# BIO-TECHNE Corp (TECH) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BIO-TECHNE Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/842023/000155837023015226/tmb-20230630x10k.htm
Accession: 0001558370-23-015226
Filing date: 2023-08-23
Report date: 2023-06-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TECH/
All MD&A years: /company/TECH/mda/
Previous year: /company/TECH/mda/fy2022/ (FY 2022)
Next year: /company/TECH/mda/fy2024/ (FY 2024)

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.

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.

RECENT ACQUISITIONS

A key component of the Company's strategy is to augment internal growth at existing businesses with complementary acquisitions. As disclosed in Note 4, the Company completed the acquisition of Namocell, Inc for $101.2 million, net of cash acquired, plus contingent consideration of up to $25 million upon the achievement of future milestones. We also purchased a 19.9% investment in Wilson Wolf and, as disclosed in Note 1, will acquire the remaining shares in Wilson Wolf by the end of calendar year 2027, or earlier depending on the achievement of certain future milestones. As further disclosed in Note 14, the Company closed on the acquisition of Lunaphore Technologies SA on July 7, 2023.    

OVERALL RESULTS

Operational Update

For fiscal 2023, consolidated net sales increased 3% as compared to fiscal 2022. Organic growth was 5%, with foreign currency translation having an unfavorable impact of 2% and acquisitions having an immaterial impact. Organic revenue growth was primarily driven by consumable growth in both our Diagnostics and Genomics and Protein Sciences segments.

​

Consolidated earnings, including non-controlling interest, increased 8% compared to fiscal 2022. The increase in earnings was driven by a gain on the sale of our ChemoCentryx investment and a gain on the sale of our investment in Changzhou Eminence Biotechnology Co., Ltd. (Eminence). After adjusting for acquisition related costs, intangibles amortization, stock-based compensation, restructuring costs, gain on investments, and impact from partially-owned consolidated subsidiaries, adjusted net earnings attributable to Bio-Techne decreased 1% in fiscal 2023 as compared to

33

Table of Contents

fiscal 2022. Adjusted net earnings attributable to Bio-Techne was primarily impacted by foreign currency exchange and strategic growth investments including the Namocell acquisition.

For fiscal 2022, consolidated net sales increased 19% as compared to fiscal 2021. Organic growth was 17%, with acquisitions having a favorable impact of 3% and foreign currency translation having an unfavorable impact of 1%. Organic revenue growth was broad based and driven by overall execution of the Company's long-term growth strategy.

Consolidated earnings, including non-controlling interest, increased 88% in fiscal 2022 compared to fiscal 2021. The increase in earnings was driven by non-operating mark-to-market gain of $16 million on our ChemoCentryx investment in fiscal year 2022, compared to a loss on the investment of $67.9 million in the prior fiscal year. Additionally, fiscal year 2022 had adjustments of $20.4 million of benefit related to contingent considerations as compared to a charge of $5.3 million in the prior fiscal year. After adjusting for acquisition related costs, intangibles amortization, stock-based compensation, restructuring costs, the gain on investment, and impact from partially-owned consolidated subsidiaries, adjusted net earnings increased 18% in fiscal 2022 as compared to fiscal 2021. Adjusted earnings growth was primarily driven by sales growth.

​

Business Strategy Update

​

Environmental

​

The Company’s key business strategies for long-term growth and profitability continue to be geographic expansion, core product innovation, acquisitions and talent retention and development. As a Company, we are integrating consideration of greenhouse gas emissions and other environmental variables into our key business strategies. The Company also strives to innovate and improve all aspects of Bio-Techne’s operations, including reducing the environmental impacts of our manufacturing operations. As described in our Corporate Sustainability Report, among other initiatives, the Company is currently focused on establishing a baseline for emissions to develop appropriate emission reduction targets, as well as reducing our environmental footprint through changes in packaging and shipping materials.

​

In response to the COVID-19 pandemic, the Company took additional steps to monitor and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services. The Company has maintained these procedures while incorporating additional considerations regarding potential adverse weather events associated with climate change.

​

The financial impact of potential environmental regulations pertaining to carbon emissions or the integration of climate change impacts into our core business strategies are not expected to materially alter the Company’s near-term financial results. Additionally, the Company has established a cross-functional internal council and working group to monitor and report on its sustainability efforts, including those related to measuring and mitigating greenhouse gas emissions.

