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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2024.

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-17988

Neogen Corporation

(Exact name of registrant as specified in its charter)

Michigan

38-2367843

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

620 Lesher Place

Lansing, Michigan 48912

(Address of principal executive offices, including zip code)

(517) 372-9200

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

Title of each Class

Trading
Symbol(s)

Name of each exchange

on which registered

Common Stock, $0.16 par value per share

NEOG

NASDAQ Global Select Market

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. YES 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). YES 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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging growth company

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 NO

As of February 29, 2024 there were 216,607,746 shares of Common Stock outstanding.

 

 


 

NEOGEN CORPORATION

TABLE OF CONTENTS

 

Page No.

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Interim Condensed Consolidated Financial Statements (unaudited)

 

2

Condensed Consolidated Balance Sheets – February 29, 2024 and May 31, 2023

 

2

Condensed Consolidated Statements of Operations – Three and nine months ended February 29, 2024 and February 28, 2023

 

3

Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and nine months ended February 29, 2024 and February 28, 2023

 

4

Condensed Consolidated Statements of Equity – Three and nine months ended February 29, 2024 and February 28, 2023

 

5

Condensed Consolidated Statements of Cash Flows – Nine months ended February 29, 2024 and February 28, 2023

 

6

Notes to Interim Condensed Consolidated Financial Statements – February 29, 2024

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

37

Item 4.

Controls and Procedures

 

38

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

39

Item 1A.

Risk Factors

 

39

Item 6.

Exhibits

 

40

 

 

SIGNATURES

 

41

 

 

CEO Certification

 

 

 

 

CFO Certification

 

 

 

 

Section 906 Certification

 

 

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)

 

 

February 29, 2024

 

 

May 31, 2023

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

161,437

 

 

$

163,240

 

Marketable securities

 

 

7,010

 

 

 

82,329

 

Accounts receivable, net of allowance of $4,099 and $2,827

 

 

173,592

 

 

 

153,253

 

Inventories, net

 

 

182,390

 

 

 

133,812

 

Prepaid expenses and other current assets

 

 

78,042

 

 

 

53,297

 

Total Current Assets

 

 

602,471

 

 

 

585,931

 

Net Property and Equipment

 

 

272,282

 

 

 

198,749

 

Other Assets

 

 

 

 

 

 

Right of use assets

 

 

15,301

 

 

 

11,933

 

Goodwill

 

 

2,136,338

 

 

 

2,137,496

 

Intangible assets, net

 

 

1,539,744

 

 

 

1,605,103

 

Other non-current assets

 

 

16,356

 

 

 

15,220

 

Total Assets

 

$

4,582,492

 

 

$

4,554,432

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Current portion of finance lease

 

$

2,521

 

 

$

-

 

Accounts payable

 

 

89,748

 

 

 

76,669

 

Accrued compensation

 

 

20,305

 

 

 

25,153

 

Income tax payable

 

 

11,573

 

 

 

6,951

 

Accrued interest

 

 

3,438

 

 

 

11,149

 

Deferred revenue

 

 

5,486

 

 

 

4,616

 

Other accruals

 

 

24,773

 

 

 

20,934

 

Total Current Liabilities

 

 

157,844

 

 

 

145,472

 

Deferred Income Tax Liability

 

 

353,853

 

 

 

353,427

 

Non-Current Debt

 

 

887,653

 

 

 

885,439

 

Other Non-Current Liabilities

 

 

36,968

 

 

 

35,877

 

Total Liabilities

 

 

1,436,318

 

 

 

1,420,215

 

Commitments and Contingencies (note 12)

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Preferred stock, $1.00 par value, 100,000 shares authorized, none issued
   and outstanding

 

 

-

 

 

 

-

 

Common stock, $0.16 par value, 315,000,000 shares authorized, 216,607,746 and 216,245,501 shares issued and outstanding at February 29, 2024, and May 31, 2023, respectively

 

 

34,657

 

 

 

34,599

 

