10-Q 1 tmb-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022, or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission file number 0-17272

BIO-TECHNE CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota

41-1427402

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

614 McKinley Place N.E.

Minneapolis, MN 55413

(612) 379-8854

(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

TECH

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2).      Yes    ☒  No

At May 3, 2022, 39,233,511 shares of the Company's Common Stock (par value $0.01) were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

Bio-Techne Corporation and Subsidiaries

(in thousands, except per share data)

(unaudited)

    

Quarter Ended

Nine Months Ended

March 31, 

March 31, 

2022

2021

2022

2021

Net sales

$

290,376

$

243,552

$

817,371

$

672,004

Cost of sales

 

88,918

 

75,278

 

261,225

 

215,098

Gross margin

 

201,458

 

168,274

 

556,146

 

456,906

Operating expenses:

 

  

 

  

 

  

 

  

Selling, general and administrative

 

89,269

 

82,596

 

276,137

 

238,310

Research and development

 

21,742

 

17,052

 

63,992

 

49,882

Total operating expenses

 

111,011

 

99,648

 

340,129

 

288,192

Operating income

 

90,447

 

68,626

 

216,017

 

168,714

Other income (expense)

 

(21,675)

 

(23,272)

 

6,317

 

(27,652)

Earnings before income taxes

 

68,772

 

45,354

 

222,334

 

141,062

Income taxes (benefit)

 

8,628

 

(48)

 

21,150

 

16,121

Net earnings, including noncontrolling interest

 

60,144

 

45,402

 

201,184

 

124,941

Net earnings (loss) attributable to noncontrolling interest

 

(595)

 

(380)

 

(9,343)

 

(509)

Net earnings attributable to Bio-Techne

$

60,739

$

45,782

$

210,527

$

125,450

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Foreign currency translation adjustments

 

(2,851)

 

(1,142)

 

(9,573)

 

27,700

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

 

7,179

 

1,288

 

11,745

 

5,490

Other comprehensive income (loss)

 

4,328

 

146

 

2,172

 

33,190

Other comprehensive income (loss) attributable to noncontrolling interest

 

(1)

 

(69)

 

26

 

14

Other comprehensive income (loss) attributable to Bio-Techne

 

4,329

 

215

 

2,146

 

33,176

Comprehensive income attributable to Bio-Techne

$

65,068

$

45,997

$

212,673

$

158,626

Earnings per share attributable to Bio-Techne:

 

Basic

$

1.55

$

1.18

$

5.36

$

3.24

Diluted

$

1.48

$

1.12

$

5.12

$

3.11

Weighted average common shares outstanding:

 

 

  

 

  

 

  

Basic

 

39,272

 

38,856

 

39,225

 

38,693

Diluted

 

40,969

 

40,676

 

41,073

 

40,305

See Notes to Condensed Consolidated Financial Statements.

1

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

    

March 31, 

2022

June 30, 

(unaudited)

2021

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

160,821

$

199,091

Short-term available-for-sale investments

 

70,351

 

32,463

Accounts receivable, less allowance for doubtful accounts of $1,522 and $1,229, respectively

 

202,095

 

145,385

Inventories

 

128,283

 

116,748

Other current assets

 

31,558

 

16,919

Total current assets

 

593,108

 

510,606

Property and equipment, net

 

218,398

 

207,907

Right of use asset

 

63,450

 

73,834

Goodwill

 

827,618

 

843,067

Intangible assets, net

 

551,342

 

615,968

Other assets

 

45,976

 

11,575

Total assets

$

2,299,892

$

2,262,957

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Trade accounts payable

$

30,859

$

29,384

Salaries, wages and related accruals

 

55,642

 

51,294

Accrued expenses

 

19,998

 

15,282

Contract liabilities

 

23,107

 

18,995

Income taxes payable

 

9,788

 

5,336

Operating lease liabilities - current

 

11,864

 

11,602

Contingent consideration payable

 

