2021 ANNUAL REPORT
WHERE SCIENCE
INTERSECTS
INNOVATION™
2021 ANNUAL REPORT
2
Fiscal 2021 was a bit of a surprise to all of us. With the help of Mount Sinai Health System, we thought we had created a COVID-19 serology test that would be accepted and valued worldwide, and it was not. We thought we would suffer in our core business and prepared to hunker down for a year. That did not happen either, actually, the opposite. The interest in our products and services exploded. Interest in proteins and antibodies, as well as the whole field of proteomics, hit record levels due to a number of factors. Our growth, 22% for the year, was a dramatic recovery from fiscal 2020 and the business momentum we established continues. Our BioPharma customers and Vaccine manufacturers are investing; Life Sciences-based research and manufacturing generally is at record levels. The government is increasing funding for research because who does not want to be ready for the next pandemic! And this one is not over either… now it’s an Endemic. Our Cell and Gene Therapy business is growing nearly 40% and the GMP Protein portion well over 100%. The tsunami of Life Science research is upon us and will be for a while, in my opinion. The company made a nice move toward our goal of $1 billion in revenue, ending the fiscal year at $931 million. 2022 should be the year we top $1 billion. Now… On to $2 billion! We see a path and quite frankly, I feel better about the road to $2B than I did for $1B. We have 6 thriving businesses now split into two segments, Protein Sciences and Diagnostics and Genomics. Before I get into more specifics regarding our businesses, I want to give some color on our COVID-19 serology test, and our future plans for it. As we mentioned last year, the company pivoted hard during the pandemic, with Mount Sinai Health System as a partner, to create the best in class and best in the world, fully quantitative serology test. With this test, we can measure a patient’s antibody levels after either vaccination or COVID infection, and determine whether this measurement represents a sufficient level of protection. Our kit’s performance correlates well with the WHO standard. However, the government, and the population in general, concluded that a serology test like this just was not needed at this time. Just go get a shot and count on it working… We have a great product and we do have interest growing as more vaccinations occur and the individuals want to know their vaccine is still protecting them. Also, we see niche markets forming for our test. Current research is showing that immune-compromised individuals are not generating the typical antibody response from the vaccine and in fact can remain at risk of infection. Finally, not all vaccines are created equal, and some are showing lower efficacy levels or the longevity of the response is shorter, hence the need to test with serology. We still believe there is a need for this test, and we will continue to work with our partners to offer the test. PANDEMIC RECOVERY!2021 ANNUAL REPORT 3 OUR BUSINESSESWe have spent the past 8 years building this company from 800 employees to over 2,700 today. A year ago, we needed to address the concerns our employees had with COVID related business risks. It was an uncertain time with little knowledge of what would happen going forward. As we all know, lockdowns occurred, video meetings became the norm, and our employees’ travel dropped to near zero. What management did was promise our employees that we would not have any layoffs or furloughs last year, regardless of the pandemic’s impact on our business. We sold a large portion of an investment we have held for many years, and made a nice profit, just in case. Well, as I mentioned, our business boomed, but I like to think a portion of that credit goes beyond the market to our employees, who were able to focus on their work and their customers and not have to worry about their jobs. During the first half of calendar 2021 we added over 300 people, and we are continuing to hire to support the crazy growth we are experiencing. All of our growth platforms made great progress, we opened our new large GMP protein factory, we acquired an excellent Diagnostics company and we overachieved both top and bottom line for the year. A good year indeed, even though it seemed more like 2 years with the restricted travel and learning to hold meetings by Teams and Zoom. It was a good year for others in our industry as well. Many “unicorns” were minted or integrated via SPACs. We like to say here at Bio-Techne that we have a whole stable of unicorns! All making money. We have a wonderfully diverse portfolio of platforms that span reagents, instruments, OEM, and Diagnostics, all supporting the Life Sciences industry. Our Protein Sciences segment had a record year, posting 24% organic growth and 47% operating income. We made great progress with our Cell and Gene therapy initiative by opening our GMP facility and signing more large customers. We made progress with our Cloudz™ polymeric bead platform and are testing it in preclinicals with customers. Our TcBuster™ gene editing platform also had a great year, exceeding forecast, signing many new customers and integrating the science into our protein and antibody core workflow, improving yields of various products dramatically. 42021 ANNUAL REPORT 5Our ScaleReady joint marketing initiative made progress as well; we are very excited about the opportunity to integrate our ProDots™ GMP proteins with the GRex™ bioreactor manufactured by Wilson Wolf to deliver a sterile and more efficient cell culture solution to Cell and Gene therapy customers. The custom and OEM portion of our reagents business also had a record year with double digit growth, extending our pipeline with customers for years to come, including receiving royalties on some of our most valued content that is being used for therapeutic and diagnostic assay solutions by the world’s largest suppliers in these categories.Let’s discuss the instruments we sell within the Protein Sciences segment. If you would have asked me if we could grow our three main platforms, Simple Western™ (Jess™), Simple Plex™(Ella™) and Biologics (Maurice™), by 30%-80% throughout the year I would have said it was impossible. So, what happened? A number of things. First, these are great tools for productivity. As labs reorganized themselves around working partially from home, it became more important to increase output while in the lab. Also, new social distancing rules required more equipment. Our tools are perfect for this, and at a great value. Second, proteomics-based applications are on fire now. Research is strong and these tools are in some cases not only the best in class but the only type of tool you can purchase that fully automates selected lab workflows. Simple Western is just that -- it is the only automated western blotting solution on the market. Simple Plex is also finding more resonance with the Cell and Gene therapy companies as a QC tool in their workflow. It also is finding diagnostics opportunities which we are trying to accelerate by taking the instrument through a 510K process as a diagnostics device. One final fun fact regarding our instruments. Six years ago, we purchased ProteinSimple for $300 million. It was a $50 million revenue business, not making money. Today, that business, on its own, is over $200 million in revenue, growing north of 25% and with operating margins over 30%! Talk about unicorns… 2021 ANNUAL REPORT 5 Our Diagnostics and Genomics segment also had a fantastic year with 18% organic growth and 17% operating margins. The highlight for me was the acquisition of Asuragen, a 15-year-old Diagnostics company with strong competencies, great leadership and solid domain knowledge in Diagnostics, regulatory requirements, kitting expertise, and molecular diagnostics products as well as a strong portfolio of carrier screening diagnostics like its AmplideX® Fragile X Dx & Carrier Screen Kit, the world’s best in class test for identifying the most common genetic cause of Autism Spectrum Disorders early. I want to be clear about our direction for diagnostics. It is not our goal to be simply a CLIA lab service model. We prefer to sell kitted products or reagents for use in Lab-Developed Tests, primarily in the Oncology and Neuroscience markets. These markets have strong growth due to significant need as well as good margins and better than average reimbursement levels. Asuragen is a $30 million revenue business which we believe can grow at 20% levels and gross margins north of 80%. This should fit well into our operating margin profile and targets. Our Diagnostics reagents business had a better than average year and we see a future of mid- to high-single digit growth and 30%+ operating margins. This business had great success this past year in supplying OEM antibodies to the Diagnostics industry for COVID related tests. The future is bright with a strong product and OEM pipeline. Next, our Exosome-based liquid biopsy business unit continues to make progress even in light of a very soft Urology market. During the height of the pandemic, patients were not travelling to doctors’ offices to have annual checkups or seeing their Urologists. This reduced the level of PSA tests conducted, and this in turn impacted the ExoDx™ prostate test volume since the PSA test is the tool used by Urologists to identify a need to prescribe an ExoDx prostate test for prostate cancer risk analysis and possible biopsy. The market is recovering, and our growth is accelerating. And we are making great progress with our next test, the ExoTRU™ kidney rejection diagnostic test. The first paper on this test has been published in a peer-reviewed journal, and it shows we have a best-in-class test coming to market. Finally, our Genomics business, which came to us via our acquisition of Advanced Cell Diagnostics four years ago, had a stellar year. RNAscope™ continues to grow 30+% and we now have a multiplex version of this excellent mRNA analysis tool, HiPlex™. We also just launched a DNA version of the technology we call DNAscope™ and it already appears to be well accepted by industry researchers.Our EMEA region had a record year with 25% organic growth and improvements in bottom line as well. We lived through a difficult fiscal 2020 with our EMEA business as Brexit caused some supply chain and logistics issues. However, the team did an excellent job addressing them. We now are a full subsidiary model in Europe with offices in France, Germany, Italy and the UK, as well as subsidiaries and employees in several other countries, and over 250 employees. Noteworthy, this year marked the first time EMEA exceeded $200 million in revenue.APAC and China were a similar story. As you may recall, China was the first country to lock down due to COVID-19, and the first to reopen. China seems to be returning to offices and labs and has been for 3 quarters, and we are again exceeding 20% organic growth quarter on quarter. We are very close to seeing a $100 million year in revenue in China. If not this coming fiscal year, certainly the year after. When my team and I arrived at Bio-Techne 8 years ago it was a $14 million business with 12 people. We now are at 160 people. A lot of commercial priority has also been poured into Japan, Korea and India. We are experiencing strong high teens growth for the region, with the exception of Japan at high single digit growth (which is actually exceptional for Japan, given that it has had a stagnating economy for many years now).62021 ANNUAL REPORT Our strategies remain unchanged from the past few years. Why change what is working? 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 into GMP grade reagents, focusing on supporting the rapidly expanding Immunotherapeutic markets. This includes GMP grade proteins, GMP grade recombinant antibodies, and Cell expansion media, as well as 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 therapeutic tools like Cloudz activation technology and TcBuster gene editing to support new areas like CAR T and NK cell therapy.• Acquire “new to the world” instrument technologies that can leverage our reagents and offer researchers full solutions. Areas of focus are automation for spatial analysis, multiplex innovation and cell sorting.• Acquire new talent and intellectual property to help the company with its next phase of accelerated growth.• Inspire innovation within the company through scientific collaboration and support of key opinion leaders, expanding our intellectual property and product portfolios. We have established a “Tech Council” which we expect to foster cross divisional innovation.• Continue with commercializing best in class products and Diagnostics to help the world diagnose, treat, and ultimately eliminate COVID-19.STRATEGIC DIRECTION2021 ANNUAL REPORT 7 CORPORATE SUSTAINABI LI TY
social,
Creating long term value for our shareholders
requires that we focus not only on revenue
growth and profitability, but also other
measures that are necessary for success. We
understand that delivering on our mission
over the long term requires focus on corporate
sustainability, broadly defined
include
to
and governance
environmental,
considerations
to as
“ESG”). With oversight by the Board, both
directly and
its committees, we
are committed to a process of continuous
improvement in supporting, measuring, and
reporting on ESG factors. Specifically, we
are focused on what the Company terms the
“Four Pillars” of its corporate sustainability
program, including our Commitments to Our
People, Our Communities, the Environment,
(commonly referred
through
and Governance and Operational Integrity.
For years, we have focused on integrating our
purpose, culture, and broader responsibilities
across all aspects of our business. In 2020,
however, for the first time we took important
steps to disclose more of those activities and
measures with the publication of our first
Corporate Sustainability Report (posted on
the Corporate Responsibility page of our
website). As part of our process of continuous
improvement, in the coming year we intend to
undertake a more comprehensive initiative to
assess, benchmark and prioritize our ESG and
sustainability practices, including performing
a greenhouse gas emission inventory and
developing a plan to set emission reduction
targets with the goal of reducing our carbon
footprint over time.
GLOBAL FOOTPRINT
FISCAL YEAR ENDS:
FY 2021 REVENUES:
FY 2021 ADJ. GROSS MARGIN :
FY 2021 ADJ. OP INC.:
FY 2021 ADJUSTED EPS:
FY 2021 MARKET CAP:
JUNE 30
$931M
72.2%
$362M
$6.75
$17.5B
2,700+
EMPLOYEES GLOBALLY
355,000
QUALITY PRODUCTS
44 YEARS
MANUFACTURING &
SOURCING REAGENTS
2021 ANNUAL REPORT
8
2021 ANNUAL REPORT 9We have designed and built a company based on a subsidiary model approach, which is a portfolio of product platforms spread across six business units. With the recent creation of the Molecular Diagnostics division, which combines the Asuragen and Exosome Diagnostics businesses, we now have five, still all within our two operating segments, Protein Sciences and Diagnostics and Genomics. One usually does this to mitigate risk so that at any one time not all businesses can be in a down cycle. This in my experience works well from an organization design, because you “divide and grow”. It is also good operationally and can smooth out the lumps, so to speak. So, what happens when all are doing well and firing at once? You get a year like we had at 22% organic growth! It was a lot of fun and very inspiring for the team. (In thousands)Year Ended June 3020212020201920182017Net Sales$931M$739M$714M$643M$563MAdjusted net earnings(1)$273M$179M$175M$173M$140MAdjusted diluted earnings per share (1)$6.75 $4.55 $4.51 $4.54 $3.72 Cash flow from operations$352M$205M$182M$170M$143M(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 Form 10-K, following, for further details.(In thousands except per share data)Year Ended June 3020212020201920182017Cash, cash equivalents and available-for-sale investments$232M$271M$166M$182M$158MTotal assets$2,263M$2,028M$1,884M$1,593M$1,558MLong term debt obligations (1)$354M$344M$502M$339M$347MStockholder's equity$1,571M$1,381M$1,166M$1,079M$950MCommon shares outstanding 38,955M38,453M37,934M37,608M37,356M(1) Includes long-term contingent considerations payable.HIGHLIGHTS OF OUR FISCAL 2021 PERFORMANCE:Cash from operations was $352m for the year and we returned nearly $50m to our shareholders in the form of dividends. Adjusted earnings were $273.2mabout 52% more than last year. Adjusted earnings per share were $6.75, +48% over last year. Currency exchange impacted earnings per share positively by $0.11, or 2%.Overall, revenue increased 26% to$931mOrganic revenue was 22% over the prior year, with currency translation having a positive impact of 3% and acquisitions contributing 1% to the revenue growth..Adjusted operating margins for the year were 38.9%, 560 basis points over last year. FINANCIAL PERFORMANCE IN FISCAL 2021 NEW PRODUCTSThe success we experienced in fiscal 2021 is exemplified in the products we launched. To highlight some of the more than 1,000 new products we launched, we should mention the addition of Abby™ to the western blotting product line, which adds chemiluminescence detection capabilities. The RePlex™ application provided the Jess instrument the additional ability to probe the samples twice in the same capillary following a run. The Stellar™ module for Jess added fluorescence capabilities that increase the detection sensitivity to the low picogram range. On the immunoassay front, in addition to the continued expansion of the Quantikine™ single analyte immunoassay products for both human and mouse, we also launched the serology assay called SeroKlir™ to assess the level of IgG antibodies generated in individuals following vaccination or exposure to COVID-19.Numerous new recombinant proteins and antibodies were added to our catalogue, especially reagents used to study and develop clinically important assays for COVID-19, including many virus variant specific reagents (both recombinant proteins and antibodies). Expansion of our line of PROTAC® degraders to better understand the targeted degradation of specific proteins via E3 ligases pathway. The launch of various new avidin tagged proteins (AviTag™ biotinylated proteins) has also facilitated research. An important product launch this year was our Cultrex UltiMatrix™ which is a basement membrane extract that supports both 2D and 3D cell culture.Launch of Abby (chemiluminescence detection in western blotting)Digital promotions continue to drive businessLuminex product menu expansionRePlex (multiple probing of a run)Ella commercial adoptionBiological controls and calibrators menu expansionHiPlex continued adoptionGMP protein manufacturing facility opening102021 ANNUAL REPORT Gene Editing Services launch/promotionProdots menu expansion (VEGF, IL-2, IL-7 and IL-15)SeroKlir commercial progress (Canada authorization)Mouse Quantikine product menu expansion (mIL-17 and mMCSF)Simple Western accelerated market adoptionElla Cartridge build process optimizationStellar Module: fluorescence modules for Jess provide low picogram sensitivity that is in the same range as Simple Western’s unparalleled chemiluminescence detection. 2021 ANNUAL REPORT 11 On the genomics front, we launched our RNAscope HiPlex assay product line which gives researchers the ability to multiplex their transcriptomics analysis of tissue. Our Genomics division also launched DNAscope which expands the genomic analysis to DNA. RNAscope assay products for COVID-19 research figured prominently in this year’s market launches.We formed our ScaleReady marketing collaboration to provide customers with a broad portfolio of products to enable all aspects of the Cell and Gene Therapy workflow. Our gene editing services, which use our proprietary non-viral vector TcBuster gene transfer system saw continued adoption and will eventually find its way into future clinical trials. In our continued efforts to improve product quality and standards, we expanded our Tocris Biosciences™ product lines by launching two grades of small molecule products: Ancillary Material and GMP small molecules often used in the regenerative medicine field. Dissolvable microspheres (Cloudz) to aid in both cell separation as well as cell activation/expansion saw some of their products for NK and T cells reach the market, including GMP-grade CD3 and CD28 Cloudz products. Lyophilized cytokines in single use bags, or GMP ProDots, of VEGF, IL-2, IL-7 and IL-15 were launched which facilitate the addition of cytokine supplements to media formulations while addressing sterility concerns.122021 ANNUAL REPORT miRNAscopeGene edited cells adoption by various customersDNAscopeAvidin-labeled proteinsRUO Animal-Free proteinsStormlight launch (high sensitivity FL detection on Jess based on Aratome technology)Ultimatrix (basement membrane for both 2D and 3D cell culture)AM (Ancillary Material) Grade small molecules menu expansion for traceability of starting materials Key out-licenses of antibodies for therapeutic usesCOVID-19 products as components in assays (proteins, viral proteins, SW Serological Assay, etc.)Optimized cell enrichment processes using Cloudz for various cell typesTocriscreen compound libraryScaleReady joint venture launchPROTACs launch2021 ANNUAL REPORT 13 Our thesis to becoming a $1B+ revenue company with 40% operating margins and a product portfolio to be envied by many was very close to being achieved this year. The challenges brought about by COVID-19 was the opportunity to refocus our efforts on our customers and employees. The net results are that we came out of this stronger than ever, which has accelerated our timeline to our stated financial goals. It’s now time to update those goals and we have some audacious goals indeed. We look at our markets and we see our penetration at 10% or less in all the markets we serve, which totals to near $20B. We have recently revised our 5 year targets, and I am happy to report that we see a path and have a plan to $2B in revenue and 40% operating margins in the next 5 years. The Bio-Techne team did an incredible job this year in spite of the added stress from the unknowns due to COVID-19. I’m delighted with their success and with our bright future.BIO-TECHNE VS. S&P 500 INDEX142021 ANNUAL REPORT EXTENDING OUR SUCCESS IN 2022This graph compares the yearly percentage change in the cumulative total shareholder return in Bio-Techne common stock during the five years ended June 30, 2021 with the cumulative total return of the S&P 500 Index. The comparison assumes a similar investment made on June 30, 2016 in Bio-Techne common stock and in the above index. The graph is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules or to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that Bio-Techne specifically requests that such information be treated as soliciting materi al or specifically incorporates it by reference into a filing under the Securities Act or the Securities Exchange Act. 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, 2021, or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to
Commission file number 0-17272
BIO-TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
(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)
Title of each class
Common Stock, $0.01 par value
Securities registered pursuant to Section 12(b) of the Act:
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 ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
As of December 31, 2020 the aggregate market value of the Common Stock held by non-affiliates of the Registrant was $12.4 billion
based upon the closing sale price as reported on The Nasdaq Stock Market ($317.55 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 20, 2021, 39,079,539 shares of the Company’s Common Stock ($0.01 par value) were outstanding.
