description of Business and Summary of Significant Accounting Policies:
Description of business: Bio-Techne and its subsidiaries, collectively doing business as Bio-Techne Corporation (the Company),
develop, manufacture and sell life science reagents, instruments and services for the research and clinical diagnostic markets
worldwide. With our deep product portfolio and application expertise, we sell integral components of scientific investigations into
biological processes and molecular diagnostics, revealing the nature, diagnosis, etiology and progression of specific diseases. Our
products aid in drug discovery efforts and provide the means for accurate clinical tests and diagnoses.
Use of estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period. These estimates include the valuation of accounts receivable,
available-for-sale investments, inventory, intangible assets, contingent consideration, stock-based compensation and income taxes.
Actual results could differ from these estimates.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Translation of foreign financial statements: Assets and liabilities of the Company's foreign operations are translated at year-end rates
of exchange and the resulting gains and losses arising from the translation of net assets located outside the U.S. are recorded as other
comprehensive income (loss) on the consolidated statements of earnings and comprehensive income. The cumulative translation
adjustment is a component of accumulated other comprehensive loss on the consolidated balance sheets. Foreign statements of
earnings are translated at the average rate of exchange for the year. Foreign currency transaction gains and losses are included in
other non-operating expense in the consolidated statements of earnings and comprehensive income.
Revenue recognition: The Company adopted ASC 606 - Revenue from Contracts with Customers on July 1, 2018 using the modified
retrospective transition approach. ASC 606 provides revenue recognition guidance for any entity that enters into contracts with
customers to transfer goods or services or enters into contracts for the transfer of non-financial assets, unless those contracts are
within the scope of other accounting standards. The core principle of ASC 606 is that revenue should be recognized to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Refer to the Recently Adopted Accounting Pronouncements section of Note 1 for
additional information regarding our adoption of ASC 606 and and Note 2 for additional information regarding our revenue
recognition policy under ASC 606.
Research and development: Research and development expenditures are expensed as incurred. Development activities generally
relate to creating new products, improving or creating variations of existing products, or modifying existing products to meet new
applications.
Advertising costs: Advertising expenses were $4.1 million, $3.8 million, and $4.5 million for fiscal 2019, 2018, and 2017
respectively. The Company expenses advertising expenses as incurred.
Income taxes: The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities
are recognized to record the income tax effect of temporary differences between the tax basis and financial reporting basis of assets
and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. Tax positions taken or expected to be
taken in a tax return are recognized in the financial statements when it is more likely than not that the position would be sustained
upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than
fifty percent likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized
tax benefits in income tax expense.
See Note 11 for additional information regarding income taxes.
35
Comprehensive income: Comprehensive income includes charges and credits to shareholders' equity that are not the result of
transactions with shareholders. Our total comprehensive income consists of net income, unrealized gains and losses on cash flow
hedges, and foreign currency translation adjustments. The items of comprehensive income, with the exception of net income, are
included in accumulated other comprehensive loss in the consolidated balance sheets and statements of shareholders' equity.
Cash and cash equivalents: Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities
of three months or less.
Available-for-sale investments: Available-for-sale investments consist of debt instruments with original maturities of generally three
months to six months and equity securities. Available-for-sale investments are recorded based on trade-date. The Company considers
all of its marketable securities available-for-sale and reports them at fair value. Unrealized gains and losses on available-for-sale
securities are included within other income (expense) in fiscal 2019 as the Company adopted ASU 2018-02 on July 1, 2018, as
further described in the Recently Adopted Accounting Pronouncements section of Note 1. Unrealized gains or losses on available-
for-sale securities were recorded within comprehensive income in fiscal years 2018 and 2017.
Trade accounts receivable: Trade accounts receivable are initially recorded at the invoiced amount upon the sale of goods or services
to customers, and they do not bear interest. They are stated net of allowances for doubtful accounts, which represent estimated losses
resulting from the inability of customers to make the required payments. When determining the allowances for doubtful accounts,
we take several factors into consideration, including the overall composition of accounts receivable aging, our prior history of
accounts receivable write-offs, the type of customer and our day-to-day knowledge of specific customers. Changes in the allowances
for doubtful accounts are included in selling, general and administrative (SG&A) expense in our consolidated statements of earnings
and comprehensive income. The point at which uncollected accounts are written off varies by type of customer.
Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company regularly
reviews inventory on hand for slow-moving and obsolete inventory, inventory not meeting quality control standards and inventory
subject to expiration.
For certain proteins, antibodies, and chemically based manufactured products, the Company produces larger batches of established
products than current sales requirements due to economies of scale through a highly controlled manufacturing process. Accordingly,
the manufacturing process for these products has and will continue to produce quantities in excess of forecasted usage. The Company
forecasts usage for its products based on several factors including historical demand, current market dynamics, and technological
advances. The Company forecasts product usage on an individual product level for a period that is consistent with our ability to
reasonably forecast inventory usage for that product. There have been no material changes to the Company’s estimates of the net
realizable value for excess and obsolete inventory or other types of inventory reserve and inventory cost adjustments in the fiscal
years presented. Additionally, current and historical reserves recorded to reduce the cost of inventory to its net realizable value
become part of the new cost basis for the inventory item in accordance with ASC 330 - Inventory.
Property and equipment: Property and equipment are recorded at cost. Equipment is depreciated using the straight-line method over
an estimated useful life of 3 to 5 years. Buildings, building improvements and leasehold improvements are amortized over estimated
useful lives of 5 to 40 years.
records contingent consideration at
Contingent Consideration: Contingent Consideration relates to the potential payment for an acquisition that is contingent upon the
achievement of the acquired business meeting certain product development milestones and/or certain financial performance
milestones. The Company
the date of acquisition based on
the consideration expected to be transferred. For potential payments related to financial performance milestones, we use a real option
model in calculating the fair value of the contingent consideration liabilities. The assumptions utilized in the calculation based on
financial performance milestones include projected revenue and/or EBITDA amounts, volatility and discount rates. For potential
payments related to product development milestones, we estimated the fair value based on the probability of achievement of such
milestones. The assumptions utilized in the calculation of the acquisition date fair value include probability of success and the
discount rates. Contingent consideration involves certain assumptions requiring significant judgment and actual results may differ
from assumed and estimated amounts. Contingent consideration is remeasured each reporting period, and subsequent changes in fair
value, including accretion for the passage of time, are recognized within selling, general and administrative in the consolidated
statement of earnings and comprehensive income
fair value at
Intangibles assets: Intangible assets are stated at historical cost less accumulated amortization. Amortization expense is generally
determined on the straight-line basis over periods ranging from 1 year to 20 years. Each reporting period, we evaluate the remaining
useful lives of our amortizable intangibles to determine whether events or circumstances warrant a revision to the remaining period
of amortization. If our estimate of an asset's remaining useful life is revised, the remaining carrying amount of the asset is amortized
prospectively over the revised remaining useful life. In the current year, the Company has identified no such events.
36
Impairment of long-lived assets and amortizable intangibles: We evaluate the recoverability of property, plant, equipment and
amortizable intangibles whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable.
Such circumstances could include, but are not limited to, (1) a significant decrease in the market value of an asset, (2) a significant
adverse change in the extent or manner in which an asset is used or in its physical condition, or (3) an accumulation of costs
significantly in excess of the amount originally expected for the acquisition or construction of an asset. We compare the carrying
amount of the asset to the estimated undiscounted future cash flows associated with it. If the sum of the expected future net cash
flows is less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss
would be calculated as the amount by which the carrying value of the asset exceeds the fair value of the asset. As quoted market
prices are not available for the majority of our assets, the estimate of fair value is based on various valuation techniques, including
the discounted value of estimated future cash flows.
The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated.
These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. No triggering
events were identified and no impairments were recorded for property, plant, and equipment or amortizable intangibles during fiscal
years 2017, 2018, and 2019.
Impairment of goodwill: We evaluate the carrying value of goodwill during the fourth quarter each year and between annual
evaluations if events occur or circumstances change that would indicate a possible impairment. Such circumstances could include,
but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, (3) an
adverse action or assessment by a regulator, or (4) an adverse change in market conditions that are indicative of a decline in the fair
value of the assets.
To analyze goodwill for impairment, we must assign our goodwill to individual reporting units. Identification of reporting units
includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the
manner in which we operate our business and the availability of discrete financial information. Components of an operating segment
are aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review our
reporting units to ensure that they continue to reflect the manner in which we operate our business.
2019 Goodwill Impairment Analyses
At the beginning of the quarter ended March 31, 2019, the Company realigned the management of certain business processes between
reporting units within the same reportable segment. A goodwill allocation was performed between the impacted reporting units based
on the relative fair value of the processes realigned. In conjunction with the realignment, a quantitative goodwill impairment
assessment was performed both prior to and subsequent to the realignment. The quantitative assessment indicated that all of the
impacted reporting units had substantial headroom both prior to and subsequent to the realignment.
Because our quantitative analysis performed as of January 1, 2019 included all of our reporting units, except for our recent
acquisition, Exosome, which is a separate reporting unit that was not impacted by the business process realignment, the summation
of the calculated reporting units’ fair values combined with the fair value of the Exosome acquisition, was compared to our
consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations.
The quantitative assessments completed as of January 1, 2019 indicated that all tested reporting units had a substantial amount of
headroom. Changes in the reporting unit’s results, forecast assumptions and estimates could materially affect the estimation of the
fair value of the reporting units.
The Company has elected April 1 as our annual goodwill impairment date for the Exosome reporting unit. The Company has
historically completed our goodwill impairment assessment of our legacy reporting units as of June 30. To better align with our
annual internal planning and operating cycle and the underlying changes in our organizational model and business, we changed our
annual goodwill impairment assessment for all legacy reporting units to be as of April 1. Given the substantial headroom in our
legacy reporting units and the time period the assessment was performed relative to the most recent quantitative analysis,
management does not consider the change in our annual impairment assessment to be material to the consolidated financial
statements or to constitute a material change in the application of our goodwill accounting principle.
In conducting our annual goodwill impairment test, we elected to perform a qualitative assessment to determine whether changes in
events or circumstances since our most recent quantitative test for goodwill impairment indicated that it is more likely than not that
the fair value of a reporting unit is less than its carrying amount.
Based on its annual analysis, the Company determined there was no indication of impairment of goodwill. Further, no triggering
events or items beyond the realignment discussed above were identified in the year ended June 30, 2019 that would require an
additional goodwill impairment assessment beyond our required annual goodwill impairment assessment.
