NEOGEN CORP

Previous wording

In prior years, production was negatively impacted by broad supply chain challenges, labor market disruptions and other related lingering impacts of the COVID-19 pandemic. Additionally, input costs inflation, including increases in certain raw materials, negatively impacted operating results. In fiscal 2023, these negative impacts steadily improved throughout the fiscal year. In fiscal 2024, despite a slowing of inflation rates, there remains economic headwinds of softening consumer demand and high interest rates, coupled with ongoing geopolitical tension in certain regions.

Current wording

In prior years, production was negatively impacted by broad supply chain challenges, labor market disruptions and other related impacts of the COVID-19 pandemic. Additionally, input cost inflation, including increases in certain raw materials, negatively impacted operating results. In fiscal 2023, these negative impacts steadily improved throughout the fiscal year. In fiscal 2024, despite a slowing of inflation rates, there remains economic headwinds of softening consumer demand and higher interest rates, coupled with ongoing geopolitical tension in certain regions.

Previous wording

Interest rates have risen sharply, particularly in fiscal 2023, as a way to combat inflation. This, subsequently, increased our borrowing costs and raised the overall cost of capital. While the frequent increases have largely subsided, the overall rate is significantly higher than in recent years, which increases interest expense on the unhedged portion of our Term Loan.

Current wording

Interest rates have risen sharply, particularly in fiscal 2023, as a way to combat inflation. This, subsequently, increased our borrowing costs and raised the overall cost of capital. While the frequent increases have largely subsided, the overall rate is significantly higher than in recent years, which increases interest expense on the unhedged portion of our Term Loan. In response to the historically high inflationary environment, we have taken pricing actions to mitigate the impacts on the business. We anticipate that the impact of inflation will continue to affect us for the remainder of fiscal year 2024, although at a continually decreasing rate compared to the prior two fiscal years. Beginning in the second quarter of the fiscal year, we implemented a new enterprise resource planning system and began the exit of our transition distribution agreements, which led to certain shipment delays and an elevated backlog of open orders, specifically in the Food Safety segment. Through our continued integration process, we expect our order fulfillment rates to improve to meet the needs of our customers in this improving end-market environment.

Previous wording

Although we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict, which began in February 2022, on the global economy. Our European operations and customer base have been negatively impacted by the conflict. Similarly, the military conflict between Israel and Hamas has increased overall geopolitical tensions. As the respective conflicts continue or worsen, they may further impact our business, financial condition or results of operations throughout fiscal year 2024.

Current wording

Although we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict, which began in February 2022, on the global economy. Our European operations and customer base have been negatively impacted by the conflict. Similarly, the military conflict between Israel and Hamas has increased overall geopolitical tensions. As the respective conflicts continue or worsen, they may further impact our business, financial condition or results of operations throughout the remainder of fiscal year 2024.

Previous wording

We continue to evaluate the nature and extent to which these issues impact our business, including consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us throughout fiscal year 2024.

Current wording

We continue to evaluate the nature and extent to which these issues impact our business, including consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us for the remainder of fiscal year 2024 and into fiscal year 2025.

Previous wording

Food Safety core sales exclude revenues from the FSD transaction (September 2022), the Thai-Neo Biotech acquisition (July 2022), the Corvium acquisition (February 2023) and excludes the change in currency rates. Core sales also exclude the discontinued dairy antibiotics test kit product line and acquired 3M temperature indicator product line.

Current wording

Food Safety core sales exclude revenues from the 3M FSD transaction (September 2022), the Thai-Neo Biotech acquisition (July 2022), the Corvium acquisition (February 2023) and excludes the change in currency rates. Core sales also exclude the discontinued dairy antibiotics test kits, 3M temperature indicator product lines and shellfish toxin test kits.

Previous wording

Service revenue, which includes genomics testing and other laboratory services, was $25.8 million and $50.3 million, respectively, during the three and six months ended November 30, 2023. Service revenue was $26.7 million and $52.3 million, respectively, during the three and six months ended November 30, 2022. The decrease was primarily driven by the attrition of a large domestic customer in the poultry market as the Company shifts its strategic focus to larger production animals, partially offset by strength in beef testing in Australia and new business in beef markets in Europe.

