Neogen Corp 10-Q for FY2025 Q1
Neogen Corp (NEOG)
About this 10-Q
Neogen Corp filed this 10-Q on October 10, 2024, covering the quarter ended August 31, 2024 (FY2025 Q1).
Headline figures
Quarter ended August 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $216.96M
- down 5.3% from $228.99M a year earlier
- Net loss
- $12.61M
- compared with net income of $1.5M a year earlier
- Diluted EPS
- -$0.06
- compared with $0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each Class
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Trading
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Name of each exchange on which registered
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N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller Reporting Company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES
As of August 31, 2024 there were
NEOGEN CORPORATION
TABLE OF CONTENTS
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Page No. |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
Interim Condensed Consolidated Financial Statements (unaudited) |
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Condensed Consolidated Balance Sheets – August 31, 2024 and May 31, 2024 |
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Condensed Consolidated Statements of Operations – three months ended August 31, 2024 and August 31, 2023 |
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Condensed Consolidated Statements of Comprehensive (Loss) Income – three months ended August 31, 2024 and August 31, 2023 |
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Condensed Consolidated Statements of Equity – three months ended August 31, 2024 and August 31, 2023 |
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Condensed Consolidated Statements of Cash Flows – Three months ended August 31, 2024 and August 31, 2023 |
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Notes to Interim Condensed Consolidated Financial Statements – August 31, 2024 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 5. |
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Item 6. |
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28 |
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CEO Certification |
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CFO Certification |
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Section 906 Certification |
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1
PART I – FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements
Neogen Corporation
Condensed Consolidated Balance Sheets
(in thousands, except shares)
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August 31, 2024 |
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May 31, 2024 |
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Assets |
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(unaudited) |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Accounts receivable, net of allowance of $ |
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Inventories |
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Raw materials |
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Work-in-process |
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Finished goods |
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Less inventory reserve |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Net Property and Equipment |
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Other Assets |
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Right of use assets |
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Goodwill |
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Intangible assets, net |
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Other non-current assets |
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Current portion of finance lease |
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$ |
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$ |
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Accounts payable |
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Accrued compensation |
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Income tax payable |
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Accrued interest |
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Deferred revenue |
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Other current liabilities |
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Total Current Liabilities |
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Deferred Income Tax Liability |
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Non-Current Debt |
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Other Non-Current Liabilities |
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Total Liabilities |
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Commitments and Contingencies 7) |
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Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Neogen Corporation
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except shares)
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Three months ended August 31, |
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2024 |
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2023 |
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Revenues |
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Product revenues |
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$ |
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$ |
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Service revenues |
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Total Revenues |
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Cost of Revenues |
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Cost of product revenues |
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Cost of service revenues |
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Total Cost of Revenues |
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Gross Profit |
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Operating Expenses |
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Sales and marketing |
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General and administrative |
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Research and development |
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Total Operating Expenses |
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Operating Income |
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Other Expense |
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Interest income |
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Interest expense |
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Other, net |
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Total Other Expense |
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(Loss) Income Before Taxes |
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Income Tax (Benefit) Expense |
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Net (Loss) Income |
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$ |
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$ |
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Net (Loss) Earnings Per Share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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Weighted Average Shares Outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Neogen Corporation
Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)
(in thousands)
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Three months ended August 31, |
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2024 |
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2023 |
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Net (loss) income |
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$ |
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$ |
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Other comprehensive (loss) income |
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Foreign currency translation gain |
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Unrealized gain on marketable securities (1) |
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Unrealized (loss) gain on derivative instruments (2) |
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Other comprehensive (loss) income, net of tax: |
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Total comprehensive (loss) income |
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$ |
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$ |
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(1)
(2)
