Bio-Rad(US:BIO)2021-10-28 16:00Part I – Financial Information Financial Statements The company's financial statements for the period ended September 30, 2021, show significant growth in total assets, primarily driven by the increased fair value of equity investments. Net income saw a substantial increase year-over-year, largely due to gains on these equity securities. Cash flow from operations also improved, reflecting higher sales and operational performance Condensed Consolidated Balance Sheets Total assets increased significantly to $19.95 billion as of September 30, 2021, from $12.97 billion at December 31, 2020. This was primarily driven by a substantial rise in 'Other investments' from $9.56 billion to $16.23 billion. Total liabilities grew to $4.62 billion from $3.09 billion, mainly due to an increase in deferred income taxes. Consequently, total stockholders' equity rose to $15.33 billion from $9.88 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $2,466,286 | $2,139,835 | | Other investments | $16,230,635 | $9,561,140 | | Total assets | $19,953,380 | $12,972,618 | | Total current liabilities | $649,916 | $631,536 | | Deferred income taxes | $3,569,332 | $2,076,785 | | Total liabilities | $4,621,002 | $3,092,678 | | Total stockholders' equity | $15,332,378 | $9,879,940 | Condensed Consolidated Statements of Income For the third quarter of 2021, net sales grew to $747.0 million from $647.3 million in Q3 2020. Net income surged to $3.93 billion, compared to $1.31 billion in the prior-year quarter, primarily due to a $4.87 billion gain from the change in fair market value of equity securities. For the nine months ended September 30, 2021, net sales increased to $2.19 billion from $1.76 billion, and net income rose to $5.82 billion from $2.97 billion year-over-year Q3 Financial Performance (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net sales | $747,049 | $647,263 | | Gross profit | $437,435 | $367,311 | | Income from operations | $156,804 | $109,600 | | Change in fair market value of equity securities | $4,868,659 | $1,580,350 | | Net income | $3,928,033 | $1,314,824 | | Diluted EPS | $129.96 | $43.64 | Nine-Month Financial Performance (in thousands, except per share data) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net sales | $2,189,776 | $1,755,787 | | Gross profit | $1,239,660 | $977,667 | | Income from operations | $382,448 | $235,715 | | Change in fair market value of equity securities | $7,078,753 | $3,591,509 | | Net income | $5,819,561 | $2,967,165 | | Diluted EPS | $192.76 | $98.46 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash provided by operating activities increased to $498.6 million from $290.6 million in the same period of 2020. Net cash used in investing activities was $230.0 million, a significant increase from $10.1 million in the prior year, mainly due to higher net purchases of marketable securities. Net cash used in financing activities decreased to $60.1 million from $101.2 million, primarily due to lower treasury stock purchases Nine-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $498,597 | $290,594 | | Net cash used in investing activities | ($229,954) | ($10,141) | | Net cash used in financing activities | ($60,064) | ($101,157) | | Net increase in cash | $197,405 | $182,450 | Notes to Condensed Consolidated Financial Statements Key notes to the financial statements detail revenue recognition policies, fair value measurements of significant investments, segment performance, and a new restructuring plan. A notable event was the recognition of $31.6 million in revenue from an intellectual property litigation settlement. The company's investment in Sartorius AG continues to be a primary driver of non-operating income. A strategy-driven restructuring plan was initiated in February 2021, primarily impacting European operations, with a liability of $58.0 million accrued as of September 30, 2021. Subsequent to the quarter, the company acquired Dropworks, Inc. for approximately $125 million - In Q3 2021, the company recognized $31.6 million in revenue from a settlement of an intellectual property litigation for infringing product sales from November 2018 through July 202130 - The company's investment in Sartorius AG accounted for a significant portion of its equity securities, with gains of $4.87 billion and $7.08 billion recognized for the three and nine months ended September 30, 2021, respectively5657 - A restructuring plan announced in February 2021, impacting European operations, resulted in a liability of $58.0 million as of September 30, 2021, with total charges of $67.9 million for the nine-month period9899 - On October 15, 2021, the company acquired Dropworks, Inc. for approximately $125 million to complement its Digital PCR product offerings in the Life Science segment110 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 15.4% sales growth in Q3 2021 to strong performance in both the Life Science and Clinical Diagnostics segments, driven by demand for Digital PCR and Process Media products and recovery in lab operations from the COVID-19 pandemic. Gross margin improved to 58.6% in Q3 2021 from 56.7% in Q3 2020, aided by favorable product mix and a one-time royalty revenue. The company maintains a strong liquidity position with $1.34 billion in cash and short-term investments and an undrawn $200 million credit facility Results of Operations For Q3 2021, net sales