NEOGEN CORP

Previous 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.

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 rate of inflation, 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 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.

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 2024 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 continues to affect us in the current fiscal year, although at a lower rate compared to prior fiscal years.

Previous wording

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 wording

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, however, the impact of lost market share stemming from these fulfillment issues has continued in fiscal year 2025. Also in fiscal year 2025, we have experienced negative impacts from delays in restarting full production of our sample collection product line, which we relocated from 3M into a Neogen facility.

Previous wording

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 wording

Service revenue, which consists primarily of genomics services provided to animal production and companion animal markets, was $23.7 million and $48.2 million during the three and six months ended November 30, 2024 and $25.8 million and $50.3 million during the three and six months ended November 30, 2023, respectively. The decrease in the three and six months ended November 30, 2024 was primarily due to lower genomics sales into the companion animal market, as well as lower sales into the domestic poultry market, primarily due to a shift in focus towards large production animals, offset by an increase in genomics sales into beef markets.

Previous wording

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 wording

International sales were $117.5 million and $230.1 million during the three and six months ended November 30, 2024 and $116.1 million and $234.0 million during the three and six months ended November 30, 2023, respectively. The increase during the three months ended November 30, 2024 was driven by increases in the Asia Pacific and European regions, partially offset by decreases in the Latin American and South American regions. The decrease during the six months ended November 30, 2024 was due to $14.7 million of currency headwinds, partially offset by strength in Petrifilm® indicator sales.

Previous wording

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 wording

Sales and marketing expenses were $46.5 million and $92.3 million during the three and six months ended November 30, 2024 and $44.8 million and $90.6 million during the three and six months ended November 30, 2023, respectively. We experienced higher shipping costs in the current year, as we experienced higher shipping rates and took over distribution of FSD products from 3M during the second and third quarters of the prior fiscal year. This increase was partially offset by a decrease in fees paid to 3M for distribution services and lower royalty expense.

Previous wording

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 wording

General and administrative were $57.8 million and $109.4 million during the three and six months ended November 30, 2024 and $51.7 million and $96.8 million during the three and six months ended November 30, 2023, respectively. For the Food Safety segment, expenses were relatively consistent compared to the prior-year comparable periods. For the Animal Safety segment, an increase in expense was attributable to restructuring charges, which were primarily incurred in the second quarter of the current fiscal year. Corporate expense has increased primarily due to additional headcount and higher costs associated with our prior-year enterprise resource planning system implementation.

Previous wording

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 wording

General and administrative expenses includes amortization expense relating to definite-lived intangible assets of $23.6 million and $47.2 million during the three and six months ended November 30, 2024 and $23.7 million and $47.4 million during the three and six months ended November 30, 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.

Previous 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.

Current wording

Research and development expense was $5.1 million and $10.3 million during the three and six months ended November 30, 2024 and $5.8 million and $12.5 million during the three and six months ended November 30, 2023, respectively. The decrease during the three and six months ended November 30, 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

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.

Current wording

Other expense was $19.1 million and $37.0 million during the three months ended November 30, 2024 and $18.2 million and $35.7 million during the three and six months ended November 30, 2023, respectively. The increase in expense during both comparable periods was due to a reduction in interest income associated with our declining money market portfolio balance and a decrease 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

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 wording

Income tax benefit was $20.3 million and $23.3 million during the three and six months ended November 30, 2024 compared to income tax benefit of $0.3 million and $0.1 million during the three and six months ended November 30, 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. Additionally, we recognized an income tax benefit of $9.2 million during the quarter as a result of a goodwill impairment charge. 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 are closely monitoring developments and evaluating the impact these new rules will have on our tax rate, including eligibility to qualify for certain safe harbors. Where no safe harbor is met, we have included a forecasted amount of “top-up” tax for its foreign subsidiaries as required under the applicable rules of the countries that have adopted the Pillar Two directives, in our income tax benefit for the three and six months ended November 30, 2024.

Previous wording

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 wording

Revenue for the Animal Safety segment decreased $3.3 million during the six months ended November 30, 2024 compared to the six months ended November 30, 2023. The decrease was primarily due to $2.8 million decline in the business and a $0.7 million impact from discontinued product lines, partially offset by a $0.2 million favorable currency impact. The decline in the business driven by lower genomics volume due to a shift to focus primarily on large production animals and weakness in the companion animal market, and lower sales in the first quarter of insect control and cleaners and disinfectants product lines. These decreases were partially offset by strength in rodent control products.

Previous wording

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 wording

Operating income for the Food Safety segment decreased $465.5 million during the six months ended November 30, 2024 compared to the six months ended November 30, 2023. When normalizing for the goodwill impairment charge of $461.4 million, operating income decreased $4.1 million. The decrease was primarily attributable to the first quarter of the fiscal year and a result of lower gross profit and operating expenses that did not decrease at the same rate as the decrease in sales.

Previous wording

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 wording

The increased Corporate expense during each comparable period related to headcount increases, increases in equity-based compensation and costs associated with our new enterprise resource planning system.

Previous wording

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

Current wording

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

Previous wording

Includes costs associated with the 3M transaction, including various transition agreements. $4.2 million is included within Cost of Revenues.

Current wording

Includes costs associated with the 3M transaction, including various transition agreements and other related integration costs.

Previous wording

Expenses associated with certain discontinued product lines. Amounts are recorded within Cost of Revenues.

Current wording

Expenses associated with certain discontinued product lines.

Previous 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.

Current wording

Adjusted EBITDA decreased $3.7 million and $12.4 million during the three and six months ended November 30, 2024. Expressed as a percentage of revenue, Adjusted EBITDA was 22.2% and 21.2% during the three and six months ended November 30, 2024 and 24.0% and 23.4% during the three and six months ended November 30, 2023 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

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 wording

As of November 30, 2024, we had cash and cash equivalents of $140.2 million, and borrowings available under our revolving line of credit of $150.0 million.

Previous wording

Net Cash (used for) provided by Operating Activities

Current wording

Net Cash (used for) provided by Investing Activities

Previous wording

Cash used for investing activities increased $25.0 million during the three months ended August 31, 2024, compared to the three months ended August 31, 2023. The increase was primarily the result of lower proceeds from marketable securities during the three months ended August 31, 2024 compared to the three months ended August 31, 2023 and an increase of purchases of property and equipment of $7.8 million, partially offset by proceeds from the sale of certain property and equipment during the three months ended August 31, 2024.

Current wording

Cash used for investing activities increased $53.7 million during the six months ended November 30, 2024, compared to the six months ended November 30, 2023. The increase was primarily the result of lower proceeds from marketable securities in the current year periods. Capital expenditures were $55.6 million and $55.0 million during the six months ended November 30, 2024 and 2023, respectively.

Previous wording

Net Cash provided by Financing Activities

Current wording

Net Cash (used for) provided by Financing Activities

Previous wording

We continue to make investments in our business and operating facilities. Our estimate for capital expenditures in fiscal 2025 is $85 million. This includes approximately $55 million in capital expenditures related to the integration of the acquired 3M FSD products, the most significant portion of which is related to the construction of, and acquisition of equipment for, our new manufacturing facility in Lansing, Michigan.

Current wording

We continue to make investments in our business and operating facilities. Our estimate for capital expenditures in fiscal 2025 is $85 million. This includes approximately $55 million in capital expenditures related to integration of the acquired 3M FSD products, the most significant portion of which is related to the construction of, and acquisition of equipment for, our new manufacturing facility in Lansing, Michigan.