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Neogen Corporation
Condensed Consolidated Statements of Equity (unaudited)
(in thousands, except shares)
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Additional |
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Accumulated |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Shares |
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Amount |
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Capital |
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Loss |
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Earnings |
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Total |
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May 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Exercise of options, RSUs and share-based compensation expense |
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— |
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— |
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Issuance of shares under employee stock purchase plan |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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August 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Shares |
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Amount |
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Capital |
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Loss |
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Earnings |
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Total |
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May 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Exercise of options, RSUs and share-based compensation expense |
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— |
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Issuance of shares under employee stock purchase plan |
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— |
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Net income |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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August 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Neogen Corporation
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
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Three months ended August 31, |
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2024 |
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2023 |
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Cash Flows (used for) provided by Operating Activities |
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Net (loss) income |
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$ |
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$ |
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Adjustments to reconcile net (loss) income to net cash from operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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Share-based compensation |
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Loss on disposal of property and equipment |
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Amortization of debt issuance costs |
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Other |
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Change in operating assets and liabilities, net of business acquisitions: |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Accounts payable and accrued liabilities |
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Interest expense accrual |
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Change in other non-current assets and non-current liabilities |
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Net Cash (used for) provided by Operating Activities |
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Cash Flows used for Investing Activities |
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Purchases of property, equipment and other non-current intangible assets |
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Proceeds from the maturities of marketable securities |
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Proceeds from the sale of property and equipment and other |
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Net Cash used for Investing Activities |
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Cash Flows provided by Financing Activities |
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Exercise of stock options and issuance of employee stock purchase plan shares |
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Repayment of long-term debt and finance lease |
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Net Cash provided by Financing Activities |
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Effects of Foreign Exchange Rate on Cash |
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Net (Decrease) Increase in Cash and Cash Equivalents |
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Cash and Cash Equivalents, Beginning of Year |
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Cash and Cash Equivalents, End of Year |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NEOGEN CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollar amounts in thousands except shares)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Neogen Corporation and subsidiaries ("Neogen," "we," "our" or the "Company") develop, manufacture and market a diverse line of products and services dedicated to food and animal safety. Our Food Safety segment consists primarily of diagnostic test kits and complementary products (e.g., culture media) sold to food producers and processors to detect dangerous and/or unintended substances in human food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, meat speciation, drug residues, pesticide residues and general sanitation concerns. The majority of the test kits are disposable, single-use, immunoassay and DNA detection products that rely on proprietary antibodies and RNA and DNA testing methodologies to produce rapid and accurate test results. Our expanding line of food safety products also includes genomics-based diagnostic technology, and advanced software systems that help testers objectively analyze and store, as well as perform analysis on, their results from multiple locations over extended periods.
Neogen’s Animal Safety segment is engaged in the development, manufacture, marketing and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, cleaners, biosecurity products and genomics testing services for the worldwide animal safety market. The majority of these consumable products are marketed through veterinarians, retailers, livestock producers and animal health product distributors. Our line of drug detection products is sold worldwide for the detection of abused and therapeutic drugs in animals and animal products, and has expanded into the workplace and human forensic markets.
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Neogen and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of the interim period have been included in the accompanying unaudited condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations during the three months ended August 31, 2024 are not necessarily indicative of the results to be expected for the full fiscal year ending May 31, 2025. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024.
New Accounting Pronouncements Not Yet Adopted
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We expect to adopt this guidance for our fiscal year 2025 annual reporting and are currently finalizing our assessment of the impact that this standard will have on our segment disclosures.
7
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. This guidance becomes effective for our fiscal year 2026 annual reporting. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.
2. REVENUE RECOGNITION
The Company derives revenue from two primary sources—product revenue and service revenue.
Product revenue consists of shipments of:
Revenues for our products are recognized and invoiced when the product is shipped to the customer.
Service revenue consists primarily of:
Revenues for Neogen’s genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer.
Payment terms for products and services are generally
Contract liabilities represent deposits made by customers before the satisfaction of performance obligation(s) and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer, the liability for the customer deposit is relieved and revenue is recognized. These customer deposits are recorded within deferred revenue on the condensed consolidated balance sheets. Changes in the balances relate primarily to sales of the Company's genomics services.
