Neogen(NEOG) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents interim financial statements, management's analysis, market risks, and internal control disclosures Item 1. Interim Condensed Consolidated Financial Statements (unaudited) The unaudited interim financial statements for Q1 FY2025 reveal a net loss of $12.6 million, a decline in total assets and equity, and negative operating cash flow due to decreased revenues and higher expenses Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Assets | August 31, 2024 (unaudited) | May 31, 2024 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $120,477 | $170,611 | | Inventories, net | $198,596 | $189,267 | | Total Current Assets | $540,650 | $589,233 | | Non-Current Assets | | | | Net Property and Equipment | $300,971 | $277,104 | | Goodwill | $2,137,494 | $2,135,632 | | Intangible assets, net | $1,489,751 | $1,511,653 | | Total Assets | $4,503,173 | $4,548,833 | | Liabilities & Equity | | | | Total Current Liabilities | $122,689 | $154,323 | | Non-Current Debt | $889,129 | $888,391 | | Total Liabilities | $1,367,981 | $1,404,691 | | Total Stockholders' Equity | $3,135,192 | $3,144,142 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (unaudited, in thousands) | Metric | Three months ended Aug 31, 2024 | Three months ended Aug 31, 2023 | | :--- | :--- | :--- | | Total Revenues | $216,964 | $228,987 | | Gross Profit | $104,926 | $116,761 | | Total Operating Expenses | $102,669 | $97,626 | | Operating Income | $2,257 | $19,135 | | Net (Loss) Income | $(12,609) | $1,503 | | Basic (Loss) Earnings Per Share | $(0.06) | $0.01 | | Diluted (Loss) Earnings Per Share | $(0.06) | $0.01 | Condensed Consolidated Statements of Comprehensive (Loss) Income Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited, in thousands) | Metric | Three months ended Aug 31, 2024 | Three months ended Aug 31, 2023 | | :--- | :--- | :--- | | Net (loss) income | $(12,609) | $1,503 | | Other comprehensive (loss) income, net of tax | $(1,400) | $6,755 | | Total comprehensive (loss) income | $(14,009) | $8,258 | Condensed Consolidated Statements of Equity - Total Stockholders' Equity decreased from $3,144.1 million at May 31, 2024, to $3,135.2 million at August 31, 2024, primarily driven by a net loss of $12.6 million and an other comprehensive loss of $1.4 million[7] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (unaudited, in thousands) | Cash Flow Activity | Three months ended Aug 31, 2024 | Three months ended Aug 31, 2023 | | :--- | :--- | :--- | | Net Cash (used for) provided by Operating Activities | $(17,914) | $23,009 | | Net Cash used for Investing Activities | $(33,662) | $(8,684) | | Net Cash provided by Financing Activities | $979 | $1,062 | | Net (Decrease) Increase in Cash | $(50,134) | $15,592 | | Cash and Cash Equivalents, End of Period | $120,477 | $178,832 | Notes to Interim Condensed Consolidated Financial Statements - The company operates in two reportable segments: Food Safety and Animal Safety, providing diagnostic test kits for food producers and veterinary instruments, pharmaceuticals, and genomics testing services respectively[11][12][24] Disaggregated Revenue by Segment (in thousands) | Segment | Q1 FY2025 Revenue | Q1 FY2024 Revenue | | :--- | :--- | :--- | | Food Safety | $159,345 | $166,278 | | Animal Safety | $57,619 | $62,709 | | Total Revenues | $216,964 | $228,987 | - The company recorded a net tax benefit of $3.0 million for the quarter, primarily due to pre-tax losses from amortization and interest expenses related to the 3M Food Safety Division (FSD) acquisition, while also evaluating the impact of OECD Pillar 2 global minimum tax rules[34] - The company uses derivative financial instruments, including foreign currency forward contracts and an interest rate swap with a notional value of $250 million, to hedge against foreign currency and interest rate risks[38][41] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 5% revenue decrease to $217.0 million, a gross margin contraction to 48.4%, an 88% operating income plummet to $2.3 million, and a net loss of $12.6 million, primarily due to foreign exchange impacts, business declines, and increased operating expenses Results of Operations Q1 FY2025 vs Q1 FY2024 Performance (in thousands) | Metric | Q1 FY2025 | Q1 FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $216,964 | $228,987 | $(12,023) | (5.2%) | | Gross Profit | $104,926 | $116,761 | $(11,835) | (10.1%) | | Operating Income | $2,257 | $19,135 | $(16,878) | (88.2%) | | Net (Loss) Income | $(12,609) | $1,503 | $(14,112) | (938.9%) | - Revenue decreased by $12.0 million, comprising a $9.0 million unfavorable foreign exchange impact and a $3.0 million business decline driven by lower genomics volume, reduced insect control and cleaners sales, and lower sample collection product sales[53] - Gross margin decreased from 51.0% to 48.4% year-over-year, primarily due to lower sales volume and higher distribution costs, with transaction and integration costs in cost of revenues increasing to $4.2 million in Q1 FY2025 from $1.2 million in Q1 FY2024[56] - Operating expenses increased by $5.1 million to $102.7 million, mainly due to higher compensation, shipping, and IT costs, particularly those associated with the new ERP system implemented in September 