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
		September 30,
		2021					2020
Net sales		$	257,719		$	204,199
Cost of sales			86,722				66,468
Gross margin			170,997				137,731
Operating expenses:
Selling, general and administrative			86,175				72,598
Research and development			21,600				16,041
Total operating expenses			107,775				88,639
Operating income			63,222				49,092
Other income (expense)			4,161				(9,753	)
Earnings before income taxes			67,383				39,339
Income taxes (benefit)			(1,598	)			5,944
Net earnings, including noncontrolling interest		$	68,981			$	33,395
Net earnings (loss) attributable to noncontrolling interest			(634	)			-
Net earnings attributable to Bio-Techne			69,615				33,395
Other comprehensive income (loss):
Foreign currency translation adjustments			(8,646	)			11,914
Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8			1,682				2,143
Other comprehensive income (loss)			(6,964	)			14,057
Other comprehensive income (loss) attributable to noncontrolling interest			(39	)			-
Other comprehensive income (loss) attributable to Bio-Techne			(6,925	)			14,057
Comprehensive income attributable to Bio-Techne		$	62,690			$	47,452
Earnings per share attributable to Bio-Techne:
Basic		$	1.78			$	0.87
Diluted		$	1.69			$	0.83
Weighted average common shares outstanding:
Basic			39,094				38,536
Diluted			41,158				40,025

See Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

Bio-Techne Corporation and Subsidiaries

(in thousands, except share and per share data)

		September 30, 2021 (unaudited)				June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	196,321			$	199,091
Short-term available-for-sale investments			38,740				32,463
Accounts receivable, less allowance for doubtful accounts of $1,273 and $1,229, respectively			147,548				145,385
Inventories			117,366				116,748
Other current assets			43,773				16,919
Total current assets			543,748				510,606
Property and equipment, net			207,134				207,907
Right of use asset			71,396				73,834
Goodwill			840,020				843,067
Intangible assets, net			596,300				615,968
Other assets			11,589				11,575
Total assets		$	2,270,187			$	2,262,957
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable		$	25,621			$	29,384
Salaries, wages and related accruals			32,213				51,294
Accrued expenses			17,419				15,282
Contract liabilities			19,121				18,995
Income taxes payable			6,505				5,336
Operating lease liabilities - current			12,001				11,602
Contingent consideration payable			5,000				4,000
Current portion of long-term debt obligations			12,500				12,500
Other current liabilities			3,612				3,891
Total current liabilities			133,992				152,284
Deferred income taxes			98,812				93,125
Long-term debt obligations			287,723				328,827
Long-term contingent consideration payable			17,600				25,400
Operating lease liabilities			65,059				67,625
Other long-term liabilities			20,046				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 39,273,057 and 38,955,484, respectively			393				390
Additional paid-in capital			583,851				534,411
Retained earnings			1,119,337				1,085,461
Accumulated other comprehensive loss			(64,216	)			(57,291	)
Total Bio-Techne's shareholders' equity			1,639,365				1,562,971
Noncontrolling interest			7,590				8,263
Total shareholder's equity			1,646,955				1,571,234
Total liabilities and shareholders’ equity		$	2,270,187			$	2,262,957

See Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Bio-Techne Corporation and Subsidiaries

(in thousands)

(unaudited)