37
2018 and 2017 Goodwill Impairment Analyses
In completing our 2018 and 2017 annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of
our reporting units. A quantitative assessment involves comparing the carrying value of the reporting unit, including goodwill, to its
estimated fair value. Carrying value is based on the assets and liabilities associated with the operations of the reporting unit, which
often requires the allocation of shared or corporate items among reporting units. In accordance with ASU 2017- 04, a goodwill
impairment charge is recorded for the amount by which the carrying value of a reporting unit exceeds the fair value of the reporting
unit. In determining the fair values of our reporting units, we utilized the income approach. The income approach is a valuation
technique under which we estimated future cash flows using the reporting unit’s financial forecast from the perspective of an
unrelated market participant. Using historical trending and internal forecasting techniques, we projected revenue and applied our
fixed and variable cost experience rates to the projected revenue to arrive at the future cash flows. A terminal value was then applied
to the projected cash flow stream. Future estimated cash flows were discounted to their present value to calculate the estimated fair
value. The discount rate used was the value- weighted average of our estimated cost of capital derived using both known and
estimated customary market metrics. In determining the estimated fair value of a reporting unit, we were required to estimate a
number of factors, including projected operating results, terminal growth rates, economic conditions, anticipated future cash flows,
the discount rate and the allocation of shared or corporate items.
The quantitative assessment completed as of June 30, 2018 and 2017 indicated that all of the reporting units had a substantial amount
of headroom. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate.
Changes in the reporting unit’s results, forecast assumptions and estimates could materially affect the estimation of the fair value of
the reporting units.
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.
Investments in unconsolidated entities: The Company periodically invests in the equity of start-up and early development stage
companies. The accounting treatment of each investment (cost method or equity method) is dependent upon a number of factors,
including, but not limited to, the Company's share in the equity of the investee and the Company's ability to exercise significant
influence over the operating and financial policies of the investee.
Other Significant Accounting Policies
The following table includes a reference to additional significant accounting policies that are described in other notes to the financial
statements, including the note number:
Policy
Fair value measurements
Earnings per share
Share-based compensation
Reportable segments
Note
5
9
10
12
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). On July 1, 2018, the
Company adopted ASC 606 using the modified retrospective method for all contracts. Results for reporting periods beginning July
1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with
the Company’s historic accounting under Topic 605, Revenue Recognition. The impact of the adoption of ASC 606 was not material
to the Company's consolidated financial statements and therefore the periods reported under ASC 606 and ASC 605 are considered
comparable in all material respects.
In January 2016, the FASB issued ASU No. 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities.
The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. Among
other changes, there will no longer be an available-for-sale classification for which changes in fair value are currently reported in
other comprehensive income for equity securities with readily determinable fair values. Equity investments with readily determinable
fair values will be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 was effective for us on
July 1, 2018 which required a cumulative effect adjustment to opening retained earnings to be recorded for equity investments with
readily determinable fair values. As of the adoption date, we held publicly traded equity investments with a fair value of $54.3
million in a net unrealized gain position of $35.4 million, and having an associated deferred tax liability of $8.3 million. We recorded
a cumulative-effect adjustment of $27.1 million to decrease Accumulated Other Comprehensive Income (AOCI) with a
38
corresponding increase to retained earnings for the amount of unrealized gains, net of tax as of the beginning of fiscal year 2019. As
a result of the implementation of ASU 2016-01, effective on July 1, 2018 unrealized gains and losses in equity investments with
readily determinable fair values are recorded on the Consolidated Statement of Income within other (expense) income. We recorded
a gain in other (expense) income of $12.3 million and $2.9 million for the quarter and nine month period ended March 31, 2019 as
a result of adopting this standard. The implementation of ASU 2016-01 is expected to increase volatility in our net income as the
volatility previously recorded in Other Comprehensive Income (OCI) related to changes in the fair market value of available-for-
sale equity investments will now be reflected in net income effective with the adoption date.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income. The standard allows companies to make an election to reclassify from Accumulated Other Comprehensive
Income (AOCI) to retained earnings the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. This ASU is effective
for annual and interim periods beginning after December 15, 2018, which for us is July 1, 2019. Early adoption is permitted. We
elected to early adopt ASU 2018-02 on July 1, 2018. We use a specific identification approach to release the income tax effects in
AOCI. As a result of adopting this standard, we recorded a cumulative effect adjustment to increase AOCI by $2.4 million with a
corresponding decrease to retained earnings. We recorded the impacts of adopting ASU 2018-02 prior to recording the impacts of
adopting ASU 2016-01 and included state income tax related effects in the amounts reclassified to retained earnings.
The following table presents a summary of cumulative effect adjustments to retained earnings due to the adoption of new accounting
standards on July 1, 2018 as noted above:
Cumulative effect adjustment to retained earnings due to the adoption of the following new
accounting standards:
ASU 2014-09
ASU 2016-01
ASU 2018-02
Net cumulative effect adjustments to retained earnings on July 1, 2018 due to the adoption of new
accounting standards
Cumulative
Effect
Adjustments to
Retained
Earnings
on July 1, 2018
Increase /
(Decrease)
$
$
98
27,053
(2,371 )
24,780
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business. The standard revises the definition
of a business, which affects many areas of accounting such as business combinations and disposals and goodwill impairment. The
revised definition of a business will likely result in more acquisitions being accounted for as asset acquisitions, as opposed to
business combinations. We adopted this standard on July 1, 2018, applying the guidance to transactions occurring on or after this
date.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The standard
changes the designation and measurement guidance for qualifying hedging relationships to better align financial reporting to risk
management activities. As part of the guidance, the entire change in fair value of a qualifying hedging instrument will be recorded
within other comprehensive income which is then reclassified into earnings in the same period or periods during which the hedged
item impacts earnings. Additionally, the gain or loss resulting from the hedging activity will be presented in the same income
statement line item as the hedged item. The standard is effective for interim and annual reporting periods in fiscal years beginning
after December 15, 2018, which for us is July 1, 2019. Early adoption is permitted. We elected to early adopt ASU 2017-12 on
October 1, 2018, prior to the Company entering into cash flow hedges as described in Note 5. The adoption of this standard did not
have a material impact on our consolidated financial statements.
Pronouncements Issued but Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance to require lessees to
recognize lease assets and lease liabilities from operating leases on the balance sheet. This ASU is effective using the modified
retrospective approach for annual periods and interim periods within those annual periods beginning after December 15, 2018, which
for us is July 1, 2019. Early adoption is permitted. The FASB has issued narrow codification improvements to Leases (Topic
842) through ASU No. 2018-10 and ASU 2019-01. Additionally, the FASB issued ASU 2018-11, allowing an entity to elect
a transition method where they do not recast prior periods presented in the financial statements in the period of adoption. The
39
Company plans to elect the transition method allowed for under ASU 2018-11 when adopting Leases (Topic 842). The Company
has completed detailed reviews over all lease agreements, assessed internal control impacts for ongoing lease accounting changes,
and completed internal control testing and validation procedures over our new lease accounting software. The Company does not
expect this standard to have a material impact on its consolidated statements of earnings and comprehensive income. The Company
does expect an increase of approximately $82 million for lease assets and liabilities and an immaterial impact to retained earnings
in our Consolidated Balance Sheet.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments. The amendment in this update replace the incurred loss impairment methodology in current GAAP with a
methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-
for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the
expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after
December 15, 2019, which for us is July 1, 2020. Entities may early adopt beginning after December 15, 2018. We are currently
evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is
not affected by the new standard. This ASU is effective for annual periods and interim periods for those annual periods beginning
after December 15, 2019, which for us is July 1, 2020 and may be adopted retrospectively or prospectively to eligible costs incurred
on or after the date the guidance is first applied. We are currently evaluating the impact of the adoption of ASU 2018-15 on our
consolidated financial statements and anticipate that we will adopt the standard prospectively.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such
products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets
that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. The vast majority
of service revenues consist of extended warranty contracts, post contract support (“PCS”), and custom development projects that
are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the
underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable
right to payment for the portion of the performance completed. The remaining service revenues were not material to the period
and consist of laboratory services recognized at point in time. Given the Company does not have significant historical experience
collecting payments from Medicare or insurance providers, the Company considered the variable consideration for such services
to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods
for the services provided. Accordingly, the Company did not record revenue upon completion of the performance obligation, but
rather upon cash receipt, which was subsequent to the performance obligation being satisfied. Royalty revenues are based on net
sales of the Company’s licensed products by a third party. We recognize royalty revenues in the period the sales occur using third
party evidence. The Company has also 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 has 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 June 30, 2019.
Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the
Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis.
Allocation of the transaction price is determined at the contracts’ inception.
Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30
to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and
service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.
Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the
accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes
unconditional is less than one year. We elected the practical expedient allowing us to expense costs of obtaining contracts less
than one year that would otherwise be capitalized and amortized over the contract period. Contract assets as of June 30, 2019 are
not material.
40
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 June 30, 2019 and June 30, 2018 were approximately
$10.4 million and $9.3 million, respectively. Contract liabilities as of June 30, 2018 subsequently recognized as revenue during
the year ended June 30, 2019 were approximately $7.0 million. Contract liabilities in excess of one year are included in Other
long-term liabilities on the 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 have 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:
Consumables
Instruments
Services
Total product and services revenue, net
Royalty revenues
Total revenues, net
Revenue by geography is as follows:
Net sales:
United States
EMEA, excluding U.K.
U.K.
APAC, excluding Greater China
Greater China
Rest of world
Total external sales
Year ended June 30,
2019
588,979
67,538
38,050
694,567
19,439
714,006
$
$
2018
534,738
61,784
34,137
630,659
12,334
642,993
$
$
$
2017
476,541
47,751
23,652
547,944
15,059
563,003
$
$
2019
Year Ended June 30,
2018
2017
$
$
391,191
155,821
34,975
52,913
57,799
21,307
714,006
$
$
346,293
148,599
33,704
48,392
47,950
18,055
642,993
$
$
313,195
125,126
28,401
41,463
39,078
15,740
563,003
Note 3. Supplemental Balance Sheet and Cash Flow Information:
Available-For-Sale Investments:
The fair value of the Company's available-for-sale investments as of June 30, 2019 and June 30, 2018 were $38.2 million and $54.3
million, respectively. The decrease was due to year-over-year decreases in the stock price of CCXI, from $13.17 per share at June
30, 2018 to $9.30 per share at June 30, 2019 resulting in a $16.1 million decrease in the fair value of the Company's investment in
CCXI. The amortized cost basis of the Company's investment in CCXI was $18.8 million as of June 30, 2019 and 2018.
41
Inventories:
Inventories consist of (in thousands):
Raw materials
Finished goods(1)
Inventories, net
June 30,
2019
2018
$
$
40,913 $
53,376
94,289 $
30,956
54,692
85,648
(1) Finished goods inventory of $3,239 is included within other long-term assets in the June 30, 2019 Balance Sheet as it
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):
Cost:
Land
Buildings and improvements
Machinery, equipment and other
Property and equipment
Accumulated depreciation and amortization
Property and equipment, net
Intangibles assets were comprised of the following (in thousands):
Developed technology
Trade names
Customer relationships
Patents
Intangible assets
Accumulated amortization
Intangibles assets, net
June 30,
2019
2018
$
$
7,065 $
175,019
124,233
306,317
(152,278 )
154,039 $
7,065
170,110
107,625
284,800
(139,452 )
145,348
Useful Life
(years)
$
9 - 15
2 - 20
7 - 16
10
$
June 30,
2019
2018
435,679 $
147,296
214,320
2,133
799,428
(219,999 )
579,429 $
305,303
89,608
212,228
1,401
608,540
(162,208 )
446,332
Changes to the carrying amount of net intangible assets consist of (in thousands):
Beginning balance
Acquisitions (Note 4)
Other additions
Amortization expense
Currency translation
Ending balance
June 30,
2019
2018
$
$
446,332 $
191,956
633
(58,715 )
(777 )
579,429 $
452,042
40,673
908
(47,076 )
(215 )
446,332
42
Amortization expense related to technologies included in cost of sales was $33.3 million, $25.3 million, and $23.1 million in fiscal
2019, 2018, and 2017, respectively. Amortization expense related to trade names, customer relationships, non-compete agreements,
and patents included in selling, general and administrative expense was $25.4 million, $21.6 million, and $21.3 million, in fiscal
2019, 2018, and 2017 respectively.
