Neogen Corp 10-Q for FY2024 Q1
Neogen Corp (NEOG)
About this 10-Q
Neogen Corp filed this 10-Q on October 10, 2023, covering the quarter ended August 31, 2023 (FY2024 Q1).
Headline figures
Quarter ended August 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $228.99M
- up 73.0% from $132.35M a year earlier
- Net income
- $1.5M
- down 71.1% from net income of $5.21M a year earlier
- Diluted EPS
- $0.01
- down 80.0% from $0.05 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, 2023 there were
NEOGEN CORPORATION
TABLE OF CONTENTS
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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, 2023 and May 31, 2023 |
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Condensed Consolidated Statements of Income – three months ended August 31, 2023 and 2022 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) – three months ended August 31, 2023 and 2022 |
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Condensed Consolidated Statements of Equity – three months ended August 31, 2023 and 2022 |
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Condensed Consolidated Statements of Cash Flows – three months ended August 31, 2023 and 2022 |
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Notes to Interim Condensed Consolidated Financial Statements – August 31, 2023 |
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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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36 |
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PART II. OTHER INFORMATION |
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Item 1. |
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37 |
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Item 1A. |
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Item 6. |
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38 |
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39 |
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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 (unaudited)
(in thousands, except share and per share amounts)
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August 31, 2023 |
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May 31, 2023 |
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Assets |
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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, 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 accruals |
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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 ( 12) |
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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 Income (unaudited)
(in thousands, except per share amounts)
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Three Months Ended August 31, |
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2023 |
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2022 |
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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) Income |
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Interest income |
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Interest expense |
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Other expense |
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Total Other (Expense) Income |
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Income Before Taxes |
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Provision for Income Taxes |
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Net Income |
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$ |
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$ |
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Net Income 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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$ |
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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 Income (Loss) (unaudited)
(in thousands)
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Three Months Ended August 31, |
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2023 |
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2022 |
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Net income |
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$ |
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$ |
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Foreign currency translation gain (loss) |
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Unrealized gain (loss) on marketable securities, net of tax of $ |
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Unrealized gain on derivative instruments, net of tax of $ |
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— |
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Other comprehensive income (loss), net of tax: |
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Total comprehensive income (loss) |
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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.
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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Balance, June 1, 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 and share-based compensation expense |
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— |
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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 income |
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— |
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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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— |
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Balance, 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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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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Balance, June 1, 2022 |
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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 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 income |
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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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Balance, August 31, 2022 |
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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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2023 |
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2022 |
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Cash Flows From (For) Operating Activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net 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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Amortization of debt issuance costs |
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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 |
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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 assets and liabilities |
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Net Cash From (For) Operating Activities |
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Cash Flows (For) From 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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Purchases of marketable securities |
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Proceeds from the sale of property and equipment and other |
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Business acquisitions, net of working capital adjustments and cash acquired |
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Net Cash (For) From Investing Activities |
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Cash Flows From Financing Activities |
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Exercise of stock options and issuance of employee stock purchase plan shares |
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Net Cash From Financing Activities |
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Effect of Foreign Exchange Rates on Cash |
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Net Increase In Cash and Cash Equivalents |
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Cash and Cash Equivalents, Beginning of Period |
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Cash and Cash Equivalents, End of Period |
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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 per share and share amounts)
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. Our diagnostic test kits are generally easier to use and provide quicker results than conventional diagnostic methods. 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 to objectively analyze and store their results and perform analysis on the 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, rodent control products, cleaners, disinfectants, insect control 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 Corporation (“Neogen” or the “Company”) 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 the opinion of management, 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, 2023 are not necessarily indicative of the results to be expected for the full fiscal year ending May 31, 2024. For more complete financial information, these 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, 2023.
Our functional currency is the U.S. dollar. We translate our non-U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in other comprehensive income (loss). Gains or losses from foreign currency transactions are included in other (expense) income on our condensed consolidated statements of income.
7
ACCOUNTING POLICIES
Comprehensive Income (Loss)
Comprehensive income (loss) represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains or losses on our marketable securities and derivative instruments.
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.
The carrying amounts of certain financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, our revolving credit agreement, and long-term debt, approximate their fair value based on either their short maturity or current terms for similar instruments.
Leases
We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, many our leases are classified as operating leases. Operating leases are included in Other assets, Other accruals and Other non-current liabilities on the Company’s condensed consolidated balance sheets. Finance leases are included in Net property and equipment, debt payable within one year and Non-current debt on the Company’s condensed consolidated balance sheets.
Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. Costs associated with finance leases are recognized on a straight-line basis within depreciation and interest expense over the term of the lease. The right-of-use operating lease assets were $
8
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 have 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 income (loss), and amounts are reclassified into earnings on the condensed consolidated statement of income when transactions are realized. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. The Company does not enter into derivative financial instruments for trading or speculative purposes.
ESTIMATES AND ASSUMPTIONS
The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets and derivatives. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Accounts Receivable and Concentrations of Credit Risk
Financial instruments which potentially subject Neogen to concentrations of credit risk consist principally of accounts receivable. Management attempts to minimize credit risk by reviewing customers’ credit histories before extending credit and by monitoring credit exposure on a regular basis. Collateral or other security is generally not required for accounts receivable. We maintain an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts, management considers relevant information about past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts have been exhausted, that amount is charged against the allowance for doubtful accounts. No customer accounted for more than
Inventory
The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.
9
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. The Company's business is organized into
Management reviews the carrying amounts of goodwill annually at the reporting unit level, or when indications of impairment exist, to determine if goodwill may be impaired. Goodwill is tested for impairment annually in the fourth quarter. During management's annual test or when there are indicators of impairment, if the carrying amount is deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, goodwill is reduced to the estimated fair value and a charge is recorded to operations.
