☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
29, 2020.
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Michigan 38-2367843
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 | ☐ |
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Item 2. | 19 | ||||||
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Item 3. | 27 | ||||||
Item 4. | 27 | ||||||
Item 1. | 28 | ||||||
Item 1A. | 28 | ||||||
Item 6. | 28 | ||||||
29 | |||||||
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Sheets
February 28, 2019 | May 31, 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 93,576 | $ | 83,074 | ||||
Marketable securities (at fair value, which approximates cost) | 153,104 | 127,736 | ||||||
Accounts receivable, less allowance of $1,700 and $1,550 | 80,011 | 79,086 | ||||||
Inventories | 84,870 | 76,005 | ||||||
Prepaid expenses and other current assets | 11,041 | 9,888 | ||||||
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Total Current Assets | 422,602 | 375,789 | ||||||
Net Property and Equipment | 76,453 | 73,069 | ||||||
Other Assets | ||||||||
Goodwill | 104,077 | 99,558 | ||||||
Othernon-amortizable intangible assets | 15,658 | 14,783 | ||||||
Amortizable customer-based intangibles, net of accumulated amortization of $27,184 and $24,579 at February 28, 2019 and May 31, 2018, respectively | 30,007 | 31,841 | ||||||
Othernon-current assets, net of accumulated amortization of $12,304 and $12,470 at February 28, 2019 and May 31, 2018, respectively | 23,788 | 22,969 | ||||||
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Total Assets | $ | 672,585 | $ | 618,009 | ||||
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Liabilities and Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 18,952 | $ | 20,750 | ||||
Accrued compensation | 5,391 | 6,065 | ||||||
Income taxes | — | 165 | ||||||
Other accruals | 9,925 | 11,708 | ||||||
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Total Current Liabilities | 34,268 | 38,688 | ||||||
Deferred Income Taxes | 14,211 | 14,103 | ||||||
OtherNon-Current Liabilities | 4,190 | 5,043 | ||||||
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Total Liabilities | 52,669 | 57,834 | ||||||
Commitments and Contingencies (Note 8) | ||||||||
Equity | ||||||||
Preferred stock, $1.00 par value, 100,000 shares authorized, none issued and outstanding | — | — | ||||||
Common stock, $0.16 par value, 120,000,000 shares authorized, 52,120,422 and 51,735,732 shares issued and outstanding at February 28, 2019 and May 31, 2018, respectively | 8,339 | 8,278 | ||||||
Additionalpaid-in capital | 217,274 | 202,572 | ||||||
Accumulated other comprehensive loss | (9,129 | ) | (9,746 | ) | ||||
Retained earnings | 403,432 | 359,071 | ||||||
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Total Stockholders’ Equity | 619,916 | 560,175 | ||||||
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Total Liabilities and Equity | $ | 672,585 | $ | 618,009 | ||||
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February 29, 2020 | 2019 | |||||||
Unaudited | Un uditeda | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 50,774 | $ | 41,688 | ||||
Marketable securities | 277,149 | 225,836 | ||||||
Accounts receivable, less allowance of $1,400 and $1,700 at February 29, 2020 and May 31, 2019, respectively | 80,692 | 82,582 | ||||||
Inventories | 89,244 | 85,992 | ||||||
Prepaid expenses and other current assets | 17,016 | 13,431 | ||||||
Total Current Assets | 514,875 | 449,529 | ||||||
Net Property and Equipment | 78,394 | 74,847 | ||||||
Other Assets | ||||||||
Goodwill | 109,761 | 103,619 | ||||||
Other non-amortizable intangible assets | 15,425 | 15,649 | ||||||
Amortizable intangible and other assets, net of accumulated amortization of $43,397 and $40,835 at February 29,2020and May 31, 2019, respectively | 55,046 | 52,096 | ||||||
Total Assets | $ | 773,501 | $ | 695,740 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 18,994 | $ | 19,063 | ||||
Accrued compensation | 5,596 | 7,085 | ||||||
Income taxes | 1,479 | 601 | ||||||
Other accruals | 13,066 | 11,502 | ||||||
Total Current Liabilities | 39,135 | 38,251 | ||||||
Deferred Income Taxes | 16,343 | 15,618 | ||||||
Other Non-Current Liabilities | 6,152 | 3,972 | ||||||
Total Liabilities | 61,630 | 57,841 | ||||||
Commitments and Contingencies (note 8) | ||||||||
Equity | ||||||||
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding | — | — | ||||||
Common stock, $0.16 par value, 120,000,000 shares authorized, 52,910,832 and 52,216,589 shares issued and outstanding at February 29, 2020 and May 31, 2019, respectively | 8,466 | 8,355 | ||||||
Additional paid-in capital | 254,537 | 221,937 | ||||||
Accumulated other comprehensive loss | (13,507 | ) | (11,640 | ) | ||||
Retained earnings | 462,375 | 419,247 | ||||||
Total Stockholders’ Equity | 711,871 | 637,899 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 773,501 | $ | 695,740 | ||||
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues | ||||||||||||||||
Product revenues | $ | 77,375 | $ | 77,184 | $ | 249,897 | $ | 241,200 | ||||||||
Service revenues | 20,325 | 17,719 | 54,527 | 48,611 | ||||||||||||
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Total Revenues | 97,700 | 94,903 | 304,424 | 289,811 | ||||||||||||
Cost of Revenues | ||||||||||||||||
Cost of product revenues | 41,902 | 40,283 | 132,157 | 124,520 | ||||||||||||
Cost of service revenues | 11,170 | 10,019 | 30,877 | 27,517 | ||||||||||||
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Total Cost of Revenues | 53,072 | 50,302 | 163,034 | 152,037 | ||||||||||||
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Gross Margin | 44,628 | 44,601 | 141,390 | 137,774 | ||||||||||||
Operating Expenses | ||||||||||||||||
Sales and marketing | 16,722 | 16,572 | 52,454 | 49,442 | ||||||||||||
General and administrative | 10,018 | 9,280 | 30,337 | 29,096 | ||||||||||||
Research and development | 3,249 | 2,836 | 9,235 | 8,901 | ||||||||||||
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Total Operating Expenses | 29,989 | 28,688 | 92,026 | 87,439 | ||||||||||||
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Operating Income | 14,639 | 15,913 | 49,364 | 50,335 | ||||||||||||
Other Income | ||||||||||||||||
Interest income | 1,335 | 524 | 3,290 | 1,322 | ||||||||||||
Other income | 649 | 844 | 807 | 1,913 | ||||||||||||
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Total Other Income | 1,984 | 1,368 | 4,097 | 3,235 | ||||||||||||
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Income Before Taxes | 16,623 | 17,281 | 53,461 | 53,570 | ||||||||||||
Provision for Income Taxes | 3,550 | 700 | 9,100 | 7,900 | ||||||||||||