The estimated future amortization expense for intangible assets as of June 30, 2019 is as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Changes in goodwill by reportable segment and in total consist of (in thousands):
$
$
59,905
59,557
57,905
56,031
53,464
292,567
579,429
June 30, 2017
Acquisitions (Note 4)
Currency translation
June 30, 2018
Acquisitions (Note 4)
Currency translation
June 30, 2019
Other Assets:
Other assets consist of (in thousands):
Investments
Other
Other long-term assets
Protein
Sciences
Diagnostics &
Genomics
Total
$
$
$
331,789 $
16,186
(56 )
347,918 $
30,939
(1,450 )
377,407 $
247,237 $
2,910
(176 )
249,972 $
105,362
(74 )
355,260 $
579,026
19,096
(232 )
597,890
136,301
(1,524 )
732,667
June 30,
2019
2018
$
$
- $
5,668
5,668 $
2,606
2,660
5,266
As of June 30, 2019, the Company had $5.7 million of other assets compared to $5.3 million as of June 30, 2018. The increase was
attributable to finished goods inventory of $3.2 million included within other long-term assets in the June 30, 2019 Balance Sheet
as it forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date. This increase was partially offset
by the reduction in investments related to our purchase of the outstanding shares of B-MoGen discussed in note 4 and the
reclassification of the amounts held in escrow from our Astute investment classified as a long-term asset as of June 30, 2018 to a
short-term asset as of June 30, 2019 as we are expected to receive the final proceeds within the next 12 months.
Supplemental Cash Flow Information:
Supplemental cash flow information was as follows (in thousands):
Income taxes paid
Interest paid
Non-cash activities:
2019
Year Ended June 30,
2018
2017
$
36,814 $
21,497
35,076 $
9,844
42,900
7,452
Acquisition-related liabilities (1)
12,600
1,396
32,856
(1) Consists of holdback payments due at future dates and liabilities for contingent consideration. Further information regarding
liabilities for contingent consideration can be found in Notes 4 and 5.
43
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.
2019 Acquisitions
Quad Technologies
On July 2, 2018, the Company acquired QT Holdings Corporation (Quad) for approximately $20.5 million, net of cash acquired,
plus contingent consideration of up to $51.0 million, subject to certain product development milestones and revenue thresholds.
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 Protein Sciences reportable segment in the first quarter of fiscal year 2019. Purchase accounting
was finalized during the fourth quarter of fiscal 2019. The preliminary and final fair values of the assets acquired and liabilities
assumed are as follows (in thousands):
Current assets, net of cash
Equipment and other long-term assets
Intangible assets:
Developed technology
Goodwill
Total assets acquired
Liabilities
Deferred income taxes, net
Net assets acquired
Cash paid, net of cash acquired
Fair value of contingent consideration
Net assets acquired
Preliminary
Allocation at
Acquisition
Date
Adjustments to
Fair Value
Final Opening
Balance Sheet
Allocation
$
$
$
$
36
284
20,000
9,790
30,110
765
3,741
25,604 $
20,404 $
5,200
25,604 $
$
(56 )
(7,744 )
4,691
(3,109 )
(469 )
(2,798 )
158 $
58 $
100
158 $
36
228
12,256
14,481
27,001
296
943
25,762
20,462
5,300
25,762
As summarized in the table, there were adjustments totaling $4.7 million to goodwill during the measurement period. These
adjustments primarily relate to refinements made to acquired intangible asset cash flow models, an update in the discount rate
used in the contingent consideration calculation based on refinements made in the acquired intangible asset cash flow models,
and adjustments to preliminary deferred tax amounts based on updated assessments of the applicability of certain NOLs. Tangible
assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The purchase
price allocated to developed technology was estimated based on management's forecasted cash inflows and outflows using a
multi-period excess earnings method to calculate the fair value of assets purchased. The developed technology asset is being
amortized with the expense reflected in cost of goods sold in the Consolidated Statement of Earnings and Comprehensive Income.
The amortization period for intangible assets acquired in fiscal 2019 are 14 years for developed technology. 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 our calculation
of acquired net operating losses (NOLs).
Exosome Diagnostics
On August 1, 2018, the Company acquired Exosome Diagnostics, Inc. (ExosomeDx) for approximately $251.6 million, net of
cash acquired, plus contingent consideration of up to $325.0 million as follows:
● Up to $250 million if calendar year 2020 EBITA is between $45 million and $58 million or greater.
44
● Up to $45 million if calendar year 2022 EBITA for a new instrument product is between $54 million and $70 million or
greater.
● Up to $30 million if calendar year 2022 EBITA for the remaining business is between $150 million and $190 million or
greater.
The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’ 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 reportable segment in the first quarter of fiscal year 2019. Purchase
accounting was finalized during the fourth quarter of fiscal 2019. The preliminary and final fair values of the assets acquired and
liabilities assumed are as follows (in thousands):
Current assets, net of cash
Equipment and other long-term assets
Intangible assets:
Developed technology
Trade name
Customer relationships
Goodwill
Total assets acquired
Liabilities
Deferred income taxes, net
Net assets acquired
Cash paid, net of cash acquired
Fair value of contingent consideration
Net assets acquired
Preliminary
Allocation at
Acquisition
Date
Adjustments to
Fair Value
Final Opening
Balance Sheet
Allocation
$
$
$
$
5,118
2,212
180,000
-
-
96,592
283,922
2,624
27,673
253,625 $
251,825 $
1,800
253,625 $
(2,507 ) $
-
(75,000 )
58,000
2,300
8,770
(8,437 )
1,092
(11,327 )
1,798 $
(202 ) $
2,000
1,798 $
2,611
2,212
105,000
58,000
2,300
105,362
275,485
3,716
16,346
255,423
251,623
3,800
255,423
As summarized in the table, there were adjustments totaling $8.8 million to goodwill during the measurement period. As
previously disclosed, the intangible value associated with the ExosomeDx trade name and determination of the related estimated
useful life was under assessment as part of purchase accounting review. During the period, the Company updated our intangible
assessment to include a $58.0 million value for the ExosomeDx trade name. Due to our updated assessments and further
refinements in our intangible asset cash flow models, the fair value of the developed technology intangible asset decreased by
$75.0 million. When applying our final assumptions in our intangible asset cash flow models to the Company's contingent
consideration recorded
the estimated contingent consideration increased by $2.0
million. Additionally, we recorded a Customer Relationships intangible asset of $2.3 million for the established physician
network ordering ExosomeDx laboratory services that existed at the acquisition date. Adjustments to the opening balance sheet
fair value also included updates to preliminary deferred tax amounts and working capital adjustments, primarily attributable to
updates for the net realizable value of certain acquired receivables based on factors existing on the acquisition date.
the Opening Balance Sheet,
in
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The
purchase price allocated to developed technology, trade names, and customer relationships was based on management's
forecasted cash inflows and outflows and using either a relief-from-royalty or a multiperiod excess earnings method to calculate
the fair value of assets purchased. The preliminary 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.
Preliminary amortization expense related to trade names, and customer relationships is reflected in selling, general and
administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The preliminary amortization
periods for intangible assets acquired in fiscal 2019 are 15 years for developed technology and trade names, and 14 years for
customer relationships. 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.
45
B-MoGen Biotechnologies
On June 4, 2019, the Company acquired the remaining interest in B-MoGen Biotechnologies Inc. (B-MoGen) for approximately
$17.5 million, net of cash acquired, plus contingent consideration of up to $38.0 million, subject to certain product development
milestones and revenue thresholds. The Company previously held an investment of $1.4 million in B-MoGen and recognized a
gain of approximately $3.7 million on the transaction within other non-operating income in the consolidated statements of
earnings and comprehensive income representing the adjustment of our historical investment to its fair value. 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 Protein Sciences reportable segment in the fourth quarter of fiscal year 2019.
Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects
to finalize our purchasing accounting by the end of the second quarter of fiscal year 2020 when we have completed our
assessment of the working capital adjustment and we have finalized our income tax assessment of acquired net operating losses
(NOLs) with the completion of the stub period tax returns. Amounts for acquired current assets and liabilities, deferred tax
liabilities, acquired NOLs, and goodwill also remain subject to change. The preliminary estimated fair values of the assets
acquired and liabilities assumed are as follows (in thousands):
Current assets, net of cash
Equipment and other long-term assets
Intangible assets:
Developed technology
Customer relationships
Goodwill
Total assets acquired
Liabilities
Deferred income taxes, net
Net assets acquired
Cash paid, net of cash acquired
Fair value of contingent consideration
Fair value of historical investment in B-MoGen
Net assets acquired
Preliminary
Allocation at
Acquisition
Date
$
$
$
$
504
269
14,000
400
16,457
31,630
211
3,377
28,042
17,448
5,500
5,094
28,042
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's assessment. The
purchase price allocated to developed technology was estimated based on management's forecasted cash inflows and outflows
and using a multi-period excess earnings method to calculate the fair value of assets purchased. The preliminary amount recorded
for developed technology is being amortized with the expense reflected in cost of goods sold in the Consolidated Statement of
Earnings and Comprehensive Income. The amortization periods for intangible assets acquired in fiscal 2019 are estimated to be
14 years for developed technology. 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.
2018 Acquisitions
Trevigen
On September 5, 2017 the Company acquired the stock of Trevigen Inc. for approximately $10.6 million, net of cash received.
The Company has had a long-standing business relationship with Trevigen as a distributor of its product line. 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 Protein Sciences reportable segment in the first quarter of fiscal 2018.
46
Atlanta Biologicals
On January 2, 2018 the Company acquired the stock of Atlanta Biologicals, Inc. and its affiliated company, Scientific Ventures,
Inc., for approximately $51.3 million, net of cash acquired. The transaction was financed through available cash on hand and an
additional draw from the Company’s line-of-credit. Atlanta Biologicals fetal bovine serum (FBS) product line strengthens and
complements our current tissue culture reagents offering and furthers our efforts to provide more complete solutions to our
research customers. 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 Protein Sciences reportable segment in the third quarter of fiscal 2018.
