NEOGEN CORP
For the period ended Aug 31, 2024. Filed Oct 10, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2024 · Filed Oct 10, 2024
NEOG$11.76+0.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-02-29; filed 2024-04-09.
0000950170-24-042952
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-08-31; filed 2024-10-10.
0000950170-24-114022
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 99 previous paragraphs and 94 current paragraphs.
28 unchanged; 19 reworded; 45 added; 50 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 6 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (45)
Current report
Results of Operations
Current report
Revenue decreased $12.0 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decrease included a $9.0 million unfavorable foreign exchange rate impact and a $3.0 million decline in the business. The decline in the business was driven by lower genomics volume due to a strategic shift to focus primarily on large production animals, lower sales of insect control and cleaners and disinfectants, and lower sales of sample collection products, partially offset by strength in indicator sales and rodent control products due to vole outbreak in the Northwest region of the U.S.
Current report
Service revenue, which consists primarily of genomics services provided to animal production and companion animal markets, was $24.4 million and $24.6 million during the three months ended August 31, 2024 and 2023, respectively. Growth in the Neogen Analytics software as a service platform and genomics sales into beef markets was offset by lower genomics sales into the domestic poultry market, primarily due to a shift towards large production animals, as well as lower sales into the companion animal market.
Current report
International sales were $112.6 million and $117.9 million during the three months ended August 31, 2024 and 2023, respectively. The decrease during the three months ended August 31, 2024 was due to $9.0 million of currency headwinds, partially offset by strength in Petrifilm® indicator sales.
Current report
Gross Margin
Current report
Gross margin was 48.4% and 51.0% during the three months ended August 31, 2024 and 2023, respectively. The decrease in margin was primarily due to lower volume and continued higher distribution costs. The change also included $4.2 million of transaction and integration costs during the three months ended August 31, 2024 compared to $1.2 million during the three months ended August 31, 2023.
Current report
Operating expenses were $102.7 million and $97.6 million during the three months ended August 31, 2024 and 2023, respectively. The increase during the three months ended August 31, 2024 was primarily the result of increased compensation, as well as higher shipping and information technology costs. The costs associated with our enterprise resource planning system, which was implemented on September 1, 2023, were not fully reflected in the prior year comparable period.
Current report
Sales and Marketing
Current report
Sales and marketing expenses were $45.8 million during the three months ended August 31, 2024 and 2023, respectively. We experienced higher shipping costs in the current year, as we took over distribution of FSD products from 3M during the second and third quarters of the prior fiscal year. This increase was offset by a decrease in fees paid to 3M for distribution services and lower royalty expense.
Current report
General and Administrative
Current report
General and administrative were $51.7 million and $45.1 million during the three months ended August 31, 2024 and 2023, respectively. For the Food Safety and Animal Safety segments, expenses were relatively consistent compared to the prior-year period. Within Corporate, increases were driven by compensation and related expenses, primarily due to additional headcount, and higher costs associated with our prior-year enterprise resource planning system implementation. Additionally, there were increases in stock compensation expense compared to the prior-year comparable period, primarily driven by the timing of our annual grant in the current year and increases in equity-based compensation.
Current report
General and administrative expenses includes amortization expense relating to definite-lived intangible assets of $23.6 million and $23.7 million during the three months ended August 31, 2024 and 2023, respectively. Estimated amortization expense for fiscal years 2025 through 2029 is expected to be in the range of approximately $91 million to $96 million per year.
Current report
Research and Development
Current report
Other Expense
Current report
Income tax benefit was $3.0 million during the three months ended August 31, 2024 compared to income tax expense of $0.2 million during the three months ended August 31, 2023. The net tax benefit for the quarter is primarily related to pre-tax losses due to amortization expense and interest expense from the 3M FSD acquisition. The OECD Pillar 2 global minimum tax rules, which generally provide for a minimum effective tax rate of 15%, are intended to apply for tax years beginning in 2024. We have included in our income tax benefit during the three months ended August 31, 2024, a forecasted amount of top-up tax for our foreign subsidiaries as required under the applicable rules of the countries that have adopted the Pillar Two directives.
Current report
Segment Results of Operations
Current report
Revenues
Current report
Revenue for the Food Safety segment decreased $6.9 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decline was primarily due to $9.0 million of currency headwind, partially offset by $1.8 million of growth in the business and a $0.3 million impact from discontinued products. The growth was driven by strength in the indicator testing, culture media and other product category, partially offset by lower sales in the bacterial and general sanitation and natural toxins and allergens product categories.