		Quarter Ended
		September 30,
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings, including noncontrolling interest		$	68,981			$	33,395
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			24,734				21,088
Costs recognized on sale of acquired inventory			1,512				-
Deferred income taxes			5,407				(452	)
Stock-based compensation expense			11,737				12,953
Fair value adjustment to contingent consideration payable			(2,800	)			(150	)
Contingent consideration payments			(3,300	)			-
Fair value adjustment on available for sale investments			(5,277	)			4,351
Asset impairment restructuring			546				-
Leases, net			(79	)			-
Other operating activity			497				195
Change in operating assets and operating liabilities, net of acquisition:
Trade accounts and other receivables, net			(3,637	)			910
Inventories			(2,981	)			(1,968	)
Prepaid expenses			(5,852	)			1,632
Trade accounts payable, accrued expenses, contract liabilities, and other			(2,303	)			6,918
Salaries, wages and related accruals			(18,933	)			(11,480	)
Income taxes payable			(19,818	)			(1,383	)
Net cash provided by operating activities			48,434				66,009
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale investments			12,450				29,039
Purchases of available-for-sale investments			(13,500	)			(26,239	)
Additions to property and equipment			(6,070	)			(10,938	)
Net cash provided by (used in) investing activities			(7,120	)			(8,138	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends			(12,493	)			(12,336	)
Proceeds from stock option exercises			37,880				15,418
Borrowings under line-of-credit agreement			10,000				-
Repayments of long-term debt			(51,125	)			(33,125)
Contingent consideration payments			(700	)			-
Other financing activity			(23,246	)			(4,890	)
Net cash provided by (used in) financing activities			(39,684	)			(34,933	)
Effect of exchange rate changes on cash and cash equivalents			(4,400	)			(159	)
Net change in cash and cash equivalents			(2,770	)			22,779
Cash and cash equivalents at beginning of period			199,091				146,625
Cash and cash equivalents at end of period		$	196,321			$	169,404
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	12,070			$	6,034
Cash paid for interest		$	3,107			$	4,237

See Notes to Condensed Consolidated Financial Statements.

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 year 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 year 2021. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.

During the first quarter of fiscal 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. 

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 Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome business. The closure of the site is expected to be completed in the third 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. The related first quarter of fiscal 2022 restructuring charges were recorded in the income statement as follows (in thousands):

		Employee Severance	Asset Impairment				Total
Selling, general and administrative	$	639	$	546			$	1,185
Total operating income impact(1)		639		546				1,185

(1)The charges recorded above are accrued within Other current liabilities as of September 30, 2021. There were no cash payments or adjustments to the initial accrual during the period ended September 30, 2021.  

Recently Adopted Accounting Pronouncements

There were no accounting pronouncements adopted in the first fiscal quarter of 2022. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2021. 

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Note 2. Revenue Recognition:

Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues consist of extended warranty contracts, post contract support, 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 year 2021, the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers and considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Given Medicare coverage for our laboratory services became effective on December 1, 2019, the Company considered 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 year 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $0.5 million. The Company continues to record revenue based on cash receipts for laboratory services not reimbursed by Medicare, as the variable consideration remains constrained. We recognize royalty revenues in the period the sales occur using third party evidence. The Company elected the "right to invoice" practical expedient based on the Company's right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date. 

The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations were not material as of September 30, 2021.

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 September 30, 20__21 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 September 30, 2021 and June 30, 2021 were approximately $20.1 million and $20.0 million, respectively. Contract liabilities as of June 30, 2021 subsequently recognized as revenue during the quarter period ended September 30, 2021 were $9.7 million. Contract liabilities in excess of one year are included in other long-term liabilities in the consolidated balance sheet.

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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.

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

Revenue by type is as follows:

		Quarter Ended
		September 30,
		2021				2020
Consumables		$	205,691			$	166,627
Instruments			29,869				19,572
Services			16,257				15,464
Total product and services revenue, net		$	251,817			$	201,663
Royalty revenues			5,902				2,536
Total revenues, net		$	257,719			$	204,199

Revenue by geography is as follows:

		Quarter Ended
		September 30,
		2021				2020
United States		$	140,702			$	113,561
EMEA, excluding United Kingdom			51,543				43,134
United Kingdom			12,478				8,534
APAC, excluding Greater China			17,501				15,734
Greater China			28,433				18,052
Rest of World			7,062				5,184
Net sales		$	257,719			$	204,199

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Note 3. Selected Balance Sheet Data:

Inventories:

Inventories consist of (in thousands):

		September 30,				June 30,
		2021				2021
Raw materials		$	58,001			$	55,096
Finished goods(1)			64,740				67,108
Inventories, net		$	122,741			$	122,204

(1) Finished goods inventory of $5,375 and $5,456 included within other long-term assets in the respective September 30, 2021 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.  