Purchase accounting was finalized during fiscal 2018.
Tangible assets acquired in the acquisition, net of liabilities assumed, were recorded at fair value on the date of close based on
management's assessment. The purchase price allocated to developed technology, trade names, and customer relationships was
based on management's forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period excess earnings
method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected
in cost of goods sold in the Consolidated Statement of Earnings and Comprehensive Income. Amortization expense related to
trade names, and customer relationships is reflected in selling, general and administrative expenses in the Consolidated Statement
of Earnings and Comprehensive Income. The amortization periods for intangible assets acquired in fiscal 2018 are 13 years for
developed technology, 12 years for customer relationships, and 15 years for trade names. The deferred income tax liability
represents the net amount of the estimated future impact of adjustments for costs to be recognized upon the sale of acquired
inventory that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax
purposes.
Eurocell Diagnostics
On February 1, 2018, the Company acquired Eurocell Diagnostics SAS, a company based in Rennes, France, for approximately
$7.3 million, net of cash acquired. The Company paid $6.0 million on the acquisition date and the remaining $1.3 million
was paid on February 1, 2019. The Company has had a long-standing business relationship with Eurocell as a distributor of its
product line. Eurocell sells directly to the laboratory markets in the French region as well as servicing the EMEA markets via a
network of distributors. The transaction was financed through cash on hand. The primary asset in this acquisition is the customer
relationships; however, the acquisition resulted in some goodwill as we expect strategic benefits of revenue growth from
increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the
Company’s Diagnostics and Genomics reportable segment in the third quarter of fiscal 2018. Purchase accounting was finalized
during fiscal 2018.
Tangible assets acquired, net of liabilities assumed, were recorded at fair value on the date of close based on management's
assessment. The purchase price allocated to customer relationships was based on management's forecasted cash inflows and
outflows using a multi-period excess earnings method to calculate the fair value of assets purchased. Amortization expense
related 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 acquired in fiscal 2018 is 7 years. The
deferred income tax liability represents the net amount of the estimated future impact of intangible asset amortization, which
is not deductible for income tax purposes.
2017 Acquisitions
Advanced Cell Diagnostics (ACD)
On August 1, 2016, the Company acquired ACD for approximately $258.0 million, net of cash acquired, plus contingent
consideration of up to $75.0 million as follows:
●
●
$25.0 million if calendar year 2016 revenues equal or exceed $30.0 million.
an additional $50.0 million if calendar year 2017 revenues equal or exceed $45.0 million.
The Company paid approximately $247.0 million, net of cash acquired and the working capital adjustments, as of the acquisition
date. The remaining $11.0 million was paid to current employees who held ACD unvested stock as of the acquisition date. In
order to receive payment for unvested shares, the individuals had to remain employees of ACD over an 18-month vesting period
which extended from the acquisition date through March 31, 2018. Any amounts that would have been owed to individuals who
left the company during the vesting period was pooled together and distributed amongst the other former ACD shareholders at
the end of the vesting period. Management determined that $3.6 million of the $11.0 million represented purchase price
consideration paid for pre-acquisition services. However, the remaining $7.4 million represented compensation expense as the
47
amount the individual employees received was tied to future service. This liability recorded on the Consolidated Balance Sheets
under the caption “Salaries, wages and related accruals” for the fiscal year ended June 30, 2017.
During the third quarter of fiscal 2017, management determined that the calendar year 2016 revenue milestone was met. During
the third quarter of fiscal 2018, management determined that the calendar year 2017 revenue milestone was met. Refer to Note
4 for discussion of this item as well as discussion of the changes to the fair value estimate for the calendar year revenue milestones
as of June 30, 2018 and 2017.
The goodwill recorded as a result of the ACD acquisition represents the strategic benefits of growing the Company's product
portfolio and the expected revenue growth from increased market penetration from future products and customers. The goodwill
is not deductible for income tax purposes. The business became part of the Company’s Biotechnology reportable segment in the
first quarter of 2017.
As previously disclosed, ACD was acquired on August 1, 2016. The unaudited pro forma financial information below
summarizes the combined results of operations for Bio-Techne and ACD as though the companies were combined as of the
beginning fiscal 2016. The pro forma financial information for all periods presented includes the purchase accounting effects
resulting from these acquisitions except for the increase in inventory to fair value and the fair value adjustments to contingent
consideration as these are not expected to have a continuing impact on cost of goods sold or selling, general and administrative
expense, respectively. The pro forma financial information as presented below is for informational purposes only and is not
indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal
2016.
Net sales
Net income
Space Import-Export, Srl
Year Ended
June 30,
2017
2016
$
564,220 $
99,380
523,840
110,536
On July 1, 2016, the Company acquired Space Import-Export, Srl (Space) of Milan, Italy for approximately $9.0 million. $6.7
million was paid on the acquisition date and the remaining $2.3 million was paid during the first quarter of fiscal year 2018.
Space was a long-time distribution partner of the Company in the Italian market. The acquisition resulted in goodwill as we
expect strategic benefits of revenue growth from increased market penetration. The goodwill is not deductible for income tax
purposes. The business became part of the Company’s Biotechnology reportable segment in the first quarter of 2017.
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management's
assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer
relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and a multi-period
excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the
expense reflected in cost of goods sold in the Consolidated Statements of Earnings and Comprehensive Income. Amortization
expense related to trade names, the non-compete agreement and customer relationships is reflected in selling, general and
administrative expenses in the Consolidated Statements of Earnings and Comprehensive Income. The deferred income tax
liability represents the estimated future impact of adjustments for the cost to be recognized upon the sale of acquired inventory
that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes, and
the future tax benefit of net operating loss and tax credit carryforwards which will be deductible by the Company in future
periods.
48
The aggregate purchase price of the acquisitions was allocated to the assets acquired and liabilities assumed based on their
estimated fair values as of the acquisition date. The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed as a result of the fiscal year 2018 and 2017 acquisitions (in thousands):
Trevigen
Atlanta
Biologicals
Eurocell Diagnostics
ACD
Space
$
Current assets, net of
cash
Equipment and other
long-term assets
Intangible assets:
Developed
technology
Trade name
Customer
relationships
Goodwill
Total assets acquired
Liabilities
Deferred income
taxes, net
Net assets acquired $
Cash paid, net of
cash acquired
Consideration
payable
Contingent
consideration
payable
Net assets acquired $
1,662 $
15,722 $
512 $
15,824 $
53
4,901
188
6,569
5,100
160
260
5,991
13,226
23,000
2,300
3,600
10,195
59,718
-
-
6,272
2,910
9,882
150,000
21,900
6,300
143,967
344,560
387
90
483
4,179
2,195
10,644 $
8,354
51,274 $
2,070
7,329 $
52,743
287,638 $
10,644
51,274 $
5,933 $
247,038 $
-
-
-
-
1,396
3,600
-
37,000
2,128
159
-
-
6,769
3,517
12,573
1,445
2,125
9,003
6,747
2,256
-
10,644 $
51,274 $
7,329 $
287,638 $
9,003
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management's
assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer
relationships was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and multi-period
excess earnings method to calculate the fair value of assets purchased. The developed technology is being amortized with the
expense reflected in cost of good sold in the Consolidated Statements of Earnings and Comprehensive Income. Amortization
expense related to trade names, the non-compete agreement and customer relationships is reflected in selling, general and
administrative expenses in the Consolidated Statements of Earnings and Comprehensive Income. The deferred income tax
liability represents the estimated future impact of adjustments for the cost to be recognized upon the sale of acquired inventory
that was written up to fair value and intangible asset amortization, both of which are not deductible for income tax purposes, and
the future tax benefit of net operating loss and tax credit carryforwards which will be deductible by the Company in future
periods.
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, accounts receivable,
accounts payable, contingent consideration obligations, derivative instruments, 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.
49
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):
Assets
Equity securities (1)
Certificates of deposit (2)
Total Assets
Liabilities
Contingent consideration
Derivative instruments - cash flow hedges
Total Liabilities
Assets
Equity securities (1)
Certificates of deposit (2)
Total Assets
Liabilities
Contingent consideration
Total
carrying
value as of
June 30,
2019
Fair Value Measurements Using
Inputs Considered as
Level 1
Level 2
Level 3
$
$
$
$
38,219 $
26,928
65,147 $
38,219 $
26,928
65,147 $
- $
-
- $
-
-
-
12,600 $
12,458
25,058 $
- $
-
- $
- $
12,458
12,458 $
12,600
-
12,600
Total
carrying
value as of
June 30,
2018
Fair Value Measurements Using
Inputs Considered as
Level 1
Level 2
Level 3
$
$
$
54,286 $
5,478
59,764 $
54,286 $
5,478
59,764 $
- $
-
- $
- $
- $
- $
-
-
-
-
(1) Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in CCXI at June
30, 2019 and June 30, 2018 was $18.8 million.
(2) Included in available-for-sale investments on the balance sheet. The certificate of deposits have contractual maturity dates
within one year.
Fair value measurements of available for sale securities
Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are
therefore classified as Level 1 assets.
50
Fair value measurements of derivative instruments
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward
starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the
Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the
Company will exchange, at specified intervals, the difference between floating and fixed interest amounts based on $380 million of
notional principal amount. The change in the fair value of the instrument is reported as a component of other comprehensive income
and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company did not reclassify any
amounts out of other comprehensive income into interest expense during the fiscal year ended June 30, 2019. The liability related to
the derivative instrument was recorded within Other 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.
Fair value measurements of contingent consideration
In connection with the ExosomeDx, Quad, and B-Mogen acquisitions the Company is required to make contingent consideration
payments of up to $325.0 million, $51.0 million, and $38.0 million respectively. The contingent consideration payments are subject
to ExosomeDx achieving certain EBITA thresholds, Quad meeting certain product development milestones and revenue thresholds,
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
$14.6 million ($3.8 million for ExosomeDx, $5.3 million for Quad, and $5.5 million for B-Mogen) as discussed in Note 4. The
preliminary fair value of the development milestone payments was estimated by discounting the probability-weighted contingent
payments expected to be made to present value. Assumptions used in these calculations were probability of success, duration of the
earn-out, and discount rate. The preliminary fair value for the EBITA and revenue milestone payments 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 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.
In fiscal 2018, the Company made $88.5 million in cash payments towards the ACD, CyVek and Zephyrus contingent consideration
liabilities after it determined certain sales and revenue thresholds were met. Of the $88.5 million in total payments, $61.9 million is
classified as financing on the statement of cash flows. The remaining $26.6 million is recorded as operating on the statement of cash
flows as it represents the consideration liability that exceeds the amount of the contingent consideration liability recognized at the
acquisition date.
