☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
November 30, 2020.
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.16 par value per share | NEOG | NASDAQ Global Select Market |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ | |||||||
Emerging growth company | ☐ |
Page No. | ||||||||||
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Item 4. | 27 | |||||||||
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Item 6. | ||||||||||
29 | ||||||||||
CEO Certification | ||||||||||
CFO Certification | ||||||||||
Section 906 Certification |
1
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 | ||||||
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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 | ||||||
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Total Assets | $ | 595,601 | $ | 528,409 | ||||
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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 | ||||||
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Total Current Liabilities | 37,293 | 36,002 | ||||||
Deferred Income Taxes | 11,400 | 17,048 | ||||||
Non-Current Liabilities | 4,973 | 3,602 | ||||||
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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 | ||||||
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Total Neogen Corporation Stockholders’ Equity | 541,655 | 471,614 | ||||||
Non-controlling interest | 280 | 143 | ||||||
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Total Equity | 541,935 | 471,757 | ||||||
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Total Liabilities and Equity | $ | 595,601 | $ | 528,409 | ||||
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November 30, | May 31, | |||||||
2020 | 2020 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 113,867 | $ | 66,269 | ||||
Marketable securities | 276,898 | 277,404 | ||||||
Accounts receivable, less allowance of $1,350 and $1,350 at November 30, 2020 and May 31, 2020, respectively | 79,931 | 84,681 | ||||||
Inventories | 92,529 | 95,053 | ||||||
Prepaid expenses and other current assets | 15,201 | 13,999 | ||||||
Total Current Assets | 578,426 | 537,406 | ||||||
Net Property and Equipment | 83,774 | 78,671 | ||||||
Other assets | ||||||||
Right of use assets | 1,540 | 1,952 | ||||||
Goodwill | 111,687 | 110,340 | ||||||
Other non-amortizable intangible assets | 15,378 | 15,217 | ||||||
Amortizable intangible and other assets, net of accumulated amortization of $48,546 and $44,690 at November 30, 2020 and May 31, 2020, respectively | 54,821 | 53,596 | ||||||
Total Assets | $ | 845,626 | $ | 797,182 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 20,697 | $ | 25,650 | ||||
Accrued compensation | 8,321 | 7,735 | ||||||
Income taxes | 476 | 1,456 | ||||||
Other accruals | 15,093 | 13,648 | ||||||
Total Current Liabilities | 44,587 | 48,489 | ||||||
Deferred Income Taxes | 18,391 | 18,125 | ||||||
Other Non-Current Liabilities | 5,253 | 5,391 | ||||||
Total Liabilities | 68,231 | 72,005 | ||||||
Commitments and Contingencies (note 11) | 0 | 0 | ||||||
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, 53,244,057 and 52,945,841 shares issued and outstanding at November 30, 2020 and May 31, 2020, respectively | 8,519 | 8,471 | ||||||
Additional paid-in capital | 273,495 | 257,693 | ||||||
Accumulated other comprehensive loss | (15,086 | ) | (19,709 | ) | ||||
Retained earnings | 510,467 | 478,722 | ||||||
Total Stockholders’ Equity | 777,395 | 725,177 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 845,626 | $ | 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 | ||||||||||||
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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 | ||||||||||||
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Total Cost of Revenues | 50,371 | 47,505 | 152,302 | 137,797 | ||||||||||||
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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 | ||||||||||||
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Total Operating Expenses | 29,608 | 26,529 | 90,328 | 79,005 | ||||||||||||
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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 | ||||||||||||
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Total Other Income | 1,368 | 1,376 | 3,235 | 1,788 | ||||||||||||
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Income Before Taxes | 17,281 | 15,727 | 53,570 | 47,733 | ||||||||||||
