Neogen(NEOG) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Interim Condensed Consolidated Financial Statements (unaudited) This section presents Neogen's unaudited financial statements for the three and six months ended November 30, 2023 Condensed Consolidated Balance Sheets The company's total assets stood at $4.60 billion, primarily composed of goodwill and intangible assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | November 30, 2023 | May 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $624,373 | $585,931 | | Goodwill | $2,137,983 | $2,137,496 | | Intangible assets, net | $1,564,744 | $1,605,103 | | Total Assets | $4,602,415 | $4,554,432 | | Total Current Liabilities | $176,612 | $145,472 | | Non-Current Debt | $886,915 | $885,439 | | Total Liabilities | $1,454,848 | $1,420,215 | | Total Stockholders' Equity | $3,147,567 | $3,134,217 | Condensed Consolidated Statements of Operations For the second quarter, revenues were flat while the net loss narrowed significantly to $3.5 million Statement of Operations Summary (in thousands, except per share amounts) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $229,629 | $230,033 | $458,616 | $362,382 | | Gross Profit | $116,774 | $112,539 | $233,535 | $174,809 | | Operating Income (Loss) | $14,465 | $(7,656) | $33,600 | $(1,594) | | Net Loss | $(3,487) | $(41,841) | $(1,984) | $(36,632) | | Diluted Net Loss Per Share | $(0.02) | $(0.19) | $(0.01) | $(0.23) | Condensed Consolidated Statements of Comprehensive (Loss) Income The company reported a total comprehensive income of $6.1 million for the six-month period, a reversal from a loss in the prior year Comprehensive (Loss) Income Summary (in thousands) | Component | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(3,487) | $(41,841) | $(1,984) | $(36,632) | | Other comprehensive income (loss), net of tax | $1,368 | $(1,172) | $8,123 | $(12,729) | | Total comprehensive (loss) income | $(2,119) | $(43,013) | $6,139 | $(49,361) | Condensed Consolidated Statements of Equity Total stockholders' equity increased slightly to $3.148 billion, driven by other comprehensive income - Total equity increased by approximately $13.4 million during the first six months of fiscal 2024, from $3,134.2 million to $3,147.6 million[18] Condensed Consolidated Statements of Cash Flows Cash from operations improved significantly, generating $38.7 million for the six-month period Cash Flow Summary (in thousands) | Activity | Six Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Net Cash From (For) Operating Activities | $38,723 | $(32,869) | | Net Cash From Investing Activities | $2,852 | $174,640 | | Net Cash From (For) Financing Activities | $752 | $(78,356) | | Net Increase In Cash and Cash Equivalents | $42,525 | $55,527 | | Cash and Cash Equivalents, End of Period | $205,765 | $100,000 | Notes to Interim Condensed Consolidated Financial Statements This section details accounting policies, segment data, and specifics on the 3M Food Safety Division transaction - The company operates in two primary segments: Food Safety, which provides diagnostic test kits and related products, and Animal Safety, which offers veterinary instruments, pharmaceuticals, and genomics testing services[23][24] Disaggregated Revenue by Segment (Six Months Ended Nov 30, 2023, in thousands) | Segment | Product Revenue | Service Revenue | Total Revenue | | :--- | :--- | :--- | :--- | | Food Safety | $315,264 | $15,417 | $330,681 | | Animal Safety | $93,006 | $34,929 | $127,935 | | Total | $408,270 | $50,346 | $458,616 | - On September 1, 2022, Neogen completed its Reverse Morris Trust transaction with 3M's Food Safety Division for a total consideration of $3.2 billion, consisting of $2.2 billion in stock and $1.0 billion in cash[84][85] - As of November 30, 2023, the company had total debt of approximately $900 million, comprising a $550 million term loan and $350 million in senior notes, incurred to finance the 3M transaction[97] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses flat Q2 revenues, improved net loss, and progress on the 3M business integration Q2 FY2024 Key Performance Metrics | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $229,629 | $230,033 | (0)% | | Core Sales Growth | | | (1)% | | Net Loss | $(3,487) | $(41,841) | (92)% | | Loss per Diluted Share | $(0.02) | $(0.19) | | - Gross margin improved by 200 basis points in the second quarter to 50.9%, primarily due to a favorable product mix from increased sales of higher-margin products in the Food Safety segment[145] - Operating income was $14.5 million compared to a loss of $7.7 million in the prior year, largely because Q2 2022 included $39.1 million in transaction and integration costs versus only $4.7 million in Q2 2023[150][151] Non-GAAP Adjusted EBITDA (in thousands) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Adjusted EBITDA | $55,100 | $64,051 | | Adjusted EBITDA margin % | 24.0% | 27.8% | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate and foreign currency exchange rate fluctuations Market Risk Sensitivity Analysis (in thousands) | Risk Category | Hypothetical Change | Potential Impact on Earnings/Fair Value | | :--- | :--- | :--- | | Foreign Currency—Revenue | 10% Decrease in exchange rates | $11,608 (Earnings) | | Interest Expense | 10% Increase in interest rates | $2,227 (Earnings) | Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to identified material weaknesses - The company's CEO and CFO concluded that disclosure controls and procedures were not effective as of November 30, 2023[190] - The ineffectiveness is due to previously reported material weaknesses in three areas: (1) information technology general controls (ITGCs), (2) period-end invoice accrual controls, and (3) management review controls related to acquisition accounting[192] - Remediation efforts are ongoing, but the material weaknesses will not be considered fully remediated until the new and enhanced controls have operated effectively for a sufficient period of time[193][194] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings not expected to have a material financial impact - The company is subject to legal proceedings in the normal course of business, which management believes will not have a material effect on its financial condition[113][197] Risk Factors No material changes to risk factors have been identified since the last annual report - No material changes have occurred in the risk factors described in the company's Annual Report on Form 10-K for the year ended May 31, 2023[198] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and incentive plans - The report includes several exhibits, such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32), the Neogen Corporation 2023 Omnibus Incentive Plan (Exhibit 10.2), and Inline XBRL documents[201]