Current wording

Service revenue, which includes genomics testing and other laboratory services, was $26.6 million and $77.0 million, respectively, during the three and nine months ended February 29, 2024. Service revenue was $27.6 million and $79.8 million, respectively, during the three and nine months ended February 28, 2023. The decrease in the third quarter was primarily driven by customer attrition in the poultry market, partially offset by strength in genomics testing in the U.K. and China, and new business gained with our Neogen Analytics software as a service.

Previous wording

International sales were $116.1 million and $234.0 million during the three and six months ended November 30, 2023, compared to $115.6 million and $167.3 million during the three and six months ended November 30, 2022. The increase during the six months ended November 30, 2023 was primarily due to $63.8 million in international sales related to the 3M FSD transaction during the first quarter of fiscal 2024. The increase in sales in the second quarter as compared to the same period in the prior year was primarily due to strength of indicator and pathogen testing products in Central and South American countries. These increases were partially offset by lower sales of food safety products in Europe due to supply challenges attributable, in part, to our recent exit from the transition distribution services agreement with 3M.

Current wording

International sales were $104.6 million and $338.6 million during the three and nine months ended February 29, 2024, compared to $108.3 million and $275.7 million during the three and nine months ended February 28, 2023. The increase during the nine months ended February 29, 2024 was primarily due to $63.8 million in international sales related to the 3M FSD transaction during the first quarter of fiscal 2024. The decrease in sales in the third quarter as compared to the same period in the prior year was primarily due to lower sales of food safety products in Asia and Latin America due largely to product availability challenges.

Previous wording

Natural Toxins & Allergens –Revenues in this category decreased 5% during the three months ended November 30, 2023 compared to the same period in the prior year. Excluding currency impact and sales of drug residue test kits that were largely discontinued in fiscal 2023, core revenue in this category decreased 4%. In the second quarter of the fiscal year, growth in sales of allergen test kits was offset by a decline in the sale of natural toxins test kits, driven primarily by shipment delays. During the six months ended November 30, 2023, revenues in this category increased 3% compared to the same period in the prior year. On a core growth basis, revenues increased 1% in the year-to-date period, driven by strong sales of allergen test kits, primarily gluten and milk, during the first quarter, which offset the headwinds in sales of natural toxin test kits during the most recent fiscal quarter.

Current wording

Natural Toxins & Allergens –Revenues in this category increased 3% during the three months ended February 29, 2024 compared to the same period in the prior year. Excluding currency impact and sales of drug residue test kits that were largely discontinued in fiscal 2023, core revenue in this category increased 5% primarily driven by sales of tree nut allergen test kits, as prior quarter domestic backlog was fulfilled, partially offset by lower natural toxin volumes due to shipping constraints. During the nine months ended February 29, 2024, revenues in this category increased 3% compared to the same period in the prior year. On a core growth basis, revenues increased 2% in the year-to-date period.

Previous wording

Bacterial & General Sanitation –Revenues in this category increased 4% and 70% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth in this category was 5% and 6%, during the three and six months ended November 30, 2023, respectively. The increase during the current quarter was driven primarily by higher sales of pathogen test kits and hygiene monitoring products in Latin America. Strong placements of Soleris® microbiological diagnostic equipment in the first quarter also contributed to the year-to-date core growth.

Current wording

Bacterial & General Sanitation –Revenues in this category increased 2% and 41% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year. On a core growth basis, revenues increased 3% and 5%, during the three and nine months ended February 29, 2024, respectively. The increase during both periods was driven primarily by strength in our general sanitation product lines and strong placements of Soleris® microbiological diagnostic equipment.

Previous wording

Indicator Testing, Culture Media & Other – Revenues in this category increased 2% and 63% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth was slightly positive during the quarter and decreased 1% during the year-to-date period. Strong indicator testing revenues during the quarter in North America and Latin America more than offset softer culture media sales due to a large, non-recurring sale to a vaccine manufacturer in the prior year and, to a lesser extent, shipment delays. For the year-to-date period, a first-quarter decline in sales of Megazyme food quality and nutritional analysis products, due to distributor ordering patterns, contributed to the year-to-date core revenue decline.

Current wording

Indicator Testing, Culture Media & Other – Revenues in this category increased 4% and 38% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year. Core growth was 7% during the quarter and 2% during the year-to-date period. The increase in the third quarter was due to higher volumes of indicators, partially offset by lower sales of culture media due to a large non-recurring sale of custom product in the prior year. For the nine months, higher volumes of indicators were partially offset by the non-recurring culture media sale and a first-quarter decline in sales of Megazyme food quality and nutritional analysis products, due to distributor ordering patterns.

