2020 ANNUAL REPORT
INNOVATION
UNLEASHED
2
3Pre-COVID-19, we were on track to have the best year in the past seven, tracking north of 10% organic growth for the year. With the virus and the ensuing shutdown of most of our academic markets and urology centers, we hit a pause on our growth. We exited Q3 with 6% organic growth, but then the full weight of our markets being shut down resulted in a Q4 decline of (8%). For the full fiscal year we managed to grow 4%, but this is clearly not the result we were looking for. What does this mean? The investor community remained optimistic about our future for two reasons: first, we pivoted a portion of the company toward COVID-19 solutions; and second, we all expect research funding to come back stronger than ever next year given the new importance placed on being better prepared for pandemics. Life Science research has never been so interesting to so many. It seems everyone in the world now knows what an Antibody does! Company revenue for the year topped $739MM. We see an incredible future ahead in fiscal year 2021 with our core products coming back into focus, academic labs reopening, and our expanding COVID-19 solutions finding full traction. Our most exciting COVID-19 solution is our best in class and fully quantitative serological test, which can determine if a patient has not only been exposed to the virus, but also their level of immunity. It took a great effort by our team of researchers, together with the team at Mount Sinai, to create a world class test. As of this printing, there have been over 60,000 patients treated by Mount Sinai and our test looks to be the most specific and accurate serology test so far. Hopefully, in the coming months we will see several vaccines enter the market as well. We intend to sell our test to vaccine makers too, given it is exactly what they need to fully test the efficacy of their vaccines. While our latest initiative into serological testing is exciting, it is by no means the only exciting thing we have going on here at Bio-Techne. Our GMP factory is on schedule for qualification in the Fall of 2020 and production in January 2021. This $50 million investment is the cornerstone of our emerging Cell and Gene Therapy business unit. Currently, our GMP proteins business is growing at triple-digit rates. The remainder of the business unit, comprised of our TcBuster™ gene editing platform and Cloudz™ polymeric beads, are finding traction with biopharma companies in many successful pre-clinical studies. To be able to offer a complete Cell and Gene Therapy workflow, we created a Joint Venture with Fresenius Kabi and Wilson Wolf to offer not only world class bioreactors, but also a state of the art leukapheresis instrument for cell aggregation. Finally, our next exciting new testing platform is our ExosomeDx solution, the ExoDx™ Prostate Test, which is intended as a risk assessment tool for cancer diagnostics, intended for men 50+ years, with a PSA in the “gray zone” 2-10ng/mL, who are considering a biopsy. This test was off to a roaring start earlier this year, but our market is reliant on open urology practices which mostly have shut down during the pandemic. They are now re-opening and we also introduced an at-home sample collection kit for this diagnostic test which is seeing good initial acceptance. PANDEMIC! 4Even with the COVID-19 impact to our business, we managed to add 100+ people to the company, resulting in an employee count of just over 2,300 worldwide. We focused on keeping our expenses down and held our EBITA margins within an acceptable range to eliminate any need to restructure or furlough employees. We see COVID-19 as a one-year problem and are confident we can return to pre-COVID-19 level growth rates. The new company segment structure (Protein Science and Genomics/Diagnostics) is working well. Currently the 5 divisions are: Research Reagents (RSD) and Analytical Solutions (ASD) in the Protein Science segment and Diagnostics Reagents, Genomics and ExosomeDx in the Genomics/Diagnostics segment. RSD had a very good year until the COVID-19 situation arose and finished near flat growth. This is the division from which most of the resources were pivoted to build our serological COVID-19 test, even though the test itself falls within our Assay business. We remain very strong in RSD in both proteins and antibodies, with hundreds of new products launched. We did a fair amount of custom design work for both proteins and antibodies and this year was a record year for us. Our cell and gene therapy initiative also resides within RSD, which currently is about $30MM in revenue but expected to surpass $300MM in 5 years. ASD had a satisfactory year with growth of 6%, being less affected by COVID-19 due to a strong biopharma customer base. We had impressive growth in our biologics platform; Maurice posted a 14% increase and our Multiplex Immunoassay platform, Ella, finished with 30% growth due to strong COVID-19 applications in both research and patient monitoring activities. Simple Western instruments finished soft with 3% growth due to the weak academic market but we remain firm in our view that replacing manual western blots in labs is still in a low double-digit share position with years of upside left to go. Diagnostics Reagents, with 6% growth, had the best year in the seven years I have been with the company. We have worked hard improving the product and customer pipeline, and the division also benefited from selling antibodies and other components to global diagnostic players for COVID-19 solutions. OUR BUSINESSES Genomics met similar academic headwinds to our RSD and
Simple Western businesses, although we see strong traction
with our new HiPlex RNA-Scope product line.
Our ExosomeDx business started the year off extremely well,
leveraging the Local Coverage Determination from NGS
which allowed Medicare to reimburse for the test to eligible
patients. We also published a clinical utility study based on
500 patients that is being well received by both regional
and national private payers, and which we expect will speed
up our ability to scale this business. Urologists have shut
down their offices during the pandemic. To counter this, we
developed an at-home sample collection kit that allows the
urologist to prescribe the test by phone. We process and
deliver the results back to the patient via their urologist.
We have had very good acceptance with this new sample
collection kit and it will further accelerate the acceptance
of the test as we see urologists reopening their clinics. A
bright future still lies ahead for exosomes as a platform for
the company.
Moving to our international operations, EMEA struggled
a bit all year coming off of two plus years of double-digit
growth but ended this year with low single-digit growth,
mainly due to the COVID-19 impact. We have made some
commercial leadership changes and further expanded our
subsidiary model in Europe, both of which appeared to be
working. The pandemic then hit and, similar to the Americas,
academia shut down. Europe is now opening back up country
by country, with the UK being last. We are very bullish on
EMEA getting back to high single-digit growth as we further
expand our platforms, especially with cell therapies, GMP
proteins, biologics instruments, Simple Plex and Simple
Western. All have a bright future. APAC, including China, had
a great year regardless of COVID-19. While China had mid-
single-digit growth in Q3, performance accelerated back to
24% in Q4, ending the year at 18%. APAC was similar but
less so. Japan, Korea, Singapore and India all had decent
results, collectively ending at 7% for the year. We are very
excited to see all of APAC returning back to normality, with
the exception of India, which we expect will take a while
longer to recover.
5
6NEW PLATFORMS FOR ACCELERATED GROWTHLast year we introduced our new cell and gene therapy platform and expanded our ExosomeDx business unit. This year with COVID-19, we have pivoted over 150 employees, mostly technical, to create new solutions for analysis and testing for SARS-CoV-2. Our cell and gene therapy business is growing fast and we completed a joint venture this year that gives us a near complete workflow. The first significant revenue will start in 2021 with the opening of our new GMP factory in St. Paul, Minnesota. We expect to hit our estimates of high double-digit cell and gene therapy growth in the coming year and reach a level of revenue to warrant its own division status by 2025. Currently, GMP proteins are growing 100%+. Cloudz beads and B-MoGen’s TcBuster technology use also continue to expand in trials and pre-clinicals. ExosomeDx will be expanding through further urologist reach, Medicare reimbursement via the NGS LCD granted last January, a new utility study conducted on 500 patients that will add credibility and secure more private payers, and finally, a newly launched home sample collection kit that is seeing incredible traction, especially during this COVID-19 lockdown for urologists. Furthermore, we are ready to conduct clinical studies on bladder cancer and kidney rejection tests, as well as two blood-based tests for lung and breast cancer. For these, we are soliciting partnerships. Personalized medicine workflow associated with generating gene edited CAR-T cells and the various steps and technologies involved in the process, including how Bio-Techne products address the multiple processing steps.White blood cells obtained from patient through leukapheresisLeukapheresisAntibody-coated beads used to activate the T cellsCloudzTMCAR T cells are transfused back into the patient and Ella is used to monitor Cytokine Release Syndrome (CRS)Patient receives lymphodepleting chemotherapy prior to T cell treatmentEllaTMSimple PlexTM Assays2781 NEW PLATFORMS FOR ACCELERATED GROWTH
3
TcBusterTM
Activated T cells are
reprogrammed to express
Chimeric Antigen
Receptors (CARs)
1
Electroporation of TcBuster platform
ITR
CARGO
ITR
Transient expression
TcB mRNA
2
TcB protein
CARGO
3
CARGO
4
CARGO
5
GOI mRNA
Stable expression
Schematic overview of TcBuster mechanism
of transposition. 1. TcB transposase mRNA and
transposon DNA are introduced into the cell. 2. Protein
from TcB mRNA is produced. 3. TcB transposase
transposon plasmid.
cuts
the cargo
from
the
4. TcB transposase pastes the transposon cargo into
the genomic DNA. 5. Cargo mRNA is stably expressed
from the genomic DNA. This example illustrates stable
expression of a receptor protein, such as a CAR.
