Quarterly Report for Quarter Ending August 31, 2024 (Form 10-Q)

10-Q

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 August 31, 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 August 31, 2024 there were 216,698,138shares 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 - August 31, 2024 and May 31, 2024		2
	Condensed Consolidated Statements of Operations - three months ended August 31, 2024 and August 31, 2023		3
	Condensed Consolidated Statements of Comprehensive (Loss) Income - three months ended August 31, 2024 and August 31, 2023		4
	Condensed Consolidated Statements of Equity - three months ended August 31, 2024 and August 31, 2023		5
	Condensed Consolidated Statements of Cash Flows - Three months ended August 31, 2024 and August 31, 2023		6
	Notes to Interim Condensed Consolidated Financial Statements - August 31, 2024		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 5.	Other Information		26
Item 6.	Exhibits		27
SIGNATURES		28
	CEO Certification
	CFO Certification
	Section 906 Certification

PART I - FINANCIAL INFORMATION

Item 1. InterimCondensed Consolidated Financial Statements

Neogen Corporation

Condensed Consolidated Balance Sheets

(in thousands, except shares)

		August 31, 2024			May 31, 2024
Assets		(unaudited)
Current Assets
Cash and cash equivalents		$	120,477			$	170,611
Marketable securities			-				325
Accounts receivable, net of allowance of $4,137and $4,140			167,639				173,005
Inventories
Raw materials			77,217				78,799
Work-in-process			12,593				10,990
Finished goods			125,995				111,839
			215,805				201,628
Less inventory reserve			(17,209	)			(12,361	)
Inventories, net			198,596				189,267
Prepaid expenses and other current assets			53,938				56,025
Total Current Assets			540,650				589,233
Net Property and Equipment			300,971				277,104
Other Assets
Right of use assets			14,311				14,785
Goodwill			2,137,494				2,135,632
Intangible assets, net			1,489,751				1,511,653
Other non-current assets			19,996				20,426
Total Assets		$	4,503,173			$	4,548,833
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of finance lease		$	2,651			$	2,447
Accounts payable			61,464				83,061
Accrued compensation			15,803				19,949
Income tax payable			11,102				10,449
Accrued interest			3,554				10,985
Deferred revenue			5,635				4,632
Other current liabilities			22,480				22,800
Total Current Liabilities			122,689				154,323
Deferred Income Tax Liability			317,574				326,718
Non-Current Debt			889,129				888,391
Other Non-Current Liabilities			38,589				35,259
Total Liabilities			1,367,981				1,404,691
Commitments and Contingencies (note7)
Equity
Preferred stock, $1.00par value, 100,000shares authorized, none issued and outstanding			-				-
Common stock, $0.16par value, 315,000,000shares authorized, 216,698,138and 216,614,407shares issued and outstanding			34,672				34,658
Additional paid-in capital			2,588,930				2,583,885
Accumulated other comprehensive loss			(31,421	)			(30,021	)
Retained earnings			543,011				555,620
Total Stockholders' Equity			3,135,192				3,144,142
Total Liabilities and Stockholders' Equity		$	4,503,173			$	4,548,833

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

Neogen Corporation

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except shares)

		Three months ended August 31,
		2024			2023
Revenues
Product revenues		$	192,518			$	204,401
Service revenues			24,446				24,586
Total Revenues			216,964				228,987
Cost of Revenues
Cost of product revenues			97,836				96,959
Cost of service revenues			14,202				15,267
Total Cost of Revenues			112,038				112,226
Gross Profit			104,926				116,761
Operating Expenses
Sales and marketing			45,799				45,783
General and administrative			51,671				45,121
Research and development			5,199				6,722
Total Operating Expenses			102,669				97,626
Operating Income			2,257				19,135
Other Expense
Interest income			993				1,790
Interest expense			(18,615	)			(18,456	)
Other, net			(244	)			(806	)
Total Other Expense			(17,866	)			(17,472	)
(Loss) Income Before Taxes			(15,609	)			1,663
Income Tax (Benefit) Expense			(3,000	)			160
Net (Loss) Income		$	(12,609	)		$	1,503
Net (Loss) Earnings Per Share
Basic		$	(0.06	)		$	0.01
Diluted		$	(0.06	)		$	0.01
Weighted Average Shares Outstanding
Basic			216,695,348				216,309,084
Diluted			216,695,348				216,846,106