increased 15.4% (13.8% currency-neutral) year-over-year, with the Life Science segment growing 15.3% and Clinical Diagnostics growing 15.5%. The growth was driven by Digital PCR, Process Media products, and higher lab utilization post-pandemic. For the nine-month period, sales grew 24.7% (21.2% currency-neutral), with Life Science up 33.7% and Clinical Diagnostics up 17.5%. Gross margins expanded in Q3 due to favorable product mix and a $31.6 million royalty revenue settlement Q3 2021 vs. Q3 2020 Sales Growth | Segment | Sales Growth | Currency-Neutral Growth | | :--- | :--- | :--- | | Consolidated | 15.4% | 13.8% | | Life Science | 15.3% | 13.9% | | Clinical Diagnostics | 15.5% | 13.7% | - Life Science segment growth in Q3 was driven by Digital PCR and Process Media products, and also included $31.6 million of royalty revenue from an IP litigation settlement124 - Clinical Diagnostics segment growth was attributed to higher utilization in lab operations as businesses recover from the COVID-19 pandemic125 - Consolidated gross margin for Q3 2021 was 58.6%, up from 56.7% in Q3 2021. The one-time royalty revenue contributed 2.0 percentage points to the Life Science segment's gross margin improvement126 Liquidity and Capital Resources As of September 30, 2021, the company had $1.34 billion in cash, cash equivalents, and short-term investments. It also has access to a $200 million unsecured revolving credit facility, which was undrawn. Operating cash flow for the first nine months of 2021 increased to $498.6 million from $290.6 million in the prior year, driven by higher sales and dividends from Sartorius AG. The company repurchased $50.0 million of its Class A common stock in Q1 2021, with $223.1 million remaining under the share repurchase program - The company holds $1.34 billion in cash, cash equivalents, and short-term investments, with approximately 29% held in foreign subsidiaries151 - Net cash from operations increased to $498.6 million for the nine months ended Sep 30, 2021, up from $290.6 million in the prior year period, due to higher sales, increased dividends, and lower interest payments154 - In Q1 2021, the company repurchased 89,506 shares for $50.0 million. As of September 30, 2021, $223.1 million remained available under the Share Repurchase Program158249 Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no material changes from the disclosures about market risk provided in its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes in market risk disclosures were reported for the nine months ended September 30, 2021163 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the period. No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021165 - No material changes to internal control over financial reporting were identified during the third quarter of 2021166 Part II – Other Information Legal Proceedings The company is party to various claims, legal actions, and complaints that arise in the ordinary course of business. Management does not believe that the ultimate liability from these matters will have a material adverse effect on its financial position or liquidity - The company is involved in various legal proceedings arising in the ordinary course of business but does not expect them to have a material adverse effect96167 Risk Factors The company identifies several key risks, including the ongoing impact of the COVID-19 pandemic on demand and supply chains, challenges of international operations, and intense competition. Other significant risks include potential breaches of information systems, foreign currency fluctuations, and the material impact of changes in the market value of its Sartorius AG investment. The company also highlights risks related to government regulation, healthcare industry changes, and the controlling ownership by the Schwartz family - The COVID-19 pandemic continues to pose risks, including fluctuating product demand, supply chain challenges for raw materials and components, and transportation issues170171173 - Significant international operations (61% of net sales) expose the company to complex foreign laws, currency fluctuations, and geopolitical risks like Brexit176177190 - Changes in the market value of the company's investment in Sartorius AG materially impact financial results and could potentially cause the company to be deemed an 'investment company' under the Investment Company Act, limiting access to capital markets192193 - The company faces risks from cybersecurity threats, potential disruptions from its ongoing global ERP system implementation, and product quality or liability issues184199219 - The Schwartz family holds a significant majority of voting stock, enabling them to elect a majority of directors and control matters affecting the company, which could lead to conflicts of interest243244 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during the third quarter of 2021. As of September 30, 2021, $223.1 million remained available for future repurchases under its authorized Share Repurchase Program Share Repurchase Activity (Q3 2021) | Period | Total Shares Purchased | Average Price Paid | Value Remaining in Program | | :--- | :--- | :--- | :--- | | Jul 2021 | 0 | $0.00 | $223.1 million | | Aug 2021 | 0 | $0.00 | $223.1 million | | Sep 2021 | 0 | $0.00 | $223.1 million | - As of September 30, 2021, $223.1 million remained under the authorized Share Repurchase Program249