​

Digital

​

In driving our key business strategies, the Company utilizes digital networks and systems for data transmission, transaction processing, and storing of electronic information. As disclosed in “Item 1A. Risk Factors”, increased cybersecurity attack activity poses a risk for our business. In response to this risk, the Company actively completes system patching and required maintenance, performs internal and third-party employee training, monitors network and system activity, and completes data backups for our systems. However, even with the Company’s procedures performed, our digital networks and systems are still potentially vulnerable to cyberattacks.

​

The financial impact of our cybersecurity initiatives and activities are ongoing and not expected to have a material impact on our financial results. However, the impact on our business operations and financial results from a material cyber breach would be unknown and dependent on the nature of the breach.

​

34

Table of Contents

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended June 30,"],["\u200b","","2023","","2022","","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Organic sales growth","","5","%","17","%","22","%"],["Acquisitions sales growth","","0","%","3","%","1","%"],["Impact of foreign currency fluctuations","","(2)","%","(1)","%","3","%"],["Consolidated net sales growth","","3","%","19","%","26","%"]]
[[/GREPCENT_TABLE]]

​

Consolidated net sales by segment were as follows (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended June 30,"],["\u200b","","2023","","2022","","2021"],["Protein Sciences","\u200b","$","845,747","\u200b","$","832,311","\u200b","$","704,564"],["Diagnostics and Genomics","\u200b","","292,602","\u200b","","274,843","\u200b","","227,744"],["Intersegment","\u200b","","(1,647)","\u200b","","(1,555)","\u200b","","(1,276)"],["Consolidated net sales","\u200b","$","1,136,702","\u200b","$","1,105,599","\u200b","$","931,032"]]
[[/GREPCENT_TABLE]]

​

In fiscal 2023, Protein Sciences segment net sales increased 2% compared to fiscal 2022. Organic growth for the segment was 4% for the fiscal year, with currency translation having an unfavorable impact of 2% and acquisitions having an immaterial impact on revenue growth. Segment growth was driven by growth in consumable revenue to BioPharma (especially those developing cell and gene therapies) and Academic customers within the Americas and Europe.

In fiscal 2023, Diagnostics and Genomics segment net sales increased 6% compared to fiscal 2022. Organic growth for the segment was 8% with currency translation having an unfavorable impact of 2%. Segment growth was driven by growth in consumable revenue from our Spatial Biology platform and an increase in service revenue related to our ExoDx Prostate test.

In fiscal 2022, Protein Sciences segment net sales increased 18% compared to fiscal 2021. Organic growth for the segment was 19% for the fiscal year, with currency translation having an unfavorable 1% impact on revenue.

​

Overall segment growth was driven by strong BioPharma demand resulting in broad-based growth across our proteomic research reagents and analytical tools

In fiscal 2022, Diagnostics and Genomics segment net sales increased 21% compared to fiscal 2021. Organic growth for the segment was 10% with acquisitions contributing 11% and currency translation having an immaterial impact on revenue growth.

​

Segment growth was driven by the full year impact of the Asuragen acquisition and organic growth. Organic growth was driven by an exclusive agreement entered into for development, finalization and commercialization of our ExoTRU kidney transplant rejection test, and continued strength in our diagnostic reagent product lines.   

​

35

Table of Contents

Gross Margins

Consolidated gross margins were 67.7%, 68.4%, and 68.0% in fiscal 2023, 2022, and 2021. Consolidated gross margins were impacted by revenue. Excluding the impact of acquired inventory sold, amortization of intangibles, stock compensation expense, and the impact of partially-owned consolidated subsidiaries, adjusted gross margins were 71.7%, 72.5%, and 72.3% in fiscal 2023, 2022, and 2021, respectively. Fiscal 2023 consolidated gross margin was unfavorably impacted by foreign currency exchange and strategic growth investments including the Namocell acquisition when compared to the prior period. Consolidated gross margins for fiscal 2022 and fiscal 2021 were impacted as a result of volume leverage and product mix, partially offset by additional investments made in the business to support future growth.