Provision for Income Taxes | 700 | 5,350 | 7,900 | 16,250 | ||||||||||||
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Net Income | 16,581 | 10,377 | 45,670 | 31,483 | ||||||||||||
Net (Income)/Loss Attributable toNon-Controlling Interest | 5 | (90 | ) | (70 | ) | (163 | ) | |||||||||
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Net Income Attributable to Neogen | $ | 16,586 | $ | 10,287 | $ | 45,600 | $ | 31,320 | ||||||||
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Net Income Attributable to Neogen Per Share | ||||||||||||||||
Basic | $ | 0.32 | $ | 0.20 | $ | 0.89 | $ | 0.62 | ||||||||
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Diluted | $ | 0.32 | $ | 0.20 | $ | 0.88 | $ | 0.61 | ||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
Product revenues | $ | 92,537 | $ | 87,387 | $ | 180,472 | $ | 169,335 | ||||||||
Service revenues | 22,463 | 20,416 | 43,853 | 39,892 | ||||||||||||
Total Revenues | 115,000 | 107,803 | 224,325 | 209,227 | ||||||||||||
Cost of Revenues | ||||||||||||||||
Cost of product revenues | 49,275 | 45,559 | 95,870 | 87,590 | ||||||||||||
Cost of service revenues | 12,511 | 11,218 | 24,939 | 22,417 | ||||||||||||
Total Cost of Revenues | 61,786 | 56,777 | 120,809 | 110,007 | ||||||||||||
Gross Margin | 53,214 | 51,026 | 103,516 | 99,220 | ||||||||||||
Operating Expenses | ||||||||||||||||
Sales and marketing | 17,729 | 17,988 | 34,245 | 35,531 | ||||||||||||
General and administrative | 12,184 | 10,985 | 23,197 | 21,684 | ||||||||||||
Research and development | 4,056 | 3,781 | 7,934 | 7,469 | ||||||||||||
Total Operating Expenses | 33,969 | 32,754 | 65,376 | 64,684 | ||||||||||||
Operating Income | 19,245 | 18,272 | 38,140 | 34,536 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest income | 555 | 1,271 | 1,277 | 2,781 | ||||||||||||
Other expense | (465 | ) | (317 | ) | (272 | ) | (439 | ) | ||||||||
Total Other Income | 90 | 954 | 1,005 | 2,342 | ||||||||||||
Income Before Taxes | 19,335 | 19,226 | 39,145 | 36,878 | ||||||||||||
Provision for Income Taxes | 3,450 | 2,950 | 7,400 | 5,950 | ||||||||||||
Net Income | $ | 15,885 | $ | 16,276 | $ | 31,745 | $ | 30,928 | ||||||||
Net Income Per Share | ||||||||||||||||
Basic | $ | 0.30 | $ | 0.31 | $ | 0.60 | $ | 0.59 | ||||||||
Diluted | $ | 0.30 | $ | 0.31 | $ | 0.60 | $ | 0.59 | ||||||||
Weighted Average Shares Outstanding | ||||||||||||||||
Basic | 53,129 | 52,557 | 53,022 | 52,355 | ||||||||||||
Diluted | 53,404 | 52,876 | 53,300 | 52,712 |
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 | ) | |||||||||||
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Comprehensive income | 17,744 | 10,818 | 47,570 | 27,740 | ||||||||||||
Comprehensive loss (income) attributable tonon-controlling interest | 5 | (90 | ) | (70 | ) | (163 | ) | |||||||||
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Comprehensive income attributable to Neogen | $ | 17,749 | $ | 10,728 | $ | 47,500 | $ | 27,577 | ||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 15,885 | $ | 16,276 | $ | 31,745 | $ | 30,928 | ||||||||
Other comprehensive income (loss), net of tax: foreign currency translations | 938 | 2,367 | 5,059 | (691 | ) | |||||||||||
Other comprehensive income (loss), net of tax: unrealized gain (loss) on marketable securities | (317 | ) | (149 | ) | (436 | ) | 413 | |||||||||
Total comprehensive income | $ | 16,506 | $ | 18,494 | $ | 36,368 | $ | 30,650 | ||||||||
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 | ||||||||||||||||||||||||||
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Balance February 28, 2018 | 51,583 | $ | 8,253 | $ | 197,246 | $ | (5,303 | ) | $ | 341,459 | $ | 280 | $ | 541,935 | ||||||||||||||
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Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | 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 | ||||||||||||
Exercise of options and share-based compensation expense | 203 | 32 | 9,311 | — | — | 9,343 | ||||||||||||||||||
Net income for the three months ended November 30, 2020 | — | — | — | — | 15,885 | 15,885 | ||||||||||||||||||
Other comprehensive income for the three months ended November 30, 2020 | — | — | — | 621 | — | 621 | ||||||||||||||||||
Balance, November 30, 2020 | 53,244 | 8,519 | 273,495 | $ | (15,086 | ) | $ | 510,467 | $ | 777,395 | ||||||||||||||
Balance, June 1, 2019 | 52,217 | $ | 8,355 | $ | 221,937 | $ | (11,640 | ) | $ | 419,247 | $ | 637,899 | ||||||||||||