Portions of the Company’s Proxy Statement for its 2021 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
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
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4
11
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In this Annual Report, the terms “Bio-Techne” or the “Company” refer to Bio-Techne Corporation, Bio-Techne Corporation and its
consolidated subsidiaries, or the consolidated subsidiaries of Bio-Techne Corporation, as the context requires.
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 statements regarding:
projections of revenue, expenses, profit, profit margins, pricing, tax rates, tax provisions, cash flows, our liquidity position or other
projected financial measures; management’s plans and strategies for future operations, including statements relating to anticipated
operating performance, cost reductions, new product and service developments, competitive strengths or market position,
acquisitions and the integration thereof, strategic opportunities, dividends and executive compensation; growth, declines and other
trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; future regulatory approvals and
the timing and conditionality thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent
liabilities; future foreign currency exchange rates and fluctuations in those rates; the potential or anticipated direct or indirect impact
of COVID-19 on our business, results of operations and/or financial condition; general economic and capital markets conditions; the
anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events
or developments that Bio-Techne intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,”
“should,” “could,” “intend,” “will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and
“positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-
looking statements are accompanied by such words. Forward-looking statements are based on assumptions and assessments made
by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments
and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties,
including but not limited to the risks and uncertainties set forth below and under “Item 1A. Risk Factors” in this Annual Report.
Forward-looking statements are not guaranties of future performance and actual results may differ materially from the results,
developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue
reliance on any such forward-looking statements. Forward-looking statements speak only as of the date of the report, document,
press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable
law, we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information,
future events and developments or otherwise.
Investment in our securities involves risk and uncertainty and you should carefully consider all information in this Annual Report on
Form 10-K prior to making an investment decision regarding our securities. Below is a summary of material risks and uncertainties
we face, which are discussed more fully in “Item 1A. Risk Factors”:
Business and Strategic Risks
● 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.
● U.S. and international political, economic, compliance and business factors, including the United Kingdom’s recent
withdrawal from the European Union, can negatively impact our operations and financial results.
● The healthcare and life sciences industries that we serve face constant pressures and changes in an effort to reduce
healthcare costs or increase their predictability, all of which may adversely affect our business and financial results.
Acquisition and Investment Risks
● Our inability to complete acquisitions at our historical rate and at appropriate prices, and to make appropriate investments
that support our long-term strategy, could negatively impact our growth rate and stock price.
● Our acquisition of businesses, investments, joint ventures and other strategic relationships, if not properly implemented
or integrated, could negatively impact our business and financial statements.
● We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets, or
other investments may become impaired, which could negatively impact our financial statements or stock price.
1
Operational Risks
● Our success will be dependent on recruiting and retaining highly qualified personnel and creating and maintaining a
culture that includes the employees joining through acquisition.
● Our growth depends in part on the timely development and commercialization of new and enhanced products and
services that meet our customers’ needs. Our growth can also be negatively impacted if our customers do not grow as
anticipated.
● We face intense competition, and if we are unable to compete effectively, we may experience decreased demand and
decreased market share or need to reduce prices to remain competitive.
● A significant disruption in, or breach of security of, our information technology systems or data, or violation of data
privacy laws, 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.
●
If we suffer a loss to our facilities, supply chains, distribution systems or information technology systems due to
catastrophe or other events, our operations could be seriously harmed.
● The manufacture of many of our products is a complex process, and if we directly or indirectly encounter problems
manufacturing products, our business and financial statements could suffer.
●
If we cannot adjust our manufacturing capacity or purchases required for our manufacturing activities to reflect changes
in market conditions or customer demand, our business and financial statements may suffer. In addition, our reliance
upon sole or limited sources of supply for certain materials, components and services can cause production interruptions,
delays and inefficiencies.
● 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. Our business could be adversely affected
by disruptions at our sites.
● Defects, unanticipated use of or inadequate disclosure with respect to our products, or allegations thereof, can adversely
affect our business and financial statements.
● 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.
Intellectual Property Risks
● We are dependent on maintaining our intellectual property rights. If we are unable to adequately protect our intellectual
property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend
significant resources enforcing our rights.
● 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.
Financial and Tax Risks
● We have entered into and drawn on a revolving credit facility, and we may incur additional debt in the future. 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.
● Our business and financial statements can be adversely affected by foreign currency exchange rates, changes in our tax
rates and tax liabilities and assessments (including as a result of changes in tax laws).
● Dividends on our common stock could be reduced or eliminated in the future.
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Legal, Regulatory, Compliance and Reputational Risks
● Our business is subject to extensive regulation; failure to comply with these regulations could adversely affect our
business and financial results.
● Significant developments or changes in U.S. laws or policies, including changes in U.S. trade policies and tariffs and the
reaction of other countries thereto, particularly in China, can have an adverse effect on our business and financial
statements.
● Our business and financial statements can be impaired by improper conduct of any of our employees, agents, or business
partners.
● Certain of our businesses are subject to extensive regulation by the U.S. FDA and by comparable agencies of other
countries, as well as laws regulating fraud and abuse in the healthcare industry and the privacy and security of health
information. Failure to comply with those regulations could adversely affect our business and financial statements.
● 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.
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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, diagnostics and bioprocessing markets
worldwide. With our broad 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.
We manage the business in 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 biological reagents used in all aspects of life
science research, diagnostics and cell and gene therapy. This segment also includes proteomic analytical tools, both manual and
automated, that offer researchers and pharmaceutical manufacturers efficient and streamlined options for automated western blot and
multiplexed ELISA workflow. Our Diagnostics and Genomics segment develops and manufactures diagnostic products, including
controls, calibrators, and diagnostic assays for the regulated diagnostics market, exosome-based molecular diagnostic assays,
advanced tissue-based in-situ hybridization assays for spatial genomic and tissue biopsy analysis, and genetic and oncology kits for
research and clinical applications.
We are a Minnesota corporation with our global headquarters in Minneapolis, Minnesota. We were founded forty-five 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 350,000
products, most of which we manufacture ourselves in multiple locations in North America, as well as the U.K. 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 eight 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 through
2021 we have acquired or made investments in seventeen 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.
We are committed to providing the life sciences community with innovative, high-quality scientific tools that allow our customers
to make extraordinary discoveries. We intend to build on Bio-Techne’s past accomplishments, high product quality reputation and
sound financial position by executing strategies that position us to serve as the standard for biological content in the research market,
and to leverage that leadership position to enter the diagnostics and other adjacent markets. Our strategies include:
Continued innovation in core products. Through collaborations with key opinion leaders, participation in scientific
discussions and societies, and leveraging our internal talent we expect to be able to convert our continued significant
investment in our research and development activities to be first-to-market with quality products that are at the leading
edge of life science researchers’ needs.
Market and geographic expansion. We will continue to expand our sales staff and distribution channels globally in
order to increase our global presence and make it easier for customers to transact with us. We will also leverage our
existing portfolio to expand our product offerings into novel research fields and further into diagnostics and therapeutics
markets.
Culture development and talent recruitment and retention. As we continue to grow both organically and through
acquisition, we are intentionally fostering an “EPIC” culture based on the ideals of Empowerment, Passion, Innovation
and Collaboration. We strive to recruit, train and retain the most talented staff, who will live out these EPIC ideals and
implement our strategies effectively.
Targeted acquisitions and investments. We will continue to leverage our strong balance sheet to gain access to new and
differentiated technologies and products that improve our competitiveness in the current market, meet customers’
expanding workflow needs and allow us to enter adjacent markets.
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PROTEIN SCIENCES SEGMENT
Protein Sciences Segment Products and Markets
The Protein Sciences segment is the larger of our two segments, representing about 75% of our net sales in fiscal 2021. It is
comprised of two divisions with complementary product offerings serving many of the same customers – the Reagent Solutions
division and the Analytical Solutions division.
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, including companies developing cell and gene-based
therapeutics. Key product brands include R&D Systems, Tocris Biosciences and Novus Biologicals. Our combined chemical and
biological reagents portfolio provides high quality tools that customers can use in solving 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. With the 2019 acquisitions of 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, we have expanded our product offerings for the cell and gene therapy market.
Through a collaborative marketing venture with two other companies, we have leveraged these and other products we have or are
developing to provide a more complete offering for the cell and gene therapy market.
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. In response to the COVID-19 pandemic, we partnered
with Mount Sinai Hospital and its commercial entity, Kantaro Biosciences, to rapidly develop and commercialize an immunoassay
kit intended to test for antibodies to COVID-19, which has received regulatory clearance in several jurisdictions, including an
Emergency Use Authorization from the FDA.
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, as well as through a distribution agreement with Fisher
Scientific. 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 2021, 2020 or 2019.
DIAGNOSTICS AND GENOMICS SEGMENT
The Diagnostics and Genomics segment, representing about 25% of our net revenues in fiscal 2021, is focused primarily on the
diagnostics market and includes diagnostics reagents, genomics, our Exosome acquisition, and our Asuragen acquisition.
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 using nucleic acid (RNA or DNA) analysis that can be used for diagnostic or research
applications. Key product brands include Advanced Cell Diagnostics, or ACD, Exosome Diagnostics, and Asuragen. ACD products
are aimed at tissue biopsy and spatial analysis. 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
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of high-grade prostate cancer used as an aid in deciding the need for an initial biopsy. Our most recent acquisition is Asuragen,
which makes and sells products for genetic carrier screening, oncology diagnostics, molecular controls, and research.
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 DNA and RNA in situ hybridization assays have diagnostics applications as well, and several are
cleared or 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. Finally, the Asuragen products are sold primarily to laboratories for use in lab-developed tests or in kit form as regulated
diagnostic tests.
No customers accounted for 10% or more of the reporting segment's consolidated net sales during fiscal years 2021, 2020 or 2019.
MANUFACTURING AND MATERIALS
Our manufacturing operations use a wide variety of raw materials and components, including electronic components, chemicals
and biological materials. No single supplier is material, although for some components that require particular specifications or
regulatory or other qualifications there may be a single supplier or a limited number of suppliers that can readily provide such
components. We utilize a number of techniques to address potential disruption in and other risks relating to our supply chain,
including in certain cases the use of safety stock, alternative materials and qualification of multiple supply sources.
The majority of our products are shipped within one day of receipt of the customers' orders, other than our instruments and related
cartridges, which are typically shipped within one to two weeks of receipt of an order. There was no significant backlog of orders
for our products as of the date of this Annual Report on Form 10-K or as of a comparable date for fiscal 2021. For additional
discussion of risks relating to supply chain and manufacturing, refer to “Item 1A. Risk Factors.”
COMPETITION
Although our segments both generally operate in highly competitive markets, it is difficult to determine our competitive position,
either in the aggregate or by segment, since none of our competitors offer all of the same product and service lines or serve all of
the same markets as the Company, or any of its segments, does. Because of the range of the products and services we sell, we
encounter a wide variety of competitors, including a number of large, global companies or divisions of such companies with
substantial capabilities and resources, as well a number of smaller, niche competitors with specialized product offerings. We have
increased competition in a number of our markets as a result of the entry of new companies into certain markets, the entry of
competitors based in low-cost manufacturing locations, and increasing consolidation in particular markets. The number of
competitors varies by product line. Key competitive factors vary among the Company’s businesses, but include the specific factors
noted above with respect to each particular business and typically also include price, quality and safety, performance, delivery
speed, application expertise, service and support, technology and innovation, distribution network, breadth of product, service and
software offerings and brand name recognition. We believe our competitive position is strong due to the unique aspects of many
of our products and our product quality. For a discussion of risks related to competition, refer to “Item 1A. Risk Factors.”
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 the
Diagnostics and Genomics segment.
RESEARCH AND 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. That immunoassay product has thus far had limited
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sales. 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.
HUMAN CAPITAL
Through its subsidiaries, Bio-Techne employed approximately 2,600 full-time and part-time employees as of June 30, 2021, of
whom approximately 2,000 were employed in the United States and approximately 600 outside the United States. 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.
Bio-Techne is committed to attracting, developing, engaging and retaining the best people possible from around the world to
sustain and grow our leadership position in life sciences tools and diagnostics. Our human capital strategy spans multiple key
dimensions, including the following:
Culture and Governance
Our commitment to our people is reflected in our four EPIC values of Empowerment, Passion, Innovation and Collaboration. Those
four values (together with their 12 supporting EPIC behaviors) are the backbone for the way we approach the leadership and direction
of our work force. Employees are empowered to realize their potential. Our culture supports and encourages a collaborative approach
to working with each other and with our customers. We encourage innovation to continually improve our products, services and
processes, and our passion for science and the missions of our customers is our guiding light.
Our EPIC values are embedded in our culture and practices. By way of example, our performance management system and annual
review processes incorporate our EPIC values. Each employee is measured against the behaviors and attributes that support those
values. To further amplify our desired behaviours, we have an annual employee recognition program in which we ask for nominations
and recognize winning individuals and teams form across our business who have best demonstrated our EPIC values during the
previous year.
Bio-Techne’s Board of Directors reviews management succession planning annually, and its Executive Compensation Committee
reviews the Company’s human capital strategy periodically in connection with significant initiatives and acquisitions, as well as part
of its oversight of our executive and equity compensation programs. At the management level, our Vice President of Human
Resources, who reports directly to our President and CEO, is responsible for the development and execution of the Company’s human
capital strategy.
Engagement; Diversity and Belonging
Our engagement strategy focuses on developing the best workplace and best people leaders to meet our employees’ needs. We
believe that strong employee engagement helps enable higher retention and better business performance. We assess our engagement
performance through regular consultation with our managers and more formally via an annual engagement survey that assesses our
employees’ overall experience.
This feedback informs and shapes our future employee-focused initiatives. These initiatives in the past have resulted in changes in
programs and policies, including expansion of our management and leadership development programs, addition of a parental leave
program, expansion of our incentive programs to include annual cash bonuses to all professional employees and above, introduction
of flexible working and expanding the breadth of our Diversity & Belonging Council and Employee Resource Groups (ERGs).
We believe a diverse workforce and culture of inclusion is essential to drive innovation, fuel growth and help ensure our technologies
and products effectively serve a global customer base. The Company’s executive-sponsored Diversity and Belonging initiative is
focused on providing a welcoming working environment for all employees, continued education, broadening our candidate pools,
and implementing and sustaining programs. Our ERGs, coordinated under the guidance of our executive-sponsored Employee
Resource Group Council, offer mentorship, support and engagement to help our employees, including those from underrepresented
groups, succeed and thrive. As of June 30, 2021, we had 8 ERGs operating globally. Furthermore, as of June 30, 2021, 50% of our
total employee population was female, and 44% of our managerial employees were female. In the United States, 33% of our total
employee population identified as nonwhite and 28% of our managerial employees identified as nonwhite.