 

4,000

Current portion of long-term debt obligations

 

12,500

 

12,500

Other current liabilities

 

3,080

 

3,891

Total current liabilities

 

166,838

 

152,284

Deferred income taxes

 

99,301

 

93,125

Long-term debt obligations

 

246,514

 

328,827

Long-term contingent consideration payable

 

4,800

 

25,400

Operating lease liabilities

 

56,348

 

67,625

Other long-term liabilities

 

12,769

 

24,462

Bio-Techne’s Shareholders’ equity:

 

  

 

  

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

 

 

Common stock, par value $.01 per share; authorized 100,000,000; issued and outstanding 39,263,444 and 38,955,484, respectively

 

393

 

390

Additional paid-in capital

 

636,321

 

534,411

Retained earnings

 

1,132,807

 

1,085,461

Accumulated other comprehensive loss

 

(55,145)

 

(57,291)

Total Bio-Techne’s shareholders’ equity

 

1,714,376

 

1,562,971

Noncontrolling interest

 

(1,054)

 

8,263

Total shareholders’ equity

 

1,713,322

 

1,571,234

Total liabilities and shareholders’ equity

$

2,299,892

$

2,262,957

See Notes to Condensed Consolidated Financial Statements.

2

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

    

Nine Months Ended

March 31, 

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net earnings, including noncontrolling interest

$

201,184

$

124,941

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

 

  

 

  

Depreciation and amortization

 

75,203

 

63,075

Costs recognized on sale of acquired inventory

 

1,596

 

91

Deferred income taxes

 

7,888

 

(6,023)

Stock-based compensation expense

 

33,777

 

39,174

Contingent consideration payments - operating

 

(3,300)

 

(155)

Fair value adjustment to contingent consideration payable

 

(20,600)

 

6,188

Fair value adjustment on available for sale investments

 

(15,569)

 

10,234

Asset impairment restructuring

546

Eminence impairment

18,715

Leases, net

 

(974)

 

83

Other operating activity

 

549

 

(608)

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

 

  

 

  

Trade accounts and other receivables, net

 

(60,930)

 

(32,710)

Inventories

 

(16,034)

 

(4,115)

Prepaid expenses

 

(3,576)

 

414

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

 

11,229

 

12,198

Salaries, wages and related accruals

 

2,059

 

13,829

Income taxes payable

 

(9,208)

 

3,528

Net cash provided by (used in) operating activities

 

222,555

 

230,144

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from maturities of available-for-sale investments

 

26,055

 

66,377

Purchases of available-for-sale investments

 

(47,998)

 

(39,684)

Additions to property and equipment

 

(31,338)

 

(32,985)

Acquisitions, net of cash acquired

 

 

(9,765)

Investment in unconsolidated entity

(556)

Investment of forward purchase contract

 

(25,000)

 

Net cash provided by (used in) investing activities

 

(78,281)

 

(16,613)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Cash dividends

 

(37,646)

 

(37,174)

Proceeds from stock option exercises

 

68,346

 

54,992

Re-purchases of common stock

 

(102,132)

 

(43,178)

Borrowings under line-of-credit agreement

 

90,000

 

Repayments of long-term debt

 

(172,375)

 

(141,375)

Contingent consideration payments - financing

 

(700)

 

Other financing activity

 

(22,618)

 

(13,504)

Net cash provided by (used in) financing activities

 

(177,125)

 

(180,239)

Effect of exchange rate changes on cash and cash equivalents

 

(5,419)

 

6,219

Net change in cash and cash equivalents

 

(38,270)

 

39,511

Cash and cash equivalents at beginning of period

 

199,091

 

146,625

Cash and cash equivalents at end of period

$

160,821

$

186,136

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

22,965

$

17,957

Cash paid for interest

$

8,522

$

10,729

See Notes to Condensed Consolidated Financial Statements.

