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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 November 30, 2023.

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 November 30, 2023 there were 216,520,296 shares 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 – November 30, 2023 and May 31, 2023 |  | 2
| Condensed Consolidated Statements of Operations – Three and six months ended November 30, 2023 and 2022 |  | 3
| Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and six months ended November 30, 2023 and 2022 |  | 4
| Condensed Consolidated Statements of Equity – Three and six months ended November 30, 2023 and 2022 |  | 5
| Condensed Consolidated Statements of Cash Flows – Six months ended November 30, 2023 and 2022 |  | 6
| Notes to Interim Condensed Consolidated Financial Statements – November 30, 2023 |  | 7
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 26
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |  | 37
Item 4. | Controls and Procedures |  | 38
PART II. OTHER INFORMATION |  |
Item 1. | Legal Proceedings |  | 39
Item 1A. | Risk Factors |  | 39
Item 6. | Exhibits |  | 40
SIGNATURES |  | 41
| CEO Certification |  |
| CFO Certification |  |
| Section 906 Certification |  |

1

PART I – FINANCIAL INFORMATION

Item 1. Interim Condensed Consolidated Financial Statements

Neogen Corporation

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share amounts)

|  | November 30, 2023 |  |  | May 31, 2023 |
Assets |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 205,765 |  |  | $ | 163,240 |
Marketable securities |  |  | 24,501 |  |  |  | 82,329 |
Accounts receivable, net of allowance of $3,403 and $2,827 |  |  | 150,498 |  |  |  | 153,253 |
Inventories, net |  |  | 160,529 |  |  |  | 133,812 |
Prepaid expenses and other current assets |  |  | 83,080 |  |  |  | 53,297 |
Total Current Assets |  |  | 624,373 |  |  |  | 585,931 |
Net Property and Equipment |  |  | 244,300 |  |  |  | 198,749 |
Other Assets |  |  |  |  |  |
Right of use assets |  |  | 15,015 |  |  |  | 11,933 |
Goodwill |  |  | 2,137,983 |  |  |  | 2,137,496 |
Intangible assets, net |  |  | 1,564,744 |  |  |  | 1,605,103 |
Other non-current assets |  |  | 16,000 |  |  |  | 15,220 |
Total Assets |  | $ | 4,602,415 |  |  | $ | 4,554,432 |
Liabilities and Stockholders’ Equity |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |
Current portion of finance lease |  | $ | 2,569 |  |  | $ | - |
Accounts payable |  |  | 112,184 |  |  |  | 76,669 |
Accrued compensation |  |  | 15,642 |  |  |  | 25,153 |
Income tax payable |  |  | 10,217 |  |  |  | 6,951 |
Accrued interest |  |  | 10,985 |  |  |  | 11,149 |
Deferred revenue |  |  | 4,679 |  |  |  | 4,616 |
Other accruals |  |  | 20,336 |  |  |  | 20,934 |
Total Current Liabilities |  |  | 176,612 |  |  |  | 145,472 |
Deferred Income Tax Liability |  |  | 355,005 |  |  |  | 353,427 |
Non-Current Debt |  |  | 886,915 |  |  |  | 885,439 |
Other Non-Current Liabilities |  |  | 36,316 |  |  |  | 35,877 |
Total Liabilities |  |  | 1,454,848 |  |  |  | 1,420,215 |
Commitments and Contingencies (note 12) |  |  |  |  |  |
Equity |  |  |  |  |  |
Preferred stock, $1.00 par value, 100,000 shares authorized, no ne issued and outstanding |  |  | - |  |  |  | - |
Common stock, $0.16 par value, 315,000,000 shares authorized, 216,520,296 and 216,245,501 shares issued and outstanding at November 30, 2023, and May 31, 2023, respectively |  |  | 34,644 |  |  |  | 34,599 |
Additional paid-in capital |  |  | 2,574,994 |  |  |  | 2,567,828 |
Accumulated other comprehensive loss |  |  | (25,128 | ) |  |  | (33,251 | )
Retained earnings |  |  | 563,057 |  |  |  | 565,041 |
Total Stockholders’ Equity |  |  | 3,147,567 |  |  |  | 3,134,217 |
Total Liabilities and Stockholders’ Equity |  | $ | 4,602,415 |  |  | $ | 4,554,432 |

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

2

Neogen Corporation

Condensed Consolidated Stateme nts of Operations (unaudited)

(in thousands, except per share amounts)

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Revenues |  |  |  |  |  |  |  |  |  |  |  |
Product revenues |  | $ | 203,869 |  |  | $ | 203,317 |  |  | $ | 408,270 |  |  | $ | 310,109 |
Service revenues |  |  | 25,760 |  |  |  | 26,716 |  |  |  | 50,346 |  |  |  | 52,273 |
Total Revenues |  |  | 229,629 |  |  |  | 230,033 |  |  |  | 458,616 |  |  |  | 362,382 |
Cost of Revenues |  |  |  |  |  |  |  |  |  |  |  |
Cost of product revenues |  |  | 98,353 |  |  |  | 102,530 |  |  |  | 195,312 |  |  |  | 157,971 |
Cost of service revenues |  |  | 14,502 |  |  |  | 14,964 |  |  |  | 29,769 |  |  |  | 29,602 |
Total Cost of Revenues |  |  | 112,855 |  |  |  | 117,494 |  |  |  | 225,081 |  |  |  | 187,573 |
Gross Profit |  |  | 116,774 |  |  |  | 112,539 |  |  |  | 233,535 |  |  |  | 174,809 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 44,832 |  |  |  | 36,348 |  |  |  | 90,615 |  |  |  | 59,731 |
General and administrative |  |  | 51,721 |  |  |  | 77,001 |  |  |  | 96,842 |  |  |  | 104,945 |
Research and development |  |  | 5,756 |  |  |  | 6,846 |  |  |  | 12,478 |  |  |  | 11,727 |
Total Operating Expenses |  |  | 102,309 |  |  |  | 120,195 |  |  |  | 199,935 |  |  |  | 176,403 |
Operating Income (Loss) |  |  | 14,465 |  |  |  | (7,656 | ) |  |  | 33,600 |  |  |  | (1,594 | )
Other Expense |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 1,863 |  |  |  | 553 |  |  |  | 3,653 |  |  |  | 1,523 |
Interest expense |  |  | (18,032 | ) |  |  | (20,545 | ) |  |  | (36,488 | ) |  |  | (20,547 | )
Other expense |  |  | (2,043 | ) |  |  | (6,443 | ) |  |  | (2,849 | ) |  |  | (6,814 | )
Total Other Expense |  |  | (18,212 | ) |  |  | (26,435 | ) |  |  | (35,684 | ) |  |  | (25,838 | )
Loss Before Taxes |  |  | (3,747 | ) |  |  | (34,091 | ) |  |  | (2,084 | ) |  |  | (27,432 | )
Provision for Income Taxes |  |  | (260 | ) |  |  | 7,750 |  |  |  | (100 | ) |  |  | 9,200 |
Net Loss |  | $ | (3,487 | ) |  | $ | (41,841 | ) |  | $ | (1,984 | ) |  | $ | (36,632 | )
Net Loss Per Share |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.02 | ) |  | $ | (0.19 | ) |  | $ | (0.01 | ) |  | $ | (0.23 | )
Diluted |  | $ | (0.02 | ) |  | $ | (0.19 | ) |  | $ | (0.01 | ) |  | $ | (0.23 | )
Weighted Average Shares Outstanding |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 216,410,493 |  |  |  | 216,134,350 |  |  |  | 216,359,511 |  |  |  | 161,689,929 |
Diluted |  |  | 216,410,493 |  |  |  | 216,134,350 |  |  |  | 216,359,511 |  |  |  | 161,689,929 |

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

3

Neogen Corporation

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

(in thousands)

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net loss |  | $ | (3,487 | ) |  | $ | (41,841 | ) |  | $ | (1,984 | ) |  | $ | (36,632 | )
Foreign currency translation gain (loss) |  |  | 1,455 |  |  |  | 1,102 |  |  |  | 4,678 |  |  |  | (10,031 | )
Unrealized gain (loss) on marketable securities (1) |  |  | 264 |  |  |  | 154 |  |  |  | 840 |  |  |  | (270 | )
Unrealized (loss) gain on derivative instruments (2) |  |  | (351 | ) |  |  | (2,428 | ) |  |  | 2,605 |  |  |  | (2,428 | )
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 | )

(1) Amounts are net of tax of $84 and $46 during the three months ended November 30, 2023 and 2022 and $267 and ($80) during the six months ended November 30, 2023 and 2022, respectively.