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):
Fair value at the beginning of period
Purchase price contingent consideration (Note 4)
Payments
Change in fair value of contingent consideration
Contingent consideration payable
June 30,
2019
2018
$
$
- $
14,600
-
(2,000 )
12,600 $
68,400
-
(88,500 )
20,100
-
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.
51
Note 6. Debt and Other Financing Arrangements:
On August 1, 2018, the Company entered into a new uncollateralized 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 for 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 Company has recorded $12.5 million of our outstanding borrowings
under the Credit Agreement as a current liability in our Consolidated Balance sheet, which represents our required quarterly debt
payments to be made in fiscal year 2020.
The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events
of default. At the closing on August 1, 2018 the company borrowed $250.0 million under the term loan and $330.0 million under
the revolving credit facility. As of June 30, 2019, the outstanding balance under the Credit Agreement was $505.2 million.
Note 7. Commitments and Contingencies:
The Company leases office and warehouse space, vehicles and various office equipment under operating leases. At June 30, 2019,
aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of more than one year
are payable as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
$
$
13,707
13,469
13,154
12,716
11,392
51,895
116,333
Total rent expense was approximately $12.9 million, $10.8 million, and $9.8 million for the years ended June 30, 2019, 2018, and
2017, respectively.
The Company is routinely subject to claims and involved in legal actions which are incidental to the business of the Company.
Although it is difficult to predict the ultimate outcome of these matters, management believes that any ultimate liability will not
materially affect the consolidated financial position or results of operations of the Company.
Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (loss):
Supplemental Equity
The Company has declared cash dividends per share of $1.28 in each of the full fiscal years ended June 30, 2019, June 30, 2018,
and June 30, 2017. During the year ended June 30, 2019, the Company repurchased 95,000 shares at an average share price of
$162.15. During fiscal 2019, the Company made the accounting policy election to record the portion of share repurchases in excess
of the par value entirely in retained earnings.
52
Accumulated Other Comprehensive Income (loss)
Changes in accumulated other comprehensive income (loss), net of tax, at June 30 consists of (in thousands):
Unrealized
Gains
(Losses)
on
Available-
for-Sale
Investments
Foreign
Currency
Translation
Adjustments
Unrealized
Gains
(Losses) on
Derivatives
Instruments
Balance June 30, 2016
Other comprehensive income (loss) before reclassifications
Balance June 30, 2017
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss to
income
Balance June 30, 2018
Cumulative effect adjustment for adoption for ASU 2018-02(1)
Cumulative effect adjustment for adoption for ASU 2016-01(1)
Other comprehensive income (loss) before reclassifications (2)
Balance June 30, 2019
$
$
$
$
(5,542 )
24,531
18,989
18,108
(12,415 )
24,682
2,371
(27,053 )
-
-
(64,863 )
(3,061 )
(67,924 )
(1,572 )
-
(69,496 )
-
-
(4,487 )
(73,983 )
- $
-
- $
-
-
- $
-
-
(9,537 )
(9,537 ) $
Total
(70,405 )
21,470
(48,935 )
16,536
(12,415 )
(44,814 )
2,371
(27,053 )
(14,024 )
(83,521 )
(1)See Note 1 for further information related to the adoption of ASU 2016-01 and 2018-02.
(2) The gain (loss) on the forward starting interest rate swap will be reclassified into earnings beginning October 31, 2019.
Approximately ($1,748) of the ($9,537) will be reclassified into earnings in the 12 months subsequent to June 30, 2019.
Note 9. Earnings Per Share:
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
Earnings per share – basic:
Net income
Income allocated to participating securities
Income available to common shareholders
Weighted-average shares outstanding – basic
Earnings per share – basic
Earnings per share – diluted:
Net income
Income allocated to participating securities
Income available to common shareholders
Weighted-average shares outstanding – basic
Dilutive effect of stock options and restricted stock units
Weighted-average common shares outstanding – diluted
Earnings per share – diluted
2019
Year Ended June 30,
2018
2017
$
$
$
$
$
$
96,072 $
(105 )
95,967 $
37,781
2.54 $
96,072 $
(105 )
95,967 $
37,781
1,111
38,892
2.47 $
126,150 $
(108 )
126,042 $
37,476
3.36 $
126,150 $
(108 )
126,042 $
37,476
579
38,055
3.31 $
76,086
(65 )
76,021
37,313
2.04
76,086
(65 )
76,021
37,313
187
37,500
2.03
Basic net income per common share is calculated based on the weighted average number of common shares outstanding during the
period. Diluted net income per common share is computed by dividing net income by the weighted average number of common and
potentially dilutive common shares outstanding during the period. Potentially dilutive common shares of our stock result from
dilutive common stock options and restricted stock units. We use the treasury stock method to calculate the weighted-average shares
used in the diluted earnings per share computation. Under the treasury stock method, the proceeds from exercise of an option, the
amount of compensation cost, if any, for future service that we have not yet recognized, and the amount of estimated tax benefits
53
that would be recorded in paid-in capital, if any, when the option is exercised are assumed to be used to repurchase shares in the
current period.
The dilutive effect of stock options in the above table excludes all options for which the aggregate exercise proceeds exceeded the
average market price for the period. The number of potentially dilutive option shares excluded from the calculation was 1.3 million,
0.9 million, and 2.0 million for the fiscal years ended June 30, 2019, 2018 and 2017, respectively.
Note 10. Share-based Compensation and Other Benefit Plans:
The cost of employee services received in exchange for the award of equity instruments is based on the fair value of the award at the
date of grant. Compensation cost is recognized using a straight-line method over the vesting period and is net of estimated forfeitures.
Stock option exercises and stock awards are satisfied through the issuance of new shares.
Equity incentive plan: The Company's Second Amended and Restated 2010 Equity Incentive Plan (the Second A&R 2010 Plan)
provides for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, performance shares,
performance units and stock appreciation rights. There are 7.5 million shares of common stock authorized for grant under the Second
A&R 2010 Plan. At June 30, 2019, there were 2.6 million shares of common stock available for grant under the Second A&R 2010
Plan. The maximum term of incentive options granted under the Second A&R 2010 Plan is ten years. The Second A&R 2010 Plan
amended and restated the Company's Amended and Restate 2010 Equity Incentive Plan (the A&R 2010 Plan). The A&R 2010
Plan replaced the Company's 1998 Nonqualified Stock Option Plan (the 1998 Plan). The Second A&R 2010 Plan and the 1998 Plan
(collectively, the Plans) are administered by the Board of Directors and its Executive Compensation Committee, which determine
the persons who are to receive awards under the Plans, the number of shares subject to each award and the term and exercise price
of each award. The number of shares of common stock subject to outstanding awards as of June 30, 2019 under the Second A&R
2010 Plan and the 1998 Plan were 3.6 million and 20,000, respectively. On April 26, 2018 the Compensation Committee of the
Board of Directors approved a modification to the Equity Incentive Plan. The modification implements a new retirement policy
that permits retirees to continue vesting in certain time-based stock options granted during employment, resulting in accelerated
stock compensation expense for those employees meeting the definition of retirement eligible. This modification resulted in an
additional $8.3 million of expense during fiscal year 2018 and affected all employees who participate in the plan.
The fair values of options granted under the Plans were estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used:
Dividend yield
Expected volatility
Risk-free interest rates
Expected lives (years)
2019
Year Ended June 30,
2018
0.74%
1.1%
2017
1.2%
20%
2.5%
- 23% 20%
- 3.0% 1.7%
- 21% 21%
- 2.8% 1.0%
- 24%
- 1.9%
4.1
4.7
4.7
The dividend yield is based on the Company's historical annual cash dividend divided by the market value of the Company's common
stock. The expected annualized volatility is based on the Company's historical stock price over a period equivalent to the expected
life of the option granted. The risk-free interest rate is based on U.S. Treasury constant maturity interest rates with a term consistent
with the expected life of the options granted.
54
Stock option activity under the Plans for the three years ended June 30, 2019, consists of the following (shares in thousands):
Outstanding at June 30, 2016
Granted
Forfeited
Exercised
Outstanding at June 30, 2017
Granted
Forfeited
Exercised
Outstanding at June 30, 2018
Granted
Forfeited
Exercised
Outstanding at June 30, 2019
Exercisable at June 30, 2017:
Exercisable at June 30, 2018:
Exercisable at June 30, 2019:
Number of
Shares (in
thousands)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
(millions)
Weighted
Average
Contractual
Life (years)
1,819 $
1,135
(70 )
(63 )
2,821 $
1,087
(252 )
(204 )
3,452 $
917
(330 )
(383 )
3,656 $
843
1,151
1,467
91.91
107.42
99.11
71.81
98.42
120.67
86.62
111.51
105.17
173.89
129.93
95.29
121.16 $
82.93
90.75
98.70 $
319.3
4.45
161
3.33
The weighted average fair value of options granted during fiscal 2019, 2018 and 2017 was $34.66, $22.07 and $18.21 respectively.
The total intrinsic value of options exercised during fiscal 2019, 2018 and 2017 were $159.0 million, $10.6 million, and $2.3 million
respectively. The total fair value of options vested during fiscal 2019, 2018 and 2017 were $31.7 million, $8.8 million, and $5.0
million respectively.
Restricted common stock activity under the Plans for the three years ended June 30, 2019, consists of the following (units in
thousands):
Unvested at June 30, 2016
Granted
Vested
Forfeited
Unvested at June 30, 2017
Granted
Vested
Forfeited
Unvested at June 30, 2018
Granted
Vested
Forfeited
Unvested at June 30, 2019
Number of
Shares (in
thousands)
Weighted
Average Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
(years)
23 $
24
(15 )
-
32 $
20
(17 )
-
35 $
15
(20 )
-
30 $
98.03
104.94
92.62
-
105.80
125.05
104.66
-
117.39
177.93
116.76
-
117.39
5.88
The total fair value of restricted shares that vested was $2.3 million for fiscal 2019, $1.7 million for fiscal 2018, and $1.4 million for
fiscal 2017.
55
Restricted stock unit activity under the Plans for the three years ended June 30, 2019, consists of the following (units in thousands):
Outstanding at June 30, 2016
Granted
Vested
Forfeited
Outstanding at June 30, 2017
Granted
Vested
Forfeited
Outstanding at June 30, 2018
Granted
Vested
Forfeited
Outstanding at June 30, 2019
Number of
Units
(in thousands)
Weighted
Average Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
(years)
59 $
65
(9 )
(4 )
111 $
71
(16 )
(18 )
148 $
56
(28 )
(36 )
139 $
100.40
109.36
92.94
98.04
106.39
129.99
95.46
115.01
117.95
170.96
110.86
143.72
134.17
5.17
The total fair value of restricted stock units that vested was $3.1 million for fiscal 2019, $1.6 million for fiscal 2018, and $0.9 million
for fiscal 2017. The restricted stock units vest over a three-year period.