Previous wording

Rodent Control, Insect Control & Disinfectants –Revenues in this category increased 6% and 10% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. During the second quarter, core revenue decreased in this category by 1%, driven by lower sales of cleaners and disinfectants in China and rodent control products in Latin America. On a year-to-date basis, core revenue increased 6%, driven primarily by strong cleaner and disinfectant sales in the Middle East and U.K.

Current wording

Rodent Control, Insect Control & Disinfectants –Revenues in this category increased 6% and 9% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year. During the quarter, core growth was 2%, driven by a large tender sale of insect control products in Brazil, as well as higher cleaner and disinfectant sales in China. On a year-to-date basis, core revenue increased 4%, driven primarily by insect control product sales in Brazil and strong cleaner and disinfectant sales in Europe in the first half of the fiscal year.

Previous wording

Genomics Services –Revenues of genomics services sold through our international Food Safety operations increased 5% and 7% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth in this category was 1% in the second quarter, driven by increased sales in China. On a year-to-date basis, core growth was 4%, led by new business in beef markets in the U.K. and Brazil.

Current wording

Genomics Services –Revenues of genomics services sold through our international Food Safety operations increased 17% and 11% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year. Core growth in this category was 17% in the third quarter, driven by increased sales in Europe and new business in China. On a year-to-date basis, core growth was 9% for the same reasons.

Previous wording

Life Sciences –Revenues in this category increased 18% and 11% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year, primarily due to increased demand for substrates from manufacturers of diagnostic tests.

Current wording

Life Sciences –Revenues in this category decreased 5% and increased 6% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year; core revenue was the same for both periods. During the quarter, lower sample volumes from forensic customers contributed to the decrease, while, for the year-to-date period, the increase was primarily driven by increased demand for substrates from manufacturers of diagnostic tests.

Previous wording

Veterinary Instruments & Disposables –Revenues in this category increased 3% during the three months ended November 30, 2023 compared to the same period in the prior year, driven by increases in sales of detectable needles and syringes. During the six months ended November 30, 2023, revenues in this category decreased 4% primarily driven by inventory de-stocking at some of our large veterinary distributors in the first quarter.

Current wording

Veterinary Instruments & Disposables –Revenues in this category increased 17% and 3% during the three and nine months ended February 29, 2024 compared to the same periods in the prior year; core revenue increases were the same for both periods. The increase in the third quarter was driven by higher sales of detectable needles and syringes to our large veterinary distributors. For the year-to-date period, third quarter revenue increases were partially offset by inventory de-stocking with the same distributors in the first and second quarters.

Previous wording

Animal Care & Other –Revenues of these products decreased 15% and 19% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth in this category, which excludes currency impact and the discontinued Thyrokare product line, declined 13% and 17% during three and six months ended November 30, 2023, respectively. This decrease was driven by lower sales of small animal supplements and wound care products caused primarily by distributor ordering patterns.

Current wording

Animal Care & Other –Revenues of these products increased 15% and decreased 9% the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year. Core growth in this category, which excludes currency impact and the discontinued Thyrokare product line, increased 17% and decreased 7% during the three and nine months ended February 29, 2024, respectively. The increase within the quarter was primarily driven by relief of vitamin injectable backorders as well as distributor sales recovery. The decrease during the year-to-date period was driven by lower sales of small animal supplements and wound care products caused primarily by distributor ordering patterns.

Previous wording

Genomics Services –Revenues in this category decreased 10% and 9% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth declined 9% during the quarter and 8% during the year-to-date periods. Core revenue in both periods was negatively impacted by a strategic shift in the business to focus primarily on large production animals to improve profitability and the associated customer attrition.

Current wording

Genomics Services –Revenues in this category decreased 11% and 10% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year. Core growth declined 10% during the quarter and 9% for the year-to-date. Core revenue in both periods was negatively impacted by customer attrition associated with a strategic shift in the business to focus primarily on large production animals.

Previous wording

Gross margin was 50.9% during the three and six months ended November 30, 2023 compared to 48.9% and 48.2% during the three and six months ended November 30, 2022, respectively. The 200 basis point increase in the second quarter was primarily due to product mix from increased sales of higher margin products in the Food Safety segment. The increase in the year-to-date period was primarily due to incremental revenues from the FSD transaction, which generated gross margin higher than the legacy company average gross margin. Within each reporting segment, increased raw material costs pressured gross margins in certain product lines, specifically in the prior fiscal year periods. However, while inflation continues to impact the business, raw material price increases and freight costs declined significantly during the comparative period, particularly benefiting the Animal Safety segment. Finally, pricing actions taken during the prior fiscal year also mitigated the impact of cost increases.