(2) Amounts are net of tax of ($111) and ($757) during the three months ended November 30, 2023 and 2022 and $822 and ($757) during the six months ended November 30, 2023 and 2022, respectively.

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

4

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 |
Balance, June 1, 2023 |  |  | 216,245,501 |  |  | $ | 34,599 |  |  | $ | 2,567,828 |  |  | $ | (33,251 | ) |  | $ | 565,041 |  |  | $ | 3,134,217 |
Exercise of options 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 |
Balance, August 31, 2023 |  |  | 216,310,582 |  |  | $ | 34,610 |  |  | $ | 2,571,517 |  |  | $ | (26,496 | ) |  | $ | 566,544 |  |  | $ | 3,146,175 |
Exercise of options and share-based compensation expense |  |  | 209,714 |  |  |  | 34 |  |  |  | 3,477 |  |  |  | — |  |  |  | — |  |  |  | 3,511 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,487 | ) |  |  | (3,487 | )
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,368 |  |  |  | — |  |  |  | 1,368 |
Balance, November 30, 2023 |  |  | 216,520,296 |  |  | $ | 34,644 |  |  | $ | 2,574,994 |  |  | $ | (25,128 | ) |  | $ | 563,057 |  |  | $ | 3,147,567 |

|  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Additional |  |  | Other |  |  |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Comprehensive |  |  | Retained |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Loss |  |  | Earnings |  |  | Total |
Balance, June 1, 2022 |  |  | 107,801,094 |  |  | $ | 17,248 |  |  | $ | 309,984 |  |  | $ | (27,769 | ) |  | $ | 587,911 |  |  | $ | 887,374 |
Exercise of options and share-based compensation expense |  |  | 4,000 |  |  |  | 1 |  |  |  | 1,904 |  |  |  | — |  |  |  | — |  |  |  | 1,905 |
Issuance of shares under employee stock purchase plan |  |  | 32,636 |  |  |  | 5 |  |  |  | 862 |  |  |  | — |  |  |  | — |  |  |  | 867 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,209 |  |  |  | 5,209 |
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (11,557 | ) |  |  | — |  |  |  | (11,557 | )
Balance, August 31, 2022 |  |  | 107,837,730 |  |  | $ | 17,254 |  |  | $ | 312,750 |  |  | $ | (39,326 | ) |  | $ | 593,120 |  |  | $ | 883,798 |
Exercise of options and share-based compensation expense |  |  | 46,607 |  |  |  | 7 |  |  |  | 2,630 |  |  |  | — |  |  |  | — |  |  |  | 2,637 |
Issuance of shares for 3M transaction |  |  | 108,269,946 |  |  |  | 17,323 |  |  |  | 2,245,518 |  |  |  | — |  |  |  | — |  |  |  | 2,262,841 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (41,841 | ) |  |  | (41,841 | )
Other comprehensive loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,172 | ) |  |  | — |  |  |  | (1,172 | )
Balance, November 30, 2022 |  |  | 216,154,283 |  |  | $ | 34,584 |  |  | $ | 2,560,898 |  |  | $ | (40,498 | ) |  | $ | 551,279 |  |  | $ | 3,106,263 |

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

5

Neogen Corporation

Condensed Consolidated Statemen ts of Cash Flows (unaudited)

(in thousands)

|  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |
Cash Flows From (For) Operating Activities |  |  |  |  |  |
Net loss |  | $ | (1,984 | ) |  | $ | (36,632 | )
Adjustments to reconcile net loss to net cash from operating activities: |  |  |  |  |  |
Depreciation and amortization |  |  | 58,203 |  |  |  | 32,467 |
Deferred income taxes |  |  | 1,178 |  |  |  | (1,983 | )
Share-based compensation |  |  | 6,150 |  |  |  | 4,499 |
Loss (gain) on disposal of property and equipment |  |  | 754 |  |  |  | (456 | )
Amortization of debt issuance costs |  |  | 1,720 |  |  |  | 999 |
Change in operating assets and liabilities, net of business acquisitions: |  |  |  |  |  |
Accounts receivable, net |  |  | 3,633 |  |  |  | (44,452 | )
Inventories, net |  |  | (25,929 | ) |  |  | 6,478 |
Prepaid expenses and other current assets |  |  | (29,896 | ) |  |  | (37,833 | )
Accounts payable and accrued liabilities |  |  | 34,950 |  |  |  | 24,103 |
Interest expense accrual |  |  | (164 | ) |  |  | 13,974 |
Change in other assets and liabilities |  |  | (9,892 | ) |  |  | 5,967 |
Net Cash From (For) Operating Activities |  |  | 38,723 |  |  |  | (32,869 | )
Cash Flows From Investing Activities |  |  |  |  |  |
Purchases of property, equipment and other non-current intangible assets |  |  | (55,046 | ) |  |  | (25,102 | )
Proceeds from the maturities of marketable securities |  |  | 57,828 |  |  |  | 172,763 |
Purchases of marketable securities |  |  | — |  |  |  | (12,523 | )
Business acquisitions, net of working capital adjustments and cash acquired |  |  | — |  |  |  | 38,896 |
Proceeds from the sale of property and equipment and other |  |  | 70 |  |  |  | 606 |
Net Cash From Investing Activities |  |  | 2,852 |  |  |  | 174,640 |
Cash Flows From (For) Financing Activities |  |  |  |  |  |
Exercise of stock options and issuance of employee stock purchase plan shares |  |  | 1,141 |  |  |  | 920 |
Repayment of debt |  |  | — |  |  |  | (60,000 | )
Debt issuance costs paid and other |  |  | (389 | ) |  |  | (19,276 | )
Net Cash From (For) Financing Activities |  |  | 752 |  |  |  | (78,356 | )
Effect of Foreign Exchange Rates on Cash |  |  | 198 |  |  |  | (7,888 | )
Net Increase In Cash and Cash Equivalents |  |  | 42,525 |  |  |  | 55,527 |
Cash and Cash Equivalents, Beginning of Period |  |  | 163,240 |  |  |  | 44,473 |
Cash and Cash Equivalents, End of Period |  | $ | 205,765 |  |  | $ | 100,000 |

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

6

NEOGEN CORPORATION

NOTES TO INTERIM CONDENSED CONS OLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollar amounts in thousands except per share and share amounts)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

Neogen Corporation and subsidiaries ("Neogen," "we," "our," or the "Company") develop, manufacture and market a diverse line of products and services dedicated to food and animal safety. Our Food Safety segment consists primarily of diagnostic test kits and complementary products (e.g., culture media) sold to food producers and processors to detect dangerous and/or unintended substances in human food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, meat speciation, drug residues, pesticide residues and general sanitation concerns. Our diagnostic test kits are generally easier to use and provide quicker results than conventional diagnostic methods. The majority of the test kits are disposable, single-use, immunoassay and DNA detection products that rely on proprietary antibodies and RNA and DNA testing methodologies to produce rapid and accurate test results. Our expanding line of food safety products also includes genomics-based diagnostic technology, and advanced software systems that help testers to objectively analyze and store their results and perform analysis on the results from multiple locations over extended periods.

Neogen’s Animal Safety segment is engaged in the development, manufacture, marketing and distribution of veterinary instruments, pharmaceuticals, vaccines, topicals, parasiticides, diagnostic products, rodent control products, cleaners, disinfectants, insect control products and genomics testing services for the worldwide animal safety market. The majority of these consumable products are marketed through veterinarians, retailers, livestock producers and animal health product distributors. Our line of drug detection products is sold worldwide for the detection of abused and therapeutic drugs in animals and animal products, and has expanded into the workplace and human forensic markets.

BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Neogen Corporation (“Neogen” or the “Company”) and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of the interim period have been included in the accompanying unaudited condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations during the three and six months ended November 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year ending May 31, 2024. For more complete financial information, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023.