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

Neogen Corporation

Condensed Consolidated Statementsof Comprehensive (Loss) Income (unaudited)

(in thousands)

		Three months ended August 31,
		2024			2023
Net (loss) income		$	(12,609	)		$	1,503
Other comprehensive (loss) income
Foreign currency translation gain			2,459				3,223
Unrealized gain on marketable securities (1)			-				576
Unrealized (loss) gain on derivative instruments (2)			(3,859	)			2,956
Other comprehensive (loss) income, net of tax:			(1,400	)			6,755
Total comprehensive (loss) income		$	(14,009	)		$	8,258

(1) Amounts are net of tax of $183during the three months ended August 31, 2023.

(2) Amounts are net of tax of $(926) and $933during the three months ended August 31, 2024 and 2023, respectively.

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

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
May 31, 2024			216,614,407			$	34,658			$	2,583,885			$	(30,021	)		$	555,620			$	3,144,142
Exercise of options, RSUs and share-based compensation expense			4,854				1				4,017				-				-				4,018
Issuance of shares under employee stock purchase plan			78,877				13				1,028				-				-				1,041
Net loss			-				-				-				-				(12,609	)			(12,609	)
Other comprehensive loss			-				-				-				(1,400	)			-				(1,400	)
August 31, 2024			216,698,138			$	34,672			$	2,588,930			$	(31,421	)		$	543,011			$	3,135,192

											Accumulated
								Additional			Other
		Common Stock			Paid-in			Comprehensive			Retained
		Shares			Amount			Capital			Loss			Earnings			Total
May 31, 2023			216,245,501			$	34,599			$	2,567,828			$	(33,251	)		$	565,041			$	3,134,217
Exercise of options, RSUs 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
August 31, 2023			216,310,582			$	34,610			$	2,571,517			$	(26,496	)		$	566,544			$	3,146,175

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

Neogen Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

		Three months ended August 31,
		2024			2023
Cash Flows (used for) provided by Operating Activities
Net (loss) income		$	(12,609	)		$	1,503
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization			29,800				28,734
Deferred income taxes			(9,119	)			998
Share-based compensation			3,982				2,638
Loss on disposal of property and equipment			77				-
Amortization of debt issuance costs			860				860
Other			(261	)			-
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable, net			4,796				16,242
Inventories, net			(9,939	)			(6,304	)
Prepaid expenses and other current assets			(1,733	)			(12,925	)
Accounts payable and accrued liabilities			(15,881	)			4,980
Interest expense accrual			(7,431	)			(7,711	)
Change in other non-current assets and non-current liabilities			(456	)			(6,006	)
Net Cash (used for) provided by Operating Activities			(17,914	)			23,009
Cash Flows used for Investing Activities
Purchases of property, equipment and other non-current intangible assets			(38,433	)			(30,630	)
Proceeds from the maturities of marketable securities			325				21,905
Proceeds from the sale of property and equipment and other			4,446				41
Net Cash used for Investing Activities			(33,662	)			(8,684	)
Cash Flows provided by Financing Activities
Exercise of stock options and issuance of employee stock purchase plan shares			1,077				1,062
Repayment of long-term debt and finance lease			(98	)			-
Net Cash provided by Financing Activities			979				1,062
Effects of Foreign Exchange Rate on Cash			463				205
Net (Decrease) Increase in Cash and Cash Equivalents			(50,134	)			15,592
Cash and Cash Equivalents, Beginning of Year			170,611				163,240
Cash and Cash Equivalents, End of Year		$	120,477			$	178,832

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

NEOGEN CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands except shares)

The Company is subject to certain legal and other proceedings in the normal course of business that, in the opinion of management, are not expected to have a material effect on its future results of operations or financial position.

PART I - FINANCIAL INFORMATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future financial performance. While management is optimistic about the Company's long-term prospects, historical financial information may not be indicative of future financial results.