Property and Equipment:

Property and equipment consist of (in thousands):

		September 30,				June 30,
		2021				2021
Land		$	8,586			$	8,612
Buildings and improvements			191,284				190,661
Machinery and equipment			202,792				198,483
Property and equipment, cost			402,662				397,756
Accumulated depreciation and amortization			(195,528	)			(189,849	)
Property and equipment, net		$	207,134			$	207,907

Intangible Assets:

Intangible assets consist of (in thousands):

		September 30,				June 30,
		2021				2021
Developed technology		$	551,289			$	552,160
Trade names			147,245				147,640
Customer relationships			230,695				232,493
Patents			2,989				2,926
Other intangibles			6,309				6,316
Definite-lived intangible assets			938,527				941,535
Accumulated amortization			(364,927	)			(348,267	)
Definite-lived intangibles assets, net			573,600				593,268
In process research and development			22,700				22,700
Total intangible assets, net		$	596,300			$	615,968

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Changes to the carrying amount of net intangible assets for the quarter ended September 30, 2021 consist of (in thousands):

Beginning balance		$	615,968
Acquisitions			-
Other additions			43
Amortization expense			(18,606	)
Currency translation			(1,105	)
Ending balance		$	596,300

The estimated future amortization expense for intangible assets as of September 30, 2021 is as follows (in thousands):

2022 remainder		$	55,714
2023			72,454
2024			69,618
2025			66,372
2026			62,606
Thereafter			246,836
Total		$	573,600

Goodwill:

Changes to the carrying amount of goodwill for the quarter ended September 30, 2021 consist of (in thousands):

		Protein Sciences				Diagnostics and Genomics				Total
Beginning balance		$	392,717				450,350			$	843,067
Currency translation			(2,979	)			(68	)			(3,047	)
Ending balance		$	389,738			$	450,282			$	840,020

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 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. No triggering events or items beyond the reporting unit combination that would require a goodwill impairment assessment were identified during the quarter ended September 30, 2021. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) ASC 350 guidance for goodwill and other intangibles on July 1, 2002.

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Note 4. Acquisitions:

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

2021 Acquisitions

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 year 2021. 

The allocation of purchase consideration related to Asuragen Inc is considered preliminary with provisional amounts primarily related to goodwill and income tax assessment of acquired net operating losses. The Company expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations as of September 30, 2021 were approximately $7.6 million and $3.2 million, respectively. The preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date and at September 30, 2021 are as follows (in thousands):

		Preliminary allocation at acquisition date and at September 30, 2021
Current assets, net of cash		$	10,422
Equipment and other long-term assets			3,762
Intangible assets:
Developed technology			107,000
In-process research and development			22,700
Customer relationships			11,700
Tradenames			2,000
Non-competition agreement			1,000
Goodwill			94,970
Total assets acquired			253,554
Liabilities			4,003
Deferred income taxes, net			15,664
Net assets acquired		$	233,887
Cash paid, net of cash acquired			215,587
Contingent consideration payable			18,300
Net assets acquired		$	233,887

Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology, in-process research and development, and customer relationships was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be 14 years. Amortization expense related to customer relationships is reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for customer relationships is estimated to be 16 years.  The amount recorded for tradenames and the non-competition agreement is being amortized with the expense reflected in selling, general and administrative expenses in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for tradenames 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 NOLs.

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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 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 Inputs Considered as
		September 30, 2021				Level 1				Level 2					Level 3
Assets
Equity securities (1)		$	25,240			$	23,729			$	1,511				$	-
Certificates of deposit (2)			13,500				13,500				-					-
Derivative instruments - cash flow hedges			533				-				533					-
Total assets		$	39,273			$	37,229			$	2,044				$	-
Liabilities
Contingent consideration		$	22,600			$	-			$	-				$	22,600
Derivative instruments - cash flow hedges			6,435				-				6,435					-
Total liabilities		$	29,035			$	-			$	6,435				$	22,600