Amortizable intangible assets are tested for impairment when indications of impairment exist. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis, such assets are reduced to their estimated fair value and a charge is recorded to operations.
Long-Lived Assets
Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations.
Business Combinations
We utilize the acquisition method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in Neogen’s results of operations beginning on the respective acquisition dates and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill. As part of our acquisition accounting, the Company will recognize intangible assets. Management determines the fair value of the intangible assets by applying certain valuation methodologies, including the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to forecasted revenue growth rate and customer attrition rate. Valuation specialists are often used to develop and evaluate the appropriateness of the multi-period excess earnings method, our discount rates, our attrition rate and our fair value estimates using our cash flow projections.
The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed
Our estimates of fair value are based on assumptions believed to be reasonable at that time. If we made different estimates or judgments, it could result in material differences in the fair values of the net assets acquired.
10
Equity Compensation Plans
Share options awarded to employees, restricted stock units (RSUs) and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, an estimate of award forfeitures, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. For RSUs, we use the intrinsic value method to value the units.
To value equity awards, several recognized valuation models exist; none of these models can be singled out as being the best or most correct. The model applied by us can accommodate most of the specific features included in the options granted, which are the reason for their use. If different models were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 7. "Equity Compensation Plans".
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year.
2. CASH AND MARKETABLE SECURITIES
Cash and Cash Equivalents
Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of
Marketable Securities
The Company has marketable securities held by banks or broker-dealers consisting of commercial paper and corporate bonds rated at least A-1/P-1 (short-term) and A/A2 (long-term) with original maturities between
11
Marketable Securities as of August 31, 2023 and May 31, 2023 are listed below by classification and remaining maturities.
|
|
Maturity |
|
August 31, 2023 |
|
|
May 31, 2023 |
|
||
Commercial Paper & Corporate Bonds |
|
0 - 90 days |
|
$ |
|
|
$ |
|
||
|
|
91 - 180 days |
|
|
|
|
|
|
||
|
|
181 days - 1 year |
|
|
|
|
|
|
||
|
|
1 - 2 years |
|
|
|
|
|
|
||
Total Marketable Securities |
|
|
|
$ |
|
|
$ |
|
||
The components of marketable securities, consisting of commercial paper and corporate bonds, as of August 31, 2023 are as follows:
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Commercial Paper & Corporate Bonds |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The components of marketable securities, consisting of commercial paper and corporate bonds, as of May 31, 2023 are as follows:
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Commercial Paper & Corporate Bonds |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
3. INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. The components of inventories follow:
|
|
August 31, 2023 |
|
|
May 31, 2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished and purchased goods |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
4. 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:
12
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
The Company has
On September 1, 2022, Neogen closed on a Reverse Morris Trust transaction to combine with 3M Company's ("3M") Food Safety Division (“3M FSD”, “FSD”). Similar to Neogen, 3M’s former FSD sells diagnostic test kits, dehydrated culture media, and related products used by food producers and processors to detect foodborne bacteria, allergens and levels of general sanitation. Revenue for these products are recognized and invoiced when the product is shipped to the customer. These products are currently manufactured, invoiced, and distributed by 3M on behalf of Neogen under a number of transition service contracts.
The following table presents disaggregated revenue by major product and service categories during the three months ended August 31, 2023 and 2022:
|
|
Three Months Ended August 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Food Safety |
|
|
|
|
|
|
||
Natural Toxins & Allergens |
|
|
|
|
$ |
|
||
Bacterial & General Sanitation |
|
|
|
|
|
|
||
Indicator Testing, Culture Media & Other |
|
|
|
|
|
|
||
Rodent Control, Insect Control & Disinfectants |
|
|
|
|
|
|
||
Genomics Services |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Animal Safety |
|
|
|
|
|
|
||
Life Sciences |
|
$ |
|
|
$ |
|
||
Veterinary Instruments & Disposables |
|
|
|
|
|
|
||
Animal Care & Other |
|
|
|
|
|
|
||
Rodent Control, Insect Control & Disinfectants |
|
|
|
|
|
|
||
Genomics Services |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Total Revenues |
|
$ |
|
|
$ |
|
||
13
5. NET INCOME PER SHARE
The calculation of net income per share follows:
|
|
Three Months Ended August 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Numerator for basic and diluted net income per share: |
|
|
|
|
|
|
||
Net income attributable to Neogen |
|
$ |
|
|
$ |
|
||
Denominator for basic net income per share: |
|
|
|
|
|
|
||
Weighted average shares |
|
|
|
|
|
|
||
Effect of dilutive stock options and RSUs |
|
|
|
|
|
|
||
Denominator for diluted net income per share |
|
|
|
|
|
|
||
Net income per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
At August 31, 2023,
6. SEGMENT INFORMATION AND GEOGRAPHIC DATA
We have
Our international operations in the United Kingdom, Mexico, Brazil, China and India 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 our complete line of products and services, including those usually associated with the Animal Safety segment, such as cleaners, disinfectants, rodent control products, insect control products, veterinary instruments and genomics services. These additional products and services are managed and directed by existing Food Safety management and are reported through the Food Safety segment.
Neogen’s operation in Australia originally focused on providing genomics services and sales of animal safety products and reports through the Animal Safety segment. With the acquisition of Cell BioSciences in February 2020, this operation expanded to offer our complete line of products and services, including those usually associated with the Food Safety segment. These additional products are managed and directed by existing management at Neogen Australasia and report through the Animal Safety segment.
The accounting policies of each of the segments are the same as those described in Note 1. "Description of Business and Basis of Presentation".
