☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
August 31, 2020.
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
CorpCorporation
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||
Emerging growth company | ☐ |
Sheets (unaudited)
February 28, 2018 | May 31, 2017 | |||||||
(Unaudited) | (Audited) | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 82,066 | $ | 77,567 | ||||
Marketable securities (at fair value, which approximates cost) | 110,089 | 66,068 | ||||||
Accounts receivable, less allowance of $1,750 and $2,000 | 73,209 | 68,576 | ||||||
Inventories, net | 77,506 | 73,144 | ||||||
Prepaid expenses and other current assets | 9,334 | 7,606 | ||||||
|
|
|
| |||||
Total Current Assets | 352,204 | 292,961 | ||||||
Property and Equipment, net | 72,514 | 61,748 | ||||||
Other Assets | ||||||||
Goodwill | 99,478 | 104,759 | ||||||
Othernon-amortizable intangible assets | 15,011 | 14,323 | ||||||
Customer-based intangibles, net of accumulated amortization of $23,846 and $20,846 at February 28, 2018 and May 31, 2017 | 33,518 | 35,983 | ||||||
Othernon-current assets, net of accumulated amortization of $11,893 and $9,931 at February 28, 2018 and May 31, 2017 | 22,876 | 18,635 | ||||||
|
|
|
| |||||
Total Assets | $ | 595,601 | $ | 528,409 | ||||
|
|
|
| |||||
Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 19,654 | $ | 16,244 | ||||
Accrued compensation | 5,469 | 5,002 | ||||||
Income taxes | 960 | 936 | ||||||
Other accruals | 11,210 | 13,820 | ||||||
|
|
|
| |||||
Total Current Liabilities | 37,293 | 36,002 | ||||||
Deferred Income Taxes | 11,400 | 17,048 | ||||||
Non-Current Liabilities | 4,973 | 3,602 | ||||||
|
|
|
| |||||
Total Liabilities | 53,666 | 56,652 | ||||||
Commitments and Contingencies (note 9) | ||||||||
Equity | ||||||||
Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding | — | — | ||||||
Common stock, $0.16 par value, 60,000,000 shares authorized, 51,583,085 and 50,932,489 shares issued and outstanding at February 28, 2018 and May 31, 2017, respectively | 8,253 | 8,149 | ||||||
Additionalpaid-in capital | 197,246 | 174,742 | ||||||
Accumulated other comprehensive loss | (5,303 | ) | (7,203 | ) | ||||
Retained earnings | 341,459 | 295,926 | ||||||
|
|
|
| |||||
Total Neogen Corporation Stockholders’ Equity | 541,655 | 471,614 | ||||||
Non-controlling interest | 280 | 143 | ||||||
|
|
|
| |||||
Total Equity | 541,935 | 471,757 | ||||||
|
|
|
| |||||
Total Liabilities and Equity | $ | 595,601 | $ | 528,409 | ||||
|
|
|
|
August 31, | May 31, | |||||||
2020 | 2020 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 60,947 | $ | 66,269 | ||||
Marketable securities | 306,539 | 277,404 | ||||||
Accounts receivable, less allowance of $1,350 and $1,350 at August 31, 2020 and | ||||||||
May 31, 2020, respectively | 77,685 | 84,681 | ||||||
Inventories | 97,573 | 95,053 | ||||||
Prepaid expenses and other current assets | 13,955 | 13,999 | ||||||
Total Current Assets | 556,699 | 537,406 | ||||||
Net Property and Equipment | 80,593 | 78,671 | ||||||
Other Assets | ||||||||
Right of use assets | 1,756 | 1,952 | ||||||
Goodwill | 111,675 | 110,340 | ||||||
Other non-amortizable intangible assets | 15,366 | 15,217 | ||||||
Amortizable intangible and other assets, net of accumulated amortization of $46,773 and $44,690 at August 31, 2020 and May 31, 2020, respectively | 55,503 | 53,596 | ||||||
Total Assets | $ | 821,592 | $ | 797,182 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 22,537 | $ | 25,650 | ||||
Accrued compensation | 5,501 | 7,735 | ||||||
Income taxes | 4,597 | 1,456 | ||||||
Other accruals | 13,807 | 13,648 | ||||||
Total Current Liabilities | 46,442 | 48,489 | ||||||
Deferred Income Taxes | 18,306 | 18,125 | ||||||
Other Non-Current Liabilities | 5,298 | 5,391 | ||||||
Total Liabilities | 70,046 | 72,005 | ||||||
Commitments and Contingencies (note 8) | ||||||||
Equity | ||||||||
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding | 0 | 0 | ||||||
Common stock, $0.16 par value, 120,000,000 shares authorized, 53,041,102 and 52,945,841 shares issued and outstanding at August 31, 2020 and May 31, 2020, respectively | 8,487 | 8,471 | ||||||
Additional paid-in capital | 264,184 | 257,693 | ||||||
Accumulated other comprehensive loss | (15,707 | ) | (19,709 | ) | ||||
Retained earnings | 494,582 | 478,722 | ||||||
Total Stockholders’ Equity | 751,546 | 725,177 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 821,592 | $ | 797,182 | ||||
Three Months Ended | Nine Months Ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues | ||||||||||||||||
Product revenues | $ | 78,142 | $ | 73,964 | $ | 244,298 | $ | 223,170 | ||||||||
Service revenues | 17,750 | 14,421 | 48,667 | 39,577 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Revenues | 95,892 | 88,385 | 292,965 | 262,747 | ||||||||||||
Cost of Revenues | ||||||||||||||||
Cost of product revenues | 40,352 | 38,816 | 124,785 | 113,241 | ||||||||||||
Cost of service revenues | 10,019 | 8,689 | 27,517 | 24,556 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Cost of Revenues | 50,371 | 47,505 | 152,302 | 137,797 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross Margin | 45,521 | 40,880 | 140,663 | 124,950 | ||||||||||||
Operating Expenses | ||||||||||||||||
Sales and marketing | 17,492 | 15,340 | 52,331 | 45,824 | ||||||||||||
General and administrative | 9,280 | 8,548 | 29,096 | 25,094 | ||||||||||||
Research and development | 2,836 | 2,641 | 8,901 | 8,087 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Operating Expenses | 29,608 | 26,529 | 90,328 | 79,005 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating Income | 15,913 | 14,351 | 50,335 | 45,945 | ||||||||||||