		Total carrying value as of				Fair Value Measurements Using Inputs Considered as
		June 30, 2021				Level 1				Level 2				Level 3
Assets
Equity securities (1)		$	19,963			$	18,581			$	1,382			$	-
Certificates of deposit (2)			12,500				12,500				-				-
Derivative instruments - cash flow hedges			275				-				275
Total assets		$	32,738			$	31,081			$	1,657			$	-
Liabilities
Contingent consideration		$	29,400			$	-			$	-			$	29,400
Derivative instruments - cash flow hedges			8,376				-				8,376				-
Total liabilities		$	37,776			$	-			$	8,376			$	29,400

	(1)	Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) at September 30, 2021 and June 30, 2021 was $6.6 million and $6.6 million, respectively. The Company has a warrant to purchase additional CCXI equity shares which was valued at $1.5 million and $1.4 million as of September 30, 2021 and June 30 2021, respectively.
	(2)	Included in available-for-sale investments on the balance sheet. The certificates of deposit have contractual maturity dates within one year.

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Fair value measurements of available for sale securities

Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. The Company's warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset. 

Fair value measurements of derivative instruments,

In  October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial $380 million of notional principal amount. The notional amount decreased by $100 million in  October 2020 and further decreased by $80 million in  October 2021 and $200 million in  October 2022. In  June 2020, the Company de-designated $80 million of the notional amount set to expire in  October 2020. The net loss associated with the  June 2020 de-designated portion of the derivative instrument was not reclassified into earnings based on the amount of probable variable interest payments to occur within a two month time period of the forecasted hedged transaction. In  December 2020, the Company de-designated an additional $80 million of notional amount set to expire in  October 2021. During fiscal year 2021, the Company recorded a loss in other non-operating income related to variable interest debt payments in certain months on a portion of the de-designated derivative that is not expected to occur. The remaining variable interest payments for the portion of the de-designated derivative are considered probable of occurring and therefore remain in accumulated other comprehensive income as of September 30, 2021. The fair value of the portion of the de-designated derivative was $0.2 million and $0.8 million as of September 30, 2021 and June 30, 2021, respectively, which is recorded within short-term liabilities on the Consolidated Balance Sheet. The fair value of the designated derivative instrument is $6.2 million and $7.6 million as of September 30, 2021 and June 30, 2021, respectively, and is recorded within other long-term liabilities on the Consolidated Balance Sheet. 

In  May 2021, the Company entered into a new forward starting swap designated as a cash flow hedge on forecasted debt. The forward starting swap reduces the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s forecasted variable interest long-term debt to that of a fixed interest rate. Accordingly, as part of the forward starting swap, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on $200 million of notional principal amount. The effective date of the swap is  November 2022 with the full swap maturing in  November 2025. The fair value of the derivative instrument was $0.5 million and $0.3 million as of September 30, 2021 and June 30, 2021, respectively, which is recorded within other long-term assets on the Consolidated Balance Sheet.

Changes in the fair value of the designated hedged instrument are reported as a component of other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $2.1 million to interest expense and related tax benefits of $0.5 million during the three months ended  September 30, 2021 and 2020, respectively_._ The instruments were valued using observable market inputs in active markets and therefore are classified as Level 2 liabilities.

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Fair value measurements of contingent consideration

The Company has $22.6 million in contingent consideration recorded as of September 30, 2021, which is the fair value of contingent consideration related to the Asuragen and B-MoGen Biotechnologies Inc ("B-MoGen") acquisitions. The Company is required to make contingent consideration payments of up to $105.0 million and $38.0 million, respectively, as part of these acquisition agreements. The contingent agreement with Asuragen is based on achieving certain revenue thresholds. The preliminary fair value of the liabilities for the Asuragen acquisition is $18.3 million as discussed in Note 4. The contingent agreement with B-MoGen is based on meeting certain product development milestones and revenue thresholds. The preliminary fair value of the revenue milestone payments was determined using a Monte Carlo simulation-based model discounted to present value. Assumptions used in these calculations are units sold, expected revenue, expected expenses, discount rate, and various probability factors.

The ultimate settlement of contingent consideration liabilities for the Asuragen and B-Mogen acquisitions could deviate from current estimates based on the actual results of the financial measures described above. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.