14
Segment information follows:
|
|
Food |
|
|
Animal |
|
|
Corporate and |
|
|
Total |
|
||||
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 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of and during the three months ended August 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Domestic |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
7. EQUITY COMPENSATION PLANS
The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key directors, officers and employees of the Company. Incentive and non-qualified options to purchase shares of common stock have been granted under the terms of the 2018 Omnibus Incentive Plan. These options are granted at an exercise price of the closing price of the common stock on the date of grant. Options vest ratably over and
During the three months ended August 31, 2023 and 2022, the Company recorded $
The Company offers eligible employees the option to purchase common stock at a
8. BUSINESS COMBINATIONS
The condensed consolidated statements of income 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
15
acquisitions discussed below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings.
Fiscal 2023
Thai-Neo Biotech Co., Ltd. Acquisition
On July 1, 2022, Neogen acquired all of the stock of Thai-Neo Biotech Co., Ltd., a longstanding distributor of Neogen’s food safety products to Thailand and Southeast Asia. Consideration for the purchase was $
Corvium Acquisition
On February 10, 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 adjustments to intangible assets of $
The following table summarizes the fair value of assets acquired and liabilities assumed as of the date of acquisition:
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.
16
3M Food Safety Transaction
On September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation (“Neogen Food Safety Corporation”), 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 preliminary fair values of net tangible assets and intangible assets acquired were based on preliminary valuations, and our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of inventories and property, plant and equipment, as well as deferred income tax liabilities. The fair values of the assets acquired and liabilities assumed are based on our preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that these preliminary estimates provide a reasonable basis for estimating the fair value of the assets acquired and liabilities assumed, we will continue to evaluate available information prior to finalization of the amounts.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the date of acquisition:
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 |
|
$ |
|
17
The following table summarizes the intangible assets acquired and the useful life of these assets.
|
|
Fair Value |
|
|
Useful Life in Years |
|
||
Trade Names and Trademarks |
|
$ |
|
|
|
|
||
Developed Technology |
|
|
|
|
|
|
||
Customer Relationships |
|
|
|
|
|
|
||
Total intangible assets acquired |
|
$ |
|
|
|
|
||
During the three months ended August 31, 2023, transaction fees and integration expenses of $
The operating results of the FSD have been included in the Company’s condensed consolidated statements of income since the acquisition date. In the first quarter of fiscal 2024, the FSD’s total revenue was $
The following table presents pro forma information as if the merger with the 3M FSD business had occurred on June 1, 2022 and had been combined with the results reported in our condensed consolidated statements of income for all periods presented:
|
|
Three Months Ended August 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Operating Income |
|
$ |
|
|
$ |
|
||
The unaudited pro forma information is presented for informational purposes only and is not indicative of the results that would have been achieved if the merger had taken place at such time. The unaudited pro forma information presented above includes adjustments primarily for amortization charges for acquired intangible assets and certain acquisition-related expenses for legal and professional fees.
In connection with the acquisition of the 3M FSD, the Company and 3M entered into several transition service agreements, including manufacturing, distribution and certain back-office support, that have been accounted for separately from the acquisition of assets and assumption of liabilities in the business combination. 3M periodically remits amounts charged to customers on our behalf and charges us for the associated cost of goods sold and transition service fees. As of August 31, 2023 and May 31, 2023, a net receivable from 3M of $
18
9. GOODWILL AND INTANGIBLE ASSETS
The following table summarizes goodwill by reportable segment:
|
|
Food Safety |
|
|
Animal Safety |
|
|
Total |
|
|||
May 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Acquisitions(1) |
|
|
|
|
|
— |
|
|
|
|
||
Foreign currency translation and other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
August 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
As of May 31, 2023, non-amortizable intangible assets included licenses of $
Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other non-current assets within the condensed consolidated balance sheets:
|
|
Gross |
|
|
Less |
|
|
Net |
|
|||
Licenses |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Covenants not to compete |
|
|
|
|
|
|
|
|
|
|||
Patents |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
|
|
|
|||
Trade names and trademarks |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|
|
|||
Other product and service-related intangibles |
|
|
|
|
|
|
|
|
|
|||
August 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Licenses |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Covenants not to compete |
|
|
|
|
|
|
|
|
|
|||
Patents |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
|
|
|
|||
Trade names and trademarks |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|
|
|||
Other product and service-related intangibles |
|
|
|
|
|
|
|
|
|
|||
May 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Amortization expense relating to definite-lived intangible assets was $
Estimated amortization expense for fiscal years 2024 through 2028 is expected to be in the range of approximately $
The amortizable intangible assets useful lives are
10. DEBT
The Company’s debt and finance lease consists of the following:
19
|
|
August 31, 2023 |
|
|
Term Loan |
|
$ |
|
|
Senior Notes |
|
|
|
|
Finance Leases |
|
|
|
|
Total debt and finance lease |
|
|
|
|
Less: Current portion |
|
|
( |
) |
Total non-current debt |
|
|
|
|
Less: Unamortized debt issuance costs |
|
|
( |
) |
Total non-current debt, net |
|
$ |
|
|
The Company had a financing agreement with a bank providing for a $
Credit Facilities
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 $
The Credit Facilities bear interest based on the term SOFR plus an applicable margin between a range of
The term loan facility contains an optional prepayment feature at the discretion of the Company. The Company determined that the prepayment feature did not meet the definition of an embedded derivative and does not require bifurcation from the host liability and, accordingly, has accounted for the entire instrument at amortized cost. In accordance with the prepayment feature, the Company paid $
20
The Company can draw any amount under the revolving facility up to the $
There was
Financial covenants include maintaining specified levels of funded debt to EBITDA, and debt service coverage. As of August 31, 2023, the Company was in compliance with its debt covenants.