The following table summarizes contract liabilities by period:
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Three months ended August 31, |
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2024 |
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2023 |
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Beginning balance |
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$ |
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$ |
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Additions |
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Amounts recognized into revenue |
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( |
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( |
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Ending balance |
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$ |
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$ |
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8
The following table presents disaggregated revenue by major product and service categories during the three months ended August 31, 2024 and August 31, 2023:
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Three months ended August 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Food Safety |
|
|
|
|
|
|
||
Natural Toxins & Allergens |
|
$ |
|
|
$ |
|
||
Bacterial & General Sanitation |
|
|
|
|
|
|
||
Indicator Testing, Culture Media & Other |
|
|
|
|
|
|
||
Biosecurity Products |
|
|
|
|
|
|
||
Genomics Services |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Animal Safety |
|
|
|
|
|
|
||
Life Sciences |
|
$ |
|
|
$ |
|
||
Veterinary Instruments & Disposables |
|
|
|
|
|
|
||
Animal Care & Other |
|
|
|
|
|
|
||
Biosecurity Products |
|
|
|
|
|
|
||
Genomics Services |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Total Revenues |
|
$ |
|
|
$ |
|
||
3. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share was computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share was computed using the treasury stock method by dividing net (loss) income by the weighted average number of shares of common stock outstanding.
The calculation of net (loss) income per share follows:
|
|
Three months ended August 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator for basic and diluted net (loss) income per share: |
|
|
|
|
|
|
||
Net (loss) income attributable to Neogen |
|
$ |
( |
) |
|
$ |
|
|
Denominator for basic net (loss) income per share: |
|
|
|
|
|
|
||
Weighted average shares |
|
|
|
|
|
|
||
Effect of dilutive stock options and RSUs |
|
|
|
|
|
|
||
Denominator for diluted net (loss) income per share |
|
|
|
|
|
|
||
Net (loss) income per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
( |
) |
|
$ |
|
|
Diluted |
|
$ |
( |
) |
|
$ |
|
|
Due to the net loss reported for the three months ended August 31, 2024, the dilutive stock options and RSUs were anti-dilutive. As of August 31, 2023,
9
4. SEGMENT INFORMATION AND GEOGRAPHIC DATA
The Company has
Many of our international operations originally focused on the Company’s food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer the Company’s complete line of products and services, including those usually associated with the Animal Safety segment such as cleaners, biosecurity products, veterinary instruments and genomics services. These additional products and services are managed and directed by existing management and are reported through the Food Safety segment.
Segment information follows:
|
|
Food |
|
|
Animal |
|
|
Corporate and |
|
|
Total |
|
||||
As of and during the three months ended August 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product revenues to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Service revenues to external customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of and during the three months ended August 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product revenues to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Service revenues to external customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues to external customers |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents the Company’s revenue disaggregated by geographic location:
|
|
Three months ended August 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Domestic |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
10
5. BUSINESS COMBINATIONS
The condensed consolidated statements of operations reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions discussed below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings.
Fiscal 2023
Corvium Acquisition
In February 2023, the Company acquired certain assets as part of an asset purchase agreement with Corvium, Inc., a partner and supplier within the Company's software analytics platform. This acquisition, which primarily includes the software technology, advances the Company's food safety data analytics strategy. The purchase price consideration was $
There also is the potential for performance milestone payments of up to $
In the first quarter of fiscal 2024, the Company recorded an increase to intangible assets of $
The final purchase price allocation, based upon the fair value of these assets acquired and liabilities assumed, which was determined using the income approach, is summarized in the following table:
Prepaids and other current assets |
|
$ |
|
|
Property, plant and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Deferred revenue |
|
|
( |
) |
Adjustment of annual license prepaid |
|
|
( |
) |
Other non-current liabilities |
|
|
( |
) |
Total identifiable assets and liabilities acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
For each completed acquisition listed above, the revenues and net income were not considered material and were therefore not disclosed.