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended June 30,","\u200b"],["\u200b","","2023","","2022","","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Consolidated gross margin percentage","","67.7","%","68.4","%","68.0","%"],["Identified adjustments:","","\u200b","","","","","\u200b"],["Costs recognized upon sale of acquired inventory","","0.0","%","0.1","%","0.2","%"],["Amortization of intangibles","","4.0","%","3.7","%","3.8","%"],["Stock compensation expense - COGS","\u200b","0.1","%","0.1","%","0.2","%"],["Impact of partially-owned consolidated subsidiaries(1)","","(0.1)","%","0.2","%","0.1","%"],["Non-GAAP adjusted gross margin percentage","","71.7","%","72.5","%","72.3","%"]]
[[/GREPCENT_TABLE]]

​

(1)Adjusted gross margin percentages for fiscal 2021 have been updated for comparability to fiscal 2022 and fiscal 2023 for the inclusion of the impact of partially-owned consolidated subsidiaries on the Company’s adjusted gross margin percentage.

​

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:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended June 30,"],["\u200b","\u200b","2023","","2022","","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Protein Sciences","","75.3","%","75.5","%","76.0","%"],["Diagnostics and Genomics","","61.2","%","63.1","%","60.5","%"]]
[[/GREPCENT_TABLE]]

​

The change in the Protein Sciences segment’s gross margin percentage for fiscal 2023 as compared to fiscal 2022 and 2021 was primarily attributable to mix of product sales within the segment.

The change in the Diagnostics and Genomics segment’s gross margin is related to fiscal 2022 revenue related to the ExoTru kidney transplant rejection agreement that did not occur in fiscal 2023 nor fiscal 2021. Fiscal 2023 compared to fiscal 2022 was also impacted by strategic investments to drive future growth that was partially offset by volume leverage.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $5.6 million (2%) in fiscal 2023 when compared to fiscal 2022. Selling, general, and administrative expenses increased primarily due to strategic investments made in the business to support future growth including the Namocell acquisition.

36

Table of Contents

Selling, general and administrative expenses increased $47.8 million (15%) in fiscal 2022 when compared to fiscal 2021. Selling, general, and administrative expenses increased primarily due to the full year impact of fiscal 2021’s Asuragen acquisition and strategic investments made in the business to support future growth.

Consolidated selling, general and administrative expenses were composed of the following (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended June 30,"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Protein Sciences","\u200b","$","203,834","\u200b","$","195,328","\u200b","$","159,489"],["Diagnostics and Genomics","\u200b","","101,805","\u200b","","93,578","\u200b","","75,160"],["Total segment expenses","\u200b","","305,639","\u200b","","288,906","\u200b","","234,649"],["Amortization of intangibles","\u200b","","32,076","\u200b","","32,492","\u200b","","27,788"],["Acquisition related expenses","\u200b","","(9,965)","\u200b","","(19,082)","\u200b","","7,097"],["Eminence Impairment(1)","\u200b","\u200b","\u2014","\u200b","\u200b","18,715","\u200b","\u200b","\u2014"],["Restructuring costs","\u200b","","3,829","\u200b","","1,640","\u200b","","142"],["Stock-based compensation","\u200b","","40,269","\u200b","","45,085","\u200b","","50,200"],["Corporate selling, general and administrative expenses","\u200b","","6,530","\u200b","","5,010","\u200b","","5,075"],["Total selling, general and administrative expenses","\u200b","$","378,378","\u200b","$","372,766","\u200b","$","324,951"]]
[[/GREPCENT_TABLE]]

(1)Refer to the Goodwill Impairment section within the Critical Accounting Policies for further details on the Eminence impairment.

​

Research and Development Expenses

Research and development expenses increased $5.4 million (6%) and $16.5 million (23%) in fiscal 2023 and 2022, respectively, as compared to prior year periods. The increase in research and development expenses in fiscal 2023 as compared to 2022 was primarily attributable to strategic growth investments including the Namocell acquisition. The increase in research and development expenses in fiscal 2022 as compared to fiscal 2021 was primarily attributable to strategic growth investments and the Asuragen acquisition in the fourth quarter of fiscal 2021. 