Senior Notes
In July 2022, Neogen Food Safety Corporation closed on an offering of $
The Company determined that the redemption features of the Notes did not meet the definition of a derivative and thus does not require bifurcation from the host liability and accordingly has accounted for the entire instrument at amortized cost.
Total accrued interest on the Notes was $
21
Finance Lease
The finance lease as of August 31, 2023 includes a building lease that is classified in the current portion of debt on the condensed consolidated balance sheets. The Company intends to elect the purchase option within the lease agreement prior to the end of the lease term.
Maturity of Term Loan and Senior Notes
There are
11. INCOME TAXES
Income tax expense was $
The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of August 31, 2023 and May 31, 2023 are $
12. 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. We expense these annual remediation costs, which have ranged from $
The Company previously disclosed an ongoing investigation by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) regarding activities or transactions involving parties located in Iran. In fiscal year 2020, the Company recorded a charge to Other (expense) income and recorded a reserve of $
The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, should not have a material effect on its future results of operations or financial position.
22
13. DERIVATIVES
Derivatives Not Designated as Hedging Instruments
We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and have 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 condensed 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 income. The notional amount of forward contracts in place was $
|
|
|
|
|
|
|
|
|
||
Fair Value of Derivatives Not Designated as Hedging Instruments |
|
Balance Sheet Location |
|
August 31, 2023 |
|
|
May 31, 2023 |
|
||
Foreign currency forward contracts, net |
|
Other (payable) receivable |
|
$ |
( |
) |
|
$ |
|
|
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our condensed consolidated statements of income were as follows:
|
|
|
|
Three Months Ended |
|
|||||
Derivatives Not Designated as Hedging Instruments |
|
Location in statements of income |
|
August 31, 2023 |
|
|
August 31, 2022 |
|
||
Foreign currency forward contracts |
|
Other (expense) income |
|
$ |
( |
) |
|
$ |
|
|
Derivatives Designated as Hedging Instruments
In November 2022, we entered into a receive-variable, pay-fixed interest rate swap agreement with an initial $
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, 2023 |
|
|
May 31, 2023 |
|
||
Interest rate swap – current |
|
Other current assets |
|
$ |
|
|
$ |
|
||
Interest rate swap – non-current |
|
Other non-current liabilities |
|
|
( |
) |
|
|
( |
) |
23
The following table summarizes the other comprehensive income before reclassifications of derivative gains and losses:
|
|
Other Comprehensive Income Before Reclassifications During |
|
|||||
|
|
Three Months Ended |
|
|||||
Derivatives Designated as Hedging Instruments |
|
August 31, 2023 |
|
|
August 31, 2022 |
|
||
Interest rate swaps |
|
$ |
|
|
$ |
— |
|
|
The following table summarizes the reclassification of derivative gains and losses into net income from accumulated other comprehensive income (loss):
|
|
|
|
Gain (Loss) Reclassified During |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
Derivatives Designated as Hedging Instruments |
|
Location of Gain (Loss) Reclassified |
|
August 31, 2023 |
|
|
August 31, 2022 |
|
||
Interest rate swaps |
|
|
$ |
|
|
$ |
— |
|
||
24
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 may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. There are a number of important factors, including circumstances beyond our control at our transition manufacturing partner, competition, recruitment, retention, dependence on key employees, impact of weather on agriculture and food production, global business disruption caused by the Russia invasion in Ukraine and related sanctions, identification and integration of acquisitions, research and development risks, intellectual property protection, government regulation and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In addition, any forward-looking statements represent management’s views only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.
TRENDS AND UNCERTAINTIES
In prior years, production was negatively impacted by broad supply chain challenges, labor market disruptions and other related lingering impacts of the COVID-19 pandemic. Additionally, input costs inflation, including increases in certain raw materials, negatively impacted operating results. In fiscal 2023, these negative impacts steadily improved throughout the fiscal year. In fiscal 2024, despite a slowing of inflation rates, there remains economic headwinds of softening consumer demand and high interest rates, coupled with ongoing geopolitical tension in certain regions.
Interest rates have risen sharply, particularly in fiscal 2023, as a way to combat inflation. This, subsequently, increased our borrowing costs and raised the overall cost of capital. While the frequent increases have largely subsided, the overall rate is significantly higher than recent years, which increases interest expense on the unhedged portion of our Term Loan.
In response to the historically high inflationary environment, we have taken pricing actions to mitigate the impacts on the business. We anticipate that the impact of inflation will continue to affect us throughout fiscal year 2024, although at a continually decreasing rate compared to the prior two fiscal years.
25
Although we have no operations in or direct exposure to Russia, Belarus and Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict, which began in February 2022, on the global economy. Our European operations and customer base have been negatively impacted by the conflict. As the conflict continues or worsens, it may further impact our business, financial condition or results of operations throughout fiscal year 2024.
We continue to evaluate the nature and extent to which these issues impact our business, including consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us throughout fiscal year 2024.
Executive Overview
|
|
Three Months Ended August 31, |
|
|
|
|
||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
Consolidated |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
228,987 |
|
|
$ |
132,349 |
|
|
|
73 |
% |
Core Sales Growth* |
|
|
|
|
|
|
|
|
(1 |
)% |
||
Food Safety |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
166,278 |
|
|
$ |
64,643 |
|
|
|
157 |
% |
Core Sales Growth* |
|
|
|
|
|
|
|
|
5 |
% |
||
Animal Safety |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
62,709 |
|
|
$ |
67,706 |
|
|
|
(7 |
)% |
Core Sales Growth* |
|
|
|
|
|
|
|
|
(7 |
)% |
||
|
|
|
|
|
|
|
|
|
|
|||
% of International Sales |
|
|
51 |
% |
|
|
39 |
% |
|
|
|
|
Effective Tax Rate |
|
|
9.6 |
% |
|
|
21.8 |
% |
|
|
|
|
Net Income |
|
$ |
1,503 |
|
|
$ |
5,209 |
|
|
|
(71 |
)% |
Earnings per Diluted Share |
|
|
0.01 |
|
|
|
0.05 |
|
|
|
|
|
Cash from (for) Operations |
|
|
23,009 |
|
|
|
(14,143 |
) |
|
|
|
|
* Refer to non-GAAP financial measures section in this document.
