Quarterly Report for Quarter Ending February 28, 2026 (Form 10-Q)

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. While management is optimistic about our 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) risks related to the integration of the 3M Food Safety business and the performance of acquired or transitioned businesses and technologies; execution risks associated with our manufacturing transitions (including Petrifilm) and related product qualifications, duplicate manufacturing costs, and ramp-up activities; dependence on and qualification of third-party suppliers, logistics partners and package delivery services, and the impact of disruptions or pricing increases; the timing, terms and outcome of portfolio actions (including the announced divestiture of the genomics business) and satisfaction of closing conditions; our ability to realize expected cost savings, transformation initiatives and operational efficiencies on the anticipated timelines; changes in customer demand, competitive dynamics, market acceptance and pricing; regulatory, legal, tax and trade developments (including tariffs, export/import restrictions, sanctions and other trade controls); risks associated with international operations and expansion into new geographies; cybersecurity incidents, data privacy or other systems failures or disruptions; currency fluctuations, inflation, interest rates and broader macroeconomic conditions; availability and cost of raw materials and other inputs; our ability to develop, launch and protect new products and intellectual property and to avoid third-party claims; our reputation and relationships with customers and distributors, including the risk of customer loss; our ability to attract, retain and develop key personnel; compliance with anti-bribery, anti-corruption and other compliance obligations; our substantial indebtedness and access to capital markets; outcomes of litigation and other legal or regulatory proceedings; changes in domestic and foreign laws and regulations, tax audits and changes in tax legislation; deterioration in profitability or cash flows and potential asset impairments; and other risks described under "Risk Factors" in our most recent Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as filed with the U.S. Securities and Exchange Commission.

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. Except to the extent legally required to do so, we specifically disclaim any obligation to update forward-looking statements, even if our views change.

Trends and Uncertainties

In recent years, input cost inflation, including increases in certain raw materials, negatively impacted operating results. Although the rate of inflation has eased, we continued to face economic headwinds, including softening consumer demand, elevated interest rates, and ongoing geopolitical tensions in certain regions, such as eastern Europe and the Middle East.

Elevated interest rates have led to higher borrowing costs and an increased overall cost of capital. In response to the historically high inflationary environment, we took pricing actions to mitigate the impacts on the business in prior fiscal years. Although the federal funds rate was reduced in recent fiscal years and we have refinanced our Term Loan and revolving line of credit, the overall interest rate we pay on our Credit Facilities remains higher than when the debt was incurred, which increases interest expense on the unhedged portion of our Term Loan.

Beginning in the first half of fiscal year 2024, we implemented a new enterprise resource planning system and exited our transition service agreements with 3M, which led to certain shipment delays and an elevated backlog of open orders, specifically in the Food Safety segment. At the conclusion of fiscal year 2024, order fulfillment issues were largely resolved, however, the impact of lost market share stemming from these fulfillment issues continued in fiscal year 2025. Also, in fiscal years 2025 and 2026, we experienced an elevated amount of inventory write-offs, due, in part, to expiration of certain inventory held at our international locations stemming from supply chain and distribution challenges in fiscal year 2024. Further, in fiscal year 2025, we experienced negative impacts from delays in restarting full production of our sample collection product line, which we relocated from 3M into a Neogen facility. In the second half of fiscal year 2025, production increased to the prior normal levels, but with significant production inefficiencies. These production inefficiencies have continued throughout fiscal year 2026, albeit with continued improvement in each successive quarter. Continued improvement is expected for the remainder of the current fiscal year.

With a change in administration in fiscal year 2025, there has been an economic policy shift towards increasing tariffs, which in turn has led and could lead to further retaliatory tariffs. These have increased, and may continue to increase our costs on materials imported into the U.S. and have also increased costs and negatively impacted sales from our international locations, which primarily sell U.S. manufactured products.

