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Revenue Recognition
 9 Months Ended
Feb. 28, 2023
Revenue from Contract with Customer [Abstract]  
Revenue Recognition

4. REVENUE RECOGNITION

The Company determines the amount of revenue to be recognized through application of the following steps:

•
Identification of the contract with a customer;
•
Identification of the performance obligations in the contract;
•
Determination of the transaction price;
•
Allocation of the transaction price to the performance obligations in the contract; and
•
Recognition of revenue when, or as, the Company satisfies the performance obligations.

Essentially all of Neogen’s revenue is generated through contracts with its customers. A performance obligation is a promise in a contract to transfer a product or service to a customer. We generally recognize revenue at a point in time when all of our performance obligations under the terms of a contract are satisfied. Revenue is recognized upon transfer of control of promised products and services in an amount that reflects the consideration we expect to receive in exchange for those products or services. The collectability of consideration on the contract is reasonably assured before revenue is recognized. To the extent that customer payment has been received before all recognition criteria are met, these revenues are initially deferred in other accruals on the balance sheet and the revenue is recognized in the period that all recognition criteria have been met.

Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using the most predictive approach. We typically use the most-likely-amount method for incentives that are offered to individual customers, and the expected-value method for programs that are offered to a broad group of customers. Variable consideration reduces the amount of revenue that is recognized. Rebate obligations related to customer incentive programs are recorded in accrued liabilities; the rebate estimates are adjusted at the end of each applicable measurement period based on information currently available.

The performance obligations in Neogen’s contracts are generally satisfied well within one year of contract inception. In such cases, management has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component. Management has elected to utilize the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred because the amortization period for the prepaid costs that would otherwise have been deferred and amortized is one year or less. We account for shipping and handling for products as a fulfillment activity when goods are shipped. Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenues, while the related expenses incurred by Neogen are recorded in sales and marketing expense. Revenue is recognized net of any tax collected from customers. The taxes are subsequently remitted to governmental authorities. Our terms and conditions of sale generally do not provide for returns of product or reperformance of service except in the case of quality or warranty issues. These situations are infrequent, and due to immateriality of the amount, warranty claims are recorded in the period incurred.

The Company derives revenue from two primary sources—product revenue and service revenue.

Product revenue consists of shipments of:

•
Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;
•
Consumable products marketed to veterinarians, retailers, livestock producers and animal health product distributors; and
•
Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

Revenues for our products are recognized and invoiced when the product is shipped to the customer.

Service revenue consists primarily of:

•
Genomic identification and related interpretive bioinformatic services; and
•
Other commercial laboratory services.

Revenues for Neogen’s genomics and commercial laboratory services are recognized and invoiced when the applicable laboratory service is performed and the results are conveyed to the customer.

Payment terms for products and services are generally 30 to 60 days.

The Company has no contract assets. Contract liabilities represent deposits made by customers before the satisfaction of performance obligation(s) and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer, the liability for the customer deposit is relieved and revenue is recognized. These customer deposits are recorded within Deferred revenue on the condensed consolidated balance sheets. During the three and nine months ended February 28, 2023, the Company recognized $2.9 million and $8.0 million, respectively of deferred revenue amounts into revenue.

On September 1, 2022, Neogen closed on a Reverse Morris Trust transaction to combine with 3M’s Food Safety business. Similar to Neogen, 3M’s former Food Safety business sells diagnostic test kits, dehydrated culture media, and related products used by food producers and processors to detect foodborne bacteria, allergens and levels of general sanitation. Revenue for these products are recognized and invoiced when the product is shipped to the customer. These products are currently manufactured, invoiced, and distributed by 3M on behalf of Neogen under a number of transition service contracts.

The following table presents disaggregated revenue by major product and service categories during the three and nine months ended February 28, 2023 and 2022:

 

 

Three Months Ended February 28,

 

 

Nine Months Ended February 28,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Food Safety

 

 

 

 

 

 

 

 

 

 

 

 

Natural Toxins, Allergens & Drug Residues

 

$

19,198

 

 

$

17,965

 

 

$

61,236

 

 

$

59,397

 

Bacterial & General Sanitation

 

 

39,444

 

 

 

11,288

 

 

 

91,293

 

 

 

34,709

 

Culture Media & Other

 

 

77,955

 

 

 

18,145

 

 

 

179,293

 

 

 

56,136

 

Rodent Control, Insect Control & Disinfectants

 

 

9,550

 

 

 

9,577

 

 

 

29,502

 

 

 

25,459

 

Genomics Services

 

 

5,395

 

 

 

5,781

 

 

 

16,204

 

 

 

16,909

 

 

$

151,542

 

 

$

62,756

 

 

$

377,528

 

 

$

192,610

 

Animal Safety

 

 

 

 

 

 

 

 

 

 

 

 

Life Sciences

 

$

1,440

 

 

$

1,339

 

 

$

4,456

 

 

$

4,011

 

Veterinary Instruments & Disposables

 

 

15,428

 

 

 

17,047

 

 

 

46,534

 

 

 

47,956

 

Animal Care & Other

 

 

8,735

 

 

 

9,449

 

 

 

29,830

 

 

 

29,517

 

Rodent Control, Insect Control & Disinfectants

 

 

20,242

 

 

 

18,359

 

 

 

63,121

 

 

 

58,777

 

Genomics Services

 

 

20,868

 

 

 

19,294

 

 

 

59,168

 

 

 

54,195

 

 

 

66,713

 

 

 

65,488

 

 

 

203,109

 

 

 

194,456

 

Total Revenues

 

$

218,255

 

 

$

128,244

 

 

$

580,637

 

 

$

387,066