4
RNAScopeTM
Reprogrammed T cells
are screened for CAR
gene expression
5
• GMP Proteins
• ProDotsTM
CARs expressing T cells are expanded ex vivo
6
• Immunocytochemistry
• Flow Cytometry Antibodies
Expanded T cells are tested for CAR expression
7
8In May 2020, Bio-Techne and the Mount Sinai Health System in New York, through its commercial affiliate Kantaro Biosciences LLC (Kantaro), formed a partnership to initiate scaled manufacturing and distribution of testing kits for the Mount Sinai-developed COVID-19 serology test. Kantaro Biosciences is a joint venture between Mount Sinai Health System (“Mount Sinai”) and Renalytix AI (NASDAQ: RNLX) formed exclusively to ensure that diagnostic tests for critical health challenges are accessible to all. The Mount Sinai COVID-19 serology test was the first widely published serology test and has gained recognition as the gold standard to which subsequent tests have been compared. Kantaro has partnered with Bio-Techne for the scaleup, manufacture, sale and distribution of the tests. Mount Sinai was issued an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) for clinical testing in its CLIA certified laboratory on April 15th. Based on this success, Bio-Techne and Mount Sinai partnered to develop high-quality production test kits which can be manufactured and distributed globally at scale. Kantaro is leading the regulatory processes and recently applied for an EUA for a quantitative test as well as a similar EUA application for the Bio-Techne manufactured version of the kit. Kit shipments are expected to begin immediately following the receipt of FDA regulatory authorization. The IgG antibody test kit, an enzyme-linked immunosorbent assay or ELISA, measures the presence or absence of anti-SARS-CoV-2 antibodies in addition to measuring the titer (level) of antibodies a person has produced. It utilizes not one but two virus antigens, the full-length Spike protein, and its Receptor Binding Domain, which is necessary for viral entry into cells, and is potentially linked with virus neutralization. Based on performance data for the Mount Sinai assay, and assuming a 5% incidence of COVID-19 in the test population, the test has a Positive Predictive Value (the probability of disease if the test is positive) of 100% and a Negative Predictive Value (the probability of no disease if the test is negative) of 99.6%. The test uses a simple patient blood draw and is easily run by any laboratory in the world without costly proprietary equipment. The technology underlying the diagnostic test was created by internationally recognized virology and pathology teams from the Icahn School of Medicine at Mount Sinai. COVID-19 SEROLOGY TEST 9Our strategies remain unchanged from last year andthe year before. We rely on a balanced approach of product innovation, geographic expansion and M&A to continue and further accelerate our growth. In detail, our strategies are the following:• Expand regionally with smaller ”tuck-in” acquisitions. • Invest further in GMP grade reagents, focusing on supporting the rapidly expanding immunotherapeutic 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 Advanced Cell Diagnostics and Exosome Diagnostics platforms as well as moving closer to therapeutic applications of gene edited cell therapy using efficient non-viral vector gene delivery, such as TcBuster, and Cloudz technology for optimal cellular activation in the areas of 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. • Not a long-term strategy, but certainly for the next 2-3 years we will focus on commercializing best in class products and diagnostics to help the world eliminate COVID-19. STRATEGIC DIRECTIONRendering of our new GMP Manufacturing Facility 10As we look toward continued growth of our business in the future, we are guided by the opportunity, and what we believe is our responsibility, to support the discovery, development and delivery of life-changing science, and to do so in a sustainable, socially responsible manner. This commitment guides how we interact with our stakeholders, govern our company, and address our environmental and societal impact. While we have update to comeCORPORATE SUSTAINABILITYfocused for years on integrating our purpose, culture and responsibility across all aspects of our business, we are for the first time this year reporting on those efforts in an initial Corporate Sustainability Report. It is available on our website. This inaugural Corporate Sustainability Report highlights the ways Bio-Techne is making a difference for our customers, shareholders, employees, and society overall. FISCAL YEAR ENDS: JUNE 30FY 2020 REVENUES: $739MFY 2020 ADJ. GROSS MARGIN: 70.3%FY 2020 ADJ. OP INC.: $245.9MFY 2020 ADJUSTED EPS: $4.55FY 2020 MARKET CAP: ~$10.0BGLOBAL FOOTPRINT43 YEARSQUALITY PRODUCTS350,000MANUFACTURING & SOURCING REAGENTS CITATIONS GENERATED USING OUR PRODUCTS625,000 2,300+EMPLOYEES GLOBALLY 11• Adjusted earnings were $179 million, about 2% more than last year. Adjusted earnings per share were $4.55, +1% over last year. Currency exchange impacted earnings per share negatively by $0.04, or approximately 1%. • Overall, revenue increased 3.5% to $739 million. Organic revenue growth was 3.8% over the prior year, with currency translation and acquisitions contributing having an immaterial impact on growth. • Adjusted operating margins for the year were 33%, about flat to last year due to the business impacts associated with the COVID-19 pandemic. • Cash from operations was $205 million for the year and we returned $49 million to our shareholders in the form of dividends. Prior to COVID-19 appearing on the scene in March, after nearly three quarters we were on track to have another year over 10% organic growth. We ended the third quarter with mid-single-digit growth, but the near complete shutdown of our academic market led to a negative high single-digit organic growth in HIGHLIGHTS OF OUR FISCAL 2020 PERFORMANCE:the fourth quarter. We see things opening back up now and we see a brighter future in a year with the expectation of increased funding for research due to the widespread damage and fear that COVID-19 caused globally. FISCAL YEAR ENDS: JUNE 30FY 2020 REVENUES: $739MFY 2020 ADJ. GROSS MARGIN: 70.3%FY 2020 ADJ. OP INC.: $245.9MFY 2020 ADJUSTED EPS: $4.55FY 2020 MARKET CAP: ~$10.0BFINANCIAL PERFORMANCE IN FISCAL 2020CITATIONS GENERATED USING OUR PRODUCTSEMPLOYEES GLOBALLY 2016$499M$563M$643M$714M$739M(In thousands, except per share data)Net SalesAdjusted net earnings(1)Adjusted diluted earningsper share(1)Cash flow from operations$134M$140M$173M$175M$179M$3.60$3.72$4.54$4.51$4.55$144M$143M$170M$182M$205M2017201820192020Year Ended June 30,(1) Includes long-term contingent considerations payable.2016$96M$182M$158M$166M$271M(In thousands)Cash, cash equivalentsand available-for-saleinvestmentsTotal assetsLong term deptobligations(1)Stockholder’s equityCommon sharesoutstanding $1,130M$1,593M$1,558M$1,884M$2,028M$130M$339M$347M$502M$344M$879M37,254M$1,079M$950M37,608M37,356M$1,166M37,934M$1,381M38,453M2017201820192020Year Ended June 30,(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 12• GMP-Grade Proteins (hFLT3L, hIL-21, hTPO, hBMP4)• GMP-Grade Antibodies (hCD3, hCD28) • GMP-Grade synthetic small molecules for Regenerative Medicine (CHIR, SB, XAV, Y-27632)• Recombinant Proteins (hErbB2, hTNF-alpha, hPD-1, hDLL4, hDectin-1, CynoCD48, Cyno Klotho-beta, mIFN-alpha), • Prodots (hIL-2, hIL-7, hIL-15)• GMP-Grade T-Cell Expansion Products: Cloudz for Treg cells and ExCellerate media• Small Molecules for Cellular Reprogramming and/or differentiation• Cultrex Optimized Basal Membrane Extract (BME4)NEWPRODUCTSWe had another great year for new products. We launched 283 new proteins, 1,594 new antibodies and 59 new assays as well as north of $12MM in custom product development for Bio/Pharma. This is in light of pivoting a large part of our R&D organization towards COVID-19 new to the world products to assist in the elimination of the disease. Some of the new products we deployed in fiscal 2020 are: • COVID-19 Specific Products:
o Camelid Antibodies: Llama Ab to RBD
o Quantitative Serology assay
o Viral proteins (RBD, S1, N)
o Host Proteins: hTMPRSS2, h,m,rACE2, h,m,CynoCD26)
o Papain-Like Proteases (PLPro, 3CL)
o Antibodies: (RBD, S1, N, E)
o Neutralizing Antibodies
o Antibody reference standards
o Cytokine Storm Syndrome Assays on Ella (IL-1b, IL-6, IL-8 and TNF-a)
o RNAscope viral transcripts expression probes for tissue analysis
• Gene-Edited T-Cells using non-viral TcBuster Vector
• Targeted Degradation Products (CUL2/RBX1, DDB1/DCAF16,
Elongin B/C/VHL)
• GMP-Grade T-Cell Expansion Products: Cloudz for Treg cells and ExCellerate media
• Avitag (biotinylated) Proteins (hVEGF, huPAR, hCRACC, hSiglec-2)
• Small Molecules for Cellular Reprogramming and/or differentiation
• Empower driver for ProteinSimple Biologics Instruments
• Automated hIFN-gamma Western Blot assay on Jess
• RNAscope HiPlex assays for 12-plex RNA analysis
• RNAscope fluorescent multiplex assays
• GMP-Grade Proteins (hFLT3L, hIL-21, hTPO, hBMP4)
• GMP-Grade Antibodies (hCD3, hCD28)
• GMP-Grade synthetic small molecules for Regenerative Medicine (CHIR, SB, XAV, Y-27632)
• Recombinant Proteins (hErbB2, hTNF-alpha, hPD-1, hDLL4, hDectin-1, CynoCD48, Cyno Klotho-beta, mIFN-alpha),
• Prodots (hIL-2, hIL-7, hIL-15)
• Cultrex Optimized Basal Membrane Extract (BME4)
13
A NE W YEA R A HEAD WITH
NEW OPPORT UNI TI ES
Our thesis, to become a $1B+ revenue company with 40%
operating margins and a product portfolio to be envied
by many, remains intact. It’s been a challenging year with
COVID-19 but we will come out of it as a better and much
stronger company. The world will change but life science
increase and benefit our
research funding will
likely
company materially. Our 2,300+ employees are committed
to the science and our customers like never before. I look
forward to the coming year and all it promises to offer. I am
very proud of our teams and their accomplishments this past
year and I look forward to many more to come.
BIO-TECHNE V S. S&P 500 INDE X
06-30-2015
Overall, Bio-Techne outperformed the S&P 500 index over the five-year period from the end of fiscal 2015 to the
end of fiscal 2020 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.
14
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, 2020, 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, 2019 the aggregate market value of the Common Stock held by non-affiliates of the Registrant was $8.4 billion
based upon the closing sale price as reported on The Nasdaq Stock Market ($219.51 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 21, 2020, 38,550,371 shares of the Company’s Common Stock ($0.01 par value) were outstanding.
Portions of the Company’s Proxy Statement for its 2020 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
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
1
9
18
18
18
18
19
21
22
33
34
65
65
66
67
67
67
67
67
68
71
i [This page intentionally left blank]
FORWARD-LOOKING INFORMATION AND CAUTIONARY STATEMENTS
Certain statements included or incorporated by reference in this Annual Report, in other documents we file with or furnish to the
Securities and Exchange Commission (“SEC”), in our press releases, webcasts, conference calls, materials delivered to shareholders
and other communications, are “forward-looking statements” within the meaning of the U.S. federal securities laws. All statements
other than historical factual information are forward-looking statements, including, without limitation, projections of revenue,
expenses, profit, profit margins, tax rates, tax provisions, cash flows, our liquidity position or other projected financial measures;
product releases and strategy, acquisition plans or activity, the competitive environment and market position, 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, future regulatory
approvals and the timing and conditionality thereof, outstanding claims, legal proceedings and other contingent liabilities, the
impact of the current COVID-19 pandemic on our operations or financial results and other statements that address events or
developments that the Company intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,”
“should,” “could,” “plan,” “expect,” “estimate,” “potential,” “forecast,” and similar references to future periods are intended to
identify forward-looking statements, although not all forward-looking statements are accompanied by such words.
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. These forward-looking
statements are subject to a number of risks and uncertainties, including but not limited to the risks and uncertainties set forth in
“Item 1 A. Risk Factors” in this Annual Report. 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 except as required by law.
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, diagnostic, and
bioprocessing 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 2020, we operated under two operating 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 Diagnostics
and Genomics 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 exosomal
based molecular diagnostic 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 lines extend to over
300,000 products, most of which we manufacture ourselves in multiple locations in North America, as well as 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 seven years, we have been implementing 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
1
through 2020 we have acquired sixteen companies that have expanded the product offerings and geographic footprint of both
operating 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.
OUR PRODUCTS AND MARKETS
In fiscal 2020, net sales from Bio-Techne’s Protein Sciences and Diagnostics and Genomics segments represented 75% and 25% 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 Reagent 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, and Novus Biologicals. In 2019,
we acquired Quad Technologies, which has novel Quickgel™ technologies for cell separation and activation, and B-MoGen
Technologies, which has a non-viral, transposon-based technology for gene editing called TcBuster, a key technology targeted for
the cell and gene therapy market. We have now leveraged these and other products we have or are developing in combination with
two additional companies, Wilson Wolf and Fresenius Kabi, to provide a more complete offering 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. Most recently, in
collaboration with Mount Sinai Hospital and its commercial entity, Kantaro Biosciences, we relied on that expertise to rapidly
develop and commercialize an immunoassay kit intended to test for antibodies to COVID-19.
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 and 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
that supports our market presence in North America and leverages 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 2020, 2019 or 2018.
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
2
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 Shimadzu, Thermo Fisher and Waters.
We believe our competitive position is strong due to the unique aspects of our products and our product quality.
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 2019.
Diagnostics and Genomics Segment
The Diagnostics and Genomics segment also includes two divisions focused primarily in the diagnostics market – the Diagnostics
Reagents division and the Genomics division.
Diagnostics and Genomics Segment Products
The Diagnostic Reagents 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.
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 urine-based assay for early detection of high-grade prostate
cancer used as an aid in deciding the need for an initial biopsy.
Diagnostics and Genomics Segment Customers and Distribution Methods
The majority of Diagnostic Reagents Division's sales are through OEM agreements, but we sell some of our diagnostics reagents
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. In the United
States, we offer test services to physicians using our lab-developed non-invasive urine-based assay for prostate cancer detection. Our
diagnostic laboratory is certified under and regulated by the State of Massachusetts pursuant to the Clinical Laboratory Improvement
Amendments, or CLIA. Customers are physicians prescribing such tests for their patients.
3
No customers accounted for 10% or more of the reporting segment's consolidated net sales during fiscal years 2020, 2019, or 2018.
Diagnostics and Genomics Segment Competitors
In the Diagnostics Reagents 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.
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 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, most of our business in this
segment come from 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 2019.
The following discussion includes information common to both of the Company’s segments.