Current report
Revenue for the Animal Safety segment decreased $5.1 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decrease included a $4.9 million decline in the business and a $0.2 million impact from discontinued product lines. The decline was driven primarily by lower sales in the biosecurity and animal care and other product categories, as well as lower genomics volume due to a shift to focus primarily on large production animals.
Current report
Operating income for the Food Safety segment decreased $4.3 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decline was due to lower gross profit and operating expenses that did not decrease at the same rate as the decrease in sales.
Current report
Operating income for the Animal Safety segment decreased $5.8 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decline was due to lower gross profit and an increase in operating expenses.
Current report
The increased Corporate expense related to headcount increases and costs associated with our new enterprise resource planning system, which contributed to the overall decline in operating income.
Current report
Share-based compensation
Current report
Severance and other employment costs
Current report
Contingent consideration adjustments
Current report
ERP Expense
Current report
Discontinued product line expense
Current report
Other income and expense items
Current report
Includes costs associated with the 3M transaction, including various transition agreements. $4.2 million is included within Cost of Revenues.
Current report
Expenses associated with certain discontinued product lines. Amounts are recorded within Cost of Revenues.
Current report
Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our business, and available borrowing capacity under our revolving facility. Our principal uses of cash include working capital-related items, capital expenditures, debt service, and strategic investments.
Current report
As of August 31, 2024, we had cash and cash equivalents of $120.5 million, and borrowings available under our revolving line of credit of $150.0 million.
Current report
The finance lease is a building lease that is classified within property and equipment and the current portion of debt on the condensed consolidated balance sheets as of August 31, 2024. The Company intends to elect the purchase option within the lease agreement prior to the end of the lease term.
Current report
There are no required principal payments through fiscal year 2026. Financial covenants include maintaining specified levels of funded debt to EBITDA, and debt service coverage. As of August 31, 2024, the Company was in compliance with all financial covenants under the Credit Facilities.
Current report
Cash Flows
Current report
Net Cash (used for) provided by Operating Activities
Current report
Net cash (used for) provided by operating activities decreased $40.9 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decrease is due to a reduction in income from operations and unfavorable changes in working capital. Changes in working capital are as follows:
Current report
Unfavorable change in Accounts Receivable primarily due to a timing of sales during the three months ended August 31, 2024 and higher days sales outstanding.
Current report
Unfavorable change in Inventory primarily due to lower sales in the first quarter of the current fiscal year and the buildup of higher-volume inventory items.
Current report
Unfavorable change in Accounts Payable primarily due to the timing of payments and the impact of exiting the transition distribution agreements.
Showing the first 40 of 45 passages. Open the source sections for the rest.
Removed paragraphs (50)
Previous report
Refer to the non-GAAP financial measures section in this document.
Previous report
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 report
Animal Safety core sales exclude the change in currency rates and the discontinued Thyrokare product line.
Previous report
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 report
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 report
Food Safety
Previous report
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 report
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 report
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 report
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 report
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 report
Animal Safety
Previous report
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 report
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 report
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 report
Rodent Control, Insect Control & Disinfectants –Revenues increased 14% and 4% during the three and nine months ended February 29, 2024, respectively, compared to the same periods in the prior year; core revenue increases were the same for both periods. The revenue increase for the quarter was driven by success of marketing programs within insect control products and higher sales of domestic cleaners and disinfectants to combat avian influenza.
Previous report
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 report
Gross Profit
Previous report
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 report
Operating expenses were $104.9 million and $304.8 million during the three and nine months ended February 29, 2024, respectively, compared to $92.3 million and $268.7 million for the same periods in the prior year. The increase during the three and nine months ended February 29, 2024 was primarily the result of costs added to accommodate the increased size and complexity of the Company following the FSD transaction, which were not in the prior year comparable period.
Previous report
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 report
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 report
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 report
Other (Expense)/Income
Previous report
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 report
Net (Loss) Income
Previous report
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 report
Core revenue growth
Previous report
We define core revenue growth as net sales for the period excluding the impacts of foreign currency translation rates, the first-year impacts of acquisitions and divestitures, where applicable, and net sales from discontinued product lines. We present core revenue growth because it allows for a meaningful comparison of results across periods without the volatility caused by foreign currency gains or losses, or the incomparability that would be caused by the impact of an acquisition or divestiture.