Safe Harbor and Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form 10-Q, including statements relating to management's expectations regarding new product introductions; the adequacy of our sources for certain components, raw materials and finished products; and our ability to utilize certain inventory. For this purpose, any statements contained herein that are not statements of historical fact are deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. There are a number of important factors that could cause Neogen's results to differ materially from those indicated by such forward-looking statements, including many factors beyond our control. Factors that could cause actual results to differ from those contained within forward-looking statements include (without limitation) the continued integration of the 3M food safety business and the realization of the expected benefits from that acquisition; the relationship with and performance of our transition manufacturing partner; our ability to adequately and timely remediate certain identified material weaknesses in our internal control over financial reporting; competition; recruitment and retention of key employees; impact of weather on agriculture and food production; global business disruption caused by the Russia invasion in Ukraine and related sanctions and the conflict in the Middle East; identification and integration of acquisitions; research and development risks; intellectual property protection; increasing and developing government regulation; and other risks detailed from time to time in the Company's reports on file at the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q.

In addition, any forward-looking statements represent management's views only as of the date this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management's views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.

TRENDS AND UNCERTAINTIES

In prior years, production was negatively impacted by broad supply chain challenges and labor market disruptions. Additionally, input cost inflation, including increases in certain raw materials, negatively impacted operating results. In fiscal 2024, despite a slowing of inflation rates, there were economic headwinds of softening consumer demand and higher interest rates, coupled with ongoing geopolitical tension in certain regions.

Interest rates have risen sharply, particularly in fiscal 2023, as a way to combat inflation. This increased our borrowing costs and raised the overall cost of capital. Although the federal funds rate was reduced in September and there are indications of future rate cuts, the overall interest rate we pay on our Credit Facilities remains higher than when the debt was incurred in 2022, which increases interest expense on the unhedged portion of our Term Loan. In response to the historically high inflationary environment, we took pricing actions to mitigate the impacts on the business in the prior two fiscal years. The impact of inflation continued to affect us through fiscal year 2024, although at a continually decreasing rate compared to fiscal years 2022 and 2023.

Beginning in the first half of fiscal year 2024, we implemented a new enterprise resource planning system and exited our transition distribution agreements with 3M, which led to certain shipment delays and an elevated backlog of open orders, specifically in the Food Safety segment. At the conclusion of fiscal year 2024, order fulfillment issues were largely resolved, and order fulfillment rates had improved to meet the needs of our customers.

Although we have no operations in or direct exposure to Russia, Belarus or Ukraine, we have experienced intermittent shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative impact of the Russia-Ukraine military conflict, which began in February 2022, on the global economy. Our European operations and customer base have been negatively impacted by the conflict. Similarly, the military conflicts in the Middle East have increased overall geopolitical tensions. As the respective conflicts continue or worsen, they may further impact our business, financial condition or results of operations throughout fiscal year 2025.

We continue to evaluate the nature and extent to which these issues impact our business, including consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us throughout fiscal year 2025.

Executive Overview

		Three months ended August 31,
		2024			2023			% Change
Total Revenues		$	216,964			$	228,987			$	(12,023	)
Cost of Revenues			112,038				112,226				(188	)
Gross Profit			104,926				116,761				(11,835	)
Operating Expenses
Sales and marketing			45,799				45,783				16
General and administrative			51,671				45,121				6,550
Research and development			5,199				6,722				(1,523	)
Total Operating Expenses			102,669				97,626				5,043
Operating Income			2,257				19,135				(16,878	)
Other Expense
Interest income			993				1,790				(797	)
Interest expense			(18,615	)			(18,456	)			(159	)
Other, net			(244	)			(806	)			562
Total Other Expense			(17,866	)			(17,472	)			(394	)
(Loss) Income Before Taxes			(15,609	)			1,663				(17,272	)
Income Tax (Benefit) Expense			(3,000	)			160				(3,160	)
Net (Loss) Income		$	(12,609	)		$	1,503			$	(14,112	)

Results of Operations

Revenues

Revenue decreased $12.0 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decrease included a $9.0 million unfavorable foreign exchange rate impact and a $3.0 million decline in the business. The decline in the business was driven by lower genomics volume due to a strategic shift to focus primarily on large production animals, lower sales of insect control and cleaners and disinfectants, and lower sales of sample collection products, partially offset by strength in indicator sales and rodent control products due to vole outbreak in the Northwest region of the U.S.