11
3M Food Safety Transaction
In September 2022, Neogen, 3M, and Neogen Food Safety Corporation, formerly named Garden SpinCo, a subsidiary created to carve out 3M’s FSD, closed on a transaction combining 3M’s FSD with Neogen in a Reverse Morris Trust transaction and Neogen Food Safety Corporation became a wholly owned subsidiary of Neogen (“FSD transaction”). Immediately following the FSD transaction, pre-merger Neogen Food Safety Corporation stockholders owned, in the aggregate, approximately
The purchase price consideration for the 3M FSD was $
In the first quarter of fiscal 2024, the Company recorded adjustments to goodwill and intangible assets, based on third-party advisor's valuation work and fair value estimates, resulting in an increase to goodwill and a decrease to the intangible assets balance. The Company also recorded adjustments to deferred tax liabilities, which increased the balance, based on finalization of entity income tax provisions. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets of $
The final purchase price allocation, based upon the fair value of these assets acquired and liabilities assumed, which was determined using the income approach, is summarized in the following table:
Cash and cash equivalents |
|
$ |
|
|
Inventories |
|
|
|
|
Other current assets |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Right of use asset |
|
|
|
|
Lease liability |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
Other liabilities |
|
|
( |
) |
Total identifiable assets and liabilities acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
6. INCOME TAXES
Income tax benefit was $
12
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 $
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and accrues for related costs, when such costs are determined to be probable and estimable. The Company currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. These annual remediation costs are expensed and have ranged from $
8. DERIVATIVES AND FAIR VALUE
Derivatives
The Company operates on a global basis and is exposed to the risk that its financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates and changes in interest rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, the Company enters into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions and has also entered into interest rate swap contracts as a hedge against changes in interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. On the date the derivative is established, the Company designates the derivative as either a fair value hedge, a cash flow hedge or a net investment hedge in accordance with its established policy. Each reporting period, derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. The change in fair value is recorded in accumulated other comprehensive loss, and amounts are reclassified into earnings on the condensed consolidated statements of operations when transactions are realized. Derivatives that are not determined to be effective hedges are adjusted to
13
fair value with a corresponding adjustment to earnings. The Company does not enter into derivative financial instruments for trading or speculative purposes.
Derivatives Not Designated as Hedging Instruments
The Company forecasts its net exposure in various receivables and payables to fluctuations in the value of various currencies, and has entered into a number of foreign currency forward contracts each month to mitigate that exposure. These contracts are recorded net at fair value on our consolidated balance sheets, classified as Level 2 in the fair value hierarchy. Gains and losses from these contracts are recognized in other income in our condensed consolidated statements of operations. The notional amount of forward contracts in place was $
|
|
|
|
|
|
|
|
|
||
Fair Value of Derivatives Not Designated as Hedging Instruments |
|
Balance Sheet Location |
|
August 31, 2024 |
|
|
May 31, 2024 |
|
||
Foreign currency forward contracts, net |
|
Other current liabilities |
|
$ |
|
|
$ |
|
||
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our condensed consolidated statements of operations were as follows:
|
|
|
Three months ended August 31, |
|
||||||
Derivatives Not Designated as Hedging Instruments |
|
Location in statements of operations |
|
2024 |
|
|
2023 |
|
||
Foreign currency forward contracts |
|
Other expense |
|
$ |
|
|
$ |
|
||
Derivatives Designated as Hedging Instruments
In November 2022, we entered into a receive-variable, pay-fixed interest rate swap agreement with a $
We record the fair value of our interest rate swaps on a recurring basis using Level 2 observable market inputs for similar assets or liabilities in active markets.
Fair Value of Derivatives Designated as Hedging Instruments |
|
Balance Sheet Location |
|
August 31, 2024 |
|
|
May 31, 2024 |
|
||
Interest rate swap – current |
|
Other current assets |
|
$ |
|
|
$ |
|
||
Interest rate swap – non-current |
|
Other (non-current liabilities) non-current assets |
|
$ |
( |
) |
|
$ |
|
|
Fair Value of Financial Instruments
Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
14
The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar instruments.
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss changes by component, net of related tax, were as follows:
|
|
Three months ended August 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Accumulated other comprehensive loss, beginning balance |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Foreign currency translation adjustment |
|
|
|
|
|
|
||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive gain (loss) before reclassifications |
|
|
|
|
|
|
||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Marketable securities |
|
|
|
|
|
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive loss before reclassifications |
|
|
|
|
|
|
||
Amounts reclassified from accumulated other comprehensive loss |
|
|
|
|
|
|
||
Balance at end of period |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
||
Fair value of derivatives change |
|
|
|
|
|
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive (loss) gain before reclassifications |
|
|
( |
) |
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Accumulated other comprehensive loss, ending balance |
|
$ |
( |
) |
|
$ |
( |
) |
15
PART I – FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future financial performance. While management is optimistic about the Company’s long-term prospects, historical financial information may not be indicative of future financial results.