3

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Bio-Techne Corporation and Subsidiaries

(unaudited)

Note 1. Basis of Presentation and Summary of Significant Accounting Policies:

The interim consolidated financial statements of Bio-Techne Corporation and subsidiaries, (the Company) presented here have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2021, included in the Company's Annual Report on Form 10-K for fiscal 2021. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2021. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

During the nine months ended March 31, 2022, the Company operated under two operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the Company operated under were consistent with the Company's operating segments disclosed in the Company's Annual Report on Form 10-K for fiscal 2021.

Goodwill: In the second quarter of fiscal 2022, Changzhou Eminence Biotechnology Co., Ltd. (Eminence) notified the Company of its need for additional capital to execute its growth plan. The Company first attempted to find outside equity financing support for the Eminence investment but was unable to do so. The Company then reviewed the additional financing needs required to successfully ramp Eminence’s business, which ultimately did not meet the Company’s return on capital requirements. Therefore, the Company did not provide additional funding to Eminence. As a result of not obtaining additional financing, Eminence notified the Company of its plans to cease operations and liquidate its business.

Given the upcoming liquidation process to dispose of the Eminence assets, the Company identified a triggering event and performed impairment testing during the second quarter of fiscal 2022. The impairment testing resulted in a full impairment of the Eminence goodwill and intangible assets, which resulted in charges of $8.3 million and $8.6 million, respectively, for the nine-months ended March 31, 2022. The Company also recognized inventory and fixed asset impairment charges of $0.9 million and $0.9 million, respectively. The Company recorded the impairment charges within the General and Administrative line in the Consolidated Income Statement. The impairment charges recorded within Net Earnings Attributable to Bio-Techne were reduced by approximately $8 million recorded within Net Earnings Attributable to Noncontrolling Interests. The remaining net tangible assets of Eminence included in our Consolidated Balance Sheet as of March 31, 2022, were approximately $4 million and primarily consisted of fixed assets and related deposits of $3.8 million, inventory of $0.8 million, receivables of $0.7 million, and other current assets of $0.2 million. The Company also had $2.2 million related to current liabilities. The Company holds a financial interest of approximately 57.4% in those tangible assets in the upcoming liquidation process.

Investments: In December 2021, the Company paid $25 million to enter into a two-part forward contract which requires the Company to make an initial ownership investment followed by purchase of full equity interest in Wilson Wolf Corporation (Wilson Wolf) if certain annual revenue or EBITDA thresholds are met. Wilson Wolf is a leading manufacturer of cell culture devices, including the G-Rex product line.

The first part of the forward contract is triggered upon Wilson Wolf achieving approximately $92 million in annual revenue or $55 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA) at any point prior to December 31, 2027. Once triggered, the Company is required to make a payment of $231 million in exchange for a 19.9% ownership stake. If Wilson Wolf doesn’t achieve the revenue and EBITDA targets by December 31, 2027, the agreement will expire.

Once the first part of the forward contract is triggered, the second part of the forward contract will automatically trigger, and requires the Company to acquire the remaining equity interest in Wilson Wolf on December 31, 2027 based on a revenue multiple. The second part of the contract would be accelerated in advance of December 31, 2027, if Wilson Wolf meets its second milestone of approximately $226 million in annual revenue or $136 million in annual EBITDA. If the second milestone is achieved, the forward contract requires

4

the Company to pay approximately $1 billion plus potential consideration for revenue in excess of the revenue milestone. The approximate multiple for total expected payments of the second forward contract is 4.4 times the annual revenue of Wilson Wolf. The Company has elected to apply the measurement alternative as detailed under ASC 321-10-35-2 for the Wilson Wolf investment. The Company recorded the $25 million payment as a cost basis investment within Other long-term assets on the Consolidated Balance Sheet.

Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairments and disposals of assets associated with such actions. Employee-related severance charges are based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Asset impairment and disposal charges include right of use assets, leasehold improvements, and other asset write-downs associated with combining operations and disposal of assets.