4
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:
North America
Europe
Asia
Total long-lived assets
Intangible assets:
North America
Europe
Asia
Total intangible assets
2020
Year Ended June 30,
2019
2018
$
$
404,407 $
155,289
30,411
60,362
68,792
19,430
738,691 $
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
Year ended June 30,
2020
2019
$
$
$
$
162,039 $
13,120
1,670
176,829 $
499,875 $
12,349
4,321
516,545 $
138,016
14,439
1,584
154,039
556,951
16,637
5,841
579,429
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 response to the global
pandemic that emerged in early 2020, we diverted some of our development resources to new and existing products to meet the
needs associated with COVID-19, including a major effort by the development teams in our Protein Sciences Segment to develop a
diagnostic immunoassay for testing antibodies to COVID-19. 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
2020
Year Ended June 30,
2019
2018
43,022
22,170
-
65,192 $
40,735
21,678
-
62,413 $
40,996
14,095
239
55,329
9 %
9 %
9 %
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, 2020, we had rights to 258 granted patents and approximately 225 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
5
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.
We can give no assurance 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 Reagents 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.
LAWS AND REGULATIONS
Our operations, and some of the products we offer, are subject to a number of complex laws and regulations governing the
production, marketing, handling, transportation and distribution of our products and services. The following sections describe
certain significant regulations pertinent to the Company. These are not the only regulations that the Company’s business. For a
description of risks related to laws and regulations to which we are subject, refer to Item 1.A. Risk Factors.”
Medical Device Regulations and Other Healthcare Laws.
A number of our products are classified as medical devices and are subject to restrictions under domestic and foreign laws, rules,
regulations, self-regulatory codes and orders, including but not limited to the U.S. Food, Drug and Cosmetic Act (the
“FDCA”). The FDCA requires these products, when sold in the United States, to be safe and effective for their intended uses and
to comply with the regulations administered by the U.S. Food and Drug Administration (“FDA”). The FDA regulates the design,
development, testing, manufacture, advertising, labeling, packaging, marketing, distribution, import and export and record
keeping for such products. Many medical device products are also regulated by comparable agencies in non-U.S. countries in
which they are produced or sold.
Any medical devices we manufacture and distribute are subject to pervasive and continuing regulation by the FDA and certain
state and non-U.S. agencies. As a medical device manufacturer, our manufacturing facilities are subject to inspection on a routine
basis by the FDA. We are required to adhere to the Current Good Manufacturing Practices (“CGMP”) requirements, as set forth
in the Quality Systems Regulation (“QSR”), which require manufacturers, including third-party manufacturers, to follow stringent
design, testing, control, documentation and other quality assurance procedures during all phases of the design and manufacturing
process.
We must also comply with post-market surveillance regulations, including medical device reporting, or MDR, requirements which
require that we review and report to the FDA any incident in which our products may have caused or contributed to a death or
serious injury. We must also report any incident in which our product has malfunctioned if that malfunction would likely cause
or contribute to a death or serious injury it if were to recur.
Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade
Commission. Medical devices approved or cleared by the FDA may not be promoted for unapproved or uncleared uses, otherwise
known as “off-label” promotion. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion
of off-label uses.
In the European Union (“EU”), our products are subject to the medical device laws of the various member states, which are
currently based on a Directive of the European Commission. However, the EU has adopted the EU Medical Device Regulation
(the “EU MDR”) and the In Vitro Diagnostic Regulation (the “EU IVDR”), each of which impose stricter requirements for the
6
marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market
surveillance. Manufacturers of currently approved medical devices had until May 2020 to meet the requirements of the EU MDR
and until May 2022 to meet the EU IVDR. Complying with the EU MDR and EU IVDR requires modifications to our quality
management systems, additional resources in certain functions and updates to technical files, among other changes.
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 all elements of our sales, marketing, billing practices and financial
relationships with physicians, hospitals, and health systems.
Data Privacy and Security Laws
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, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
privacy and security rules require certain of our operations to maintain controls to protect the availability and confidentiality of
patient health information. Individual states also regulate data breach and security requirements and multiple governmental bodies
assert authority over aspects of the protection of personal privacy. In particular, there is a new, broad privacy law in California,
the California Consumer Privacy Act (“CCPA”), which came into effect in January 2020. The CCPA has some of the same
features as the GDPR (discussed below), and has already prompted several other states to follow with similar laws. The EU
General Data Protection Regulation that became effective in May 2018 (“GDPR”) has imposed significantly stricter requirements
in how we collect, transmit, process and retain personal data, including, among other things, in certain circumstances a
requirement for almost immediate notice of data breaches to supervisory authorities and prompt notice to data subjects with
significant fines for non-compliance. Several other countries such as China and Russia have passed, and other countries are
considering passing, laws that require personal data relating to their citizens to be maintained on local servers and impose
additional data transfer restrictions.
Other Laws and Regulations Governing Our Sales, Marketing and Shipping Activities.
We are subject to the U.S. Foreign Corrupt Practices Act and various other similar anti-corruption and anti-bribery acts, which are
particularly relevant to our operations in countries where the customers are government entities or are controlled by government
officials. Both we directly, and indirectly through our distributors, must comply with such laws when interacting with those
entities.
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.
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.
EMPLOYEE RELATIONS
Through its subsidiaries, Bio-Techne employed approximately 2,300 full-time and part-time employees as of June 30, 2020. None
of the United States employees are unionized. Outside the United States, the Company has government-mandated collective
bargaining arrangements or work councils in certain countries.
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 (https://investors.bio-techne.com/). 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.
7
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
60
49
59
53
62
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.
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 President of the Protein Sciences segment since July 1, 2018. 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.
8
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.
Conditions in the global economy, the particular markets we serve and the financial markets brought about by material
global crises may adversely affect our business and financial statements.
COVID-19 is having, and will continue to have, an adverse impact on our employees, operations, supply chains, and sales and
distribution systems, including as a result of impacts associated with protective health measures that we, other businesses and
governments are taking. Many employers in our primary locations of business have closed partially or fully and required their
employees to work from home or not work at all. While many businesses have re-opened as the pandemic eased in particular
locations, a resurgence of COVID-19 cases in those geographies could continue to cause additional closures. These site closures
have included our customers, which have caused and will continue to cause customers to delay or forego purchases of our products.
During the pandemic, we have experienced, and will continue to experience, significant and unpredictable reductions or increases
in demand for certain of our products. As the pandemic continues, we expect to experience lower than normal sales activities and
customer orders in most of our businesses, and it remains uncertain what impact these declines will have on future sales and
customer orders. While there has been some improvement in sales in the summer of 2020, there is no certainty that that
improvement will continue, or how long the economic recovery will take as the pandemic eases. In addition to existing travel
restrictions, countries may continue to close borders, impose prolonged quarantines, and further restrict travel, which may impact
our ability to support our sites and customers in the future while also significantly limiting the ability of our products from moving
through the supply chain. As a result, given the rapid and evolving nature of the virus, COVID-19 will continue to negatively
affect our revenue growth, and it is uncertain how materially COVID-19 will affect our global operations, which generally will
become more severe over an extended period of time. Any of these impacts would have an adverse effect on our business, financial
condition and results of operations, and at this point, the extent of the impact of COVID-19 remains uncertain.
In recent months, we have introduced new products or modified existing products to serve the research and healthcare markets as
they address the global pandemic through novel diagnostic and therapeutic products. The most significant of those new product
launches, we believe, is the novel two-step serology assay that was developed based on and in collaboration with Mount Sinai
Hospital System and its commercial entity, Kantaro Biosciences. In the first half of calendar year 2020 we allocated significant
resources to that development. While we believe it is promising, the product only recently has been introduced
commercially. There can be no assurance that it will be widely adopted or used, especially if the pandemic eases or a vaccine is
commercialized. Alternatively, if demand is great, there is no assurance we will be able to maintain the personnel, raw materials,
production facilities or other resources required to meet a significantly greater than anticipated need.
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.
9
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 eight 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, 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 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 2% equity investment in publicly
traded ChemoCentryx, Inc. (Nasdaq: CCXI) that is valued at $87.8 million as of June 30, 2020. 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.
10
Significant developments or uncertainties stemming from the U.S. administration or resulting in potential changes resulting
from the elections in the U.S. this fall, including changes in U.S. trade policies, tariffs, healthcare, taxes or other
matters and the reaction of other countries thereto, could have an adverse effect on our business.
Changes, potential changes or uncertainties in U.S. social, political, regulatory and economic conditions or laws and policies
governing foreign trade, manufacturing, and development and investment in the territories and countries where we or our
customers operate, or governing the health care system, can adversely affect our business and financial statements. For
example, the current U.S. administration has called for substantial changes to trade agreements and has over the last three
years imposed significant increases on tariffs for 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.
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 UK and the EU, and this uncertainty
may last for years as the parties negotiate new trade agreements and governmental relationships . Our business could be
affected during this period of uncertainty, and perhaps longer, by the impact of the UK's exit from the EU. In addition, our
business could be negatively affected by new trade agreements between the UK and other countries, including the United
States, and by the possible imposition of trade or other regulatory barriers in the UK. 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's 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
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. 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
11
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 2020 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 impacting 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.
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. In addition to the impacts described above relating to COVID-19,
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 Genomics and 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.
Management could fail to maintain effective internal controls over financial reporting which 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. 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 we continue
to grow and acquire additional business, we may fail to implement effective internal controls for our recently acquired
operations that may result in a material weakness. Additionally, we may experience a breakdown in internal controls over
12
our existing businesses that would prevent the timely identification of a material misstatement in our interim or annual
financial statements. A material weakness may 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. For example,
some of our fastest growing businesses are located in northern California and eastern Massachusetts, both of which generally
have 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.
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. Most notably, last year the
state of California passed sweeping privacy legislation called the California Consumer Privacy Act, or CCPA that has impacted
our business and could result in more material impacts as implementing regulations are issued. 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, 2020, we owned or
exclusively licensed over 515 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
13
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 ExoDx Prostate or EPI test, a non-invasive urine test
that predicts the aggressiveness of prostate cancer. We received public payer coverage for certain uses, but are currently seeking
expanded coverage from public payors as well as coverage decisions regarding reimbursement from additional private payers.
However, the process and timeline for obtaining coverage decisions is uncertain and difficult to predict. 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’ ExoDx Prostate test.
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’ ExoDx Prostate 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.
14
The Company’s Exosome Diagnostics ExoDx Prostate 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 ExoDx
Prostate 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 ExoDx Prosate 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 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.
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 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.
15
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 states' tax response to the Tax Act. 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
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 2020, currency translation had an unfavorable effect of $5.2 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 21, 2020, the Company had drawn $337 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.
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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 over 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.
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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 also owns a 54,000
square foot facility in Saint Paul, Minnesota that will be utilized for additional manufacturing capabilities and activities.
The Company also owns a 34,000 square foot manufacturing facility in Flowery Branch, Georgia. This facility is utilized by the
Company’s Protein Sciences.
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.
The Company owns a 9,000 square foot facility that its Canada subsidiaries occupy in Toronto, Canada. This facility is utilized by
the Company's Protein Sciences and Diagnostics and Genomics segments.
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
CyVek
Cliniqa
Advanced Cell Diagnostics Newark, California
Bio-Techne France
Exosome Diagnostics
Langley, United Kingdom
Shanghai and Beijing, China
Cambridge, Massachusetts
Bristol, United Kingdom
Shanghai, China
Devens, Massachusetts
Centennial, Colorado
San Jose, California
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/warehouse
Office/manufacturing/warehouse
14,300
9,300
7,400
30,000
20,600
48,000
22,500
167,000
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.