Exercise of options and share-based compensation plan | 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 | ||||||||||||
Exercise of options and share-based compensation plan | 288 | 47 | 12,070 | — | — | 12,117 | ||||||||||||||||||
Net income for the three months ended November 30, 2019 | — | — | — | — | 16,276 | 16,276 | ||||||||||||||||||
Other comprehensive income for the three months ended November 30, 2019 | — | — | — | 2,218 | — | 2,218 | ||||||||||||||||||
Balance, November 30, 2019 | 52,711 | 8,434 | 244,226 | (11,918 | ) | 450,175 | 690,917 | |||||||||||||||||
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 | |||||
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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 | ) | ||||
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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 | ||||||
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Net Cash Provided By Financing Activities | 18,916 | 19,515 | ||||||
Effect of Exchange Rates on Cash | (207 | ) | (888 | ) | ||||
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Net Increase In Cash and Cash Equivalents | 4,499 | 4,626 | ||||||
Cash And Cash Equivalents At Beginning Of Period | 77,567 | 55,257 | ||||||
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Cash And Cash Equivalents At End Of Period | $ | 82,066 | $ | 59,883 | ||||
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Six Months Ended | ||||||||
November 30, | ||||||||
2020 | 2019 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Income | $ | 31,745 | $ | 30,928 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 9,523 | 8,985 | ||||||
Share-based compensation | 3,192 | 3,155 | ||||||
Change in operating assets and liabilities, net of business acquisitions: | ||||||||
Accounts receivable | 6,662 | (2,483 | ) | |||||
Inventories | 4,063 | (103 | ) | |||||
Prepaid expenses and other current assets | (2,080 | ) | (1,323 | ) | ||||
Accounts payable, accruals and other changes | (5,581 | ) | 1,313 | |||||
Net Cash From Operating Activities | 47,524 | 40,472 | ||||||
Cash Flows For Investing Activities | ||||||||
Purchases of property, equipment and other non-current intangible assets | (11,092 | ) | (12,806 | ) | ||||
Proceeds from the sale of marketable securities | 309,030 | 199,708 | ||||||
Purchases of marketable securities | (308,524 | ) | (220,528 | ) | ||||
Business acquisitions, net of cash acquired | (2,350 | ) | — | |||||
Net Cash For Investing Activities | (12,936 | ) | (33,626 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Exercise of stock options and issuance of employee stock purchase plan shares | 12,658 | 19,213 | ||||||
Net Cash From Financing Activities | 12,658 | 19,213 | ||||||
Effect of Foreign Exchange Rates on Cash | 352 | (1,333 | ) | |||||
Net Increase In Cash and Cash Equivalents | 47,598 | 24,726 | ||||||
Cash and Cash Equivalents, Beginning of Period | 66,269 | 41,688 | ||||||
Cash and Cash Equivalents, End of Period | $ | 113,867 | $ | 66,414 | ||||
AND CONSOLIDATION
2020.
November 30, | May 31, | |||||||||||
(in thousands) | Maturity | 2020 | 2020 | |||||||||
US Treasuries | 0 - 90 days | $ | 0 | $ | 0 | |||||||
91 - 180 days | 0 | 0 | ||||||||||
181 days - 1 year | 0 | 2,532 | ||||||||||
1 - 2 years | 0 | 0 | ||||||||||
Commercial Paper & Corporate Bonds | 0 - 90 days | 114,237 | 133,130 | |||||||||
91 - 180 days | 132,758 | 73,824 | ||||||||||
181 days - 1 year | 15,978 | 43,231 | ||||||||||
1 - 2 years | 1,830 | 7,839 | ||||||||||
Certificates of Deposit | 0 - 90 days | 4,012 | 1,003 | |||||||||
91 - 180 days | 2,260 | 5,184 | ||||||||||
181 days - 1 year | 4,553 | 6,069 | ||||||||||
1 - 2 years | 1,270 | 4,592 | ||||||||||
Total Marketable Securities | $ | 276,898 | $ | 277,404 | ||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
(in thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
US Treasuries | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial Paper & Corporate Bonds | 264,616 | 338 | (151 | ) | 264,803 | |||||||||||
Certificates of Deposit | 12,009 | 86 | — | 12,095 | ||||||||||||
Total Marketable Securities | $ | 276,625 | $ | 424 | $ | (151 | ) | $ | 276,898 | |||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
(in thousands) | Cost | Gains | 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 | ||||||
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$ | 77,506 | $ | 73,144 | |||||
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3.