Stock-based compensation cost of $32.3 million, $28.2 million, and $14.6 million was included in selling, general and administrative
expense in fiscal 2019, 2018 and 2017, respectively. The income tax benefit associated with stock-based compensation costs was
$0.4 million and $0.5 million in fiscal 2018, and 2017, respectively. As of June 30, 2019, there was $26.6 million of unrecognized
compensation cost related to non-vested stock options, non-vested restricted stock units and non-vested restricted stock which will
be expensed in fiscal 2020 through 2022 using a 3% forfeiture rate. The weighted average period over which the compensation cost
is expected to be recognized is 2.0 years.
Employee stock purchase plan: In fiscal year 2015, the Company established the Bio-Techne Corporation 2014 Employee Stock
Purchase Plan (ESPP), which was approved by the Company's shareholders on October 30, 2014, and which is designed to comply
with IRS provisions governing employee stock purchase plans. 200,000 shares were allocated to the ESPP. The Company recorded
expense of $0.5 million, $0.3 million and $0.2 million expense for the ESPP in fiscal 2019, 2018 and 2017, respectively.
Profit sharing and savings plans: The Company has profit sharing and savings plans for its U.S. employees, which conform to IRS
provisions for 401(k) plans. The Company makes matching contributions to the Plan. The Company has recorded an expense for
contributions to the plans of $2.8 million, $2.5 million, and $2.2 million for the years ended June 30, 2019, 2018, and 2017,
respectively. The Company operates defined contribution pension plans for its U.K. employees. The Company has recorded an
expense for contributions to the plans of $1.4 million, $1.4, and $0.8 million for the years ended June 30, 2019, 2018 and 2017,
respectively.
Performance incentive programs: In fiscal 2019, under certain employment agreements and a Management Incentive Plan available
to executive officers and certain management personnel, the Company recorded cash bonuses of $9.3 million, granted options
for 618,898 shares of common stock, issued 11,279 restricted common shares and 25,903 restricted stock units. In fiscal 2018 and
fiscal 2017, the Company recorded cash bonuses of $7.2 million and $4.7 million, granted options for 553,750 and 896,778 shares
of common stock, and issued 14,194 and 16,653 restricted common stock shares and 35,174 and 39,931 restricted stock, respectively.
56
Note 11. Income Taxes:
Income before income taxes was comprised of the following (in thousands):
Domestic
Foreign
Income before income taxes
The provision for income taxes consisted of the following (in thousands):
Taxes on income consist of:
Currently tax provision:
Federal
State
Foreign
Total current tax provision
Deferred tax provision:
Federal
State
Foreign
Total deferred tax provision
Total income tax provision
2019
Year Ended June 30,
2018
64,081 $
47,934
112,015 $
81,557 $
44,395
125,952 $
2017
81,721
30,240
111,961
2019
Year Ended June 30,
2018
2017
16,090 $
544
13,329
29,963
(6,903 )
(3,977 )
(3,142 )
(14,021 )
15,942 $
28,416 $
5,315
11,983
45,714
(40,378 )
(1,381 )
(4,154 )
(45,912 )
(198 ) $
28,462
4,051
8,212
40,725
(901 )
(968 )
(2,981 )
(4,850 )
35,875
$
$
$
$
The Company’s effective income tax rate for fiscal 2019 was 14.2% vs (0.2%) in the prior year. The change in the effective tax
rate for fiscal 2019 and 2018 was driven by changes in net discrete tax benefits of $12.7 million and $34.4 million for fiscal year
2019 and 2018, respectively.
The Company's discrete tax benefits in fiscal 2019 primarily related to share-based compensation excess tax benefits of $7.2
million, $3.2 million related to current year acquisitions, and $2.0 million for tax refunds relating to certain state apportionments.
The current year was benefited from acquisition payments made to employees and third parties, which were deductible for tax
purposes.
In fiscal 2018, the Company recognized net discrete tax benefits of $34.4 million. The primary driver in fiscal 2018 discrete tax
benefits was a discrete net tax benefit of $33.0 million related to the Tax Act (as described further below). This net tax benefit
consisted of $36.5 million due to the re-measurement of the Company’s deferred tax accounts to reflect the U.S. federal corporate
tax rate reduction impact to our net deferred tax balances offset by expense for the federal transition tax of $3.3 million. Also
impacting the Company’s fiscal 2018 effective tax rate was a $2.2 million tax benefit related to stock option exercises offset by a
net discrete tax expense of $4.2 million related to the revaluation of contingent consideration, which is not a tax deductible expense.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which reduced the U.S. federal corporate tax rate
from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously
tax deferred and created new taxes on certain foreign sourced earnings. The Tax Act added many new provisions including changes
the deduction for executive compensation, a tax on global intangible low taxed income (“GILTI”), the base erosion anti abuse tax
(“BEAT”) and a deduction for foreign derived intangible income (“FDII”). The SEC staff issued Staff Accounting Bulletin (“SAB
118”) later codified as ASU 2018-05 Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 118,
which provides a measurement period of up to one year from the Tax Act’s enactment date to complete the accounting for the effects
of the Tax Act.
The end of the measurement period allowed under ASU 2018-05 was December 31, 2018. However, the Company anticipates
additional interpretations and clarifications to be issued by the U.S. Treasury Department, which may affect future period tax
calculations. The Company made the accounting policy election to treat taxes due on U.S. inclusions in taxable income related to
GILTI as a current period expense when incurred.
57
The following is a reconciliation of the federal tax calculated at the statutory rate of to the actual income taxes provided
(in thousands):
Income tax expense at federal statutory rate
State income taxes, net of federal benefit
Qualified production activity deduction
Research and development tax credit
Contingent consideration adjustment
Foreign tax rate differences
Option exercises
Domestic tax legislation changes
State apportionment changes
Other, net
Effective tax rate
2019
Year Ended June 30,
2018
2017
21.0 %
0.8 %
- %
(1.6 )%
(0.4 )%
0.2 %
(5.8 )%
1.7 %
(2.3 )%
0.6 %
14.2 %
28.1 %
2.5 %
(2.4 )%
(1.4 )%
3.3 %
(3.5 )%
(1.8 )%
(26.2 )%
-
1.2 %
(0.2 )%
35.0 %
1.9 %
(3.4 )%
(1.4 )%
4.1 %
(4.6 )%
- %
- %
-
0.4 %
32.0 %
Deferred taxes on the Consolidated Balance Sheets consisted of the following temporary differences (in thousands):
Inventory
Net operating loss carryovers
Tax credit carryovers
Excess tax basis in equity investments
Deferred compensation
Derivative - cash flow hedge
Other
Valuation allowance
Deferred tax assets
Net unrealized gain on available-for-sale investments
Intangible asset amortization
Depreciation
Other
Deferred tax liabilities
Net deferred tax liabilities
June 30
2019
2018
$
$
7,743 $
33,294
9,640
3,433
10,333
2,921
5,207
(6,974 )
65,597
(4,542 )
(141,998 )
(8,371 )
(440 )
(155,351 )
(89,754 ) $
5,873
15,938
7,029
2,813
7,806
-
3,864
(2,978 )
40,345
(8,384 )
(111,247 )
(6,349 )
(658 )
(126,638 )
(86,293 )
A deferred tax valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be
realized. The valuation allowance as of June 30, 2019 was $7.0 million, an increase of $4.0 million from the prior year. The change
was driven by an increase in the valuation allowance for the Company’s net operating loss and credit carryforwards for fiscal 2019
acquisitions.
As of June 30, 2019, the $7.0 million valuation allowance relates to certain foreign and state tax net operating loss and state credit
carryforwards that existed at the date the Company acquired Quad, Exosome, ACD, Novus, ProteinSimple and CyVek as well as
immaterial amounts generated after the acquisitions. The Company believes it is more likely than not that these tax carryovers will
not be realized.
As of June 30, 2019, the Company has federal operating loss carryforwards of approximately $98.2 million and state operating loss
carryforwards of $137.4 million from its acquisitions of Quad, Exosome, ACD, ProteinSimple and CyVek, which are not limited
under IRC Section 382. As of June 30, 2019, the Company has foreign net operating loss carryforwards of $13.6 million. The net
operating loss carryforwards expire between fiscal 2020 and 2035. The Company has a deferred tax asset of $28.2 million, net of
the valuation allowance discussed above, related to the net operating loss carryovers. As of June 30, 2019, the Company has federal
and state tax credit carryforwards of $5.2 million and $4.4 million, respectively. The federal tax credit carryforwards expire between
2028 and 2038. The majority of the state credit carryforwards have no expiry date. The Company has a deferred tax asset of
$7.7 million, net of the valuation allowance discussed above, related to the tax credit carryovers.
58
The Company has not recognized a deferred tax liability for unremitted foreign earnings of approximately $160 million from its
foreign operations because its subsidiaries have invested or will invest the undistributed earnings indefinitely. The transition tax
included as part of the Tax Act resulted in the previously untaxed foreign earnings being included in the federal and state fiscal
2018 taxable income. The one-time transition tax was based on certain foreign earnings for which earnings have been previously
indefinitely reinvested as well as the amount of earnings held in cash and other specified assets. No additional income taxes have
been provided for cumulative unremitted foreign earnings as at this time our intention with respect to unremitted foreign earnings is
to continue to indefinitely reinvest outside the U.S. those earnings needed for working capital or additional foreign investment. If
there are policy changes, we would record applicable taxes at that time.
We continue to analyze our global working capital requirements and the potential tax liabilities that would be incurred if the non-
U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxation. In
addition, we anticipate that further guidance from the IRS and US Treasury related to the Tax Act could impact the amount of any
related taxes. Therefore, it is not practical to estimate the amount of the deferred income tax liabilities related to investments in
these foreign subsidiaries.
The following is a reconciliation of the beginning and ending balance of unrecognized tax benefits (in thousands):
Beginning balance
Additions due to acquisitions
Additions for tax positions of current year
Closure of tax years
Tax reform
Ending balances
2019
Year Ended June 30,
2018
2017
$
1,947 $
900
2,185
$
5,032 $
1,747 $
35
165
1,947 $
1,480
628
13
(374 )
1,747
The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase
in the next twelve months. The Company files income tax returns in the U.S federal and certain state tax jurisdictions, and several
jurisdictions outside the U.S. The Company's federal returns are subject to tax assessment for 2016 and subsequent years. State and
foreign income tax returns are generally subject to examination for a period of three to five years after filing of the respective return.
The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal
notification to the states.
Note 12. Segment Information:
The Company has two reportable segments based on the nature of its products; they are Protein Sciences and Diagnostics
and Genomics.
The Company's Protein Sciences segment is comprised of the Reagent Solutions and the Analytical Solutions operating segment.
These businesses manufacture consumables used for conducting laboratory experiments by both industry and academic scientists
within the biotechnology and biomedical life science fields. No customer in the Protein Sciences segment accounted for more than
10% of the segment’s net sales for the years ended June 30, 2019, 2018, and 2017.