Our functional currency is the U.S. dollar. We translate our non-U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in other comprehensive (loss) income. Gains or losses from foreign currency transactions are included in other expense on our condensed consolidated statements of operations. Management has designated certain intercompany loans as long-term in nature, and therefore, the gains and losses on remeasurement of these loans are recorded within accumulated other comprehensive loss.

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ACCOUNTING POLICIES

Comprehensive (Loss) Income

Comprehensive (loss) income represents net loss and any revenues, expenses, gains and losses that, under U.S. generally accepted accounting principles, are excluded from net loss and recognized directly as a component of equity. Accumulated other comprehensive (loss) income consists of foreign currency translation adjustments and unrealized gains or losses on our marketable securities and derivative instruments.

Fair Value of Financial Instruments

Fair value measurements are determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs. The Company utilizes a fair value hierarchy based upon the observability of inputs used in valuation techniques as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of certain financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, our revolving credit agreement, and long-term debt, approximate their fair value based on either their short maturity or current terms for similar instruments.

Leases

We lease various manufacturing, laboratory, warehousing and distribution facilities, administrative and sales offices, equipment and vehicles under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, many of our leases are classified as operating leases. Operating leases are included in Other assets, Other accruals and Other non-current liabilities on the Company’s condensed consolidated balance sheets. Finance leases are included in net property and equipment and current portion of finance lease on the Company’s condensed consolidated balance sheets.

Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. Costs associated with finance leases are recognized on a straight-line basis within depreciation and interest expense over the term of the lease. The right-of-use operating lease assets were $15,015 and $11,933 as of November 30, 2023 and May 31, 2023, respectively. The total current and non-current operating lease liabilities were $15,366 and $12,089 as of November 30, 2023 and May 31, 2023, respectively. The finance lease assets were $2,569 as of November 30, 2023. There were no finance leases recorded as of May 31, 2023. See Note 10. "Debt" for detail on the finance lease liabilities.

8

Derivatives

The Company operates on a global basis and is exposed to the risk that its financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates and changes in interest rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, the Company enters into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions and have also entered into interest rate swap contracts as a hedge against changes in interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. On the date the derivative is established, the Company designates the derivative as either a fair value hedge, a cash flow hedge or a net investment hedge in accordance with its established policy. Each reporting period, derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. The change in fair value is recorded in accumulated other comprehensive (loss) income, and amounts are reclassified into earnings on the condensed consolidated statement of income when transactions are realized. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. The Company does not enter into derivative financial instruments for trading or speculative purposes.

ESTIMATES AND ASSUMPTIONS

The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including, but not limited to, variable consideration related to revenue recognition, allowances for doubtful accounts, the market value of, and demand for, inventories, stock-based compensation, provision for income taxes and related balance sheet accounts, accruals, goodwill and other intangible assets and derivatives. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Accounts Receivable and Concentrations of Credit Risk

Financial instruments which potentially subject Neogen to concentrations of credit risk consist principally of accounts receivable. Management attempts to minimize credit risk by reviewing customers’ credit histories before extending credit and by monitoring credit exposure on a regular basis. Collateral or other security is generally not required for accounts receivable. We maintain an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance for doubtful accounts, management considers relevant information about past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. Once a receivable balance has been determined to be uncollectible, generally after all collection efforts have been exhausted, that amount is charged against the allowance for doubtful accounts. No customer accounted for more than 10% of accounts receivable at November 30, 2023 or May 31, 2023, respectively.

Inventory

The reserve for obsolete and slow-moving inventory is reviewed at least quarterly based on an analysis of the inventory, considering the current condition of the asset as well as other known facts and future plans. The reserve required to record inventory at lower of cost or net realizable value is adjusted as conditions change. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.

9

Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses after amounts are allocated to other identifiable intangible assets. The Company's business is organized into two operating segments: Food Safety and Animal Safety. Under the goodwill guidance, management determined that each of its segments represents a reporting unit. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants not-to-compete and patents. Customer relationships intangibles are amortized on either an accelerated or straight-line basis, reflecting the pattern in which the economic benefits are consumed, while all other amortizable intangibles are amortized on a straight-line basis. Intangibles are amortized over 2 to 25 years.

Management reviews the carrying amounts of goodwill annually at the reporting unit level, or when indications of impairment exist, to determine if goodwill may be impaired. Goodwill is tested for impairment annually in the fourth quarter. During management's annual test or when there are indicators of impairment, if the carrying amount is deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, goodwill is reduced to the estimated fair value and a charge is recorded to operations.

Amortizable intangible assets are tested for impairment when indications of impairment exist. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis, such assets are reduced to their estimated fair value and a charge is recorded to operations.

Long-Lived Assets

Management reviews the carrying values of its long-lived assets to be held and used, including definite-lived intangible assets, for possible impairment whenever events or changes in business conditions warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated separately identifiable undiscounted cash flows over the remaining useful life of the asset indicate that the carrying amount of the asset may not be recoverable. In such an event, fair value is determined using discounted cash flows and, if lower than the carrying value, impairment is recognized through a charge to operations.

Business Combinations

We utilize the acquisition method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in Neogen’s results of operations beginning on the respective acquisition dates and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill. As part of our acquisition accounting, the Company will recognize intangible assets. Management determines the fair value of the intangible assets by applying certain valuation methodologies, including the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to forecasted revenue growth rate and customer attrition rate. Valuation specialists are often used to develop and evaluate the appropriateness of the multi-period excess earnings method, our discount rates, our attrition rate and our fair value estimates using our cash flow projections.

The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.

Our estimates of fair value are based on assumptions believed to be reasonable at that time. If we made different estimates or judgments, it could result in material differences in the fair values of the net assets acquired.

10

Equity Compensation Plans

Share options awarded to employees, restricted stock units (RSUs) and shares of stock awarded to employees under certain stock purchase plans are recognized as compensation expense based on their fair value at grant date. The fair market value of options granted under the Company stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for inputs such as interest rates, expected dividends, an estimate of award forfeitures, volatility measures and specific employee exercise behavior patterns based on statistical data. Some of the inputs used are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different option values, which in turn would result in higher or lower compensation expense recognized. For RSUs, we use the intrinsic value method to value the units.

To value equity awards, several recognized valuation models exist; none of these models can be singled out as being the best or most correct. The model applied by us can accommodate most of the specific features included in the options granted, which is the reason for its use. If different models were used, the option values could differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options. Fair value could be either higher or lower than the number provided by the model applied and the inputs used. Further information on our equity compensation plans, including inputs used to determine the fair value of options, is disclosed in Note 7. "Equity Compensation Plans."

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carryforwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year.

New Accounting Pronouncements Not Yet Adopted

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.

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2. CASH AND MARKETABLE SECURITIES

Cash and Cash Equivalents

Cash and cash equivalents consist of bank demand accounts, savings deposits, certificates of deposit and commercial paper with original maturities of 90 days or less. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced losses related to these balances and believes it is not exposed to significant credit risk regarding its cash and cash equivalents. Cash and cash equivalents were $205,765 and $163,240 as of November 30, 2023 and May 31, 2023, respectively. The carrying value of these assets approximates fair value due to the short maturity of these instruments and is classified as Level 1 in the fair value hierarchy.

Marketable Securities

The Company has marketable securities held by banks or broker-dealers consisting of commercial paper and corporate bonds rated at least A-1/P-1 (short-term) and A/A2 (long-term) with original maturities between 91 days and two years. These securities are classified as available for sale. Changes in fair value are monitored and recorded on a monthly basis and are recorded in other comprehensive (loss) income. In the event of a downgrade in credit quality subsequent to purchase, the marketable securities investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable securities portfolio. If fair value is less than its amortized cost basis, then the Company evaluates whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses. Where there is an intention or a requirement to sell an impaired available-for-sale debt security, the entire impairment is recognized in earnings with a corresponding adjustment to the amortized cost basis of the security. The primary objective of management’s short-term investment activity is to preserve capital for the purpose of funding current operations, capital expenditures and business acquisitions. Short-term investments are not entered into for trading or speculative purposes. These securities are recorded at fair value based on recent trades or pricing models and therefore meet the Level 2 criteria. Interest income on these investments is recorded within other (expense) income on the condensed consolidated statements of operations.