Service Revenue
Service revenue, which includes genomics testing and other laboratory services, was $24.6 million in the first quarter of fiscal 2024, a decrease of 4% compared to prior year first quarter revenues of $25.6 million. The decrease was primarily driven by the attrition of two large domestic customers in the poultry and porcine markets, partially offset by strength in sheep and beef testing in Australia and new business in beef markets in the U.K. and Brazil.
26
International Revenue
In the first quarter of fiscal 2024, international sales were $117.9 million, an increase of 128%, compared to $51.7 million in the first quarter of fiscal 2023. The increase was primarily due to $63.8 million in international sales related to the 3M FSD transaction, during the first quarter of 2024. Growth in the legacy business in the first quarter as compared to the same period in the prior year was led by strength in sales of biosecurity products in the U.K., Middle East and Brazil and new diagnostic testing business gained in the U.K. These increases were partially offset by decreases in our Asia Pacific region. The decreases were driven by lower demand in the region, primarily in our Chinese markets.
Revenues
|
|
Three Months Ended August 31, |
|
|
|
|
|
|
|
|||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
Increase/(Decrease) |
|
|
% |
|
||||
Food Safety |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Natural Toxins & Allergens |
|
$ |
22,268 |
|
|
$ |
19,787 |
|
|
$ |
2,481 |
|
|
|
13 |
% |
Bacterial & General Sanitation |
|
|
45,224 |
|
|
|
10,728 |
|
|
|
34,496 |
|
|
|
322 |
% |
Indicator Testing, Culture Media & Other |
|
|
81,886 |
|
|
|
19,254 |
|
|
|
62,632 |
|
|
|
325 |
% |
Rodent Control, Insect Control & Disinfectants |
|
|
11,090 |
|
|
|
9,575 |
|
|
|
1,515 |
|
|
|
16 |
% |
Genomics Services |
|
|
5,810 |
|
|
|
5,299 |
|
|
|
511 |
|
|
|
10 |
% |
|
|
|
166,278 |
|
|
|
64,643 |
|
|
|
101,635 |
|
|
|
157 |
% |
Animal Safety |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Life Sciences |
|
$ |
1,661 |
|
|
$ |
1,589 |
|
|
$ |
72 |
|
|
|
5 |
% |
Veterinary Instruments & Disposables |
|
|
12,932 |
|
|
|
14,673 |
|
|
|
(1,741 |
) |
|
|
(12 |
)% |
Animal Care & Other |
|
|
8,175 |
|
|
|
10,526 |
|
|
|
(2,351 |
) |
|
|
(22 |
)% |
Rodent Control, Insect Control & Disinfectants |
|
|
22,686 |
|
|
|
22,214 |
|
|
|
472 |
|
|
|
2 |
% |
Genomics Services |
|
|
17,255 |
|
|
|
18,704 |
|
|
|
(1,449 |
) |
|
|
(8 |
)% |
|
|
|
62,709 |
|
|
|
67,706 |
|
|
|
(4,997 |
) |
|
|
(7 |
)% |
Total Revenues |
|
$ |
228,987 |
|
|
$ |
132,349 |
|
|
$ |
96,638 |
|
|
|
73 |
% |
Food Safety
Natural Toxins & Allergens – Sales in this category increased 13% during the three months ended August 31, 2023 compared to the same period in the prior year. While a portion of the increase in sales is from the acquired allergen product line from 3M FSD, the primary increase in this category is from growth in sales of legacy gluten and milk allergen test kits. Our natural toxins product line had moderate increases, partially offset by a decline in sales of discontinued dairy drug residue test kits.
Bacterial & General Sanitation – Revenues in this category rose 322% during the three months ended August 31, 2023 compared to the same period in the prior year. Excluding the Clean-Trace® line of general sanitation products and the pathogen test kit product line, each acquired from 3M FSD, growth in this category was led by placements of Soleris® equipment due to new business won in North America and the U.K.
Indicator Testing, Culture Media & Other – Sales in this category increased 325% during the three months ended August 31, 2023 compared to the same period in the prior year. Excluding sales from the Petrifilm® indicator and sample handling product lines acquired from 3M FSD and also sales from the Corvium acquisition, there was a net decrease in sales, primarily due to a decline in our Megazyme brand of food quality and nutritional analysis products, primarily caused by distributor ordering patterns. This decrease was partially offset by modest growth in culture media sales and a significant increase in sales of our Neogen Analytics software as a service platform.
Rodent Control, Insect Control & Disinfectants – Revenues in this category increased 16% during the three months ended August 31, 2023 compared to the same period in the prior year, led by strength in cleaner and disinfectant sales in the Middle East and U.K and sales of insect control products in Brazil.
27
Genomics Services – Sales of genomics services sold through our international Food Safety operations increased 10% during the three months ended August 31, 2023 compared to the same period in the prior year, led by new business in beef markets in the U.K. and Brazil.
Animal Safety
Life Sciences – Sales in this category increased 5% during the three months ended August 31, 2023 compared to the same period in the prior year, primarily due to higher demand from customers purchasing substrates and reagents used in clinical diagnostic test kits.