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Net Income | 13,073 | 16,581 | 44,361 | 45,670 | ||||||||||||
Net (Income) Loss Attributable toNon-Controlling Interest | — | 5 | — | (70 | ) | |||||||||||
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Net Income Attributable to Neogen | $ | 13,073 | $ | 16,586 | $ | 44,361 | $ | 45,600 | ||||||||
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Net Income Attributable to Neogen Per Share | ||||||||||||||||
Basic | $ | 0.25 | $ | 0.32 | $ | 0.86 | $ | 0.89 | ||||||||
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Diluted | $ | 0.25 | $ | 0.32 | $ | 0.85 | $ | 0.88 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
February 29/28, | February 29/28, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
Product revenues | $ | 77,736 | $ | 77,375 | $ | 247,071 | $ | 249,897 | ||||||||
Service revenues | 22,133 | 20,325 | 62,025 | 54,527 | ||||||||||||
Total Revenues | 99,869 | 97,700 | 309,096 | 304,424 | ||||||||||||
Cost of Revenues | ||||||||||||||||
Cost of product revenues | 41,068 | 41,902 | 128,658 | 132,157 | ||||||||||||
Cost of service revenues | 13,471 | 11,170 | 35,888 | 30,877 | ||||||||||||
Total Cost of Revenues | 54,539 | 53,072 | 164,546 | 163,034 | ||||||||||||
Gross Margin | 45,330 | 44,628 | 144,550 | 141,390 | ||||||||||||
Operating Expenses | ||||||||||||||||
Sales and marketing | 17,675 | 16,722 | 53,206 | 52,454 | ||||||||||||
General and administrative | 10,789 | 10,018 | 32,473 | 30,337 | ||||||||||||
Research and development | 3,823 | 3,249 | 11,292 | 9,235 | ||||||||||||
Total Operating Expenses | 32,287 | 29,989 | 96,971 | 92,026 | ||||||||||||
Operating Income | 13,043 | 14,639 | 47,579 | 49,364 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest income | 1,600 | 1,335 | 4,381 | 3,290 | ||||||||||||
Other income (expense) | (393 | ) | 649 | (832 | ) | 807 | ||||||||||
Total Other Income | 1,207 | 1,984 | 3,549 | 4,097 | ||||||||||||
Income Before Taxes | 14,250 | 16,623 | 51,128 | 53,461 | ||||||||||||
Provision for Income Taxes | 2,050 | 3,550 | 8,000 | 9,100 | ||||||||||||
Net Income | $ | 12,200 | $ | 13,073 | $ | 43,128 | $ | 44,361 | ||||||||
Net Income Per Share | ||||||||||||||||
Basic | $ | 0.23 | $ | 0.25 | $ | 0.82 | $ | 0.86 | ||||||||
Diluted | $ | 0.23 | $ | 0.25 | $ | 0.82 | $ | 0.85 | ||||||||
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income | $ | 13,073 | $ | 16,581 | $ | 44,361 | $ | 45,670 | ||||||||
Other comprehensive income, net of tax: | 3,105 | 1,163 | 617 | 1,900 | ||||||||||||
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Comprehensive income | 16,178 | 17,744 | 44,978 | 47,570 | ||||||||||||
Comprehensive (income) loss attributable tonon-controlling interest | — | 5 | — | (70 | ) | |||||||||||
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Comprehensive income attributable to Neogen Corporation | $ | 16,178 | $ | 17,749 | $ | 44,978 | $ | 47,500 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
February 29/28, | February 29/28, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 12,200 | $ | 13,073 | $ | 43,128 | $ | 44,361 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
currency translation adjustments | (1,761 | ) | 3,105 | (2,452 | ) | 617 | ||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
unrealized gain on marketable securities | 172 | — | 585 | — | ||||||||||||
Total comprehensive income | $ | 10,611 | $ | 16,178 | $ | 41,261 | $ | 44,978 | ||||||||
Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Capital | (Loss) | Earnings | Total | |||||||||||||||||||
Balance at May 31, 2018 | 51,736 | $ | 8,278 | $ | 202,572 | $ | (9,746 | ) | $ | 359,071 | $ | 560,175 | ||||||||||||
Issuance of shares under share-based compensation plan | 251 | 40 | 8,433 | — | — | 8,473 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 8 | 2 | 517 | — | — | 519 | ||||||||||||||||||
Net income for the three months ended August 31, 2018 | — | — | — | — | 15,237 | 15,237 | ||||||||||||||||||
Other comprehensive (loss) | — | — | — | (2,778 | ) | — | (2,778 | ) | ||||||||||||||||
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Balance at August 31, 2018 | 51,995 | $ | 8,320 | $ | 211,522 | $ | (12,524 | ) | $ | 374,308 | $ | 581,626 | ||||||||||||
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Issuance of shares under share-based compensation plan | 87 | 14 | 4,093 | — | — | 4,107 | ||||||||||||||||||
Net income for the three months ended November 30, 2018 | — | — | — | — | 16,051 | 16,051 | ||||||||||||||||||
Other comprehensive income | — | — | — | 290 | — | 290 | ||||||||||||||||||
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Balance at November 30, 2018 | 52,082 | $ | 8,334 | $ | 215,615 | $ | (12,234 | ) | $ | 390,359 | $ | 602,074 | ||||||||||||
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Issuance of shares under share-based compensation plan | 78 | 12 | 4,146 | — | — | 4,158 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 10 | 1 | 640 | — | — | 641 | ||||||||||||||||||
Shares repurchased | (50 | ) | (8 | ) | (3,127 | ) | — | — | (3,135 | ) | ||||||||||||||
Net income for the three months ended February 28, 2019 | — | — | — | — | 13,073 | 13,073 | ||||||||||||||||||
Other comprehensive income | — | — | — | 3,105 | — | 3,105 | ||||||||||||||||||
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Balance at February 28, 2019 | 52,120 | $ | 8,339 | $ | 217,274 | $ | (9,129 | ) | $ | 403,432 | $ | 619,916 | ||||||||||||
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Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | Total | |||||||||||||||||||
Balance at May 31, 2019 | 52,217 | $ | 8,355 | $ | 221,937 | $ | (11,640 | ) | $ | 419,247 | $ | 637,899 | ||||||||||||
Issuance of shares under 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 at August 31, 2019 | 52,423 | $ | 8,387 | $ | 232,156 | $ | (14,136 | ) | $ | 433,899 | $ | 660,306 | ||||||||||||
Issuance of shares under 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 at November 30, 2019 | 52,711 | $ | 8,434 | $ | 244,226 | $ | (11,918 | ) | $ | 450,175 | $ | 690,917 | ||||||||||||
Issuance of shares under share-based compensation plan | 188 | 31 | 9,705 | — | — | 9,736 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 12 | 1 | 606 | — | — | 607 | ||||||||||||||||||
Net income for the three months ended February 29, 2020 | — | — | — | — | 12,200 | 12,200 | ||||||||||||||||||
Other comprehensive loss for the three months ended February 29 , 2020 | — | — | — | (1,589 | ) | — | (1,589 | ) | ||||||||||||||||
Balance at February 29, 2020 | 52,911 | $ | 8,466 | $ | 254,537 | $ | (13,507 | ) | $ | 462,375 | $ | 711,871 | ||||||||||||