November 30, | May 31, | |||||||
(in thousands) | 2020 | 2020 | ||||||
Raw materials | $ | 45,269 | $ | 45,058 | ||||
Work-in-process | 6,020 | 6,887 | ||||||
Finished and purchased goods | 41,240 | 43,108 | ||||||
$ | 92,529 | $ | 95,053 | |||||
November 30, | May 31, | |||||||
(in thousands) | 2020 | 2020 | ||||||
Right of use - assets | $ | 1,540 | $ | 1,952 | ||||
Lease liabilities - current | 444 | 1,054 | ||||||
Lease liabilities - non-current | 1,062 | 913 |
November 30, 2020 | May 31, 2020 | |||||||
Weighted average remaining lease term | 2.4 years | 2.5 years | ||||||
Weighted average discount rate | 3.1 | % | 3.2 | % |
Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||
(in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Operating leases | $ | 440 | $ | 333 | $ | 645 | $ | 573 | ||||||||
Short term leases | 16 | 34 | 60 | 81 | ||||||||||||
Total lease expense | $ | 456 | $ | 367 | $ | 705 | $ | 654 | ||||||||
Amount | ||||
Years ending May 31, 2021 (1) | $ | 444 | ||
2022 | 613 | |||
2023 | 338 | |||
2024 | 169 | |||
2025 | 44 | |||
2026 and thereafter | 0 | |||
Total lease payments | 1,608 | |||
Less: imputed interest | 101 | |||
Total lease liabilities | $ | 1,507 | ||
(1) | Excluding the six months ended November 30, 2020. |
Three Months ended November 30, | Six Months ended November 30, | |||||||||||||||
(in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 20,001 | $ | 20,681 | $ | 39,016 | $ | 40,796 | ||||||||
Bacterial & General Sanitation | 11,235 | 11,615 | 21,166 | 21,931 | ||||||||||||
Culture Media & Other | 13,296 | 12,757 | 24,689 | 24,037 | ||||||||||||
Rodenticides, Insecticides & Disinfectants | 7,978 | 7,447 | 17,586 | 12,896 | ||||||||||||
Genomics Services | 5,024 | 4,354 | 9,262 | 8,216 | ||||||||||||
$ | 57,534 | $ | 56,854 | $ | 111,719 | $ | 107,876 | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,398 | $ | 1,803 | $ | 2,723 | $ | 3,525 | ||||||||
Veterinary Instruments & Disposables | 11,974 | 10,486 | 22,349 | 21,822 | ||||||||||||
Animal Care & Other | 9,371 | 7,787 | 17,029 | 14,193 | ||||||||||||
Rodenticides, Insecticides & Disinfectants | 18,471 | 16,186 | 38,385 | 32,904 | ||||||||||||
Genomics Services | 16,252 | 14,687 | 32,120 | 28,907 | ||||||||||||
$ | 57,466 | $ | 50,949 | $ | 112,606 | $ | 101,351 | |||||||||
Total Revenues | $ | 115,000 | $ | 107,803 | $ | 224,325 | $ | 209,227 | ||||||||
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 of Directors declared a
Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||
(in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Numerator for basic and diluted net income per share: | ||||||||||||||||
Net income attributable to Neogen | $ | 15,885 | $ | 16,276 | $ | 31,745 | $ | 30,928 | ||||||||
Denominator for basic net income per share: | ||||||||||||||||
Weighted average shares | 53,129 | 52,557 | 53,022 | 52,355 | ||||||||||||
Effect of dilutive stock options and RSUs | 275 | 319 | 278 | 357 | ||||||||||||
Denominator for diluted net income per share | 53,404 | 52,876 | 53,300 | 52,712 | ||||||||||||
Net income attributable to Neogen per share: | ||||||||||||||||
Basic | $ | 0.30 | $ | 0.31 | $ | 0.60 | $ | 0.59 | ||||||||
Diluted | $ | 0.30 | $ | 0.31 | $ | 0.60 | $ | 0.59 | ||||||||
7
4.