Talent Development and Learning and Development
Bio-Techne invests in people development in the belief that growing and promoting employees from within the Company creates a
more sustainable organization. High potential and promotable employees are identified through our annual Talent Management
program, and are then equipped with a personal development and career advancement plan. These plans involve training and
development from internal and external programs, together with mentoring and coaching.
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Our global Learning and Development program delivers a wide range of initiatives including a validated suite of compliance training,
soft skills, technical skills, business skills, interpersonal skills and career skills. Many of these programs are assigned to individuals
specifically, but in addition, there is an expansive menu available to employees in order to accelerate their own development. As a
company that regularly acquires other businesses, we believe it is important for employees to be trained in the skills and mindsets
that enable them to respond positively to change. This initiative allows individuals to deal with change easily and reduces the need
to run large scale change management programs.
Community
The Company believes in giving back and in supporting the local communities in which we live and work. Most sites or departments
engage in local charitable causes and activities. In some of our sites, employees are encouraged to give through regular payroll
deductions and through the annual campaign week where employee contributions are matched by the Company. United States
employees receive a paid day off to participate in local opportunities to give back to the community.
INTELLECTUAL PROPERTY
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 in our terms and conditions and other sales-related documentation.
As of June 30, 2021, we had rights to approximately 350 granted patents and approximately 250 pending patent applications. In
particular, products in the Analytical Solutions and Genomics divisions are protected primarily through pending patent
applications and issued patents. In addition, certain of our products are covered by licenses from third parties to supplement our
own patent portfolio. Patent protection, if granted, generally has a life of 20 years from the date of the patent application or patent
grant. We cannot provide assurance that any of our pending patent applications will result in the grant of a patent, whether the
examination process will require us to narrow our claims, and whether our claims will provide adequate coverage of our
competitors' products or services.
In addition to pursuing patents on our products, we also preserve much of our innovation as trade secrets, particularly in the
Reagent Solutions division of our Protein Sciences segment. We have taken steps to protect our intellectual property and
proprietary technology, in part by entering into confidentiality agreements and intellectual property assignment agreements with
our employees, consultants, corporate partners and, when needed, our advisors. See the description of risks associated with the
Company's intellectual property in “Item 1A. Risk Factors.”
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.
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 laws and regulations applicable to 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
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 (“GMP”) 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.
8
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 In Vitro Diagnostic Regulation
(the “EU IVDR”), which imposes stricter requirements for the marketing and sale of in vitro diagnostic medical devices, including
in the area of clinical evaluation requirements, quality systems and post-market surveillance. Manufacturers of currently approved
in vitro diagnostics medical devices have until May 2022 to meet the EU IVDR. Complying with EU IVDR, the regulation
applicable to the Company, requires material modifications to our quality management systems, additional resources in certain
functions, updates to technical files and additional clinical data in some cases, among other changes.
One of our products under our Exosome Diagnostics brand is offered as a test by a certified laboratory under CLIA. Our Asuragen
business also maintains a CLIA certification. Consequently, we must comply with state licensing regulations applicable to
laboratories regulated under CLIA, governing laboratory practices and procedures.
Other Healthcare Laws
Several of the products sold in our Diagnostics and Genomics segment are subject to various health care related laws regulating fraud
and abuse, research and development, pricing and sales and marketing practices, and the privacy and security of health information,
including, among others:
● U.S. federal regulations regarding quality and cost by the U.S. Department of Health and Human Services (“HHS”),
including the Centers for Medicare & Medicaid Services (“CMS”), as well as comparable state and non-U.S. agencies
responsible for reimbursement and regulation of healthcare goods and services, including laws and regulations related to
kickbacks, false claims, self-referrals and healthcare fraud.
● U.S. Federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration (including any kickback or bribe), directly or indirectly, in exchange for or to induce either the
referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made in whole
or in part under a federal health care program, such as Medicare or Medicaid.
● Comparable laws and regulations similar to, and in some cases more stringent than, the U.S. federal regulations discussed
above and below, including the UK Bribery Act and similar anti-bribery laws.
● The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which prohibits knowingly and willfully
(1) executing, or attempting to execute, a scheme to defraud any health care benefit program, including private payors, or
(2) falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement
in connection with the delivery of or payment for health care benefits, items or services. In addition, HIPAA, as amended
by the Health Information Technology for Economic and Clinical Health Act of 2009, also restricts the use and
disclosure of patient identifiable health information, mandates the adoption of standards relating to the privacy and
security of patient identifiable health information and requires the reporting of certain security breaches with respect to
such information.
● The False Claims Act, which imposes liability on any person or entity that, among other things, knowingly presents, or
causes to be presented, a false or fraudulent claim for payment by a federal health care program, knowingly makes, uses
or causes to be made or used, a false record or statement material to a false or fraudulent claim, or knowingly makes a
false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government.
● The Open Payments Act requires manufacturers of medical devices covered under Medicare to, in certain
circumstances, record payments and other transfers of value to a broad range of healthcare providers and teaching
hospitals and to report this data as well as ownership and investment interests held by the physicians described above and
their immediate family members to HHS for subsequent public disclosure, as well as similar reporting requirements in
some states and in other countries.
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For a discussion of risks related to regulation by the FDA and comparable agencies of other countries, and the other regulatory
regimes referenced above, please refer to section entitled “Item 1A. Risk Factors.”
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. In
addition to the U.S. HIPAA privacy and security rules mentioned above, which impact some parts of our business, 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, a broad privacy law in California, the California Consumer Privacy Act (“CCPA”), 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. For a discussion of risks related to improper disclosure of private information particularly
as a result of cyber security incidents, please refer to section entitled “Item 1A. Risk Factors.”
Environmental Health and Safety Laws
We are also subject to various environmental health and safety laws and regulations both within and outside the U.S. Like other
companies in our industry, our manufacturing and research activities involve the use and transportation of substances regulated
under environmental health and safety laws including those relating to the transportation of hazardous materials.
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. Other nations’ governments have implemented similar export/import control
and economic sanction regulations, which may affect the Company’s operations or transactions subject to their jurisdictions.
In addition, under U.S. laws and regulations, U.S. companies and their subsidiaries and affiliates outside the United States are
prohibited from participating or agreeing to participate in unsanctioned foreign boycotts in connection with certain business activities,
including the sale, purchase, transfer, shipping or financing of goods or services within the United States or between the United
States and countries outside of the United States. If we, or certain third parties through which we sell or provide goods or services,
violate anti-boycott laws and regulations, we may be subject to civil or criminal enforcement action and varying degrees of liability.
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.
For a discussion of risks related to the above-referenced regulations, particularly with respect to our international operations, please
refer to section entitled “Item 1A. Risk Factors.”
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.
10
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 Hippel
David Eansor
Kim Kelderman
Brenda Furlow
Age
61
50
60
54
63
Position
Officer Since
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
President, Protein Sciences
President, Diagnostics and Genomics
Executive Vice President, 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 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 global company that provided
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.
ITEM 1A. RISK FACTORS
Set forth below are risks and uncertainties we believe are material to our investors. You should refer to the explanation of the
qualifications and limitations on forward-looking statements in the section titled Information Relating to Forward-Looking
Statements at the beginning of this Annual Report on Form 10-K.
Economic and Industry Risks
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.
Our global operations expose us to risks associated with many types of crises, whether political, social, economic, climate or
otherwise. In particular, given our industry, we have exposure to public health crises, including epidemics and pandemics such as
COVID-19. Most recently, COVID-19 has had, and likely will continue to have, an adverse impact on our employees, operations,
11
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 or might have to take again in the future. For example, as the world has grappled
with the COVID-19 pandemic, many governments issued “stay-at-home” orders which restricted business and personal activities,
and many employers required employees to work from home and cease all travel. While many of these travel and activity restrictions
have been partially or fully lifted in certain countries where the pandemic has been controlled, they may be reinstituted in the future
and jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and other activities.
In the past eighteen 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 direct impact of COVID-19 and
the preventive and precautionary measures implemented as a result thereof have adversely affected, and are expected to continue to
adversely affect, certain elements of our Company (including to a different degree our operations, commercial organizations, supply
chains and distribution systems) and the future impact may be material, though the impact on our different businesses and the different
elements of our businesses varies (please see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for a discussion of how COVID-19 impacted our results of operations and financial position in fiscal 2021). Without
limiting the foregoing, we have experienced and/or may in the future experience:
●
adverse impacts on customer orders and purchases and unpredictable reductions in demand for many of our products;
●
constraints on the movement of our products through the supply chain;
●
adverse impacts on our collections of accounts receivable, including delays in collections and increases in uncollectible
receivables;
●
supply chain capacity constraints and price increases, including with respect to freight services;
●
failure of COVID-19 related products to be adopted in the market as anticipated;
●
adverse impacts on our workforce and/or key employees;
● unpredictable increases in demand for certain products; and
●
increased cybersecurity attack activity.
Any of these developments may adversely affect our business and financial statements.
U.S. and international political, economic, compliance and business factors, including the United Kingdom’s recent
withdrawal from the European Union, can negatively impact our operations and financial results.
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 continued to keep in place many of the significant tariff increases for goods imported into the United States,
particularly from China, imposed by the prior administration. Congress and the U.S. administration is also considering significant
changes to healthcare in the United States, including government negotiation/regulation of drug prices paid by government programs.
Additionally, the UK’s exit from the European Union at the end of calendar year 2020 has created political and economic
uncertainty, particularly in the UK and the EU, and has disrupted the free flow of goods and people between the UK and 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
have affected and could continue to adversely affect customer demand, our relationships with customers and suppliers, and our
business and financial results, particularly since our European headquarters and primary shipping facilities have been 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.
We engage in business globally, with approximately 46% of our sales revenue in fiscal 2021 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
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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.
The healthcare and life sciences industries that we serve face constant pressures and changes in an effort to reduce or increase
the predictability of healthcare costs, all of which may adversely affect our business and financial results.
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. 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.
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. For
example, our Exosome Diagnostics business develops and sells novel exosome-based diagnostic tests. While we received public
payer coverage for certain uses, we 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. 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. All of these payor actions and changes may have a material
adverse effect on revenue and earnings associated with our diagnostics products.
Acquisition and Investment Risks
Our inability to consummate acquisitions at our historical rate and at appropriate prices, and to make appropriate
investments that support our long-term strategy, could negatively impact our growth rate and stock price.
We routinely explore acquiring other businesses and assets, and have completed seventeen acquisitions and investments in the last
nine years. Our ability to grow revenues, earnings and cash flow at or above our historic rates depends in part upon our ability to
identify and successfully acquire and integrate businesses at appropriate prices and realize anticipated synergies, and to make
appropriate investments that support our long-term strategy. We may not be able to consummate acquisitions at rates similar to the
past, which could adversely impact our growth rate and our stock price. Promising acquisitions and investments are difficult to
identify and complete for a number of reasons, including high valuations, competition among prospective buyers or investors, the
availability of affordable funding in the capital markets and the need to satisfy applicable closing conditions and obtain applicable
antitrust and other regulatory approvals on acceptable terms. Changes in accounting or regulatory requirements or instability in the
credit markets could also adversely impact our ability to consummate acquisitions and investments.
Our acquisition of businesses, investments, joint ventures and other strategic relationships, if not properly implemented or
integrated, could negatively impact our business and financial statements.
As part of our business strategy we acquire businesses, make investments and enter into joint ventures and other strategic
relationships in the ordinary course, and we also from time to time complete more significant transactions. We joined with two
partners to establish a collaborative marketing venture, ScaleReady LLC, to address the needs of the rapidly expanding cell and gene
therapy market. While we believe this joint venture provides a competitive advantage in addressing this market, we may have
interests that diverge from those of our joint venture partners, and we may not be able to direct or influence the management and
operations of the joint venture in the manner we believe is most appropriate, exposing us to additional risk. More generally,
13
acquisitions, investments, joint ventures and strategic relationships involve a number of additional financial, accounting, managerial,
operational, legal, compliance and other risks and challenges, including but not limited to the following, any of which could adversely
affect our business and our financial statements:
● businesses, technologies, services and products that we acquire or invest in sometimes under-perform relative to our
expectations and the price that we paid, fail to perform in accordance with our anticipated timetable or fail to achieve
and/or sustain profitability;
● we from time to time incur or assume significant debt in connection with our acquisitions and investments, which can
result in increased borrowing costs and interest expense and diminish our future access to the capital markets;
●
●
acquisitions, investments, joint ventures or strategic relationships can cause our financial results to differ from our own or
the investment community’s expectations in any given period, or over the long-term;
acquisitions, investments, joint ventures or strategic relationships can create demands on our management, operational
resources and financial and internal control systems that we are unable to effectively address;
● we can experience difficulty in integrating cultures, personnel, operations and financial and other controls and systems
and retaining key employees and customers;
● we may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition, investment,
joint venture or strategic relationship;
● we have assumed and may assume unknown liabilities, known contingent liabilities that become realized, known
liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting
from the acquired company’s or investee’s activities and the realization of any of these liabilities or deficiencies can
increase our expenses, adversely affect our financial position or cause us to fail to meet our public financial reporting
obligations;
●
●
in connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as
purchase price adjustments, earn-out obligations and indemnification obligations, which can have unpredictable financial
results; and
investing in or making loans to early-stage companies often entails a high degree of risk, and we do not always achieve
the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup
our loan; or our investment may be illiquid for a greater-than-expected period of time.
We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets, or
other investments become impaired, which could negatively impact our financial statements or stock price.
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 $20.0 million as of June 30, 2021. The ownership of CCXI shares is very
concentrated, the share price is highly volatile and there is limited trading of the shares.
Strategic and Operational Risks
Our success will be dependent on recruiting and retaining highly qualified personnel and creating and maintaining a
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. In general, we have been
experiencing turnover at higher rates than usual and have had some difficulties filling certain positions. In particular, we operate
14
in several geographic locations where competition for talent is strong, making employee retention even more challenging. For
example, some of our fastest growing businesses are located in California and 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. Finally, as the geographies in which we
operate recover from the recent pandemic and we return employees who had been working from home back to our sites, we may
not be able to retain people who prefer continuing to work from home. The failure to attract and retain such personnel could
adversely affect our business.
Our growth depends in part on the timely development and commercialization of new and enhanced products and services
that meet our customers’ needs. Our growth can also be negatively impacted if our customers do not grow as anticipated.
We generally sell our products and services in industries that are characterized by rapid technological change, frequent new product
introductions and new market entrants and competitors. If we do not develop innovative new and enhanced products and services on
a timely basis, our offerings will become obsolete over time and our business and financial statements will suffer. Our success will
depend on several factors, including our ability to:
●
correctly identify and or predict customer needs and preferences;
●
allocate our research funding to products with higher growth prospects;
●
anticipate and respond to our competitors’ development of new products and technological innovations;
● differentiate our offerings from our competitors’ offerings and avoid our products becoming commodities;
●
innovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may
have valuable applications in the markets we serve;
● obtain adequate intellectual property rights with respect to key technologies;
●
successfully commercialize new technologies in a timely manner, price them competitively and cost-effectively
manufacture and deliver sufficient volumes of new products of appropriate quality on time;
● obtain necessary regulatory approvals of appropriate scope (including with respect to certain diagnostic medical device
products by demonstrating satisfactory clinical results where applicable, as well as achieving third-party reimbursement);
and
●
stimulate customer demand for and convince customers to adopt new technologies.
If we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily
in research and development of products that do not lead to significant revenue, which would adversely affect our business and
financial statements. Even when we successfully innovate and develop new and enhanced products, we often incur substantial costs
in doing so, and our profitability may suffer.
We face intense competition, and if we are unable to compete effectively, we may experience decreased demand and decreased
market share or need to reduce prices to remain competitive.
We face intense competition across most 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 us. 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 us. 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. In order to compete effectively, we must retain
longstanding relationships with major customers and continue to grow our business by establishing relationships with new
customers, continually developing new products and services to maintain and expand our brand recognition and leadership
position in various product and service categories and penetrating new markets, including high-growth markets. Our ability to
compete can also be impacted by changing customer preferences and requirements (for example increased demand for more
environmentally-friendly products and supplier practices). Our failure to compete effectively and/or pricing pressures resulting
from competition may adversely impact our business and financial statements, and our expansion into new markets may result in
greater-than-expected risks, liabilities and expenses.
15
A significant disruption in, or breach of security of, our information technology systems or data, or violation of data privacy
laws, 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. We rely on
information technology systems, some of which are provided and/or managed by third parties, to process, transmit and store
electronic information (including sensitive data such as confidential business information and personally identifiable data relating to
employees, customers, other business partners and patients), and to manage or support a variety of critical business processes and
activities (such as receiving and fulfilling orders, billing, collecting and making payments, shipping products, providing services and
support to customers and fulfilling contractual obligations). These systems, products and services (including those we acquire through
business acquisitions) can be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, ransomware,
human error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen
events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate.