Marketable Securities as of November 30, 2023 and May 31, 2023 are listed below by classification and remaining maturities.

|  | Maturity |  | November 30, 2023 |  |  | May 31, 2023 |
Commercial Paper & Corporate Bonds |  | 0 - 90 days |  | $ | 17,536 |  |  | $ | 22,552 |
|  | 91 - 180 days |  |  | 6,644 |  |  |  | 35,692 |
|  | 181 days - 1 year |  |  | 321 |  |  |  | 23,768 |
|  | 1 - 2 years |  |  | — |  |  |  | 317 |
Total Marketable Securities |  |  |  | $ | 24,501 |  |  | $ | 82,329 |

The components of marketable securities, consisting of commercial paper and corporate bonds, as of November 30, 2023 are as follows:

|  | Amortized Cost |  |  | Unrealized Gains |  |  | Unrealized Losses |  |  | Fair Value |
Commercial Paper & Corporate Bonds |  | $ | 24,615 |  |  | $ | — |  |  | $ | (114 | ) |  | $ | 24,501 |

The components of marketable securities, consisting of commercial paper and corporate bonds, as of May 31, 2023 are as follows:

|  | Amortized Cost |  |  | Unrealized Gains |  |  | Unrealized Losses |  |  | Fair Value |
Commercial Paper & Corporate Bonds |  | $ | 83,549 |  |  | $ | — |  |  | $ | (1,220 | ) |  | $ | 82,329 |

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3. INVENTORIES

Inventories are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. The components of inventories follow:

|  | November 30, 2023 |  |  | May 31, 2023 |
Raw materials |  | $ | 67,768 |  |  | $ | 66,617 |
Work-in-process |  |  | 6,645 |  |  |  | 5,369 |
Finished and purchased goods |  |  | 94,157 |  |  |  | 68,100 |
Inventory reserve |  |  | (8,041 | ) |  |  | (6,274 | )
|  | $ | 160,529 |  |  | $ | 133,812 |

4. REVENUE RECOGNITION

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
•
Rodent control products, disinfectants and insect control products 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 six months ended November 30, 2023, the Company recorded additions of $4,121 and $5,978 to deferred revenue, respectively. During the three and six months ended November 30, 2022, the Company recorded additions of $2,479 and $4,671 to deferred revenue, respectively. During the three and six months ended November 30, 2023, the Company recognized $3,231 and $5,915, respectively, of deferred revenue amounts into revenue. During the three and six months ended November 30, 2022, the Company recognized $2,860 and $5,048, respectively, of deferred revenue amounts into revenue. Changes in the balances relate primarily to sales of the Company's genomics services.

On September 1, 2022, Neogen closed on a Reverse Morris Trust transaction to combine with 3M Company's ("3M") Food Safety Division (“3M FSD”, “FSD”). Similar to Neogen, 3M’s former FSD 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. Revenues for these products are recognized and invoiced when the product

13

is shipped to the customer. Many of these products are currently manufactured, invoiced, and distributed by 3M on behalf of Neogen under a number of transition service contracts. However, the Company is currently in the process of exiting the distribution-related service contracts. This will be complete on a global basis by the end of the third quarter in fiscal 2024.

The following table presents disaggregated revenue by major product and service categories during the three and six months ended November 30, 2023 and 2022:

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Food Safety |  |  |  |  |  |  |  |  |  |  |  |
Natural Toxins & Allergens |  |  | 21,110 |  |  | $ | 22,251 |  |  | $ | 43,378 |  |  | $ | 42,038 |
Bacterial & General Sanitation |  |  | 42,774 |  |  |  | 41,121 |  |  |  | 87,998 |  |  |  | 51,849 |
Indicator Testing, Culture Media & Other |  |  | 83,758 |  |  |  | 82,084 |  |  |  | 165,644 |  |  |  | 101,338 |
Rodent Control, Insect Control & Disinfectants |  |  | 10,954 |  |  |  | 10,377 |  |  |  | 22,044 |  |  |  | 19,952 |
Genomics Services |  |  | 5,807 |  |  |  | 5,510 |  |  |  | 11,617 |  |  |  | 10,809 |
|  | $ | 164,403 |  |  | $ | 161,343 |  |  | $ | 330,681 |  |  | $ | 225,986 |
Animal Safety |  |  |  |  |  |  |  |  |  |  |  |
Life Sciences |  | $ | 1,677 |  |  | $ | 1,427 |  |  | $ | 3,338 |  |  | $ | 3,016 |
Veterinary Instruments & Disposables |  |  | 16,937 |  |  |  | 16,433 |  |  |  | 29,869 |  |  |  | 31,106 |
Animal Care & Other |  |  | 8,985 |  |  |  | 10,569 |  |  |  | 17,160 |  |  |  | 21,095 |
Rodent Control, Insect Control & Disinfectants |  |  | 19,953 |  |  |  | 20,665 |  |  |  | 42,639 |  |  |  | 42,879 |
Genomics Services |  |  | 17,674 |  |  |  | 19,596 |  |  |  | 34,929 |  |  |  | 38,300 |
|  |  | 65,226 |  |  |  | 68,690 |  |  |  | 127,935 |  |  |  | 136,396 |
Total Revenues |  | $ | 229,629 |  |  | $ | 230,033 |  |  | $ | 458,616 |  |  | $ | 362,382 |

5. NET LOSS PER SHARE

Basic net loss per share was computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share was computed using the treasury stock method by dividing net loss by the weighted average number of shares of common stock outstanding.

The calculation of net loss per share follows:

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Numerator for basic and diluted net loss per share: |  |  |  |  |  |  |  |  |  |  |  |
Net loss attributable to Neogen |  | $ | (3,487 | ) |  | $ | (41,841 | ) |  | $ | (1,984 | ) |  | $ | (36,632 | )
Denominator for basic net loss per share: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares |  |  | 216,410,493 |  |  |  | 216,134,350 |  |  |  | 216,359,511 |  |  |  | 161,689,929 |
Effect of dilutive stock options and RSUs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Denominator for diluted net loss per share |  |  | 216,410,493 |  |  |  | 216,134,350 |  |  |  | 216,359,511 |  |  |  | 161,689,929 |
Net loss per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.02 | ) |  | $ | (0.19 | ) |  | $ | (0.01 | ) |  | $ | (0.23 | )
Diluted |  | $ | (0.02 | ) |  | $ | (0.19 | ) |  | $ | (0.01 | ) |  | $ | (0.23 | )

Due to the net loss for the three and six months ended November 30, 2023 and the three and six months ended November 30, 2022, the dilutive stock options and RSUs would have been anti-dilutive.

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6. SEGMENT INFORMATION AND GEOGRAPHIC DATA

We have two reportable segments: Food Safety and Animal Safety. The Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation. All product revenues from the merger of the 3M FSD, effective September 1, 2022, are currently reported through the Food Safety segment. The Animal Safety segment is primarily engaged in the development, production and marketing of products dedicated to animal safety, including a complete line of consumable products marketed to veterinarians and animal health product distributors. This segment also provides genomic identification and related interpretive bioinformatic services. Additionally, the Animal Safety segment produces and markets rodent control products, disinfectants and insect control products to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

Our international operations in the United Kingdom, Mexico, Brazil, China and India originally focused on the Company’s food safety products, and each of these units reports through the Food Safety segment. In recent years, these operations have expanded to offer our complete line of products and services, including those usually associated with the Animal Safety segment, such as cleaners, disinfectants, rodent control products, insect control products, veterinary instruments and genomics services. These additional products and services are managed and directed by existing Food Safety management and are reported through the Food Safety segment.

Neogen’s operation in Australia originally focused on providing genomics services and sales of animal safety products and reports through the Animal Safety segment. With the acquisition of Cell BioSciences in February 2020, this operation expanded to offer our complete line of products and services, including those usually associated with the Food Safety segment. These additional products are managed and directed by existing management at Neogen Australasia and report through the Animal Safety segment.

The accounting policies of each of the segments are the same as those described in Note 1. "Description of Business and Basis of Presentation."