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 November 30, 2020 | ||||||||||||||||
Product revenues to external customers | $ | 51,323 | $ | 41,214 | $ | — | $ | 92,537 | ||||||||
Service revenues to external customers | 6,211 | 16,252 | — | 22,463 | ||||||||||||
Total revenues to external customers | 57,534 | 57,466 | — | 115,000 | ||||||||||||
Operating income (loss) | 8,960 | 12,246 | (1,961 | ) | 19,245 | |||||||||||
Total assets | 226,735 | 228,126 | 390,765 | 845,626 | ||||||||||||
As of and for the three months ended November 30, 2019 | ||||||||||||||||
Product revenues to external customers | $ | 51,188 | $ | 36,199 | $ | — | $ | 87,387 | ||||||||
Service revenues to external customers | 5,666 | 14,750 | — | 20,416 | ||||||||||||
Total revenues to external customers | 56,854 | 50,949 | — | 107,803 | ||||||||||||
Operating income (loss) | 9,556 | 9,729 | (1,013 | ) | 18,272 | |||||||||||
Total assets | 212,928 | 224,058 | 313,605 | 750,591 |
(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
5.
Corporate and | ||||||||||||||||
Food | Animal | Eliminations | ||||||||||||||
(in thousands) | Safety | Safety | (1) | Total | ||||||||||||
As of and for the six months ended November 30, 2020 | ||||||||||||||||
Product revenues to external customers | $ | 99,986 | $ | 80,486 | $ | — | $ | 180,472 | ||||||||
Service revenues to external customers | 11,733 | 32,120 | — | 43,853 | ||||||||||||
Total revenues to external customers | 111,719 | 112,606 | — | 224,325 | ||||||||||||
Operating income (loss) | 16,923 | 24,411 | (3,194 | ) | 38,140 | |||||||||||
As of and for the six months ended November 30, 2019 | ||||||||||||||||
Product revenues to external customers | $ | 97,065 | $ | 72,270 | $ | — | $ | 169,335 | ||||||||
Service revenues to external customers | 10,811 | 29,081 | — | 39,892 | ||||||||||||
Total revenues to external customers | 107,876 | 101,351 | — | 209,227 | ||||||||||||
Operating income (loss) | 18,690 | 18,029 | (2,183 | ) | 34,536 |
(1) | Includes elimination of intersegment transactions. |
Three months ended | Six months ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
(in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Domestic | $ | 69,832 | $ | 63,317 | $ | 137,156 | $ | 126,657 | ||||||||
International | 45,168 | 44,486 | 87,169 | 82,570 | ||||||||||||
Total revenue | 115,000 | 107,803 | 224,325 | 209,227 | ||||||||||||
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 over three and five year periods and the contractual terms are generally five or ten years. A summary of stock option activity during the nine
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 |
During the three and nine month periods ended February 28, 2018 and 2017, the Company recorded $1,026,000 and $1,198,000 and $3,692,000 and $3,932,000, respectively, of compensation expense related to its share-based awards. On June 1, 2017, the Company adopted ASUNo. 2016-09, which simplifies the accounting for share-based payments to employees. The guidance requires the recognition of the income 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 a policy election to account for forfeitures as they occur, rather than on an estimated basis, and requires that excess tax benefits be classified as an operating activity on the Statement of Cash Flows. The 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.
Weighted- | ||||||||
Average | ||||||||
(Options in thousands) | Shares | Exercise Price | ||||||
Options outstanding June 1, 2020 | 2,162 | $ | 55.96 | |||||
Granted | 202 | 68.47 | ||||||
Exercised | (294 | ) | 42.04 | |||||
Forfeited | (160 | ) | 57.26 | |||||
Options outstanding November 30, 2020 | 1,910 | $ | 59.29 |
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.