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | Total | |||||||||||||||||||
Balance at May 31, 2018 | 51,736 | $ | 8,278 | $ | 202,572 | $ | (9,746 | ) | $ | 359,071 | $ | 560,175 | ||||||||||||
Issuance of shares under share-based compensation plan | 251 | 40 | 8,433 | — | — | 8,473 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 8 | 2 | 517 | — | — | 519 | ||||||||||||||||||
Net income for the three months ended August 31, 2018 | — | — | — | — | 15,237 | 15,237 | ||||||||||||||||||
Other comprehensive loss for the three months ended August 31, 2018 | — | — | — | (2,778 | ) | — | (2,778 | ) | ||||||||||||||||
Balance at August 31, 2018 | 51,995 | $ | 8,320 | $ | 211,522 | $ | (12,524 | ) | $ | 374,308 | $ | 581,626 | ||||||||||||
Issuance of shares under share-based compensation plan | 87 | 14 | 4,093 | — | — | 4,107 | ||||||||||||||||||
Net income for the three months ended November 30, 2018 | — | — | — | — | 16,051 | 16,051 | ||||||||||||||||||
Other comprehensive income for the three months ended November 30, 2018 | — | — | — | 290 | — | 290 | ||||||||||||||||||
Balance at November 30, 2018 | 52,082 | $ | 8,334 | $ | 215,615 | $ | (12,234 | ) | $ | 390,359 | $ | 602,074 | ||||||||||||
Issuance of shares under share-based compensation plan | 78 | 12 | 4,146 | — | — | 4,158 | ||||||||||||||||||
Issuance of shares under employee stock purchase plan | 10 | 1 | 640 | — | — | 641 | ||||||||||||||||||
Shares repurchased | (50 | ) | (8 | ) | (3,127 | ) | — | — | (3,135 | ) | ||||||||||||||
Net income for the three months ended February 28, 2019 | — | — | — | — | 13,073 | 13,073 | ||||||||||||||||||
Other comprehensive loss for the three months ended February 28, 2019 | — | — | — | 3,105 | — | 3,105 | ||||||||||||||||||
Balance at February 28, 2019 | 52,120 | $ | 8,339 | $ | 217,274 | $ | (9,129 | ) | $ | 403,432 | $ | 619,916 | ||||||||||||
Nine Months Ended February 28, | ||||||||
2019 | 2018 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Income | $ | 44,361 | $ | 45,670 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 13,028 | 12,682 | ||||||
Share-based compensation | 4,137 | 3,692 | ||||||
Change in operating assets and liabilities, net of business acquisitions: | ||||||||
Accounts receivable | (898 | ) | (4,013 | ) | ||||
Inventories | (8,745 | ) | (3,859 | ) | ||||
Prepaid expenses and other current assets | (1,463 | ) | (7,316 | ) | ||||
Accounts payable, accruals and other changes | (7,455 | ) | (280 | ) | ||||
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Net Cash From Operating Activities | 42,965 | 46,576 | ||||||
Cash Flows From Investing Activities | ||||||||
Purchases of property, equipment and othernon-current intangible assets | (11,877 | ) | (16,297 | ) | ||||
Proceeds from the sale of marketable securities | 290,827 | 211,327 | ||||||
Purchases of marketable securities | (316,195 | ) | (255,348 | ) | ||||
Business acquisitions, net of cash acquired | (6,388 | ) | (468 | ) | ||||
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Net Cash Used In Investing Activities | (43,633 | ) | (60,786 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Exercise of stock options and issuance of employee stock purchase plan shares | 13,752 | 18,916 | ||||||
Repurchase of common stock | (3,135 | ) | — | |||||
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Net Cash From Financing Activities | 10,617 | 18,916 | ||||||
Effect of Exchange Rate on Cash | 553 | (207 | ) | |||||
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Net Increase In Cash and Cash Equivalents | 10,502 | 4,499 | ||||||
Cash and Cash Equivalents, Beginning of Period | 83,074 | 77,567 | ||||||
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Cash and Cash Equivalents, End of Period | $ | 93,576 | $ | 82,066 | ||||
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Nine Months Ended February 29/28, | ||||||||
2020 | 2019 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Income | $ | 43,128 | $ | 44,361 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 13,542 | 13,028 | ||||||
Share-based compensation | 4,795 | 4,137 | ||||||
Change in operating assets and liabilities, net of business acquisitions: | ||||||||
Accounts receivable | 3,841 | (898 | ) | |||||
Inventories | (2,238 | ) | (8,745 | ) | ||||
Prepaid expenses and other current assets | (3,119 | ) | (1,463 | ) | ||||
Accounts payable, accruals and other changes | 301 | (7,455 | ) | |||||
Net Cash From Operating Activities | 60,250 | 42,965 | ||||||
Cash Flows For Investing Activities | ||||||||
Purchases of property, equipment and other assets | (16,322 | ) | (11,877 | ) | ||||
Proceeds from the sale of marketable securities | 300,448 | 290,827 | ||||||
Purchases of marketable securities | (351,002 | ) | (316,195 | ) | ||||
Business acquisitions, net of cash acquired | (9,701 | ) | (6,388 | ) | ||||
Net Cash For Investing Activities | (76,577 | ) | (43,633 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Exercise of stock options and issuance of employee stock purchase plan shares | 27,915 | 13,752 | ||||||
Repurchase of common stock | — | (3,135 | ) | |||||
Net Cash From Financing Activities | 27,915 | 10,617 | ||||||
Effect of Exchange Rates on Cash | (2,502 | ) | 553 | |||||
Net Increase In Cash and Cash Equivalents | 9,086 | 10,502 | ||||||
Cash and Cash Equivalents, Beginning of Period | 41,688 | 83,074 | ||||||
Cash and Cash Equivalents, End of Period | $ | 50,774 | $ | 93,576 | ||||
Share and per share amounts reflect the December 29, 20174-for-3 stock split as if it took place at the beginning of the period
presented.
2019.
Revenue Recognition
Classification of Cash Receipts and Payments
In August 2016, the FASB issued ASU No.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. We adopted this ASU on June 1, 2018; the impact on our consolidated financial statements was immaterial.
Leases
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. Modified retrospective application is required with certain practical expedients. We will adopt this ASU on June 1, 2019 and are currently in the process of evaluating our lessee and lessor arrangements to determine the impact of this pronouncement on our consolidated financial condition and results of operations. This evaluation includes a review of revenue through leasing arrangements as well as lease expenses, which primarily result from operating lease arrangements at most of our facilities.
amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASUEarlyThe Company does not believe adoption of this guidance will have a
adjustments and unrealized gains or losses on marketable securities.
cash equivalents.
2019.