Safe Harbor and Forward-Looking Statements
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.
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.
TRENDS AND UNCERTAINTIES
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.
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.
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.
16
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.
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.
Executive Overview
|
|
Three months ended August 31, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
% Change |
|
|||
Total Revenues |
|
$ |
216,964 |
|
|
$ |
228,987 |
|
|
$ |
(12,023 |
) |
Cost of Revenues |
|
|
112,038 |
|
|
|
112,226 |
|
|
|
(188 |
) |
Gross Profit |
|
|
104,926 |
|
|
|
116,761 |
|
|
|
(11,835 |
) |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
45,799 |
|
|
|
45,783 |
|
|
|
16 |
|
General and administrative |
|
|
51,671 |
|
|
|
45,121 |
|
|
|
6,550 |
|
Research and development |
|
|
5,199 |
|
|
|
6,722 |
|
|
|
(1,523 |
) |
Total Operating Expenses |
|
|
102,669 |
|
|
|
97,626 |
|
|
|
5,043 |
|
Operating Income |
|
|
2,257 |
|
|
|
19,135 |
|
|
|
(16,878 |
) |
Other Expense |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
993 |
|
|
|
1,790 |
|
|
|
(797 |
) |
Interest expense |
|
|
(18,615 |
) |
|
|
(18,456 |
) |
|
|
(159 |
) |
Other, net |
|
|
(244 |
) |
|
|
(806 |
) |
|
|
562 |
|
Total Other Expense |
|
|
(17,866 |
) |
|
|
(17,472 |
) |
|
|
(394 |
) |
(Loss) Income Before Taxes |
|
|
(15,609 |
) |
|
|
1,663 |
|
|
|
(17,272 |
) |
Income Tax (Benefit) Expense |
|
|
(3,000 |
) |
|
|
160 |
|
|
|
(3,160 |
) |
Net (Loss) Income |
|
$ |
(12,609 |
) |
|
$ |
1,503 |
|
|
$ |
(14,112 |
) |
Results of Operations
Revenues
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.
Service Revenue
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.
17
International Revenue
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.
Gross Margin
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.
Operating Expenses
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.
Sales and Marketing
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.
General and Administrative
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.
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.
Research and Development
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.
Other Expense
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
18
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.
Provision for Income Taxes
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.
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.
Segment Results of Operations
|
|
Three months ended August 31, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Increase / (Decrease) |
|
|
% Change |
|
||||
Food Safety |
|
$ |
159,345 |
|
|
$ |
166,278 |
|
|
$ |
(6,933 |
) |
|
|
(4 |
)% |
Animal Safety |
|
|
57,619 |
|
|
|
62,709 |
|
|
|
(5,090 |
) |
|
|
(8 |
)% |
Total Revenues |
|
$ |
216,964 |
|
|
$ |
228,987 |
|
|
$ |
(12,023 |
) |
|
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food Safety |
|
$ |
17,905 |
|
|
$ |
22,241 |
|
|
$ |
(4,336 |
) |
|
|
(19 |
)% |
Animal Safety |
|
|
2,589 |
|
|
|
8,356 |
|
|
|
(5,767 |
) |
|
|
(69 |
)% |
Segment Operating Income |
|
$ |
20,494 |
|
|
$ |
30,597 |
|
|
$ |
(10,103 |
) |
|
|
(33 |
)% |
Corporate |
|
|
(18,237 |
) |
|
|
(11,462 |
) |
|
|
(6,775 |
) |
|
|
59 |
% |
Operating Income |
|
$ |
2,257 |
|
|
$ |
19,135 |
|
|
$ |
(16,878 |
) |
|
|
(88 |
)% |
Revenues
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.
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.
Operating Income
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.
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.
19
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.
Non-GAAP Financial Measures
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.