Other Income | ||||||||||||||||
Interest income | 524 | 271 | 1,322 | 690 | ||||||||||||
Other income | 844 | 1,105 | 1,913 | 1,098 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Income | 1,368 | 1,376 | 3,235 | 1,788 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income Before Taxes | 17,281 | 15,727 | 53,570 | 47,733 | ||||||||||||
Provision for Income Taxes | 700 | 5,350 | 7,900 | 16,250 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income | 16,581 | 10,377 | 45,670 | 31,483 | ||||||||||||
Net (Income)/Loss Attributable toNon-Controlling Interest | 5 | (90 | ) | (70 | ) | (163 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income Attributable to Neogen | $ | 16,586 | $ | 10,287 | $ | 45,600 | $ | 31,320 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income Attributable to Neogen Per Share | ||||||||||||||||
Basic | $ | 0.32 | $ | 0.20 | $ | 0.89 | $ | 0.62 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | $ | 0.32 | $ | 0.20 | $ | 0.88 | $ | 0.61 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended August 31, | ||||||||
2020 | 2019 | |||||||
Revenues | ||||||||
Product revenues | $ | 87,935 | $ | 81,948 | ||||
Service revenues | 21,390 | 19,476 | ||||||
Total Revenues | 109,325 | 101,424 | ||||||
Cost of Revenues | ||||||||
Cost of product revenues | 46,595 | 42,031 | ||||||
Cost of service revenues | 12,428 | 11,199 | ||||||
Total Cost of Revenues | 59,023 | 53,230 | ||||||
Gross Margin | 50,302 | 48,194 | ||||||
Operating Expenses | ||||||||
Sales and marketing | 16,516 | 17,543 | ||||||
General and administrative | 11,013 | 10,699 | ||||||
Research and development | 3,878 | 3,688 | ||||||
Total Operating Expenses | 31,407 | 31,930 | ||||||
Operating Income | 18,895 | 16,264 | ||||||
Other Income (Expense) | ||||||||
Interest income | 722 | 1,510 | ||||||
Other expense | 193 | (122 | ) | |||||
Total Other Income | 915 | 1,388 | ||||||
Income Before Taxes | 19,810 | 17,652 | ||||||
Provision for Income Taxes | 3,950 | 3,000 | ||||||
Net Income | $ | 15,860 | $ | 14,652 | ||||
Net Income Per Share | ||||||||
Basic | $ | 0.30 | $ | 0.28 | ||||
Diluted | $ | 0.30 | $ | 0.28 | ||||
Weighted Average Shares Outstanding | ||||||||
Basic | 52,992 | 52,292 | ||||||
Diluted | 53,285 | 52,684 |
Three Months Ended | Nine Months Ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Income | $ | 16,581 | $ | 10,377 | $ | 45,670 | $ | 31,483 | ||||||||
Other comprehensive income (loss), net of tax: currency translation adjustments | 1,163 | 441 | 1,900 | (3,743 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income | 17,744 | 10,818 | 47,570 | 27,740 | ||||||||||||
Comprehensive loss (income) attributable tonon-controlling interest | 5 | (90 | ) | (70 | ) | (163 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income attributable to Neogen | $ | 17,749 | $ | 10,728 | $ | 47,500 | $ | 27,577 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended August 31, | ||||||||
2020 | 2019 | |||||||
Net income | $ | 15,860 | $ | 14,652 | ||||
Other comprehensive income (loss), net of tax: foreign currency translations | 4,121 | (3,058 | ) | |||||
Other comprehensive income (loss), net of tax: unrealized gain (loss) on marketable securities | (119 | ) | 562 | |||||
Total comprehensive income | $ | 19,862 | $ | 12,156 |
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Non- | ||||||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | controlling | ||||||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | Interest | Total | ||||||||||||||||||||||
Balance, May 31, 2017 | 50,932 | $ | 8,149 | $ | 174,742 | $ | (7,203 | ) | $ | 295,926 | $ | 143 | $ | 471,757 | ||||||||||||||
Issuance of shares under share-based compensation plan | 631 | 101 | 21,456 | 21,557 | ||||||||||||||||||||||||
Issuance of shares under employee stock purchase plan | 20 | 3 | 1,048 | 1,051 | ||||||||||||||||||||||||
Conversion of minority interest to retained earnings | (67 | ) | 67 | — | ||||||||||||||||||||||||
Net income for the nine months ended February 28, 2018 | 45,600 | 70 | 45,670 | |||||||||||||||||||||||||
Other comprehensive income | 1,900 | 1,900 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance February 28, 2018 | 51,583 | $ | 8,253 | $ | 197,246 | $ | (5,303 | ) | $ | 341,459 | $ | 280 | $ | 541,935 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) | Retained Earnings | ||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||||||
Balance, June 1, 2020 | 52,946 | $ | 8,471 | $ | 257,693 | $ | (19,709 | ) | $ | 478,722 | $ | 725,177 | ||||||||||||
Exercise of options and share-based compensation expense | 86 | 14 | 5,825 | — | — | 5,839 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 9 | 2 | 666 | — | — | 668 | ||||||||||||||||||
Net income for the three months ended August 31, 2020 | — | — | — | — | 15,860 | 15,860 | ||||||||||||||||||
Other comprehensive income for the three months ended August 31, 2020 | — | — | — | 4,002 | — | 4,002 | ||||||||||||||||||
Balance, August 31, 2020 | 53,041 | $ | 8,487 | $ | 264,184 | $ | (15,707 | ) | $ | 494,582 | $ | 751,546 |
Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) | |||||||||||||||||||||||
Common Stock | Retained Earnings | |||||||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||||||
Balance, June 1, 2019 | 52,217 | $ | 8,355 | $ | 221,937 | $ | (11,640 | ) | $ | 419,247 | $ | 637,899 | ||||||||||||
Exercise of options and share-based compensation expense | 196 | 30 | 9,683 | — | — | 9,713 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 10 | 2 | 536 | — | — | 538 | ||||||||||||||||||