During the first quarter of fiscal 2022, the Company made a $4.0 million payment on the QT Holdings Corporation contingent consideration agreement relating to certain product development milestones. The cash paid was consistent with the related accrual as of June 30, 2021. 

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

		Quarter Ended
		September 30, 2021
Fair value at the beginning of period		$	29,400
Payments			(4,000	)
Change in fair value of contingent consideration			(2,800	)
Fair value at the end of period		$	22,600

The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below.

Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.

Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.

Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates. 

Note 6. Debt and Other Financing Arrangements:

On August 1, 2018, the Company entered into a new revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $600.0 million, which can be increased by an additional $200.0 million subject to certain conditions, and a term loan of $250.0 million. Borrowings under the Credit Agreement may be used for working capital and expenditures of the Company and its subsidiaries, including financing permitted acquisitions. Borrowings under the Credit Agreement bear interest at a variable rate. The current outstanding debt is based on the Eurodollar Loans term for which the interest rate is calculated as the sum of LIBOR plus an applicable margin. The applicable margin is determined from the total leverage ratio of the Company and updated on a quarterly basis. The annualized fee for any unused portion of the credit facility is currently 15 basis points.

The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of September 30, 2021, the outstanding balance under the Credit Agreement was $300.2 million.

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Note 7. Leases: 

As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on July 1, 2019. 

The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is Bio-Techne’s incremental borrowing rate or, if available, the rate implicit in the lease. Bio-Techne determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the three months ended September 30, 2021, the Company recognized $1.1 million in variable lease expense and $3.7 million relating to fixed lease expense in the Condensed Consolidated Statements of Earnings and Comprehensive Income. 

The following table summarizes the balance sheet classification of the Company’s operating leases and amounts of right of use assets and lease liabilities and the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):

	Balance Sheet Classification		As of September 30, 2021
Operating leases:
Operating lease right of use assets	Right of Use Asset		$	71,396
Current operating lease liabilities	Operating lease liabilities current		$	12,001
Noncurrent operating lease liabilities	Operating lease liabilities			65,059
Total operating lease liabilities			$	77,060
Weighted average remaining lease term (in years):				7.77
Weighted average discount rate:				3.93	%

The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the three months ended (in thousands):

		Three months ended September 30, 2021
Cash amounts paid on operating lease liabilities		$	3,758
Right of use assets obtained in exchange for lease liabilities			278

The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):

		Operating Leases
Remainder of 2022		$	10,865
2023			13,566
2024			11,897
2025			10,805
2026			10,148
Thereafter			32,236
Total		$	89,517
Less: Amounts representing interest			12,457
Total Lease obligations		$	77,060

Certain leases include one or more options to renew, with terms that extend the lease term up to five years. Bio-Techne includes option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, Bio-Techne is not reasonably certain to exercise such options.

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_Note _8.__ Supplemental Equity and Accumulated Other Comprehensive Income (Loss):

Supplemental Equity

The Company has declared cash dividends per share of $0.32 in both the three months ended September 30, 2021 and 2020. 

Consolidated Changes in Equity (amounts in thousands)

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive				Non-Controlling
		Shares				Amount				Capital				Earnings				Income(Loss)				Interest				Total
Balances at June 30, 2021			38,955			$	390			$	534,411			$	1,085,461			$	(57,291	)		$	8,263			$	1,571,234
Net earnings															69,615								(634	)			68,981
Other comprehensive income																			(6,925	)			(39	)			(6,964	)
Common stock issued for exercise of options			295				3				36,345				(13,481	)											22,867
Common stock issued for restricted stock awards			20				0				0				(9,765	)											(9,765	)
Cash dividends															(12,493	)											(12,493	)
Stock-based compensation expense											11,396																11,396
Common stock issued to employee stock purchase plan			3				0				1,358																1,358
Employee stock purchase plan expense											341																341
Balances at September 30, 2021			39,273			$	393			$	583,851			$	1,119,337			$	(64,216	)		$	7,590			$	1,646,955