Within the Food Safety industry, the end market generally continues to experience a lower level of food production, largely due to the cumulative effect of the significant recent inflation, particularly in food prices. However, there have been signs of sequential improvement from prior quarters and expectations for growth in calendar year 2026. As a result, we expect steadily increasing growth rates in this market. Within Animal Safety, the end market has remained near cyclical lows. Because of our extensive and longstanding partnerships in the distribution channels, we are optimistic about potential future revenue growth in the segment, particularly as a result of our commercial teams leveraging these partnerships. However, in the third quarter of fiscal year 2026, we encountered a number of third-party supplier quality and manufacturing issues that detrimentally impacted the revenue in our Animal Safety segment. Some of these issues are related to manufacturing transitions at our suppliers associated with global tariffs. The Company has implemented a new, more rigorous, supplier qualification and quality program to address these challenges. It is anticipated that there will be continued impact into the beginning of fiscal year 2027 associated with these issues.

In fiscal year 2025, restructuring actions in our genomics business led to voluntary revenue attrition, following our strategic shift away from lower margin business. A portion of our genomics business also serves the companion animal market, which has been experiencing weakness recently, primarily due to the impact of continued inflation, a lower number of pet adoptions, and a higher level of customer in-sourcing. Additionally, in the second quarter of fiscal year 2026, management initiated a restructuring plan to right-size our cost base through a reduction of approximately 10% in global headcount, including both existing and planned positions, as well as additional non-labor cost reductions.

On March 2, 2026, we announced that we had entered into a definitive agreement to sell our Genomics business to Zoetis Inc. The transaction is subject to customary closing conditions and regulatory approvals. The Company expects the transaction to close by the end of the first half of its fiscal year 2027.

We continue to evaluate the nature and extent of these issues and their impact on our business, including consolidated results of operations, financial condition and liquidity. We expect these issues to continue to impact us in fiscal year 2026.

Executive Overview

Results of Operations

Revenues

Revenue decreased $9.8 million during the three months ended February 28, 2026 compared to the three months ended February 28, 2025. The decrease includes a $16.4 million unfavorable impact due to divestitures and discontinued product lines, primarily from the divestiture of our Cleaners and Disinfectants business. This decrease was offset by a $6.6 million favorable foreign exchange rate impact and nominal growth in the business. The growth in the business was driven primarily by higher sales of indicators, pathogen detection, and sample collection products. These increases were offset by lower sales of animal care products.

Revenue decreased $24.1 million during the nine months ended February 28, 2026 compared to the nine months ended February 28, 2025. The decrease included a $41.5 million unfavorable impact due to divestitures and discontinued product lines, primarily from the divestiture of our Cleaners and Disinfectants business. This decrease was offset by a $9.8 million favorable foreign exchange rate impact and $7.6 million growth in the business. The increase in the business was driven by continued strength in sample collection and pathogen. These increases were partially offset by declines in the veterinary instruments product line.

Service Revenue

Service revenue, which consists primarily of genomics services provided to production and companion animal markets, was $25.0 million and $75.7 million during the three and nine months ended February 28, 2026 and $24.5 million and $72.6 million during the three and nine months ended February 28, 2025. The increase in both comparable periods is primarily driven by higher genomics revenue in bovine and integrated protein markets, partially offset by a decline in companion animal markets.

International Revenue

International sales were $108.9 million and $330.3 million during the three and nine months ended February 28, 2026 compared to $105.6 million and $335.7 million during the three and nine months ended February 28, 2025, respectively. The increase during the three months ended February 28, 2026 was primarily driven by increases in countries within Europe and favorable foreign exchange rate impact, partially offset by a decline in the divested Cleaners and Disinfectants sales. The decrease during the nine months ended February 28, 2026 was primarily due to the divestiture of our Cleaners and Disinfectants business.

Gross Margin

Gross margin was 46.9% and 46.6% during the three and nine months ended February 28, 2026, compared to 49.9% and 49.1% during the three and nine months ended February 28, 2025, respectively. The decrease in margin was primarily due to volume decreases, higher inventory write-offs, and duplicative costs as we prepare to manufacture Petrifilm products internally. These decreases were partially offset by price increases and favorable foreign currency exchange impacts.