Additional paid-in capital

 

 

2,579,955

 

 

 

2,567,828

 

Accumulated other comprehensive loss

 

 

(29,473

)

 

 

(33,251

)

Retained earnings

 

 

561,035

 

 

 

565,041

 

Total Stockholders’ Equity

 

 

3,146,174

 

 

 

3,134,217

 

Total Liabilities and Stockholders’ Equity

 

$

4,582,492

 

 

$

4,554,432

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

Neogen Corporation

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)

 

 

Three Months Ended February 29/28,

 

 

Nine Months Ended February 29/28,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

202,178

 

 

$

190,688

 

 

$

610,448

 

 

$

500,797

 

Service revenues

 

 

26,634

 

 

 

27,567

 

 

 

76,980

 

 

 

79,840

 

Total Revenues

 

 

228,812

 

 

 

218,255

 

 

 

687,428

 

 

 

580,637

 

Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

98,144

 

 

 

94,377

 

 

 

293,456

 

 

 

252,348

 

Cost of service revenues

 

 

13,785

 

 

 

15,914

 

 

 

43,554

 

 

 

45,516

 

Total Cost of Revenues

 

 

111,929

 

 

 

110,291

 

 

 

337,010

 

 

 

297,864

 

Gross Profit

 

 

116,883

 

 

 

107,964

 

 

 

350,418

 

 

 

282,773

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

47,920

 

 

 

38,598

 

 

 

138,535

 

 

 

98,329

 

General and administrative

 

 

52,087

 

 

 

46,424

 

 

 

148,929

 

 

 

151,369

 

Research and development

 

 

4,853

 

 

 

7,258

 

 

 

17,331

 

 

 

18,985

 

Total Operating Expenses

 

 

104,860

 

 

 

92,280

 

 

 

304,795

 

 

 

268,683

 

Operating Income

 

 

12,023

 

 

 

15,684

 

 

 

45,623

 

 

 

14,090

 

Other Expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,612

 

 

 

640

 

 

 

5,265

 

 

 

2,163

 

Interest expense

 

 

(18,285

)

 

 

(17,460

)

 

 

(54,773

)

 

 

(38,007

)

Other expense

 

 

(1,172

)

 

 

(1,124

)

 

 

(4,021

)

 

 

(7,938

)

Total Other Expense

 

 

(17,845

)

 

 

(17,944

)

 

 

(53,529

)

 

 

(43,782

)

Loss Before Taxes

 

 

(5,822

)

 

 

(2,260

)

 

 

(7,906

)

 

 

(29,692

)

Income Tax Benefit

 

 

(3,800

)

 

 

(10,450

)

 

 

(3,900

)

 

 

(1,250

)

Net (Loss) Income

 

$

(2,022

)

 

$

8,190

 

 

$

(4,006

)

 

$

(28,442

)

Net (Loss) Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01

)

 

$

0.04

 

 

$

(0.02

)

 

$

(0.16

)

Diluted

 

$

(0.01

)

 

$

0.04

 

 

$

(0.02

)

 

$

(0.16

)

Weighted Average Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

216,597,777

 

 

 

216,217,702

 

 

 

216,438,643

 

 

 

179,666,118

 

Diluted

 

 

216,597,777

 

 

 

216,399,003

 

 

 

216,438,643

 

 

 

179,666,118

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

Neogen Corporation

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

(in thousands)

 

 

Three Months Ended February 29/28,

 

 

Nine Months Ended February 29/28,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net (loss) income

 

$

(2,022

)

 

$

8,190

 

 

$

(4,006

)

 

$

(28,442

)

Foreign currency translation (loss) gain

 

 

(4,561

)

 

 

3,354

 

 

 

117

 

 

 

(6,677

)

Unrealized gain on marketable securities (1)

 

 

77

 

 

 

944

 

 

 

917

 

 

 

674

 

Unrealized gain on derivative instruments (2)

 

 

139

 

 

 

2,978

 

 

 

2,744

 

 

 

550

 

Other comprehensive (loss) income, net of tax:

 

 

(4,345

)

 

 

7,276

 

 

 

3,778

 

 

 

(5,453

)

Total comprehensive (loss) income

 

$

(6,367

)

 

$

15,466

 

 

$

(228

)

 

$

(33,895

)

 

(1) Amounts are net of tax of $24 and $282 during the three months ended February 29, 2024 and February 28, 2023 and $290 and $202 during the nine months ended February 29, 2024 and February 28, 2023, respectively.