Net income for the three months ended August 31, 2019 | — | — | — | — | 14,652 | 14,652 | ||||||||||||||||||
Other comprehensive loss for the three months ended August 31, 2019 | — | — | — | (2,496 | ) | — | (2,496 | ) | ||||||||||||||||
Balance, August 31, 2019 | 52,423 | $ | 8,387 | $ | 232,156 | $ | (14,136 | ) | $ | 433,899 | $ | 660,306 |
Nine Months Ended | ||||||||
February 28, | ||||||||
2018 | 2017 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Income | $ | 45,670 | $ | 31,483 | ||||
Adjustments to reconcile net income to net cash provided from operating activities: | ||||||||
Depreciation and amortization | 12,682 | 10,691 | ||||||
Share-based compensation | 3,692 | 3,932 | ||||||
Excess income tax benefit from the exercise of stock options (see note 5) | — | (3,671 | ) | |||||
Change in operating assets and liabilities, net of business acquisitions: | ||||||||
Accounts receivable | (4,013 | ) | 5,916 | |||||
Inventories | (3,859 | ) | (9,460 | ) | ||||
Prepaid expenses and other current assets | (7,316 | ) | 717 | |||||
Accounts payable, accruals and other changes | (280 | ) | 5,580 | |||||
|
|
|
| |||||
Net Cash Provided By Operating Activities | 46,576 | 45,188 | ||||||
Cash Flows Used In Investing Activities | ||||||||
Purchases of property, equipment and othernon-current intangible assets | (16,297 | ) | (13,002 | ) | ||||
Proceeds from the sale of marketable securities | 211,327 | 102,957 | ||||||
Purchases of marketable securities | (255,348 | ) | (115,117 | ) | ||||
Business acquisitions, net of cash acquired | (468 | ) | (34,027 | ) | ||||
|
|
|
| |||||
Net Cash Used In Investing Activities | (60,786 | ) | (59,189 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Exercise of stock options | 18,916 | 15,844 | ||||||
Excess income tax benefit from the exercise of stock options | — | 3,671 | ||||||
|
|
|
| |||||
Net Cash Provided By Financing Activities | 18,916 | 19,515 | ||||||
Effect of Exchange Rates on Cash | (207 | ) | (888 | ) | ||||
|
|
|
| |||||
Net Increase In Cash and Cash Equivalents | 4,499 | 4,626 | ||||||
Cash And Cash Equivalents At Beginning Of Period | 77,567 | 55,257 | ||||||
|
|
|
| |||||
Cash And Cash Equivalents At End Of Period | $ | 82,066 | $ | 59,883 | ||||
|
|
|
|
Three Months Ended August 31, | ||||||||
2020 | 2019 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Income | $ | 15,860 | $ | 14,652 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 4,720 | 4,435 | ||||||
Share-based compensation | 1,681 | 1,543 | ||||||
Change in operating assets and liabilities, net of business acquisitions: | ||||||||
Accounts receivable | 8,350 | 3,390 | ||||||
Inventories | (1,319 | ) | (2,132 | ) | ||||
Prepaid expenses and other current assets | (1,045 | ) | (1,929 | ) | ||||
Accounts payable, accruals and other changes | (3,113 | ) | 3,760 | |||||
Net Cash From Operating Activities | 25,134 | 23,719 | ||||||
Cash Flows For Investing Activities | ||||||||
Purchases of property, equipment and other non-current intangible assets | (4,248 | ) | (6,469 | ) | ||||
Proceeds from the sale of marketable securities | 139,184 | 94,540 | ||||||
Purchases of marketable securities | (168,318 | ) | (103,432 | ) | ||||
Business acquisitions, net of cash acquired | (2,350 | ) | — | |||||
Net Cash For Investing Activities | (35,732 | ) | (15,361 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Exercise of stock options and issuance of employee stock purchase plan shares | 5,095 | 8,708 | ||||||
Net Cash From Financing Activities | 5,095 | 8,708 | ||||||
Effect of Foreign Exchange Rates on Cash | 181 | (2,465 | ) | |||||
Net Increase (Decrease) In Cash and Cash Equivalents | (5,322 | ) | 14,601 | |||||
Cash and Cash Equivalents, Beginning of Period | 66,269 | 41,688 | ||||||
Cash and Cash Equivalents, End of Period | $ | 60,947 | $ | 56,289 | ||||
AND CONSOLIDATION
2020.
(in thousands) | Maturity | August 31, 2020 | May 31, 2020 | |||||||
US Treasuries | 0—90 days | $ | 0 | $ | 0 | |||||
91—180 days | 2,516 | 0 | ||||||||
181 days—1 year | 0 | 2,532 | ||||||||
1—2 years | 0 | 0 | ||||||||
Commercial Paper & Corporate Bonds | 0—90 days | 120,055 | 133,130 | |||||||
91—180 days | 93,239 | 73,824 | ||||||||
181 days—1 year | 63,668 | 43,231 | ||||||||
1—2 years | 10,012 | 7,839 | ||||||||
Certificates of Deposit | 0—90 days | 4,908 | 1,003 | |||||||
91—180 days | 1,257 | 5,184 | ||||||||
181 days—1 year | 8,338 | 6,069 | ||||||||
1—2 years | 2,546 | 4,592 | ||||||||
Total Marketable Securities | $ | 306,539 | $ | 277,404 | ||||||
(in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
US Treasuries | $ | 2,502 | $ | 14 | $ | — | $ | 2,516 | ||||||||
Commercial Paper & Corporate Bonds | 286,211 | 820 | (57 | ) | 286,974 | |||||||||||
Certificates of Deposit | 16,911 | 138 | — | 17,049 | ||||||||||||
Total Marketable Securities | $ | 305,624 | $ | 972 | $ | (57 | ) | $ | 306,539 | |||||||
(in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
US Treasuries | $ | 2,502 | $ | 30 | $ | — | $ | 2,532 | ||||||||
Commercial Paper & Corporate Bonds | 257,700 | 347 | (23 | ) | 258,024 | |||||||||||
Certificates of Deposit | 16,648 | 200 | — | 16,848 | ||||||||||||
Total Marketable Securities | $ | 276,850 | $ | 577 | $ | (23 | ) | $ | 277,404 | |||||||
February 28, 2018 | May 31, 2017 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 35,774 | $ | 33,190 | ||||
Work-in-process | 6,231 | 4,831 | ||||||
Finished and purchased goods | 35,501 | 35,123 | ||||||
|
|
|
| |||||
$ | 77,506 | $ | 73,144 | |||||
|
|
|
|
3.
