4th Quarter Conference Call - July 19, 2000
Opening Comments
President James Herbert
Welcome to Neogen's 4th Quarter Conference Call.
I have with me today Neogen's Chief Operating Officer, Lon Bohannon, and Chief Financial Officer, Rick Current.
Let me begin by making our customary statement that some of my comments in this conference call today will be forward looking and are subject to certain risks and uncertainties. The actual future results may differ from those expected, depending on a variety of factors. Many of those factors are listed in the Company's form 10K filed with the Securities and Exchange Commission.
The purpose of today's call is to provide you with the results of Neogen's 4th Quarter, talk about the year-end
numbers, and give you a feel for the outlook of our new year.
We announced in a press release this morning that revenues for the 4th quarter were the highest in the Company's 18-year history - surpassing the previous high, which was our third quarter of this year.
Fourth quarter revenues of approximately $6.5 million were 23% ahead of last year's 4th quarter, and the second quarter in a row in which revenues have exceeded $6.0 million.
Earnings for the 4th quarter soared to $1.3 million or .22 cents per share for the quarter. This compares to .03 cents per share for the 4th quarter last year. A part of the reason for this big jump in earnings was due to a favorable settlement on the patent infringement related lawsuit that had continued for about four years.
The 4th quarter also, of course, marked the Company's 2000 fiscal year end. Revenues for the year were approximately $23.5 million - or a 6% increase over the previous year. Net income for fiscal year 2000 was slightly in excess of $3.0 million or about 52 cents per share. That compares to 37 cents per share in the last fiscal year.
Fiscal year 2000 was almost like two separate years. In the first half of the year, we got off to a sluggish start and, in fact, revenues were approximately 7% below the first half of the prior year. Frankly, we were correct in anticipating improved revenues and earnings for 2000, but our timing was off. We didn't get our sales and marketing plans implemented as rapidly as we had anticipated. We lost almost a million dollars of revenue from a single customer who encountered financial difficulties, and we had a problem getting our botulism vaccine production relocated to our Tampa, Florida facility. All of this was further complicated by an unusually high quality grain crop that didn't call for a lot of quality testing. We sold the Ampcor human product line in fiscal year '99 and that left $650,000 of revenue that had to be replaced.
During that first six months, we got caught up and got our growth rejuvenated showing a 21% increase in revenues in the last half of the year compared to a year earlier.
I know the marketplace beat up our stock price because of those first two quarters. However, I think Neogen has a strong record of growth - one of which I am certainly proud. With the completion of the 4th quarter, we can now boast of quarterly revenue increases as compared to the prior year in 34 of the last 38 quarters. That is our growth record for a period of over nine years.
Piloting a growth company like Neogen is a bit like piloting an airplane. What's important is the runway ahead of us - that runway behind us is now of no value to our upward flight.
We got a lot of things accomplished in the last half of the year that should continue to help us in that upward flight as we start the fiscal year 2001. Our diagnostic tests for foodborne bacterial continued to show good growth - in fact up 22% for the overall year. Our products introduced this year for the detection of foodborne allergens are also gaining nice momentum. Our diagnostic test to help food processors and food service companies monitor and improve general sanitation made real headway during the year - up over tenfold as compared to a year earlier. Our diagnostic tests to detect animal drug residues were up 13%, our Triple Crown line of animal pharmaceutical products was up 16%, and our sales of veterinary instruments to the traditional veterinary market was up 12%. The latter was aided by the continued improvement in our China manufacturing operations.
Though we only had revenue growth in two of our four quarters, our consistency of profitability was not impacted. Neogen can now claim a string of 29 consecutive profitable quarters from operations. As proof of our financial stability, Neogen generated $4.0 million of cash from operations in the year.
Now, how do we build on that solid second half of last year and continue that strong progress in fiscal year 2001? As most of you know, our management does not forecast revenues and profit However, several good analysts do follow the company with a forecasting effort. The most recent forecast on the street is from Red Chip. They are calling for revenues in our year 2001 to climb to $35 million, which would be about a 49% increase in revenues as compared to last year. The Red Chip forecast calls for earnings per share to climb to 56 cents.
What causes them to be this optimistic? First, let's take a quick look at our overall corporate strategy of producing solutions for both food and animal safety. As the food safety issue is faced with greater problems and is getting more attention, the endeavors for safer food are continually being pushed back inside the farm gate as we have always said they would.
One of the great advantages to our Food Safety group this year is going to be the further development and expansion of our sales and marketing force. We started this new year with 41 positions in sales and marketing for the Food Safety group only. At the beginning of the year, we only had two empty saddles - two positions unfilled. This group is larger and far more experienced that they were when we began this time last year.
We expect to continue to see nice growth in our diagnostic test business for the detection of foodborne bacteria. We have continued to make improvements in that product line and will make further improvements in the year ahead. We think we are participating in a growing market and believe we may also be gaining some market share in this area.
