Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NEOG > SEC Filings for NEOG > Form 10-Q on 9-Jan-2014All Recent SEC Filings

Show all filings for NEOGEN CORP

Form 10-Q for NEOGEN CORP


9-Jan-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future performance. While management is optimistic about the Company's long-term prospects, historical financial information may not be indicative of future financial performance.

Safe Harbor and Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation and other risks detailed from time to time in the Company's reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation's results to differ materially from those indicated by such forward-looking statements, including those detailed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations."

In addition, any forward-looking statements represent management's views only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management's views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company's financial condition and results of operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including those related to receivable allowances, inventories, accruals, goodwill and other intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There were no significant changes to our contractual obligations or contingent liabilities and commitments disclosed in the Company's Annual Report or Form 10-K for the fiscal year ended May 31, 2013.

There have been no material changes to the critical accounting policies and estimates disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2013.


Table of Contents

Executive Overview

Neogen Corporation revenues for the second quarter ended November 30, 2013 were $59.6 million, an increase of $8.9 million, or 17.5%, compared to the same period in the prior year. For the year to date ended November 30, 2013 revenues were $118.1 million, an increase of $17.7 million, or 17.6%, compared to the prior year. Food Safety revenues increased by 9.1% and 11.8% for the comparative quarter and six-month period ended November 30, 2013, respectively. All of that growth was organic. Animal Safety revenues increased by 26.3% and 23.9%, respectively, for the same comparative periods. Overall organic sales growth was 11.1% and 11.8% for the second quarter and six-month period ended November 30, 2013, respectively. The remainder of growth came from the following acquisitions: Macleod Pharmaceuticals (October 2012), Scidera Genomics (January 2013), Syrvet (July 2013), and Prima Tech (November 2013).

International sales were 39.0% of total sales in the second quarter, compared to 37.4% of total sales in the prior year. For the six months ended November 30, 2013, international sales were 40.7% of total sales compared to 39.5% of total sales for the same period in the prior year. Neogen Europe sales increased by 24.0% for the second quarter and were up 38.0% on a year-to-date basis. The revenue increase was primarily from increased sales of allergen and meat speciation kits, increased aflatoxin sales to Eastern Europe and genomics revenues from a number of European customers. Neogen do Brasil and Neogen Latinoamerica continued to expand their market presence and recorded revenue gains in the second quarter of 56.4% and 11.0%, respectively. On a year-to-date basis, Neogen do Brasil sales increased 55.4% while Neogen Latinoamerica increased sales by 21.2%. Neogen do Brasil's growth was primarily driven by sales of drug residue test kits for dairy antibiotics, sales of cleaners and disinfectants, and genomics revenues, while Neogen Latinoamerica's growth was broad-based across all categories, excluding genomics services, which it currently does not offer.

Service revenue was $6.4 million in the second quarter, an increase of 50.1% compared to the prior year. For the six-month period, service revenue was $13.6 million, or 48.1% higher than the comparable prior year period. The increase for both periods was due to increased sales of services performed on new custom chips developed primarily for the beef and dairy cattle and pork industries.

Gross margin was 49.5% for the second quarter, compared to 53.8% for the November 2012 quarter. On a year-to-date basis, gross margin was 50.7% compared to 53.6% in the prior fiscal year. The decrease in gross margin percentage, in both the quarter and on a year-to-date basis, was primarily the result of product mix shifts within each segment, and the shift in overall company revenues towards Animal Safety products, due to acquisitions. Food Safety's gross margin percentage decreased primarily due to lower aflatoxin test kit sales in the current year. The prior year had historically high sales of mycotoxin test kits due to several outbreaks in the US and Europe; this year's crops in the US were relatively clean, resulting in lower revenues for our kits, which are among our higher gross margin products. These conditions are likely to continue in the short term and impact our comparative results for the remainder of this fiscal year.

The Animal Safety gross margin percentage declined for the quarter and year-to-date periods, due primarily to the effects of the incremental revenues, at lower margins, resulting from the acquisitions of SyrVet and Prima Tech. This segment also benefitted in the prior year as it capitalized on a supply disruption in the market for a small animal supplement line caused by a competitor's shutdown. The competitor is now back in the market; we have retained some, but not all, of this higher margin business. Additionally, Geneseek revenues, which generate lower gross margins within the segment, were a higher percentage of the total Animal Safety revenues in the current quarter and year, contributing to the gross margin percentage decline.