Long Lived
5.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate reduction from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and aone-time transition tax on the mandatory deemed repatriation of foreign earnings. The Tax Act also includes a provision to tax global intangible low taxed income (“GILTI”) of foreign subsidiaries, which became effective for us beginning June 1, 2018.
Revenue Recognition
In May 2014,February 2016, the FASB issued ASU No.2014-09—Revenue from Contracts with Customers (Topic 606). The new standard outlines
Prior to the adoption, we identified all revenue streams at each significant subsidiary and reviewed contracts to evaluate the impact of adopting the new standard on our revenue recognition policies, procedures and control framework and ultimately on our consolidated financial statements was immaterial.
February 29, 2020 | ||||
(in thousands) | ||||
Right of use - assets | $ | 1,755 | ||
Lease liabilities - current | 325 | |||
Lease liabilities - non-current | 1,467 |
February 29, 2020 | ||||
Weighted average remaining lease term | 2.4 years | |||
Weighted average discount rate | 3.5% |
Three Months Ended February 29, 2020 | Nine Months Ended February 29, 2020 | |||||||
(in thousands) | (in thousands) | |||||||
Operating leases | $ | 316 | $ | 889 | ||||
Short term leases | 25 | 106 | ||||||
Total lease expense | $ | 341 | $ | 995 | ||||
Amount | ||||
(in thousands) | ||||
Years ending May 31, | ||||
2020 (1) | $ | 289 | ||
2021 | 915 | |||
2022 | 358 | |||
2023 | 168 | |||
2024 | 94 | |||
2025 and thereafter | 26 | |||
Total lease payments | 1,850 | |||
Less: imputed interest | 58 | |||
Total lease liabilities | $ | 1,792 | ||
(1) | Excluding the nine months ended February 29, 2020. |
Under Topic 606, thenoncancelable leases as of May 31, 2019 were as follows:
Future Minimum Lease Payments | ||||
(in thousands) | ||||
Years ending May 31, | ||||
2020 | $ | 1,112 | ||
2021 | 810 | |||
2022 | 297 | |||
2023 | 101 | |||
Thereafter | 0 | |||
$ | 2,320 | |||
days; international terms may be longer.
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 18,612 | $ | 16,807 | $ | 58,021 | $ | 54,960 | ||||||||
Bacterial & General Sanitation | 9,519 | 8,992 | 30,807 | 27,435 | ||||||||||||
Culture Media & Other | 11,893 | 10,179 | 36,302 | 31,353 | ||||||||||||
Rodenticides, Insecticides & Disinfectants | 5,953 | 7,359 | 18,521 | 18,175 | ||||||||||||
Genomics Services | 5,136 | 3,976 | 13,395 | 10,887 | ||||||||||||
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$ | 51,113 | $ | 47,313 | $ | 157,046 | $ | 142,810 | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,823 | $ | 2,769 | $ | 5,794 | $ | 7,589 | ||||||||
Veterinary Instruments & Disposables | 10,682 | 10,630 | 32,769 | 32,804 | ||||||||||||
Animal Care & Other | 6,823 | 7,245 | 22,439 | 22,894 | ||||||||||||
Rodenticides, Insecticides & Disinfectants | 13,256 | 14,255 | 48,921 | 49,422 | ||||||||||||
Genomics Services | 14,003 | 12,691 | 37,455 | 34,292 | ||||||||||||
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$ | 46,587 | $ | 47,590 | $ | 147,378 | $ | 147,001 | |||||||||
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Total Revenues | $ | 97,700 | $ | 94,903 | $ | 304,424 | $ | 289,811 | ||||||||
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Restatement of Previously Issued Financial Statements
The Company has historically classified certain variable consideration components resulting from volume rebates, distributor support, and other marketing discounts as cost of revenues or sales and marketing expense in our consolidated financial statements of income. These amounts should have been classified as contra revenue in product or service revenues. The Company had determined in prior periods that the misstatements were clearly immaterial, individually and in the aggregate, to each of the reporting periods affected. The Company began properly classifying these items as contra revenues beginning in the three month period ended August 31, 2018, the first quarter of the Company’s current fiscal year, and has revised the prior year’s quarter and year to date periods to conform to the current period presentation. These immaterial adjustments had no impact on our operating income, income before taxes, net income or reported earnings per share, and no change to stockholders’ equity.
The effects of the revisions on the line items within our unaudited consolidated statements of income for the three and nine months ended February 28, 2018 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
February 28, 2018 | February 28, 2018 | |||||||||||||||||||||||
As Previously Reported | Adjustments | As Revised | As Previously Reported | Adjustments | As Revised | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Product revenues | $ | 78,142 | $ | (958 | ) | $ | 77,184 | $ | 244,298 | $ | (3,098 | ) | $ | 241,200 | ||||||||||
Service revenues | 17,750 | (31 | ) | 17,719 | 48,667 | (56 | ) | 48,611 | ||||||||||||||||
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Total revenues | 95,892 | (989 | ) | 94,903 | 292,965 | (3,154 | ) | 289,811 | ||||||||||||||||
Cost of revenues | ||||||||||||||||||||||||
Cost of product revenues | 40,352 | (69 | ) | 40,283 | 124,785 | (265 | ) | 124,520 | ||||||||||||||||
Cost of service revenues | 10,019 | — | 10,019 | 27,517 | — | 27,517 | ||||||||||||||||||
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Total cost of revenues | 50,371 | (69 | ) | 50,302 | 152,302 | (265 | ) | 152,037 | ||||||||||||||||
Gross margin | 45,521 | (920 | ) | 44,601 | 140,663 | (2,889 | ) | 137,774 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Sales and marketing | 17,492 | (920 | ) | 16,572 | 52,331 | (2,889 | ) | 49,442 | ||||||||||||||||
Total operating expenses | 29,608 | (920 | ) | 28,688 | 90,328 | (2,889 | ) | 87,439 | ||||||||||||||||
Operating income | 15,913 | — | 15,913 | 50,335 | — | 50,335 |
Presented below are the effects of the revisions on the line items within our previously issued consolidated statements of income for the years ended May 31, 2018 and 2017. Revised consolidated statements of income related to these periods are presented in this Form10-Q and the Form10-K to be filed in the succeeding period of this fiscal year.