Segment information follows:

|  | Food Safety |  |  | Animal Safety |  |  | Corporate and Eliminations (1) |  |  | Total |
As of and during the three months ended November 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Product revenues to external customers |  | $ | 156,317 |  |  | $ | 47,552 |  |  | $ | — |  |  | $ | 203,869 |
Service revenues to external customers |  |  | 8,086 |  |  |  | 17,674 |  |  |  | — |  |  |  | 25,760 |
Total revenues to external customers |  | $ | 164,403 |  |  | $ | 65,226 |  |  | $ | — |  |  | $ | 229,629 |
Operating income (loss) |  | $ | 24,329 |  |  | $ | 7,739 |  |  | $ | (17,603 | ) |  | $ | 14,465 |
Total assets |  | $ | 4,029,108 |  |  | $ | 341,919 |  |  | $ | 231,388 |  |  | $ | 4,602,415 |
As of and during the three months ended November 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Product revenues to external customers |  | $ | 154,223 |  |  | $ | 49,094 |  |  | $ | — |  |  | $ | 203,317 |
Service revenues to external customers |  |  | 7,120 |  |  |  | 19,596 |  |  |  | — |  |  |  | 26,716 |
Total revenues to external customers |  | $ | 161,343 |  |  | $ | 68,690 |  |  | $ | — |  |  | $ | 230,033 |
Operating income (loss) |  | $ | 21,446 |  |  | $ | 12,806 |  |  | $ | (41,908 | ) |  | $ | (7,656 | )
Total assets |  | $ | 3,955,488 |  |  | $ | 329,177 |  |  | $ | 278,577 |  |  | $ | 4,563,242 |

(1)
Includes corporate assets, consisting principally of cash and cash equivalents, marketable securities, current and deferred tax accounts and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions.

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|  | Food Safety |  |  | Animal Safety |  |  | Corporate and Eliminations (1) |  |  | Total |
As of and during the six months ended November 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Product revenues to external customers |  | $ | 315,264 |  |  | $ | 93,006 |  |  | $ | — |  |  | $ | 408,270 |
Service revenues to external customers |  |  | 15,417 |  |  |  | 34,929 |  |  |  | — |  |  |  | 50,346 |
Total revenues to external customers |  | $ | 330,681 |  |  | $ | 127,935 |  |  | $ | — |  |  | $ | 458,616 |
Operating income (loss) |  | $ | 46,570 |  |  | $ | 16,095 |  |  | $ | (29,065 | ) |  | $ | 33,600 |
As of and during the six months ended November 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Product revenues to external customers |  | $ | 212,013 |  |  | $ | 98,096 |  |  | $ | — |  |  | $ | 310,109 |
Service revenues to external customers |  |  | 13,973 |  |  |  | 38,300 |  |  |  | — |  |  |  | 52,273 |
Total revenues to external customers |  |  | 225,986 |  |  |  | 136,396 |  |  |  | - |  |  |  | 362,382 |
Operating income (loss) |  |  | 30,042 |  |  |  | 24,687 |  |  |  | (56,323 | ) |  |  | (1,594 | )

(1)
Includes the elimination of intersegment transactions.

The following table presents the Company’s revenue disaggregated by geographic location:

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Domestic |  | $ | 113,554 |  |  | $ | 114,413 |  |  | $ | 224,622 |  |  | $ | 195,055 |
International |  |  | 116,075 |  |  |  | 115,620 |  |  |  | 233,994 |  |  |  | 167,327 |
Total revenue |  | $ | 229,629 |  |  | $ | 230,033 |  |  | $ | 458,616 |  |  | $ | 362,382 |

7. EQUITY COMPENSATION PLANS

The Company’s long-term incentive plans allow for the grant of various types of share-based awards to key directors, officers and employees of the Company. Incentive and non-qualified options to purchase shares of common stock have been granted under the terms of the 2023 Omnibus Incentive Plan and previously under the 2018 Omnibus Incentive Plan. These options are granted at an exercise price of the closing price of the common stock on the date of grant. Outstanding options vest ratably over three-year and five-year periods, and the contractual terms are generally five, seven or ten years. The company grants restricted stock units (RSUs) under the terms of the 2023 Omnibus Incentive Plan. Outstanding RSUs vest ratably over three-year and five-year periods. T he fair value of the RSUs is determined based on the closing price of the common stock on the date of grant.

During the three and six months ended November 30, 2023, the Company recorded $3,512 and $6,150, respectively, of expense related to its share-based awards, recorded in general and administrative expense in the condensed consolidated income statement. During the three and six months ended November 30, 2022, the Company recorded $2,632 and $4,499, respectively, of expense related to its share-based awards.

The Company offers eligible employees the option to purchase common stock at a 5% discount to the lower of the market value of the stock at the beginning or end of each participation period under the terms of the 2021 Employee Stock Purchase Plan. The discount is recorded in general and administrative expense. Total individual purchases in any year are limited to 10% of compensation.

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8. BUSINESS COMBINATIONS

The condensed consolidated statements of operations reflect the results of operations for business acquisitions since the respective dates of purchase. All are accounted for using the acquisition method. Goodwill recognized in the acquisitions discussed below relates primarily to enhancing the Company’s strategic platform for the expansion of available product offerings.

Fiscal 2023

Thai-Neo Biotech Co., Ltd. Acquisition

On July 1, 2022, Neogen acquired all of the stock of Thai-Neo Biotech Co., Ltd., a longstanding distributor of Neogen’s food safety products to Thailand and Southeast Asia. Consideration for the purchase was $1,581 in net cash, with $1,310 paid at closing, $37 paid in November 2022 as a working capital adjustment and $234 paid in October 2023. The final purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $177, inventory of $232, prepaids of $3, net property, plant and equipment of $16, other non-current assets of $6, accounts payable of $98, other payables of $6, non-current tax liabilities of $124, intangible assets of $620 (with an estimated life of 10 years) and the remainder to goodwill (non-deductible for tax purposes). The business continues to operate in Bangkok, Thailand, reporting within the Food Safety segment.

Corvium Acquisition

On February 10, 2023, the Company acquired certain assets as part of an asset purchase agreement with Corvium, Inc., a partner and supplier within the Company's software analytics platform. This acquisition, which primarily includes the software technology, advances the Company's food safety data analytics strategy. The purchase price consideration was $24,067, which included $9,004 held in escrow. In the first quarter of fiscal 2024, $8,000 of the escrow balance was released to Corvium, Inc. This transaction is a business combination and was accounted for using the acquisition method.

There also is the potential for performance milestone payments of up to $8,500 based on successful implementation of the software service at customer sites and sale of licenses. As a result, the Company has recorded contingent liabilities of $930 as part of the opening balance sheet within other non-current liabilities, as shown below.

In the first quarter of fiscal 2024, the Company recorded adjustments to intangible assets of $100, which increased the balance, based on finalization of a third-party advisor's valuation work and fair value estimates. Goodwill, which is fully deductible for tax purposes, includes value associated with profits earned from data management solutions that can be offered to existing customers and the expertise and reputation of the assembled workforce. These values are Level 3 fair value measurements.

The final purchase price allocation, based upon the fair value of these assets acquired and liabilities assumed, which was determined using the income approach, is summarized in the following table:

Prepaids and other current assets |  | $ | 66 |
Property, plant and equipment |  |  | 13 |
Intangible assets |  |  | 10,280 |
Deferred revenue |  |  | (1,827 | )
Adjustment of annual license prepaid |  |  | (419 | )
Other non-current liabilities |  |  | (930 | )
Total identifiable assets and liabilities acquired |  |  | 7,183 |
Goodwill |  |  | 16,884 |
Total purchase consideration |  | $ | 24,067 |

For each completed acquisition listed above, the revenues and net income were not considered material and were therefore not disclosed.

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3M Food Safety Transaction

On September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation (“Neogen Food Safety Corporation”), a subsidiary created to carve out 3M’s FSD, closed on a transaction combining 3M’s FSD with Neogen in a Reverse Morris Trust transaction and Neogen Food Safety Corporation became a wholly owned subsidiary of Neogen (“FSD transaction”). Immediately following the FSD transaction, pre-merger Neogen Food Safety Corporation stockholders owned, in the aggregate, approximately 50.1% of the issued and outstanding shares of Neogen common stock and pre-merger Neogen shareholders owned, in the aggregate, approximately 49.9% of the issued and outstanding shares of Neogen common stock. This transaction is a business combination and was accounted for using the acquisition method.