Sales and Marketing

Sales and marketing expenses were $38.2 million and $125.5 million during the three and nine months ended February 28, 2026, compared to $44.6 million and $136.9 million during the three and nine months ended February 28, 2025, respectively. The decrease in both comparable periods was primarily due to lower outbound shipping costs, lower bad debt expenses, reduced costs associated with the divested Cleaners and Disinfectants business, and lower compensation costs associated with headcount reductions, partially offset by increased restructuring costs.

General and Administrative

General and administrative expenses were $60.3 million and $186.4 million during the three and nine months ended February 28, 2026, compared to $55.8 million and $165.2 million during the three and nine months ended February 28, 2025, respectively. The increase in both comparable periods was primarily driven by investments in transformation initiatives, transaction costs, and compensation related costs, partially offset by reduced costs associated with the divested Cleaners and Disinfectants business and professional service expenses.

General and administrative expenses include amortization expenses relating to definite-lived intangible assets of $22.8 million and $68.7 million during the three and nine months ended February 28, 2026, compared to $23.3 million and $70.4 million during the three and nine months ended February 28, 2025, respectively. The decline in both comparable periods was due to our divested Cleaners and Disinfectants business. Estimated amortization expense for fiscal year 2026 through 2030 is expected to be in the range of approximately $89.0 million to $93.0 million.

Research and Development

Research and development expenses were $3.8 million and $13.5 million during the three and nine months ended February 28, 2026, compared to $4.5 million and $14.8 million during the three and nine months ended February 28, 2025, respectively. The decrease during both comparable periods is primarily the result of lower contracted services and employee costs resulting from restructuring initiatives, offset by increased transformation costs.

Other Income/Expense

Other expense was $17.0 million for the three months ended February 28, 2026 and other income was $27.8 million during the nine months ended February 28, 2026, compared to $15.1 million and $52.1 million of other expenses during the three and nine months ended February 28, 2025, respectively. The increase in other expenses in the quarter-to-date period was primarily driven by higher foreign currency translation losses, partially offset by lower interest costs, as a result of our Term Loan refinancing in April 2025 and lower amounts of outstanding debt. The income in the current year-to-date period was primarily driven by a $76.4 million gain recognized on the sale of our Cleaners and Disinfectants business.

Provision for Income Taxes

Income tax benefit was $3.3 million and $0.3 million during the three and nine months ended February 28, 2026 compared to income tax expense of $1.2 million during the three months ended February 28, 2025 and income tax benefit of $22.1 million during the nine months ended February 28, 2025. The net tax benefit for the quarter-to-date period was primarily related to pre-tax losses due to acquisition amortization and interest expense.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted into law in the United States. OBBBA includes significant provisions, including the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for depreciation and interest expenses. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. There was not a significant impact to our income tax expense or effective tax rate for the three and nine months ended February 28, 2026.

Segment Results of Operations

Revenues

Revenue for the Food Safety segment increased $3.9 million during the three months ended February 28, 2026, compared to the three months ended February 28, 2025. The increase was driven by $6.1 million of growth in the business and a $6.2 million favorable currency impact. Business growth was led by pathogens detection products, indicator sales and improvements in sample collection products, partially offset by a decline in sales of food quality products. These gains were offset by an $8.4 million decline resulting primarily from the divestiture of our Cleaners and Disinfectants business.

Revenue for the Food Safety segment decreased $2.0 million during the nine months ended February 28, 2026, compared to the nine months ended February 28, 2025. The decrease was primarily due to $21.7 million associated with the divestiture of the Cleaners and Disinfectants business, partially offset by a $9.6 million favorable currency impact and $10.1 million of growth in the business. The growth in the business was driven by sales in pathogen detection, indicators and sample collection product lines, partially offset by a decline in sales of natural toxins test kits and food quality products.

Revenue for the Animal Safety segment decreased $13.7 million during the three months ended February 28, 2026, compared to the three months ended February 28, 2025. The decrease was due to $8.2 million of divestitures and discontinued products primarily from the divestiture of our Cleaners and Disinfectants business and a $5.9 million decline in the business. These decreases were partially offset by a $0.4 million favorable foreign currency impact. The decline in the business was primarily related to lower sales of insect and rodent control and genomics product lines.