ITEM 3. LEGAL PROCEEDINGS
As of August 26, 2020, 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.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
18
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 21, 2020 there were over 55,000 beneficial shareholders of the Company's common stock and over 125 shareholders
of record. The Company paid annual cash dividends totaling $48.9 million, $48.4 million, and $48.0 million in fiscal 2020, 2019,
and 2018, 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
During the years ended June 30, 2020 and June 30, 2019, the Company repurchased 279,381 shares of its common stock at an
average share price of $179.37 and 95,000 shares at an average share price of $162.15, respectively. 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, beginning with those option exercises occurring in fiscal year 2018. As of June 30, 2020, we have authorization of
approximately $58 million that may yet be used to purchase additional shares under our current stock repurchase program.
19
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, 2015 in the Company's common stock and in each of the foregoing indices and assumes reinvestment of
dividends.
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 6/30/15 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
20
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
Income and Share Data:
2020
2019(1)
2018(2)
2017(3)
2016(4)
Net sales
Operating income
Earnings before income taxes (5)
Net earnings
Diluted earnings per share
$
738,691 $
157,419
276,477
229,296
5.82
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
Average common and common equivalent shares -
diluted (in thousands)
39,401
38,892
38,055
37,500
37,326
Balance Sheet Data as of June 30:
2020
2019
2018
2017
2016
Cash, cash equivalents and short-term available-
for-sale investments
Working capital
Total assets
Total shareholders' equity
$
270,893 $
414,252
95,835
199,744
2,027,589 1,884,410 1,593,202 1,558,219 1,129,581
879,280
1,381,192 1,165,589 1,079,061
157,714 $
212,503
181,754 $
318,856
166,033 $
310,622
949,627
Cash Flow Data:
2020
2019
2018
2017
2016
Net cash provided by operating activities
$
Capital expenditures (6)
Cash dividends declared per share
205,217 $
51,744
1.28
181,619 $
25,411
1.28
170,367 $
20,934
1.28
143,721 $
15,179
1.28
144,157
16,898
1.28
Employee Data as of June 30:
2020
2019
2018
2017
2016
Employees
2,300
2,255
1,943
1,789
1,560
(1) The Company acquired Quad Technologies on July 2, 2018, Exosome Diagnostics on August 1, 2018 and B-Mogen on June 4,
2019.
(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) 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: 2020 - $61.7 million; 2019 -
$64.9 million; 2018 - $74.2 million; 2017 - $73.2 million; 2016 - $37.6 million. Earnings before income taxes also include a gain
on investment of $137.5 million in fiscal 2020 and a $12.4 million loss in fiscal 2019.
(6) Increase in fiscal 2020 capital expenditures due to investments in new buildings, in particular, the Company's CGMP manufacturing
facility.
21
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.
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 2020, we operated with two operating 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
Operational Update
For fiscal 2020, consolidated net sales increased 4% as compared to fiscal 2019. Organic growth was 4%, with currency translation
and acquisitions having an immaterial impact on revenue. The Company experienced broad-based organic revenue growth in most
major geographic regions and end-markets prior to the onset of the COVID-19 pandemic. This broad-based organic growth was
partially offset by the negative impacts associated with the COVID-19 pandemic experienced by the Company in the latter half of
fiscal year 2020, as further described in the COVID-19 Business Update section.
For fiscal 2020, consolidated earnings increased 139% compared to fiscal 2019. The increase in earnings was primarily due to a gain
of approximately $137 million on our ChemoCentryx investment and a gain of approximately $7 million on the settlement of the
escrow balance associated with
the Exosome acquisition. After adjusting for acquisition related costs, stock-based
compensation, and certain income tax items in both years, adjusted net earnings increased 2% in fiscal 2020 as compared to fiscal
2019. Adjusted earnings growth was driven by volume leverage, which was partially offset by business impacts associated with the
COVID-19 pandemic.
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.
COVID-19 Business Update
COVID-19 negatively impacted fiscal year 2020 sales growth due to the numerous customer site shutdowns in our academia and
bio-pharma end-markets that occurred at the end of our third fiscal quarter and continued through our fourth quarter. Customer site
22
shutdowns will continue to have a negative impact on sales while they remain in effect, but we did experience an increase in the
number of customer sites that were open at the end of the fourth quarter. However, we are unable to forecast the impact of customer
site closures given the uncertainty that some customer sites may close again due to increases in COVID-19 cases occurring in their
region and over the duration of the COVID-19 pandemic. Once the pandemic has eased, we anticipate a positive long-term outlook
for sales growth resulting from expected future funding increases within life-science research in response to the current pandemic.
The Company has responded to the pandemic by leveraging our deep product portfolio and scientific expertise to develop robust
COVID-19 product and service offerings providing critical support for both clinical care and therapeutic development. The
Company's ongoing efforts to utilize our portfolio of products and services to enable solutions for this evolving pandemic may
partially offset the impact of our customer site closures.
Adjusted EPS was negatively impacted by COVID-19 primarily due to the sales impacts described above. We anticipate the short-
and long-term impacts of COVID-19 on adjusted EPS to be similar to that of sales growth.
The Company remains in a strong financial position with sufficient available cash as well as access to additional funding if necessary,
through our long-term debt agreement. We did not experience any material changes to our June 30, 2020 Balance Sheet resulting
from COVID-19 for items such as additional reserves or asset impairments resulting from the pandemic.
The Company remains fully operational as we abide by local COVID-19 safety regulations across the world. To achieve this, the
Company has certain employees working remotely and has adopted significant protective measures for our employees on site,
including staggered shifts, social distancing and hygiene best practices recommended by the Centers for Disease Control (CDC) and
local public health officials. In addition, the Company has taken additional steps to monitor and strengthen our supply chain to
maintain an uninterrupted supply of our critical products and services.
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
Consolidated net sales by segment were as follows (in thousands):
2020
Year Ended June 30,
2019
2018
4 %
0 %
0 %
4 %
10 %
2 %
(1 )%
11 %
9 %
3 %
2 %
14 %
Protein Sciences
Diagnostics and Genomics
Intersegment
Consolidated net sales
2020
Year Ended June 30,
2019
2018
$
$
555,352 $
184,549
(1,210 )
738,691 $
543,159 $
171,674
(827 )
714,006 $
482,378
161,151
(536 )
642,993
In fiscal 2020, Protein Sciences segment net sales increased 2% compared to fiscal 2019. Organic growth for the segment was 3%
for the fiscal year, with foreign currency translation having an unfavorable impact of 1%, and acquisitions contributing an
immaterial amount.
Overall segment growth was driven by strong Bio-Pharma sales in North America and strong overall performance in China, which
was partially offset by the disruption in research markets due to numerous customer site closures relating to the COVID-19
pandemic that occurred in the second half of fiscal 2020.
23
In fiscal 2020, Diagnostics and Genomics segment net sales increased 8% compared to fiscal 2019. Organic growth was 8% with
acquisitions and foreign currency having an immaterial impact on revenue.
Overall segment revenue growth was driven by strong performance in our ExoDx Prostate Test, RNA scope, hematology, and
assay development products lines prior to the onset of the COVID-19 pandemic. The closure of academic site labs and limitation
of non-essential medical procedures resulting from the COVID-19 pandemic significantly impacted sales of our RNA scope
product line and our ExoDx Prostate Test, respectively, in the latter portion of the fiscal year. These negative sales impacts were
partially offset through growth in supplying specialty diagnostic antibodies and other raw materials to COVID-19 testing
manufacturers.
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 RNA scope product
sales.
Gross Margins
Consolidated gross margins were 65.4%, 66.3%, and 67.2% in fiscal 2020, 2019, and 2018. Consolidated gross margins were
negatively impacted as a result of purchase accounting related to inventory in fiscal 2019 and 2018 and intangible assets acquired
during fiscal 2020, 2019, and 2018. 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, amortization of intangibles, and stock compensation expense, adjusted gross margins were 70.3%, 71.5%, and 71.5% in fiscal
2020, 2019, and 2018 respectively. Fiscal 2020 adjusted gross margin was negatively impacted by product mix when compared to
fiscal 2019 and fiscal 2018.
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
Stock compensation expense - COGS
Non-GAAP adjusted gross margin percentage
2020
Year Ended June 30,
2019
2018
65.4 %
- %
4.7 %
0.2 %
70.3 %
66.3 %
0.5 %
4.7 %
- %
71.5 %
67.2 %
0.4 %
3.9 %
- %
71.5 %
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.
Management uses adjusted operating results to monitor and evaluate performance of the Company’s two segments. Segment gross
margins, as a percentage of net sales, were as follows:
Protein Sciences
Diagnostics and Genomics
2020
Year Ended June 30,
2019
2018
75.0 %
55.6 %
76.8 %
54.4 %
76.8 %
55.7 %
The small decrease in the Protein Sciences segment’s gross margin percentage for fiscal 2020 as compared to fiscal 2019 and 2018
was primarily attributable to mix of product sales within the segment.
24 The increase in Diagnostics and Genomics in gross margin for fiscal 2020 was primarily due to volume leverage, operational
productivity, and revenue growth against a similar cost base in recent acquisitions. 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $3.8 million (1%) in fiscal 2020 when compared to fiscal 2019. Selling,
general, and administrative expenses decreased primarily due to a reduction in corporate expenses and a gain resulting from a
settlement of amounts held in escrow from the ExosomeDx acquisition between the Company and the former shareholders. These
reductions to our selling, general, and administrative expenses were partially offset by an increase in expense within the segments.
Selling, general and administrative expense increased $23.7 million (10%) in fiscal 2019 when compared to fiscal 2018. The increase
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.
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
Gain on escrow litigation
Restructuring costs
Stock-based compensation
Corporate selling, general and administrative expenses
Total selling, general and administrative expenses
Research and Development Expenses
2020
Year Ended June 30,
2019
2018
$
$
138,792 $
65,407
204,199
26,358
415
(7,159 )
87
32,667
4,016
260,583 $
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
Research and development expenses increased $2.8 million (4%) and $7.1 million (13%) in fiscal 2020 and 2019, respectively, as
compared to prior year periods. The increase in research and development expenses in fiscal 2020 as compared to fiscal 2019 was
primarily attributable to continued investment in future growth platforms of the Company, recent acquisitions, and the development
of new COVID-19 products. The increase in research and development expense in fiscal 2019 as compared to fiscal 2018 was
primarily attributable to our ExosomeDx acquisition.
Protein Sciences
Diagnostics and Genomics
Total segment expenses
Unallocated corporate expenses
Total research and development expenses
2020
Year Ended June 30,
2019
2018
$
$
43,022 $
22,170
65,192
-
65,192 $
40,735 $
21,678
62,413
-
62,413 $
40,996
14,095
55,091
238
55,329
25
Net Interest Income / (Expense)
Net interest income/(expense) for fiscal 2020, 2019, and 2018 was $(18.6) million, $(21.1) million, and $(9.8) million, respectively.
Net interest expense in fiscal 2020 decreased when compared to fiscal 2019 due to a reduction in our average long-term debt. Net
interest expense increased in fiscal 2019 when compared to fiscal 2018 due to an increase in our average long-term debt, resulting
from the debt agreement the Company entered into in conjunction with our ExosomeDx acquisition.
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 gains (losses)
Rental income
Real estate taxes, depreciation and utilities
Gain (loss) on investment
Miscellaneous (expense) income
Other non-operating income (expense), net
2020
Year Ended June 30,
2019
2018
$
$
1,703 $
1,140
(1,915 )
137,508
(786 )
137,650 $
(455 ) $
1,141
(1,897 )
(12,370 )
13
(13,568 ) $
(227 )
1,177
(1,803 )
397
(9 )
(447 )
During fiscal 2020, the Company recognized gains of $137.5 million related to changes in fair value associated with changes in the
stock price of our ChemoCentryx, Inc. (CCXI) investment.