Year Ended | Year Ended | |||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | |||||||||||||||||||||||
As Previously Reported | Adjustments | As Revised | As Previously Reported | Adjustments | As Revised | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Product revenues | $ | 335,554 | $ | (4,266 | ) | $ | 331,288 | $ | 306,512 | $ | (3,390 | ) | $ | 303,122 | ||||||||||
Service revenues | 66,698 | (56 | ) | 66,642 | 55,082 | 73 | 55,155 | |||||||||||||||||
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Total revenues | 402,252 | (4,322 | ) | 397,930 | 361,594 | (3,317 | ) | 358,277 | ||||||||||||||||
Cost of revenues | ||||||||||||||||||||||||
Cost of product revenues | 174,067 | (342 | ) | 173,725 | 156,568 | (273 | ) | 156,295 | ||||||||||||||||
Cost of service revenues | 37,933 | — | 37,933 | 33,058 | — | 33,058 | ||||||||||||||||||
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Total cost of revenues | 212,000 | (342 | ) | 211,658 | 189,626 | (273 | ) | 189,353 | ||||||||||||||||
Gross margin | 190,252 | (3,980 | ) | 186,272 | 171,968 | (3,044 | ) | 168,924 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Sales and marketing | 70,909 | (3,980 | ) | 66,929 | 62,424 | (3,044 | ) | 59,380 | ||||||||||||||||
Total operating expenses | 120,058 | (3,980 | ) | 116,078 | 107,023 | (3,044 | ) | 103,979 | ||||||||||||||||
Operating income | 70,194 | — | 70,194 | 64,945 | — | 64,945 |
The revisions had no impact on our audited consolidated balance sheets as of May 31, 2018 and 2017 and no impact on our unaudited consolidated statements of equity or unaudited consolidated statements of cash flows for the three and nine month periods ended February 29, 2020 and February 28, 2018.
Three Months ended February 2 9 /28 , | Nine Months ended February 2 9 /28 , | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 17,154 | $ | 18,612 | $ | 57,950 | $ | 58,021 | ||||||||
Bacterial & General Sanitation | 9,413 | 9,519 | 31,345 | 30,807 | ||||||||||||
Culture Media & Other | 11,222 | 11,893 | 35,259 | 36,302 | ||||||||||||
Rodenticides, Insecticides & Disinfectants | 7,964 | 5,953 | 20,859 | 18,521 | ||||||||||||
Genomics Services | 4,745 | 5,136 | 12,961 | 13,395 | ||||||||||||
$ | 50,498 | $ | 51,113 | $ | 158,374 | $ | 157,046 | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,376 | $ | 1,823 | $ | 4,901 | $ | 5,794 | ||||||||
Veterinary Instruments & Disposables | 10,799 | 10,682 | 32,621 | 32,769 | ||||||||||||
Animal Care & Other | 6,667 | 6,554 | 20,859 | 21,900 | ||||||||||||
Rodenticides, Insecticides & Disinfectants | 14,558 | 13,525 | 47,462 | 49,460 | ||||||||||||
Genomics Services | 15,971 | 14,003 | 44,879 | 37,455 | ||||||||||||
$ | 49,371 | $ | 46,587 | $ | 150,722 | $ | 147,378 | |||||||||
Total Revenues | $ | 99,869 | $ | 97,700 | $ | 309,096 | $ | 304,424 | ||||||||
February 28, 2019 | May 31, 2018 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 38,944 | $ | 36,702 | ||||
Work-in-process | 6,758 | 5,993 | ||||||
Finished and purchased goods | 39,168 | 33,310 | ||||||
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$ | 84,870 | $ | 76,005 | |||||
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February 29, | May 31, | |||||||
2020 | 2019 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 42,243 | $ | 41,594 | ||||
Work-in-process | 5,402 | 5,581 | ||||||
Finished and purchased goods | 41,599 | 38,817 | ||||||
$ | 89,244 | $ | 85,992 | |||||
Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Numerator for basic and diluted net income per share: | ||||||||||||||||
Net income attributable to Neogen | $ | 13,073 | $ | 16,586 | $ | 44,361 | $ | 45,600 | ||||||||
Denominator for basic net income per share: | ||||||||||||||||
Weighted average shares | 52,071 | 51,537 | 51,849 | 51,253 | ||||||||||||
Effect of dilutive stock options | 401 | 700 | 599 | 761 | ||||||||||||
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Denominator for diluted net income per share | 52,472 | 52,237 | 52,448 | 52,014 | ||||||||||||
Net income attributable to Neogen per share: | ||||||||||||||||
Basic | $ | 0.25 | $ | 0.32 | $ | 0.86 | $ | 0.89 | ||||||||
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Diluted | $ | 0.25 | $ | 0.32 | $ | 0.85 | $ | 0.88 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
February 29/28, | February 29/28, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Numerator for basic and diluted net income per share: | ||||||||||||||||
Net income attributable to Neogen | $ | 12,200 | $ | 13,073 | $ | 43,128 | $ | 44,361 | ||||||||
Denominator for basic net income per share: | ||||||||||||||||
Weighted average shares | 52,795 | 52,071 | 52,463 | 51,849 | ||||||||||||
Effect of dilutive stock options | 253 | 401 | 320 | 599 | ||||||||||||
Denominator for diluted net income per share | 53,048 | 52,472 | 52,783 | 52,448 | ||||||||||||
Net income attributable to Neogen per share: | ||||||||||||||||
Basic | $ | 0.23 | $ | 0.25 | $ | 0.82 | $ | 0.86 | ||||||||
Diluted | $ | 0.23 | $ | 0.25 | $ | 0.82 | $ | 0.85 | ||||||||
Food Safety | Animal Safety | Corporate and Eliminations (1) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
As of and for the three months ended February 28, 2019 |
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Product revenues to external customers | $ | 44,790 | $ | 32,585 | $ | — | $ | 77,375 | ||||||||
Service revenues to external customers | 6,323 | 14,002 | — | 20,325 | ||||||||||||
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Total revenues to external customers | 51,113 | 46,587 | — | 97,700 | ||||||||||||
Operating income (loss) | 8,339 | 7,338 | (1,038 | ) | 14,639 | |||||||||||
Total assets | 204,570 | 221,335 | 246,680 | 672,585 | ||||||||||||
As of and for the three months ended February 28, 2018 - Revised (2) |
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Product revenues to external customers | $ | 42,286 | $ | 34,898 | $ | — | $ | 77,184 | ||||||||
Service revenues to external customers | 5,027 | 12,692 | — | 17,719 | ||||||||||||
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Total revenues to external customers | 47,313 | 47,590 | — | 94,903 | ||||||||||||
Operating income (loss) | 8,258 | 8,493 | (838 | ) | 15,913 | |||||||||||
Total assets | 188,075 | 215,371 | 192,155 | 595,601 |
Food Safety | Animal Safety | Corporate and Eliminations (1) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
As of and for the three months ended February 29, 2020 | ||||||||||||||||
Product revenues to external customers | $ | 44,450 | $ | 33,286 | $ | — | $ | 77,736 | ||||||||