Revenue for the Animal Safety segment decreased $22.1 million during the nine months ended February 28, 2026, compared to the nine months ended February 28, 2025. The decrease was primarily due to $19.7 million of divestitures and discontinued products and a $2.5 million decline in the business. These decreases were partially offset by a $0.1 million favorable currency impact. The decline in the business was driven by lower rodent control and veterinary instrument sales, which have been impacted by tariffs and supply constraints. These decreases were partially offset by higher genomics sales.

Operating Income

Operating income for the Food Safety segment decreased $3.0 million during the three months ended February 28, 2026, compared to the three months ended February 28, 2025. The decrease was primarily driven by duplicative Petrifilm costs and sample collection manufacturing inefficiencies.

Operating income for the Food Safety segment increased $439.5 million during the nine months ended February 28, 2026, compared to the nine months ended February 28, 2025. Excluding the $461.4 million goodwill impairment recorded in the prior year, operating income decline during the comparable period. This was primarily driven by lower sales volumes following the divestiture of our Cleaners and Disinfectants business, as well as duplicative Petrifilm costs and sample collection manufacturing inefficiencies, partially offset by the cost reductions initiated in the second quarter.

Operating income for the Animal Safety segment decreased $1.1 million during the three months ended February 28, 2026 compared to the three months ended February 28, 2025. The decrease was primarily due to lower sales volumes following the divestiture of our Cleaners and Disinfectants business. These decreases were partially offset by lower operating costs in the current period, which is the result of both the prior quarter restructuring actions and those incurred for the genomics business in the prior year period.

Operating income for the Animal Safety segment increased $10.0 million during nine months ended February 28, 2026 compared to the nine months ended February 28, 2025. The increase was primarily due to lower operating costs in the current year, which is the result of the prior year's restructuring actions incurred for the genomics business.

The increased corporate expense during each comparable period is related to increases in compliance and transformation initiatives, restructuring expense and certain corporate development initiatives. These increases are partially offset by lower equity-based compensation expense.

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 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 February 28, 2026, we had cash and cash equivalents of $159.9 million. The Company has irrevocable standby letters of credit in an amount of $3.2 million. As of February 28, 2026, no amount has been drawn. The standby letters of credit reduced our borrowing available under our revolving line of credit to 198.3 million as of February 28, 2026.

There are no additional required principal payments for the Term Loan until the second quarter of fiscal year 2028. Financial covenants include maintaining specified levels of funded debt to EBITDA, and debt service coverage. As of February 28, 2026, we are in compliance with all financial covenants under the Credit Facilities.

We continue to make investments in our business and operating facilities. Our estimate for capital expenditures in fiscal 2026 is approximately $50.0 million. This includes approximately $35.0 million in capital expenditures related to the integration of the acquired 3M FSD products, the most significant portion of which is related to our new manufacturing facility in Lansing, Michigan.

Cash Flows

Net Cash provided by Operating Activities

Net cash provided by operating activities increased $11.2 million during the nine months ended February 28, 2026 compared to the nine months ended February 28, 2025. The increase is primarily due to improvement in working capital primarily associated with inventory and accounts payable, and to a lesser extent, accounts receivable. Inventory reductions reflect management's focus on enhancing operational efficiency and inventory management. This increase is partially offset by a decrease in operating income.

Net Cash provided by (used for) Investing Activities

Cash provided by investing activities increased $157.8 million during the nine months ended February 28, 2026, compared to the nine months ended February 28, 2025. The increase was primarily the result of cash proceeds received from the sale of our Cleaners and Disinfectants business of $121.7 million and a decrease in capital expenditures compared to the prior-year period, as our new Lansing production facility nears completion.

Net Cash (used for) provided by Financing Activities

Cash used for financing activities increased $99.6 million during the nine months ended February 28, 2026 compared to the nine months ended February 28, 2025. The increase was due to the debt repayments made with proceeds from the sale of our Cleaners and Disinfectants business.

PART I - FINANCIAL INFORMATION