The purchase price consideration for the 3M FSD was $3.2 billion, net of customary purchase price adjustments and transaction costs, which consisted of 108,269,946 shares of Neogen common stock issued on closing with a fair value of $2.2 billion and cash consideration of $1 billion, funded by the additional financing secured by the Company. See Note 10. "Debt" for further detail on the debt incurred.

In the first quarter of fiscal 2024, the Company recorded adjustments to goodwill and intangible assets, based on third-party advisor's valuation work and fair value estimates, resulting in an increase to goodwill and a decrease to the intangible assets balance. The company also recorded adjustments to deferred tax liabilities, which increased the balance, based on finalization of entity income tax provisions. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets of $1.97 billion was recorded as goodwill, of which $1.92 billion is not deductible for tax purposes. Goodwill includes value associated with profits earned from market and expansion capabilities, expected synergies from integration and streamlining operational activities, the expertise and reputation of the assembled workforce and other intangible assets that do not qualify for separate recognition. These values are Level 3 fair value measurements.

The final purchase price allocation, based upon the fair value of these assets acquired and liabilities assumed, which was determined using the income approach, is summarized in the following table:

Cash and cash equivalents |  | $ | 319 |
Inventories |  |  | 18,403 |
Other current assets |  |  | 14,855 |
Property, plant and equipment |  |  | 25,832 |
Intangible assets |  |  | 1,559,805 |
Right of use asset |  |  | 882 |
Lease liability |  |  | (885 | )
Deferred tax liabilities |  |  | (352,636 | )
Other liabilities |  |  | (2,832 | )
Total identifiable assets and liabilities acquired |  |  | 1,263,743 |
Goodwill |  |  | 1,974,870 |
Total purchase consideration |  | $ | 3,238,613 |

The following table summarizes the intangible assets acquired and the useful life of these assets.

|  | Fair Value |  |  | Useful Life in Years |
Trade Names and Trademarks |  | $ | 108,434 |  |  |  | 25 |
Developed Technology |  |  | 277,650 |  |  |  | 15 |
Customer Relationships |  |  | 1,173,721 |  |  |  | 20 |
Total intangible assets acquired |  | $ | 1,559,805 |  |  |  |

During the three and six months ended November 30, 2023, integration expenses and professional fees related to the transaction of $4,585 and $6,246 were expensed. In the three and six months ended November 30, 2022, acquisition related costs of $39,132 and $52,864 were expensed. These costs are included in general and administrative expenses in the Company’s condensed consolidated statements of operations.

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The operating results of the FSD have been included in the Company’s condensed consolidated statements of operations since the acquisition date. In the second quarter of fiscal 2024, the FSD’s total revenue was $99,847 and operating income was approximately $12,000. The operating income includes $4,585 of integration expenses and professional fees related to the transaction and $20,120 of amortization expense for acquired intangible assets.

The following table presents pro forma information as if the merger with the 3M FSD business had occurred on June 1, 2022 and had been combined with the results reported in our condensed consolidated statements of operations for all periods presented:

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net sales |  | $ | 229,629 |  |  | $ | 230,033 |  |  | $ | 458,616 |  |  | $ | 459,894 |
Operating Income (Loss) |  | $ | 14,465 |  |  | $ | (7,656 | ) |  | $ | 33,600 |  |  | $ | 3,437 |

The unaudited pro forma information is presented for informational purposes only and is not indicative of the results that would have been achieved if the merger had taken place at such time. The unaudited pro forma information presented above includes adjustments primarily for amortization charges for acquired intangible assets and certain acquisition-related expenses for legal and professional fees.

In connection with the acquisition of the 3M FSD, the Company and 3M entered into several transition service agreements, including manufacturing, distribution and certain back-office support, that have been accounted for separately from the acquisition of assets and assumption of liabilities in the business combination. 3M periodically remits amounts charged to customers on our behalf and charges us for the associated cost of goods sold and transition service fees. As of November 30, 2023 and May 31, 2023, a net receivable from 3M of $25,337 and $12,365, respectively, was included in prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets.

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9. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes goodwill by reportable segment:

|  | Food Safety |  |  | Animal Safety |  |  | Total |
May 31, 2023 |  | $ | 2,056,161 |  |  | $ | 81,335 |  |  | $ | 2,137,496 |
Acquisitions(1) |  |  | 250 |  |  |  | — |  |  |  | 250 |
Foreign currency translation and other |  |  | 181 |  |  |  | 56 |  |  |  | 237 |
November 30, 2023 |  | $ | 2,056,592 |  |  | $ | 81,391 |  |  | $ | 2,137,983 |

(1)
Represents measurement period adjustments relating to our 3M FSD and Corvium acquisitions.

As of May 31, 2023, non-amortizable intangible assets included li censes of $569, trademarks of $12,522 and other intangibles of $1,224.

Amortizable intangible assets consisted of the following and are included in customer-based intangibles and other non-current assets within the condensed consolidated balance sheets:

|  | Gross Carrying Amount |  |  | Less Accumulated Amortization |  |  | Net Carrying Amount |
Licenses |  | $ | 20,624 |  |  | $ | 7,585 |  |  | $ | 13,039 |
Covenants not to compete |  |  | 490 |  |  |  | 421 |  |  |  | 69 |
Patents |  |  | 7,988 |  |  |  | 4,149 |  |  |  | 3,839 |
Customer relationships |  |  | 1,247,000 |  |  |  | 109,660 |  |  |  | 1,137,340 |
Trade names and trademarks |  |  | 122,992 |  |  |  | 7,296 |  |  |  | 115,696 |
Developed technology |  |  | 307,577 |  |  |  | 30,741 |  |  |  | 276,836 |
Other product and service-related intangibles |  |  | 23,894 |  |  |  | 5,969 |  |  |  | 17,925 |
November 30, 2023 |  | $ | 1,730,565 |  |  | $ | 165,821 |  |  | $ | 1,564,744 |
Licenses |  | $ | 16,010 |  |  | $ | 6,763 |  |  | $ | 9,247 |
Covenants not to compete |  |  | 488 |  |  |  | 384 |  |  |  | 104 |
Patents |  |  | 8,499 |  |  |  | 4,865 |  |  |  | 3,634 |
Customer relationships |  |  | 1,244,635 |  |  |  | 81,577 |  |  |  | 1,163,058 |
Trade names and trademarks |  |  | 111,172 |  |  |  | 3,583 |  |  |  | 107,589 |
Developed technology |  |  | 309,609 |  |  |  | 20,175 |  |  |  | 289,434 |
Other product and service-related intangibles |  |  | 23,628 |  |  |  | 5,907 |  |  |  | 17,721 |
May 31, 2023 |  | $ | 1,714,041 |  |  | $ | 123,254 |  |  | $ | 1,590,787 |

Amortization expense relating to definite-lived intangible assets was $23,693 and $47,397 during the three and six months ended November 30, 2023, respectively. Amortization expense relating to definite-lived intangible assets was $22,687 and $25,069 during the three and six months ended November 30, 2022, respectively.

Estimated amortization expense for fiscal years 2024 through 2028 is expected to be in the range of approximately $95,000 to $97,000 per year.

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The amortizable intangible assets useful lives are 2 to 20 years for licenses, 3 to 10 years for covenants not to compete, 5 to 25 years for patents, 9 to 20 years for customer relationships, 5 to 25 years for trade names and trademarks, 10 to 20 years for developed technology and 5 to 15 years for other product and service-related intangibles. All definite-lived intangibles are amortized on a straight-line basis with the exception of definite-lived customer-based intangibles and product and service-related intangibles, which are amortized on either a straight-line or an accelerated basis.