(2) Amounts are net of tax of $44 and $928 during the three months ended February 29, 2024 and February 28, 2023 and $867 and $171 during the nine months ended February 29, 2024 and February 28, 2023, respectively.

 

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)

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance, June 1, 2023

 

 

216,245,501

 

 

$

34,599

 

 

$

2,567,828

 

 

$

(33,251

)

 

$

565,041

 

 

$

3,134,217

 

Exercise of options and share-based compensation expense

 

 

2,591

 

 

 

 

 

 

2,661

 

 

 

 

 

 

 

 

 

2,661

 

Issuance of shares under employee stock purchase plan

 

 

62,490

 

 

 

11

 

 

 

1,028

 

 

 

 

 

 

 

 

 

1,039

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,503

 

 

 

1,503

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

6,755

 

 

 

 

 

 

6,755

 

Balance, August 31, 2023

 

 

216,310,582

 

 

$

34,610

 

 

$

2,571,517

 

 

$

(26,496

)

 

$

566,544

 

 

$

3,146,175

 

Exercise of options and share-based compensation expense

 

 

209,714

 

 

 

34

 

 

 

3,477

 

 

 

 

 

 

 

 

 

3,511

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,487

)

 

 

(3,487

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,368

 

 

 

 

 

 

1,368

 

Balance, November 30, 2023

 

 

216,520,296

 

 

$

34,644

 

 

$

2,574,994

 

 

$

(25,128

)

 

$

563,057

 

 

$

3,147,567

 

Exercise of options and share-based compensation expense

 

 

15,130

 

 

 

2

 

 

 

3,749

 

 

 

 

 

 

 

 

 

3,751

 

Issuance of shares under employee stock purchase plan

 

 

72,320

 

 

 

11

 

 

 

1,212

 

 

 

 

 

 

 

 

 

1,223

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,022

)

 

 

(2,022

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(4,345

)

 

 

 

 

 

(4,345

)

Balance, February 29, 2024

 

 

216,607,746

 

 

$

34,657

 

 

$

2,579,955

 

 

$

(29,473

)

 

$

561,035

 

 

$

3,146,174

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance, June 1, 2022

 

 

107,801,094

 

 

$

17,248

 

 

$

309,984

 

 

$

(27,769

)

 

$

587,911

 

 

$

887,374

 

Exercise of options and share-based compensation expense

 

 

4,000

 

 

 

1

 

 

 

1,904

 

 

 

 

 

 

 

 

 

1,905

 

Issuance of shares under employee stock purchase plan

 

 

32,636

 

 

 

5

 

 

 

862

 

 

 

 

 

 

 

 

 

867

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,209

 

 

 

5,209

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(11,557

)

 

 

 

 

 

(11,557

)

Balance, August 31, 2022

 

 

107,837,730

 

 

$

17,254

 

 

$

312,750

 

 

$

(39,326

)

 

$

593,120

 

 

$

883,798

 

Exercise of options and share-based compensation expense

 

 

46,607

 

 

 

7

 

 

 

2,630

 

 

 

 

 

 

 

 

 

2,637

 

Issuance of shares for 3M transaction

 

 

108,269,946

 

 

 

17,323

 

 

 

2,245,518

 

 

 

 

 

 

 

 

 

2,262,841

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41,841

)

 

 

(41,841

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,172

)

 

 

 

 

 

(1,172

)

Balance, November 30, 2022

 

