Bio-Rad(BIO) - 2019 Q3 - Quarterly Report

Part I – Financial Information Financial Statements Financial statements reflect increased assets, a Q3 net loss from equity valuation, and stable nine-month net income with strong cash flow Condensed Consolidated Balance Sheets Balance sheet shows increased total assets from investments and new lease assets, with liabilities and equity also rising Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $2,047,632 | $2,023,478 | | Operating lease right-of-use assets | $217,516 | $— | | Other investments | $3,931,715 | $2,655,709 | | Total assets | $7,177,116 | $5,611,068 | | Total current liabilities | $434,040 | $450,795 | | Operating lease liabilities | $192,600 | $— | | Total liabilities | $2,045,924 | $1,590,737 | | Total stockholders' equity | $5,131,192 | $4,020,331 | - The adoption of new lease accounting standard ASC 842 in 2019 resulted in the recognition of $217.5 million in operating lease right-of-use assets and a corresponding $226.3 million in lease liabilities ($33.7 million current, $192.6 million non-current)[7][8][123] Condensed Consolidated Statements of Income Q3 2019 net sales increased but a large unrealized equity loss resulted in a net loss, while nine-month net income was strong from equity gains Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $560,633 | $545,138 | $1,687,231 | $1,672,568 | | Gross profit | $307,026 | $286,716 | $926,557 | $890,586 | | Income from operations | $57,460 | $36,275 | $170,456 | $123,713 | | Change in fair market value of equity securities | ($390,620) | $318,007 | $1,384,999 | $1,420,339 | | Net (loss) income | ($258,816) | $269,326 | $1,205,189 | $1,194,143 | | Diluted (loss) earnings per share | ($8.68) | $8.89 | $39.97 | $39.50 | Condensed Consolidated Statements of Cash Flows Cash flow statements show net cash from operations significantly increased, with cash used for acquisitions and treasury stock repurchases Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $298,095 | $180,485 | | Net cash used in investing activities | ($147,693) | ($132,167) | | Net cash used in financing activities | ($17,975) | ($1,677) | | Net increase in cash | $129,188 | $50,606 | - The company used $75.8 million for acquisitions and $20.0 million for purchases of treasury stock during the first nine months of 2019[12] Notes to Condensed Consolidated Financial Statements Notes detail new accounting standards, acquisitions, equity investment impact, segment performance, a settled legal matter, and European restructuring - In August 2019, the company acquired a U.S. manufacturer for approximately $60.0 million for the Clinical Diagnostics segment, and in March 2019, it acquired a U.S. private company for approximately $20.0 million for the Life Science segment[54][57] - The lawsuit filed by former general counsel Sanford S. Wadler was settled via a Confidential Settlement Agreement in September 2019, and the matter is now closed[110] - The company adopted lease accounting standard ASC 842 on January 1, 2019, resulting in the recognition of operating lease right-of-use assets of $217.5 million and total operating lease liabilities of $226.3 million[49][123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q3 sales growth, improved gross margin, strong liquidity, increased operating cash flow, and strategic cash deployment Results of Operations Results show Q3 2019 net sales growth across segments with improved gross margin, and similar trends for the nine-month period Q3 2019 vs Q3 2018 Sales Growth | Segment | Reported Growth | Currency-Neutral Growth | | :--- | :--- | :--- | | Total Company | 2.8% | 4.5% | | Life Science | 4.5% | 5.7% | | Clinical Diagnostics | 2.4% | 4.3% | - The Q3 2019 consolidated gross margin increased to 54.8% from 52.6% in Q3 2018, driven by favorable product mix in Life Sciences and lower inventory and logistics costs in Clinical Diagnostics[144] - For the first nine months of 2019, Life Science sales grew 3.5% (5.7% currency-neutral), while Clinical Diagnostics sales decreased 0.6% (but grew 2.7% currency-neutral)[152][153] Liquidity and Capital Resources Liquidity remains strong with substantial cash and investments, increased operating cash flow, and cash used for acquisitions and share repurchases - As of September 30, 2019, the company had $979.2 million in cash, cash equivalents, and short-term investments, and approximately $209.0 million available for borrowing under various credit facilities[165][166] - Net cash provided by operations increased to $298.1 million for the first nine months of 2019, compared to $180.5 million for the same period in 2018, primarily due to lower cash paid to suppliers and employees and lower income tax payments[169] - During the first nine months of 2019, the company used cash for investing activities including two acquisitions for a net cash payment of $75.8 million and capital expenditures of $76.9 million[171][174][177] - Financing activities in the first nine months of 2019 included the repurchase of $20.0 million of common stock[178] Quantitative and Qualitative Disclosures about Market Risk No material changes to market risk disclosures were reported during the period - There have been no material changes in market risk during the nine months ended September 30, 2019[184] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[186] - No material changes to internal control over financial reporting were identified during the third quarter of 2019[188] Part II – Other Information Legal Proceedings A lawsuit with a former general counsel was settled and closed, with other legal actions not expected to have a material adverse effect - The lawsuit with former general counsel Sanford S. Wadler was settled and is now closed, with no material impact on Q3 2019 results[110][189] Risk Factors The company faces risks from international operations, ERP system implementation, equity investment market value, and extensive government regulation - Significant international operations (60% of net sales) expose the company to risks from foreign currency fluctuations, complex regulations like the FCPA and GDPR, and geopolitical uncertainties such as Brexit[194] - The multi-year implementation of a new global enterprise resource planning (ERP) system has previously caused disruptions and poses an ongoing risk to operations[203] - Changes in the market value of the company's investment in Sartorius AG can materially impact the Consolidated Statements of Income, as evidenced by the $390.6 million loss recognized in Q3 2019[257] - The company is subject to substantial government regulation from the FDA and foreign agencies, with evolving requirements potentially increasing costs and delaying product marketing[223][225] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $5.0 million of common stock under its $250 million program, with $181.1 million remaining available Share Repurchases in Q3 2019 | Period | Total Shares Purchased | Average Price Paid per Share | Total Purchased as Part of Program | Approx. Value Remaining in Program (millions) | | :--- | :--- | :--- | :--- | :--- | | Jul 2019 | — | $— | — | $186.1 | | Aug 2019 | 14,745 Class A | $339.05 | 14,745 Class A | $181.1 | | Sep 2019 | — | $— | — | $181.1 | - The Board of Directors authorized a $250.0 million share repurchase program in November 2017, which has no expiration date[275] Defaults Upon Senior Securities None reported - None[278] Mine Safety Disclosures Not applicable - Not applicable[279] Other Information None reported - None[279] Exhibits Exhibits include CEO and CFO certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and Inline XBRL documents[281] Signatures The report was signed on November 1, 2019, by the Chairman, President, CEO, and Executive Vice President and CFO - The Form 10-Q was signed on November 1, 2019, by CEO Norman Schwartz and CFO Ilan Daskal[283]