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Earnings				Income(Loss)				Total
Balances at June 30, 2020			38,453			$	385			$	420,536			$	1,057,470			$	(97,199	)		$	1,381,192
Cumulative effect adjustments due to adoption of new accounting standards and other															(276	)							(276	)
Net earnings															33,395								33,395
Other comprehensive loss																			14,057				14,057
Common stock issued for exercise of options			117				1				13,727												13,728
Common stock issued for restricted stock awards			25				0								(4,890	)							(4,890	)
Cash dividends															(12,336	)							(12,336	)
Stock-based compensation expense											12,667												12,667
Common stock issued to employee stock purchase plan			6				0				1,463												1,463
Employee stock purchase plan expense											286												286
Balances at September 30, 2020			38,601			$	386			$	448,679			$	1,073,362			$	(83,142	)		$	1,439,285

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Accumulated Other Comprehensive Income

The components of other comprehensive income (loss) consist of changes in foreign currency translation adjustments and changes in net unrealized gains (losses) on derivative instruments designated as cash flow hedges. The Company reclassified $1.6 million from accumulated other comprehensive income (loss) to earnings during the three months ended September 30, 2021. 

The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:

		Unrealized Gains (Losses) on Derivative Instruments				Foreign Currency Translation Adjustments				Total
Balance as of June 30, 2021		$	(6,193	)		$	(51,098	)		$	(57,291	)
Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne			84				(8,607	)			(8,523	)
Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1)			1,598				-				1,598
Balance as of September 30, 2021(2)		$	(4,511	)		$	(59,705	)		$	(64,216	)

		Unrealized Gains (Losses) on Derivative Instruments				Foreign Currency Translation Adjustments				Total
Balance as of June 30, 2020		$	(13,253	)		$	(83,946	)		$	(97,199	)
Other comprehensive income (loss), net of tax before reclassifications, attributable to Bio-Techne			11				11,914				11,925
Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne (3)			2,132				-				2,132
Balance as of September 30, 2020(2)		$	(11,110	)		$	(72,032	)		$	(83,142	)

(1) Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified ($2,091) to interest expense and a related tax benefit of $493 during the quarter ended September 30, 2021.

(2) The Company had net deferred tax benefits of $1,391 and $3,413 included in the accumulated other comprehensive income loss as of September 30, 2021 and 2020, respectively.

(3) Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified ($2,769) to interest expense and a related tax benefit of $637 during the quarter ended September 30, 2020. 

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_Note _9.__ Earnings Per Share:

The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

		Quarter Ended September 30,
		2021				2020
Earnings per share – basic:
Net earnings, including noncontrolling interest		$	68,981			$	33,395
Less net earnings (loss) attributable to noncontrolling interest			(634	)			-
Net earnings attributable to Bio-Techne		$	69,615			$	33,395
Income allocated to participating securities			(36	)			(21)
Income available to common shareholders		$	69,579			$	33,374
Weighted-average shares outstanding - basic			39,094				38,536
Earnings per share - basic		$	1.78			$	0.87
Earnings per share – diluted:
Net earnings, including noncontrolling interest		$	68,981			$	33,395
Less net earnings (loss) attributable to noncontrolling interest			(634	)			-
Net earnings attributable to Bio-Techne		$	69,615			$	33,395
Income allocated to participating securities			(36	)			(21	)
Income available to common shareholders		$	69,579			$	33,374
Weighted average shares outstanding - basic			39,094				38,536
Dilutive effect of stock options and restricted stock units			2,064				1,489
Weighted average common shares outstanding - diluted			41,158				40,025
Earnings per share - diluted		$	1.69			$	0.83

The dilutive effect of stock options and restricted stock units in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was 0.4 million and 1.5 million for the quarter ended September 30, 2021 and 2020, respectively.

Note 10. Share-based Compensation:

During the quarter ended September 30, 2021 and 2020, the Company granted 0.3 million and 0.7 million stock options at weighted average grant prices of $481.84 and $267.79 and weighted average fair values of $118.47 and $56.71, respectively. During the quarter ended September 30, 2021 and 2020, the Company granted 13,929 and 22,367 restricted stock units at a weighted average fair value of $481.82 and $267.87, respectively. During the quarter ended September 30, 2021 and 2020, the Company granted 5,344 and 8,675 shares of restricted common stock shares at a weighted average fair value of $481.82 and $267.98.