FY 2021 | ||
Risk-free interest rate | 0.2% | |
Expected dividend yield | 0.0% | |
Expected stock price volatility | 31.3% | |
Expected option life | 3.25 years |
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 Latin America operation.
8.
The Company has
9.November 30, 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 of Directors in calendar year 2008, to purchase, subject to market conditions, up to 1,500,000 shares of the Company’s common stock. As of February 28, 2018, 1,350,632 shares were available to be repurchased under the program. There were no purchases in fiscal year 2017 and there have been none thus far in fiscal year 2018.
12
Critical Accounting Policies
The discussion safety of our employees. While essential operations continue in our locations around the world, the majority of our
There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed$107.8 million in the Company’s Annual Report on Form10-K for thesecond quarter of 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 changes2020. Organic sales growth in the Tax Act. The measurementsecond quarter of fiscal 2021 was 5%. For the six month 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, 2018consolidated revenues were $95.9$224.3 million, an increase of 8%, or $7.5 million,7% compared to $209.2 million in the same period in the prior fiscal year. On a year to date basis, organic sales rose 5%.
Three Months Ended | Six Months Ended | |||||||
November 30, 2020 | November 30, 2020 | |||||||
Revenue | Revenue | Revenue | Revenue | |||||
% Inc (Dec) | % Inc (Dec) | % Inc (Dec) | % Inc (Dec) | |||||
USD | Local Currency | USD | Local Currency | |||||
U.K Operations | 9% | 6% | 15% | 12% | ||||
Brazil Operations | (22)% | 4% | (11)% | 19% | ||||
Neogen Latinoamerica | 13% | 23% | 6% | 18% | ||||
Neogen China | 59% | 51% | 77% | 72% | ||||
Neogen India | 5% | 8% | 7% | 12% | ||||
Neogen Canada | (17)% | (17)% | (14)% | (14)% | ||||
Neogen Australasia | 81% | 71% | 74% | 67% |
Three Months Ended November 30, | ||||||||||||||||
Increase/ | ||||||||||||||||
(in thousands) | 2020 | 2019 | (Decrease) | % | ||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 20,001 | $ | 20,681 | $ | (680 | ) | (3 | )% | |||||||
Bacterial & General Sanitation | 11,235 | 11,615 | (380 | ) | (3 | )% | ||||||||||
Culture Media & Other | 13,296 | 12,757 | 539 | 4 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 7,978 | 7,447 | 531 | 7 | % | |||||||||||
Genomics Services | 5,024 | 4,354 | 670 | 15 | % | |||||||||||
$ | 57,534 | $ | 56,854 | $ | 680 | 1 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,398 | $ | 1,803 | $ | (405 | ) | (22 | )% | |||||||
Veterinary Instruments & Disposables | 11,974 | 10,486 | 1,488 | 14 | % | |||||||||||
Animal Care & Other | 9,371 | 7,787 | 1,584 | 20 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 18,471 | 16,186 | 2,285 | 14 | % | |||||||||||
Genomics Services | 16,252 | 14,687 | 1,565 | 11 | % | |||||||||||
$ | 57,466 | $ | 50,949 | $ | 6,517 | 13 | % | |||||||||
Total Revenues | $ | 115,000 | $ | 107,803 | $ | 7,197 | 7 | % | ||||||||
Six Months Ended November 30, | ||||||||||||||||
Increase/ | ||||||||||||||||
(in thousands) | 2020 | 2019 | (Decrease) | % | ||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 39,016 | $ | 40,796 | $ | (1,780 | ) | (4 | )% | |||||||
Bacterial & General Sanitation | 21,166 | 21,931 | (765 | ) | (3 | )% | ||||||||||
Culture Media & Other | 24,689 | 24,037 | 652 | 3 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 17,586 | 12,896 | 4,690 | 36 | % | |||||||||||
Genomics Services | 9,262 | 8,216 | 1,046 | 13 | % | |||||||||||
$ | 111,719 | $ | 107,876 | $ | 3,843 | 4 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 2,723 | $ | 3,525 | $ | (802 | ) | (23 | )% | |||||||
Veterinary Instruments & Disposables | 22,349 | 21,822 | 527 | 2 | % | |||||||||||
Animal Care & Other | 17,029 | 14,193 | 2,836 | 20 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 38,385 | 32,904 | 5,481 | 17 | % | |||||||||||
Genomics Services | 32,120 | 28,907 | 3,213 | 11 | % | |||||||||||
$ | 112,606 | $ | 101,351 | $ | 11,255 | 11 | % | |||||||||
Total Revenues | $ | 224,325 | $ | 209,227 | $ | 15,098 | 7 | % | ||||||||
genomics services sold through our international Food Safety segment revenuesoperations increased 11%15% and Animal Safety segment revenues increased 6%13% for the three and six month periodperiods ended February 28, 2018, each comparedNovember 30, 2020, respectively. The increase for both periods was primarily from sales increases in China, due to the same periodincreased testing in the prior year. For the quarter, the overall organic sales increase was 7%; organic growthpork industry, gains in beef and dairy cattle testing and project work in aquaculture.