Service revenues to external customers | 6,048 | 16,085 | — | 22,133 | ||||||||||||
Total revenues to external customers | 50,498 | 49,371 | — | 99,869 | ||||||||||||
Operating income (loss) | 5,881 | 8,492 | (1,330 | ) | 13,043 | |||||||||||
Total assets | 226,077 | 219,501 | 327,923 | 773,501 | ||||||||||||
As of and for the three months ended February 28, 2019 | ||||||||||||||||
Product revenues to external customers | $ | 44,790 | $ | 32,585 | $ | — | $ | 77,375 | ||||||||
Service revenues to external customers | 6,323 | 14,002 | — | 20,325 | ||||||||||||
Total revenues to external customers | 51,113 | 46,587 | — | 97,700 | ||||||||||||
Operating income (loss) | 8,339 | 7,338 | (1,038 | ) | 14,639 | |||||||||||
Total assets | 204,570 | 221,335 | 246,680 | 672,585 |
(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. |
Food Safety | Animal Safety | Corporate and Eliminations (1) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
As of and for the nine months ended February 29, 2020 | ||||||||||||||||
Product revenues to external customers | $ | 141,516 | $ | 105,555 | $ | — | $ | 247,071 | ||||||||
Service revenues to external customers | 16,858 | 45,167 | — | 62,025 | ||||||||||||
Total revenues to external customers | 158,374 | 150,722 | — | 309,096 | ||||||||||||
Operating income (loss) | 24,571 | 26,521 | (3,513 | ) | 47,579 | |||||||||||
As of and for the nine months ended February 28, 2019 | ||||||||||||||||
Product revenues to external customers | $ | 139,979 | $ | 109,918 | $ | — | $ | 249,897 | ||||||||
Service revenues to external customers | 17,067 | 37,460 | — | 54,527 | ||||||||||||
Total revenues to external customers | 157,046 | 147,378 | — | 304,424 | ||||||||||||
Operating income (loss) | 29,554 | 23,101 | (3,291 | ) | 49,364 |
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Food Safety | Animal Safety | Corporate and Eliminations (1) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
For the nine months ended February 28, 2019 | ||||||||||||||||
Product revenues to external customers | $ | 139,979 | $ | 109,918 | $ | — | $ | 249,897 | ||||||||
Service revenues to external customers | 17,067 | 37,460 | — | 54,527 | ||||||||||||
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Total revenues to external customers | 157,046 | 147,378 | — | 304,424 | ||||||||||||
Operating income (loss) | 29,554 | 23,101 | (3,291 | ) | 49,364 | |||||||||||
For the nine months ended February 28, 2018 - Revised (2) |
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Product revenues to external customers | $ | 128,491 | $ | 112,709 | $ | — | $ | 241,200 | ||||||||
Service revenues to external customers | 14,319 | 34,292 | — | 48,611 | ||||||||||||
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Total revenues to external customers | 142,810 | 147,001 | — | 289,811 | ||||||||||||
Operating income (loss) | 25,704 | 27,691 | (3,060 | ) | 50,335 |
(1) | Includes |
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Three Months ended February 28, | Nine Months Ended February 28, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenues by Geographic Location | ||||||||||||||||
Domestic | $ | 57,422 | $ | 57,825 | $ | 182,298 | $ | 180,414 | ||||||||
International | 40,278 | 37,078 | 122,126 | 109,397 | ||||||||||||
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Total revenue | 97,700 | 94,903 | 304,424 | 289,811 | ||||||||||||
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Three months ended | Nine months ended | |||||||||||||||
February 29/28, | February 29/28, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenues by Geographic Location | ||||||||||||||||
Domestic | $ | 59,762 | $ | 57,422 | $ | 186,887 | $ | 182,298 | ||||||||
International | 40,107 | 40,278 | 122,209 | 122,126 | ||||||||||||
Total revenue | 99,869 | 97,700 | 309,096 | 304,424 | ||||||||||||
Shares | Weighted- Average Exercise Price | |||||||
Options outstanding June 1, 2018 | 2,497,124 | $ | 42.63 | |||||
Granted | 526,750 | 62.92 | ||||||
Exercised | (418,598 | ) | 30.76 | |||||
Forfeited | (105,835 | ) | 46.50 | |||||
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Options outstanding February 28, 2019 | 2,499,441 | 48.78 |
Weighted- | ||||||||
Average | ||||||||
(Options in thousands) | Shares | Exercise Price | ||||||
Options outstanding June 1, 2019 | 2,385 | $ | 49.37 | |||||
Granted | 561 | 63.91 | ||||||
Exercised | (686 | ) | 40.07 | |||||
Forfeited | (56 | ) | 56.67 | |||||
Options outstanding February 29, 2020 | 2,204 | $ | 55.77 |
FY 2019 | FY 2018 | |||||||
Risk-free interest rate | 2.6 | % | 1.6 | % | ||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Expected stock price volatility | 27.0 | % | 27.2 | % | ||||
Expected option life | 3.5 years | 4.0 years |
FY 2020 | ||||
Risk-free interest rate | 1.9% | |||
Expected dividend yield | 0.0% | |||
Expected stock price volatility | 29.4% | |||
Expected option life | 3.5 years |
On September 1, 2017, the Company acquired the assets of The University of Queensland Animal Genetics Laboratory, an animal genomics laboratory located near Brisbane, Australia. This acquisition is intended to accelerate the growth of the Company’s animal genomics business in Australia and New Zealand. Consideration for the purchase was $2,063,000; $468,000 was paid in cash on the acquisition date with the remainder due in annual installments over the next five years. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included inventory of $19,000, equipment of $419,000,non-current liabilities of $1,629,000, intangible assets of $902,000 (with an estimated life of5-15 years) and the remainder to goodwill(non-deductible for tax purposes). These values are Level 3 fair value measurements. The new business, renamed Neogen Australasia, continues to operate in its current location, reporting within the Animal Safety segment.
On September 4, 2018, the Company acquired the assets of Livestock Genetic Services, LLC, a Virginia-based company that specializesspecialized in genetic evaluations and data management for cattle breeding organizations. Livestock Genetic Services hashad been a long-time strategic partner of Neogen and the acquisition will enhanceenhanced the Company’sapproximately $385,000up to $585,000 of contingent consideration, payable over the next three years. The preliminaryfinal purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included office equipment of $15,000, contingent consideration accrual of $385,000, intangible assets of $860,000$942,000 (with an estimated life offorto tax purposes). These values are Level 3 fair value measurements. In September 2019, the former owner was paid the
29, 2020.