(in thousands) | August 31, 2020 | May 31, 2020 | ||||||
Raw materials | $ | 47,589 | $ | 45,058 | ||||
Work-in-process | 6,323 | 6,887 | ||||||
Finished and purchased goods | 43,661 | 43,108 | ||||||
$97,573 | $95,053 | |||||||
• | We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. |
• | We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset. |
• | For all asset classes, we elected to not recognize a right-of-use |
• | For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease andnon-lease components as a single lease component. |
• | The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments. |
(in thousands) | August 31, 2020 | May 31, 2020 | ||||||
Right of use—assets | $ | 1,756 | $ | 1,952 | ||||
Lease liabilities—current | 803 | 1,054 | ||||||
Lease liabilities—non-current | 966 | 913 |
(in thousands) | August 31, 2020 | May 31, 2020 | ||||||
Weighted average remaining lease term | 2.4 years | 2.5 years | ||||||
Weighted average discount rate | 3.2 | % | 3.2 | % |
August 31, | ||||||||
(in thousands) | 2020 | 2019 | ||||||
Operating leases | $ | 205 | $ | 240 | ||||
Short term leases | 44 | 48 | ||||||
Total lease expense | $ | 249 | $ | 288 | ||||
Years ending May 31, | Amount | |||
2021 (1) | $ | 789 | ||
2022 | 553 | |||
2023 | 292 | |||
2024 | 145 | |||
2025 | 43 | |||
2026 and thereafter | 0 | |||
Total lease payments | 1,822 | |||
Less: imputed interest | (97 | ) | ||
Total lease liabilities | $ | 1,725 | ||
(1) | Excluding the three months ended August 31, 2020 . |
• | Diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation; |
• | Consumable products marketed to veterinarians, retailers, livestock producers and animal health product distributors; and |
• | Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities. |
• | Genomic identification and related interpretive bioinformatic services; and |
• | Other commercial laboratory services. |
Three Months ended August 31, | ||||||||
(in thousands) | 2020 | 2019 | ||||||
Food Safety | ||||||||
Natural Toxins, Allergens & Drug Residues | $ | 19,015 | $ | 20,115 | ||||
Bacterial & General Sanitation | 9,931 | 10,316 | ||||||
Culture Media & Other | 11,393 | 11,279 | ||||||
Rodenticides, Insecticides & Disinfectants | 9,608 | 5,449 | ||||||
Genomics Services | 4,238 | 3,862 | ||||||
$ | 54,185 | $ | 51,021 | |||||
Animal Safety | ||||||||
Life Sciences | $ | 1,325 | $ | 1,723 | ||||
Veterinary Instruments & Disposables | 10,375 | 11,336 | ||||||
Animal Care & Other | 7,658 | 6,405 | ||||||
Rodenticides, Insecticides & Disinfectants | 19,914 | 16,718 | ||||||
Genomics Services | 15,868 | 14,221 | ||||||
$ | 55,140 | $ | 50,403 | |||||
Total Revenues | $ | 109,325 | $ | 101,424 | ||||
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Numerator for basic and diluted net income per share: | ||||||||||||||||
Net income attributable to Neogen | $ | 16,586 | $ | 10,287 | $ | 45,600 | $ | 31,320 | ||||||||
Denominator for basic net income per share: | ||||||||||||||||
Weighted average shares | 51,537 | 50,746 | 51,253 | 50,438 | ||||||||||||
Effect of dilutive stock options | 700 | 633 | 761 | 723 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Denominator for diluted net income per share | 52,237 | 51,379 | 52,014 | 51,161 | ||||||||||||
Net income attributable to Neogen per share: | ||||||||||||||||
Basic | $ | 0.32 | $ | 0.20 | $ | 0.89 | $ | 0.62 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | $ | 0.32 | $ | 0.20 | $ | 0.88 | $ | 0.61 | ||||||||
|
|
|
|
|
|
|
|
The Board
Three Months Ended | ||||||||
August 31, | ||||||||
(in thousands, except | 2020 | 2019 | ||||||
Numerator for basic and diluted net income per share: | ||||||||
Net income attributable to Neogen | $ | 15,860 | $ | 14,652 | ||||
Denominator for basic net income per share: | ||||||||
Weighted average shares | 52,992 | 52,292 | ||||||
Effect of dilutive stock options | 293 | 392 | ||||||
Denominator for diluted net income per share | 53,285 | 52,684 | ||||||
Net income attributable to Neogen per share: | ||||||||
Basic | $ | 0.30 | $ | 0.28 | ||||
Diluted | $ | 0.30 | $ | 0.28 | ||||
The Company has two AND GEOGRAPHIC DATA
Neogen’s
Food Safety | Animal Safety | Corporate and Eliminations (1) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
As of and for the three months ended February 28, 2018 |
| |||||||||||||||
Product revenues to external customers | $ | 42,618 | $ | 35,524 | $ | — | $ | 78,142 | ||||||||
Service revenues to external customers | 5,027 | 12,723 | — | 17,750 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues to external customers | 47,645 | 48,247 | — | 95,892 | ||||||||||||
Operating income (loss) | 8,258 | 8,493 | (838 | ) | 15,913 | |||||||||||
Total assets | 188,075 | 215,371 | 192,155 | 595,601 | ||||||||||||
As of and for the three months ended February 28, 2017 |
| |||||||||||||||
Product revenues to external customers | $ | 39,318 | $ | 34,646 | $ | — | $ | 73,964 | ||||||||
Service revenues to external customers | 3,631 | 10,790 | — | 14,421 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues to external customers | 42,949 | 45,436 | — | 88,385 | ||||||||||||
Operating income (loss) | 7,403 | 7,743 | (795 | ) | 14,351 | |||||||||||
Total assets | 183,419 | 215,243 | 108,636 | 507,298 |
8
Food Safety | Animal Safety | Corporate and Eliminations (1) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
For the nine months ended February 28, 2018 | ||||||||||||||||
Product revenues to external customers | $ | 129,621 | $ | 114,677 | $ | — | $ | 244,298 | ||||||||
Service revenues to external customers | 14,319 | 34,348 | — | 48,667 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues to external customers | 143,940 | 149,025 | — | 292,965 | ||||||||||||
Operating income (loss) | 25,704 | 27,691 | (3,060 | ) | 50,335 | |||||||||||
For the nine months ended February 28, 2017 | ||||||||||||||||
Product revenues to external customers | $ | 112,592 | $ | 110,578 | $ | — | $ | 223,170 | ||||||||
Service revenues to external customers | 10,475 | 29,102 | — | 39,577 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues to external customers | 123,067 | 139,680 | — | 262,747 | ||||||||||||
Operating income (loss) | 24,286 | 24,616 | (2,957 | ) | 45,945 |
Corporate and | ||||||||||||||||
Food | Animal | Eliminations | ||||||||||||||
(in thousands) | Safety | Safety | (1) | Total | ||||||||||||
As of and for the three months ended August 31, 2020 | ||||||||||||||||
Product revenues to external customers | $ | 48,663 | $ | 39,272 | $ | — | $ | 87,935 | ||||||||
Service revenues to external customers | 5,522 | 15,868 | — | 21,390 | ||||||||||||
Total revenues to external customers | 54,185 | 55,140 | — | 109,325 | ||||||||||||
Operating income (loss) | 7,963 | 12,165 | (1,233 | ) | 18,895 | |||||||||||
Total assets | 225,716 | 228,390 | 367,486 | 821,592 | ||||||||||||
As of and for the three months ended August 31, 2019 | ||||||||||||||||
Product revenues to external customers | $ | 45,877 | $ | 36,071 | $ | — | $ | 81,948 | ||||||||
Service revenues to external customers | 5,144 | 14,332 | — | 19,476 | ||||||||||||
Total revenues to external customers | 51,021 | 50,403 | — | 101,424 | ||||||||||||
Operating income (loss) | 9,134 | 8,300 | (1,170 | ) | 16,264 | |||||||||||
Total assets | 207,725 | 222,403 | 291,016 | 721,144 |
(1) | Includes corporate assets, consisting principally of cash and cash equivalents, marketable securities, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions. |
9
Three months ended August 31, | ||||||||
(in thousands) | 2020 | 2019 | ||||||
Domestic | $ | 67,324 | $ | 63,340 | ||||
International | 42,001 | 38,084 | ||||||
Total revenue | 109,325 | 101,424 | ||||||
5.