Service Revenue

Service revenue, which consists primarily of genomics services provided to animal production and companion animal markets, was $24.4 million and $24.6 million during the three months ended August 31, 2024 and 2023, respectively. Growth in the Neogen Analytics software as a service platform and genomics sales into beef markets was offset by lower genomics sales into the domestic poultry market, primarily due to a shift towards large production animals, as well as lower sales into the companion animal market.

International Revenue

International sales were $112.6 million and $117.9 million during the three months ended August 31, 2024 and 2023, respectively. The decrease during the three months ended August 31, 2024 was due to $9.0 million of currency headwinds, partially offset by strength in Petrifilm® indicator sales.

Gross Margin

Gross margin was 48.4% and 51.0% during the three months ended August 31, 2024 and 2023, respectively. The decrease in margin was primarily due to lower volume and continued higher distribution costs. The change also included $4.2 million of transaction and integration costs during the three months ended August 31, 2024 compared to $1.2 million during the three months ended August 31, 2023.

Operating Expenses

Operating expenses were $102.7 million and $97.6 million during the three months ended August 31, 2024 and 2023, respectively. The increase during the three months ended August 31, 2024 was primarily the result of increased compensation, as well as higher shipping and information technology costs. The costs associated with our enterprise resource planning system, which was implemented on September 1, 2023, were not fully reflected in the prior year comparable period.

Sales and Marketing

Sales and marketing expenses were $45.8 million during the three months ended August 31, 2024 and 2023, respectively. We experienced higher shipping costs in the current year, as we took over distribution of FSD products from 3M during the second and third quarters of the prior fiscal year. This increase was offset by a decrease in fees paid to 3M for distribution services and lower royalty expense.

General and Administrative

General and administrative were $51.7 million and $45.1 million during the three months ended August 31, 2024 and 2023, respectively. For the Food Safety and Animal Safety segments, expenses were relatively consistent compared to the prior-year period. Within Corporate, increases were driven by compensation and related expenses, primarily due to additional headcount, and higher costs associated with our prior-year enterprise resource planning system implementation. Additionally, there were increases in stock compensation expense compared to the prior-year comparable period, primarily driven by the timing of our annual grant in the current year and increases in equity-based compensation.

General and administrative expenses includes amortization expense relating to definite-lived intangible assets of $23.6 million and $23.7 million during the three months ended August 31, 2024 and 2023, respectively. Estimated amortization expense for fiscal years 2025 through 2029 is expected to be in the range of approximately $91 million to $96 million per year.

Research and Development

Research and development expense was $5.2 million and $6.7 million during the three months ended August 31, 2024 and 2023, respectively. The decrease during the three months ended August 31, 2024 is primarily the result of lower contracted services and employee costs in the Food Safety segment, as we continue to integrate the 3M FSD business and realize synergies in certain areas.

Other Expense

Other expense was $17.9 million and $17.5 million during the three months ended August 31, 2024 and 2023, respectively. The increase in expense was due to a reduction in interest income associated with our money market

portfolio balance and an increase in foreign exchange transaction loss as a result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate.

Provision for Income Taxes

Income tax benefit was $3.0 million during the three months ended August 31, 2024 compared to income tax expense of $0.2 million during the three months ended August 31, 2023. The net tax benefit for the quarter is primarily related to pre-tax losses due to amortization expense and interest expense from the 3M FSD acquisition. The OECD Pillar 2 global minimum tax rules, which generally provide for a minimum effective tax rate of 15%, are intended to apply for tax years beginning in 2024. We have included in our income tax benefit during the three months ended August 31, 2024, a forecasted amount of top-up tax for our foreign subsidiaries as required under the applicable rules of the countries that have adopted the Pillar Two directives.

