Neogen Earnings 2019-11-30

NEOG 10Q Quarterly Report

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller Reporting Company

Emerging growth company

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
NEOG	4,151	721	61	416	193	60	91	4,095	46%	44.9	8%
QDEL	2,482	846	336	506	302	69	108	2,453	60%	22.8	8%
IMMU	2,456	478	363	0	0	-344	-301	2,026	0%	-6.7	-72%
MYGN	2,016	1,563	474	851	0	5	102	2,157	0%	21.1	0%
LNTH	1,112	390	298	347	177	13	49	1,255	51%	25.8	3%
NTLA	727	352	76	37	37	-89	-84	678	100%	-8.1	-25%
QTNT	626	193	215	29	12	-104	-89	-89,908	40%	1,004.8	-54%
VIVO	490	322	134	203	121	26	43	511	60%	11.8	8%
OXFD	370	242	24	66	48	137	96	183	72%	1.9	56%
TRIB	235	152	108	0	0	0	0	228			0%

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

November 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

0-17988

Neogen Corporation

(Exact name of registrant as specified in its charter)


Michigan		38-2367843
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

620 Lesher Place

Lansing

Michigan

48912

(Address of principal executive offices, including zip code)

(

517

)

372-9200

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of each Class	Trading Symbol(s)	Name of each exchange on which registered

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a

non-accelerated

filer (see definition of “accelerated filer and large accelerated filer” in Rule

12b-2

of the Exchange Act):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act): YES

☐

☒

As of November 30, 2019 there were

52,710,633

shares of Common Stock outstanding.

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Interim Consolidated Financial Statements (unaudited)		2

	Consolidated Balance Sheets – November 30, 2019 and May 31, 2019		2

	Consolidated Statements of Income – Three and six months ended November 30, 2019 and 2018		3

	Consolidated Statements of Comprehensive Income – Three and six months ended November 30, 2019 and 2018		4

	Consolidated Statements of Equity – Six months ended November 30, 2019 and 2018		5

	Consolidated Statements of Cash Flows – Six months ended November 30, 2019 and 2018		6

	Notes to Interim Consolidated Financial Statements – November 30, 2019		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25

Item 4.	Controls and Procedures		25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 6.	Exhibits		26

SIGNATURES			27

	CEO Certification

	CFO Certification

	Section 906 Certification

PART I – FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements

Neogen Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and

per share amounts)


	November 30,			May 31,
	2019			2019
	Unaudited			Audited
Assets
Current Assets
Cash and cash equivalents	$	66,414		$	41,688
Marketable securities		247,191			225,836
Accounts receivable, less allowance of $ 1,700 and $ 1,700 at November 30, 2019 and May 31, 2019, respectively		85,377			82,582
Inventories		86,406			85,992
Prepaid expenses and other current assets		14,795			13,431

Total Current Assets		500,183			449,529
Net Property and Equipment		77,150			74,847
Other Assets
Goodwill		103,610			103,619
Other non-amortizable intangible assets		15,495			15,649
Amortizable intangible and other assets, net of accumulated amortization of $ 41,923 and $ 40,835 at November 30, 2019 and May 31, 2019, respectively		54,153			52,096

Total Assets	$	750,591		$	695,740

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	19,567		$	19,063
Accrued compensation		5,689			7,085
Income taxes		756			601
Other accruals		12,779			11,502

Total Current Liabilities		38,791			38,251
Deferred Income Taxes		15,591			15,618
Other Non-Current Liabilities		5,292			3,972

Total Liabilities		59,674			57,841
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, 52,710,633 and 52,216,589 shares issued and outstanding at November 30, 2019 and May 31, 2019, respectively		8,434			8,355
Additional paid-in capital		244,226			221,937
Accumulated other comprehensive loss		(11,918	)		(11,640	)
Retained earnings		450,175			419,247

Total Stockholders’ Equity		690,917			637,899

Total Liabilities and Stockholders’ Equity	$	750,591		$	695,740

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share amounts)


	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2019			2018		2019			2018
Revenues
Product revenues	$	87,387		$	89,562	$	169,335		$	172,522
Service revenues		20,416			17,536		39,892			34,202

Total Revenues		107,803			107,098		209,227			206,724
Cost of Revenues
Cost of product revenues		45,559			47,305		87,590			90,255
Cost of service revenues		11,218			9,760		22,417			19,707

Total Cost of Revenues		56,777			57,065		110,007			109,962

Gross Margin		51,026			50,033		99,220			96,762
Operating Expenses
Sales and marketing		17,988			18,499		35,531			35,732
General and administrative		10,985			10,121		21,684			20,319
Research and development		3,781			3,167		7,469			5,986