an offsetting charge to operations in the period recorded.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Neogen’s results reflect an increase
Three Months Ended February 28, 2019 | Nine Months Ended February 28, 2019 | |||||||||||||||
Revenue % Increase/(Decrease) USD | Revenue % Increase/(Decrease) Local Currency | Revenue % Increase USD | Revenue % Increase Local Currency | |||||||||||||
Neogen Europe (including Lab M & Quat-Chem) | 11 | % | 18 | % | 12 | % | 15 | % | ||||||||
Neogen do Brasil (including Deoxi & Rogama) | (9 | )% | 5 | % | 10 | % | 31 | % | ||||||||
Neogen Latinoamerica | 19 | % | 22 | % | 12 | % | 17 | % | ||||||||
Neogen China | 9 | % | 15 | % | 6 | % | 9 | % | ||||||||
Neogen India | 94 | % | 115 | % | 86 | % | 104 | % |
Three Months Ended February 29, 2020 | Nine Months Ended February 29, 2020 | |||||||||||||||
Revenue | Revenue | Revenue | Revenue | |||||||||||||
% Increase/(Decrease) USD | % Increase/(Decrease) Local Currency | % Increase USD | % Increase Local Currency | |||||||||||||
UK Companies | 5 | % | 4 | % | 3 | % | 5 | % | ||||||||
Brazilian Companies | (16 | )% | (6 | )% | (5 | )% | 1 | % | ||||||||
Neogen Latinoamerica | 15 | % | 11 | % | 8 | % | 7 | % | ||||||||
Neogen China | 37 | % | 41 | % | 20 | % | 24 | % | ||||||||
Neogen India | 18 | % | 19 | % | 11 | % | 11 | % | ||||||||
Neogen Canada | 75 | % | 73 | % | 135 | % | 135 | % | ||||||||
Neogen Australasia | 7 | % | 12 | % | 15 | % | 22 | % |
The increase At Neogen Latinoamerica, sales increased 15% for the third quarter compared to the prior year, with strong sales of rodenticides in revenues at Neogen EuropeMexico and broad based strength across the diagnostics business during the period; for the year to date, strong diagnostics test kit sales were somewhat offset by lower sales of cleaners and disinfectants. Robust sales of cleaners and disinfectants in China in the third quarter of fiscal 2019 was led by an 18%2020, due in part to the
year.
Three Months Ended February 28, | ||||||||||||||||
2019 | 2018 | Increase/ (Decrease) | % | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 18,612 | $ | 16,807 | $ | 1,805 | 11 | % | ||||||||
Bacterial & General Sanitation | 9,519 | 8,992 | 527 | 6 | % | |||||||||||
Culture Media & Other | 11,893 | 10,179 | 1,714 | 17 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 5,953 | 7,359 | (1,406 | ) | (19 | )% | ||||||||||
Genomics Services | 5,136 | 3,976 | 1,160 | 29 | % | |||||||||||
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$ | 51,113 | $ | 47,313 | $ | 3,800 | 8 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,823 | $ | 2,769 | $ | (946 | ) | (34 | )% | |||||||
Veterinary Instruments & Disposables | 10,682 | 10,630 | 52 | 0 | % | |||||||||||
Animal Care & Other | 6,823 | 7,245 | (422 | ) | (6 | )% | ||||||||||
Rodenticides, Insecticides & Disinfectants | 13,256 | 14,255 | (999 | ) | (7 | )% | ||||||||||
Genomics Services | 14,003 | 12,691 | 1,312 | 10 | % | |||||||||||
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$ | 46,587 | $ | 47,590 | $ | (1,003 | ) | (2 | )% | ||||||||
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Total Revenues | $ | 97,700 | $ | 94,903 | $ | 2,797 | 3 | % | ||||||||
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Nine Months Ended February 28, | ||||||||||||||||
2019 | 2018 | Increase/ (Decrease) | % | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 58,021 | $ | 54,960 | $ | 3,061 | 6 | % | ||||||||
Bacterial & General Sanitation | 30,807 | 27,435 | 3,372 | 12 | % | |||||||||||
Culture Media & Other | 36,302 | 31,353 | 4,949 | 16 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 18,521 | 18,175 | 346 | 2 | % | |||||||||||
Genomics Services | 13,395 | 10,887 | 2,508 | 23 | % | |||||||||||
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$ | 157,046 | $ | 142,810 | $ | 14,236 | 10 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 5,794 | $ | 7,589 | $ | (1,795 | ) | (24 | )% | |||||||
Veterinary Instruments & Disposables | 32,769 | 32,804 | (35 | ) | 0 | % | ||||||||||
Animal Care & Other | 22,439 | 22,894 | (455 | ) | (2 | )% | ||||||||||
Rodenticides, Insecticides & Disinfectants | 48,921 | 49,422 | (501 | ) | (1 | )% | ||||||||||
Genomics Services | 37,455 | 34,292 | 3,163 | 9 | % | |||||||||||
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$ | 147,378 | $ | 147,001 | $ | 377 | 0 | % | |||||||||
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Total Revenues | $ | 304,424 | $ | 289,811 | $ | 14,613 | 5 | % | ||||||||
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Three Months Ended February 29/28, | ||||||||||||||||
2020 | 2019 | Increase/ (Decrease) | % | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 17,154 | $ | 18,612 | $ | (1,458 | ) | (8 | )% | |||||||
Bacterial & General Sanitation | 9,413 | 9,519 | (106 | ) | (1 | )% | ||||||||||
Culture Media & Other | 11,222 | 11,893 | (671 | ) | (6 | )% | ||||||||||
Rodenticides, Insecticides & Disinfectants | 7,964 | 5,953 | 2,011 | 34 | % | |||||||||||
Genomics Services | 4,745 | 5,136 | (391 | ) | (8 | )% | ||||||||||
$ | 50,498 | $ | 51,113 | $ | (615 | ) | (1 | )% | ||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 1,376 | $ | 1,823 | $ | (447 | ) | (25 | )% | |||||||
Veterinary Instruments & Disposables | 10,799 | 10,682 | 117 | 1 | % | |||||||||||
Animal Care & Other | 6,667 | 6,554 | 113 | 2 | % | |||||||||||
Rodenticides, Insecticides & Disinfectants | 14,558 | 13,525 | 1,033 | 8 | % | |||||||||||
Genomics Services | 15,971 | 14,003 | 1,968 | 14 | % | |||||||||||
$ | 49,371 | $ | 46,587 | $ | 2,784 | 6 | % | |||||||||
Total Revenues | $ | 99,869 | $ | 97,700 | $ | 2,169 | 2 | % | ||||||||
Nine Months Ended February 29/28, | ||||||||||||||||
2020 | 2019 | Increase/ (Decrease) | % | |||||||||||||
(in thousands) | ||||||||||||||||
Food Safety | ||||||||||||||||
Natural Toxins, Allergens & Drug Residues | $ | 57,950 | $ | 58,021 | $ | (71 | ) | 0 | % | |||||||
Bacterial & General Sanitation | 31,345 | 30,807 | 538 | 2 | % | |||||||||||
Culture Media & Other | 35,259 | 36,302 | (1,043 | ) | (3 | )% | ||||||||||
Rodenticides, Insecticides & Disinfectants | 20,859 | 18,521 | 2,338 | 13 | % | |||||||||||
Genomics Services | 12,961 | 13,395 | (434 | ) | (3 | )% | ||||||||||
$ | 158,374 | $ | 157,046 | $ | 1,328 | 1 | % | |||||||||
Animal Safety | ||||||||||||||||
Life Sciences | $ | 4,901 | $ | 5,794 | $ | (893 | ) | (15 | )% | |||||||
Veterinary Instruments & Disposables | 32,621 | 32,769 | (148 | ) | 0 | % | ||||||||||
Animal Care & Other | 20,859 | 21,900 | (1,041 | ) | (5 | )% | ||||||||||
Rodenticides, Insecticides & Disinfectants | 47,462 | 49,460 | (1,998 | ) | (4 | )% | ||||||||||
Genomics Services | 44,879 | 37,455 | 7,424 | 20 | % | |||||||||||
$ | 150,722 | $ | 147,378 | $ | 3,344 | 2 | % | |||||||||
Total Revenues | $ | 309,096 | $ | 304,424 | $ | 4,672 | 2 | % | ||||||||
declined 29%.