Attacks can also target hardware, software and information installed, stored or transmitted in our products after such products have
been purchased and incorporated into third-party products, facilities or infrastructure. Security breaches of systems provided or
enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, or security breaches of
third party systems we rely on to process, store or transmit electronic information, can result in the misappropriation, destruction or
unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers,
patients or suppliers. These attacks, breaches, misappropriations and other disruptions and damage can interrupt our operations or
the operations of our customers and partners, delay production and shipments, result in theft of our and our customers’ intellectual
property and trade secrets, result in disclosure of personally identifiable information, damage customer, patient, business partner and
employee relationships and our reputation and result in defective products or services, legal claims and proceedings, liability and
penalties under privacy laws and increased costs for security and remediation, in each case resulting in an adverse effect on our
business and financial statements.
In addition, our information technology systems require an ongoing commitment of significant resources to maintain and enhance
existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving
legal and regulatory standards, evolving customer expectations, changes in the techniques used to obtain unauthorized access to
data and information systems, and the information technology needs associated with our changing products and services. There
can be no assurance that we will be able to successfully maintain, enhance and upgrade our systems as necessary to effectively
address these requirements.
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, certain of our businesses are subject to HIPAA. Entities that are found to be in
violation of HIPAA as the result of a breach of unsecured patient health information, a complaint about privacy practices or an
audit by the HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting
and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations
of HIPAA non-compliance. Individual states regulate data breach and security requirements and multiple governmental bodies
assert authority over aspects of the protection of personal privacy. Most notably, in the last several years, some states, including
California and Virginia, have passed broad privacy legislation that 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. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the EU member
states may result in fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year,
whichever is higher, and other administrative penalties. 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., 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.
If we suffer loss to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or
other events, our operations could be seriously harmed.
Our facilities, supply chains, distribution systems and information technology systems are subject to catastrophic loss due to fire,
flood, earthquake, hurricane, power shortage or outage, public health crisis (including epidemics and pandemics) and the reaction
thereto, war, terrorism, riot or other natural or man-made disasters, such as the COVID-19 pandemic. If any of these facilities, supply
chains or systems were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, result in
defective products or services, diminish demand, damage customer relationships and our reputation and result in legal exposure and
significant repair or replacement expenses. The third-party insurance coverage that we maintain varies from time to time in both type
16
and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to
protect us against such losses.
The manufacture of many of our products is a complex process, and if we directly or indirectly encounter problems
manufacturing products, our business and financial statements could suffer.
The manufacture of many of our products is a complex process, due in part to strict regulatory requirements for some of our products.
Problems can arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific
protocols and procedures, problems with reliable sourcing of raw materials or components, natural disasters and environmental
factors, and if not discovered before the product is released to market can result in recalls and product liability exposure. Because of
the quality requirements of some of our customers as well as stringent regulations of the FDA and similar agencies regarding the
manufacture of certain of our products, alternative manufacturing or sourcing is not always available on a timely basis to replace
such production capacity. Any of these manufacturing problems could result in significant adverse impacts to our business and
financial statements.
If we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes
in market conditions and customer demand, our business and financial statements may suffer. In addition, our reliance upon
sole or limited sources of supply for certain materials, components and services can cause production interruptions, delays
and inefficiencies.
We purchase materials, components and equipment from third parties for use in many of our manufacturing operations. Our
profitability could be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and market
fluctuations, including those caused by seasonality or cyclicality. During a market upturn, suppliers from time to time extend lead
times, limit supplies or increase prices. If we cannot purchase sufficient products at competitive prices and quality and on a timely
enough basis to meet increasing demand, we may not be able to satisfy market demand, product shipments may be delayed, our costs
may increase or we may breach our contractual commitments and incur liabilities. Conversely, in order to secure supplies for the
production of products, we sometimes enter into noncancelable purchase commitments with vendors, which can impact our ability
to adjust our inventory to reflect declining market demands. If demand for our products is less than we expect, we may experience
additional excess and obsolete inventories and be forced to incur additional charges and our business and financial statements may
suffer.
In addition, some of our businesses purchase certain requirements from sole or limited source suppliers for reasons of quality
assurance, regulatory requirements, cost effectiveness, availability or uniqueness of design. If these or other suppliers encounter
financial, operating or other difficulties or if our relationship with them changes, we might not be able to quickly establish or qualify
replacement sources of supply. The supply chains for our businesses can also be disrupted by supplier capacity constraints,
bankruptcy or exiting of the business for other reasons, decreased availability of key raw materials or commodities and external
events such as natural disasters, pandemic health issues, war, terrorist actions, governmental actions (such as trade protectionism)
and legislative or regulatory changes. Any of these factors can result in production interruptions, delays, extended lead times and
inefficiencies. Because we cannot always immediately adapt our production capacity and related cost structures to changing market
conditions, at times our manufacturing capacity exceeds or falls short of our production requirements. Any or all of these problems
can result in the loss of customers, provide an opportunity for competing products to gain market acceptance and otherwise adversely
affect our business and financial statements.
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. Our business could be adversely affected by
disruptions at our sites.
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 FDA 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 we have taken
certain steps to manage these operational risks, the Company's future sales growth and earnings may be adversely affected by
perceived disruption risks or actual disruptions.
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.
17
Defects and unanticipated use or inadequate disclosure with respect to our products, or allegations thereof, can adversely
affect our business and financial statements.
Certain of our products and services are sold for use in diagnostics. For those products and services in particular, manufacturing or
design defects in, unanticipated use of, safety or quality issues (or the perception of such issues) with respect to, “off label” use of,
or inadequate disclosure of risks relating to the use of products and services that we make or sell (including items that we source
from third-parties) can lead to personal injury, death, and/or property damage and adversely affect our business and financial
statements. These events can lead to recalls or safety alerts, result in the removal of a product or service from the market and result
in product liability or similar claims being brought against us. Recalls, removals and product liability and similar claims (regardless
of their validity or ultimate outcome) result in significant costs, as well as negative publicity and damage to our reputation that could
reduce demand for our products and services. Our business can also be affected by studies of the utilization, safety and efficacy of
medical device products and components that are conducted by industry participants, government agencies and others. Any of the
above can result in the discontinuation of marketing of such products in one or more countries and give rise to claims for damages
from persons who believe they have been injured as a result of product issues, including claims by individuals or groups seeking to
represent a class.
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.
Most of our reagent products need to be stored and shipped at certain cold temperatures. Consequently, we ship a significant portion
of our products to our customers by express mail or air delivery through 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.
Intellectual Property Risks
We are dependent on maintaining our intellectual property rights. If we are unable to adequately protect our intellectual
property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant
resources enforcing our rights.
Many of the markets we serve are technology-driven, and as a result intellectual property rights play a significant role in product
development and differentiation. We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and
licenses to intellectual property owned by others, which in aggregate are important to our business. The intellectual property rights
that we obtain, however, are not always sufficiently broad and do not always provide us a significant competitive advantage, and
patents may not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we and our
licensors have taken to maintain and protect our intellectual property do not always prevent it from being challenged, invalidated,
circumvented, designed-around or becoming subject to compulsory licensing. In some circumstances, enforcement is not available
to us because an infringer has a dominant intellectual property position or for other business reasons. We also rely on nondisclosure
and noncompetition agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary
rights. There can be no assurance that these agreements adequately protect our trade secrets and other proprietary rights and will not
be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent
proprietary information or that third parties will not otherwise gain access to our trade secrets or other proprietary rights.
These risks are particularly pronounced in countries in which we do business that do not have levels of protection of corporate
proprietary information, intellectual property, technology and other assets comparable to the United States. We operate globally,
with manufacturing operations in China and the UK, and approximately 46% of our revenue from outside the United States. The
laws, regulations and enforcement mechanisms in other countries may in some cases be less protective of our intellectual property
rights. Our failure to obtain or maintain intellectual property rights that convey competitive advantage, adequately protect our
intellectual property or detect or prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual
property rights can adversely impact our business and financial statements.
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.
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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.
Financial and Tax Risks
We have entered into and drawn on a revolving credit facility, and we may incur additional debt in the future. 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.
We currently have a Credit Agreement 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. Borrowings under the Credit Agreement bear
interest at a variable rate. As of August 20, 2021, the Company had drawn $335 million under the Credit Agreement.
The terms of the Credit Agreement and the burden of the indebtedness incurred thereunder could have negative consequences for us,
such as:
●
●
limiting our ability to obtain additional financing to fund our working capital, capital expenditures, debt service
requirements, expansion strategy, or other needs;
increasing our vulnerability to, and reducing our flexibility in planning for, adverse changes in economic, industry and
competitive conditions; and
●
increasing our vulnerability to increases in interest rates.
The Credit Agreement also contains negative covenants that limit our ability to engage in specified types of transactions. These
covenants limit our ability to, among other things, sell, lease or transfer any properties or assets, with certain exceptions; and enter
into certain merger, consolidation or other reorganization transactions, with certain exceptions.
A breach of any of these covenants could result in an event of default under our credit facility. Upon the occurrence of an event of
default, the lender could elect to declare all amounts outstanding under such facility to be immediately due and payable and terminate
all commitments to extend further credit. In addition, the Company would be subject to additional restrictions if an event of default
exists under the Credit Agreement, such as a prohibition on the payment of cash dividends.
Our business and financial statements can be adversely affected by foreign currency exchange rates, changes in our tax rates
and tax liabilities and assessments (including as a result of changes in tax laws).
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 2021, 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.
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 which became effective in late 2017, which included broad and complex changes to the United States tax
code. Interpretations, assumptions and guidance regarding the Tax Act that have been issued subsequently have had a material
impact on our effective tax rate, and we anticipate that there may be additional changes to the U.S. tax code under a new
Administration.
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
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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.
Dividends on our common stock could be reduced or eliminated in the future.
For many years, our Board has declared quarterly dividends ranging from 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.
Legal, Regulatory, Compliance and Reputational Risks
Our business is subject to extensive regulation; failure to comply with these regulations could adversely affect our business
and financial results.
As referenced in more detail above, we and our customers must comply with a wide array of federal, state, local and international
regulations, in such areas as medical device, healthcare, import and export, anticorruption, and privacy. 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 and diagnostic products. Changes in the U.S. FDA’s regulation of drug or medical device
products could have an adverse effect on the demand for these products.
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 (less than 2% of our fiscal
2021 sales were made to the U.S. federal 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 subject to various local, state, federal, foreign and transnational laws and regulations, which include the operating and security
standards of the U.S. 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. For example, the EU has adopted the In Vitro Diagnostic Regulation (the “EU IVDR”), which imposes stricter
requirements for the marketing and sale of in vitro diagnostic medical devices, including in the area of clinical evaluation
requirements, quality systems and post-market surveillance. Manufacturers of currently approved in vitro diagnostics medical
devices have until May 2022 to meet the EU IVDR. Complying with EU IVDR, the regulation applicable to the Company, requires
material modifications to our quality management systems, additional resources in certain functions, updates to technical files and
additional clinical data in some cases, among other changes. Failure by us or by our customers to comply with the requirements of
the EU IVDR, or other requirements imposed by these or similar regulatory authorities, including without limitation, remediating
any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls or
seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal
sanctions, or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition,
such a failure could expose us to contractual or product liability claims, contractual claims from our customers, including claims for
reimbursement for lost or damaged active pharmaceutical ingredients, as well as ongoing remediation and increased compliance
costs, any or all of which could be significant. We are the sole manufacturer of a number of products for many of our customers and
a negative regulatory event could impact our customers' ability to provide products to their customers.
We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the
importation and exportation of products, the handling, transportation and manufacture of substances that could be classified as
hazardous, and our business practices in the U.S. and abroad such as anti-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.
Significant developments or changes in U.S. laws or policies, including changes in U.S. trade policies and tariffs and the
reaction of other countries thereto can have an adverse effect on our business and financial statements.
20
Significant developments or changes in U.S. laws and policies (including as a result of the new U.S. administration), such as 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 and drug prices, can adversely affect our business and financial
statements. For example, the previous U.S. administration increased tariffs on certain goods imported into the United States and trade
tensions between the United States and China escalated, with each country imposing significant, additional tariffs on a wide range
of goods imported from the other country. The U.S. and China could impose other types of restrictions such as limitations on
government procurement or technology export restrictions, which could affect our access to markets. These factors have adversely
affected, and in the future could further adversely affect, our business and financial statements.
Our business and financial statements can be impaired by improper conduct by any of our employees, agents or business
partners.
We cannot provide assurance that our internal controls and compliance systems, including our Code of Ethics and Business Conduct,
protect us from acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with) that
violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and
false claims, pricing, sales and marketing practices, conflicts of interest, competition, employment practices and workplace behavior,
export and import compliance, economic and trade sanctions, money laundering and data privacy. In particular, the U.S. Foreign
Corrupt Practices Act, the UK Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their
intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we
operate in many parts of the world that have experienced governmental corruption to some degree. Any such improper actions or
allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the United States and in
other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and non-monetary penalties
and could cause us to incur significant legal and investigatory fees. In addition, the government may seek to hold us liable for
violations committed by companies in which we invest or that we acquire. We also rely on our suppliers to adhere to our supplier
code of conduct, and material violations of such code of conduct could occur that could have a material effect on our business and
financial statements.
Certain of our businesses are subject to extensive regulation by the U.S. FDA and by comparable agencies of other countries,
as well as laws regulating fraud and abuse in the healthcare industry and the privacy and security of health information.
Failure to comply with those regulations could adversely affect our business and financial statements.
Certain of our products are medical devices, diagnostics tests and other products that are subject to regulation by the U.S. FDA or
state CLIA regulations, by other federal and state governmental agencies, by comparable agencies of other countries and regions and
by regulations governing hazardous materials and drugs-of abuse (or the manufacture and sale of products containing any such
materials). The global regulatory environment has become increasingly stringent and unpredictable. Several countries that did not
have regulatory requirements for medical devices have established such requirements in recent years, and other countries have
expanded, or plan to expand, their existing regulations, including implementation of IVDR regulations in Europe. Failure to meet
these requirements adversely impacts our business and financial statements in the applicable geographies.
Government authorities may conclude that our business practices do not comply with current or future statutes, regulations, agency
guidance or case law. Failure to obtain required regulatory clearances before marketing our products (or before implementing
modifications to or promoting additional indications or uses of our products), other violations of laws or regulations, failure to
remediate inspectional observations to the satisfaction of these regulatory authorities, real or perceived efficacy or safety concerns
or trends of adverse events with respect to our products (even after obtaining clearance for distribution) and unfavorable or
inconsistent clinical data from existing or future clinical trials can lead to FDA Form 483 Inspectional Observations, warning letters,
notices to customers, declining sales, loss of customers, loss of market share, remediation and increased compliance costs, recalls,
seizures of adulterated or misbranded products, fines, expenses, injunctions, civil penalties, criminal penalties, consent decrees,
administrative detentions, refusals to permit importations, partial or total shutdown of production facilities or the implementation of
operating restrictions, narrowing of permitted uses for a product, refusal of the government to grant 510(k) clearance, suspension or
withdrawal of approvals, pre-market notification rescissions and other adverse effects. Further, defending against any such actions
can be costly and time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending
against any such actions brought against us, our business may be impaired. Ensuring that our internal operations and business
arrangements with third parties comply with applicable laws and regulations also involves substantial costs.
More specifically, 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.
21
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.
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 segment.
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 owns a 52,700 square foot manufacturing facility in Wallingford, Connecticut. This facility is utilized by the
Company's Protein Sciences segment.
22
The Company leases the following material facilities, all of which are primarily utilized by the Company's Protein Sciences segment
with the exception of the locations used by the Company's ProteinSimple and CyVek subsidiaries, which support both the Protein
Sciences segment and the Diagnostics & Genomics segment). Certain locations are not named because they were not significant
individually or in the aggregate as of the date of this report.
Subsidiary
Location
Type
Square Feet
Bio-Techne Europe
Bio-Techne China
Boston Biochem
Tocris
PrimeGene
Bionostics
Novus Biologicals
ProteinSimple
ProteinSimple Ltd.
CyVek
Cliniqa
Advanced Cell Diagnostics
Bio-Techne France
Exosome Diagnostics
R&D Systems
Asuragen
Langley, United Kingdom
Shanghai and Beijing, China
Cambridge, Massachusetts
Bristol, United Kingdom
Shanghai, China
Devens, Massachusetts
Centennial, Colorado
San Jose, California
Ottawa, Canada
Wallingford, Connecticut
San Marcos, California
Newark, California
Rennes, France
Waltham, Massachusetts
Minneapolis, Minnesota
Austin, Texas
Warehouse
Office/warehouse
Office/lab
Office/manufacturing/lab/warehouse
Office/manufacturing/lab
Office/manufacturing
Office/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
Office/manufacturing/warehouse
14,300
17,000
7,400
30,000
20,600
70,000
22,500
167,000
10,800
17,500
62,200
55,900
11,000
28,000
10,700
47,400
The Company entered into a definitive agreement to lease a 25,000 square foot facility in Dublin, Ireland. Construction is currently
underway and once complete, the commencement of the lease will occur. The Company believes the owned and leased properties,
inclusive of the leased property in Ireland, are adequate to meet its occupancy needs in the foreseeable future.