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended June 30,"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Protein Sciences","\u200b","$","58,251","\u200b","$","56,370","\u200b","$","46,361"],["Diagnostics and Genomics","\u200b","","34,242","\u200b","","30,770","\u200b","","24,242"],["Total segment expenses","\u200b","","92,493","\u200b","","87,140","\u200b","","70,603"],["Unallocated corporate expenses","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014"],["Total research and development expenses","\u200b","$","92,493","\u200b","$","87,140","\u200b","$","70,603"]]
[[/GREPCENT_TABLE]]

​

Net Interest Income / (Expense)

Net interest income/(expense) for fiscal 2023, 2022, and 2021 was ($7.8) million, $(10.5) million, and $(13.5) million, respectively. Net interest expense in fiscal 2023 decreased when compared to fiscal 2022 due to a favorable rate on a forward starting interest rate swap as disclosed in Note 5 that went into effect in fiscal year 2023. 

Net interest expense in fiscal 2022 decreased when compared to fiscal 2021 due to a reduction in our average long-term debt, which coincided with a reduction in the notional amount on our previous interest rate swap as disclosed in Note 5.

37

Table of Contents

Other Non-Operating Income / (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):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended June 30,"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Foreign currency gains (losses)","\u200b","$","676","\u200b","$","699","\u200b","$","(6,650)"],["Rental income","\u200b","","426","\u200b","","599","\u200b","","1,036"],["Real estate taxes, depreciation and utilities","\u200b","","(1,810)","\u200b","","(2,035)","\u200b","","(1,845)"],["Gain (loss) on investment","\u200b","","49,328","\u200b","","15,186","\u200b","","(68,047)"],["Gain (loss) on equity method investment","\u200b","\u200b","(1,143)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Miscellaneous (expense) income","\u200b","","43","\u200b","","862","\u200b","","(136)"],["Other non-operating income (expense), net","\u200b","$","47,520","\u200b","$","15,311","\u200b","$","(75,642)"]]
[[/GREPCENT_TABLE]]

​

During fiscal 2023, the Company recognized gains of $37.2 million related to the sale of our ChemoCentryx, Inc. (CCXI) investment, $11.7 million related to the sale of our Eminence investment, and a gain of $0.4 million related to the change in fair value of our exchange traded bond funds. Additionally, the Company recognized losses of $1.1 million related to our equity method investment in Wilson Wolf.

During fiscal 2022, the Company recognized gains of $16.1 million related to changes in fair value associated with changes in the stock price of our CCXI investment. Additionally, the Company recognized losses of $1.1 million related to changes in fair value associated with changes in the stock price of our exchange traded investment grade bond funds. On August 4, 2022, the Company sold all of its shares in CCXI.

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 CCXI investment.

Income Taxes

Income taxes for fiscal 2023, 2022, and 2021 were at effective rates of 15.7%, 12.7%, and 5.8%, respectively, of consolidated earnings before income taxes. The change in the effective tax rate for fiscal 2023 compared to fiscal 2022 was driven by share-based compensation as the number of stock option exercises decreased compared to the prior year comparative period due to the decline in the stock price. The Company had share-based compensation excess tax benefits of $12.3 million in fiscal 2023. The Company’s discrete tax benefits in fiscal 2022 primarily related to share-based compensation excess tax benefits of $29.3 million. The Company’s discrete tax benefits in fiscal 2021 primarily related to share-based compensation excess tax benefits of $28.1 million. 