Operating margin decreased from 20.7% in the November 2012 quarter to 16.3% in the November 2013 quarter. On a year-to-date basis, operating margin was 18.7% compared to 20.7% in the same period of the prior year. For both the quarter and year-to-date, the decline in operating margin percentage was almost entirely due to the decrease in gross margin percentage. Sales and marketing expenses increased $1.3 million, or 12.9%, compared to the second quarter last year, and increased 9.4% for the year-to-date period. Increases in each period were primarily due to increased headcount, higher royalties, shipping, advertising and other marketing support costs. General and administrative costs increased $1.4 million for the quarter, or 28.3%, and were up 26.0% for the year-to-date period, primarily due to amortization of certain intangible assets from recent acquisitions, higher compensation and stock option expenses, and legal fees. Research and development expenses were $2.3 million for the second quarter of FY 2014, an increase of 15.6% over the same period a year ago, reflecting the high level of activity in this group, particularly within the Food Safety segment. For the year-to-date, research and development expenses were 12.0% higher than last year. Expressed as a percentage of sales, both sales and marketing and research and development expenses were equal to or less than the prior year for both the quarter and year-to-date periods, respectively. On a year-to-date basis, other expense of $542,000 was largely the result of currency losses recorded at foreign subsidiaries as the Brazilian Real and Mexican Peso devalued against the U. S. dollar during the first quarter of fiscal 2014. For the quarter ended November 30, 2013, currency losses were minimal.


Table of Contents

Revenues

Three and six months ended November 30, 2013 and 2012:



                                                        Three Months ended November 30,
                                                                            Increase/
                                               2013           2012          (Decrease)         %
                                                                 (In thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues    $  14,946      $  14,780      $        166         1.1 %
Bacteria & General Sanitation                    5,929          4,878             1,051        21.5 %
Dehydrated Culture Media & Other                 7,524          6,372             1,152        18.1 %

                                             $  28,399      $  26,030      $      2,369         9.1 %
Animal Safety
Life Sciences                                $   1,881      $   1,821      $         60         3.3 %
Veterinary Instruments & Disposables             6,328          3,669             2,659        72.5 %
Animal Care & Other                              8,687          7,605             1,082        14.2 %
Rodenticides & Disinfectants                     8,754          8,053               701         8.7 %
DNA Testing Service                              5,550          3,559             1,991        55.9 %

                                             $  31,200      $  24,707      $      6,493        26.3 %

Total Revenues                               $  59,599      $  50,737      $      8,862        17.5 %


                                                         Six Months ended November 30,
                                                                            Increase/
                                               2013           2012          (Decrease)         %
                                                                 (In thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues    $  30,820      $  29,120      $      1,700         5.8 %
Bacteria & General Sanitation                   12,001         10,402             1,599        15.4 %
Dehydrated Culture Media & Other                15,577         12,703             2,874        22.6 %

                                             $  58,398      $  52,225      $      6,173        11.8 %
Animal Safety
Life Sciences                                $   3,798      $   3,697      $        101         2.7 %
Veterinary Instruments & Disposables            11,160          7,245             3,915        54.0 %
Animal Care & Other                             17,022         13,877             3,145        22.7 %
Rodenticides & Disinfectants                    16,461         15,360             1,101         7.2 %
DNA Testing Service                             11,308          8,063             3,245        40.2 %

                                             $  59,749      $  48,242      $     11,507        23.9 %

Total Revenues                               $ 118,147      $ 100,467      $     17,680        17.6 %

The Company's Food Safety segment revenues were $28,399,000 in the second quarter of fiscal 2014, 9.1% higher than the same period in the prior year. On a year-to-date basis, Food Safety revenues were $58,398,000, 11.8% higher than the comparable period of the prior year. Natural Toxins, Allergens and Drug Residues increased 1.1% in the second quarter and 5.8% on a year-to-date basis, both compared to the same periods of the prior year. Increases in this category were led by continuing strong sales growth of allergen test kits, especially gliadin, milk and soy, and meat speciation sales in Europe. In the second quarter, sales of drug residue test kits increased 14.9%, primarily the result of order timing from a large international distributor and increased sales in Brazil. On a year-to-date basis, growth in drug residue test kits is 4.4%. In the second quarter, sales of natural toxin test kits were down 13.7% due to strong sales resulting from outbreaks of aflatoxin and DON in grain harvests in both the US and Europe in the prior year. In the current year, crops in the US were relatively clean, resulting in lower sales of mycotoxin test kits. For the entire year, natural toxin sales are down 2.5% compared to the prior year.


Table of Contents

Bacteria and General Sanitation increased 21.5% for the quarter and 15.4% for the year, both compared to the same period in the prior year. The Soleris product line, designed to detect yeasts and molds in processed food products, had sales growth of 46.0% for the quarter and 25.7% for the year, led by increased instrument placements and vial sales, the result of a targeted marketing program during the first half of fiscal 2014. Revenues of the AccuPoint product line, which measure environmental cleanliness, increased 31.6% and 25.0% for the quarter and year-to-date periods, respectively. The Company has increased market share with recent product enhancements and awareness campaigns. Pathogen sales were down 12.8% for the quarter and 9.1% for the year-to-date, primarily due to large equipment orders in the first two quarters of the prior year.