Qualified
CompanyNeogen under the terms of the Company’s stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. Options vest ratably
Weighted- | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
(in thousands) | ||||||||
Options outstanding June 1, 2017 | 2,708 | $ | 32.88 | |||||
Granted | 819 | 59.26 | ||||||
Exercised | (668 | ) | 28.23 | |||||
Forfeited | (144 | ) | 37.31 | |||||
|
| |||||||
Options outstanding February 28, 2018 | 2,715 | 41.75 |
Weighted- | ||||||||
Average | ||||||||
(Options in thousands) | Shares | Exercise Price | ||||||
Options outstanding June 1, 2020 | 2,162 | $ | 55.96 | |||||
Granted | 0 | 0 | ||||||
Exercised | (86 | ) | 48.39 | |||||
Forfeited | (7 | ) | 57.81 | |||||
Options outstanding August 31, 2020 | 2,069 | $ | 56.27 |
FY 2018 | FY 2017 | |||
Risk-free interest rate | 1.6% | 1.2% | ||
Expected dividend yield | 0.0% | 0.0% | ||
Expected stock price volatility | 27.7% | 35.2% | ||
Expected option life | 4.0 years | 4.0 years |
assumptions. No options were granted in the first quarter of fiscal year 2021.
FY 2020 | ||||
Risk-free interest rate | 1.9 | % | ||
Expected dividend yield | 0.0 | % | ||
Expected stock price volatility | 29.4 | % | ||
Expected option life | 3.5years |
6. NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU No.2014-09—Revenue from Contracts with Customers (Topic 606). The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. In April 2016, the FASB issued Accounting Standards UpdateNo. 2016-10— Revenue from Contracts with Customers (Topic 606), which amends and adds clarity to certain aspects of the guidance set forth in ASU2014-09 related to identifying performance obligations and licensing. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The guidance permits two methods of adoption: a full retrospective method to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company has formed an internal team to implement the new standard. This team has identified all revenue streams at each significant subsidiary and is currently reviewing contracts to evaluate the potential impact of adopting the new standard on the Company’s revenue recognition policies, procedures and control framework and ultimately on the Company’s consolidated financial statements and related disclosures. The Company will adopt this ASU on June 1, 2018 using the modified retrospective approach.
10
In February 2016, the FASB issued ASU No.2016-02—Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and aright-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018; early adoption is permitted. Modified retrospective application is permitted with certain practical expedients. The Company expects to adopt this ASU on June 1, 2019 and is currently in the process of evaluating its lessee and lessor arrangements to determine the impact of this amendment on its consolidated financial condition and results of operations. This evaluation includes a review of revenue through leasing arrangements as well as lease expenses, which are primarily through operating lease arrangements at most of the Company’s facilities.
In March 2016, the FASB issued ASUNo. 2016-09 — Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting to provide guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additionalpaid-in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The Company adopted this standard effective June 1, 2017. Adoption of this ASU increased income tax expense by $331,000 for the three months ended February 28, 2018 as the reduction in the corporate tax rate from the tax reform enacted in December 2017 resulted in a partial reversal of tax benefit previously recorded at the higher corporate rate in the first and second quarters of the current fiscal year; year to date, income tax expense decreased by $3,463,000 as a result of adoption of the ASU.
In June 2016, the FASB issued ASU No.2016-13—Measurement of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost and certain other instruments, such as loans, receivables and held-to-maturity debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost the Company expects to collect over the instrument’s contractual life. ASU2016-13 is effective for fiscal periods beginning after December 15, 2019 and must be adopted as a cumulative effect adjustment to retained earnings. Early adoption is permitted. The Company does not believe the adoption of this guidance will have an impact on its consolidated financial statements.
In August 2016, the FASB issued ASUNo. 2016-15— Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in ASU2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in ASU2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet adopted this update and is currently evaluating the impact of ASUNo. 2016-15 on its consolidated financial statements.
7.compensation.
11
It is managed through Neogen’s Latin America operation.
It is managed through Neogen’s Scotland operation.
8.
The Company has
9.August 31, 2020.
sheets. In fiscal 2019, the Company performed an updated Corrective Measures Study (CMS) on the site, per a request from the Wisconsin Department of Natural Resources (WDNR), and is in discussion with the WDNR regarding potential alternative remediation strategies going forward. The Company believes that the current pump and treat strategy is appropriate for the site. At this time, the outcome of the review in terms of approach and future costs is unknown, but a change in the current remediation strategy, depending on the alternative selected, could require an increase in the recorded liability, with an offsetting charge to operations in the period recorded.
10. STOCK PURCHASE
The Company has a stock repurchase program, authorized by the Board
Critical Accounting Policies and Estimates
The discussion and analysis
There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form10-K for the fiscal year ended May 31, 2017.
The Company adopted ASUNo. 2016-09 related to share-based compensation on June 1, 2017. (See Note 5 Equity Compensation Plans for further discussion).