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of August 31, 2024 and May 31, 2024 were $3.3 million and $2.7 million, respectively. Increases in unrecognized tax benefits are primarily associated with the acquired 3M FSD, including positions for transfer pricing and research and development credits.

Segment Results of Operations

		Three months ended August 31,
		2024			2023			Increase / (Decrease)			% Change
Food Safety		$	159,345			$	166,278			$	(6,933	)			(4	)%
Animal Safety			57,619				62,709				(5,090	)			(8	)%
Total Revenues		$	216,964			$	228,987			$	(12,023	)			(5	)%
Food Safety		$	17,905			$	22,241			$	(4,336	)			(19	)%
Animal Safety			2,589				8,356				(5,767	)			(69	)%
Segment Operating Income		$	20,494			$	30,597			$	(10,103	)			(33	)%
Corporate			(18,237	)			(11,462	)			(6,775	)			59	%
Operating Income		$	2,257			$	19,135			$	(16,878	)			(88	)%

Revenues

Revenue for the Food Safety segment decreased $6.9 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decline was primarily due to $9.0 million of currency headwind, partially offset by $1.8 million of growth in the business and a $0.3 million impact from discontinued products. The growth was driven by strength in the indicator testing, culture media and other product category, partially offset by lower sales in the bacterial and general sanitation and natural toxins and allergens product categories.

Revenue for the Animal Safety segment decreased $5.1 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decrease included a $4.9 million decline in the business and a $0.2 million impact from discontinued product lines. The decline was driven primarily by lower sales in the biosecurity and animal care and other product categories, as well as lower genomics volume due to a shift to focus primarily on large production animals.

Operating Income

Operating income for the Food Safety segment decreased $4.3 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decline was due to lower gross profit and operating expenses that did not decrease at the same rate as the decrease in sales.

Operating income for the Animal Safety segment decreased $5.8 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decline was due to lower gross profit and an increase in operating expenses.

The increased Corporate expense related to headcount increases and costs associated with our new enterprise resource planning system, which contributed to the overall decline in operating income.

Non-GAAP Financial Measures

This report includes certain financial information for the Company that differs from what is reported in accordance with U.S. GAAP. These non-GAAP financial measures consist of EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin. These non-GAAP financial measures are included in this report because management believes that they provide investors with additional useful information to measure the performance of the Company, and because these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties as common performance measures to compare results or estimate valuations across companies in industries the Company operates in. The Company also uses Adjusted EBITDA as a performance target to establish and award certain executive compensation awards, as disclosed in our proxy statement filed with the Securities and Exchange Commission filed on September 13, 2024.

EBITDA

We define EBITDA as net income before interest, income taxes, and depreciation and amortization. We present EBITDA as a performance measure because it may allow for a comparison of results across periods and results across companies in the industries in which Neogen operates on a consistent basis, by removing the effects on operating performance of (a) capital structure (such as the varying levels of interest expense and interest income), (b) asset base and capital investment cycle (such as depreciation and amortization) and (c) items largely outside the control of management (such as income taxes). EBITDA also forms the basis for the measurement of Adjusted EBITDA (discussed below).

Adjusted EBITDA

We define Adjusted EBITDA as EBITDA, adjusted for share-based compensation and certain transaction fees and expenses. We present Adjusted EBITDA because it provides an understanding of underlying business performance by excluding the following:

Adjusted EBITDA margin

We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of total revenues. We present Adjusted EBITDA margin as a performance measure to analyze the level of Adjusted EBITDA generated from total revenue.

These non-GAAP financial measures are presented for informational purposes only. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net (loss) income, operating income, cash flow from operating activities or other measures of financial performance. This information does not purport to represent the results Neogen would have achieved had any of the transactions for which an adjustment is made occurred at the beginning of the periods presented or as of the dates indicated. This information is inherently subject to risks and uncertainties. It may not

give an accurate or complete picture of Neogen's financial condition or results of operations for the periods presented and should not be relied upon when making an investment decision.

The use of the terms EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin may not be comparable to similarly titled measures used by other companies or persons due to potential differences in the method of calculation.