The Dehydrated Culture Media and Other category increased 18.1% in the second quarter and 22.6% for the year-to-date period. Contributions from genomics service revenues to European customers, resulting from increased sales staffing and the introduction of new service offerings, led the growth in this category. Dehydrated culture media increased 16.4% and 17.3% for the quarter and year-to-date periods, respectively, due to incremental sales at a number of larger customers and the capture of new business.

The Company's Animal Safety segment revenues were $31,200,000, an increase of $6,493,000, or 26.3%, for the quarter ended November 30, 2013, compared to the same period in the prior year. On a year-to-date basis, Animal Safety revenues were $59,749,000, 23.9% higher than the comparable period of the prior year. Each comparative period benefitted from the four acquisitions that the Company has completed in the past year. Organic growth for the Animal Safety segment was 13.2% and 11.8% for the three and six month periods, respectively. Life Sciences increased by 3.3% for the November 2013 quarter and 2.7% for the year, both compared to the same periods in the prior year. The increase was led by strong sales of forensic kits, partially offset by a decrease in racing kits as the industry continues to contract.

Veterinary Instruments and Disposables increased 72.5% in the second quarter and 54.0% on a year-to-date basis. These increases reflect the acquisitions of Syrvet, in July, and Prima Tech, in November; each of these businesses' focus is on veterinary instruments. Organically, the company increased sales in this category 10.5% for the November 2013 quarter and 8.6% on a year-to-date basis, due primarily to strong performance in detectable needles. Animal Care and Other revenues increased 14.2% for the quarter and 22.7% for the year compared to the prior periods, respectively. Sales from the fiscal 2014 acquisitions are also included in this category; organic growth was 6.6% for the second quarter ended November 30, 2013 and 16.5% for the year-to-date period, compared to the same periods in the prior year. Organic growth in this category was led by strong sales of a wound care product. For the year-to-date, the Company also benefitted from sales of Uniprim, a veterinary antibiotic powder, from the Macleod Pharmaceuticals acquisition in October 2012. Partially offsetting these gains was a decline in the small animal supplements line; last year's revenues in this product line were strong due to a supply disruption in the market, the result of a competitor shutdown.

Rodenticides and Disinfectants increased 8.7% in the second quarter and 7.2% on a year-to-date basis, each compared to the prior year. For the second quarter, cleaners and disinfectants increased 27.2%, led by strong international sales and new private label contracts. This was partially offset by a decrease in rodenticide sales for the quarter, primarily caused by weak sales in the Mexican sugar cane market, due to weather, and order timing from distributors.

DNA Testing Service increased 55.9% for the November 2013 quarter and 40.2% for the year-to-date period, both compared to the prior year. Increases were primarily from new business generated by the development of new genomic service offerings, customized primarily for the beef, dairy and pork markets, and the completion of a number of large projects. To a lesser extent, the Scidera acquisition, completed in January 2013, also contributed to the growth.


Table of Contents

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of the Company was $79,092,000 at November 30, 2013, compared to $85,369,000 at May 31, 2013. Approximately $10,729,000 in cash was generated from operations during the first six months of fiscal 2014. Net cash proceeds of $6,871,000 were realized from the exercise of stock options and issuance of shares under the Company's Employee Stock Purchase Plan during the first six months of FY-14. The Company completed asset purchases of Syrvet Inc. in July 2013 for $10,012,000 net cash and Prima Tech Inc in November 2013 for $12,068,000 (see Note 7). The Company also spent $4,490,000 for property, equipment and other non-current assets in the first six months of 2014.

Accounts receivable increased by $7,063,000, or 18.2%, due primarily to the increase in revenues; $963,000 of this increase relates to receivables acquired in the Prima Tech acquisition. Inventory levels increased by $9,015,000, or 23.5%, compared to May 31, 2013; at November 30, 2013, the inventory balances of the acquired SyrVet and Prima Tech businesses were $4,593,000.

Inflation and changing prices are not expected to have a material effect on operations, as management believes it will continue to be successful in offsetting increased input costs with price increases and/or cost efficiencies.

Management believes that the Company's existing cash and marketable securities balances at November 30, 2013, along with available borrowings under its credit facility and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and borrowing capacity may not be sufficient to meet the Company's cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or products that fit within the Company's mission statement. Accordingly, the Company may choose to issue equity securities or enter into other financing arrangements for a portion of its future financing needs.


Table of Contents

PART I - FINANCIAL INFORMATION

  Add NEOG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NEOG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.