Neogen Corporation (NEOG) — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2021, ended November 30, 2020. Unless otherwise noted, financial amounts below are in U.S. dollars; statements are unaudited.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $115.0 million | $107.8 million | $224.3 million | $209.2 million |
| Gross profit | $53.2 million | $51.0 million | $103.5 million | $99.2 million |
| Gross margin | 46.3% | 47.3% | 46.1% | 47.4% |
| Operating income | $19.2 million | $18.3 million | $38.1 million | $34.5 million |
| Net income | $15.9 million | $16.3 million | $31.7 million | $30.9 million |
| Diluted EPS | $0.30 | $0.31 | $0.60 | $0.59 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $47.5 million | $40.5 million |
- Revenue increased 7% in both the quarter and first half; organic growth was 5% in each period.
- Quarterly operating margin was 16.7%, versus 16.9% a year earlier; first-half operating margin was 17.0%, versus 16.5%.
- Quarterly net income declined despite higher revenue and operating income, primarily because the effective tax rate rose to 17.8% from 15.3%. The first-half effective rate was 18.9%, versus 16.1%.
- Food Safety revenue grew 1% in the quarter (organic sales declined 1%); Animal Safety revenue grew 13% (organic growth 11%). First-half segment revenue increased 4% and 11%, respectively.
- Service revenue rose 10% in both the quarter and first half. International sales represented 39% of revenue in the quarter, compared with 41% a year earlier.
Cash, liquidity and debt
- Cash and cash equivalents were $113.9 million and marketable securities were $276.9 million at November 30, 2020, totaling $390.8 million, compared with $343.7 million at May 31, 2020.
- Six-month operating cash flow was $47.5 million. Investing activities used $12.9 million, including $11.1 million for property, equipment and other non-current assets and $2.4 million for an acquisition, net of cash acquired. Financing activities provided $12.7 million, mainly from employee stock transactions.
- Current assets were $578.4 million and current liabilities $44.6 million. The company reported no outstanding borrowings under its $15 million unsecured revolving credit facility, extended to November 30, 2023. It reported compliance with its financial covenants.
- Management said cash, marketable securities, available credit and expected operating cash flows should fund activities for the foreseeable future, while noting that commercialization plans or acquisitions could require equity or other financing.
Changes, outlook and risks
- Animal Safety growth reflected strength in biosecurity, companion-animal products, genomics and the acquired StandGuard product line. Food Safety results were affected by weakness in some diagnostic lines and contributions from acquisitions.
- Management attributed the 1.0 percentage-point quarterly gross-margin decline largely to sales mix: Animal Safety and certain faster-growing product lines carry lower average margins. Operating expenses increased 4% in the quarter, including approximately $1 million of consulting, legal and professional costs for acquisition efforts that did not succeed.
- COVID-19 had mixed effects: demand benefited biosecurity products and companion-animal markets, while food-service-related diagnostic demand, customer access, and supply chains were pressured. Management expected pandemic effects to continue through the fiscal year. The company does not provide forecasts of future financial performance.
- Other risks discussed include competition, acquisition integration, R&D and intellectual-property risks, regulation, agricultural and food-production conditions, foreign exchange movements, and continued COVID-19 effects. Currency translation reduced comparative revenue by about $1.2 million in the quarter and $3.3 million year to date.
- The company recorded a $309,000 insurance settlement and a $300,000 legal settlement expense in quarterly other income (expense). The environmental remediation liability for its Wisconsin facility was $916,000; a change in remediation approach could increase the liability, but the outcome of discussions with the state regulator was unknown.
- Acquisitions during the period included several international distributors and culture-media businesses, and the StandGuard product line. Their individual revenue and net income were considered immaterial and were not disclosed.
Important facts for investors to verify
- Whether Food Safety diagnostic demand and gross margins recover as pandemic-related customer disruptions and product-mix effects change.
- How much reported growth reflects organic performance versus acquisitions, particularly in Animal Safety and international operations.
- Whether the elevated effective tax rate and acquisition-related professional costs persist.
- Potential supply-chain, foreign-exchange and COVID-19 effects, alongside the company’s plans for product commercialization or acquisitions and any related financing needs.
- The outcome and possible cost impact of the Wisconsin remediation review.