International sales were $37.4 million in the third quarter of fiscal 2018, an increase of 17% compared to the same period in the prior year. Expressed as a percentage of sales, international sales were 39.0% in the quarter, compared to 36.3% in the third quarter a year ago. For the year to date, international sales were $110.5 million, an increase of 20%; international sales were 37.7% of total sales in the current year to date period and 35.1% in the prior year. For each comparative period, international revenue increases were the result of the acquisitions of Quat-Chem (England), Rogama (Brazil) and Neogen Australasia (Australia), and to a lesser extent, revenue increases at existing Company locations. Currency translation had a positive effect on international revenues of approximately $1.9 million in the third quarter of fiscal 2018 as the pound, euro, and peso were stronger on average against the dollar than the same period a year ago; for the year to date period, the positive revenue impact was $2.5 million.
Revenues at Neogen Europe increased 16% in U.S. dollars in the thirdsecond quarter, compared to the same period in the prior year; for the nineyear to date, the decrease in this product line is 23%. The decline in both periods is due primarily to lower sales of drug test kits to commercial laboratories, as they processed fewer samples due to slowdowns from the
Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Interest income (net of expense) | $ | 555 | $ | 1,271 | $ | 1,277 | $ | 2,781 | ||||||||
Foreign currency transactions | (432 | ) | (352 | ) | (256 | ) | (469 | ) | ||||||||
Insurance settlement | 309 | — | — | — | ||||||||||||
Legal settlement | (300 | ) | — | — | ||||||||||||
Other | (42 | ) | 35 | (16 | ) | 30 | ||||||||||
Total Other Income | $ | 90 | $ | 954 | $ | 1,005 | $ | 2,342 | ||||||||
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 thirdsecond quarter of the prior year. For the year to date, period, service revenuethe benefit was $48.7 million, an increase of $9.1 million, or 23%,$1,481,000 in fiscal 2021 compared to $39.6 million$1,973,000 in fiscal 2020. The increase in the prior year. The growth,effective tax rate for both the second quarter and year to date periods is the result of lower benefit from stock option exercises, increased taxes at international operations and a lower projected U.S. deduction in fiscal 2021 relating to foreign derived income.
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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 | % | |||||||||||
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$ | 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 | % | |||||||||||
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$ | 48,247 | $ | 45,436 | $ | 2,811 | 6 | % | |||||||||
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Total Revenues | $ | 95,892 | $ | 88,385 | $ | 7,507 | 8 | % | ||||||||
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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 | % | |||||||||||
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$ | 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 | % | |||||||||||
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$ | 149,025 | $ | 139,680 | $ | 9,345 | 7 | % | |||||||||
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Total Revenues | $ | 292,965 | $ | 262,747 | $ | 30,218 | 12 | % | ||||||||
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The Company’s Food Safety segment revenues were $47.6$15.9 million in the second quarter ended February 28, 2018, an increase of 11%fiscal 2021, compared to the same period in the prior year. For the nine month period, Food Safety revenues increased 17% to $143.9 million. Organic growth for the segment was 9% for both the quarter and year to date periods, with the acquisition of Rogama, occurring on December 21, 2016, contributing the remainder of the growth.
Natural Toxins, Allergens & Drug Residues sales increased 2% in the third quarter; revenues for the year 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
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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. 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 lines to detect spoilage organisms in processed foods decreased 2% in the current 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, sales of these kits in Brazil have decreased in the current year as a result of increased competition and customer losses caused by conversion to different testing methods. In the third quarter, the Company’s worldwide Lab M sales increased 21% and Acumedia sales increased 6%.