On December 22, 2017, the Tax Cuts and Jobs Act, (“the Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax for the fiscal year ending May 31, 2018 using a blended Federal Tax Rate of 29.2%.
In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
As of February 28, 2018, the Company was able to determine a reasonable estimate for certain effects of tax reform and recorded that estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and liabilities resulted in a $5.6 million discrete tax benefit. In addition, the Company was required to estimate its cumulative unrepatriated foreign earnings and profits and
13
calculate estimated tax owed on those earnings and profits; this tax was provisionally estimated at $2.7 million. The provisional remeasurement and repatriation amounts are anticipated to change as more data becomes available allowing more accurate computations of the amounts.
There have been no other material changes to the critical accounting policies and estimates disclosed in the Company’s Annual Report on Form10-K for the fiscal year ended May 31, 2017.
14
Executive Overview
Revenues for the Company for the third quarter ended February 28, 2018 were $95.9 million,2021, an increase of 8%, or $7.5 million, compared to $101.4 million in the first quarter of fiscal 2020. Organic sales increased 6%.
Food Safety segment revenues increased 11% and Animal Safety segment revenues increased 6% for the three month period ended February 28, 2018, each2021 compared to the same period in the prior year. For the quarter, the overall organic sales increase was 7%; organic growthRevenue changes, expressed in percentages, in the Food Safety and Animal Safety segments was 9% and 5%, respectively. The acquisitionsfirst quarter of Rogama, purchased inmid-December 2016, and Neogen Australasia, in September 2017, contributed $1.6 millionfiscal 2021 compared to the overall revenue growthsame quarter in the third quarter. Food Safety segmentprior year are as follows for each of our international locations:
Revenue % Inc (Dec) USD | Revenue % Inc (Dec) Local Currency | |||||||
U.K. Operations | 21 | % | 17 | % | ||||
Brazil Operations | 1 | % | 38 | % | ||||
Neogen Latinoamerica | (2 | )% | 13 | % | ||||
Neogen China | 105 | % | 106 | % | ||||
Neogen India | 10 | % | 18 | % | ||||
Neogen Canada | (11 | )% | (10 | )% | ||||
Neogen Australasia | 67 | % | 63 | % |
International sales were $37.4by approximately $2.1 million in the thirdfirst quarter of fiscal 2018,2021 compared to the same quarter a year ago, primarily due to increased strength of the U.S. dollar relative to the Brazilian real and Mexican peso. Combined revenues at our U.K. operations increased 21% resulting from a large shipment of hand sanitizers to the U.K. government’s health organization and strong cleaner & disinfectant sales to China, Africa and the Middle East. Histamine test kits sales also contributed to the growth, due to increased business from tuna producers.
Three Months ended August 31, | ||||||||||||||||
(in thousands) | 2020 | 2019 | Increase/ (Decrease) | % | ||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 19,015 | $ | 20,115 | $ | (1,100 | ) | (5 | )% | |||||||
Bacterial & General Sanitation | 9,931 | 10,316 | (385 | ) | (4 | )% | ||||||||||
Culture Media & Other | 11,393 | 11,279 | 114 | 1 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 9,608 | 5,449 | 4,159 | 76 | % | |||||||||||
Genomics Services | 4,238 | 3,862 | 376 | 10 | % | |||||||||||
$ | 54,185 | $ | 51,021 | $ | 3,164 | 6 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,325 | $ | 1,723 | $ | (398 | ) | (23 | )% | |||||||
Veterinary Instruments & Disposables | 10,375 | 11,336 | (961 | ) | (8 | )% | ||||||||||
Animal Care & Other | 7,658 | 6,405 | 1,253 | 20 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 19,914 | 16,718 | 3,196 | 19 | % | |||||||||||
Genomics Services | 15,868 | 14,221 | 1,647 | 12 | % | |||||||||||
$ | 55,140 | $ | 50,403 | $ | 4,737 | 9 | % | |||||||||
Total Revenues | $ | 109,325 | $ | 101,424 | $ | 7,901 | 8 | % | ||||||||
Revenues at Neogen Europe increased 16%a large manufacturer of dairy equipment, effective June 2020.
Service revenue was $17.8 million in the quarter ended February 28, 2018, an increase of $3.4 million, or 24%, compared to $14.4 million in the third quarter of the prior year. For the year to date period, service revenue was $48.7 million, an increase of $9.1 million, or 23%, compared to $39.6 million in the prior year. The growth, for both the quarter and year to date periods, wasfirst three months, led by increases inincreased sales to the global cattle and companion animal markets, increased testing volumes with a large poultry customermarket in the U.S., and to a lesser extent, revenuesgains in sheep and beef testing in Australia and the recent launch of a new high density chip for whiteleg shrimp. Partially offsetting these gains was a 12% decrease in sales to domestic commercial beef and dairy cattle producers, due to delays in sample receipts caused by the
15
Revenues
Three Months ended February 28, | ||||||||||||||||
Increase/ | ||||||||||||||||
2018 | 2017 | (Decrease) | % | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 16,807 | $ | 16,453 | $ | 354 | 2 | % | ||||||||
Bacterial & General Sanitation | 8,992 | 8,348 | 644 | 8 | % | |||||||||||
Dehydrated Culture Media & Other | 10,511 | 10,383 | 128 | 1 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 7,359 | 5,040 | 2,319 | 46 | % | |||||||||||
Genomics Services | 3,976 | 2,725 | 1,251 | 46 | % | |||||||||||
|
|
|
|
|
| |||||||||||
$ | 47,645 | $ | 42,949 | $ | 4,696 | 11 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 2,769 | $ | 2,332 | $ | 437 | 19 | % | ||||||||
Veterinary Instruments & Disposables | 10,630 | 10,000 | 630 | 6 | % | |||||||||||
Animal Care & Other | 7,535 | 6,311 | 1,224 | 19 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 14,590 | 16,111 | (1,521 | ) | (9 | )% | ||||||||||
Genomics Services | 12,723 | 10,682 | 2,041 | 19 | % | |||||||||||
|
|
|
|
|
| |||||||||||
$ | 48,247 | $ | 45,436 | $ | 2,811 | 6 | % | |||||||||
|
|
|
|
|
| |||||||||||
Total Revenues | $ | 95,892 | $ | 88,385 | $ | 7,507 | 8 | % | ||||||||
|
|
|
|
|
| |||||||||||
Nine Months ended February 28, | ||||||||||||||||
Increase/ | ||||||||||||||||
2018 | 2017 | (Decrease) | % | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 54,960 | $ | 53,090 | $ | 1,870 | 4 | % | ||||||||
Bacterial & General Sanitation | 27,435 | 25,340 | 2,095 | 8 | % | |||||||||||
Dehydrated Culture Media & Other | 32,483 | 29,792 | 2,691 | 9 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 18,175 | 7,088 | 11,087 | 156 | % | |||||||||||
Genomics Services | 10,887 | 7,757 | 3,130 | 40 | % | |||||||||||
|
|
|
|
|
| |||||||||||
$ | 143,940 | $ | 123,067 | $ | 20,873 | 17 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 7,589 | $ | 7,261 | $ | 328 | 5 | % | ||||||||
Veterinary Instruments & Disposables | 32,804 | 29,281 | 3,523 | 12 | % | |||||||||||
Animal Care & Other | 24,056 | 21,563 | 2,493 | 12 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 50,228 | 52,796 | (2,568 | ) | (5 | )% | ||||||||||
Genomics Services | 34,348 | 28,779 | 5,569 | 19 | % | |||||||||||
|
|
|
|
|
| |||||||||||
$ | 149,025 | $ | 139,680 | $ | 9,345 | 7 | % | |||||||||
|
|
|
|
|
| |||||||||||
Total Revenues | $ | 292,965 | $ | 262,747 | $ | 30,218 | 12 | % | ||||||||
|
|
|
|
|
|
The Company’s Food Safety segment revenuesFebruary of 2020.