 

216,154,283

 

 

$

34,584

 

 

$

2,560,898

 

 

$

(40,498

)

 

$

551,279

 

 

$

3,106,263

 

Exercise of options and share-based compensation expense

 

 

4,570

 

 

 

1

 

 

 

2,834

 

 

 

 

 

 

 

 

 

2,835

 

Issuance of shares under employee stock purchase plan

 

 

61,968

 

 

 

10

 

 

 

981

 

 

 

 

 

 

 

 

 

991

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,190

 

 

 

8,190

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

7,276

 

 

 

 

 

 

7,276

 

Balance, February 28, 2023

 

 

216,220,821

 

 

$

34,595

 

 

$

2,564,713

 

 

$

(33,222

)

 

$

559,469

 

 

$

3,125,555

 

 

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)

 

 

Nine Months Ended February 29/28,

 

 

2024

 

 

2023

 

Cash Flows From (For) Operating Activities

 

 

 

 

 

 

Net loss

 

$

(4,006

)

 

$

(28,442

)

Adjustments to reconcile net loss to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

87,853

 

 

 

59,938

 

Deferred income taxes

 

 

98

 

 

 

(5,299

)

Share-based compensation

 

 

9,829

 

 

 

7,311

 

Loss (gain) on disposal of property and equipment

 

 

762

 

 

 

(472

)

Amortization of debt issuance costs

 

 

2,581

 

 

 

1,860

 

Impairment of discontinued product lines

 

 

 

 

 

2,300

 

(Gain) loss on sale of minority interest

 

 

(74

)

 

 

1,516

 

Change in operating assets and liabilities, net of business acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

 

(16,136

)

 

 

(47,535

)

Inventories, net

 

 

(48,663

)

 

 

(656

)

Prepaid expenses and other current assets

 

 

(25,170

)

 

 

(31,896

)

Accounts payable and accrued liabilities

 

 

21,386

 

 

 

(8,422

)

Interest expense accrual

 

 

(7,711

)

 

 

3,438

 

Change in other assets and liabilities

 

 

(12,232

)

 

 

(3,579

)

Net Cash From (For) Operating Activities

 

 

8,517

 

 

 

(49,938

)

Cash Flows (For) From Investing Activities

 

 

 

 

 

 

Purchases of property, equipment and other non-current intangible assets

 

 

(87,167

)

 

 

(40,253

)

Proceeds from the maturities of marketable securities

 

 

75,319

 

 

 

233,020

 

Purchases of marketable securities

 

 

 

 

 

(12,523

)

Business acquisitions, net of working capital adjustments and cash acquired

 

 

 

 

 

13,237

 

Proceeds from the sale of property and equipment and other

 

 

62

 

 

 

682

 

Net Cash (For) From Investing Activities

 

 

(11,786

)

 

 

194,163

 

Cash Flows From (For) Financing Activities

 

 

 

 

 

 

Exercise of stock options and issuance of employee stock purchase plan shares

 

 

2,443

 

 

 

943

 

Repayment of long-term debt

 

 

 

 

 

(100,000

)

Debt issuance costs paid and other

 

 

(444

)

 

 

(19,276

)

Net Cash From (For) Financing Activities

 

 

1,999

 

 

 

(118,333

)

Effect of Foreign Exchange Rates on Cash

 

 

(533

)

 

 

(3,231

)

Net (Decrease) Increase In Cash and Cash Equivalents

 

 

(1,803

)

 

 

22,661

 

Cash and Cash Equivalents, Beginning of Period

 

 

163,240

 

 

 

44,473

 

Cash and Cash Equivalents, End of Period

 

$

161,437

 

 

$

67,134

 

 

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. The majority of the test kits are disposable, single-use, immunoassay and DNA detection products that rely on proprietary antibodies and RNA and DNA testing methodologies to produce rapid and accurate test results. Our expanding line of food safety products also includes genomics-based diagnostic technology, and advanced software systems that help testers objectively analyze and store, as well as perform analysis on, their results from multiple locations over extended periods.