EBITDA
We define EBITDA as net income before interest, income taxes, and depreciation and amortization. We present EBITDA as a performance measure because it may allow for a comparison of results across periods and results across companies in the industries in which Neogen operates on a consistent basis, by removing the effects on operating performance of (a) capital structure (such as the varying levels of interest expense and interest income), (b) asset base and capital investment cycle (such as depreciation and amortization) and (c) items largely outside the control of management (such as income taxes). EBITDA also forms the basis for the measurement of Adjusted EBITDA (discussed below).
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, adjusted for share-based compensation and certain transaction fees and expenses. We present Adjusted EBITDA because it provides an understanding of underlying business performance by excluding the following:
Adjusted EBITDA margin
We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of total revenues. We present Adjusted EBITDA margin as a performance measure to analyze the level of Adjusted EBITDA generated from total revenue.
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
20
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.
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.
These non-GAAP financial measures have limitations as analytical tools. For example, for EBITDA-based metrics:
A reader should compensate for these limitations by relying primarily on the financial statements of Neogen and using these non-GAAP financial measures only as a supplement to evaluate Neogen’s performance.
For each of these non-GAAP financial measures below, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure.
21
Reconciliation between net (loss) income and EBITDA and Adjusted EBITDA and between net (loss) income margin % and Adjusted EBITDA margin % are as follows:
|
|
Three months ended August 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net (loss) income |
|
$ |
(12,609 |
) |
|
$ |
1,503 |
|
Net (loss) income margin % |
|
|
-5.8 |
% |
|
|
0.7 |
% |
Income tax (benefit) expense |
|
|
(3,000 |
) |
|
|
160 |
|
Depreciation and amortization |
|
|
29,800 |
|
|
|
28,734 |
|
Interest expense, net |
|
|
17,622 |
|
|
|
16,666 |
|
EBITDA |
|
$ |
31,813 |
|
|
$ |
47,063 |
|
Share-based compensation |
|
|
3,982 |
|
|
|
2,638 |
|
FX transaction gain on loan and other revaluation (1) |
|
|
(320 |
) |
|
|
(290 |
) |
Certain transaction fees and integration costs (2) |
|
|
5,122 |
|
|
|
1,951 |
|
Severance and other employment costs |
|
|
370 |
|
|
|
559 |
|
Contingent consideration adjustments |
|
|
— |
|
|
|
300 |
|
ERP expense (3) |
|
|
1,835 |
|
|
|
128 |
|
Discontinued product line expense (4) |
|
|
912 |
|
|
|
20 |
|
Adjusted EBITDA |
|
$ |
43,714 |
|
|
$ |
52,369 |
|
Adjusted EBITDA margin % |
|
|
20.1 |
% |
|
|
22.9 |
% |
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.
Financial Condition and Liquidity
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.
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.
We are subject to certain legal and other proceedings in the normal course of business that have not had, and, in the opinion of management, are not expected to have, a material effect on our results of operations or financial position.
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.
22
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.
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.
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.
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.
Cash Flows
|
|
Three months ended August 31, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
Increase / (Decrease) |
|
|||
Net Cash (used for) provided by Operating Activities |
|
$ |
(17,914 |
) |
|
$ |
23,009 |
|
|
$ |
(40,923 |
) |
Net Cash used for Investing Activities |
|
$ |
(33,662 |
) |
|
$ |
(8,684 |
) |
|
$ |
(24,978 |
) |
Net Cash provided by Financing Activities |
|
$ |
979 |
|
|
$ |
1,062 |
|
|
$ |
(83 |
) |
Net Cash (used for) provided by Operating Activities
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:
Net Cash used for Investing Activities
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.
Net Cash provided by Financing Activities
Cash provided by financing activities was flat during the three months ended August 31, 2024 compared to the three months ended August 31, 2023.
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.
23
PART I – FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We continuously evaluate our exposure to currency exchange and interest rate risk. There have been no meaningful changes in our exposure to risk associated with fluctuations in foreign currency exchange rates and interest rates related to our variable-rate borrowings under the Credit Facilities from that discussed in our Form 10-K.