As of August 20, 2021, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably
expected to have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
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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 20, 2021 there were over 55,000 beneficial shareholders of the Company's common stock and over 90 shareholders of
record. The Company paid annual cash dividends totaling $49.6 million, $48.9 million, and $48.4 million in fiscal 2021, 2020, and
2019, 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, 2021 and June 30, 2020, the Company repurchased 120,000 shares of its common stock at an average
share price of $359.82 and 279,381 shares at an average share price of $179.37, respectively. During fiscal 2019, the
Board 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, 2021, we have authorization of approximately
$63 million that may yet be used to purchase additional shares under our current stock repurchase program.
Stock Performance Graph
The following chart compares the cumulative total shareholder return on the Company's common stock with the S&P Midcap 400
Index and the S&P 400 MidCap Life Sciences Tools and Services Index. The comparison assumes $100 was invested on the last
trading day before July 1, 2016 in the Company's common stock and in each of the foregoing indices and assumes reinvestment of
dividends.
24
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
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
6/16
6/17
6/18
6/19
6/20
6/21
Bio-Techne Corporation
S&P Midcap 400
S&P 400 Mid-Cap Life Sciences Tools and Services Index
*$100 invested on 6/30/16 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.
Copyright© 2021 Standard & Poor's, a division of S&P Global. All rights reserved.
25
RESERVED
ITEM 6. SELECTED FINANCIAL DATA
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 2021, 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 test (EPI) for prostate cancer diagnosis. This segment also manufactures and sells
advanced tissue-based in-situ hybridization assays (ISH) for spatial genomics research and clinical use.
OVERALL RESULTS
Operational Update
For fiscal 2021, consolidated net sales increased 26% as compared to fiscal 2020. Organic growth was 22%, with currency translation
and acquisitions having a 3% and 1% impact on revenue respectively. Organic revenue growth was broad based and driven by
accelerated momentum of the Company's long-term growth strategy as well as customer site closures in the latter half of fiscal
2020 due to the COVID-19 pandemic.
For fiscal 2021, consolidated earnings, including non-controlling interest, decreased 39% compared to fiscal 2020. The decrease in
earnings was primarily due to a non-operating loss of approximately $67.9 million on our ChemoCentryx investment, compared to
a gain on investment of $137 million in the last fiscal year. After adjusting for acquisition related costs, intangibles
amortization, stock-based compensation, restructuring costs, the loss on investment, certain income tax items in both years, and non-
controlling interest, adjusted net earnings increased 52% in fiscal 2021 as compared to fiscal 2020. Adjusted earnings growth was
driven by volume leverage, operational productivity, and product mix.
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.
For fiscal 2020, consolidated earnings, including non-controlling interest, increased 139% compared to fiscal 2019. The increase in
earnings was primarily due to a non-operating 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%
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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.
COVID-19 Business Update
The global spread of COVID-19 in the past 18 months has led to unprecedented restrictions on, and disruptions in, business and
personal activities, including as a result of preventive and precautionary measures that we, other businesses, our communities and
governments have taken and are taking to mitigate the spread of the virus and to manage its impact. While a number of vaccines
developed in response to the pandemic appear to be effective in mitigating spread of the disease, we continue to actively monitor the
pandemic on a global scale. We have taken and intend to continue taking steps to identify and mitigate the adverse impacts on, and
risks to, our business (including but not limited to our employees, customers, business partners, manufacturing capabilities and
capacity, and supply and distribution channels) posed by the spread of COVID-19 and the governmental and community responses
thereto.
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. While our
sales related to COVID-19 specific products have been modest, fiscal 2021 growth benefited from the reopening of customer sites
initially closed in the latter half of fiscal 2021 and our ongoing efforts to utilize our portfolio of products and services to enable
solutions for this evolving pandemic.
We are unable to forecast the impact of COVID-19 on future revenue 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, especially if current
vaccines prove to be ineffective against new strains of the Coronavirus that may develop over time. 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. Similar to current periods, we anticipate the impact on 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, 2021 nor 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 has remained fully operational as we abided by local COVID-19 safety regulations across the world this past year. As
the pandemic has eased, in most locations we will be returning all employees to on site work, although in certain instances we will
continue to operate with appropriate safety measures, including staggered shifts, social distancing and hygiene best practices
recommended by public health officials. In addition, the Company has taken and will continue to take additional steps to monitor
and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services.
27
RESULTS OF OPERATIONS
Net Sales
Consolidated organic net sales exclude the impact of companies acquired during the first 12 months post-acquisition 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):
2021
Year Ended June 30,
2020
2019
22 %
1 %
3 %
26 %
4 %
0 %
0 %
4 %
10 %
2 %
(1 )%
11 %
Protein Sciences
Diagnostics and Genomics
Intersegment
Consolidated net sales
2021
Year Ended June 30,
2020
2019
$
$
704,564 $
227,744
(1,276 )
931,032 $
555,352 $
184,549
(1,210 )
738,691 $
543,159
171,674
(827 )
714,006
In fiscal 2021, Protein Sciences segment net sales increased 27% compared to fiscal 2020. Organic growth for the segment was
24% for the fiscal year, with foreign currency translation having a favorable impact of 3%, and acquisitions contributing an
immaterial amount.
Overall segment growth was driven by continued market acceptance of our portfolio of productivity enhancing solutions across
end-markets and geographies combined with the reopening of customer sites that were closed in the latter half of fiscal 2020 due to
COVID-19.
In fiscal 2021, Diagnostics and Genomics segment net sales increased 23% compared to fiscal 2020. Organic growth was 18%
with acquisitions and foreign currency having a favorable impact of 4% and 1% impact on revenue, respectively.
Overall segment revenue growth was broad based across product lines and geographies. RNAscope products had an exceptional
year in both the Academia and Bio-Pharma end markets, while the Exosome product line also provided year over year
growth despite navigating limitations and/or customer avoidance of non-essential medical procedures throughout fiscal
2021 associated with the COVID-19 pandemic.
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.
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, RNAscope, 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 RNAscope 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.
28
Gross Margins
Consolidated gross margins were 68.0%, 65.4%, and 66.3% in fiscal 2021, 2020, and 2019. Consolidated gross margins were
positively impacted as a result of broad based revenue growth and cost management. Excluding the impact of acquired inventory
sold, amortization of intangibles, and stock compensation expense, adjusted gross margins were 72.2%, 70.3%, and 71.5% in fiscal
2021, 2020, and 2019 respectively. Fiscal 2021 adjusted gross margin was positively impacted by volume leverage and product mix
when compared to fiscal 2020 and fiscal 2019.
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
2021
Year Ended June 30,
2020
2019
68.0 %
65.4 %
0.2 %
3.8 %
0.2 %
72.2 %
- %
4.7 %
0.2 %
70.3 %
66.3 %
0.5 %
4.7 %
- %
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
2021
Year Ended June 30,
2020
2019
76.0 %
60.5 %
75.0 %
55.6 %
76.8 %
54.4 %
The changes in the Protein Sciences segment’s gross margin percentage for fiscal 2021 as compared to fiscal 2020 and 2019 was
primarily attributable to mix of product sales within the segment.
The increase in Diagnostics and Genomics in gross margin for fiscal 2021 as compared to fiscal 2020 was primarily due to volume
leverage. The increase in Diagnostics and Genomics in gross margin for fiscal 2020 as compared to fiscal 2019 was primarily due to
volume leverage, operational productivity, and revenue growth against a similar cost base in recent acquisitions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $64.4 million (25%) in fiscal 2021 when compared to fiscal 2020. Selling,
general, and administrative expenses increased primarily due to investments made by the Company to support volume growth within
each of the segments as well as additional expenses related to the acquisition of Asuragen, Inc.
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.
29
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
2021
Year Ended June 30,
2020
2019
$
$
159,489 $
75,160
234,649
27,788
7,097
-
142
50,200
5,075
324,951 $
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
Research and development expenses increased $5.4 million (8%) and $2.8 million (4%) in fiscal 2021 and 2020, respectively, as
compared to prior year periods. The increase in research and development expenses in fiscal 2021 as compared to fiscal 2020 was
primarily attributable to continued investment in future growth platforms of the Company and recent acquisitions. 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.
Protein Sciences
Diagnostics and Genomics
Total segment expenses
Unallocated corporate expenses
Total research and development expenses
Net Interest Income / (Expense)
2021
Year Ended June 30,
2020
2019
$
$
46,361 $
24,242
70,603
-
70,603 $
43,022 $
22,170
65,192
-
65,192 $
40,735
21,678
62,413
-
62,413
Net interest income/(expense) for fiscal 2021, 2020, and 2019 was $(13.5) million, $(18.6) million, and $(21.1) million, respectively.
Net interest expense in fiscal 2021 decreased when compared to fiscal 2020 due to a reduction in our average long-term debt, which
coincided with a reduction in the notional amount on our variable interest derivative. Net interest expense in fiscal 2020 decreased
when compared to fiscal 2019 due to a reduction in our average long-term debt.
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
2021
Year Ended June 30,
2020
2019
$
$
(6,650 ) $
1,036
(1,845 )
(68,047 )
(136 )
(75,642 ) $
1,703 $
1,140
(1,915 )
137,508
(786 )
137,650 $
(455 )
1,141
(1,897 )
(12,370 )
13
(13,568 )
During fiscal 2021, the Company recognized losses of $67.9 million related to changes in fair value associated with changes in the
stock price of our ChemoCentryx, Inc. (CCXI) investment.
30
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.
Income Taxes
Income taxes for fiscal 2021, 2020, and 2019 were at effective rates of 5.8%, 17.1%, and 14.2%, 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 2021 primarily related to share-based compensation excess tax benefits of $28.1 million. 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 employees and third parties, and $2.0 million for tax refunds relating to
certain state apportionments.
Net Earnings
Non-GAAP adjusted consolidated net earnings and earnings per share are as follows (in thousands):
Earnings before taxes - GAAP
Identified adjustments attributable to Bio-Techne:
Costs recognized upon sale of acquired inventory
Amortization of intangibles
Acquisition related expenses
Gain on escrow settlement
Restructuring costs
Stock-based compensation, inclusive of employer taxes
Realized (gain) loss on investments and other
Impact of non-controlling interest (pre-tax)
Earnings before taxes - Adjusted
$
$
Year Ended June 30,
2021
2020
2019
148,175 $ 276,477 $ 112,015
-
793
(7,170 )
87
1,565
3,739
64,239 60,865 58,550
2,656
7,489
-
-
-
142
51,846 34,262 33,057
68,391 (136,716 ) 12,370
-
342,527 $ 228,598 $ 222,387
680
-
Non-GAAP tax rate
Non-GAAP tax expense
20.2 %
21.6 %
21.1 %
69,334 49,280 46,931
Non-GAAP adjusted net earnings attributable to Bio-Techne
$
273,193 179,318 175,456
Earnings per share - diluted - Adjusted
6.75
4.55
4.51
31
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, 2021, 2020, and 2019.
GAAP effective tax rate
Discrete items
Long-term GAAP tax rate
Rate impact items
Stock based compensation
Acquisition costs
Change in fair value of investments
Other
Total rate impact items
2021
Year Ended June 30,
2020
2019
5.8 %
19.0
24.8 %
(5.7 )%
(0.2 )
0.5
0.8
(4.6 )%
17.1 %
7.0
24.1 %
(2.4 )%
0.4
(0.4 )
(0.1 )
(2.5 )%
14.2 %
11.2
25.4
(4.8 )%
0.5
-
-
(4.3 )%
Non-GAAP tax rate
20.2 %
21.6 %
21.1 %
Refer to Note 11 for additional discussion relating to the change in discrete tax items between fiscal 2021 and fiscal 2020.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and available-for-sale investments at June 30, 2021 were $231.6 million compared to $270.9 million at June
30, 2020. Included in available-for-sale investments at June 30, 2021 and June 30, 2020 was the fair value of the Company's
investment in CCXI of $20.0 million and $87.8 million, respectively.
At June 30, 2021, approximately 12% of the Company's cash and equivalent account balances of $199.1 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, 2021, approximately 61% of the Company's available-for-sale investment account balances of $32.5 million were located
in the U.S., with the remaining 39% in China.
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.
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 $352.2 million, $205.2 million, and $181.6 million in fiscal 2021, 2020, and 2019
respectively. The increase in cash generated from operating activities in fiscal 2021 as compared to fiscal 2020 was mainly a result
of an increase in year over year operating income of $79.9 million and a $29.3 million benefit to operating cash from year-over-year
changes in operating assets and liabilities as well as a non-cash stock-based compensation expense of $16.6 million. 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.
Cash Flows From Investing Activities
We continue to make investments in our business, including capital expenditures. The Company acquired Eminence Biotechnology
and Asuragen, Inc. during fiscal year 2021 for a total of approximately $225.4 million, net of cash acquired. 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.
32
The Company's net proceeds (outflow) from the purchase, sale and maturity of available-for-sale investments in fiscal 2021, 2020,
and 2019 were $26.7 million, $76.9, and ($21.9 million) million, respectively. The decrease in fiscal 2021 compared to fiscal
2020 was driven by the sale of a portion of the CCXI investment in fiscal year 2020, which did not reoccur in fiscal year 2021. 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 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 2021, 2020, and 2019 were $44.3 million, $51.7 million, and $25.4 million. Fiscal 2021 capital
expenditures related to investments in new buildings, in particular, the Company's GMP manufacturing facility. Capital additions
planned for fiscal 2022 are approximately $68.4 million and are expected to be financed through currently available cash and cash
generated from operations. Increase in expected additions in fiscal 2022 is related to increasing capacity to meet expected sales
growth across the Company and reduced expenditures in the comparable period, fiscal year 2021, due to the COVID-19 pandemic.
Cash Flows From Financing Activities
In fiscal 2021, 2020, and 2019, the Company paid cash dividends of $49.6 million, $48.9 million, $48.4 million, respectively. The
Board of Directors periodically considers the payment of cash dividends.
The Company received $65.1 million, $71.0 million, $38.0 million, for the exercise of options for 627,000, 743,000, 382,000
shares of common stock in fiscal 2021, 2020 and 2019, respectively.
During fiscal 2021, 2020, and 2019, the Company repurchased $43.2 million, $50.1 million, and $15.4 million, respectively, in share
repurchases included as a cash outflow within Financing Activities.
During fiscal 2021, 2020, and 2019, the Company drew $256.0 million, $40.0 million, and $580.0 million, respectively, under its
revolving line-of-credit facility. Repayments of $271.5 million, $188.5 million, and $413.5 million were made on its line-of-credit
in fiscal 2021, 2020, and 2019, respectively.
During fiscal 2021, there were no payments related to contingent consideration classified as financing activities. The Company made
$0.3 million in contingent consideration payments, which were classified within operating activities. 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 2021 and 2020, the Company paid $19.3 million and $3.8 million, respectively, for net share settlements. During
fiscal 2019, other financial activities includes payments for net share settlements as well as the final payment of $1.4 million
related to Eurocell. This is included as a cash outflow within the other financing activities line of the consolidated statements of
cash flows.
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.
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
33
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 and in-process research
and development, 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-process research and development assets are valued using the multi-period excess
earnings method when the cash flows from the in-process research and development assets are separately identifiable from the
primary asset. 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 $843.1 million as of June 30, 2021, which represented 37.3% 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.
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.
2021 Goodwill Impairment Analyses
34
In completing our 2021 annual goodwill impairment analyses, we elected to perform a quantitative assessment for each of our five
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 2021 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, 2021 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, 2021 that would require an additional
goodwill impairment assessment beyond our required annual goodwill impairment assessment.
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 2021 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
35
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.
NEW ACCOUNTING PRONOUNCEMENTS
Information regarding the accounting policies adopted during fiscal 2021 and those not yet adopted can be found under caption “Note
1: Description of Business and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements
appear in Item 8 of this report.
SUBSEQUENT EVENTS
None
NON-GAAP FINANCIAL MEASURES
This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7, contains financial measures that have not been calculated in accordance with accounting principles generally
accepted in the U.S. (GAAP). These non-GAAP measures include:
● Organic growth
● Adjusted gross margin
● Adjusted operating margin
● Adjusted net earnings
● Adjusted effective tax rate
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally
to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation.
We believe that our presentation of these measures provides investors with greater transparency with respect to our results of
operations and that these measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the
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 stock-based compensation, 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. 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. 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.
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
36
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.
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 31% of the Company's consolidated net sales in fiscal 2021 were made in foreign currencies, including 13% in euro,
5% in British pound sterling, 7% in Chinese yuan and the remaining 6% in other currencies. The Company is exposed to market risk
primarily from foreign exchange rate fluctuations of the euro, British pound sterling, Chinese yuan and Canadian dollar as compared
to the U.S. dollar as the financial position and operating results of the Company's foreign operations are translated into U.S. dollars
for consolidation.