​

38

Table of Contents

Net Earnings

Non-GAAP adjusted consolidated net earnings and earnings per share are as follows (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","Year Ended June 30,","\u200b"],["\u200b","\u200b","\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net earnings before taxes - GAAP","\u200b","\u200b","$","338,659","\u200b","$","301,386","\u200b","$","148,175","\u200b"],["Identified adjustments attributable to Bio-Techne:","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","","\u200b"],["Costs recognized upon sale of acquired inventory","\u200b","\u200b","","400","\u200b","","1,596","\u200b","","1,565","\u200b"],["Amortization of intangibles","\u200b","\u200b","","76,413","\u200b","","73,054","\u200b","","64,239","\u200b"],["Amortization of Wilson Wolf intangible assets and acquired inventory","\u200b","\u200b","\u200b","2,805","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Acquisition related expenses and other","\u200b","\u200b","","(9,147)","\u200b","","(18,694)","\u200b","","7,489","\u200b"],["Eminence impairment","\u200b","\u200b","\u200b","\u2014","\u200b","","18,715","\u200b","\u200b","\u2014","\u200b"],["Gain on sale of partially-owned consolidated subsidiaries","\u200b","\u200b","\u200b","(11,682)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Stock based compensation, inclusive of employer taxes","\u200b","\u200b","","41,217","\u200b","","46,401","\u200b","","51,846","\u200b"],["Restructuring costs","\u200b","\u200b","","3,829","\u200b","","1,640","\u200b","","142","\u200b"],["Investment (gain) loss and other non-operating","\u200b","\u200b","","(37,646)","\u200b","","(16,171)","\u200b","","68,391","\u200b"],["Impact of partially-owned subsidiaries(1)","\u200b","\u200b","","(420)","\u200b","","2,675","\u200b","","1,390","\u200b"],["Net earnings before taxes - Adjusted","\u200b","\u200b","$","404,428","\u200b","$","410,602","\u200b","$","343,237","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-GAAP tax rate","\u200b","\u200b","","20.5","%","","21.2","%","","20.2","%"],["Non-GAAP tax expense","\u200b","\u200b","$","82,948","\u200b","$","87,090","\u200b","$","69,478","\u200b"],["Non-GAAP adjusted net earnings attributable to Bio-Techne(1)","\u200b","\u200b","$","321,480","\u200b","$","323,512","\u200b","$","273,759","\u200b"],["Earnings per share - diluted - Adjusted(2)","\u200b","\u200b","$","1.99","\u200b","$","1.97","\u200b","$","1.69","\u200b"]]
[[/GREPCENT_TABLE]]

​

(1) Adjusted consolidated net earnings and earnings per share for fiscal 2021 have been updated for comparability to fiscal 2023 and 2022 for the inclusion of the impact of partially-owned consolidated subsidiaries on the Company’s adjusted consolidated net earnings and earnings per share.

(2) Prior period share and per share amounts have been retroactively adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2022. Refer to Note 1 for details.

​

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, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended June 30,","\u200b"],["\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["GAAP effective tax rate","15.7","%","12.7","%","5.8","%"],["Discrete items","3.4","","11.3","","19.0","\u200b"],["Impact of non-taxable net gain","0.7","\u200b","\u2014","\u200b","\u2014","\u200b"],["Long-term GAAP tax rate","19.8","%","24.0","%","24.8","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Rate impact items","","","","","","\u200b"],["Stock based compensation","(1.4)","\u200b","(1.9)","\u200b","(5.7)","\u200b"],["Other","2.1","","(0.9)","","1.1","\u200b"],["Total rate impact items","0.7","%","(2.8)","%","(4.6)","%"],["Non-GAAP adjusted tax rate","20.5","%","21.2","%","20.2","%"]]
[[/GREPCENT_TABLE]]

​

39

Table of Contents

Refer to Note 12 for additional discussion relating to the change in discrete tax items between fiscal 2023 and fiscal 2022.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and available-for-sale investments at June 30, 2023 were $204.3 million compared to $247.0 million at June 30, 2022. Included in the available-for-sale-investments was the fair value of the Company’s investment in exchange traded investment grade bond funds, which was $23.7 million as of June 30, 2023 and $23.9 million as of June 30, 2022. During the first fiscal quarter, the Company sold its remaining shares of its investment in CCXI. As of June 30, 2022, the fair value of the Company’s investment in CCXI was $36.0 million. Also included in the June 30, 2022 balance were $14.5 million of certificates of deposit that were sold and not repurchased during fiscal year 2023.

At June 30, 2023, approximately 39% of the Company’s cash and equivalent account balances of $68.5 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, 2023, all of the Company’s available-for-sale investment account balances of $23.7 million were located in Canada.

At June 30, 2023, we had $350 million in borrowings under the revolving credit facility, resulting in $650 million of unutilized availability under our revolving credit facility.

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 $254.4 million, $325.3 million, and $352.2 million in fiscal 2023, 2022, and 2021 respectively. The decrease in cash generated from operating activities in fiscal 2023 as compared to fiscal 2022 was mainly a result of changes in net earnings and changes in the timing of cash payments on certain operating assets and liabilities. The decrease in cash generated from operating activities in fiscal 2022 as compared to fiscal 2021 was mainly a result of changes in the timing of cash payments on certain operating assets and liabilities, largely offset by an increase in year over year net earnings.

Cash Flows From Investing Activities

We continue to make investments in our business, including capital expenditures. During fiscal year 2023, the Company acquired Namocell, Inc for $101.2 million, net of cash acquired. There were no acquisitions fiscal year 2022. The Company acquired Eminence and Asuragen during fiscal year 2021 for a total of approximately $225.4 million, net of cash acquired.