Current wording

Gross margin was 51.1% and 51.0% during the three and nine months ended February 29, 2024, respectively, compared to 49.5% and 48.7% during the three and nine months ended February 28, 2023, respectively. The increase in the third quarter was primarily due to increased sales of higher-margin products in our Food Safety segment. The increase in the year-to-date period was primarily due to incremental revenues from the FSD transaction, which generated gross margin higher than the legacy company average gross margin. Within each reporting segment, increased raw material costs continue to pressure gross margins in certain product lines. However, while inflation continues to impact the business, the rate of raw material price and freight costs changes have significantly declined throughout both the current and prior year comparative periods. Finally, pricing actions taken during these periods also mitigated the impact of cost increases.

Previous wording

Sales and marketing expenses were $44.8 million and $90.6 million during the three and six months ended November 30, 2023, respectively, compared to $36.3 million and $59.7 million during the three and six months ended November 30, 2022, respectively. The increase was primarily driven by incremental costs resulting from the FSD transaction. These costs consisted of compensation and related expenses for the acquired FSD sales and marketing teams and charges for transition services provided by 3M. These invoicing and distribution services will be provided under contract for an initial period of up to 18 months, concluding on March 1, 2024. The remainder of the increase during the comparable periods was due primarily to higher personnel related spending, the result of headcount additions and compensation increases.

Current wording

Sales and marketing expenses were $47.9 million and $138.5 million during the three and nine months ended February 29, 2024, respectively, compared to $38.6 million and $98.3 million during the three and nine months ended February 28, 2023, respectively. The increase was primarily driven by incremental costs resulting from the FSD transaction, including compensation and related expenses for the acquired sales and marketing teams and higher costs related to inefficiencies as we took over distribution from 3M.

Previous wording

General and administrative expenses were $51.7 million and $96.8 million during the three and six months ended November 30, 2023, respectively, compared to $77.0 million and $104.9 million during the three and six months ended November 30, 2022, respectively. Decreases for the periods were primarily the result of lower transaction fees and integration expenses, partially offset by additional personnel hired to accommodate the increased size and complexity of the organization, compensation increases across the organization, the issuance of share-based compensation grants, software license fees and other information technology infrastructure investments.

Current wording

General and administrative expenses were $52.1 million and $148.9 million during the three and nine months ended February 29, 2024, respectively, compared to $46.4 million and $151.4 million during the three and nine months ended February 28, 2023, respectively. Increases during the three months ended February 29, 2024 were primarily the result of additional personnel hired to accommodate the increased size and complexity of the organization, compensation increases, the issuance of share-based compensation grants, software license fees and other information technology infrastructure investments. The year-to-date decline was primarily the result of lower transaction fees and integration expenses compared to the prior year comparable period. These decreases were partially offset by the additional costs previously identified.

Previous wording

Research and development expense was $5.8 million and $12.5 million during the three and six months ended November 30, 2023, respectively, compared to $6.8 million and $11.7 million during the three and six months ended November 30, 2022, respectively. The decrease during the three months ended November 30, 2023 is primarily the result of lower contracted services and employee costs. The increase during the six months ended November 30, 2023 was primarily the result of cost associated with the acquired FSD employees.

Current wording

Research and development expense was $4.9 million and $17.3 million during the three and nine months ended February 29, 2024, respectively, compared to $7.3 million and $19.0 million in the same periods of the prior year. The decrease during the three and nine months ended February 29, 2024 is primarily the result of lower contracted services and employee costs, as we continue to integrate the FSD business and realize synergies in certain areas.