In September 2021, the Company informed employees of our decision to close our Exosome Diagnostics Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome Diagnostics business. The restructuring activities were substantially complete as of the end of the third fiscal quarter, with final remaining payouts expected to occur in the fourth quarter of fiscal 2022. As a result of the restructuring activities, an estimated pre-tax charge of $1.2 million was recorded within our Diagnostics and Genomics segment during the first quarter of fiscal 2022. Additional charges of approximately $0.5 million and $(0.3) million were recorded in the second and third quarters of fiscal 2022, respectively. These additional charges related to the refinement of our estimated close down costs as well as miscellaneous shut-down costs incurred during the quarter. Total restructuring charges for the closure of the Exosome Diagnostics Germany facility for the nine months ended March 31, 2022 were recorded within operating income on the income statement as follows (in thousands):

Employee

Asset

    

Severance

    

Impairment and other

    

Total

Selling, general and administrative

$

649

$

750

$

1,399

Restructuring actions, including cash and non-cash impacts, are as follows (in thousands):

Employee

Asset

    

Severance

    

Impairment and other

    

Total

Accrued restructuring action balances as of September 30, 2021(1)

$

639

$

364

$

1,003

Incremental expense incurred in the second quarter of fiscal 2022

242

242

Cash payments

(370)

(242)

(612)

Adjustments

301

(37)

264

Accrued restructuring actions balances as of December 31, 2021

570

327

897

Cash payments

(200)

(272)

(472)

Adjustments(2)

(345)

(28)

(373)

Accrued restructuring actions balances as of March 31, 2022

$

25

$

27

$

52

(1)The expense recorded for the three months ended September 30, 2021 of $1.2 million included $0.2 million related to the non-cash impairment of fixed assets.

(2)Adjustments include refinements to our estimated close down costs as well as the impacts from foreign currency exchange.

During the second quarter of fiscal 2022, the Company also incurred a restructuring charge of $0.2 million related to employee severance for the relocation of a US plant. This charge is recorded within Other current liabilities as of March 31, 2022. There were no cash payments or adjustments related to this restructuring during the quarter ended March 31, 2022.

Recently Adopted Accounting Pronouncements

There were no accounting pronouncements adopted in the nine months ended March 31, 2022. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2021.

5

Note 2. Revenue Recognition:

Consumables revenues consist of specialized proteins, immunoassays, antibodies, reagents, blood chemistry and blood gas quality controls, and hematology instrument controls that are typically single-use products recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues consist of extended warranty contracts, post contract support, and custom development projects that are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the performance completed. Service revenues also include laboratory services recognized at point in time. Prior to fiscal 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 it to have 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 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $0.5 million. The Company continues to record revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration remains constrained. We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected the "right to invoice" practical expedient based on the Company's right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date.

The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations were not material as of March 31, 2022.

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

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

Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of March 31, 2022 are not material.

Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of March 31, 2022 and June 30, 2021 were approximately $25.1 million and $20.0 million, respectively. Contract liabilities as of June 30, 2021 subsequently recognized as revenue during the quarter and nine month period ended March 31, 2022 were approximately $1.9 million and $15.2 million, respectively. Contract liabilities in excess of one year are included in Other long-term liabilities on the consolidated balance sheet.

Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.

6

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

Revenue by type is as follows:

    

Quarter Ended

Nine Months Ended

March 31, 

March 31, 

    

2022

    

2021

2022

    

2021

Consumables

$

239,171

$

198,818

$

657,568

$

542,909

Instruments

 

28,899

 

24,748

 

92,121

 

70,849

Services

 

17,815

 

14,503

 

51,426

 

45,142

Total product and services revenue, net

$

285,885

$

238,069

$

801,115

$

658,900

Royalty revenues

 

4,491

 

5,483

 

16,256

 

13,104

Total revenues, net

$

290,376

$

243,552

$

817,371

$

672,004

Revenue by geography is as follows:

    

Quarter Ended

Nine Months Ended

March 31, 

March 31, 

    

2022

    

2021

2022

    

2021

United States

$

163,976

$

131,586

$

447,045

$

359,586

EMEA, excluding United Kingdom

 

55,301

 

54,552

 

164,003

 

147,622

United Kingdom

 

12,920

 

11,213

 

37,240

 

29,599

APAC, excluding Greater China

 

21,100

 

19,002

 

58,204

 

52,744

Greater China

 

26,554

 

20,467

 

85,997

 

63,685

Rest of World

 

10,525

 

6,732

 

24,882

 

18,768

Net Sales

$

290,376

$

243,552

$

817,371

$

672,004

Note 3. Selected Balance Sheet Data:

Inventories:

Inventories consist of (in thousands):

    

March 31, 

June 30, 

    

2022

    

2021

Raw materials

$

69,263

$

55,096

Finished goods(1)

 

64,742

 

67,108

Inventories, net

$

134,005

$

122,204

(1) Finished goods inventory of $5,722 and $5,456 included within other long-term assets in the respective March 31, 2022 and June 30, 2021, consolidated balance sheet. The inventory is included in long-term assets as it is forecasted to be sold after the 12 months subsequent to the consolidated balance sheet date.

7

Property and Equipment:

Property and equipment consist of (in thousands):

    

March 31, 

June 30, 

    

2022

    

2021

Land

$

8,603

$

8,612

Buildings and improvements

 

225,378

 

190,661

Machinery and equipment

164,665

149,410

Construction in progress

 

26,508

 

49,073

Property and equipment, cost

 

425,154

 

397,756

Accumulated depreciation and amortization

 

(206,756)

 

(189,849)

Property and equipment, net

$

218,398

$

207,907

Intangible Assets:

Intangible assets consist of (in thousands):

March 31, 

June 30, 

2022

2021

Developed technology

$

543,977

$

552,160

Trade names

 

147,311

 

147,640

Customer relationships

 

228,943

 

232,493

Patents

 

3,249

 

2,926

Other intangibles

 

6,313

 

6,316

Definite-lived intangible assets

 

929,793

 

941,535

Accumulated amortization

 

(401,151)

 

(348,267)

Definite-lived intangibles assets, net

 

528,642

 

593,268

In process research and development

 

22,700

 

22,700

Total intangible assets, net

$

551,342

$

615,968

Changes to the carrying amount of net intangible assets for the period ended March 31, 2022 consist of (in thousands):

Beginning balance

$

615,968

Acquisitions

 

Other additions

 

283

Amortization expense

 

(55,731)

Currency translation

 

(615)

Eminence impairment (1)

(8,563)

Ending balance

$

551,342

The estimated future amortization expense for intangible assets as of March 31, 2022 is as follows (in thousands):

2022 remainder

    

$

18,478

2023

 

71,725

2024

 

68,857

2025

 

65,621

2026

 

61,876

Thereafter

 

242,085

Total

$

528,642

(1) As disclosed in Note 1, the Company recorded an impairment charge of $8.6 million related to Eminence in Q2 of FY'22.

8

Goodwill:

Changes to the carrying amount of goodwill for the period ended March 31, 2022 consist of (in thousands):

    

    

Diagnostics and

    

Protein Sciences

 Genomics

Total

Beginning balance

$

392,717

$

450,350

$

843,067

Acquisitions(1)

 

 

(4,407)

 

(4,407)

Eminence impairment

(8,275)

(8,275)

Currency translation

 

(2,588)

 

(179)

 

(2,767)

Ending balance

$

381,854

$

445,764

$

827,618

(1)As discussed in Note 4, there was an adjustment to the preliminary allocation of the Asuragen acquisition opening balance sheet during the measurement period.

We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a quantitative goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2021. No indicators of impairment were identified as part of our assessment.