During fiscal 2019, the Company recognized losses of $16.1 million related to changes in fair value associated with 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 2020, 2019, and 2018 were at effective rates of 17.1%, 14.2%, and (0.2)%, 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 2020 primarily related to share-based compensation excess tax benefits of $17.7 million. 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
26
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
Gain on escrow settlement
Restructuring costs
Stock-based compensation
(Gain) loss on investment and other
Tax impact of above adjustments
Tax impact of discrete tax items and other foreign adjustments
Non-GAAP adjusted net earnings
$
2020
Year Ended June 30,
2019
2018
$
229,296 $
96,072 $
126,150
-
60,865
793
(7,170 )
87
34,262
(136,716 )
17,324
(19,423 )
179,318 $
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
Non-GAAP adjusted net earnings growth
2 %
2 %
24 %
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, 2020, 2019, and 2018.
Reported GAAP tax rate
Tax rate impact of:
Identified non-GAAP adjustments
Discrete tax items
Non-GAAP adjusted tax rate
2020
Year Ended June 30,
2019
2018
17.1 %
14.2 %
(0.2 )%
(2.5 )
7.0
21.6 %
(4.3 )
11.2
21.1 %
(2.7 )
27.3
24.4
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, 2020 and 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 2020 and fiscal 2019.
The difference between the reported GAAP tax rate and non-GAAP tax rate applied to the identified non-GAAP adjustments for the
fiscal year 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, 2020 were $270.9 million compared to $166.0 million at June
30, 2019. Included in available-for-sale investments at June 30, 2020 and June 30, 2019 was the fair value of the Company's
investment in CCXI of $87.8 million and $38.2 million, respectively.
At June 30, 2020, approximately 23% of the Company's cash and equivalent account balances of $146.6 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, 2020, approximately 71% of the Company's available-for-sale investment account balances of $124.3 million were
located in the U.S., with the remaining 29% in China.
27
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.
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 $205.2 million, $181.6 million, and $170.4 million in fiscal 2020, 2019, and
2018 respectively. The increase in cash generated from operating activities in fiscal 2020 as compared to fiscal 2019 was mainly a
result of higher GAAP earnings and lower accounts receivable balances in fiscal 2020, which were partially offset by the gain on
investments included within earnings. 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.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures. The Company did not make any acquisitions in
fiscal 2020. 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's net proceeds (outflow) from the purchase, sale and maturity of available-for-sale investments in fiscal 2020, 2019,
and 2018 were $76.9 million, ($21.9 million), and $27.8 million, respectively. The increase in fiscal 2020 compared to fiscal 2019
was driven by the sale of a portion of the Company’s investment in CCXI in fiscal 2020. 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 certificates of deposit with the objective of
obtaining the highest possible return while minimizing risk and keeping the funds accessible.
Capital additions in fiscal year 2020, 2019, and 2018 were $51.7 million, $25.4 million, and $20.9 million. Increase in fiscal 2020
capital expenditures due to investments in new buildings, in particular, the Company's cGMP manufacturing facility. Capital
additions planned for fiscal 2021 are approximately $45 million and are expected to be financed through currently available cash
and cash generated from operations.
Cash Flows From Financing Activities
In fiscal 2020, 2019, and 2018, the Company paid cash dividends of $48.9 million, $48.4 million, $48.0 million, respectively. The
Board of Directors periodically considers the payment of cash dividends.
The Company received $71.0 million, $38.0 million, $19.2 million, for the exercise of options for 56,000, 382,000, 204,000 shares of
common stock in fiscal 2020, 2019 and 2018 , respectively.
During fiscal 2020, the Company drew $40 million under its revolving line-of-credit facility and made repayments on its line-of-
credit of $188.5 million.
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.
28
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 2020, the Company made $4.4 million ($4 million for Quad and $0.4 million for B-MoGen) in cash payments towards
the Quad, Exosome, and B-MoGen contingent consideration liabilities. Of the $4.4 million in total payments, $3.4 million is
classified as financing on the statement of cash flows. The remaining $1 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.
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 2020 and 2019, the Company repurchased $50.1 million and $15.4 million, respectively in share repurchases included
as a cash outflow within Financing Activities. The Company did not repurchase any shares in fiscal 2018.
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, 2020 (in
thousands):
Long-term debt
Lease obligations
Total contractual obligations
Payments Due by Period
Total
356,743
93,021 $
449,764 $
$
$
$
Less than
1 Year
1-2
Years
3-4
Years
After
5 Years
12,500
12,590 $
20,090 $
25,000
23,409 $
48,409 $
319,243
19,706 $
338,949 $
-
37,316
37,316
The interest rate on the Company's long-term debt 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 Company also has a derivative
instrument related to our debt, which converts the variable interest rate payment of the debt to fixed interest payments as disclosed
Note 5. Additionally, there is an annualized fee for any unused portion of the credit facility which is currently 15 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.
29
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 $728.3 million as of June 30, 2020, which represented 35.9% 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.
30
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.
2020 Goodwill Impairment Analyses
In completing our 2020 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 2020 quantitative analyses included all of our reporting units, the summation of our reporting units' fair values, as
indicated by our discounted cash flow calculations, were compared to our consolidated fair value, as indicated by our market
capitalization, to evaluate the reasonableness of our calculations. 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.
The quantitative assessment completed as of April 1, 2020 indicated that all of the reporting units had a substantial amount of
headroom. Accordingly, the Company determined there was no indication of impairment of goodwill in our annual goodwill
impairment analysis. Further, no triggering events were identified in the year ended June 30, 2020 that would require an additional
goodwill impairment assessment beyond our required annual goodwill impairment assessment.
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 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 impairment assessments performed utilized a
consistent process with our fiscal 2020 quantitative goodwill impairment assessment described above. The quantitative assessment
indicated that all of the impacted reporting units had substantial headroom both prior to and subsequent to the realignment. This
impairment assessment performed was 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.
In conducting our annual goodwill impairment test as of April 1, 2019, 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.
2018 Goodwill Impairment Analyses
In completing our 2018 annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of our reporting
units. The quantitative impairment assessments performed utilized a consistent process with our fiscal 2020 quantitative goodwill
impairment assessment described above. The quantitative assessment completed during the fourth quarter of fiscal 2018 indicated
that all of the reporting units had a substantial amount of headroom. This impairment assessment performed was 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.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding the accounting policies adopted during fiscal 2020 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.
31
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,
acquisition related expenses inclusive of the changes in fair value of contingent consideration, and other non-recurring items
including non-recurring costs and gains. The Company excludes amortization of purchased intangible assets, purchase accounting
adjustments, including costs recognized upon the sale of acquired inventory and acquisition-related expenses inclusive of the changes
in fair value contingent consideration, and other non-recurring items including gains or losses on legal settlements and one-time
assessments from this measure because they occur as a result of specific events, and are not reflective of our internal investments,
the costs of developing, producing, supporting and selling our products, and the other ongoing costs to support our operating
structure. Additionally, these amounts can vary significantly from period to period based on current activity.
The Company’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.
Readers are encouraged to review the reconciliations of the adjusted financial measures used in management's discussion and
analysis of the financial condition of the Company to their most directly comparable GAAP financial measures provided within the
Company's consolidated financial statements.
32
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 44 % of the Company's consolidated net sales in fiscal 2020 were made in foreign currencies, including 20% in
euro, 6% in British pound sterling, 9% in Chinese yuan and the remaining 9% 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,
2020
2019
2018
1.12 $
1.09
1.11
1.32 $
1.22
1.26
0.15 $
0.14
0.14
0.77 $
0.71
0.74
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
$
$
$
$
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, 2020 levels against the euro, British
pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):
Decrease in translation of 2020 earnings into U.S. dollars
Decrease in translation of net assets of foreign subsidiaries
Additional transaction losses
$
4,340
44,766
1,001
33
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)
2020
Year Ended June 30,
2019
2018
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 amounts disclosed in Note 8.
Unrealized gains (losses) on available-for-sale investments, net of tax
of $398 in FY18
Other comprehensive income (loss)
Comprehensive income
Earnings per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
See Notes to Consolidated Financial Statements.
$
$
738,691
255,497
483,194
714,006 $
240,515
473,491
260,583
65,192
325,775
157,419
(19,197 )
605
137,650
119,058
276,477
47,181
229,296
(9,963 )
(3,715 )
-
(13,678 )
215,618
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 $
642,993
210,850
432,143
240,636
55,329
295,965
136,178
(10,188 )
409
(447 )
(10,226 )
125,952
(198 )
126,150
(1,572 )
-
5,693
4,121
130,271
6.00
5.82
$
$
2.54 $
2.47 $
3.36
3.31
38,201
39,401
37,781
38,892
37,476
38,055
34
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 $775 and $980, respectively
Inventories
Other current assets
$
Total current assets
Property and equipment, net
Right of use asset
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
Operating lease liabilities - current
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
Operating lease liabilities
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 38,453,046 and 37,934,040 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,
2020
2019
146,625 $
124,268
122,534
103,152
24,341
520,920
176,829
71,465
728,308
516,545
13,522
2,027,589 $
23,090 $
31,087
9,093
13,049
2,376
9,535
5,938
12,500
106,668
101,090
344,243
199
67,248
26,949
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
-
-
385
420,536
379
316,797
1,057,470
(97,199 )
1,381,192
2,027,589 $
931,934
(83,521 )
1,165,589
1,884,410
$
35
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Bio-Techne Corporation and Subsidiaries
(in thousands)
Additional
Accumulated
Other
Common Stock
Paid-in Retained
Shares Amount Capital Earnings Income(Loss) Total
Comprehensive
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
204
34
14
Balances at June 30, 2018
37,608 $
374 $ 199,161 $ 799,027 $
126,150
2 17,661
-
-
-
27,959
(273 )
(47,973 )
4,121
(48,935 ) $ 949,627
126,150
4,121
17,663
(273 )
(47,973 )
27,959
-
1,506
281
376 $ 246,568 $ 876,931 $
1,506
281
(44,814 ) $ 1,079,061
25,276
(24,682 )
594
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
Cumulative effect adjustments due to adoption of
new accounting standards and other
Net earnings
Other comprehensive income (loss)
Share repurchases
Surrender and retirement of stock to exercise
option
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
(95 )
382
29
(1 )
4 36,272
-
31,775
(14,024 )
96,072
(15,404 )
(2,575 )
(48,366 )
96,072
(14,024 )
(15,405 )
36,276
(2,575 )
(48,364 )
31,775
10
37,934 $
-
1,676
505
379 $ 316,797 $ 931,934 $
1,676
505
(83,521 ) $ 1,165,589
(879 )
(879 )
229,296
(279 )
(3 )
(50,109 )
(2 )
-
(400 )
730
56
7 69,461
(1 )
1
31,932
14
-
2,312
(1,642 )
(2,229 )
(48,902 )
(13,678 )
229,296
(13,678 )
(50,112 )
(400 )
67,826
(2,228 )
(48,902 )
31,932
2,312
Balances at June 30, 2020
38,453 $
435
385 $ 420,536 $ 1,057,470 $
435
(97,199 ) $ 1,381,192
See Notes to Consolidated Financial Statements.
36
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
2020
Year Ended June 30,
2019
2018
$
229,296 $
96,072 $
126,150
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) Loss on investment, net
Fair value adjustment on available for sale investments
Leases, net
Gain on escrow settlement
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 provided by (used in) investing activities
Cash flows from financing activities:
Cash dividends
Proceeds from stock option exercises
Re-purchases of common stock
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
$
82,737
-
13,130
32,367
(905 )
(958 )
-
(137,527 )
225
(7,170 )
(732 )
6,556
(14,861 )
(2,605 )
10,343
2,552
(7,231 )
205,217
147,120
(70,187 )
(51,744 )
-
1,906
-
27,095
(48,902 )
70,983
(50,112 )
40,000
(188,500 )
(3,400 )
(3,872 )
(183,802 )
(2,771 )
45,739
100,886
146,625 $
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
See Notes to Consolidated Financial Statements.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
Years ended June 30, 2020, 2019 and 2018
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 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 $4.2 million, $4.1 million, and $3.8 million for fiscal 2020, 2019, and
2018 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.