Total Operating Expenses		32,754			31,787		64,684			62,037

Operating Income		18,272			18,246		34,536			34,725
Other Income (Expense)
Interest income		1,271			1,028		2,781			1,955
Other income (expense)		(317	)		427		(439	)		158

Total Other Income		954			1,455		2,342			2,113

Income Before Taxes		19,226			19,701		36,878			36,838
Provision for Income Taxes		2,950			3,650		5,950			5,550

Net Income	$	16,276		$	16,051	$	30,928		$	31,288

Net Income Per Share
Basic	$	0.31		$	0.31	$	0.59		$	0.60

Diluted	$	0.31		$	0.31	$	0.59		$	0.60

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)


	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2019			2018		2019			2018
Net income	$	16,276		$	16,051	$	30,928		$	31,288
Other comprehensive income (loss), net of tax:
currency translation adjustments		2,367			290		(691	)		(2,488	)
Other comprehensive income (loss), net of tax:
unrealized gain (loss) on marketable securities		(149	)		—		413			—

Total comprehensive income	$	18,494		$	16,341	$	30,650		$	28,800

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of

Equity (unaudited)

(in thousands)


							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




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

See notes to interim consolidated financial statements.

Neogen Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Six Months Ended
	November 30,
	2019			2018
Cash Flows From Operating Activities
Net Income	$	30,928		$	31,288
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		8,985			8,597
Share-based compensation		3,155			2,831
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(2,483	)		(3,615	)
Inventories		(103	)		(3,787	)
Prepaid expenses and other current assets		(1,323	)		(2,025	)
Accounts payable, accruals and other changes		1,313			(706	)

Net Cash From Operating Activities		40,472			32,583
Cash Flows For Investing Activities
Purchases of property, equipment and other assets		(12,806	)		(6,720	)
Proceeds from the sale of marketable securities		199,708			179,839
Purchases of marketable securities		(220,528	)		(191,488	)
Business acquisitions, net of cash acquired		—			(4,903	)

Net Cash For Investing Activities		(33,626	)		(23,272	)
Cash Flows From Financing Activities
Exercise of stock options and issuance of employee stock purchase plan shares		19,213			10,268

Net Cash From Financing Activities		19,213			10,268
Effect of Exchange Rates on Cash		(1,333	)		(1,068	)

Net Increase In Cash and Cash Equivalents		24,726			18,511
Cash and Cash Equivalents, Beginning of Period		41,688			83,074

Cash and Cash Equivalents, End of Period	$	66,414		$	101,585

See notes to interim consolidated financial statements.

NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying unaudited consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form

10-Q

and Article 10 of Regulation

S-X.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and six month

periods

ended November 30, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2020. For more complete financial information, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form

10-K

for the fiscal year ended May 31, 2019.

Recently Adopted Accounting Standards

Leases

On June 1, 2019, the Company adopted ASU No.

2016-02—

Leases. Refer to Leases section of Note 1 for further information.

Recent Accounting Pronouncements Not Yet Adopted

Financial Instruments - Credit Losses

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 that the company expects to collect over the instrument’s contractual life. ASU

2016-13

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 adoption of this guidance will have an impact on its consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13—Fair Value

Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements of fair value measurements. ASU

2018-13

is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company does not believe adoption of this guidance will have an impact on its consolidated financial statements.

Cloud Computing Implementation Cost

In August 2018, the FASB issued ASU 2018-15—Intangible

-Goodwill and Other

Internal-Use

Software (Subtopic

350-40):

Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU

2018-15

Comprehensive Income

Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains or losses on marketable securities.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments.

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Cash and Cash Equivalents

Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of 90 days or less. The carrying value of these assets approximates fair value due to the short maturity of these instruments and meets the Level 1 criteria.

Marketable Securities

The Company has marketable securities held by banks or broker-dealers at November 30, 2019, consisting of short-term domestic certificates of deposit, and commercial paper and U.S. treasuries rated at least

A-1/P-1

(short-term) and A/A2 (long-term) with maturities between 91 days and

two years

. These securities are classified as available for sale. The primary objective of the Company’s investment activity is to preserve capital for the purpose of funding operations, capital expenditures and business acquisitions; investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other income on the consolidated statements of income.

ESTIMATES AND ASSUMPTIONS

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 disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, 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 have been no significant 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, 2019.

There were no significant changes to the contractual obligations or contingent liabilities and commitments disclosed in the Company’s Annual Report on Form

10-K

for the fiscal year ended May 31, 2019.

Accounts Receivable Allowance

Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. Collateral or other security is generally not required for accounts receivable. Once a receivable balance has been determined to be uncollectible, that amount is charged against the allowance for doubtful accounts

Inventory

The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.

Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants

not-to-compete

and patents. Customer-based intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis; intangibles are generally amortized over

years

. We review the carrying amounts of goodwill and other

non-amortizable

intangible assets annually, or when indications of impairment exist, to determine if such assets may be impaired by performing a quantitative assessment. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, such assets are reduced to their estimated fair value and a charge is recorded to operations.

Long-Lived Assets

Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for

possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations.

Equity Compensation Plans

Share options awarded to employees and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. To value options, several recognized valuation models exist. None of these models can be singled out as being the best or most correct. The model applied by us can handle most of the specific features included in the options granted, which is the reason for its use. If a different model were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 5.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are

determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year.

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 a right-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 was effective for annualperiods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted this ASU on June 1, 2019; the impact on our consolidated financial statements was immaterial.

We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option.

Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842 on June 1, 2019

we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as

right-of-use

assets and lease liabilities of approximately $2.0 million

each

as of June 1, 2019. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods.

Right-of-use

assets are recorded in other assets on our consolidated balance sheets. Current and

non-current

lease liabilities are recorded in other accruals within current liabilities and other

non-current

liabilities, respectively, on our consolidated balance sheets.

We have made certain assumptions and judgments when applying ASC 842, the most significant of which are:

•

We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

•

We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

•

For all asset classes, we elected to not recognize a

right-of-use

asset and lease liability for short-term leases.

•

For all asset classes, we elected to not separate

non-lease

components from lease components to which they relate and have accounted for the combined lease and

non-lease

components as a single lease component.

•

The determination of the discount rate used in a lease is our incremental borrowing rate that is based on what we would normally pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments.

Supplemental balance sheet information related to operating leases was as follows:


	November 30, 2019
	(in thousands)
Right of use - assets	$	2,034
Lease liabilities - current		585
Lease liabilities - non-current		1,456

The weighted average remaining lease term and weighted average discount rate were as follows:


	November 30, 2019
Weighted average remaining lease term		2.5 years
Weighted average discount rate		3.5	%

Operating lease expenses are classified as cost of revenues or operating expenses on the

onsolidated

tatements of

ncome. The components of lease expense were as follows:


	Three Months Ended November 30, 2019		Six Months Ended November 30, 2019
	(in thousands)		(in thousands)
Operating leases	$	333	$	573
Short term leases		34		81

Total lease expense	$	367	$	654

Cash paid for amounts included in the measurement of lease liabilities for operating leases included in cash flows from operations on the

tatement of

ash

lows were approximately $558,000 for the six months ended November 30, 2019. There were

non-cash

additions to

right-of-use

assets obtained from new operating lease liabilities for the six months ended November 30, 2019.

Undiscounted minimum

lease payments as of November 30, 2019 were as follows:


	Amount
	(in thousands)
Years ending May 31,
2020 (1)	$	589
2021		917
2022		358
2023		169
2024		95
2025 and thereafter		26

Total lease payments		2,154
Less: imputed interest		114

Total lease liabilities	$	2,040

(1)	Excluding the six months ended November 30, 2019 .

Revenue Recognition

The Company determines the amount of revenue to be recognized through application of the following steps:

•

Identification of the contract with a customer;

•

Identification of the performance obligations in the contract;

•

Determination of the transaction price;

•

Allocation of the transaction price to the performance obligations in the contract; and

•

Recognition of revenue when, or as, the Company satisfies the performance obligations.

Essentially all our revenue is generated through contracts with our customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met. In certain situations, we provide rebates, marketing support, credits or incentives to selected customers, which are accounted for as variable consideration when estimating the amount of revenue to recognize on a contract. Variable consideration reduces the amount of revenue that is recognized. These variable consideration estimates are updated at the end of each reporting period based on information currently available.

The performance obligations in our contracts are generally satisfied well within one year of the contract inception. In such cases, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. We have elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. The Company accounts for shipping and handling for products as a fulfillment activity when goods are shipped. Revenue is recognized net of any tax collected from customers; the taxes are subsequently remitted to governmental authorities. The Company’s terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent; due to immateriality of the amount, warranty claims are recorded in the period incurred.

We derive revenue from two primary sources - product revenue and service revenue.

Product revenue consists of shipments of:

•

Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;

•

Consumable products marketed to veterinarians and animal health product distributors; and

•

Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

Revenues for our products are recognized and invoiced when the product is shipped to the customer.

Service revenue consists primarily of:

•

Genomic identification and related interpretive bioinformatic services; and

•

Other commercial laboratory services.

Revenues for our genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer.