Sales of Rodenticides, Insecticides & Disinfectants products sold through the Company’s Food Safety operations increased 46% in the third quarter; the organic sales increase in this category was 29%. For the nine month period, sales increased $11.1 million; excluding first year sales of the Quat-Chem and Rogama acquisitions, the year to date sales increase was 16%. In the third quarter, the increase was primarily due to Rogama shipping a large order resulting from a government contract; this sale is unlikely to recur in the next 12 months. The increase in sales was partially offset by termination of a distribution agreement in January 2017, which resulted in a decline in sales for those distributed products of $143,000 in the third quarter and $859,000 for the year to date.
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$16.3 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 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, each compared to the same period in the prior year. The growthdecline in earnings for both periodsthis year’s second quarter 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 fromresult of the acquisition of Neogen Australasia, in September 2017.
Gross Margin
Gross margin was 47.5%increase 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% 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
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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.effective tax rate. For the year to date, period, research and development expensenet income increased 7% in the third quarter3% from $30.9 million 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$31.7 million; six 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% compared to 16.2% in last year’s
third quarter. The improvement in operating margin percentage for the comparative quarter was primarily the result of higher gross margins offset somewhat by 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 operating income was 17.2% compared to 17.5% in the prior year.
Other Income and Income Tax
Other income was $1.4 million for both the third quarter of fiscal 2018 and the same period in 2017. Components of othernet income in this year’s third quarter included $525,000 of interest income, $360,000 from an insurance settlement, $179,000 in currency gains andfiscal 2021 was also negatively impacted by a $255,000 gain recorded on the settlement of contingent consideration related to the Quat-Chem acquisition. Last year’s fiscal third quarter included a gain on the settlement of a licensing agreement of $660,000, currency gains of $442,000, and interest income of $271,000. For 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.
Income tax expense in the third quarter was $700,000, anhigher effective tax rate of 4%, compared to prior year third quarter expense of $5.4 million, an effective tax rate of 34%. The Company recorded favorable tax adjustments totaling $2.9 million during the quarter as the result of tax reform passed in the U.S. in December 2017. The tax reform reduced the statutory federal income tax rate from 35% to 21%, and also resulted in other adjustments to income tax expense. The Company will compute its income tax for the fiscal year ending May 31, 2018 using a blended Federal Tax Rate of 29.2%. Accordingly, first and second quarter income previously subject to tax at the 35% Federal Tax Rate benefitted from the 29.2% Federal Tax Rate. As required by generally accepted accounting principles, the Company revalued its net deferred tax liabilities during the quarter to reflect the lower rate, resulting in a credit to income tax expense of $5.6 million. In addition, the Company was required to estimate its cumulative unrepatriated foreign earnings and profits and calculate tax owed on those earnings and profits during the third quarter. This tax was estimated at $2.7 million, and the amount was recorded as federal income tax expense; payment of the tax is permitted over an eight year period.
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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% in the prior fiscal year. For the year to date period, the lower effective rate 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 benefits from the exercise of stock options, due to the adoption of ASU2016-09; refer to Note 5 of the Company’s Consolidated Financial Statements for further information. In the second quarter of fiscal 2018, an IRS examination of the Company’s federal income tax returns for fiscal years 2014, 2015 and 2016 was concluded. As a result of the favorable outcome of the audit, the Company reversed a total of $816,000 from its reserve for uncertain tax positions, which had been accrued in prior fiscal years, with a corresponding credit to federal income tax expense.
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.
rate.
Accounts2021.
Net inventory balances were $77.5 million at February 28, 2018,bad debt write offs. We did provide an increase of $4.4 million, or 6%, compared to $73.1 millionadditional $100,000 at May 31, 2017. The Company2020 in our allowance for bad debts to account for potential write offs related to
levels in areas where it will not adversely affect customers.
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collection.
As discussed in ITEM 1A. RISK FACTORS of the Form
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NEOGEN CORPORATION Dated: March 29, 2018John E. Adent /s/ James L. HerbertJames L. HerbertExecutive Chairman(Principal Executive Officer) Dated: March 29, 2018Steven J. Quinlan Vice President & Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 22