38
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) beginning 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 year 2018.
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 reserves 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 identified one item as described in the
Impairment of long-lived assets and amortizable intangibles section below.
39
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. During fiscal
year 2020, the Company accelerated the amortization of a certain trade name based on the Company's planned integration of the
products under that acquired trade name into a legacy brand. The accelerated amortization resulted in $1.3 million in additional
amortization expense in fiscal 2020 and an estimated $0.6 million in fiscal 2021. No other triggering events were identified and no
impairments were recorded for property, plant, and equipment or amortizable intangibles during fiscal years 2018, 2019, and 2020.
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.
2020 Goodwill Impairment Analyses
In completing our 2020 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 result of our quantitative assessment, where we compared the discounted cash flows of each reporting unit to its carrying
value, indicated that all of the reporting units had a substantial amount of headroom as of April 1, 2020. 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. The Company did not identify
any triggering events after our annual goodwill impairment through June 30, 2020, the date of our consolidated balance sheet, that
would require an additional goodwill impairment assessment to be performed.
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 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.
40
Because our quantitative analysis performed as of January 1, 2019 included all of our reporting units, except for Exosome a recent
acquisition that was 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.
In conducting our annual goodwill impairment test on April 1, 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 Goodwill Impairment Analyses
In completing our 2018 annual goodwill impairment analyses, we elected to perform a quantitative assessment for all of our reporting
units, with a process consistent to that described in our 2020 Goodwill Impairment Analyses section above. The quantitative
assessment completed 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
Operating segments
Note
5
9
10
12
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance to require lessees to
recognize lease assets and lease liabilities from operating leases on the balance sheet. The FASB has issued narrow codification
improvements to Leases (Topic 842) through ASU No. 2018-10 and ASU 2019-01. Additionally, the FASB issued ASU 2018-
11, allowing an entity to elect a transition method where they do not recast prior periods presented in the financial statements in
the period of adoption. The Company has elected the transition method allowed for under ASU 2018-11 when adopting Leases
(Topic 842). The Company adopted the standard effective July 1, 2019 and correspondingly recorded incremental operating lease
liabilities of $80.6 million, a right-of-use lease asset of $79.5 million, retained earnings of $0.8 million and a deferred tax
adjustment of $0.3 million. Additionally, the Company reclassified $4.0 million of deferred rent recorded within accrued
expenses under ASC 840 - Leases into operating lease liabilities upon adoption of Topic 842. In adopting ASC 842, the Company
elected the package of available practical expedients and to use hindsight in determining the lease term for all existing leases.
Further, as part of our adoption of ASC 842, the Company also made the accounting policy elections to not capitalize short term
leases (defined as a lease with a lease term that is less than 12 months) and to combine lease and non-lease components for all
asset classes in determining the lease payments. Refer to Note 7 for additional information on leases.
41
Pronouncements Issued but Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments. The amendment in this update replace the incurred loss impairment methodology in current GAAP with a
methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-
for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the
expected credit losses. This ASU is effective for annual periods and interim periods for those annual periods beginning after
December 15, 2019, which for us is July 1, 2020. Entities may early adopt beginning after December 15, 2018. We have
completed our evaluation of the impact of the adoption of ASU 2016-13, noting the impact of adoption is not expected to have a
material impact 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 do not expect this standard to have a material impact on our consolidated
financial statements and we will adopt the standard prospectively on July 1, 2020.
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
This ASU provides expedients and exceptions to existing guidance on contract modifications and hedge accounting that is
optional to facilitate the market transition from a reference rate, including LIBOR which is being phased out in 2021, to a new
reference rate. The provisions of the ASU would impact contract modifications and other changes that occur while LIBOR is
phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU and is also
reviewing its debt and derivative instrument that utilizes LIBOR as the reference rate. The Company will continue to evaluate and
monitor developments and our assessment of ASU 2020-04 during the LIBOR transition period.
.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such
products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that,
for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. The vast majority of
service revenues consist of extended warranty contracts, post contract support (“PCS”), and custom development projects. Revenue
for these contracts 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 does not record revenue upon completion of the performance
obligation, but rather upon cash receipt, which is 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 to estimate the amount to be recorded. 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 for contracts with an original length greater than one
year were not material as of June 30, 2020 and 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.
42
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, 2020 are not
material.
Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits
and unearned revenue on warranty contracts. Contract liabilities as of June 30, 2020 and June 30, 2019 were approximately $14.2
million and $10.4 million, respectively. Contract liabilities as of June 30, 2019 subsequently recognized as revenue during the year
ended June 30, 2020 were approximately $7.6 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,
2020
2019
602,642 $
71,462
47,459
721,563 $
17,128
738,691 $
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
2020
Year Ended June 30,
2019
2018
404,407 $
155,289
30,411
60,362
68,792
19,430
738,691 $
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
$
$
$
$
43
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, 2020 and June 30, 2019 were $87.8 million and $38.2
million, respectively. The increase was due to year-over-year increase in the stock price of CCXI, which was $9.30 per share at June
30, 2019 compared to $57.54 per share at June 30, 2020. The amortized cost basis of the Company's investment in CCXI was $6.6
million and $18.8 million as of June 30, 2020 and 2019 respectively.
Inventories:
Inventories consist of (in thousands):
Raw materials
Finished goods(1)
Inventories, net
June 30,
2020
2019
$
$
51,530 $
56,268
107,798 $
40,913
53,376
94,289
(1) Finished goods inventory of $4,646 and $3,239 is included within other long-term assets in the June 30, 2020 and June 30, 2019
Balance Sheets, respectively, 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,
2020
2019
$
$
8,516 $
184,430
153,704
346,650
(169,821 )
176,829 $
7,065
175,019
124,233
306,317
(152,278 )
154,039
Useful Life
(years)
$
9 - 15
2 - 20
7 - 16
10
$
June 30,
2020
2019
434,653 $
146,713
211,750
2,475
795,591
(279,046 )
516,545 $
435,679
147,296
214,320
2,133
799,428
(219,999 )
579,429
44
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,
2020
2019
$
$
579,429 $
-
311
(61,095 )
(2,100 )
516,545 $
446,332
191,956
633
(58,715 )
(777 )
579,429
Amortization expense related to technologies included in cost of sales was $34.5 million, $33.3 million, and $25.3 million in fiscal
2020, 2019, and 2018, respectively. Amortization expense related to trade names, customer relationships, non-compete agreements,
and patents included in selling, general and administrative expense was $26.6 million, $25.4 million, and $21.6 million, in fiscal
2020, 2019, and 2018 respectively.
The estimated future amortization expense for intangible assets as of June 30, 2020 is as follows (in thousands):
2021
2020
2023
2024
2025
Thereafter
Total
Changes in goodwill by segment and in total consist of (in thousands):
$
$
59,766
57,564
55,696
53,198
50,024
240,297
516,545
June 30, 2018
Acquisitions (Note 4)
Currency translation
June 30, 2019
Acquisitions (Note 4)
Currency Translation
June 30, 2020
Other Assets:
Other assets consist of (in thousands):
Long-term deposits
Other
Other long-term assets
Protein
Sciences
Diagnostics &
Genomics
Total
$
$
$
347,918 $
30,939
(1,450 )
377,407 $
(326 )
(4,000 )
373,081 $
249,972 $
105,362
(74 )
355,260 $
-
(31 )
355,229 $
597,890
136,301
(1,524 )
732,667
(326 )
(4,031 )
728,310
June 30,
2020
2019
$
$
6,234 $
7,288
13,522 $
487
5,181
5,668
As of June 30, 2020, the Company had $13.5 million of other assets compared to $5.7 million as of June 30, 2019. The increase in
other long-term assets in fiscal 2020 is primarily attributable to deposits made on our GMP manufacturing facility.
45
Supplemental Cash Flow Information:
Supplemental cash flow information was as follows (in thousands):
Income taxes paid
Interest paid
Non-cash activities:
2020
Year Ended June 30,
2019
2018
$
41,992 $
18,615
36,814 $
21,497
35,076
9,844
Acquisition-related liabilities (1)
(2,105 )
12,600
1,396
(1) Consists of holdback payments due at future dates and liabilities for contingent consideration. Amounts disclosed above represent
the total non-cash change in the liability from the prior fiscal year. Further information regarding liabilities for contingent
consideration can be found in Notes 4 and 5.
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 operating segment in the first quarter of fiscal year 2019. Purchase accounting was finalized
during fiscal 2019.
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 the developed technology intangible assets acquired in fiscal 2019 is 14 years. The net deferred income
tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset
amortization, which is not deductible for income tax purposes offset by the deferred tax asset for 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, subject to certain EBITA thresholds. 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 operating segment in the first quarter of fiscal year 2019. Purchase accounting was finalized during fiscal
2019.
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 developed technology asset is being amortized with the expense reflected in cost of goods sold in the
Condensed 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 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.
46
Note: As part of the ExosomeDx acquisition, a certain amount of the cash payment was held in escrow. As part of the finalization
of the outstanding amounts held in escrow, the Company recognized a gain of $7.2 million related to returned proceeds and a relief
of any future contingent payments as described in Note 5. The gain was recorded within selling, general, and administrative costs in
the Consolidated Statement of Comprehensive Income.
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 fiscal year 2019 in the consolidated statements
of earnings and comprehensive income, which represented the adjustment of our historical investment to its fair value.
The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and
the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes. The
business became part of the Protein Sciences segment in the fourth quarter of fiscal year 2019. Purchase accounting remained opened
as disclosed in our prior year 10-K/A for working capital adjustments and our income tax assessment of acquired net operating losses
(NOLs) with the completion of the stub period tax returns. Our purchase accounting was finalized in fiscal 2020 with an immaterial
adjustment of $0.3 million to deferred tax amounts and goodwill.
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 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 the developed technology intangible asset acquired in fiscal 2019 is 14 years. The net deferred income
tax liability represents the net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset
amortization, which is not deductible for income tax purposes offset by the deferred tax asset for the preliminary calculation of
acquired NOLs.
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 segment in the first quarter of fiscal 2018.
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 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.
47
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 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.
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
B-MoGen
Biotechnologies
$
504 $
Exosome
Diagnostics
Technologies Trevigen
36 $
1,662 $
2,611 $
Quad
Atlanta
Biologicals
15,722 $
Eurocell
Diagnostics
512
269
2,212
228
53
4,901
188
14,000
-
400
16,131
31,304
105,000
58,000
2,300
105,362
275,485
12,256
-
-
14,481
27,001
5,100
160
260
5,991
13,226
23,000
2,300
3,600
10,195
59,718
211
3,051
28,042 $
3,716
16,346
255,423 $
296
943
25,762 $
387
2,195
10,644 $
90
8,354
51,274 $
17,448
5,500
5,094
28,042 $
251,623
-
3,800
255,423 $
20,462 $
-
5,300
25,762 $
10,644 $
-
-
10,644 $
51,274 $
-
-
51,274 $
-
-
6,272
2,910
9,882
483
2,070
7,329
5,933
1,396
-
7,329
$
$
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
48
observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability
based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the
factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.
The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active
markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are
observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their
fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market
activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires
significant judgment or estimation.
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring
basis (in thousands):
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
Derivative instruments - cash flow hedges
Total Liabilities
Total
carrying
value as of
June 30,
2020
Fair Value Measurements Using
Inputs Considered as
Level 1
Level 2
Level 3
$
$
$
$
87,842 $
36,426
124,268 $
79,846 $
36,426
116,272 $
7,996 $
-
7,996 $
-
-
-
6,137 $
17,331
23,468 $
- $
-
- $
- $
17,331
17,331 $
6,137
-
6,137
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
(1) Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in CCXI at June
30, 2020 and June 30, 2019 was $6.6 million and $18.8 million respectively. The Company has a warrant to purchase
additional CCXI equity shares which was valued at $8.0 million as of June 30, 2020. The fair value of the warrant as of June 30,
2019 was not material.