Previous wording

Operating income was $14.5 million and $33.6 million during the three and six months ended November 30, 2023 respectively, compared to an operating loss of $7.7 million and $1.6 million during the three and six months ended November 30, 2022, respectively. Operating income increased compared to the prior year comparative periods primarily due to incremental revenues and higher gross profits from the FSD transaction. The prior year also included transaction and integration costs of $39.1 million and $52.9 million during the three and six months ended

Current wording

Operating income was $12.0 million and $45.6 million during the three and nine months ended February 29, 2024 respectively, compared to an operating income of $15.7 million and $14.1 million during the three and nine months ended February 28, 2023, respectively. Decreases in operating income during the three months ended February 29, 2024 compared to the prior year quarter reflect increased operating expenses to accommodate the increased size and complexity of the Company. Operating income increased during the nine months ended February 29, 2024 compared to the prior year primarily due to incremental revenues and higher gross profits from the FSD transaction. The prior year also included transaction and integration costs of $55.8 million during the nine months ended February 28, 2023 compared to $12.1 million during the nine months ended February 29, 2024.

Previous wording

The interest expense recorded during the three and six months ended November 30, 2023 was the result of debt incurred to fund the 3M transaction. In the first quarter of fiscal 2023, the Company had no debt outstanding. Interest income relates to earnings on our marketable securities portfolio. Higher yields on the portfolio during the three and six months ended November 30, 2023 were partially offset by lower balances. Other expense resulting from foreign currency transactions was the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.

Current wording

Interest expense recorded during the three and nine months ended February 29, 2024 was the result of debt incurred to fund the 3M transaction. In the first quarter of fiscal 2023, the Company had no debt outstanding. Interest income relates to earnings on our marketable securities and money market account portfolio. Higher balances in money market portfolios with higher yields drove the increase in interest income for the three and nine months ended February 29, 2024. Other (expense) income resulting from foreign currency transactions was the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.

Previous wording

Income tax benefit was $0.3 million and $0.1 million during the three and six months ended November 30, 2023, respectively, compared to $7.8 million and $9.2 million of income tax expense during the three and six months ended November 30, 2022, respectively. The net tax benefit during the three and six months ended November 30, 2023 is primarily related to pre-tax losses resulting from amortization expense, interest expense and continued FSD integration efforts. In the prior comparable periods, the net tax expense, despite pre-tax losses, is primarily related to certain non-deductible acquisition and transaction costs related to the 3M FSD transaction.

Current wording

Income tax benefit was $3.8 million and $3.9 million during the three and nine months ended February 29, 2024, respectively, compared to $10.5 million and $1.3 million during the three and nine months ended February 28, 2023, respectively. The net tax benefit for all comparison periods is primarily related to pre-tax losses due to amortization expense and interest expense from the FSD transaction.

Previous wording

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of November 30, 2023 and May 31, 2023 are $1.0 million and $1.1 million, respectively. Changes in unrecognized tax benefits are primarily associated with the acquired 3M FSD, including positions for transfer pricing and research and development credits.

Current wording

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of February 29, 2024 and May 31, 2023 are $1.9 million and $1.1 million, respectively. Increases in unrecognized tax benefits are primarily associated with the FSD transaction, including positions for transfer pricing and research and development credits.

Previous wording

Net loss was $3.5 million and $2.0 million during the three and six months ended November 30, 2023, respectively, compared to net loss of $41.8 million and $36.6 million during the three and six months ended November 30, 2022, respectively. The decrease in the net loss during the three and six months ended November 30, 2023 was primarily the result of higher transaction fees and integration costs in the prior year, which were $39.1 million and $52.9 million during the three and six months ended November 30, 2022, respectively. Since completion of the 3M transaction, increased expenses were partially offset by incremental revenues, which generated gross profits higher than the legacy company average margin.

Current wording

Net loss was $2.0 million and $4.0 million during the three and nine months ended February 29, 2024, respectively, compared to net income of $8.2 million and net loss of $28.4 million during the three and nine months ended February 28, 2023, respectively. The net loss during the three months ended February 29, 2024 compared to net income during the three months ended February 28, 2023 reflects additional expenses to accommodate the integration of the FSD business. The decrease in net loss during the nine months ended February 29, 2024 was primarily the result of higher transaction fees and integration costs in the prior year, which were $55.8 million during the nine months ended February 28, 2023.

Previous wording

FX translation (gain)/loss on loan revaluation. We exclude the revaluation impacts of foreign currency fluctuations on our intercompany loan balances that we initiated in conjunction with the FSD transaction.

Current wording

FX translation (gain)/loss on loan revaluation and other revaluation. We exclude the revaluation impacts of foreign currency fluctuations on our intercompany loan balances that we initiated in conjunction with the FSD transaction and other non-hedged foreign currency fluctuations resulting from 3M agreements.