The Company's Diagnostics and Genomics is comprised of the Diagnostics, Genomics, and Exosome operating segments. The
Diagnostics division consists of the Diagnostics operating segment and develops and manufactures a range of controls and calibrators
used with diagnostic equipment and as proficiency testing tools, as well as other reagents incorporated into diagnostic kits, and the
Genomics division consists of the Genomics and Exosome operating segments and sells a portfolio of clinical molecular diagnostic
oncology assays, as well as tissue-based in-situ hybridization assays for research in clinical use. No customer in the Diagnostics and
Genomics segment accounted for more than 10% of the segment’s net sales for the fiscal years ended June 30, 2019, 2018, and
2017.
There are no concentrations of business transacted with a particular customer or supplier or concentrations of revenue from a
particular product or geographic area that would severely impact the Company in the near term.
59
Following is financial information relating to the operating segments (in thousands):
Net sales:
Protein Sciences
Diagnostics and Genomics
Intersegment
Consolidated net sales
Operating Income:
Protein Sciences
Diagnostics and Genomics
Segment operating income
Costs recognized upon sale of acquired inventory
Amortization of acquired intangible assets
Acquisition related expenses
Restructuring costs
Stock-based compensation
Corporate general, selling and administrative expenses
Consolidated operating income
2019
Year Ended June 30,
2018
2017
$
$
$
$
543,159 $
171,674
(827 )
714,006 $
240,919 $
10,079
250,998
(3,739 )
(58,550 )
(2,282 )
-
(33,057 )
(6,651 )
146,719 $
482,378 $
161,151
(536 )
642,993 $
209,880 $
35,496
245,376
(2,455 )
(46,983 )
(24,429 )
(376 )
(28,240 )
(6,715 )
136,178 $
419,365
143,742
(104 )
563,003
184,095
29,291
213,386
(3,037 )
(44,393 )
(25,789 )
-
(14,631 )
(4,952 )
120,584
The Company has some integrated facilities that serve multiple segments. As such, asset and capital expenditure information by
reportable segment has not been provided and is not available, since the Company does not produce or utilize such information
internally. In addition, although depreciation and amortization expense is a component of each reportable segment’s operating
results, it is not discretely identifiable.
The Company has disclosed sales by geographic area based on the location of the customer or distributor in Note 2. The Company
has disclosed dissagregated product and service revenue by consumables, instruments, and services in Note 2. The Company
considers total instrument and total service revenue to represent similar groups of products in the fiscal years presented. The
Company considered our consumables sold in the Protein Sciences and Diagnostics and Genomics segments to represent different
groups of products and therefore have separately disclosed the related consumables revenue (in thousands) :
Consumables revenue - Protein Sciences
Consumables revenue - Diagnostics and Genomics
Total consumable revenue
2019
Year Ended June 30,
2018
2017
$
$
430,655 $
158,324
588,979 $
384,350 $
150,388
534,738 $
341,611
134,930
476,541
The following is financial information relating to geographic areas (in thousands):
Long-lived assets:
United States and Canada
Europe
Asia
Total long-lived assets
Intangible assets:
United States and Canada
Europe
Asia
Total intangible assets
Year ended June 30,
2019
2018
$
$
$
$
138,016 $
14,439
1,584
154,039 $
556,951 $
16,637
5,841
579,429 $
129,360
14,597
1,391
145,348
417,430
21,386
7,516
446,332
Long-lived assets are comprised of land, buildings and improvements and equipment, net of accumulated depreciation and other
assets.
60
Note 13. Quarterly Financial Data (unaudited):
(in thousands, except per share data)
2019
Net sales
Cost of sales
Net earnings
Earnings per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
(in thousands, except per share data)
2018
Net sales
Cost of sales
Net earnings(1)
Earnings per common share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
162,970 $
55,367 $
17,403 $
174,510 $
61,492 $
17,556 $
184,861 $
60,251 $
44,654 $
191,664 $
63,405 $
16,459 $
Year
714,006
240,515
96,072
0.46 $
0.45 $
0.46 $
0.45 $
1.18 $
1.15 $
0.43 $
0.42 $
2.54
2.47
37,697
38,813
37,766
38,748
37,772
38,861
37,881
39,135
37,781
38,892
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
144,613 $
46,745 $
154,153 $
52,319 $
163,973 $
53,712 $
180,254 $
58,074 $
Year
642,993
210,850
15,863 $
48,847 $
19,738 $
41,701 $
126,150
0.42 $
0.42 $
1.30 $
1.29 $
0.53 $
0.52 $
1.09 $
1.07 $
3.36
3.31
$
$
$
$
$
$
$
$
$
$
Weighted average common shares outstanding:
Basic
Diluted
37,376
37,705
37,449
37,926
37,503
38,142
37,585
38,347
37,476
38,055
(1) Net earnings in total and per share do not sum due to rounding
Note 14. Subsequent Events:
None
61
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Bio-Techne Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Bio-Techne Corporation and subsidiaries (the Company) as of
June 30, 2019 and 2018, the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and
cash flows for each of the years in the three-year period ended June 30, 2019, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the years in
the three-year period ended June 30, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of June 30, 2019, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated August 28, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, effective July 1, 2018, the Company adopted FASB Accounting
Standards Codification (Topic 606), Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Initial fair value measurement of the developed technology and trade name intangible assets acquired in certain acquisitions
As discussed in Note 2 to the consolidated financial statements, the acquisition of QT Holdings Corporation, Exosome
Diagnostics, Inc. and B-MoGen Biotechnologies, Inc. resulted in the recording of developed technology and trade name
intangible assets of $131.3 million and $58.0 million, respectively. The determination of the acquisition date fair value of the
62
developed technology and trade name assets required the Company to make significant estimates and assumptions regarding
future revenue growth rates, and discount rates.
We identified the initial fair value measurement of the developed technology and trade name assets acquired in these transactions
as a critical audit matter. Testing the assumptions regarding future revenue growth rates, and discount rates, which were used to
calculate the fair values, involved a high degree of subjectivity. In addition, the fair values of these intangible assets were
challenging to audit due to the sensitivity of the fair value determination to changes in these assumptions.
We performed audit procedures, including our primary procedures described below, to address this critical audit matter. We
tested certain internal controls over the Company’s acquisition-date valuation process, including controls over the development of
the future revenue growth rates, and discount rates. We performed sensitivity analyses over the future revenue growth rates to
assess the impact of changes in those assumptions on the Company’s determination of the fair value of the intangible assets. We
challenged the future revenue growth rates used by the Company to determine forecasted revenues, by comparing them to
industry benchmarks and data, as well as evaluated the relevance and reliability of third-party market data points used to develop
the future revenue growth rates. We evaluated the Company’s assumptions for the timing of product release used to support the
future revenue growth rate by comparing them to industry benchmarks, based on the type of product and stage of the testing
trials. Finally, we involved a valuation professional with specialized skills and knowledge, who assisted in evaluating the discount
rate used by the Company, by comparing it against a discount rate range that was independently developed using publicly
available market data for comparable entities. They also assisted in developing an estimate of the intangible assets acquired using
the Company’s cash flow forecast and an independently developed discount rate. We compared the results of our estimate of fair
value to the Company’s fair value estimate.
Fair value measurement of the contingent consideration liabilities related to certain acquisitions
As discussed in Note 2 to the consolidated financial statements, the initial fair value of the contingent consideration liabilities for
the QT Holdings Corporation, Exosome Diagnostics, Inc. and B-MoGen Biotechnologies, Inc. acquisitions was $5.3 million,
$3.8 million and $5.5 million, respectively. The contingent consideration liabilities are re-measured each reporting period, with a
maximum payout of $51 million, $325 million and $38 million for QT Holdings Corporation, Exosome Diagnostics, Inc. and B-
MoGen Biotechnologies Inc., respectively. The determination of the fair value of the contingent consideration liabilities requires
the Company to make significant estimates and assumptions. These estimates and assumptions include the future revenue growth
rates, including the timing of product release, and discount rates. The measurement of the fair value of contingent consideration
for Exosome Diagnostics, Inc. also includes an estimate of future earnings before income taxes and amortization (EBITA).
We identified the initial measurement of the contingent consideration liabilities for these transactions as a critical audit matter
because testing certain of the assumptions involved a high degree of subjectivity. In addition, auditing the Company’s simulation
and milestone based models, which were used to determine the fair value of the contingent consideration liabilities, involved
complex and challenging auditor judgment as the inputs to such models do not have directly observable market inputs.
We performed audit procedures, including our primary procedures described below, to address this critical audit matter. We
tested certain internal controls over the Company’s acquisition-date valuation process for contingent consideration liabilities,
including controls over the future revenue growth rates, including the timing of product release, discount rates, and EBITA
assumptions. We performed sensitivity analyses over the timing of product release, revenue growth rates and EBITA
assumptions. These sensitivity analyses assessed the impact of changes in these assumptions on the Company’s determination of
the fair value of the contingent consideration liabilities. We challenged the revenue growth rate and EBITA assumptions used in
the Company’s simulation and milestone-based models by comparing the inputs to industry benchmarks and other relevant and
reliable third-party market data. We evaluated the product release timing assumptions by comparing them to industry
benchmarks, based on the type of product and stage of the testing trials. Finally, we involved a valuation professional with
specialized skills and knowledge, who assisted in evaluating the discount rate by comparing it against ranges that were
independently developed using publicly available market data for comparable entities. Additionally, the valuation professional
assisted in the evaluation of the Company’s selection of an appropriate valuation method for the contingent consideration. They
also assisted in developing an estimate of the initial fair values of the contingent consideration liabilities using simulation and
milestone-based models and an independently developed discount rate. We used such inputs to calculate in independent estimate
of fair value using the simulation and milestone based models developed by the Company. We compared the results of our
estimate of fair value for the contingent consideration liabilities to the Company’s fair value estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Minneapolis, Minnesota
August 28, 2019
63
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Bio-Techne Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Bio-Techne Corporation and subsidiaries’ (the Company) internal control over financial reporting as of June 30,
2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2019, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of June 30, 2019 and 2018, the related consolidated statements of
earnings and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended
June 30, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated August 28, 2019
expressed an unqualified opinion on those consolidated financial statements.
The Company acquired QT Holdings Corporation, Exosome Diagnostics, Inc. and B-MoGen Biotechnologies, Inc. during fiscal
2019 and management excluded from its assessment of the effectiveness of the Company’s internal control over financial
reporting as of June 30, 2019, QT Holdings Corporation, Exosome Diagnostics, Inc. and B-MoGen Biotechnologies, Inc.’s
internal control over financial reporting associated with total assets of 17.2% and total revenue of 0.5% included in the
consolidated financial statements of the Company as of and for the year ended June 30, 2019. Our audit of internal control over
financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of QT Holdings
Corporation, Exosome Diagnostics, Inc. and B-MoGen Biotechnologies, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Minneapolis, Minnesota
August 28, 2019
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this report, the
effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). The evaluation was based
upon reports and certifications provided by a number of executives. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of June 30, 2019, our disclosure controls and procedures were effective.