Month-end exchange rates between the euro, British pound sterling, Chinese yuan, Canadian dollar and the U.S. dollar, which have
not been weighted for actual sales volume in the applicable months in the periods, were as follows:
Euro:
High
Low
Average
British pound sterling:
High
Low
Average
Chinese yuan:
High
Low
Average
Canadian dollar:
High
Low
Average
Year Ended June 30,
2021
2020
2019
$
$
$
$
1.23 $
1.16
1.20
1.42 $
1.29
1.35
0.16 $
0.14
0.15
0.83 $
0.75
0.78
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
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, 2021 levels against the euro, British
pound sterling, Chinese yuan and Canadian dollar are as follows (in thousands):
Decrease in translation of 2021 earnings into U.S. dollars
Decrease in translation of net assets of foreign subsidiaries
Additional transaction losses
$
4,456
56,008
1,755
37
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)
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, including noncontrolling interest
Net earnings (loss) attributable to noncontrolling interest
Net earnings attributable to Bio-Techne
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.
Other comprehensive income (loss)
Other comprehensive income (loss) attributable to noncontrolling
interest
Comprehensive income attributable to Bio-Techne
Earnings per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
2021
Year Ended June 30,
2020
2019
$
931,032 $
298,182
632,850
738,691 $
255,497
483,194
324,951
70,603
395,554
237,296
(13,952 )
473
(75,642 )
(89,121 )
148,175
8,590
139,585
(825 )
140,410
260,583
65,192
325,775
157,419
(19,197 )
605
137,650
119,058
276,477
47,181
229,296
-
229,296
714,006
240,515
473,491
264,359
62,413
326,772
146,719
(21,705 )
569
(13,568 )
(34,704 )
112,015
15,943
96,072
-
96,072
32,951
(9,963 )
(4,487 )
7,060
40,011
103
39,908
180,318
(3,715 )
(13,678 )
-
(13,678 )
215,618 $
(9,537 )
(14,024 )
-
(14,024 )
82,048
3.62 $
3.47 $
6.00 $
5.82 $
2.54
2.47
38,747
40,483
38,201
39,401
37,781
38,892
$
$
$
See Notes to Consolidated Financial Statements.
38
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 $1,229 and $775, 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
Other current liabilities
Total current liabilities
Deferred income taxes
Long-term debt obligations
Long-term contingent consideration payable
Operating lease liabilities
Other long-term liabilities
Bio-Techne's 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 38,955,484 and 38,453,046 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Bio-Techne shareholders' equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and shareholders’ equity
$
See Notes to Consolidated Financial Statements.
June 30,
2021
2020
199,091 $
32,463
145,385
116,748
16,919
510,606
207,907
73,834
843,067
615,968
11,575
2,262,957 $
29,384 $
51,294
15,282
18,995
5,336
11,602
4,000
12,500
3,891
152,284
93,125
328,827
25,400
67,625
24,462
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
-
-
390
534,411
1,085,461
(57,291 )
1,562,971
8,263
1,571,234
2,262,957 $
385
420,536
1,057,470
(97,199 )
1,381,192
-
1,381,192
2,027,589
39
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)
Comprehensive
Noncontrolling
Interest
Total
Balances at June 30, 2018
37,608 $
376 $ 246,568 $ 876,931 $
(44,814 ) $
- $ 1,079,061
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
25,276
96,072
(24,682 )
(14,024 )
(95 )
(1 )
(15,404 )
382
4
36,272
29
-
(2,575 )
(48,366 )
31,775
10
-
1,676
594
96,072
(14,024 )
(15,405 )
36,276
(2,575 )
(48,364 )
31,775
1,676
Balances at June 30, 2019
37,934 $
505
379 $ 316,797 $ 931,934 $
(83,521 ) $
505
- $ 1,165,589
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
Balances at June 30, 2020
Cumulative effect adjustments due to
adoption of new accounting standards
and other
Non-controlling interest in Eminence
Net earnings
Other comprehensive income (loss)
Share repurchases
Common stock issued for exercise of
options
Common stock issued for restricted
stock awards
Cash dividends
(879 )
229,296
(13,678 )
(279 )
(3 )
(50,109 )
(2 )
-
(400 )
730
7
69,461
(1,642 )
56
1
(1 )
(2,229 )
(48,902 )
31,932
14
-
2,312
(879 )
229,296
(13,678 )
(50,112 )
(400 )
67,826
(2,228 )
(48,902 )
31,932
2,312
38,453 $
435
385 $ 420,536 $ 1,057,470 $
(97,199 ) $
435
- $ 1,381,192
(276 )
(276 )
140,410
39,908
(120 )
(1 )
(43,177 )
573
6
62,102
(12,287 )
38
0
(0 )
(7,057 )
(49,622 )
8,985
8,985
(825 ) 139,585
40,011
103
(43,178 )
49,821
(7,057 )
(49,622 )
40
Stock-based compensation expense
Common stock issued to employee
stock purchase plan
Employee stock purchase plan expense
Balances at June 30, 2021
48,065
11
0
2,791
48,065
2,791
38,955 $
917
390 $ 534,411 $ 1,085,461 $
(57,291 ) $
917
8,263 $ 1,571,234
See Notes to Consolidated Financial Statements.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
2021
Year Ended June 30,
2020
2019
$
139,585 $
229,296 $
96,072
Cash flows from operating activities:
Net earnings, including non-controlling interest
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, net
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
$
87,747
1,565
(27,431 )
48,982
5,300
(337 )
-
67,879
75
-
(464 )
(15,549 )
(7,140 )
(1,101 )
19,091
20,536
13,426
352,164
66,377
(39,684 )
(44,301 )
(225,352 )
(556 )
-
(243,516 )
(49,622 )
65,092
(43,178 )
256,000
(271,500 )
-
(19,343 )
(62,551 )
6,369
52,466
146,625
199,091 $
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
See Notes to Consolidated Financial Statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
Years ended June 30, 2021, 2020 and 2019
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. The Company consolidated our partial acquisition
of Eminence in our consolidated financial statements on a one month lag. Refer to Note 4 for additional discussion regarding
Eminence.
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 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 $4.7 million, $4.2 million, and $4.1 million for fiscal 2021, 2020, and 2019
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. Refer to Note 11 for additional information regarding income taxes.
43
Comprehensive income: Comprehensive income includes charges and credits to shareholders' equity that are not the result of
transactions with shareholders. Our total comprehensive income consists of net income, unrealized gains and losses on cash flow
hedges, and foreign currency translation adjustments. The items of comprehensive income, with the exception of net income, are
included in accumulated other comprehensive loss in the consolidated balance sheets and statements of shareholders' equity.
Cash and cash equivalents: Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities
of three months or less.
Available-for-sale investments: Available-for-sale investments consist of debt instruments with original maturities of generally three
months to six months and equity securities. Available-for-sale investments are recorded based on trade-date. The Company considers
all of its marketable securities available-for-sale and reports them at fair value. Unrealized gains and losses on available-for-sale
securities are included within other income (expense) in accordance with ASU 2018-02, which the Company adopted on July 1,
2018.
Trade accounts receivable and allowances: 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. The Company adopted ASU 2016-13 on
July 1, 2020, which reflects the expected credit losses on financial instruments within its scope, including trade receivables. 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. The Company does not have material long-term customer receivables. Refer to the Recently Adopted
Accounting Pronouncements section of Note 1 for further details.
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
Intangible 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.
44
In conjunction with the Asuragen acquisition that occurred in fiscal year 2021, the Company reassessed the useful life of a
tradename from a previous acquisition due to the planned integration and cobranding strategy developed with the most recent
transaction. As a result, the Company accelerated the amortization of the trade name to be consistent with the life used for the
Asuragen trade name. The accelerated amortization resulted in a $1.4 million impact in fiscal 2021, a $5.7 million impact in fiscal
years 2022 through 2025, and a $4.3 impact in fiscal year 2026.
In 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 $0.6 million in fiscal 2021.
Impairment of long-lived assets and amortizable intangibles: We evaluate the recoverability of property, plant, equipment and
amortizable intangibles whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable.
Such circumstances could include, but are not limited to, (1) a significant decrease in the market value of an asset, (2) a significant
adverse change in the extent or manner in which an asset is used or in its physical condition, or (3) an accumulation of costs
significantly in excess of the amount originally expected for the acquisition or construction of an asset. We compare the carrying
amount of the asset to the estimated undiscounted future cash flows associated with it. If the sum of the expected future net cash
flows is less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss
would be calculated as the amount by which the carrying value of the asset exceeds the fair value of the asset. As quoted market
prices are not available for the majority of our assets, the estimate of fair value is based on various valuation techniques, including
the discounted value of estimated future cash flows.
The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated.
These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. No other
triggering events were identified and no impairments were recorded for property, plant, and equipment or amortizable intangibles
during fiscal years 2019, 2020, and 2021.
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. The Company had five reporting
units for our 2021, 2020, and 2019 goodwill impairment assessment performed on April 1 of each of the respective fiscal years, the
date of our annual goodwill impairment assessment. Further, the Company elected April 1 as the annual goodwill impairment
assessment date for the Asuragen acquisition, acquired on April 6, 2021.
2021 Goodwill Impairment Analyses
In completing our 2021 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 indicated that all of the reporting units had a substantial amount of headroom as of April
1, 2021. 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
45
reporting units. The Company did not identify any triggering events after our annual goodwill impairment through June 30, 2021, the
date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.
2020 Goodwill Impairment Analyses
The Company elected to perform a quantitative assessment for all of our reporting units in our 2020 goodwill impairment analysis.
The quantitative assessment completed utilized a consistent process and methodology to the 2021 goodwill impairment
assessment. 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.
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.
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
Recently Adopted Accounting Pronouncements
Note
5
9
10
12
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.
46
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.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments. The amendment in this update replaced the previous incurred loss impairment methodology with a
methodology that reflects expected credit losses on financial instruments within its scope, including trade and loan receivables and
available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful
information about the expected credit losses. The Company adopted this standard on July 1, 2020 using a modified retrospective
transition approach with a cumulative impact of $0.3 million to retained earnings. The adoption of this ASU did not have a
material impact on the Company's financial statements as the Company's primary financial instruments impacted by the ASU were
trade accounts receivable, where we have high historical and expected future collections due to the length of receivables and the
credit quality of our customers.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract. The standard aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract
is not affected by the new standard. The Company adopted this standard on a prospective basis on July 1, 2020. Accordingly, as of
July 1, 2020, the Company will record eligible costs to be capitalized within prepaid assets or other non-current assets depending
on the nature of the duration of the asset.
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting
and in January 2021 issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. These ASUs provide expedients and
exceptions to existing guidance on contract modifications and hedge accounting that is optional to facilitate the market transition
from a reference rate, including LIBOR which is being phased out in 2021, to a new reference rate. The provisions of the ASUs
impact contract modifications and other changes that occur while LIBOR is phased out. The Company adopted the optional relief
guidance provided within these ASUs in the fourth quarter of fiscal 2021 and continues to monitor its debt and derivative
instruments that utilize LIBOR as the reference rate. The adoption of the standard did not impact our financial results for fiscal
2021.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such
products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that,
for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues consist
of extended warranty contracts, post contract support (“PCS”), and custom development projects that are recognized over time as
either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has
no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the
performance completed. Service revenues also include laboratory services recognized at a point in time. Prior to fiscal year 2021,
the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon
cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based
on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers
and considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of
revenue would not need to be reversed in future periods for the services provided. Given Medicare coverage for our laboratory
services became effective on December 1, 2019, the Company considered that it had sufficient data to estimate variable consideration
as of July 1, 2020 for laboratory services that are reimbursed by Medicare. The amount of cash received in fiscal year 2021 for
laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $0.5 million. The Company
continues to record revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration
remains constrained. We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected
the "right to invoice" practical expedient based on the Company's right to invoice a customer at an amount that approximates the
value to the customer and the performance completed to date.
The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of
one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-
based royalty guidance. The Company's unfulfilled performance obligations for contracts with an original length greater than one
year were not material as of June 30, 2021 and June 30, 2020.
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.
47
Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to
90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service
contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.
Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the
accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes
unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be
capitalized and amortized over the contract period. Contract assets as of June 30, 2021 are not material.
Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits
and unearned revenue on warranty contracts. Contract liabilities as of June 30, 2021 and June 30, 2020 were approximately $20.0
million and $14.2 million, respectively. Contract liabilities as of June 30, 2020 subsequently recognized as revenue during the year
ended June 30, 2021 were approximately $10.6 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,
2021
2020
2019
751,985 $
93,782
66,416
912,183 $
18,849
931,032 $
602,642 $
71,462
47,459
721,563
17,128
738,691 $
588,979
67,538
38,050
694,567
19,439
714,006
2021
Year Ended June 30,
2020
2019
502,080 $
204,264
40,945
69,013
87,556
27,174
931,032 $
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
$
$
$
$
48
Note 3. Supplemental Balance Sheet and Cash Flow Information:
Available-For-Sale Investments:
The fair value of the Company's available-for-sale equity investments as of June 30, 2021 and June 30, 2020 were $20.0 million and
$87.8 million, respectively. The decrease was due to year-over-year decrease in the stock price of CCXI, which was $13.39 per share
at June 30, 2021 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 $6.6 million as of June 30, 2021 and 2020, respectively. The Company's available-for-sale debt securities as of June
30, 2021 and June 30, 2020 were $12.5 million and $36.4 million, respectively. The decrease is due to the timing of debt maturities
and cash balances at the balance sheet date.
Inventories:
Inventories consist of (in thousands):
Raw materials
Finished goods(1)
Inventories, net
June 30,
2021
2020
$
$
55,096 $
67,108
122,204 $
51,530
56,268
107,798
(1) Finished goods inventory of $5,456 and $4,646 is included within other long-term assets in the June 30, 2021 and June 30,
2020 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):
Useful Life
(years)
9 - 15
2 - 20
7 - 16
10
5 - 15
Developed technology
Trade names
Customer relationships
Patents
Other intangibles(1)
Definite-lived intangible assets
Accumulated amortization
Definite-lived intangibles assets, net
In process research and development
Total intangible assets, net
June 30,
2021
2020
8,612 $
190,661
198,483
397,756
(189,849 )
207,907 $
8,516
184,430
153,704
346,650
(169,821 )
176,829
June 30,
2021
2020
552,160 $
147,640
232,493
2,926
6,316
941,535
(348,267 )
593,268
22,700
615,968 $
434,653
146,713
211,750
2,475
-
795,591
(279,046 )
516,545
-
516,545
$
$
$
$
(1) Increase in other intangibles assets is primarily due to $5.0 million recognized in intangible assets in the first quarter of fiscal
2021 for certain third party patented technology acquired.
49
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,
2021
2020
$
$
516,545 $
153,311
5,912
(64,940 )
5,140
615,968 $
579,429
-
311
(61,095 )
(2,100 )
516,545
Amortization expense related to developed technologies included in cost of sales was $36.5 million, $34.5 million, and $33.3 million
in fiscal 2021, 2020, and 2019, respectively. Amortization expense related to trade names, customer relationships, non-compete
agreements, and patents included in selling, general and administrative expense was $28.4 million, $26.6 million, and $25.4 million,
in fiscal 2021, 2020, and 2019 respectively.
The estimated future amortization expense for intangible assets as of June 30, 2021, excluding any possible future amortization
associated with acquired IPR&D which has not met technological feasibility, is as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
$
$
74,482
72,649
69,780
66,523
62,739
247,095
593,268
Changes in goodwill by segment and in total consist of (in thousands):
June 30, 2019
Acquisitions (Note 4)
Currency Translation
June 30, 2020
Acquisitions (Note 4)
Currency translation
June 30, 2021
Protein
Sciences
Diagnostics &
Genomics
Total
$
$
$
377,407 $
(326 )
(4,000 )
373,081 $
7,848
11,788
392,717 $
355,260 $
-
(31 )
355,229 $
94,970
151
450,350 $
732,667
(326 )
(4,031 )
728,310
102,818
11,939
843,067
Supplemental Cash Flow Information:
Supplemental cash flow information was as follows (in thousands):
Income taxes paid
Interest paid
Non-cash activities:
Acquisition-related liabilities(1)
Other intangibles(2)
$
2021
Year Ended June 30,
2020
2019
20,952 $
13,576
23,600
4,000
41,992 $
18,615
(2,105 )
-
36,814
21,497
12,600
-
(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.
(2) $4.0 million of the third party patented technology acquired in fiscal 2021 was a non-cash activity within the consolidated
statement of cash flows as a cash payment was not made within the fiscal year ended June 30, 2021.
50
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.
2021 Acquisitions
Eminence Biotechnology
On October 20, 2020, the Company acquired 47.6% of the outstanding equity shares of Changzhou Eminence Biotechnology Co.,
Ltd. (Eminence) for approximately $9.8 million, net of cash acquired. The fair value of the noncontrolling interest of $9.0 million
included in the consolidated balance sheet was a non-cash activity within the statement of cash flows. Eminence is considered a
variable interest entity as it is an early stage biotechnology company that required additional funding through a subsequent equity
investment, which was used to fund Eminence’s expansion and GMP manufacturing capabilities within China. On April 2, 2021,
the Company invested approximately $6 million of additional funding into Eminence, increasing our percentage of outstanding
equity shares to 57.4%. The Company was considered the primary beneficiary at the time of initial acquisition given the Company
was the largest shareholder coupled with its ability to exercise significant influence over the entity. As of June 30, 2021, the
Company’s investment at risk is limited to its $15.8 million in investments.