These non-GAAP financial measures have limitations as analytical tools. For example, for EBITDA-based metrics:

A reader should compensate for these limitations by relying primarily on the financial statements of Neogen and using these non-GAAP financial measures only as a supplement to evaluate Neogen's performance.

For each of these non-GAAP financial measures below, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure.

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

		Three months ended August 31,
		2024			2023
Net (loss) income		$	(12,609	)		$	1,503
Net (loss) income margin %			-5.8	%			0.7	%
Income tax (benefit) expense			(3,000	)			160
Depreciation and amortization			29,800				28,734
Interest expense, net			17,622				16,666
EBITDA		$	31,813			$	47,063
Share-based compensation			3,982				2,638
FX transaction gain on loan and other revaluation (1)			(320	)			(290	)
Certain transaction fees and integration costs (2)			5,122				1,951
Severance and other employment costs			370				559
Contingent consideration adjustments			-				300
ERP expense (3)			1,835				128
Discontinued product line expense (4)			912				20
Adjusted EBITDA		$	43,714			$	52,369
Adjusted EBITDA margin %			20.1	%			22.9	%

Adjusted EBITDA decreased $8.7 million during the three months ended August 31, 2024. Expressed as a percentage of revenue, Adjusted EBITDA was 20.1% and 22.9% during the three months ended August 31, 2024 and 2023, respectively. The lower Adjusted EBITDA in the current year was driven primarily by lower sales and higher operating expenses compared to the prior-year period.

Financial Condition and Liquidity

Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our business, and available borrowing capacity under our revolving facility. Our principal uses of cash include working capital-related items, capital expenditures, debt service, and strategic investments.

Our future cash generation and borrowing capacity may not be sufficient to meet cash requirements to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development or execute our future plans to acquire additional businesses, technology and products that fit within our strategic plan. Accordingly, we may be required, or may choose, to issue additional equity securities or enter into other financing arrangements for a portion of our future capital needs. However, we continuously monitor and forecast our liquidity situation in light of industry, customer and economic factors, and take the necessary actions to preserve our liquidity and evaluate other financial alternatives that may be available to us should the need arise. As a result, we believe that our cash flows from operations, cash on hand, and borrowing capacity will enable us to fund the operating business, repay debt obligations, construct new manufacturing facilities, commercialize products currently under development, and execute our strategic plans.

We are subject to certain legal and other proceedings in the normal course of business that have not had, and, in the opinion of management, are not expected to have, a material effect on our results of operations or financial position.

As of August 31, 2024, we had cash and cash equivalents of $120.5 million, and borrowings available under our revolving line of credit of $150.0 million.

In June 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility ("term loan facility") in the amount of $650 million and a five-year senior secured revolving facility ("revolving facility") in the amount of $150 million (collectively, the "Credit Facilities"). The term loan facility was drawn on August 31, 2022 while the revolving facility remained undrawn and continues to be undrawn as of August 31, 2024. The term loan facility matures on June 30, 2027 and the revolving facility matures at the earlier of June 30, 2027 and the termination of the revolving commitments.

In July 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due in 2030.

The finance lease is a building lease that is classified within property and equipment and the current portion of debt on the condensed consolidated balance sheets as of August 31, 2024. The Company intends to elect the purchase option within the lease agreement prior to the end of the lease term.

There are no required principal payments through fiscal year 2026. Financial covenants include maintaining specified levels of funded debt to EBITDA, and debt service coverage. As of August 31, 2024, the Company was in compliance with all financial covenants under the Credit Facilities.

Cash Flows

		Three months ended August 31,
		2024			2023			Increase / (Decrease)
Net Cash (used for) provided by Operating Activities		$	(17,914	)		$	23,009			$	(40,923	)
Net Cash used for Investing Activities		$	(33,662	)		$	(8,684	)		$	(24,978	)
Net Cash provided by Financing Activities		$	979			$	1,062			$	(83	)

Net Cash (used for) provided by Operating Activities

Net cash (used for) provided by operating activities decreased $40.9 million during the three months ended August 31, 2024 compared to the three months ended August 31, 2023. The decrease is due to a reduction in income from operations and unfavorable changes in working capital. Changes in working capital are as follows:

Net Cash used for Investing Activities

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

Net Cash provided by Financing Activities

Cash provided by financing activities was flat during the three months ended August 31, 2024 compared to the three months ended August 31, 2023.