During the first fiscal quarter of 2023, the Company sold its remaining shares in Eminence, its partially-owned consolidated subsidiary, for $17.8 million. There were no sales of businesses in the comparative prior year period.

In the first fiscal quarter of 2023, the Company sold its remaining shares in its investment in CCXI for $73.2 million. There were no comparable activities in the comparative prior year period.

The Company’s net proceeds (outflow) from the purchase, sale and maturity of available-for-sale investments in fiscal 2023, 2022, and 2021 were $14.7 million, $(26.9) million, and $26.7 million, respectively. During fiscal year 2023, the Company’s proceeds in available-for-sale investments relates to the sale of excess cash in certificates of deposit that matured. As of June 30, 2023, there were no outstanding certificates of deposit. The outflow of cash in fiscal year 2022 compared to fiscal year 2023 and fiscal year 2021 was driven by the purchase of the exchange traded investment

40

Table of Contents

grade bond funds in fiscal year 2022, which have a cost basis of $25.0 million, that did not reoccur in the comparative periods. The proceeds in fiscal 2021 related to the sale of excess cash in certificates of deposit. 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 2023, 2022, and 2021 were $38.2 million, $44.9 million, and $44.3 million. Fiscal 2023 capital expenditures related to investments in new buildings, machinery, and IT equipment. Fiscal 2023 capital expenditures related to investments in new buildings, machinery, and IT equipment . Capital additions planned for fiscal 2024 are approximately $65 million and are expected to be financed through currently available cash and cash generated from operations. Increase in expected additions in fiscal 2024 is related to increasing capacity to meet expected sales growth across the Company.

During the year ended June 30, 2022, the Company paid $25 million to enter into a two-part forward contract which requires the Company to purchase the full equity interest in Wilson Wolf if certain annual revenue or EBITDA thresholds are met. During fiscal year 2023, Wilson Wolf met the EBITDA target and the Company paid an additional $232 million to acquire 19.9% of Wilson Wolf.  The second option payment of approximately $1 billion plus potential contingent consideration is forecasted to occur between fiscal 2026 and fiscal 2028. There were no comparable activities in the comparative prior year period.

Cash Flows From Financing Activities

In fiscal 2023, 2022, and 2021, the Company paid cash dividends of $50.3 million, $50.2 million, $49.6 million, respectively. The Board of Directors periodically considers the payment of cash dividends.

The Company received $29.8 million, $77.2 million, $65.1 million, for the exercise of options for 1,578,000, 2,450,000, and 2,509,000 shares of common stock in fiscal 2023, 2022 and 2021, respectively.

During fiscal 2023, 2022, and 2021, the Company repurchased $19.6 million, $161.0 million, and $43.2 million, respectively, in share repurchases included as a cash outflow within Financing Activities.

During fiscal 2023, 2022, and 2021, the Company drew $619.7 million, $90.0 million, and $256.0 million, respectively, under its revolving line-of-credit facility. Repayments of $525.7 million, $175.5 million, and $271.5 million were made on its line-of-credit in fiscal 2023, 2022, and 2021, respectively.

There were no payments during fiscal 2023 for contingent consideration. During fiscal 2022, the Company made $4.0 million in cash payments towards the Quad contingent consideration liability. Of the $4.0 million in total payments, $0.7 million is classified as financing on the statement of cash flows. The remaining $3.3 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 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 2023, 2022 and 2021, the Company paid $28.9 million, $23.5 million and $19.3 million, respectively, for taxes remitted on behalf of participants in net share settlement transactions and restricted stock units. This is included as a cash outflow within the other financing activities line of the consolidated statements of cash flows.

The increase in other financing activity during fiscal 2023 compared to fiscal 2022 is primarily related to fees for the amended Credit Agreement that occurred in the first fiscal quarter.

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.

41

Table of Contents

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 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

42

Table of Contents

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 $872.7 million as of June 30, 2023, which represented 33% 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.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation for goodwill is an assessment of factors including reporting unit specific operating results as well as industry and market conditions, overall financial performance, and other relevant events and factors to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass the qualitative assessment for its reporting units and perform a quantitative test.