Previous wording

This information does not purport to represent the results Neogen would have achieved had any of the transactions for which an adjustment is made occurred at the beginning of the periods presented or as of the dates indicated. This information is inherently subject to risks and uncertainties. It may not give an accurate or complete picture of Neogen’s financial condition or results of operations for the periods presented and should not be relied upon when making an investment decision.

Current wording

These non-GAAP financial measures are presented for informational purposes only. Core Revenue Growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net income (loss), operating income, cash flow from operating activities or other measures of financial performance. This information does not purport to represent the results Neogen would have achieved had any of the transactions for which an adjustment is made occurred at the beginning of the periods presented or as of the dates indicated. This information is inherently subject to risks and uncertainties. It may not give an accurate or complete picture of Neogen’s financial condition or results of operations for the periods presented and should not be relied upon when making an investment decision.

Previous wording

Reconciliation between net loss and EBITDA and Adjusted EBITDA and between net loss margin % and Adjusted EBITDA margin % are as follows:

Current wording

Reconciliation between net (loss) income and EBITDA and Adjusted EBITDA and between net (loss) income margin % and Adjusted EBITDA margin % are as follows:

Previous wording

Primarily relates to costs associated with consolidation of U.S. genomics labs.

Current wording

Includes costs associated with consolidation of U.S. genomics labs.

Previous wording

Adjusted EBITDA decreased $9.0 million during the three months ended November 30, 2023 and increased $16.4 million during the six months ended November 30, 2023. Expressed as a percentage of revenue, adjusted EBITDA was 24.0% and 23.4% during the three and six months ended November 30, 2023, respectively, compared to 27.8% and 25.1% during the three and six months ended November 30, 2022, respectively. Decreases in the margin reflect prior year periods when operating expenses had not yet been fully added to accommodate the increased size of the Company following the completion of the 3M transaction.

Current wording

Adjusted EBITDA increased $1.5 million during the three months ended February 29, 2024 and increased $17.9 million during the nine months ended February 29, 2024. Expressed as a percentage of revenue, adjusted EBITDA was 23.0% and 23.3% during the three and nine months ended February 29, 2024, respectively, compared to 23.5% and 24.5% during the three and nine months ended February 28, 2023, respectively. The lower Adjusted EBITDA margin was driven primarily by higher operating expenses compared to the prior-year periods, reflecting additions to accommodate the integration of the 3M FSD.

Previous wording

Reconciliation between net loss and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:

Current wording

Reconciliation between net (loss) income and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:

Previous wording

Primarily relates to costs associated with consolidation of U.S. genomics labs.

Current wording

Includes costs associated with consolidation of U.S. genomics labs.

Previous wording

Income tax benefit associated with non-deductible transaction costs that were recognized as expenses in prior periods.

Current wording

Income tax benefit associated with non-deductible transaction costs that were recognized as expense in prior periods.

Previous wording

Adjusted Net Income decreased $6.5 million and $0.4 million, respectively, during the three and six months ended November 30, 2023 due to the lower Adjusted EBITDA.

Current wording

Adjusted Net Income decreased $0.1 million and $0.5 million, respectively, during the three and nine months ended February 29, 2024. The decreases are driven primarily by higher depreciation expense, partially offset by increases in Adjusted EBITDA.

Previous wording

The overall cash, cash equivalents and marketable securities position of Neogen was $230.3 million as of November 30, 2023, compared to $245.6 million as of May 31, 2023. Cash flow from operating activities was $38.7 million during the six months ended November 30, 2023, which was primarily the result of fewer transaction fees and working capital improvements. Cash flow from investing activities was $2.9 million during the six months ended November 30, 2023 from proceeds from the sale of marketable securities of $57.8 million, partially offset by purchases of property and equipment of $55.0 million. Cash flow from financing activities was $0.8 million during the six months ended November 30, 2023.

Current wording

The overall cash, cash equivalents and marketable securities position of Neogen was $168.4 million as of February 29, 2024, compared to $245.6 million as of May 31, 2023. Cash from operating activities was $8.5 million during the nine months ended February 29, 2024 compared to cash for operating activities of $49.9 million during the nine months ended February 28, 2023. The net inflow during the nine months ended February 29, 2024 was primarily the result of fewer transaction fees and lower net loss. Cash for investing activities was $11.8 million during the nine months ended February 29, 2024, which was primarily the result of purchases of property and equipment of $87.2 million, partially offset by proceeds from the sale of marketable securities of $75.3 million. Cash from investing activities was $194.2 million during the nine months ended February 28, 2023. Cash from financing activities was $2.0 million during the nine months ended February 29, 2024 compared to cash for financing activities of $118.3 million during the nine months ended February 28, 2023.