Veterinary Instruments & Disposables – Sales in this category decreased 12% during the three months ended August 31, 2023 compared to the same period in the prior year, as increases resulting from cohesive wrap business won in the second half of the prior fiscal year were more than offset by lower sales of veterinary instruments, as macroeconomic uncertainty contributed to inventory de-stocking at certain of our large veterinary distributors.
Animal Care & Other – Sales of these products decreased 22% during the three months ended August 31, 2023 compared to the same period in the prior year. The decrease was driven by lower sales of small animal supplements and vitamin injectables, primarily caused by supply constraints.
Rodent Control, Insect Control & Disinfectants – Sales increased 2% for the three months ended August 31, 2023 compared to the same period in the prior year. Revenue increases in cleaners, disinfectants and insect control products were partially offset by lower sales of rodent control products.
Genomics Services – Sales in this category decreased 8% during the three months ended August 31, 2023 compared to the same period in the prior year. Decreases in poultry and porcine testing sales, due to the attrition of two large domestic customers, more than offset strength in sheep and beef testing in Australia and new business in beef markets in the U.K and Brazil.
Gross Profit
Gross margin was 51.0% in the first quarter of fiscal 2024 compared to 47.0% in the same period of the prior year. The increase was primarily due to incremental revenues from the FSD transaction, which generated gross margin higher than the legacy company average gross margin. Within each reporting segment, increased raw material costs pressured gross margins in certain product lines. However, freight costs declined significantly during the comparative period particularly benefiting the Animal Safety segment. Pricing actions taken during the year also mitigated the impact of cost increases.
Operating Expenses
Operating expenses were $97.6 million in the first quarter of fiscal 2024, compared to $56.2 million in the comparable period in the prior year. The increase was primarily the result of ongoing expenses resulting from the acquired 3M FSD employees, additional costs added to facilitate providing back office and distribution activities related to the acquired 3M FSD product lines and amortization of intangible assets acquired in the FSD Transaction.
Sales and marketing expenses were $45.8 million in the first quarter of fiscal 2024, compared to $23.4 million in the same quarter of the prior year. The increase was primarily driven by incremental costs resulting from the FSD transaction. These costs consisted of compensation and related expenses for the acquired FSD sales and marketing teams and charges for transition services provided by 3M. These invoicing and distribution services will be provided under contract for a period of up to 18 months, concluding on March 1, 2024. The remainder of the increase during the quarter was due primarily to higher personnel related spending in the legacy business, the result of headcount additions and compensation increases.
28
General and administrative expenses were $45.1 million in the first quarter of fiscal 2024, compared to $27.9 million in the same quarter of the prior year. Increases for the quarter were primarily the result of $21.3 million of incremental amortization, additional personnel hired to accommodate the increased size and complexity of the organization, compensation increases across the organization, the issuance of share-based compensation grants, software license fees and other information technology infrastructure investments. These increases were partially offset by a $10.7 million decrease in legal, professional, and consulting fees.
Research and development expense was $6.7 million in the first quarter of fiscal 2024, compared to $4.9 million in the same quarter of the prior year. The increase was primarily the result of cost associated with the acquired FSD employees.
Operating Income
Operating income was $19.1 million in the first quarter of fiscal 2024, compared to operating income of $6.1 million in the prior year comparable period. Expressed as a percentage of sales, operating income was 8.4% during the first quarter, compared to operating income of 4.6% for the same period in the prior year. Operating income, both in dollars and expressed as a percentage of sales, increased compared to the prior year comparative period primarily due to incremental revenues and higher gross profits from the FSD merger. The prior year quarter also included FSD transaction costs of $13.7 million, compared to $2.0 million of transaction and integration costs in the current year quarter.
Other (Expense)/Income
|
|
|
|
|||||
|
|
Three Months Ended August 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Interest income |
|
$ |
1,790 |
|
|
$ |
971 |
|
Interest expense |
|
|
(18,456 |
) |
|
|
(2 |
) |
Foreign currency transactions |
|
|
(463 |
) |
|
|
(421 |
) |
Contingent consideration adjustments |
|
|
(300 |
) |
|
|
- |
|
Other |
|
|
(43 |
) |
|
|
49 |
|
Total Other (Expense) Income |
|
$ |
(17,472 |
) |
|
$ |
597 |
|
The net interest expense recorded during the three months ended August 31, 2023 was the result of debt incurred to fund the FSD transaction. In the first quarter of fiscal 2023, the Company had no debt outstanding. Interest income relates to earnings on our marketable securities portfolio. Higher yields on the portfolio during the three months ended August 31, 2023 were partially offset by lower balances. Other expense resulting from foreign currency transactions was the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.
Provision for Income Taxes
Income tax expense in the first quarter of fiscal 2024 was $0.2 million, compared to $1.5 million of income tax expense in the prior year comparable period. The decrease in income tax expense is primarily related to lower pre-tax income resulting from amortization and interest expense from the FSD transaction and a favorable tax rate differential on foreign earnings.
The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of August 31, 2023 and May 31, 2023 is $1.1 million. The increase in unrecognized tax benefits is primarily associated with the acquired 3M FSD, including positions for transfer pricing and research and development credits.
29
Net Income
Net income was $1.5 million in the first quarter of fiscal 2024, compared to net income of $5.2 million in the same period in the prior year. The decrease in earnings during the quarter was primarily the result of $18.5 million of interest expense resulting from the $900 million in outstanding debt incurred in the merger, $20.3 million in incremental amortization expenses associated with the intangible assets acquired in the merger and additional expense resulting from the acquired FSD employees. These increased expenses were partially offset by incremental revenues from the FSD merger, which generated gross profits higher than the legacy company average margin.
Non-GAAP Financial Measures
This report includes certain financial information for the Company that differs from what is reported in accordance with GAAP. These non-GAAP financial measures consist of core revenue growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share. These non-GAAP financial measures are included in this report because management believes that they provide investors with additional useful information to measure the performance of the Company, and because these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties as common performance measures to compare results or estimate valuations across companies in industries the Company operates in.