The quantitative impairment test requires us to estimate the fair value of our reporting units based on the income approach. The income approach is a valuation technique under which we estimate 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 project revenue and apply our fixed and variable cost experience rate to the projected revenue to arrive at the future cash flows. A terminal value is then applied to the projected cash flow stream. Future estimated cash flows are discounted to their present value to calculate the estimated fair value. The discount rate used is 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 are 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.

For fiscal 2023, we elected to perform a qualitative analysis for all five reporting units. The Company determined, after performing the qualitative analysis, there was no evidence that it is more likely than not that the fair value was less than the carrying amounts, therefore, it was not necessary to perform a quantitative impairment test in fiscal 2023. The Company did not identify any triggering events after our annual goodwill impairment analysis through June 30, 2023, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.

In the first quarter of fiscal 2022, 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.

In the second quarter of fiscal 2022 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

43

Table of Contents

impairment of the Eminence goodwill and intangible assets, which resulted in charges of $8.3 million and $8.6 million, respectively, for the year ended June 30, 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 June 30 2022, were $4.3 million and primarily consisted of fixed assets and related deposits of $3.1 million, inventory of $0.6 million, receivables of $0.4 million, and other current assets of $0.1 million. The Company also had $4.5 million related to current liabilities. The Company held a financial interest of approximately 57.4% in those tangible assets in the liquidation process. As described in Note 1, in the fourth quarter of fiscal 2022, Eminence was able to secure cash deposits on future orders to provide funding for their operations. This delay in liquidation allowed time for securing of additional investor financing which coincided with the sale of the Company's equity shares of Eminence in the first quarter of fiscal 2023.  

In our fiscal 2022 annual goodwill impairment analysis, we elected to perform a quantitative assessment for all five of our reporting units. The result of our quantitative assessment indicated that all of the reporting units had a substantial amount of headroom as of April 1, 2022. The Company did not identify any triggering events after our annual goodwill impairment through June 30, 2022, the date of our consolidated balance sheet, that would require an additional goodwill impairment assessment to be performed.

In fiscal 2021, 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.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding the accounting policies adopted during fiscal 2023 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

On July 7, 2023, the Company completed the acquisition of Lunaphore Technologies SA for approximately $165 million, net of cash acquired.

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:

[[GREPCENT_TABLE]]
[["","\u25cf","Organic growth"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted gross margin"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted operating margin"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted net earnings"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Adjusted effective tax rate"]]
[[/GREPCENT_TABLE]]

​

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

44

Table of Contents

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 preceding 12 months, the impact of foreign currency, as well as the impact of partially-owned consolidated subsidiaries. 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. Revenue from partially-owned subsidiaries consolidated in our financial statements are also excluded from our organic revenue calculation, as those revenues are not fully attributable to the Company. Revenue from partially-owned subsidiaries was $2.0 million for the year ended June 30, 2023.

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, goodwill and long-lived asset impairments, 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, subjection 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, goodwill and long-lived asset impairment charges, 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 also excludes revenue and expense attributable to partially-owned consolidated subsidiaries in the calculation of our non-GAAP financial measures as the revenues and expenses are not fully attributable to the Company.

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, gain and losses from investments, as they are not part of our day-to-day operating decisions (excluding our equity method investment in Wilson Wolf as it is certain to be acquired in the future), and certain adjustments to income tax expense. Additionally, gains and losses from investments that are either isolated or cannot be expected to occur again with any predictability are excluded.  Costs related to restructuring activities, including reducing overhead and consolidating facilities, are excluded because we believe they are not indicative of our normal operating costs. The Company independently calculates a non-GAAP adjusted tax rate to be applied to the identified non-GAAP adjustments considering the impact of discrete items on these adjustments and the jurisdictional mix of the adjustments. In addition, the tax impact of other discrete and non-recurring charges which impact our reported GAAP tax rate are adjusted from net earnings. We believe these tax items can significantly affect the period-over-period assessment of operating results and not necessarily reflect costs and/or income associated with historical trends and future results.

The Company periodically reassesses the components of our non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and considers the use of these measures by our competitors and peers to ensure the adjustments are still relevant and meaningful.

Readers are encouraged to review the reconciliations of the adjusted financial measures used in management’s discussion and analysis of the financial condition of the Company to their most directly comparable GAAP financial measures provided within the Company’s consolidated financial statements.

​

45

Table of Contents