(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
Available for sale securities excluding warrants are measured at fair value using quoted market prices in active markets for
identical assets and are therefore classified as Level 1 assets. The Company's warrant to purchase additional shares at a specified
future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a
Level 2 asset.
49
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 an initial $380
million of notional principal amount, with the notional amount decreasing by $100 million in October, 2020, $80 million in October
2021, and $200 million in October 2022. The change in the fair value of the designated hedged 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 reclassified $3.5 million, net of taxes, out of other comprehensive income into interest expense during the fiscal year ended
June 30, 2020. In June 2020, the Company de-designated $80 million of the notional amount set to expire in October 2020. The
change in fair value of the dedesignated notional hedged amount was not material as of June 30, 2020. The net loss associated with
the dedesignated portion of the derivative instrument was not reclassified into earnings based on the amount of probable variable
interest payments to occur within a two month time period of the forecasted hedged transaction. 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 agreement with
ExosomeDx was based on achieving certain EBITA thresholds, the contingent agreement with Quad is based on meeting certain
product development milestones and revenue thresholds, and the contingent agreement with B-Mogen is based on 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.
During the fourth quarter of fiscal 2020, the Company's obligation for potential contingent consideration payments related to
the ExosomeDx acqusition were relieved as part of the Company's escrow settlement with the former shareholders of
ExosomeDx. As the result of this settlement, the Company reversed an accrual for the fair value of the contingent liability at the date
of settlement. The ultimate settlement of contingent consideration liabilities for the Quad and B-Mogen acquisitions could deviate
from current estimates based on the actual results of the financial measures described above. This liability is considered to be a Level
3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these
acquisitions is included in general and administrative expense.
The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) (in thousands):
Fair value at the beginning of period
Purchase price contingent consideration (Note 4)
Payments
Gain on escrow settlement
Change in fair value of contingent consideration
Contingent consideration payable
June 30,
2020
2019
$
$
12,600 $
-
(4,358 )
(1,200 )
(905 )
6,137 $
-
14,600
-
(2,000 )
12,600
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the
consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit
facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates.
50
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 15 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 2021.
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, 2020 and 2019, the outstanding balance under the Credit Agreement was $357 million
and $505.2 million respectively.
Note 7. Leases:
As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The
Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting
guidance, on July 1, 2019.
The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and
liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate
used to calculate present value is the Company’s incremental borrowing rate or, if available, the rate implicit in the lease. The
Company determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment
of the applicable country or region. During fiscal year 2020, the Company recognized $3.4 million in variable lease expense in the
Consolidated Statements of Earnings and Comprehensive Income. During fiscal year 2020, the Company also recognized
$13.0 million relating to fixed lease expense in the Consolidated Statements of Earnings and Comprehensive Income.
The following table summarizes the balance sheet classification of the Company’s operating leases, amounts of right of use assets
and lease liabilities, the weighted average remaining lease term, and the weighted average discount rate for the Company’s operating
leases (asset and liability amounts are in thousands):
Operating leases:
Operating lease right of use assets
Right of Use Asset
Balance Sheet Classification
Current operating lease liabilities
Noncurrent operating lease liabilities
Total operating lease liabilities
Operating lease liabilities current
Operating lease liabilities
Weighted average remaining lease term (in years):
Weighted average discount rate:
As of:
June 30,
2020
$
$
$
71,465
9,535
67,248
76,783
8.72
4.40 %
The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use
assets obtained in exchange for new operating lease liabilities for the year ended June 30, 2020 (in thousands):
Cash amounts paid on operating lease liabilities(1)
Right of use assets obtained in exchange for lease liabilities
For the year
ended June
30, 2020
$
12,763
1,758
51
(1) Total cash paid for the Company's operating leases during the year ended June 30, 2020 include cash amounts paid on operating
lease liabilities and variable lease expenses. Cash flow impacts from right of use assets and lease liabilities are presented net on the
cash flow statement in changes in other operating activity.
The following table summarizes payments by date for the Company’s operating leases, which is then reconciled to our total lease
obligation (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total
Less: Amounts representing interest
Total lease obligations
June 30, 2020
Operating
Leases
$
$
12,590
12,113
11,296
10,317
9,388
37,316
93,020
16,237
76,783
Certain leases include one or more options to renew, with terms that extend the lease term up to five years. The Company includes
option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise
the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, the
Company is not reasonably certain to exercise such options.
Disclosures related to periods prior to adoption of new lease standard:
At June 30, 2019, aggregate net minimum rental commitments under non-cancelable leases having an initial or remaining term of
more than one year are payable as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Operating
Leases
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.
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, 2020, June 30, 2019,
and June 30, 2018. During the years ended June 30, 2020 and June 30, 2019, the Company repurchased 279,381 shares at an average
share price of $179.37 and 95,000 shares at an average share price of $162.15, respectively. The Company's accounting policy is to
record the portion of share repurchases in excess of the par value entirely in retained earnings. During fiscal year 2020, the Company
recorded ($0.4) million within the Consolidated Statements of Shareholders' Equity for the surrender and retirement of stock to
exercise option due to net settlement stock options exercises.
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
Total
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
Cumulative effect adjustment for adoption for ASU 2016-01
Other comprehensive income (loss) before reclassifications
Balance June 30, 2019
Other comprehensive income (loss) before reclassifications
Reclassification from loss on derivatives to interest expense, net of
taxes(1)
Balance June 30, 2020
$
$
$
18,989 $
18,108
(67,924 ) $
(1,572 )
- $
-
(48,935 )
16,536
(12,415 )
24,682 $
2,371
(27,053 )
-
- $
-
-
(69,496 ) $
-
-
(4,487 )
(73,983 ) $
(9,963 )
-
- $
-
-
(9,537 )
(9,537 ) $
(7,179 )
(12,415 )
(44,814 )
2,371
(27,053 )
(14,024 )
(83,521 )
(17,142 )
-
-
3,464
3,464
$
- $
(83,946 ) $
(13,253 ) $
(97,199 )
(1) Gains (losses) on the interest swap will be reclassified into interest expense as payments on the derivative agreement are
made.The Company reclassified ($4,503) to interest expense and a related tax benefit tax of $1,040 during fiscal 2020.
Approximately $7,035 of the $13,253 will be reclassified in the 12 months subsequent to June 30, 2020. The Company had
deferred tax benefits of $4,058 and $2,921 included in the accumulated other comprehensive income loss as of June 30, 2020 and
June 30, 2019, respectively.
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
2020
Year Ended June 30,
2019
2018
$
$
$
$
$
$
229,296 $
(224 )
229,072 $
38,201
6.00 $
229,296 $
(224 )
229,072 $
38,201
1,200
39,401
5.82 $
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
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 0.9 million,
1.3 million, and 0.9 million for the fiscal years ended June 30, 2020, 2019 and 2018, 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, 2020, there were 1.9 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, 2020 under the Second A&R
2010 Plan were 3.6 million. For 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 Executive Compensation Committee of the Board of Directors approved a modification to the
Plans. 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)
2020
Year Ended June 30,
2019
0.67%
0.74%
2018
1.1%
22%
1.3%
- 24% 20%
- 1.9% 2.5%
- 23% 21%
- 3.0% 1.7%
- 24%
- 2.8%
4.0
4.1
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, 2020, consists of the following (shares in thousands):
Outstanding at June 30, 2017
Granted
Forfeited
Exercised
Outstanding at June 30, 2018
Granted
Forfeited
Exercised
Outstanding at June 30, 2019
Granted
Forfeited
Exercised
Outstanding at June 30, 2020
Exercisable at June 30, 2018:
Exercisable at June 30, 2019:
Exercisable at June 30, 2020:
Number of
Shares (in
thousands)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
(millions)
Weighted
Average
Contractual
Life (years)
2,821 $
1,087
(252 )
(204 )
3,452 $
917
(330 )
(383 )
3,656 $
752
(56 )
(743 )
3,609 $
98.42
120.67
86.62
111.51
105.17
173.89
129.93
95.29
121.16
190.80
95.97
157.45
140.28 $
1,151
1,467
1,564
90.75
98.70
112.60 $
446.7
4.3
236.8
3.3
The weighted average fair value of options granted during fiscal 2020, 2019, and 2018 was $37.01, $34.66, and $22.07 respectively.
The total intrinsic value of options exercised during fiscal 2020, 2019, and 2018 were $99.3 million, $159.0 million, and $10.6
million, respectively. The total fair value of options vested during fiscal 2020, 2019, and 2018 were $71.1 million, $31.7 million,
and $8.8 million, respectively.
Restricted common stock activity under the Plans for the three years ended June 30, 2020, consists of the following (units in
thousands):
Unvested at June 30, 2017
Granted
Vested
Forfeited
Unvested at June 30, 2018
Granted
Vested
Forfeited
Unvested at June 30, 2019
Granted
Vested
Forfeited
Unvested at June 30, 2020
Number of
Shares (in
thousands)
Weighted
Average Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
(years)
32 $
20
(17 )
-
35 $
15
(20 )
-
30 $
15
(18 )
-
28 $
105.80
125.05
104.66
-
117.39
177.93
116.76
-
147.94
193.48
142.12
-
177.20
6.14
The total fair value of restricted shares that vested was $2.5 million for fiscal 2020, $2.3 million for fiscal 2019, and $1.7 million for
fiscal 2018.
55
Restricted stock unit activity under the Plans for the three years ended June 30, 2020, consists of the following (units in thousands):
Outstanding at June 30, 2017
Granted
Vested
Forfeited
Outstanding at June 30, 2018
Granted
Vested
Forfeited
Outstanding at June 30, 2019
Granted
Vested
Forfeited
Outstanding at June 30, 2020
Number of
Units
(in thousands)
Weighted
Average Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
(years)
111 $
71
(16 )
(18 )
148 $
56
(28 )
(36 )
139 $
31
(51 )
(3 )
116 $
106.39
129.99
95.46
115.01
117.95
170.96
110.86
143.72
134.17
192.08
111.07
155.6
159.25
5.20
The total fair value of restricted stock units that vested was $5.7 million for fiscal 2020, $3.1 million for fiscal 2019, and $1.6 million
for fiscal 2018. The restricted stock units vest over a three-year period.
Stock-based compensation cost of $32.4 million, $32.3 million, and $28.2 million was included in selling, general and administrative
expense in fiscal 2020, 2019 and 2018, respectively. Additionally, Stock-based compensation costs of $1.6 million was included in
cost of goods sold in 2020. As of June 30, 2020, there was $25.3 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 2021 through
2023 using a 3% forfeiture rate. The weighted average period over which the compensation cost is expected to be recognized is 1.9
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 $0.4 million, $0.5 million, and $0.3 million for the ESPP in fiscal 2020, 2019, and 2018, 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 $3.2 million, $2.8 million, and $2.5 million for the years ended June 30, 2020, 2019, and 2018,
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 for each of the years ended June 30, 2020, 2019, and 2018.
Performance incentive programs: In fiscal 2020, under certain employment agreements and a Management Incentive Plan available
to executive officers and certain management personnel, the Company recorded cash bonuses of $10.5 million, granted options for
751,499 shares of common stock, issued 15,398 restricted common shares and 30,858 restricted stock units. In fiscal 2019 and fiscal
2018, the Company recorded cash bonuses of $9.3 million and $7.2 million, granted options for 618,898 and 553,750 shares of
common stock, and issued 11,279 and 14,194 restricted common stock shares and 25,903 and 35,174 restricted stock, respectively.