Core revenue growth
We define core revenue growth as net sales for the period excluding the impacts of foreign currency translation rates, the first year impacts of acquisitions and divestitures, where applicable, and net sales from discontinued product lines. We present core revenue growth because it allows for a meaningful comparison of results across periods without the volatility caused by foreign currency gains or losses, or the incomparability that would be caused by the impact of an acquisition or divestiture.
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:
30
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.
Adjusted Net Income
We define Adjusted Net Income as Net Income, adjusted for share-based compensation, FX translation gain/(loss) on loan revaluation, certain transaction fees and expenses, and other one-time adjustments, all of which are tax effected.
Adjusted Earnings per Share
We define Adjusted Earnings per Share as Adjusted Net Income divided by diluted average shares outstanding.
These non-GAAP financial measures are presented for informational purposes only. EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net income (loss), operating income, cash flow from operating activities or other measures of financial performance. This information does not purport to represent the results Neogen would have achieved had any of the transactions for which an adjustment is made occurred at the beginning of the periods presented or as of the dates indicated. This information is inherently subject to risks and uncertainties. It may not give an accurate or complete picture of Neogen’s financial condition or results of operations for the periods presented and should not be relied upon when making an investment decision.
The use of the terms EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation.
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.
31
Reconciliation between net income and EBITDA and Adjusted EBITDA and between net income margin % and Adjusted EBITDA margin % are as follows:
|
|
Three Months Ended August 31, |
|
|||||
(in thousands, except for percentages) |
|
2023 |
|
|
2022 |
|
||
Net Income |
|
$ |
1,503 |
|
|
$ |
5,209 |
|
Net income margin % |
|
|
0.7 |
% |
|
|
3.9 |
% |
Provision for income taxes |
|
|
160 |
|
|
|
1,450 |
|
Depreciation and amortization |
|
|
28,734 |
|
|
|
5,729 |
|
Interest expense (income), net |
|
|
16,666 |
|
|
|
(969 |
) |
EBITDA |
|
$ |
47,063 |
|
|
$ |
11,419 |
|
Share-based compensation |
|
|
2,638 |
|
|
|
1,867 |
|
FX transaction gain on loan revaluation (1) |
|
|
(290 |
) |
|
|
— |
|
Certain transaction fees and integration costs |
|
|
1,951 |
|
|
|
13,732 |
|
Restructuring |
|
|
559 |
|
|
|
— |
|
Contingent consideration adjustments |
|
|
300 |
|
|
|
— |
|
ERP expense (2) |
|
|
128 |
|
|
|
— |
|
Discontinued product line expense |
|
|
20 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
52,369 |
|
|
$ |
27,018 |
|
Adjusted EBITDA margin % |
|
|
22.9 |
% |
|
|
20.4 |
% |
Adjusted EBITDA increased $25.4 million during the three months ended August 31, 2023 due primarily to earnings generated from the 3M FSD business, which merged with Neogen on September 1, 2022. Expressed as a percentage of revenue, adjusted EBITDA was 22.9% during the first quarter of fiscal 2024 compared to 20.4% during the same period last year. Increases in the margin reflect the higher margin products sold by the 3M FSD business, which was not a part of the Company in the prior year comparable period.
Reconciliation between net income and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:
|
|
Three Months Ended August 31, |
|
|||||
(in thousands, except per share amounts) |
|
2023 |
|
|
2022 |
|
||
Net Income |
|
$ |
1,503 |
|
|
$ |
5,209 |
|
Earnings per diluted share |
|
$ |
0.01 |
|
|
$ |
0.05 |
|
Amortization of acquisition-related intangibles |
|
|
23,325 |
|
|
|
1,841 |
|
Share-based compensation |
|
|
2,638 |
|
|
|
1,867 |
|
FX transaction gain on loan revaluation (1) |
|
|
(290 |
) |
|
|
— |
|
Certain transaction fees and integration costs |
|
|
1,951 |
|
|
|
13,732 |
|
Restructuring |
|
|
559 |
|
|
|
— |
|
Contingent consideration adjustments |
|
|
300 |
|
|
|
— |
|
ERP expense (2) |
|
|
128 |
|
|
|
— |
|
Discontinued product line expense |
|
|
20 |
|
|
|
— |
|
Estimated tax effect of above adjustments (3) |
|
|
(6,447 |
) |
|
|
(5,093 |
) |
Adjusted Net Income |
|
$ |
23,687 |
|
|
$ |
17,556 |
|
Adjusted Earnings per Share |
|
$ |
0.11 |
|
|
$ |
0.16 |
|
32
Adjusted Net Income increased $6.1 million during the three months ended August 31, 2023 due to the higher Adjusted EBITDA.
Financial Condition and Liquidity
The overall cash, cash equivalents and marketable securities position of Neogen was $239.3 million as of August 31, 2023, compared to $245.6 million as of May 31, 2023. Cash flow from operating activities was $23.0 million during the three months ended August 31, 2023, which was primarily the result of fewer transaction fees and working capital improvements. Cash flow for investing activities was an outflow of $8.7 million during the three months ended August 31, 2023, from purchases of property and equipment of $30.6 million, partially offset by proceeds from the sale of marketable securities of $21.9 million. Cash flow from financing activities was $1.1 million during the three months ended August 31, 2023.
Net accounts receivable balances were $137.7 million as of August 31, 2023 compared to $153.3 million as of May 31, 2023. Days’ sales outstanding, a measurement of the time it takes to collect receivables, was 53 days as of August 31, 2023, compared to 57 days as of May 31, 2023 and 60 days as of August 31, 2022. The improvement in days' sales outstanding is the result of working capital initiatives being implemented.