(b) Management's Annual Report on Internal Control Over Financial Reporting
The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting also includes those policies and procedures
that:
(i) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company;
(ii)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is
a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented
or detected on a timely basis.
We acquired QT Holding Corporation (Quad) on July 2, 2018, Exosome Diagnostics Inc. (Exosome) on August 1, 2018, and BMG
Merger Sub, Inc (B-Mogen) on June 4, 2019 . Quad, Exosome, and B-Mogen represented approximately 17.2% of our total assets
and 0.5% of our total revenues as of and for the year ended June 30, 2019. We excluded internal control over financial reporting
associated with Quad, Exosome, and B-Mogen from our assessment of the effectiveness of our internal control over financial
reporting as of June 30, 2019.
Under the supervision of the Audit Committee of the Board of Directors and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting using the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria, our Chief
Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of June
30, 2019.
The attestation report on our internal control over financial reporting issued by KPMG LLP appears in Item 8 of this report.
65
(c) Changes in Internal Control Over Financial Reporting
As previously announced, we acquired Quad on July 2, 2018, Exosome on August 1, 2018, and B-Mogen on June 4, 2019. We
have not fully evaluated any changes in internal control over financial reporting associated with these acquisitions and
therefore any material changes that may result from these acquisitions have not been disclosed in this report. We intend to
disclose all material changes resulting from these acquisitions within or prior to the time of our first annual assessment of
internal control over financial reporting that is required to include these entities.
We acquired Trevigen Inc (Trevigen) on September 5, 2017, Atlanta Biologicals (Atlanta) on January 2, 2018, and Eurocell
Diagnostics SAS (Eurocell) on February 1, 2018, and we have implemented our internal control structure over these and
incorporated its operations into our assessment of internal control over financial reporting as of June 30, 2019. We have
extended our oversight and monitoring processes that support internal control over financial reporting to include the operations
of these entities.
There were no other changes in the Company's internal control over financial reporting during fiscal year 2019 that have
materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
None.
ITEM 9B. OTHER INFORMATION
66
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than "Executive Officers of the Registrant" which is set forth at the end of Item 1 in Part I of this report, the information
required by Item 10 is incorporated herein by reference to the sections entitled "Election of Directors," "Principle Shareholders"
and "Additional Corporate Governance Matters" in the Company's Proxy Statement for its 2019 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the
fiscal year for which this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the sections entitled "Election of Directors" and
"Executive Compensation" in the Company's Proxy Statement for its 2019 Annual Meeting of Shareholders which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by Item 12 is incorporated by reference to the sections entitled "Principal Shareholders" and "Management
Shareholdings" in the Company's Proxy Statement for its 2019 Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this
report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference to the sections entitled "Election of Directors" and "Additional
Corporate Governance Matters" in the Company's Proxy Statement for its 2019 Annual Meeting of Shareholders which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for
which this report is filed.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to the section entitled "Audit Matters" in the Company's
Proxy Statement for its 2019 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.
67
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K:
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended June 30, 2019, 2018, and 2017
Consolidated Balance Sheets as of June 30, 2019 and 2018
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the Years Ended June 30, 2019, 2018, and 2017
Notes to Consolidated Financial Statements for the Years Ended June 30, 2019, 2018, and 2017
Reports of Independent Registered Public Accounting Firm
A. (2) Financial Statement Schedules.
All financial statement schedules are omitted because they are not applicable, not material or the required information is shown
in the Consolidated Financial Statements or Notes thereto.
A. (3) Exhibits.
68
EXHIBIT INDEX
for Form 10-K for the 2019 Fiscal Year
Exhibit
Number
3.1
3.2
10.1**
10.2**
10.3**
10.4**
10.5**
10.6**
10.7**
10.8**
10.9**
Description
Amended and Restated Articles of Incorporation of the Company--incorporated by reference to Exhibit 3.1 of the
Company's Form 10-Q dated February 9, 2015*
Third Amended and Restated Bylaws of the Company--incorporated by reference to Exhibit 3.1 of the Company’s Form
8-K dated February 1, 2018*
Management Incentive Plan--incorporated by reference to Exhibit 10.13 of the Company's Form 10-K for the year ended
June 30, 2013*
Second Amended and Restated 2010 Equity Incentive Plan--incorporated by reference to Exhibit 10.1 of the Company's
Form 8-K dated October 26, 2017*
Form of Restricted Stock Award Agreement for Second Amended and Restated 2010 Equity Incentive Plan--incorporated
by reference to Exhibit 10.6 of the Company's Form 8-K dated October 26, 2017*
Form of Restricted Stock Unit Award Agreement for Second Amended and Restated 2010 Equity Incentive Plan attached
as Exhibit 10.4 hereto
Form of the Performance Unit Award Agreement for Second Amended and Restated 2010 Equity Incentive Plan attached
as Exhibit 10.5 hereto
Form of Incentive Stock Option Agreement for Second Amended and Restated 2010 Equity Incentive Plan--attached as
Exhibit 10.6 hereto.
Form of Employee Non-Qualified Stock Option Agreement for Second Amended and Restated 2010 Equity Incentive
Plan--attached as Exhibit 10.7 hereto.
Form of Director Non-Qualified Stock Option Agreement for Second Amended and Restated 2010 Equity Incentive Plan-
-incorporated by reference to Exhibit 10.2 of the Company's Form 8-K dated October 26, 2017*
Employment Agreement by and between the Company and Charles Kummeth--incorporated by reference to Exhibit 10.11
of the Company's Form 10-K dated September 7, 2017*
10.10**
Form of Employment Agreement by and between the Company and Executive Officers of the Company other than the
CEO--incorporated by reference to Exhibit 10.12 of the Company's Form 10-K dated September 7, 2017*
10.11
Credit Agreement by and among the Company, the Guarantors party thereto, the Lenders party thereto, and BMO Harris
Bank N.A., as Administrative Agent, dated August 1, 2018--incorporated by reference to Exhibit 10.1 of the Company's
Form 8-K dated August 2, 2018*
10.12**
Form of Indemnification Agreement entered into with each director and executive officer of the Company--incorporated
by reference to Exhibit 10.1 of the Company's Form 10-Q dated February 8, 2018*
10.13
10.14
Agreement and Plan of Merger by and among the Company, Aero Merger Sub Inc., Advanced Cell Diagnostics, Inc. and
Fortis Advisors, LLC as the Securityholders’ Representative, dated July 6, 2016--incorporated by reference to Exhibit 2.1
of the Company's Form 8-K dated July 7, 2016*
Agreement and Plan of Merger between the Company, Enzo Merger Sub. Inc., Exosome Diagnostics, Inc. and The
Securityholders Representative, dated July 25, 2018--incorporated by reference to Exhibit 2.1 of the Company's Form 8-
K dated June 25, 2018*
69 Exhibit
Number
Description
21
23
31.1
31.2
32.1
32.2
101
Subsidiaries of the Company
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Earnings and
Comprehensive Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Shareholders' Equity,
(iv) the Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements.
-------------
*
** Management contract or compensatory plan or arrangement
Incorporated by reference; SEC File No. 000-17272
Exhibits for Form 10-K have not been included in this report. Exhibits have been filed with the Securities and Exchange Commission.
Upon request to the Investor Relations Department, Bio-Techne Corporation will furnish, without charge, any such exhibits as well
as copies of periodic reports filed with the Securities and Exchange Commission.
None.
ITEM 16. FORM 10-K SUMMARY
70 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: August 28, 2019
BIO-TECHNE CORPORATION
/s/ Charles Kummeth
By: Charles Kummeth
Its: President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Date
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
August 28, 2019
Signature and Title
/s/ Robert V. Baumgartner
Robert V. Baumgartner
Chairman of the Board and Director
/s/ Rupert Vessey
Dr. Rupert Vessey, Director
/s/ Joseph Keegan, Ph.D.
Dr. Joseph Keegan, Director
/s/ John L. Higgins
John L. Higgins, Director
/s/ Roeland Nusse, Ph.D.
Dr. Roeland Nusse, Director
/s/ Alpna Seth, Ph.D.
Dr. Alpna Seth, Director
/s/ Randolph C. Steer, Ph.D., M.D.
Dr. Randolph C. Steer, Director
/s/ Harold J. Wiens
Harold J. Wiens, Director
/s/ Charles Kummeth
Charles Kummeth, Director and Chief Executive Officer
(principal executive officer)
/s/ James Hippel
James Hippel, Chief Financial Officer
(principal financial officer and principal accounting officer)
71 [This page intentionally left blank]
BIO-TECHNE VS. S&P 500 INDEX
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Robert V. Baumgartner
Chairman of the Board and Director
Charles Kummeth
President and Chief Executive Officer
James Hippel
Chief Financial Officer
David Eansor
President, Protein Sciences
Kim Kelderman
President, Diagnostics and Genomics
Brenda Furlow
General Counsel and Corporate Secretary
Charles R. Kummeth
President, Chief Executive Officer and
Director
John L. Higgins
Director
Joseph Keegan, Ph.D.
Director
Roeland Nusse, Ph.D.
Director
Alpna Seth, Ph.D,
Director
Randolph C. Steer, M.D., Ph.D.
Director
Rupert Vessey, M.A., B.M.,
B.Ch., F.R.C.P., D. Phil.
Director
Harold J. Wiens
Director
ANNUAL MEETING
The annual meeting of shareholders will be held at
Bio-Techne Corporation
614 McKinley Place NE
Minneapolis, MN 55413-2610, USA
Thursday, October 24, 2019, at 8:00 a.m. (Central Time).
TECH is Bio-Techne Corporation’s Nasdaq stock symbol, which is listed on the Nasdaq Global Select Market.
Overall, Bio-Techne outperformed the S&P 500 index over the five-year period from the end of fiscal 2014 to the end of
fiscal 2019. We are proud of Bio-Techne’s long-term record but, as always, past performance should not be interpreted as
an indication of future performance.
F ORWA RD LOOK ING STATE ME NT S
Certain statements
in this
letter may constitute
forward-looking statements as defined in the U.S.
Private Securities Litigation Reform Act of 1995.
Forward-looking statements reflect the Company’s
current views with respect to future events and
financial performance and include any statement that
does not directly relate to a current or historical fact.
Forward-looking statements can generally be
identified by the words “believe,” “expect,” “anticipate”
or “intend” or similar words. There are a number of
risks and uncertainties that could affect actual results.
For additional information concerning such risks and
uncertainties, see the section titled “Risk Factors” in
the Company’s annual report on Form 10-K and
quarterly reports on Form 10-Q as filed with the
Securities and Exchange Commission. We undertake
no obligation to update or revise any forward-looking
statements due to new information or future events.
Investors are cautioned not to place undue emphasis
on these statements.
Bio-Techne Corporation
614 McKinley Place NE
Minneapolis, MN 55413-2610, USA
(612) 379-8854