During the quarter ended September 30, 2021, the Company combined the management of the Exosome Diagnostics and Asuragen reporting units, both of which are included in the Diagnostics and Genomics operating segment. In conjunction with the combination of the reporting units, a qualitative goodwill impairment assessment was performed. The qualitative assessment identified no indicators of impairment.

As disclosed in Note 1, the Company identified a triggering event and a goodwill impairment charge of $8.3 million in the second quarter of fiscal 2022. No additional triggering events or items beyond the upcoming Eminence liquidation were identified during the quarter ended March 31, 2022. The impairment of the Eminence goodwill is the only impairment of goodwill recorded since the adoption of Financial Accounting Standards Board ("FASB") ASC 350 guidance for goodwill and other intangibles on July 1, 2002.

Note 4. Acquisitions:

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

Fiscal year 2021 Acquisitions

Asuragen, Inc.

On April 6, 2021, the Company acquired all of the ownership interests of Asuragen, Inc. (Asuragen) 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 2021.

9

Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations for the quarter ended March 31, 2022 were approximately $8.6 million and $0.1 million, respectively. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations for the nine months ended March 31, 2022 were approximately $25.0 million and $3.7 million, respectively.

The allocation of purchase consideration related to Asuragen was completed in the third quarter of fiscal year 2022. The fair values of the assets acquired and liabilities assumed at acquisition date and the updated final amounts as of March 31, 2022 are as follows (in thousands):

Preliminary allocation at 

Adjustments

    

Final allocation at 

acquisition date 

to fair value

March 31, 2022

Current assets, net of cash

$

10,422

$

$

10,422

Equipment and other long-term assets

 

3,762

 

3,762

Intangible assets:

Developed technology

 

107,000

 

107,000

In-process research and development

 

22,700

 

22,700

Customer relationships

 

11,700

 

11,700

Trade names

 

2,000

 

2,000

Non-competition agreement

 

1,000

 

1,000

Goodwill

 

94,970

(4,407)

 

90,563

Total assets acquired

 

253,554

(4,407)

 

249,147

Liabilities

 

4,003

960

 

4,963

Deferred income taxes, net

 

15,664

(5,367)

 

10,297

Net assets acquired

$

233,887

$

$

233,887

Cash paid, net of cash acquired

 

215,587

 

215,587

Contingent consideration payable

 

18,300

 

18,300

Net assets acquired

$

233,887

$

$

233,887

As summarized in the table, there were adjustments totaling $4.4 million to goodwill during the measurement period. These adjustments relate to refinements within our deferred tax amounts based on factors existing on the acquisition date.

Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology, 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 Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 16 years. The amount recorded for trade names and the non-competition agreement is being amortized with the expense reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for trade names and the 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 net operating losses.

Note 5. Fair Value Measurements:

The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on

10

market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.

The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

    

Total 

    

carrying 

value as of

Fair Value Measurements Using 

March 31, 

Inputs Considered as

2022

Level 1

Level 2

Level 3

 

Assets

 

  

 

  

 

  

 

  

Exchange traded securities(1)

$

55,851

$

55,851

$

$

Certificates of deposit(2)

 

14,500

 

14,500

 

 

Derivative instruments - cash flow hedges

 

9,305

 

 

9,305

 

Total assets

$

79,656

$

70,351

$

9,305

$

Liabilities

 

  

 

  

 

  

 

  

Contingent consideration

$

4,800

$

$

$

4,800

Derivative instruments - cash flow hedges

 

2,046

 

 

2,046

 

Total liabilities

$

6,846

$

$

2,046

$

4,800

    

Total

    

 carrying 

value as of

Fair Value Measurements Using 

June 30, 

Inputs Considered as

    

2021

    

Level 1

    

Level 2

    

Level 3

Assets

 

  

 

  

 

  

 

  

Exchange traded securities(1)

$

19,963

$

18,581

$

1,382

$

Certificates of deposit(2)