Natural Toxins, Allergens & Drug Residues sales increased 2% in theincrease due primarily to third quarter; revenues for the yearparty services and approval costs related to date period increased 4%. Sales of dairy drug residue kits, used to detect the presence of antibiotics in raw milk, increased 29% in the third quarter as new products continued to gain share, particularly in international markets; for the year to date period, dairy drug residue test kit revenues rose 15%. Allergen test kit sales increased 14% and 13% in the three and nine month periods ended February 28, 2018, respectively, as product recalls relating to allergenic contamination of food continued to expand the market. Sales of test kits to detect the presence of natural toxins in grain crops decreased 17% in the third quarter. An 11% increase in aflatoxin test kit sales, due to moderate
16
outbreaks in U.S. and Brazilian corn crops, was offset by a 41% decrease in sales of deoxynivalenol (DON) test kits, as prior year outbreaks of DON in corn crops in the U.S., Canada and Europe did not recur in the current year. For the year to date period, sales of natural toxin test kits decreased 7%.
Bacterial & General Sanitation sales increased 8% in both the three and nine month periods ended February 28, 2018. Within this category, the Company’s AccuPoint sanitation monitoring product line increased 18% in the third quarter and 19% for the year to date period, on sales strength in both reader equipment and consumable supplies. Sales of test kits to detect pathogens increased 22% in the third quarter, led by strength inListeria products, including the Company’s newListeria Right Now test kit that launched earlier in the fiscal year.development. The Company also benefitted from strong sales of equipment used with the Company’s ANSR line of test kits to detect various pathogens, as the Company gained new customers; overall pathogen revenues increased 14% for the year to date period. Revenues for the Company’s consumable product lineslaunched a next generation system to detect spoilage organisms in processed foods, decreased 2%the Soleris NG, in the currentfirst quarter but increased 3% for the nine month period.
Dehydrated Culture Media & Other sales increased 1% in the third quarter. This category includes forensic test kits sold through the Company’s Brazilian subsidiary. Demand for these kits from customers located in Brazil had increased dramatically in the prior year due to a new requirement for drug testing of commercial truck drivers, however, salesfiscal 2021.
Genomics Services revenue recorded in the Food Safety segment increased 46% and 40% for the three and nine month periods, respectively, due primarily to growth of these services in Europe.
Sales for the Company’s Animal Safety segment were $48.2 million in the third quarter, an increase of 6% over the same period a year ago. Revenues for the nine month period increased 7% to $149 million compared to $139.7 million in the prior year. Organic growth in this segment was 5% and 6% in the three and nine month periods, respectively; the Neogen Australasia acquisition in September 2017 contributed the remainder of the growth. Sales of Life Sciences products increased 19% in the third quarter, partially due to order timing, and have risen 5% for the year to date period. The Company has increased volumes of forensic test kits sold to commercial labs in the U.S.
Veterinary Instruments & Disposables revenues increased 6% and 12% for the three and nine month periods, respectively. For both periods, the increase is primarily the result of strength in detectable needles, syringes and animal marking products. Sales of Animal Care & Other products increased 19% in the quarter ended February 28, 2018, compared to the same period in the prior year; the year to date increase was 12%. The increase in the current year is due to market share gains of supplements for companion animals and vitamin injectables, and increased sales of vaccines to a large distributor; additionally, last year’s results included sales credits totaling $1.1$18.9 million in the first quarter as the Company removed its canine thyroid product from its distribution channels, after the FDA approved a new drug application for a competitive product.
Rodenticides, Insecticides & Disinfectants sales decreased 9% in the quarter and 5% for the year to date period, as the termination of a distribution agreement with a manufacturer of cleaners and disinfectants in January 2017 resulted in lost sales for those distributed products of $1.4 million in the third quarter of the current fiscal year and $3.9 million for the year to date period. These losses were offset by an 11% increase in rodenticide sales in the third quarter as the Company gained incremental business with several large customers; year to date sales rose by 9%.
Genomics Services increased 19% in both the third quarter and year to date periods, respectively, each2021, compared to the same period in the prior year. The growth for both periods was led by increases in sales to the global cattle and companion animal markets, higher volumes from a large poultry customer and, to a lesser extent, revenues from the acquisition of Neogen Australasia, in September 2017.
Gross Margin
Gross margin was 47.5% in the third quarter of fiscal 2018 compared to 46.3% in the same quarter a year ago. Gross margins for the quarter were positively impacted by lower costs inputs at the Company’s genomics operations and favorable product mix towards higher margin diagnostic and animal care products; this improvement was somewhat offset by lower sales of mycotoxin test kits due to a prior year outbreak of DON in corn crops in the U.S. and western Europe, which did not recur in the current fiscal year. Gross margin for the nine month period ended February 28, 2018 was 48.0% compared to 47.6%$16.3 million in the same period of the prior year. Gross margins for the year to date were positively impacted by improved raw material costs at the Company’s genomics operations and favorable product mix towards higher margin diagnostic and animal care products; this improvement was somewhat offset by mix
17
changes resulting from the three most recent acquisitions (Rogama, Quat-Chem and Neogen Australasia), all of which have gross margins that are lower than the historical average for the Company, and lower sales of mycotoxin test kits due to a prior year outbreak of DON in corn crops in the U.S. and western Europe, which did not recur in the current fiscal year.