Note 11. Income Taxes:
Income before income taxes was comprised of the following (in thousands):
Domestic
Foreign
Income before income taxes
2020
Year Ended June 30,
2019
$
$
245,365 $
31,112
276,477 $
64,081 $
47,934
112,015 $
2018
81,557
44,395
125,952
56
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
2020
Year Ended June 30,
2019
2018
$
$
18,976 $
6,018
8,580
33,574
14,074
2,055
(2,522)
13,607
47,181 $
16,090 $
544
13,329
29,963
(6,903 )
(3,977 )
(3,142 )
(14,021 )
15,943 $
28,416
5,315
11,983
45,714
(40,378 )
(1,381 )
(4,154 )
(45,912 )
(198 )
The Company's effective income tax rate for fiscal 2020 was 17.1% for fiscal 2020 vs 14.2% in the prior year. The change in the
effective tax rate for fiscal 2020 and 2019 were driven by the changes in the net discrete tax benefits $19.4 million and $12.7
million, respectively.
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 2020 primarily related to share-based compensation excess tax benefits of $17.7
million.
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 fiscal 2019 acquisitions, and $2.0 million for tax refunds relating to certain state apportionments. The
prior fiscal 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 Company continues to monitor newly enacted regulations, clarifications, and changes in guidance the “Tax Act”, which was
enacted on December 22, 2017. The Company recognizes changes in legislation in the period enacted, which may have a material
impact on our effective tax rate in future periods.
57
The following is a reconciliation of the federal tax calculated at the statutory rate of to the actual income taxes provided:
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
Executive compensation limitations
Other, net
Effective tax rate
2020
Year Ended June 30,
2019
2018
21.0 %
2.3 %
- %
(0.7 )%
(0.2 )%
(0.2 )%
(5.7 )%
-
-
1.6 %
(1.0 )%
17.1 %
21.0 %
0.8 %
- %
(1.6 )%
(0.4 )%
0.2 %
(5.8 )%
1.7 %
(2.3 )%
0.4 %
0.2 %
14.2 %
28.1 %
2.5 %
(2.4 )%
(1.4 )%
3.3 %
(3.5 )%
(1.8 )%
(26.2 )%
-
-
1.2 %
(0.2 )%
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
Lease liability
Other
Valuation allowance
Deferred tax assets
Net unrealized gain on available-for-sale investments
Intangible asset amortization
Depreciation
Right of use asset
Other
Deferred tax liabilities
Net deferred tax liabilities
June 30
2020
2019
$
$
7,769 $
25,707
9,568
2,423
10,755
4,058
16,256
4,340
(7,523 )
73,353
(19,102 )
(128,279 )
(10,764 )
(15,118 )
(1,180 )
(174,443 )
(101,090 ) $
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 )
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, 2020 was $7.5 million compared to $7.0 million in the prior year.
As of June 30, 2020, the $7.5 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, 2020, the Company has federal operating loss carryforwards of approximately $64.2 million and state operating loss
carryforwards of $130.6 million from its acquisitions of Quad, Exosome, ACD, ProteinSimple and CyVek, which are not limited
under IRC Section 382. As of June 30, 2020, the Company has foreign net operating loss carryforwards of $13.7 million. The net
operating loss carryforwards expire between fiscal 2021 and 2036. The Company has a deferred tax asset of $20.2 million, net of
the valuation allowance discussed above, related to the net operating loss carryovers. As of June 30, 2020, the Company has federal
and state tax credit carryforwards of $5.0 million and $5.7 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
$7.5 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 $186 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
2020
Year Ended June 30,
2019
2018
$
$
5,032 $
-
306
(1,041 )
-
4,297 $
1,947 $
900
2,185
-
-
5,032 $
1,747
-
35
-
165
1,947
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 2017 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 operates under two operating segments, Protein Sciences and Diagnostics and Genomics.
The Company's Protein Sciences segment is comprised of the Reagent Solutions division and Analytical Solution division. 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, 2020, 2019, and 2018.
The Company's Diagnostics and Genomics is comprised of the Diagnostics Reagents division and the Genomics division. The
Diagnostics Reagents division 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. The Genomics division consists of Genomics
and Exosome products 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, 2020, 2019, and 2018.
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
Gain on escrow settlement
Acquisition related expenses
Restructuring costs
Stock-based compensation
Corporate general, selling and administrative expenses
Consolidated operating income
$
2020
Year Ended June 30,
2019
2018
555,352 $
184,549
(1,210 )
738,691 $
234,929 $
14,965
249,894
-
(60,865 )
7,169
(416 )
(87 )
(34,262 )
(4,015 )
157,419 $
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
The Company has some integrated facilities that serve multiple segments. As such, asset and capital expenditure information by
operating 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 operating 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 dis-aggregated 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
2020
Year Ended June 30,
2019
2018
$
$
431,052 $
171,590
602,642 $
430,655 $
158,324
588,979 $
384,350
150,388
534,738
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,
2020
2019
$
$
$
$
162,039 $
13,120
1,670
176,829 $
499,875 $
12,349
4,321
516,545 $
138,016
14,439
1,584
154,039
556,951
16,637
5,841
579,429
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)
2020
Net sales
Cost of sales
Net earnings1
(1) - Amounts do not total due to rounding
Earnings per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
(in thousands, except per share data)
2019
Net sales
Cost of sales
Net earnings
Earnings per common share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
183,243 $
64,829 $
14,398 $
184,934 $
63,531 $
119,623 $
194,680 $
64,617 $
36,432 $
175,834 $
62,520 $
58,847 $
Year
738,691
255,497
229,296
$
$
0.38 $
0.37 $
3.13 $
3.02 $
0.95 $
0.92 $
1.54 $
1.48 $
6.00
5.82
38,032
39,253
38,167
39,550
38,303
39,435
38,304
39,700
38,201
39,401
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
$
$
$
$
$
Weighted average common shares outstanding:
Basic
Diluted
37,697
38,813
37,766
38,748
37,772
38,861
37,881
39,135
37,781
38,892
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each
of the years in the three-year period ended June 30, 2020, 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, 2020, 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 26, 2020 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, the Company has changed its method of accounting for
revenue as of July 1, 2018, due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with
Customers (Topic 606), and related amendments.
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases
as of July 1, 2019, due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842) and related amendments.
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
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. 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill impairment analysis for the Exosome reporting unit
As discussed in Note 1 to the consolidated financial statements, the goodwill balance as of June 30, 2020 was $728.3 million,
of which $105.4 million related to the Exosome reporting unit. The Company performs goodwill impairment testing on an
annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit likely exceeds
its fair value. This involves estimating the fair value of the reporting units using discounted cash flow models.
We identified the evaluation of the goodwill impairment analysis for the Exosome reporting unit as a critical audit matter.
There was a high degree of subjectivity in applying and evaluating certain key assumptions used in the discounted cash flow
62
model to estimate the fair value of the Exosome reporting unit. Specifically, the revenue growth rates and the discount rate
were challenging to test as they represented subjective determinations of future market and economic conditions. Changes to
those assumptions could have had a significant effect on the Company’s assessment of the fair value of the goodwill.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to
the Company’s determination of the estimated fair value of the Exosome reporting unit, including controls related to the:
● development of revenue growth rates
● selection of the discount rate
We performed sensitivity analyses over the revenue growth rate and discount rate assumptions to assess their impact on the
Company’s determination that the fair value of the Exosome reporting unit exceeded its carrying value. We evaluated the
reasonableness of the Company’s forecasted revenue growth rates for the Exosome reporting unit by comparing the growth
assumptions to industry benchmarks and other industry related third-party data. We also compared the Company’s historical
revenue forecasts to actual results to assess the Company’s ability to accurately forecast. In addition, we involved valuation
professionals with specialized skills and knowledge, who assisted in:
● evaluating the discount rate used in the valuation, by comparing it against a discount rate range that was independently
developed using publicly available market data for comparable entities, and
● testing the estimate of the Exosome reporting unit’s fair value using the reporting unit’s cash flow forecast and discount
rate, and comparing the result to the Company’s fair value estimate.
We have served as the Company’s auditor since 2002.
/s/ KPMG LLP
Minneapolis, Minnesota
August 26, 2020
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated August 26,
2020 expressed an unqualified opinion on those consolidated financial statements.
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 26, 2020
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, 2020, 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.
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.
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, 2020.
65
The attestation report on our internal control over financial reporting issued by KPMG LLP appears in Item 8 of this report.
(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 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, 2020.
There were no other changes in the Company's internal control over financial reporting during fiscal year 2020 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 2020 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 2020 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 2020 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 2020 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 2020 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, 2020, 2019, and 2018
Consolidated Balance Sheets as of June 30, 2020 and 2019
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the Years Ended June 30, 2020, 2019, and 2018
Notes to Consolidated Financial Statements for the Years Ended June 30, 2020, 2019, and 2018
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.
EXHIBIT INDEX
for Form 10-K for the 2020 Fiscal Year
Exhibit
Number
3.1
3.2
4.1
10.1**
10.2**
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*
Description of Capital Stock -- attached as Exhibit 4.1 hereto
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*
10.3**
Form of Time Vesting Restricted Stock Award Agreement.
10.4**
Form of Performance Vesting Restricted Stock Award Agreement.
10.5**
Form of Time Vesting Restricted Stock Unit Award Agreement.
10.6**
Form of Performance Vesting Restricted Stock Unit Award Agreement.
10.7**
Form of the Time Vesting Performance Unit Award Agreement.
10.8**
Form of Performance Vesting Performance Unit Award Agreement.
10.9**
Form of Time Vesting Incentive Stock Option Agreement. .
68
10.10**
Form of Performance Vesting Incentive Stock Option Agreement.
10.11**
Form of Employee Non-Qualified Stock Option Agreement.
10.12**
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*
10.13**
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*
10.14**
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*
10.15**
Form of Amendment No. 1 to Executive Employment Agreement – incorporated by reference to Exhibit 10.15 of the
Company’s Form 10-Q dated May 11, 2020.
10.16
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*
10.17**
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*
10.18
10.20
21
23
31.1
31.2
32.1
32.2
101
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*
Development, Supply and Commercialization Agreement by and between the Company and Kantaro Biosciences, LLC
dated May 18, 2020 (portions of which have been redacted as noted, subject to confidential treatment) – incorporated by
reference to Exhibit 10.1 of the Company's Form 8-K dated May 19, 2020*
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,
2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (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.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
104
-------------
* Incorporated by reference; SEC File No. 000-17272
** Management contract or compensatory plan or arrangement
69
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 26, 2020
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 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
August 26, 2020
Signature and Title
/s/ Robert V. Baumgartner
Robert V. Baumgartner
Chairman of the Board and Director
/s/ Julie Bushman
Julie Bushman, 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
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TECH is Bio-Techne Corporation’s Nasdaq stock symbol, which is listed on the Nasdaq Global Select Market.ANNUAL MEETING The annual meeting of shareholders of Bio-Techne Corporation will be held via a live webcast available at: VirtualShareholderMeeting.com/TECH20Thursday, October 29, 2020 at 8:30 a.m. (Central Time) BOARD OF DIRECTORSRobert V. Baumgartner Chairman of the Board and DirectorCharles R. Kummeth President, Chief Executive Officer and DirectorJulie L. Bushman DirectorJohn L. Higgins DirectorJoseph Keegan, Ph.D. DirectorRoeland Nusse, Ph.D. DirectorAlpna Seth, Ph.D, Director Randolph C. Steer, M.D., Ph.D. DirectorRupert Vessey, M.A., B.M., B.Ch., F.R.C.P., D. Phil. DirectorHarold J. Wiens DirectorEXECUTIVE OFFICERSCharles Kummeth President and Chief Executive OfficerJames Hippel Chief Financial OfficerDavid Eansor President, Protein SciencesKim Kelderman President, Diagnostics and GenomicsBrenda Furlow General Counsel and Corporate Secretary WHERE SCIENCE
INTERSECTS INNOVATION™
Bio-Techne Corporation
614 McKinley Place NE
Minneapolis, MN 55413-2610, USA
(612) 379-8854