10. DEBT

The Company’s debt and finance lease consists of the following:

|  | November 30, 2023 |  |  | May 31, 2023 |
Term Loan |  | $ | 550,000 |  |  | $ | 550,000 |
Senior Notes |  |  | 350,000 |  |  |  | 350,000 |
Finance Lease |  |  | 2,569 |  |  |  | — |
Total debt and finance lease |  |  | 902,569 |  |  |  | 900,000 |
Less: Current portion |  |  | (2,569 | ) |  |  | — |
Total non-current debt |  |  | 900,000 |  |  |  | 900,000 |
Less: Unamortized debt issuance costs |  |  | (13,085 | ) |  |  | (14,561 | )
Total non-current debt, net |  | $ | 886,915 |  |  | $ | 885,439 |

The Company had a financing agreement with a bank providing for a $15,000 unsecured revolving line of credit, which originally expired on November 30, 2023, but was replaced by the five-year senior secured revolving facility as part of the Credit Facilities described below. There were no advances against the line of credit in fiscal 2023 before it was extinguished. Interest on any borrowings under that agreement was at LIBOR plus 100 basis points. Financial covenants included maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in compliance with during the period the line of credit was available.

Credit Facilities

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 $650,000 and a five-year senior secured revolving facility (“revolving facility”) in the amount of $150,000 (collectively, the “Credit Facilities”) to fund the 3M Food Safety transaction. The term loan facility was drawn on August 31, 2022, to fund the closing of the 3M Food Safety transaction on September 1, 2022 while the revolving facility rema ined undrawn and continues to be undrawn as of November 30, 2023.

The Credit Facilities bear interest based on the term SOFR plus an applicable margin between a range of 150 to 225 basis points determined for each interest period and paid monthly. During the six months ended November 30, 2023, the interest rates ranged from 7.42% to 7.67% per annum. 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 November 2022, the Company entered into an interest rate swap agreement, whereby interest on $250,000 of the total $550,000 principal balance is paid at a fixed rate. See Note 13. "Derivatives" for further detail on the swap agreement.

The term loan facility contains an optional prepayment feature at the discretion of the Company. The Company determined that the prepayment feature did not meet the definition of an embedded derivative and does not require bifurcation from the host liability and, accordingly, has accounted for the entire instrument at amortized cost. In accordance with the prepayment feature, the Company paid $100,000 of the term loan facility’s principal in fiscal year 2023.

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The Company can draw any amount under the revolving facility up to the $150,000 limit, with the amount to be repaid on the termination date of the revolving commitments. Debt issuance costs of $2,361 were incurred related to the revolving facility. These costs are being amortized as interest expense in the condensed consolidated statements of operations over the contractual life of the revolving facility using the straight-line method. Amortization of the deferred debt issuance costs for the revolving facility was $122 and $244, respectively, during the three and six months ended November 30, 2023. Amortization of the deferred debt issuance costs for the revolving facility was $122 for the three and six months ended November 30, 2022. As of November 30, 2023 and May 31, 2023 the Company had $1,751 and $1,995, respectively, of unamortized debt issuance costs.

The Company must pay an annual commitment fee ranging from 0.20% and 0.35% on the unused portion of the Revolving Credit Facility, paid quarterly. As of November 30, 2023, the commitment fee was 0.30%, with $111 and $245, respectively, recorded as interest expense in the condensed consolidated statements of operations during the three and six months ended November 30, 2023. During the three and six months ended November 30, 2022, $133 and $225, respectively, relating to the commitment fee was recorded as interest expense in the consolidated statements of operations.

There was no accrued interest payable on the term loan as of November 30, 2023. The Company incurred $10,232 in total debt issuance costs on the term loan which is recorded as an offset to the term loan facility and amortized over the contractual life of the loan to interest expense using the straight-line method. The amortization of deferred debt issuance costs of $529 and $1,059 and interest expense of $10,267 and $20,868 (excluding swap credit of $764 and $1,452) for the term loan was included in the condensed consolidated statements of operations during the three and six months ended November 30, 2023, respectively. The amortization of deferred debt issuance costs of $529 and interest expense of $8,327 was included in the consolidated statements of operations during the three and six months ended November 30, 2022. As of November 30, 2023 and May 31, 2023 the Company had $7,585 and $8,644, respectively, of unamortized debt issuance costs.

Financial covenants include maintaining specified levels of funded debt to EBITDA, and debt service coverage. As of November 30, 2023, the Company was in compliance with its debt covenants.

Senior Notes

In July 2022, Neogen Food Safety Corporation closed on an offering of $350,000 aggregate principal amount of 8.625% senior notes due in 2030 (the “Notes”) in a private placement at par. The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Upon closing of the 3M Food Safety transaction on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by the Company and certain wholly-owned domestic subsidiaries of the Company.

The Company determined that the redemption features of the Notes did not meet the definition of a derivative and thus does not require bifurcation from the host liability and accordingly has accounted for the entire instrument at amortized cost.

Total accrued interest on the Notes was $10,985 as of November 30, 2023 and May 31, 2023 based on the stated interest rate of 8.625% and included in current liabilities on the condensed consolidated balance sheets. The Company incurred total debt issuance costs of $6,683, which are recorded as an offset to the Notes and amortized over the contractual life of the Notes to interest expense using the straight-line method. During the three and six months ended November 30, 2023, the Company recorded $7,756 and $15,511 of interest expense for the Notes in the condensed consolidated statements of operations, of which $209 and $417 related to the amortization of deferred debt issuance costs, respectively. During the three and six months ended November 30, 2022, the Company recorded $10,985 of interest expense in the consolidated statements of operations, of which $348 related to the amortization of deferred debt issuance costs. As of November 30, 2023 and May 31, 2023 the Company had $5,500 and $5,917, respectively, of unamortized debt issuance costs.

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Finance Lease

The finance lease as of November 30, 2023 is a building lease that is classified within property and equipment and the current portion of debt on the condensed consolidated balance sheets. The Company intends to elect the purchase option within the lease agreement prior to the end of the lease term.

Maturity of Term Loan and Senior Notes

There are no required principal payments through fiscal year 2026, due to $100,000 in prepayments made in fiscal 2023.

11. INCOME TAXES

Income tax benefit was $260 and $100 during the three and six months ended November 30, 2023. Income tax expense was $7,750 and $9,200 during the three and six months ended November 30, 2022. The net tax benefit during the three and six months ended November 30, 2023 is primarily related to pre-tax losses resulting from amortization expense, interest expense and continued integration efforts of the 3M FSD. In the prior comparable periods, the net tax expense, despite pre-tax losses, is primarily related to certain non-deductible acquisition and transaction costs related to the 3M FSD transaction.

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of November 30, 2023 and May 31, 2023 are $1,046 and $1,087, respectively. Changes in unrecognized tax benefits are primarily associated with the acquired 3M FSD, including positions for transfer pricing and research and development credits.

12. COMMITMENTS AND CONTINGENCIES

The Company is involved in environmental remediation and monitoring activities at its Randolph, Wisconsin manufacturing facility and accrues for related costs when such costs are determined to be probable and estimable. The Company currently utilizes a pump and treat remediation strategy, which includes semi-annual monitoring and reporting, consulting, and maintenance of monitoring wells. These annual remediation costs are expensed and have ranged from $38 to $131 per year over the past five years. The Company’s estimated remaining liability for these costs is $916 as of both November 30, 2023 and May 31, 2023, measured on an undiscounted basis over an estimated period of 15 years. In fiscal 2019, the Company performed an updated Corrective Measures Study on the site, per a request from the Wisconsin Department of Natural Resources (WDNR) and is currently in discussion with the WDNR regarding potential alternative remediation strategies going forward. The Company believes that the current pump and treat strategy is appropriate for the site. However, the Company has undertaken a pilot study in which chemical reagents were injected into the ground in an attempt to reduce on-site contamination. At this time, the outcome of the pilot study is unknown, but a change in the current remediation strategy, depending on the alternative selected, could result in an increase in future costs and ultimately, an increase in the currently recorded liability, with an offsetting charge to operations in the period recorded. The Company has recorded $100 as a current liability as of November 30, 2023, and the remaining $816 is recorded in other non-current liabilities in the condensed consolidated balance sheets.

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

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13. DERIVATIVES

Derivatives Not Designated as Hedging Instruments

We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and have entered into a number of foreign currency forward contracts each month to mitigate that exposure. These contracts are recorded net at fair value on our condensed consolidated balance sheets, classified as Level 2 in the fair value hierarchy. Gains and losses from these contracts are recognized in other income in our condensed consolidated statements of operations. The notional amount of forward contracts in place was $65,041 and $15,500 as of November 30, 2023 and May 31, 2023, respectively, and consisted of hedges of transactions up to January 2024.