As Eminence met the criteria for consolidation, the transaction was accounted for in accordance with ASC 805, Business
Combinations. In applying ASC 805 to the transaction, the Company has elected to include Eminence in our consolidated financial
statements on a one month lag.
The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s product portfolio and
the expected revenue growth from increased market penetration. The fair value of the noncontrolling interest in Eminence was
calculated utilizing cash flow projections discounted to the acquisition date and control premiums calculated using market data.
Acquired goodwill is not deductible for income tax purposes. The business became part of the Protein Sciences reportable segment
in the second quarter of fiscal year 2021.
The allocation of purchase consideration related to Eminence was completed in the fourth quarter of fiscal year 2021. The fair
values of the assets acquired and liabilities assumed at acquisition date and the updated final amounts as of June 30, 2021 are as
follows (in thousands):
Preliminary
Allocation at
Acquisition
Date
Adjustments to Fair
Value
Final Allocation
at June 30, 2021
Current assets, net of cash
Equipment and other long-term assets
Intangible assets:
Developed technology
Customer relationships
Goodwill
Total assets acquired
Liabilities
Deferred income taxes, net
Net assets acquired
Cash paid, net of cash acquired
Fair value of noncontrolling interest in Eminence
Net assets acquired
$
$
$
3,145 $
1,639
6,778
2,133
8,811
22,506
1,436
2,320
18,750 $
9,765
8,985
18,750 $
- $
-
-
-
(963 )
(963 )
-
(963 )
- $
-
-
- $
3,145
1,639
6,778
2,133
7,848
21,543
1,436
1,357
18,750
9,765
8,985
18,750
As summarized in the table, there were adjustments totaling $1.0 million to goodwill during the measurement period. These
adjustments relate to refinements within our deferred tax amounts based on factors existing on the acquisition date.
51
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary
assessment. The purchase price allocated to developed technology and customer relationships was based on management's
preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of
assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods
sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed
technology is estimated to be 13 years. Amortization expense related to customer relationships is reflected in selling, general and
administrative expenses in the Consolidated Statement of Earnings and Comprehensive Income. The amortization period for
customer relationships is estimated to be 10 years. The net deferred income tax liability represents the net amount of the estimated
future impact of adjustments for costs to be recognized as intangible asset amortization, which is not deductible for income tax
purposes offset by the deferred tax asset for the calculation of acquired NOLs.
Asuragen, Inc.
On April 6, 2021, the Company acquired all of the ownership interests of Asuragen, Inc. for approximately $216 million, net of
cash acquired, plus contingent consideration of up to $105.0 million, subject to certain revenue thresholds. The Asuragen
acquisition adds a leading portfolio of best in-class molecular diagnostic and research products, including genetic screening,
oncology testing kits, molecular controls, a GMP compliant manufacturing facility, and a CLIA-certified laboratory. The
transaction was accounted for in accordance with ASC 805, Business Combinations. The goodwill recorded as a result of the
acquisition represents the strategic benefits of growing the Company’ 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 fourth quarter of fiscal year 2021.
The allocation of purchase consideration related to Asuragen Inc is considered preliminary with provisional amounts primarily
related to goodwill and income tax assessment of acquired net operating losses. The Company expects to finalize the allocation of
purchase price within the one-year measurement-period following the acquisition. Net sales and operating loss of this business
included in Bio-Techne's consolidated results of operations in fiscal year 2021 were approximately $7.1 million and $3.4 million,
respectively. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date and at
June 30, 2021 are as follows (in thousands):
Current assets, net of cash
Equipment and other long-term assets
Intangible assets:
Developed technology
In-process research and development
Customer relationships
Tradenames
Non-competition agreement
Goodwill
Total assets acquired
Liabilities
Deferred income taxes, net
Net assets acquired
Cash paid, net of cash acquired
Contingent consideration payable
Net assets acquired
Preliminary allocation at
acquisition date and at June 30,
2021
$
$
$
10,422
3,762
107,000
22,700
11,700
2,000
1,000
94,970
253,554
4,003
15,664
233,887
215,587
18,300
233,887
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary
assessment. The purchase price allocated to developed technology, in-process research and development, and customer
relationships was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess
earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized
with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income.
The amortization period for developed technology is estimated to be 14 years. Amortization expense related to customer
relationships is reflected in selling, general and administrative expenses in the Consolidated Statement of Earnings and
Comprehensive Income. The amortization period for customer relationships is estimated to be 16 years. The amount recorded for
tradenames and the non-competition agreement is being amortized with the expense reflected in selling, general and administrative
expenses in the Consolidated Statement of Earnings and Comprehensive Income. The amortization period for tradenames and the
52
non-competition agreement is estimated to be 5 years and 3 years, respectively. The net deferred income tax liability represents the
net amount of the estimated future impact of adjustments for costs to be recognized as intangible asset amortization, which is not
deductible for income tax purposes offset by the deferred tax asset for the preliminary calculation of acquired NOLs.
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’s product portfolio and the expected revenue
growth from increased market penetration. The goodwill is not deductible for income tax purposes. The business became part of the
Diagnostics and Genomics operating segment in the first quarter of fiscal year 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 calculation of acquired NOLs.
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 during fiscal year 2020 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.
53
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 calculation of acquired NOLs.
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
Additional consideration(1)
Net assets acquired
B-MoGen
Biotechnologies
Exosome
Diagnostics
Quad
Technologies
$
$
$
504 $
269
14,000
-
400
16,131
31,304
211
3,051
28,042 $
17,448
10,594
28,042 $
2,611 $
2,212
105,000
58,000
2,300
105,362
275,485
3,716
16,346
255,423 $
251,623
3,800
255,423 $
36
228
12,256
-
-
14,481
27,001
296
943
25,762
20,462
5,300
25,762
(1)Additional consideration for the B-MoGen acquisition includes a previously held investment of $1.4 million and a gain of
approximately $3.7 million recorded on the transaction. The remaining additional consideration for B-MoGen, ExosomeDx, and
Quad relate to the opening balance sheet value of contingent consideration.
Tangible assets acquired, net of liabilities assumed, were stated at fair value at the date of acquisition based on management's
assessment. The purchase price allocated to developed technology, trade names, non-compete agreements and customer relationships
was based on management's forecasted cash inflows and outflows and using a relief-from-royalty and multi-period excess earnings
method to calculate the fair value of assets purchased. The developed technology is being amortized with the expense reflected in
cost of good sold in the Consolidated Statements of Earnings and Comprehensive Income. Amortization expense related to trade
names, the non-compete agreement and customer relationships is reflected in selling, general and administrative expenses in the
Consolidated Statements of Earnings and Comprehensive Income. The deferred income tax liability represents the estimated future
impact of adjustments for the cost to be recognized upon the sale of acquired inventory that was written up to fair value and intangible
asset amortization, both of which are not deductible for income tax purposes, and the future tax benefit of net operating loss and tax
credit carryforwards which will be deductible by the Company in future periods.
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, accounts receivable,
accounts payable, contingent consideration obligations, derivative instruments, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair
value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability
based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the
factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.
54
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)
Derivative instruments - cash flow hedges
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,
2021
Fair Value Measurements Using
Inputs Considered as
Level 1
Level 2
Level 3
$
$
$
$
19,963 $
12,500
275
32,738 $
18,581 $
12,500
-
31,081 $
1,382 $
-
275
1,657 $
-
-
-
-
29,400 $
8,376
37,776 $
- $
-
- $
- $
8,376
8,376 $
29,400
-
29,400
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
(1) Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in CCXI at June
30, 2021 and June 30, 2020 was $6.6 million and $6.6 million respectively. The Company has a warrant to purchase
additional CCXI equity shares which was valued at $1.4 million as of June 30, 2021. The fair value of the warrant as of June 30,
2020 was $8.0 million
(2) Included in available-for-sale investments on the balance sheet. The certificate of deposits have contractual maturity dates
within one year.
Fair value measurements of available for sale securities
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.
55
Fair value measurements of derivative instruments
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The
forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the
Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps,
the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial
$380 million of notional principal amount. The notional amount decreased by $100 million in October 2020 and will further
decrease by $80 million in October 2021 and $200 million in October 2022. In June 2020, the Company de-designated
$80 million of the notional amount set to expire in October 2020. The net loss associated with the June 2020 de-designated portion
of the derivative instrument was not reclassified into earnings based on the amount of probable variable interest payments to
occur within a two month time period of the forecasted hedged transaction. In December 2020, the Company de-designated an
additional $80 million of notional amount set to expire in October 2021. During fiscal year 2021, the Company recorded a loss in
other non-operating income related to variable interest debt payments in certain months on a portion of the de-designated
derivative that is not expected to occur. The remaining variable interest payments for the portion of the de-designated derivative
were considered probable of occurring and therefore remain in accumulated other comprehensive income as of June 30, 2021. The
fair value of the portion of the de-designated derivative was $0.8 million as of June 30, 2021, which is recorded within short-term
liabilities on the Consolidated Balance Sheet. The fair value of the designated derivative instrument is $7.6 million as of June 30,
2021 and is recorded within other long-term liabilities on the Consolidated Balance Sheet.
In May 2021, the Company entered into a new forward starting swap designated as a cash flow hedge on forecasted debt. The
forward starting swap reduces the variability of cash flow payments for the Company by converting the variable interest rate on the
Company’s forecasted variable interest long-term debt to that of a fixed interest rate. Accordingly, as part of the forward starting
swap, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based
on $200 million of notional principal amount. The effective date of the swap is November 2022 with the full swap maturing in
November 2025. The fair value of the derivative instrument was $0.3 million as of June 30, 2021 which is recorded within other
long-term assets on the Consolidated Balance Sheet.
Changes in the fair value of the designated hedged instrument are reported as a component of other comprehensive income and
reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $8.6 million to
interest expense, $0.5 million to non-operating income for the portion of de-designated variable payments considered probable
to not occur, and related tax benefits of $2.1 million during the fiscal year ended June 30, 2021 relating to the cash flow hedge
entered into in October 2018. No amounts were reclassified relating to the cash flow hedge entered into in May 2021 as they will
be recorded within the effective period of the cash flow hedge.
The Company reclassified $3.5 million, net of taxes, to interest expense during the fiscal year ended June 30, 2020. The change in
the fair value of the de-designated notional hedged amount was not material as of June 30, 2020. The instruments were valued
using observable market inputs in active markets and therefore are classified as Level 2 liabilities.
The Company did not reclassify any amounts out of other comprehensive income into interest expense during the fiscal year ended
June 30, 2019.
Fair value measurements of contingent consideration
The Company has $29.4 million, which is the fair value, of contingent consideration related to the Asuragen, Quad, and B-MoGen
acquisitions. The Company is required to make contingent consideration payments of up to $105.0 million, $51.0 million, and $38.0
million, respectively, as part of these acquisition agreements. The contingent agreement with Asuragen was based on achieving
certain revenue 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 Asuragen acquisition was $18.3 million as discussed in Note
4. The preliminary fair value of the 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 acquisition 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 Asuragen, 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.
56
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,
2021
2020
$
$
6,137 $
18,300
(337 )
-
5,300
29,400 $
12,600
-
(4,358 )
(1,200 )
(905 )
6,137
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the
consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit
facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates.
Note 6. Debt and Other Financing Arrangements:
On August 1, 2018, the Company entered into a new 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 12.5 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 2022.
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, 2021 and 2020, the outstanding balance under the Credit Agreement was $341 million
and $357 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 2021, the Company recognized $3.6 million in variable lease expense in the
Consolidated Statements of Earnings and Comprehensive Income. During fiscal year 2021, the Company also recognized
$32.5 million relating to fixed lease expense in the Consolidated Statements of Earnings and Comprehensive Income.
57
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(1)
Right of Use Asset
Balance Sheet Classification
Current operating lease liabilities(1)
Noncurrent operating lease liabilities(1)
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,
2021
73,834
11,602
67,625
79,227
7.97
3.93 %
(1) The right of use asset, current operating lease liabilities, and noncurrent lease liabilities on the Consolidated Balance Sheet
exclude a definitive agreement entered into by the Company in June 2021 for a 25,000 square foot facility in Dublin, Ireland for
the next 25 years with annual rental impact of $0.3 million. The lease will commence during fiscal 2022 after construction is
completed by the landlord. As the lease has not commenced as of June 30, 2021, the related asset and liability were not recorded.
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, 2021 (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, 2021
$
13,492
12,144
(1) Total cash paid for the Company's operating leases during the year ended June 30, 2021 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):
2022
2023
2024
2025
2026
Thereafter
Total
Less: Amounts representing interest
Total lease obligations
June 30, 2021
Operating
Leases
$
$
14,349
13,371
11,840
10,780
10,120
32,331
92,791
13,564
79,227
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.
58
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, 2021, June 30, 2020, and
June 30, 2019. During the years ended June 30, 2021 and June 30, 2020, the Company repurchased 120,000 shares at an average
share price of $359.81 and 279,381 shares at an average share price of $179.37, 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 2021, 2020 and
2019, the amounts within the Consolidated Statements of Shareholders' Equity for the surrender and retirement of stock to exercise
options due to net settlement stock options exercises were not material.
Accumulated Other Comprehensive Income (loss)
Changes in accumulated other comprehensive income (loss) attributable to Bio-Techne, net of tax, are summarized as follows (in
thousands):
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
Balance June 30, 2020
Other comprehensive income (loss) before reclassifications(2)
Reclassification from loss on derivatives to interest expense, net of
taxes(1)
Balance June 30, 2021
$
$
$
Unrealized
Gains
(Losses)
on
Available-
for-Sale
Investments
Foreign
Currency
Translation
Adjustments
Unrealized
Gains
(Losses) on
Derivatives
Instruments
24,682 $
2,371
(27,053 )
-
- $
-
(69,496 ) $
-
-
(4,487 )
(73,983 ) $
(9,963 )
- $
-
-
(9,537 )
(9,537 ) $
(7,179 )
-
(83,946 ) $
32,848
3,464
(13,253 ) $
100
-
- $
-
-
-
6,960
6,960
$
- $
(51,098 ) $
(6,193 ) $
(57,291 )
Total
(44,814 )
2,371
(27,053 )
(14,024 )
(83,521 )
(17,142 )
3,464
(97,199 )
32,948
(1) Gains (losses) on the interest swap will be reclassified into interest expense as payments on the derivative agreement are made.
The Company reclassified $8,598 to interest expense and $512 to non-operating income relating to variable interest payments that
were probable not to occur as further discussed in Note 5 for the fiscal year ended June 30, 2021. The Company also recorded a
related tax benefit of $2,150 during fiscal 2021. The Company had deferred tax benefits of $1,908 and $4,058 included in the
accumulated other comprehensive income loss as of June 30, 2021 and June 30, 2020, respectively.
(2) Other comprehensive income related to foreign currency translation adjustments in the table above includes the amount
attributable to Bio-Techne and excludes the $103 attributable to the non-controlling interest in Eminence.
59
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 earnings, including noncontrolling interest
Less net earnings attributable to noncontrolling interest
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
$
$
$
$
$
$
2021
Year Ended June 30,
2020
2019
139,585
(825 )
140,410 $
(86 )
140,324 $
38,747
3.62 $
140,410 $
(86 )
140,324 $
38,747
1,736
40,483
3.47 $
229,296
-
229,296 $
(224 )
229,072 $
38,201
6.00 $
229,296 $
(224 )
229,072 $
38,201
1,200
39,401
5.82 $
96,072
-
96,072
(105 )
95,967
37,781
2.54
96,072
(105 )
95,967
37,781
1,111
38,892
2.47
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
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 0.6 million,
0.9 million, and 1.3 million for the fiscal years ended June 30, 2021, 2020 and 2019, 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 were 7.5 million shares of common stock authorized for grant under the
Second A&R 2010 Plan. In October 2020, the shareholders approved an amended and restated incentive plan - the 2020 Equity
Incentive Plan. The maximum aggregate number of shares of common stock reserved and available for awards under the Amended
Plan is 2,484,202 shares, which includes an additional 1,300,000 shares authorized by the 2020 Equity Incentive Plan. Shares issued
after the shareholder meeting are issued under the 2020 Equity Incentive Plan. At June 30, 2021, there were 1.1 million shares of
common stock available for grant under the 2020 Equity Incentive Plan. The maximum term of incentive options granted under the
2020 Equity Incentive Plan is ten years. The 2020 Equity Incentive Plan replaced the Company's second A&R 2010 Plan, which had
previously amended and restated the Company's Amended and Restate 2010 Equity Incentive Plan (the A&R 2010 Plan). The A&R
2010 Plan had previously 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,
2021 under the 2020 Equity Incentive Plan were 3.7 million.
60
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)
2021
Year Ended June 30,
2020
2019
0.24%
0.67%
0.74%
25%
0.2%
- 30% 22%
- 0.7% 1.3%
4.4
- 24% 20%
- 1.9% 2.5%
4.0
- 23%
- 3.0%
4.1
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.