The concern for foodborne bacteria is certainly not restricted to the U.S. In fact, as we speak, there is a major concern in Japan due to a food poisoning outbreak. One of the country's largest bakeries is in a massive food product recall as a result of approximately 15,000 people who have become ill this month due to tainted lowfat milk used in the bakeries products. That problem extends to Kirin brewery - the country's largest brewer.
This Food Safety group should also likely get growth this year as a result of our announced decision last month to begin the development of diagnostic tests to detect GMO's - or as we prefer to refer to them as test for Improved Plant Genetics. In the years ahead, these test kits will undoubtedly be used to test for both input traits and output traits from the world's plant agriculture production. It is estimated that perhaps as much as 50% of the corm and soybean production in the United States this year will be derived from IPG seed. Industry estimates indicate that the total market for crop genetic testing may be in excess of $10 million this year and could double in the next 3-5 years. Rapid tests such as those produced by Neogen could capture a significant share of that market.
In addition to the tests for GMO's, the Food Safety group expects to introduce four other new diagnostic test products within the next six months. Though it is difficult to predict sales growth of these new products, some could be significant and none of them were a part of our revenue stream last year.
The acquisition of Acumedia in mid-February should also have a very significant impact on the Food Safety division's future growth. This group could add in excess of $4 million of new sales to the 2001 year. We think longer term, this business is even more synergistic to our growth. We have combined Neogen's leadership position in the development and marketing of rapid diagnostic tests for foodborne bacteria with Acumedia's position as a leader in the development of culture media used to grow microorganisms to detect able testing levels.
In the five months Neogen has owned the Acumedia operations, we have already been successful in improving production efficiency and bottom line results. In the prior year, the former owners recorded a loss of approximately $1.0 million. In our 4th quarter, we were successful in converting some of those problems to the point that Acumedia was almost a breakeven on a P&L basis.
Now, what lies in store for our Animal Safety Division in the year ahead? Our early June acquisition of AmVet Pharmaceuticals will clearly make contributions at both the top and bottom lines. In the year prior to our acquisition, the Company had recorded revenues of approximately $3.6 million and were solidly profitable. That business owns formulas for approximately 25 different veterinary products that are marketed under 40 different labels. The former owners had recorded impressive sales growth in each of the past four years and our management believes that it can continue that growth trend.
Our group of diagnostic products used to detect drug residues in animals has continued to show growth over the past several years. We expect to see that trend continue.
Our veterinary instrument group continues to show strong progress in both the sales and marketing area as well as use of the unique manufacturing capacity. For the new year, we already have on order a number of special needles that reflect new business because of that unique capacity. These needles vary from epidural needles used in human spinal injections to special needles to apply adhesives in the disc drive computer business. Selling prices of these needles vary all the way from $.04 a piece to $1.25 a piece and volumes vary from 100,000 pieces to up to 5 million. The Company is also continuing its strategy of development and supply of safer medication devices for animals. This not only helps in the animal safety program, but helps insure against food safety problems as meat and milk from those animals is processed. This includes significant business with two major animal health firms. One relates to a device to introduce small medication implants and another for a power doser to apply medication on the skin of the animal rather than "through the hide or down the throat".
As with our Food Safety group, our Animal Safety sales and marketing force is larger and more experienced than this time a year ago. That group has a total organization of 31 people, and 30 of those positions are currently filled. From a manpower standpoint, we also made a very valuable addition to our management group in Lexington last month with the addition of Tom Hatch to take charge of all of our operational areas, as they are continuing to grow. Tom comes with a great background for Neogen having formerly served as the Chief Executive Officer of Immucell a publicly held company that produces and markets unique animal health products.
Neogen is still poised well for future growth through strategic acquisitions. In additional to the positive cash flow generated from operations, the Company had $10.7 million in cash and marketable securities at May 31 and unused bank lines of credit of $10.0 million.
Furthermore, acquisition opportunities continue to be promising. The Company currently has 10 potential acquisition opportunities on its radar screen that we are tracking. At present, we have meaningful discussions with three of these companies. I'd caution you that we obviously won't do all of these acquisitions, in fact, we may not complete any of the ones that we are currently tracking. However, there continues to be good potential acquisitions available for consideration both in the U.S. and Europe.
In summary, we finished fiscal year 2000 in a strong managerial position, with good bottom line results, and a strong balance sheet to move into 2001. We are now beginning to get some attention in the financial market. We are going to work harder in the year ahead to make sure our story gets told to the proper people, and we believe our story will continue to be more impressive.
The food we consume stays on the fork but a short time and is only the final step in a long journey of food production and processing that is filled with countless hazards. We believe that Neogen is continuing to build shareholder value while helping its customers guard against those countless hazards from field to fork. |