Stock options for 336,565 and 116,816 shares of common stock with total intrinsic values of $122.8 million and $16.9 million were exercised during the quarter ended September 30, 2021 and 2020, respectively.

Stock-based compensation expense, inclusive of payroll taxes, of $13.2 million and $12.9 million was included in selling, general and administrative expenses for the quarter ended September 30, 2021 and 2020, respectively. Additionally, stock-based compensation costs, inclusive of payroll taxes, of $0.4 million and $0.5 million was included in cost of goods sold for quarter ended September 30, 2021 and 2020, respectively. As of September 30, 2021, there was $61.2 million of unrecognized compensation cost related to non-vested stock options, non-vested restricted stock units and non-vested restricted stock. The weighted average period over which the compensation cost is expected to be recognized is 2.2 years.

In fiscal year 2015, the Company established the Bio-Techne Corporation 2014 Employee Stock Purchase Plan (ESPP), which was approved by the Company's shareholders on October 30, 2014, and which is designed to comply with IRS provisions governing employee stock purchase plans. 200,000 shares were allocated to the ESPP. The Company recorded expense of $0.3 million, and $0.3 million for the ESPP for the quarter ended September 30, 2021 and 2020, respectively. 

Note 11. Other Income / (Expense): 

The components of other income (expense) in the accompanying Statement of Earnings and Comprehensive Income are as follows: 

		Quarter Ended
		September 30,
		2021				2020
Interest expense		$	(3,409	)		$	(4,416	)
Interest income			193				114
Other non-operating income (expense), net(1)			7,377				(5,451	)
Total other income (expense)		$	4,161			$	(9,753	)

(1) Primarily due to a $5.3 million gain in the fair value of our CCXI investment for the quarter ended September 30, 2021 as compared to a $4.4 million loss in the comparative period.

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Note 12. Income Taxes:

The Company’s effective income tax rate for the first quarter of fiscal 2022 and 2021 was (2.4)% and 15.1% of consolidated earnings before income taxes, respectively. The change in the company’s tax rate for the first quarter of fiscal 2022 compared to first quarter of fiscal 2021 was driven by discrete tax items.

The Company recognized total net benefits related to discrete tax items of $17.7 million during the three months ended September 30, 2021 compared to $4.2 million during the three months ended September 30, 2020. Share-based compensation excess tax benefit contributed $18.3 million and $3.3 million in the three months ended September 30, 2021 and 2020, respectively. The Company recognized total other immaterial net discrete tax expense of $0.6 million in the quarter compared to $0.9 million other immaterial net discrete tax benefits in the three months ended September 30, 2020.   

Note 13. Segment Information:

The Company's management evaluates segment operating performance based on operating income before certain charges to cost of sales and selling, general and administrative expenses, principally associated with the impact of partially owned consolidated subsidiaries as well as acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses. The Protein Sciences and Diagnostics and Genomics segments both include consumables, instruments, services and royalty revenue.

The following is financial information relating to the Company's reportable segments (in thousands):

		Quarter Ended
		September 30,
		2021				2020
Net sales:
Protein Sciences		$	197,186			$	154,446
Diagnostics and Genomics			60,985				50,125
Intersegment			(452	)			(372	)
Consolidated net sales		$	257,719			$	204,199
Operating income:
Protein Sciences		$	90,100			$	70,352
Diagnostics and Genomics			7,463				8,674
Segment operating income			97,563				79,026
Costs recognized on sale of acquired inventory			(1,512)				-
Amortization of acquisition related intangible assets			(18,389	)			(15,501	)
Impact of partially owned consolidated subsidiaries			(1,562	)			-
Acquisition related expenses			2,377				(136	)
Stock-based compensation, inclusive of employer taxes			(13,860	)			(13,333	)
Restructuring costs			(1,185	)			-
Corporate general, selling, and administrative expenses			(210	)			(964	)
Consolidated operating income		$	63,222			$	49,092

Note 14. Subsequent Events:

None. 

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