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

PART I - FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We continuously evaluate our exposure to currency exchange and interest rate risk. There have been no meaningful changes in our exposure to risk associated with fluctuations in foreign currency exchange rates and interest rates related to our variable-rate borrowings under the Credit Facilities from that discussed in our Form 10-K.

PART I - FINANCIAL INFORMATION

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2024 was carried out under the supervision and with the participation of the Company's management, including the President & Chief Executive Officer and Chief Financial Officer ("the Certifying Officers"). Based on the evaluation, the Certifying Officers concluded that the Company's disclosure controls and procedures were not effective because of previously reported material weaknesses in our internal control over financial reporting, which we describe in Part II, Item 9A of our Annual Report on Form 10-K for the year ended May 31, 2024.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

As disclosed in Item 9A of our Annual Report on Form 10-K for the year ended May 31, 2024, management identified the following material weaknesses in internal controls over financial reporting that existed as of May 31, 2023 and continued as of May 31, 2024: (1) information technology general controls ("ITGCs") in the areas of user access and change management over certain information technology systems that support the Company's financial reporting process and the manual business process controls dependent on the affected ITGCs, and (2) ineffective period-end invoice accrual controls.

Ongoing Remediation Efforts to Address the Previously Identified Material Weaknesses

As previously disclosed in our Annual Report on Form 10-K for the year ended May 31, 2024, management concluded that our internal controls over financial reporting were not effective as of May 31, 2024. Management is in the process of enhancing, and will continue to enhance, the risk assessment process and design and implementation of internal controls over financial reporting. The remediation measures to correct the previously identified material weaknesses include enhancing the design and implementation of existing controls and creating new controls as needed to address identified risks.

As we continue to evaluate and to improve our internal control over financial reporting, management may determine to take additional measures to strengthen controls or to modify the remediation plan described above. When fully implemented and operational, we believe the controls we have designed or plan to design will remediate the control deficiency that has led to the material weaknesses that we have identified. The previously identified material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Controls over Financial Reporting

Other than with respect to the remediation efforts described above in connection with the previously identified material weaknesses, no changes in our control over financial reporting were identified as having occurred during the quarter ended August 31, 2024 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our material pending legal proceedings, see Note 7. "Commitments and Contingencies" of the Notes to interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference.

Item 1A. Risk Factors

This Form 10-Q should be read in conjunction with Part I Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended May 31, 2024. There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended May 31, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In October 2018, the Company's Board of Directors authorized a program to purchase, subject to market conditions, up to 6,000,000 shares of the Company's common stock. The program does not have any scheduled expiration date. As of August 31, 2024, a total of 5,900,000 shares of common stock remained available for repurchase under this program. The following is a summary of share repurchase activity during the fiscal quarter ended August 31, 2024:

Period		Shares Purchased			Average Price Paid per Share			Shares Purchased as Part of Publicly Announced Plans or Programs			Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
June 2024			-				-				-				5,900,000
July 2024			-				-				-				5,900,000
August 2024			-				-				-				5,900,000
Total			-				-				-				5,900,000

Items 3 and 4 are not applicable or removed or reserved and have been omitted.

Item 5. Other Information

During the quarterly period ended August 31, 2024, no director or officer (as defined in SEC Rule 16a-1(f)) of the Company adoptedor terminateda Rule 10b5-1 or non-Rule 10b5-1 trading arrangement (as defined in Item 408 of Regulation S-K).

Item 6. Exhibits

(a) Exhibit Index

31.1	Certification of Principal Executive Officer
31.2	Certification of Chief Financial Officer
32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NEOGEN CORPORATION

(Registrant)

Dated: October 10, 2024

/s/ John E. Adent

John E. Adent

President & Chief Executive Officer

(Principal Executive Officer)

Dated: October 10, 2024

/s/ David H. Naemura

David H. Naemura

Chief Financial Officer

(Chief Financial Officer)

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