Previous wording

Net accounts receivable balances were $150.5 million as of November 30, 2023 compared to $153.3 million as of May 31, 2023. Days' sales outstanding, a measurement of the time it takes to collect receivables, was 56 days as of November 30, 2023, compared to 57 days as of May 31, 2023 and 54 days as of November 30, 2022.

Current wording

Net accounts receivable balances were $173.6 million as of February 29, 2024 compared to $153.3 million as of May 31, 2023. Days' sales outstanding, a measurement of the time it takes to collect receivables, was 65 days as of February 29, 2024, compared to 57 days as of May 31, 2023 and 62 days as of February 28, 2023.

Previous wording

As part of transition services agreements between the Company and 3M, related to the merger of the Food Safety business, 3M is invoicing our customers for products that 3M is manufacturing and shipping on our behalf. We are currently in the process of exiting a number of transition service contracts, which is expected to be completed in the third quarter of fiscal 2024. As of November 30, 2023, there were $35.1 million in customer receivables billed by 3M on our behalf, compared to $57.3 million as of May 31, 2023. The Company is working collaboratively with 3M on managing the credit risk associated with the former FSD customers during the period when 3M is providing transition invoicing and distribution services to the Company.

Current wording

As part of transition services agreements between the Company and 3M, related to the merger of the Food Safety business, 3M invoiced our customers for products that 3M manufactured and shipped on our behalf through

Previous wording

Net inventory was $160.5 million as of November 30, 2023, an increase of $26.7 million, compared to a May 31, 2023 balance of $133.8 million. The higher inventory levels are primarily the result of the Company now stocking FSD products manufactured by 3M. We currently expect to spend approximately $40 to $50 million to initially stock FSD inventory globally in fiscal year 2024. Additionally, we expect to spend approximately $130 million in capital expenditures in fiscal year 2024; $100 million of the total is related to our new building, systems implementation and related food safety integration projects.

Current wording

Net inventory was $182.4 million as of February 29, 2024, an increase of $48.6 million, compared to a May 31, 2023 balance of $133.8 million. The higher inventory levels are primarily the result of the Company now stocking FSD products manufactured by 3M.

Previous wording

In June 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650 million and a five-year senior secured revolving facility in the amount of $150 million (collectively, the “Credit Facilities”), which became available in connection with the merger and related transactions. The loan facility was funded to Neogen Food Safety Corporation on August 31, 2022, and upon the effectiveness of the merger on September 1, 2022, became Neogen’s obligation. Financial covenants include maintaining specified levels of funded debt to EBITDA and debt service coverage. The Credit Facilities, together with the Notes described below, represent the financing incurred in connection with the merger of the 3M FSD with Neogen. In accordance with the prepayment feature, the Company paid $100 million of the term loan facility’s principal in fiscal year 2023, in order to decrease the outstanding debt balance.

Current wording

In June 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650 million and a five-year senior secured revolving facility in the amount of $150 million (collectively, the “Credit Facilities”), which became available in connection with the merger and related transactions. The loan facility was funded to Neogen Food Safety Corporation on August 31, 2022, and upon the effectiveness of the merger on September 1, 2022, became Neogen’s obligation through a non-cash transaction. Financial covenants include maintaining specified levels of funded debt to EBITDA and debt service coverage. The Credit Facilities, together with the Notes described below, represent the financing incurred in connection with the merger of the 3M FSD with Neogen. In accordance with the prepayment feature, the Company paid $100 million of the term loan facility’s principal in fiscal year 2023, in order to decrease the outstanding debt balance.

Previous wording

In July 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par. The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Neogen Food Safety Corporation did not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of Neogen Food Safety Corporation’s common stock to 3M stockholders, the Notes were guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M was released from all obligations under its guarantee. Upon the effectiveness of the merger on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen.

Current wording

In July 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par. The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Neogen Food Safety Corporation did not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of Neogen Food Safety Corporation’s common stock to 3M stockholders, the Notes were guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M was released from all obligations under its guarantee. Upon the effectiveness of the merger on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen through a non-cash transaction.