2023[57] Segment Results of Operations Segment Performance Q1 FY2025 vs Q1 FY2024 (in thousands) | Segment | Metric | Q1 FY2025 | Q1 FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Food Safety | Revenue | $159,345 | $166,278 | $(6,933) | (4%) | | | Operating Income | $17,905 | $22,241 | $(4,336) | (19%) | | Animal Safety | Revenue | $57,619 | $62,709 | $(5,090) | (8%) | | | Operating Income | $2,589 | $8,356 | $(5,767) | (69%) | - The Food Safety segment's revenue decline was primarily due to a $9.0 million currency headwind, partially offset by growth in indicator testing and culture media products[64] - The Animal Safety segment's revenue decline was driven by lower sales in biosecurity and animal care products, as well as reduced genomics volume from a strategic shift to focus on large production animals[64] Non-GAAP Financial Measures Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Metric | Three months ended Aug 31, 2024 | Three months ended Aug 31, 2023 | | :--- | :--- | :--- | | Net (loss) income | $(12,609) | $1,503 | | 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 | | Adjustments (Share-based comp, transaction costs, etc.) | $11,001 | $5,306 | | Adjusted EBITDA | $43,714 | $52,369 | | Adjusted EBITDA margin % | 20.1% | 22.9% | - Adjusted EBITDA decreased by $8.7 million year-over-year, driven by lower sales and higher operating expenses, with the Adjusted EBITDA margin contracting to 20.1% from 22.9%[76] Financial Condition and Liquidity - As of August 31, 2024, the company had cash and cash equivalents of $120.5 million and available borrowing capacity of $150.0 million under its revolving credit facility[77] Summary of Cash Flows (in thousands) | Cash Flow Activity | Three months ended Aug 31, 2024 | Three months ended Aug 31, 2023 | | :--- | :--- | :--- | | Net Cash (used for) provided by Operating Activities | $(17,914) | $23,009 | | Net Cash used for Investing Activities | $(33,662) | $(8,684) | | Net Cash provided by Financing Activities | $979 | $1,062 | - The $40.9 million decrease in cash from operations was due to lower income and unfavorable changes in working capital, including accounts receivable, inventory, and accounts payable[81] - The company estimates capital expenditures for fiscal 2025 to be $85 million, with approximately $55 million related to the integration of acquired 3M FSD products, including a new manufacturing facility in Lansing, Michigan[80] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures, including currency exchange and interest rate fluctuations, remain consistent with prior disclosures in the Annual Report on Form 10-K - There have been no meaningful changes in the company's exposure to risk from fluctuations in foreign currency exchange rates and interest rates from what was disclosed in the Annual Report on Form 10-K[82] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of August 31, 2024, due to material weaknesses in IT general controls and period-end invoice accrual, with remediation efforts underway - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of August 31, 2024[84] - The ineffectiveness is due to previously identified material weaknesses in internal controls over financial reporting that existed as of May 31, 2024[84] - The specific material weaknesses are: (1) information technology general controls (ITGCs) related to user access and change management, and (2) ineffective period-end invoice accrual controls[85] - Management is in the process of enhancing risk assessment and implementing new and improved internal controls to remediate the identified weaknesses[86] PART II. OTHER INFORMATION Presents additional information including legal proceedings, risk factors, equity sales, other disclosures, and exhibits Item 1. Legal Proceedings The company is involved in routine legal proceedings, including environmental remediation at its Randolph, Wisconsin facility, which are not expected to materially impact financial results - The company is involved in environmental remediation and monitoring at its Randolph, Wisconsin facility, with an estimated remaining liability of $916,000 as of August 31, 2024[37] - Other legal proceedings occurring in the normal course of business are not expected by management to have a material effect on the company's financial condition or results of operations[37][88] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended May 31, 2024 - No material changes have occurred in the risk factors described in the Annual Report on Form 10-K for the year ended May 31, 2024[89] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, with 5,900,000 shares remaining available under the board-authorized program Share Repurchase Activity | Period | Shares Purchased | Average Price Paid per Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | June 2024 | — | — | 5,900,000 | | July 2024 | — | — | 5,900,000 | | August 2024 | — | — | 5,900,000 | | Total | — | — | 5,900,000 | Item 5. Other Information During the quarter ended August 31, 2024, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarterly period[91] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and Inline XBRL documents (Exhibits 101 and 104) - The report includes certifications from the Principal Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[92]