Previous report
Share-based compensation. We believe it is useful to exclude share-based compensation to better understand the long-term performance of our core business and to facilitate comparison with the results of peer companies.
Previous report
Certain transaction fees and integration costs. We exclude fees and expenses related to certain transactions because they are outside of Neogen’s underlying core performance. These fees and expenses include deal related professional and legal fees and costs incurred to integrate acquired businesses.
Previous report
Other one-time adjustments. We exclude one-time adjustments recorded within operating income to better understand the long-term performance of our core business.
Previous report
Adjusted Net Income
Previous report
We define Adjusted Net Income as Net Income, adjusted for share-based compensation, FX translation gain/(loss) on loan revaluation, certain transaction fees and expenses, and other one-time adjustments, all of which are tax effected.
Previous report
Adjusted Earnings per Share
Previous report
We define Adjusted Earnings per Share as Adjusted Net Income divided by diluted average shares outstanding.
Previous report
Includes costs associated with consolidation of U.S. genomics labs.
Previous report
Reconciliation between net (loss) income and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:
Previous report
Includes costs associated with consolidation of U.S. genomics labs.
Previous report
Income tax benefit associated with non-deductible transaction costs that were recognized as expense in prior periods.
Showing the first 40 of 50 passages. Open the source sections for the rest.
Reworded paragraphs (19)
Previous wording
Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form 10-Q, including statements relating to management’s expectations regarding new product introductions; the adequacy of our sources for certain components, raw materials and finished products; and our ability to utilize certain inventory. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. There are a number of important factors, including circumstances beyond our control at our transition manufacturing partner, competition, recruitment, retention, dependence on key employees, impact of weather on agriculture and food production, global business disruption caused by the Russia invasion in Ukraine and related sanctions and the conflict between Israel and Hamas, identification and integration of acquisitions, research and development risks, intellectual property protection, government regulation and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Current wording
Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form 10-Q, including statements relating to management’s expectations regarding new product introductions; the adequacy of our sources for certain components, raw materials and finished products; and our ability to utilize certain inventory. For this purpose, any statements contained herein that are not statements of historical fact are deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. There are a number of important factors that could cause Neogen’s results to differ materially from those indicated by such forward-looking statements, including many factors beyond our control. Factors that could cause actual results to differ from those contained within forward-looking statements include (without limitation) the continued integration of the 3M food safety business and the realization of the expected benefits from that acquisition; the relationship with and performance of our transition manufacturing partner; our ability to adequately and timely remediate certain identified material weaknesses in our internal control over financial reporting; competition; recruitment and retention of key employees; impact of weather on agriculture and food production; global business disruption caused by the Russia invasion in Ukraine and related sanctions and the conflict in the Middle East; identification and integration of acquisitions; research and development risks; intellectual property protection; increasing and developing government regulation; and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q.
Previous wording
In addition, any forward-looking statements represent management’s views only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.
Current wording
In addition, any forward-looking statements represent management’s views only as of the date this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.
Previous 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.
Current wording
In prior years, production was negatively impacted by broad supply chain challenges and labor market disruptions. Additionally, input cost inflation, including increases in certain raw materials, negatively impacted operating results. In fiscal 2024, despite a slowing of inflation rates, there were 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. 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.
Current wording
Interest rates have risen sharply, particularly in fiscal 2023, as a way to combat inflation. This increased our borrowing costs and raised the overall cost of capital. Although the federal funds rate was reduced in September and there are indications of future rate cuts, the overall interest rate we pay on our Credit Facilities remains higher than when the debt was incurred in 2022, which increases interest expense on the unhedged portion of our Term Loan. In response to the historically high inflationary environment, we took pricing actions to mitigate the impacts on the business in the prior two fiscal years. The impact of inflation continued to affect us through fiscal year 2024, although at a continually decreasing rate compared to fiscal years 2022 and 2023.
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 the remainder of fiscal year 2024.
Current wording
Although we have no operations in or direct exposure to Russia, Belarus or 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 conflicts in the Middle East have 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 2025.
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 for the remainder of fiscal year 2024 and into fiscal year 2025.
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 throughout fiscal year 2025.
Previous 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.
Current wording
Research and development expense was $5.2 million and $6.7 million during the three months ended August 31, 2024 and 2023, respectively. The decrease during the three months ended August 31, 2024 is primarily the result of lower contracted services and employee costs in the Food Safety segment, as we continue to integrate the 3M FSD business and realize synergies in certain areas.
Previous 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.