Stock option activity under the Plans for the three years ended June 30, 2021, consists of the following (shares in thousands):
Number of
Shares (in
thousands)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
(millions)
Weighted
Average
Contractual
Life (years)
Outstanding at June 30, 2018
Granted
Forfeited
Exercised
Outstanding at June 30, 2019
Granted
Forfeited
Exercised
Outstanding at June 30, 2020
Granted
Forfeited
Exercised
Outstanding at June 30, 2021
Exercisable at June 30, 2019:
Exercisable at June 30, 2020:
Exercisable at June 30, 2021:
3,452 $
917
(330 )
(383 )
3,656 $
752
(56 )
(743 )
3,609 $
763
(28 )
(627 )
3,717 $
105.17
173.89
129.93
95.29
121.16
190.80
95.97
157.45
140.28
277.75
214.33
112.53
172.63 $
1,467
1,564
1,764
98.70
112.60
126.44 $
1,031.9
4.1
571.3
3.0
The weighted average fair value of options granted during fiscal 2021, 2020, and 2019 was $59.75, $37.01, and $34.66 respectively.
The total intrinsic value of options exercised during fiscal 2021, 2020, and 2019 were $145.6 million, $99.3 million, and $159.0
million, respectively. The total fair value of options vested during fiscal 2021, 2020, and 2019 were $70.5 million, $71.1 million,
and $31.7 million, respectively.
61
Restricted common stock activity under the Plans for the three years ended June 30, 2021, consists of the following (units in
thousands):
Unvested at June 30, 2018
Granted
Vested
Forfeited
Unvested at June 30, 2019
Granted
Vested
Forfeited
Unvested at June 30, 2020
Granted
Vested
Forfeited
Unvested at June 30, 2021
Number of
Shares (in
thousands)
Weighted
Average Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
(years)
35 $
15
(20 )
-
30 $
15
(18 )
-
28 $
12
(17 )
-
23 $
117.39
177.93
116.76
-
147.94
193.48
142.12
-
177.20
264.73
171.64
-
226.07
6.07
The total fair value of restricted shares that vested was $2.8 million for fiscal 2021, $2.5 million for fiscal 2020, and $2.3 million for
fiscal 2019.
Restricted stock unit activity under the Plans for the three years ended June 30, 2021, consists of the following (units in thousands):
Outstanding at June 30, 2018
Granted
Vested
Forfeited
Outstanding at June 30, 2019
Granted
Vested
Forfeited
Outstanding at June 30, 2020
Granted
Vested
Forfeited
Outstanding at June 30, 2021
Number of
Units
(in thousands)
Weighted
Average Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
(years)
148 $
56
(28 )
(36 )
139 $
31
(51 )
(3 )
116 $
31
(51 )
-
96 $
117.95
170.96
110.86
143.72
134.17
192.08
111.07
155.60
159.25
300.78
130.18
-
220.53
5.36
The total fair value of restricted stock units that vested was $6.7 million for fiscal 2021, $5.7 million for fiscal 2020, and $3.1 million
for fiscal 2019. The restricted stock units vest over a three-year period.
Stock-based compensation cost, inclusive of payroll taxes, of $46.4 million, $32.4 million, and $32.3 million was included in selling,
general and administrative expense in fiscal 2021, 2020 and 2019, respectively. Additionally, stock-based compensation costs,
inclusive of payroll taxes, of $1.6 million was included in cost of goods sold in 2021. As of June 30, 2021, there was $37.1 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 2022 through 2024 using a 4.6% forfeiture rate. The weighted average period over which the
compensation cost is expected to be recognized is 2.1 years.
62
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 $0.9 million, $0.4 million, and $0.5 million for the ESPP in fiscal 2021, 2020, and 2019, 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 $3.4 million, $3.2 million, and $2.8 million for the years ended June 30, 2021, 2020, and 2019,
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 $1.6 million for year ended June 30, 2021 and $1.4 million for each of the years ended June
30, 2020 and 2019.
Performance incentive programs: In fiscal 2021, under certain employment agreements, a Management Incentive Plan, and a
business incentive plan, available to executive officers, certain management personnel, and certain other professional employees, the
Company recorded cash bonuses of $21.1 million, granted options for 762,761 shares of common stock, issued 11,803 restricted
common shares and 30,823 restricted stock units. In fiscal 2020 and fiscal 2019, the Company recorded cash bonuses of $10.5 million
and $9.3 million, granted options for 751,499 and 618,898 shares of common stock, and issued 15,398 and 11,279 restricted common
stock shares and 30,858 and 25,903 restricted stock, respectively.
Note 11. Income Taxes:
Income before income taxes was comprised of the following (in thousands):
Domestic
Foreign
Income before income taxes
The provision for income taxes consisted of the following (in thousands):
Taxes on income consist of:
Currently tax provision:
Federal
State
Foreign
Total current tax provision
Deferred tax provision:
Federal
State
Foreign
Total deferred tax provision
Total income tax provision
2021
Year Ended June 30,
2020
95,662 $
52,513
148,175 $
245,365 $
31,112
276,477 $
2019
64,081
47,934
112,015
2021
Year Ended June 30,
2020
2019
15,179 $
6,681
14,743
36,603
(20,812 )
(4,962 )
(2,239 )
(28,013 )
8,590 $
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
$
$
$
$
The Company’s effective income tax rate for fiscal 2021 was 5.8% vs 17.1% in the prior year. The change in the effective tax rate
for fiscal 2021 and 2020 was driven by changes in net discrete tax benefits of $28.1 million and $19.4 million for fiscal year
2021 and 2020, respectively.
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 discrete tax benefits in fiscal 2021 primarily related to share-based compensation excess tax benefits of
$28.1 million.
The Company's discrete tax benefits in fiscal 2020 primarily related to share-based compensation excess tax benefits of $17.7 million.
63
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 Company continues to monitor newly enacted regulations, clarifications, and changes in guidance the Tax Cuts and Jobs
Act “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.
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
Research and development tax credit
Contingent consideration adjustment
Foreign tax rate differences
Option exercises
U.S. taxation of foreign earnings
Foreign derived intangible income
Executive compensation limitations
Other, net
Effective tax rate
2021
Year Ended June 30,
2020
2019
21.0 %
0.6
(1.8 )
0.8
0.8
(16.9 )
(0.1 )
(5.1 )
6.5
0.0
5.8 %
21.0 %
2.3
(0.7 )
(0.2 )
(0.2 )
(5.7 )
0.9
(0.9 )
1.6
(1.0 )
17.1 %
21.0 %
(1.5 )
(1.6 )
(0.4 )
0.2
(5.8 )
3.7
(2.0 )
0.4
0.2
14.2 %
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
2021
2020
6,730 $
31,345
14,486
2,429
11,108
1,908
17,016
8,526
(6,665 )
86,883
(3,159 )
(150,765 )
(9,099 )
(15,868 )
(1,117 )
(180,008 )
(93,125 ) $
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 )
$
$
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, 2021 was $6.7 million compared to $7.5 million in the prior year.
As of June 30, 2021, the $6.7 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, ExosomeDx, 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.
64
As of June 30, 2021, the Company has federal operating loss carryforwards of approximately $92.1 million and state operating loss
carryforwards of $129.6 million from its acquisitions of Asuragen (refer to note 4), Quad, ExosomeDx, ACD, ProteinSimple and
CyVek, which are not limited under IRC Section 382. As of June 30, 2021, the Company has foreign net operating loss carryforwards
of $13.9 million. The net operating loss carryforwards expire between fiscal 2022 and 2036. The Company has a deferred tax asset
of $26.6 million, net of the valuation allowance discussed above, related to the net operating loss carryovers. As of June 30, 2021,
the Company has federal and state tax credit carryforwards of $10.1 million and $4.4 million, respectively. The federal tax credit
carryforwards expire between 2028 and 2038. The majority of the state credit carryforwards have no expiry date. The Company has
a deferred tax asset of $12.6 million, net of the valuation allowance discussed above, related to the tax credit carryovers.
The Company has not recognized a deferred tax liability for unremitted foreign earnings of approximately $223 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 prior year
Decrease in unrecognized tax benefits for prior year positions
Settlements
Ending balances
$
$
4,297 $
-
4,038
(778 )
(286 )
7,271 $
5,032 $
-
306
(1,041 )
-
4,297 $
1,947
900
2,185
-
-
5,032
2021
Year Ended June 30,
2020
2019
Included in the balance of unrecognized tax benefits at June 30, 2021 are potential benefits of $5.2 million that, if recognized, would
affect the effective tax rate on income from continuing operations. The amount of interest and penalties recognized on the balance
sheet as of June 30, 2021 is not material. 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. It is reasonably possible that the unrecognized tax
benefits may decrease by $2.6 million as a result of ongoing discussions with the German tax authorities regarding a historical local
matter. 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 and analytical solutions. 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, 2021, 2020, and 2019.
65
The Company's Diagnostics and Genomics segment is comprised of diagnostics reagents, genomics, and our Exosome and Asuragen
acquisitions. Diagnostics reagents 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. Genomics, Exosome, and Asuragen 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, 2021, 2020, and 2019.
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.
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, inclusive of employer taxes
Corporate general, selling and administrative expenses
Consolidated operating income
$
2021
Year Ended June 30,
2020
2019
704,564 $
227,744
(1,276 )
931,032 $
328,837 $
38,425
367,262
(1,565 )
(64,239 )
-
(7,114 )
(142 )
(51,846 )
(5,060 )
237,296 $
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
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
2021
Year Ended June 30,
2020
$
$
557,037 $
194,948
751,985 $
431,052 $
171,590
602,642 $
2019
430,655
158,324
588,979
66
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,
2021
2020
$
$
$
$
190,501 $
13,949
3,457
207,907 $
594,512 $
9,369
12,087
615,968 $
162,039
13,120
1,670
176,829
499,875
12,349
4,321
516,545
Long-lived assets are comprised of land, buildings and improvements and equipment, net of accumulated depreciation and other
assets.
Note 13. Subsequent Events:
None
67
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in
the three-year period ended June 30, 2021, 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, 2021, 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 25, 2021 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 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 Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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, 2021 was $843.1 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 a discounted cash flow model.
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 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 Exosome reporting unit.
68
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 goodwill impairment process. 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 the assumptions for the revenue growth rates and 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 rate assumptions to 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.
Fair value measurement of the developed technology and in-process research and development intangible assets acquired in the
Asuragen acquisition
As discussed in Note 4 to the consolidated financial statements, the Company acquired Asuragen, Inc. (Asuragen) in April 2021,
for total consideration of $233.9 million, net of cash acquired. As a result of the acquisition, the Company recognized intangible
assets of $144.4 million, including developed technology of $107.0 million and in-process research and development (IPR&D) of
$22.7 million.
We identified the assessment of the fair value measurement of the acquired developed technology and IPR&D as a critical audit
matter. There was a high degree of subjectivity in applying and evaluating certain key assumptions used to estimate the fair value
of the acquired developed technology and IPR&D. Specifically, the revenue growth rates and the discount rates 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 determination of the fair value measurements.
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 Company’s acquisition-date valuation process, including controls
related to the development of the assumptions for the revenue growth rates and discount rates. We performed sensitivity analyses
over the revenue growth rates to assess the impact of changes in those assumptions on the Company’s determination of the fair
value of the developed technology and IPR&D. We evaluated the reasonableness of the Company’s forecasted revenue growth
rates used to determine forecasted revenues by comparing them to historical results and industry related third-party data. In
addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•
•
evaluating the discount rates used by the Company by comparing them against discount rate ranges that were
independently developed using publicly available market data for comparable entities
testing the estimate of the fair value of the intangible assets acquired using the Company’s cash flow forecasts
and discount rates, and comparing the results to the Company’s fair value estimates.
Initial fair value measurement of the contingent consideration liability related to the Asuragen acquisition
As discussed in Note 4 to the consolidated financial statements, the initial fair value of the contingent consideration liability for the
Asuragen acquisition was $18.3 million. The contingent consideration liability is recorded at fair value and remeasured each
reporting period, with a maximum payout of $105.0 million upon achievement of certain revenue targets through calendar year
2023.
We identified the assessment of the initial fair value measurement of the contingent consideration liability as a critical audit matter.
There was a high degree of subjectivity in applying and evaluating certain key assumptions used to estimate the initial fair value of
the contingent consideration liability. Specifically, the revenue growth rates, volatility, and 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 determination of the initial fair value of the contingent consideration liability.
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 Company’s acquisition-date valuation process, including controls
related to the development of the assumptions for the revenue growth rates, volatility, and discount rate. We performed sensitivity
analyses over the future revenue growth rates to assess the impact of changes in those assumptions on the Company’s
determination of the initial fair value of the contingent consideration liability. We evaluated the reasonableness of the Company’s
forecasted revenue growth rates used to determine forecasted revenues by comparing them to historical results and industry related
third-party data. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
69
•
•
evaluating the Company’s volatility and discount rate, by comparing the Company’s inputs to the volatility and
the discount rate to publicly available market data for comparable entities, and assessing the resulting volatility
and discount rate
testing the estimate of the initial fair value of the contingent consideration liability using the Company’s
forecasted revenues, volatility, and the discount rate, and comparing the results to the Company’s initial fair
value estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Minneapolis,
August 25, 2021
Minnesota
70
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,
2021, 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, 2021, 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, 2021 and 2020, 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, 2021,and the related notes (collectively, the consolidated financial statements), and our report dated August 25, 2021 expressed
an unqualified opinion on those consolidated financial statements.
The Company acquired Asuragen, Inc. and a controlling interest in Eminence Biotechnology during 2021, and management
excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2021,
Eminence Biotechnology and Asuragen, Inc.’s internal control over financial reporting associated with 12.0% of total assets and
0.8% of total revenues included in the consolidated financial statements of the Company as of and for the year ended June 30,
2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over
financial reporting of Eminence Biotechnology and Asuragen, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Minneapolis,
August 25, 2021
Minnesota
71
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, 2021, 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.
We acquired a controlling interest in Eminence Biotechnology (Eminence) on October 20, 2020 and acquired Asuragen, Inc.
(Asuragen) on April 6, 2021. Eminence and Asuragen represented approximately 12.0% of our total assets and 0.8% of our total
revenues as of and for the year ended June 30, 2021. We excluded internal control over financial reporting associated with
Eminence and Asuragen from our assessment of the effectiveness of our internal control over financial reporting as of June 30,
2021.
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, 2021.
The attestation report on our internal control over financial reporting issued by KPMG LLP appears in Item 8 of this report.
72
(c) Changes in Internal Control Over Financial Reporting
As previously announced, we acquired Eminence Biotechnology on October 20, 2020 and Asuragen, Inc on April 6, 2021. We
have not fully evaluated any changes in internal control over financial reporting associated with these acquisitions and therefore
any material changes that may result from these acquisitions have not been disclosed in this report. We intend to disclose all
material changes resulting from the acquisitions within or prior to the time of our first annual assessment of internal control over
financial reporting that is required to include these entities.
There were no other changes in the Company's internal control over financial reporting during fiscal year 2021 that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
None.
ITEM 9B. OTHER INFORMATION
73
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 2021 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 2021 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 2021 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 2021 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 2021 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.
74
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, 2021, 2020, and 2019
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the Years Ended June 30, 2021, 2020, and 2019
Notes to Consolidated Financial Statements for the Years Ended June 30, 2021, 2020, and 2019
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.
75
A. (3) Exhibits.
EXHIBIT INDEX
for Form 10-K for the 2021 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. .
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*
76
Exhibit
Number
10.14**
Description
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*
10.20
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*
21
23
31.1
31.2
32.1
32.2
101
Subsidiaries of the Company
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2021, 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.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
-------------
* Incorporated by reference; SEC File No. 000-17272
** Management contract or compensatory plan or arrangement
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
77
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 25, 2021
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 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
August 25, 2021
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/ 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)
78
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BOARD OF DIRECTORS
EX ECUTIVE OFFI CERS
Robert V. Baumgartner
Chairman of the Board and Director
Charles Kummeth
President and Chief Executive Officer
Charles R. Kummeth
President, Chief Executive Officer and Director
James Hippel
Chief Financial Officer
David Eansor
President, Protein Sciences
Kim Kelderman
President, Diagnostics and Genomics
Brenda Furlow
General Counsel, Secretary and Chief
Compliance Officer
Julie L. Bushman
Director
John L. Higgins
Director
Joseph Keegan, Ph.D.
Director
Roeland Nusse, Ph.D.
Director
Alpna Seth, Ph.D,
Director
Randolph C. Steer, M.D., Ph.D.
Director
Rupert Vessey, M.A., B.M.,
B.Ch., F.R.C.P., D. Phil.
Director
ANNUAL MEE TING
The annual meeting of shareholders of
Bio-Techne Corporation
will be held via a live webcast available at: http://www.virtualshareholdermeeting.com/tech2021
Thursday, October 28, 2021, 8:00 a.m. Central Time
TECH is Bio-Techne Corporation’s Nasdaq stock symbol, which is listed on the Nasdaq Global Select
Market.
2021 ANNUAL REPORT
Bio-Techne Corporation
614 McKinley Place NE
Minneapolis, MN 55413-2610, USA
(612) 379-8854