Neogen’s Animal Safety segment is engaged in the development, manufacture, marketing and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, 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 and nine months ended February 29, 2024 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 (loss) income. Gains or losses from foreign currency transactions are included in other expense on our condensed consolidated statements of operations. Management has designated certain intercompany loans as long-term in nature and, therefore, the gains and losses on remeasurement of these loans are recorded within accumulated other comprehensive loss.

7


 

ACCOUNTING POLICIES

Comprehensive (Loss) Income

Comprehensive (loss) income represents net (loss) income and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net (loss) income and recognized directly as a component of equity. Accumulated other comprehensive (loss) income 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 of 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 and current portion of finance lease 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 $15,301 and $11,933 as of February 29, 2024 and May 31, 2023, respectively. The total current and non-current operating lease liabilities were $15,771 and $12,089 as of February 29, 2024 and May 31, 2023, respectively. The finance lease assets were $2,496 as of February 29, 2024. There were no finance leases recorded as of May 31, 2023. See Note 10, "Debt", for detail on the finance lease liabilities.

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 has also entered into interest rate swap contracts as a hedge against changes in interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. On the date the derivative is established, the Company designates the derivative as either a fair value hedge, a cash flow hedge or a net investment hedge in accordance with its established policy. Each reporting period, derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. The change in fair value is recorded in accumulated other comprehensive loss, and amounts are reclassified into earnings on the condensed consolidated 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 10% of accounts receivable at February 29, 2024 or May 31, 2023, respectively.

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 the 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 two operating segments: Food Safety and Animal Safety. Under the goodwill guidance, management determined that each of its segments represents a reporting unit. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-to-compete and patents. Customer relationship intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis. Intangibles are amortized over 2 to 25 years.

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 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 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.

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, 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 are 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 is the reason for its 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.

New Accounting Pronouncements Not Yet Adopted

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.

11


 

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 90 days or less. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced losses related to these balances and believes it is not exposed to significant credit risk regarding its cash and cash equivalents. Cash and cash equivalents were $161,437 and $163,240 as of February 29, 2024 and May 31, 2023, respectively. The carrying value of these assets approximates fair value due to the short maturity of these instruments and is classified as Level 1 in the fair value hierarchy.

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 91 days and two years. These securities are classified as available for sale. Changes in fair value are monitored and recorded on a monthly basis and are recorded in other comprehensive (loss) income. In the event of a downgrade in credit quality subsequent to purchase, the marketable securities investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable securities portfolio. If fair value is less than its amortized cost basis, then the Company evaluates whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses. Where there is an intention or a requirement to sell an impaired available-for-sale debt security, the entire impairment is recognized in earnings with a corresponding adjustment to the amortized cost basis of the security. The primary objective of management’s short-term investment activity is to preserve capital for the purpose of funding current operations, capital expenditures and business acquisitions. Short-term investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other (expense) income on the condensed consolidated statements of operations.

Marketable Securities as of February 29, 2024 and May 31, 2023 are listed below by classification and remaining maturities.

 

 

 

Maturity

 

February 29, 2024

 

 

May 31, 2023

 

Commercial Paper & Corporate Bonds

 

0 - 90 days

 

$

6,687

 

 

$

22,552

 

 

91 - 180 days

 

 

323

 

 

 

35,692

 

 

181 days - 1 year

 

 

 

 

 

23,768

 

 

1 - 2 years

 

 

 

 

 

317

 

Total Marketable Securities

 

 

 

$

7,010

 

 

$

82,329

 

 

The components of marketable securities, consisting of commercial paper and corporate bonds, as of February 29, 2024 are as follows:

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Commercial Paper & Corporate Bonds

 

$

7,023

 

 

$

 

 

$

(13

)

 

$

7,010

 

 

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

 

$

83,549

 

 

$

 

 

$

(1,220

)

 

$

82,329