Current wording
Other expense was $17.9 million and $17.5 million during the three months ended August 31, 2024 and 2023, respectively. The increase in expense was due to a reduction in interest income associated with our money market portfolio balance and an increase in foreign exchange transaction loss as a result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.
Previous 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.
Current wording
The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of August 31, 2024 and May 31, 2024 were $3.3 million and $2.7 million, respectively. Increases in unrecognized tax benefits are primarily associated with the acquired 3M FSD, including positions for transfer pricing and research and development credits.
Previous wording
This report includes certain financial information for the Company that differs from what is reported in accordance with GAAP. These non-GAAP financial measures consist of core revenue growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share. These non-GAAP financial measures are included in this report because management believes that they provide investors with additional useful information to measure the performance of the Company, and because these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties as common performance measures to compare results or estimate valuations across companies in industries the Company operates in.
Current wording
This report includes certain financial information for the Company that differs from what is reported in accordance with U.S. GAAP. These non-GAAP financial measures consist of EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin. These non-GAAP financial measures are included in this report because management believes that they provide investors with additional useful information to measure the performance of the Company, and because these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties as common performance measures to compare results or estimate valuations across companies in industries the Company operates in. The Company also uses Adjusted EBITDA as a performance target to establish and award certain executive compensation awards, as disclosed in our proxy statement filed with the Securities and Exchange Commission filed on September 13, 2024.
Previous 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.
Current wording
FX translation (gain)/loss on loan revaluation and other revaluation
Previous 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.
Current wording
These non-GAAP financial measures are presented for informational purposes only. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net (loss) income, 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
The use of the terms EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation.
Current wording
The use of the terms EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation.
Previous wording
Net foreign currency transaction loss associated with the revaluation of non-functional currency intercompany loans established in connection with the 3M Food Safety transaction and other non-hedged foreign currency revaluation resulting from 3M agreements.
Current wording
Net foreign currency transaction gain associated with the revaluation of foreign denominated intercompany loans established in connection with the 3M Food Safety transaction and other non-hedged foreign currency revaluation resulting from 3M agreements.
Previous wording
Non-capitalizable expenses related to ERP implementation.
Current wording
Expenses related to ERP implementation.
Previous 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.
Current wording
Adjusted EBITDA decreased $8.7 million during the three months ended August 31, 2024. Expressed as a percentage of revenue, Adjusted EBITDA was 20.1% and 22.9% during the three months ended August 31, 2024 and 2023, respectively. The lower Adjusted EBITDA in the current year was driven primarily by lower sales and higher operating expenses compared to the prior-year period.
Previous wording
In addition to the 3M transaction described above, our future cash generation and borrowing capacity may not be sufficient to meet cash requirements to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan. Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs. However, we continuously monitor and forecast our liquidity situation in light of industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. As a result, we believe that our cash flows from operations, cash on hand, and borrowing capacity will enable us to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development, and execute our strategic plans.
Current wording
Our future cash generation and borrowing capacity may not be sufficient to meet cash requirements to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan. Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs. However, we continuously monitor and forecast our liquidity situation in light of industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. As a result, we believe that our cash flows from operations, cash on hand, and borrowing capacity will enable us to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development, and execute our strategic plans.
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 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.
Current wording
In June 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility (“term loan facility”) in the amount of $650 million and a five-year senior secured revolving facility (“revolving facility”) in the amount of $150 million (collectively, the “Credit Facilities”). The term loan facility was drawn on August 31, 2022 while the revolving facility remained undrawn and continues to be undrawn as of August 31, 2024. The term loan facility matures on June 30, 2027 and the revolving facility matures at the earlier of June 30, 2027 and the termination of the revolving commitments.
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 through a non-cash transaction.
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 in 2030.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Beginning in the first half of fiscal year 2024, we implemented a new enterprise resource planning system and exited our transition distribution agreements with 3M, which led to certain shipment delays and an elevated backlog of open orders, specifically in the Food Safety segment. At the conclusion of fiscal year 2024, order fulfillment issues were largely resolved, and order fulfillment rates had improved to meet the needs of our customers.
Current report — wording carried from elsewhere
Certain transaction fees and integration costs
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Net foreign currency transaction loss associated with the revaluation of non-functional currency intercompany loans established in connection with the 3M Food Safety transaction and other non-hedged foreign currency revaluation resulting from 3M agreements.
Previous report — wording carried elsewhere
Non-capitalizable expenses related to ERP implementation.