As part of transition services agreements between the Company and 3M, related to the merger of the Food Safety business, 3M is invoicing our customers for products that 3M is manufacturing and shipping on our behalf. As of August 31, 2023, there were $49.8 million in customer receivables billed by 3M on our behalf, compared to $57.3 million as of May 31, 2023. The Company is working collaboratively with 3M on managing the credit risk associated with the former FSD customers during the period when 3M is providing transition invoicing and distribution services to the Company.
Net inventory was $140.7 million as of August 31, 2023, an increase of $6.9 million, compared to a May 31, 2023 balance of $133.8 million. The higher inventory levels are primarily the result of stock of FSD products purchased from 3M. Beginning in the second quarter of fiscal 2024 and continuing into the third quarter, we plan to purchase the remaining FSD inventory from 3M, as we exit our transition services agreements and begin to manufacture certain 3M FSD products. We currently expect to spend approximately $40 to $50 million for these inventory purchases. Additionally, we expect to spend approximately $130 million in capital expenditures in fiscal year 2024; $100 million of the total is related to our new building, systems implementation and related food safety integration projects.
Additionally, while supply chain issues largely moderated throughout fiscal 2023 and into fiscal 2024, we continue to monitor our key raw materials to ensure adequate stock on hand.
Debt and Liquidity
On September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation, a subsidiary of 3M created to carve out 3M’s Food Safety business, closed on the FSD Transaction that previously was announced in December 2021, combining 3M’s Food Safety business with Neogen in a Reverse Morris Trust transaction.
In June 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650 million and a five-year senior secured revolving facility in the amount of $150 million (collectively, the “Credit Facilities”), which became available in connection with the merger and related transactions. The loan facility was funded to Neogen Food Safety Corporation on August 31, 2022, and upon the effectiveness of the merger on September 1, 2022, became Neogen’s obligation. Financial covenants include maintaining specified levels of funded debt to EBITDA and debt service coverage. Pricing for the term loan is term SOFR plus 235 basis points. The Credit Facilities, together with the Notes described below, represent the financing incurred in connection with the merger of the 3M FSD with Neogen. In accordance with the prepayment feature, the Company paid $100 million of the term loan facility’s principal in fiscal year 2023, in order to decrease the outstanding debt balance.
33
In July 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par. The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Neogen Food Safety Corporation did not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of Neogen Food Safety Corporation’s common stock to 3M stockholders, the Notes were guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M was released from all obligations under its guarantee. Upon the effectiveness of the merger on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen.
In addition to the 3M transaction described above, our future cash generation and borrowing capacity may not be sufficient to meet cash requirements to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan. Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs. There is no guarantee that we will be successful in issuing additional equity securities or entering into other financing arrangements.
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.
34
PART I – FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments. Our primary interest rate risk is due to potential fluctuations of interest rates for our variable rate borrowings.
Foreign exchange risk exposure arises because we market and sell our products throughout the world. Revenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. As such, our operating results are exposed to changes in exchange rates. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection. We use derivative financial instruments to help manage the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.
Neogen has assets, liabilities, and operations outside of the U.S. Our investments in foreign subsidiaries are considered long-term. As discussed in ITEM 1A. RISK FACTORS of our Annual Report on Form 10-K for the year ended May 31, 2023, our financial condition and results of operations could be adversely affected by currency fluctuations.
The following table sets forth the potential loss in future earnings or fair values, resulting from hypothetical changes in relevant market rates or prices:
Risk Category |
|
Hypothetical Change |
|
August 31, 2023 |
|
|
Impact |
|
(in thousands) |
|
|
|
|
|
|
|
|
Foreign Currency—Revenue |
|
10% Decrease in exchange rates |
|
$ |
11,792 |
|
|
Earnings |
Foreign Currency—Hedges |
|
10% Decrease in exchange rates |
|
|
586 |
|
|
Fair Value |
Interest Income |
|
10% Decrease in interest rates |
|
|
1,017 |
|
|
Earnings |
Interest Expense |
|
10% Increase in interest rates |
|
|
2,301 |
|
|
Earnings |
35
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, 2023 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 our 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, 2023.
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, 2023, management identified the following material weaknesses in internal controls over financial reporting during the year ended May 31, 2023: (1) information technology general controls in the areas of user access and change management over certain information technology systems that support the Company’s financial reporting process (2) ineffective period-end invoice accrual controls and (3) ineffective operation of management review controls related to the accounting, valuation, and purchase price allocation of the Company’s acquisitions and associated goodwill.
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, 2023, management concluded that our internal controls over financial reporting were not effective as of May 31, 2023. 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 and providing additional training to personnel including the appropriate level of documentation to be maintained to support internal controls over financial reporting.
As we continue to evaluate and work 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, 2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
36
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our material pending legal proceedings, see Note 12. “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, 2023. 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, 2023.
Items 2, 3, 4, and 5 are not applicable or removed or reserved and have been omitted.
37
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 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) |
38
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, 2023
/s/ John E. Adent |
John E. Adent |
President & Chief Executive Officer |
(Principal Executive Officer) |
Dated: October 10, 2023
/s/ David H. Naemura |
David H. Naemura |
Chief Financial Officer |
(Principal Financial and Accounting Officer) |
39
EXHIBIT 31.1
13a. – CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
NEOGEN CORPORATION
CEO CERTIFICATION
I, John E. Adent, certify that:
Dated: October 10, 2023
|
/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, 2023
|
/s/ David H. Naemura |
David H. Naemura |
Chief Financial Officer |
(Principal Financial and Accounting 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, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John E. Adent, as 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, 2023
|
/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 and Accounting Officer) |
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.