24
PART I – FINANCIAL INFORMATION
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2024 was carried out under the supervision and with the participation of the Company’s management, including the President & Chief Executive Officer and Chief Financial Officer (“the Certifying Officers”). Based on the evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures were not effective because of previously reported material weaknesses in our internal control over financial reporting, which we describe in Part II, Item 9A of our Annual Report on Form 10-K for the year ended May 31, 2024.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
As disclosed in Item 9A of our Annual Report on Form 10-K for the year ended May 31, 2024, management identified the following material weaknesses in internal controls over financial reporting that existed as of May 31, 2023 and continued as of May 31, 2024: (1) information technology general controls ("ITGCs") in the areas of user access and change management over certain information technology systems that support the Company’s financial reporting process and the manual business process controls dependent on the affected ITGCs, and (2) ineffective period-end invoice accrual controls.
Ongoing Remediation Efforts to Address the Previously Identified Material Weaknesses
As previously disclosed in our Annual Report on Form 10-K for the year ended May 31, 2024, management concluded that our internal controls over financial reporting were not effective as of May 31, 2024. Management is in the process of enhancing, and will continue to enhance, the risk assessment process and design and implementation of internal controls over financial reporting. The remediation measures to correct the previously identified material weaknesses include enhancing the design and implementation of existing controls and creating new controls as needed to address identified risks.
As we continue to evaluate and to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above. When fully implemented and operational, we believe the controls we have designed or plan to design will remediate the control deficiency that has led to the material weaknesses that we have identified. The previously identified material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Controls over Financial Reporting
Other than with respect to the remediation efforts described above in connection with the previously identified material weaknesses, no changes in our control over financial reporting were identified as having occurred during the quarter ended August 31, 2024 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
25
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our material pending legal proceedings, see Note 7. “Commitments and Contingencies” of the Notes to interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference.
Item 1A. Risk Factors
This Form 10-Q should be read in conjunction with Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended May 31, 2024. There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended May 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2018, the Company’s Board of Directors authorized a program to purchase, subject to market conditions, up to 6,000,000 shares of the Company’s common stock. The program does not have any scheduled expiration date. As of August 31, 2024, a total of 5,900,000 shares of common stock remained available for repurchase under this program. The following is a summary of share repurchase activity during the fiscal quarter ended August 31, 2024:
Period |
|
Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs |
|
||||
June 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,900,000 |
|
July 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,900,000 |
|
August 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,900,000 |
|
Total |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,900,000 |
|
Items 3 and 4 are not applicable or removed or reserved and have been omitted.
Item 5. Other Information
During the quarterly period ended August 31, 2024, no director or officer (as defined in SEC Rule 16a-1(f)) of the Company
26
Item 6. Exhibits
(a) Exhibit Index
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
32 |
|
|
|
101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NEOGEN CORPORATION |
(Registrant) |
Dated: October 10, 2024
/s/ John E. Adent |
John E. Adent |
President & Chief Executive Officer |
(Principal Executive Officer) |
Dated: October 10, 2024
/s/ David H. Naemura |
David H. Naemura |
Chief Financial Officer |
(Chief Financial Officer) |
28
EXHIBIT 31.1
13a. – CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
NEOGEN CORPORATION
CEO CERTIFICATION
I, John E. Adent, certify that:
Dated: October 10, 2024
|
/s/ John E. Adent |
John E. Adent |
President & Chief Executive Officer |
(Principal Executive Officer) |
EXHIBIT 31.2
13a. – CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
NEOGEN CORPORATION
CFO CERTIFICATION
I, David H. Naemura, certify that:
Dated: October 10, 2024
|
/s/ David H. Naemura |
David H. Naemura |
Chief Financial Officer |
(Principal Financial Officer) |
EXHIBIT 32
18 U.S.C. SECTION 1350 CERTIFICATION
NEOGEN CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of Neogen Corporation (the “Company”) for the period ended August 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John E. Adent, as President & Chief Executive Officer of the Company and I, David H. Naemura, as Chief Financial Officer, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Dated: October 10, 2024
|
/s/ John E. Adent |
John E. Adent |
President & Chief Executive Officer |
(Principal Executive Officer) |
|
/s/ David H. Naemura |
David H. Naemura |
Chief Financial Officer |
(Principal Financial Officer) |
This certification accompanies the Quarterly Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Neogen Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.