Payment terms for products and services are generally 30 to 60 days; international terms may be longer.

The following

table presents disaggregated revenue by major product and service categories for the three and six month periods ended November 30, 2019 and 2018:


	Three Months ended November 30,				Six Months ended November 30,
	2019		2018		2019		2018
	(in thousands)
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,681	$	20,571	$	40,796	$	39,409
Bacterial & General Sanitation		11,615		10,822		21,931		21,288
Culture Media & Other		12,757		12,191		24,037		24,408
Rodenticides, Insecticides & Disinfectants		7,447		5,943		12,896		12,569
Genomics Services		4,354		4,223		8,216		8,259

	$	56,854	$	53,750	$	107,876	$	105,933
Animal Safety
Life Sciences	$	1,803	$	1,891	$	3,525	$	3,971
Veterinary Instruments & Disposables		10,486		11,683		21,822		22,087
Animal Care & Other		7,787		8,948		14,193		15,346
Rodenticides, Insecticides & Disinfectants		16,186		18,789		32,904		35,935
Genomics Services		14,687		12,037		28,907		23,452

	$	50,949	$	53,348	$	101,351	$	100,791

Total Revenues	$	107,803	$	107,098	$

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	53	$4,151

10-Q	2019-12-27	Quarter: 2019-11-30
10-Q	2019-09-26	Quarter: 2019-08-31
10-K	2019-07-30	Annual: 2019-05-31
10-Q	2019-03-29	Quarter: 2019-02-28
10-Q	2018-12-28	Quarter: 2018-11-30
10-Q	2018-10-05	Quarter: 2018-08-31
10-K	2018-07-27	Annual: 2018-05-31
10-Q	2018-03-29	Quarter: 2018-02-28
10-Q	2018-01-05	Quarter: 2017-11-30
10-Q	2017-09-29	Quarter: 2017-08-31
10-K	2017-07-28	Annual: 2017-05-31
10-Q	2017-03-31	Quarter: 2017-02-28
10-Q	2016-12-29	Quarter: 2016-11-30
10-Q	2016-09-30	Quarter: 2016-08-31
10-K	2016-07-29	Annual: 2016-05-31
10-Q	2016-03-31	Quarter: 2016-02-29
10-Q	2016-01-08	Quarter: 2015-11-30
10-Q	2015-09-30	Quarter: 2015-08-31
10-K	2015-07-30	Annual: 2015-05-31
10-Q	2015-04-01	Quarter: 2015-02-28
10-Q	2014-12-30	Quarter: 2014-11-30
10-Q	2014-09-30	Quarter: 2014-08-31
10-K	2014-07-30	Annual: 2014-05-31
10-Q	2014-04-04	Quarter: 2014-02-28
10-Q	2014-01-09	Quarter: 2013-11-30
10-Q	2013-09-30	Quarter: 2013-08-31
10-Q	2013-03-28	Quarter: 2013-02-28
10-Q	2012-12-28	Quarter: 2012-11-30
10-Q	2012-09-28	Quarter: 2012-08-31
10-K	2012-07-30	Annual: 2012-05-31
10-Q	2012-03-30	Quarter: 2012-02-29
10-Q	2011-12-30	Quarter: 2011-11-30
10-Q	2011-09-30	Quarter: 2011-08-31
10-K	2011-07-29	Annual: 2011-05-31
10-Q	2011-03-30	Quarter: 2011-02-28
10-Q	2011-01-06	Quarter: 2010-11-30
10-Q	2010-10-08	Quarter: 2010-08-31
10-K	2010-08-16	Annual: 2010-05-31
10-Q	2010-04-09	Quarter: 2010-02-28
10-Q	2010-01-05	Quarter: 2009-11-30

8-K	2019-12-27	Other Events
8-K	2019-12-23	Earnings, Exhibits
8-K	2019-10-03	Shareholder Vote
8-K	2019-10-01	Other Events
8-K	2019-07-23	Earnings, Exhibits
8-K	2019-03-26	Earnings, Exhibits
8-K	2019-02-12	Other Events
8-K	2019-01-09	Officers, Exhibits
8-K	2018-12-20	Earnings, Exhibits
8-K	2018-11-30	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-10-04	Shareholder Vote
8-K	2018-09-25	Earnings, Exhibits
8-K	2018-07-17	Earnings, Exhibits
8-K	2018-04-06	Officers, Exhibits
8-K	2018-04-06	Other Events, Exhibits
8-K	2018-03-22	Earnings, Exhibits
8-K	2018-03-06	Officers
8-K	2018-01-03	Earnings, Exhibits

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EX-31.2	d821157dex312.htm
EX-32	d821157dex32.htm