Operating Expenses
Operating expenses were $29.6 million in the third quarter, compared to $26.5 million in the same quarter of last fiscal year, an
increase of $3.1 million, or 12%. Sales and marketing expenses were $17.5 million, compared to $15.3 million in last year’s third quarter, an increase of 14%, primarily due to increases in salaries and related personnel costs, shipping expense, and higher advertising expenses in support of new product launches. General and administrative expense increased $700,000, or 9%, in the third quarter; increases in amortization of acquired intangible assets, IT consulting, and higher salary expenses were partially offset by lower stock based compensation expense resulting from forfeitures due to employee retirements and reduced legal expenses. In last year’s third quarter, the Company closed on two acquisitions, while there were none in this year’s third quarter. For the year to date period, research and development expense increased 7% in the third quarter to a total of $2.8 million. Increases were due to increases in compensation, higher depreciation resulting from investments in laboratory equipment, and projects relating to product improvements and new product development. For the year to date, research and development expenses increased 10%. Operating expenses for the nine month period were $90.3 million, an increase of $11.3 million, or 14% over the same period last fiscal year. The recent acquisitions accounted for $2.8 million of the increase.
Operating Income
Operating income was $15.9 million in the third quarter, an increase of $1.5 million, or 11%, compared to operating income of
$14.4 million in the prior year. Expressed as a percentage of revenue, operating income was 16.6%17.3% compared to 16.2%16.0% in last year’s
third first quarter. The improvement in operating margin percentage for the comparative quarter was primarilyis the result of higher gross margins offset somewhat bythe increase in revenues and lower operating expenses which rose more than the rate of the overall revenue increase. For the nine months ended February 28, 2018, operating income was $50.3 million, an increase of $4.4 million, or 10%, compared to operating income of $45.9 million for the same period last year. Expressed as a percentage of revenue, year to date operatingquarter.
Three Months ended August 31, | ||||||||
(dollars in thousands) | 2020 | 2019 | ||||||
Interest income (net of expense) | $ | 722 | $ | 1,510 | ||||
Foreign currency transactions | 175 | (117 | ) | |||||
Royalty income | — | 1 | ||||||
Other | 18 | (7 | ) | |||||
Total Other Income | $ | 915 | $ | 1,387 | ||||
Other Income and Income Tax
Other income was $1.4 million for both the thirdfirst quarter of fiscal 20182021 compared to the prior year is the result of lower yields on our cash and marketable securities balances, as interest rates dropped significantly in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. Other income resulting from foreign currency transactions is the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate; during the first quarter of 2021, the pound and the same period in 2017. Components of other income in this year’s third quarter included $525,000 of interest income, $360,000 from an insurance settlement, $179,000 in currency gains and a $255,000 gain recorded on the settlement of contingent consideration relatedeuro rose relative to the Quat-Chem acquisition. Last year’sdollar, while the peso and the real declined. In the first quarter of fiscal third quarter included a gain on2020, all of the settlement of a licensing agreement of $660,000, currency gains of $442,000, and interest income of $271,000. Forcurrencies in those countries depreciated against the year to date period in fiscal 2018, other income was $3.2 million, primarily comprised of $1.3 million of interest income, currency gains of $1.1 million, $360,000 from an insurance settlement, $255,000 gain recorded on the settlement of contingent consideration related to the Quat-Chem acquisition, and $78,000 of royalty income. For the same period in fiscal 2017, other income was $1.8 million, which included interest income of $691,000, gain on the settlement of a licensing agreement of $660,000, currency gains of $263,000, and royalty income of $79,000.
dollar.
18
For the first nine months of fiscal 2018, income tax expense was $7.9 million compared to $16.3 million in the prior year; the current year to date effective tax rate was 15%, compared to an effective tax rate of 34% in17.0%. For each quarter, the prior fiscal year. Forprimary difference between the year to date period,statutory rate of 21% and the lower effective raterates recorded is primarily the result of the tax reform passed in the U.S. in December 2017 as discussed in the preceding paragraph. Additionally, during the year the Company has recorded credits of $3.4 million to federal income tax expense for excess tax benefitsbenefit resulting from the exercise of stock options,options; this benefit was $421,000 in the first quarter of fiscal 2021 compared to $769,000 in the first quarter of the prior year. The benefit was lower due to the adoptiondecreased volume of ASU2016-09; refer to Note 5 ofoption exercises during the Company’s Consolidated Financial Statementscomparative periods, and a reduction in benefit realized, on average, for further information. Ineach transaction. Additionally, we recorded a lower tax benefit in the secondfirst quarter of fiscal 2018,2021 relating to foreign derived income, compared to the prior year first quarter.
Net Income
Net income attributable to Neogen increased 61% from $10.3 million to $16.6 million for the three month period ended February 28,
2018. For the year to date period, net income was $45.6 million, a 46% increase over prior year net income of $31.3 million. Pre tax income increases of 10% for the quarter and 12% for the year to date were favorably impacted by the effects of tax reform, excess tax benefits from the exercise of stock options, and positive results from the IRS examination that concluded during the year’s second quarter.
taxes.
Accounts2021.
ensure we have adequate supplies of critical raw and finished products in the event our supply chain is adversely impacted by the
19
collection.
As discussed in ITEM 1A. RISK FACTORS of the Form
20
10 Amended and Restated Credit Agreement dated as of November 30, 2018 between Registrant and JP Morgan Chase N.A. (incorporated by reference to Exhibit 10.A of the registrant’s Form 8-K filed on December 6, 2018). 31.1 Certification of Principal Executive Officer pursuant to Rule13a-14(a).31.2 Certification of Principal Financial Officer pursuant to Rule13a-14(a).32 Certification pursuantPursuant to 18 U.S.C. sectionSection 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) 21
Dated: Dated: NEOGEN CORPORATION March 29, 2018 /s/ James L. Herbert James L. Herbert Executive ChairmanJohn E. Adent President & Chief Executive Officer (Principal Executive Officer) March 29, 2018 Steven J. Quinlan Vice President & Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 22