Culture Media & Other – Sales in this category increased 17% in the quarter ended February 28, 2019 compared to the third quarter in the prior year; the year to date increase is 16%decreased 3%. In the third quarter, salesSales of Neogen Culture Media formerly marketed asdecreased 7% and were flat for the Acumediaquarter and Lab M brands, increased 5%, aided in part by the August 2018 acquisition of Clarus Labs, which consists of the Colitag product and reportsyear to date periods, respectively. The decrease in the culture media product line.third quarter is primarily due to order timing and lower end market demand. This category also includes forensic test kits sold within Brazil, which increaseddecreased significantly in both the third quarter and for the year to date periods dueas a large customer moved to a shift in businesshigher throughput testing method. For both periods, this category also benefitted from labslower rebate payments to a European distributor in the U.S. to labs in Brazil and increased demand from commercial laboratories in that country.
current fiscal year.
Genomics Services –Sales in this category increased 29% and 23% forreal, respectively, are the three and nine month periods, ended February 28, 2019, respectively. The increase for both the third quarter and year to date periods was primarily from higher sales in the European porcine and bovine markets; additionally, the third quarter benefited from a large research project with the Brazilian government.
functional currencies.
The prior year included sales to a commercial laboratory customer which did not recur in fiscal 2020. Additionally, sales of substrates and reagents declined significantly in the third quarter, the result of order timing from a large customer.
due to high inventory levels at our largest distributors.
Rodenticides, Insecticides & Disinfectants –Revenues in this category decreased 7% and 1% for the three and nine month periods ended February 28, 2019, respectively. In the third quarter, rodenticide sales decreased 28%, the result of poor weather conditions causing lower demand and a weak U.S. animal protein market partially caused by tariff issues; the year to date decrease was 6% due to the loss of toll manufacturing business from the first half of the prior year. Also in the third quarter, cleaner and disinfectant sales grew 18% due to increased demand from international customers.disposable dairy supplies rose 5%. For the year to date cleanerperiod, animal care revenues were 4% lower than the prior year, while dairy supplies were 2% lower. Timing of adjustments to promotional programs with distributors, which are recorded as contra revenues within this category, also contributed to the year to date decline.
These gains for the three month period were partially offset by a 1% decline in sales of cleaners and disinfectants. For the year to date, rodenticides were down 2%, insecticides were down 6%, and cleaners and disinfectants declined 5%.
decreases in U.S. poultry and porcine markets, despite increases in sample volumes, resulting from a shift to lower priced chips and services.
result of higher gross margins within the Animal Safety segment resulting from a 250 basis point margin improvement in the domestic genomics service business, due to a significant increase in revenues in the companion animal testing business, which have higher gross margins than other services within this business.
an increase in depreciation expense.
Additionally, in the third quarter of fiscal 2020, the gross margin percentage declined by 30 basis points; for the year to date, the gross margin percentage has increased by 40 basis points.
Three Months Ended | Nine Months Ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
(dollars in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Interest income (net of expense) | $ | 1,335 | $ | 524 | $ | 3,290 | $ | 1,322 | ||||||||
Foreign currency transactions | 104 | 179 | (354 | ) | 1,140 | |||||||||||
Royalty income | — | — | 60 | 78 | ||||||||||||
Deoxi contingent consideration | — | (49 | ) | (9 | ) | (148 | ) | |||||||||
Quat-Chem contingent consideration | — | 255 | 422 | 255 | ||||||||||||
Other | 545 | 459 | 688 | 588 | ||||||||||||
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Total Other Income | $ | 1,984 | $ | 1,368 | $ | 4,097 | $ | 3,235 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
February 29/28 | February 29/28 | |||||||||||||||
(dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Interest income (net of expense) | $ | 1,600 | $ | 1,335 | $ | 4,381 | $ | 3,290 | ||||||||
Foreign currency transactions | (420 | ) | 104 | (889 | ) | (354 | ) | |||||||||
Royalty income | — | — | 1 | 60 | ||||||||||||
Deoxi contingent consideration | — | — | — | (9 | ) | |||||||||||
Quat-Chem contingent consideration | — | — | — | 422 | ||||||||||||
Other | 28 | 545 | 56 | 688 | ||||||||||||
Total Other Income | $ | 1,208 | $ | 1,984 | $ | 3,549 | $ | 4,097 | ||||||||
rate.
2020, and approximately $9.7 million on acquisitions during the same period.
expected; attention is being paid to the potential negative impact of COVID-19 on our customers’ ability to pay their bills.
2020; however, during the year we have increased inventory levels at our European operations to mitigate potential supply chain disruptions from a disorderly Brexit. Also, during the third quarter, in anticipation of possible supply disruptions due to the
cost efficiencies.
The
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
Evaluation | of Disclosure Controls and Procedures |
Subsequent to the end of the third quarter, the Company settled a dispute with PerkinElmer, Bioo Scientific and Richard E. Calk, Jr., the former President and Chief Operating Officer of Neogen, regarding non-compliance with the terms of Mr. Calk’s non-competition agreement following his departure from Neogen in September, 2017. Per the terms of a court order, entered into on March 15, 2019, Mr. Calk was ordered to strictly comply with the non-competition clause of his separation agreement with the Company through September 1, 2019, and PerkinElmer and Bioo Scientific are prohibited from either directly or indirectly rehiring or engaging Mr. Calk for a period of 18 months.
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Purchases of Equity Securitiesfinancial condition.
widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of a new strain of coronavirus
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Approximate Number of Shares that May Yet Be Purchased Under the Programs | ||||||||||||
December 1, 2018 - December 31, 2018 | 50 | $ | 62.69 | 50 | 2,950 | |||||||||||
January 1, 2019 - January 31, 2019 | — | — | — | — | ||||||||||||
February 1, 2019 - February 28, 2019 | — | — | — | — | ||||||||||||
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Total | 50 | $ | 62.69 | 50 | 2,950 | |||||||||||
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expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.
Item 6. | Exhibits |
3 | ||||
10 | ||||
31.1 | ||||
31.2 | ||||
32 | ||||
101.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 | |||
EX-104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
NEOGEN CORPORATION | ||||||
(Registrant) | ||||||
Dated: April 3, 2020 | ||||||
Dated: March 29, 2019
/s/ John E. Adent | ||||||
John E. Adent | ||||||
President & Chief Executive Officer | ||||||
(Principal Executive Officer) |
Dated: March 29, 2019
/s/ Steven J. Quinlan | ||||||
Steven J. Quinlan | ||||||
Vice President & Chief Financial Officer | ||||||
(Principal Financial Officer and Principal Accounting Officer) |
27