Fair Value of Derivatives Not Designated as Hedging Instruments |  | Balance Sheet Location |  | November 30, 2023 |  |  | May 31, 2023 |
Foreign currency forward contracts, net |  | Other (payable) receivable |  | $ | (389 | ) |  | $ | 140 |

The location and amount of gains (losses) from derivatives not designated as hedging instruments in our condensed consolidated statements of operations were as follows:

|  |  |  | Three Months Ended |
Derivatives Not Designated as Hedging Instruments |  | Location in statements of operations |  | November 30, 2023 |  |  | November 30, 2022 |
Foreign currency forward contracts |  | Other expense |  | $ | (221 | ) |  | $ | (9,128 | )

|  |  | Six Months Ended |
Derivatives Not Designated as Hedging Instruments |  | Location in statements of operations |  | November 30, 2023 |  |  | November 30, 2022 |
Foreign currency forward contracts |  | Other expense |  | $ | (541 | ) |  | $ | (8,248 | )

Derivatives Designated as Hedging Instruments

In November 2022, we entered into a receive-variable, pay-fixed interest rate swap agreement with an initial $250,000 notional value, which is designated as a cash flow hedge. This agreement fixed a portion of the variable interest due on our term loan facility, with an effective date of December 2, 2022 and a maturity date of June 30, 2027. Under the terms of the agreement, we pay a fixed interest rate of 4.215%, plus an applicable margin ranging between 150 to 225 basis points and receive a variable rate of interest based on term SOFR from the counterparty, which is reset according to the duration of the SOFR term. The fair value of the interest rate swap as of November 30, 2023 and May 31, 2023 was a net asset (liability) of $745 and ($2,683), respectively. The Company expects to reclassify a $2,265 gain of accumulated other comprehensive income into earnings in the next 12 months.

We record the fair value of our interest rate swaps on a recurring basis using Level 2 observable market inputs for similar assets or liabilities in active markets.

Fair Value of Derivatives Designated as Hedging Instruments |  | Balance Sheet Location |  | November 30, 2023 |  |  | May 31, 2023 |
Interest rate swap – current |  | Other current assets |  | $ | 2,265 |  |  | $ | 2,087 |
Interest rate swap – non-current |  | Other non-current liabilities |  |  | (1,521 | ) |  |  | (4,770 | )

The following table summarizes the other comprehensive income before reclassifications of derivative gains and losses:

|  | Other Comprehensive Income Before Reclassifications During |
|  | Three Months Ended |  | Six Months Ended |
Derivatives Designated as Hedging Instruments |  | November 30, 2023 |  |  | November 30, 2022 |  | November 30, 2023 |  |  | November 30, 2022 |
Interest rate swaps |  | $ | 229 |  |  | $ | (2,428 | ) | $ | 3,708 |  |  | $ | (2,428 | )

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The following table summarizes the reclassification of derivative gains and losses into net loss from accumulated other comprehensive income (loss):

|  |  |  | Gain Reclassified During |
|  |  |  | Three Months Ended |  |  | Six Months Ended |
Derivatives Designated as Hedging Instruments |  | Location of Gain Reclassified |  | November 30, 2023 |  |  | November 30, 2022 |  |  | November 30, 2023 |  |  | November 30, 2022 |
Interest rate swaps |  | Interest expense |  | $ | 580 |  |  | $ | — |  |  | $ | 1,103 |  |  | $ | — |

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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 may be 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, including circumstances beyond our control at our transition manufacturing partner, competition, recruitment, retention, dependence on 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 between Israel and Hamas, identification and integration of acquisitions, research and development risks, intellectual property protection, government regulation and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition, any forward-looking statements represent management’s views only as of the day 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, labor market disruptions and other related lingering impacts of the COVID-19 pandemic. Additionally, input costs inflation, including increases in certain raw materials, negatively impacted operating results. In fiscal 2023, these negative impacts steadily improved throughout the fiscal year. In fiscal 2024, despite a slowing of inflation rates, there remains economic headwinds of softening consumer demand and high 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, subsequently, increased our borrowing costs and raised the overall cost of capital. While the frequent increases have largely subsided, the overall rate is significantly higher than in recent years, which increases interest expense on the unhedged portion of our Term Loan.

In response to the historically high inflationary environment, we have taken pricing actions to mitigate the impacts on the business. We anticipate that the impact of inflation will continue to affect us throughout fiscal year 2024, although at a continually decreasing rate compared to the prior two fiscal years.

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Although we have no operations in or direct exposure to Russia, Belarus and 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 conflict between Israel and Hamas has 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 2024.

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 2024.

Executive Overview

|  | Three Months Ended November 30, |  |  |  |  |  | Six Months Ended November 30, |  |  |  |
(in thousands) |  | 2023 |  |  | 2022 |  |  | % Change |  |  | 2023 |  |  | 2022 |  |  | % Change |
Consolidated |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  | $ | 229,629 |  |  | $ | 230,033 |  |  |  | (0 | )% |  | $ | 458,616 |  |  | $ | 362,382 |  |  |  | 27 | %
Core Sales Growth* |  |  |  |  |  |  |  |  | (1 | )% |  |  |  |  |  |  |  |  | (1 | )%
Food Safety |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  | $ | 164,403 |  |  | $ | 161,343 |  |  |  | 2 | % |  | $ | 330,681 |  |  | $ | 225,986 |  |  |  | 46 | %
Core Sales Growth* |  |  |  |  |  |  |  |  | 1 | % |  |  |  |  |  |  |  |  | 2 | %
Animal Safety |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  | $ | 65,226 |  |  | $ | 68,690 |  |  |  | (5 | )% |  | $ | 127,935 |  |  | $ | 136,396 |  |  |  | (6 | )%
Core Sales Growth* |  |  |  |  |  |  |  |  | (5 | )% |  |  |  |  |  |  |  |  | (6 | )%
% of International Sales |  |  | 51 | % |  |  | 50 | % |  |  |  |  |  | 51 | % |  |  | 46 | % |  |  |
Effective Tax Rate |  |  | 6.9 | % |  |  | (22.7 | )% |  |  |  |  |  | 4.8 | % |  |  | (33.5 | )% |  |  |
Net Loss |  | $ | (3,487 | ) |  | $ | (41,841 | ) |  |  | (92 | )% |  | $ | (1,984 | ) |  | $ | (36,632 | ) |  |  | (95 | )%
Loss per Diluted Share |  |  | (0.02 | ) |  |  | (0.19 | ) |  |  |  |  |  | (0.01 | ) |  |  | (0.23 | ) |  |  |
Cash from (for) Operations |  |  |  |  |  |  |  |  |  |  |  | 38,723 |  |  |  | (32,869 | ) |  |  |

* Refer to the non-GAAP financial measures section in this document.

•
Food Safety core sales exclude revenues from the FSD transaction (September 2022), the Thai-Neo Biotech acquisition (July 2022), the Corvium acquisition (February 2023) and excludes the change in currency rates. Core sales also exclude the discontinued dairy antibiotics test kit product line and acquired 3M temperature indicator product line.
•
Animal Safety core sales exclude the change in currency rates and the discontinued Thyrokare product line.

Service Revenue

Service revenue, which includes genomics testing and other laboratory services, was $25.8 million and $50.3 million, respectively, during the three and six months ended November 30, 2023. Service revenue was $26.7 million and $52.3 million, respectively, during the three and six months ended November 30, 2022. The decrease was primarily driven by the attrition of a large domestic customer in the poultry market as the Company shifts its strategic focus to larger production animals, partially offset by strength in beef testing in Australia and new business in beef markets in Europe.

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International Revenue

International sales were $116.1 million and $234.0 million during the three and six months ended November 30, 2023, compared to $115.6 million and $167.3 million during the three and six months ended November 30, 2022. The increase during the six months ended November 30, 2023 was primarily due to $63.8 million in international sales related to the 3M FSD transaction during the first quarter of fiscal 2024. The increase in sales in the second quarter as compared to the same period in the prior year was primarily due to strength of indicator and pathogen testing products in Central and South American countries. These increases were partially offset by lower sales of food safety products in Europe due to supply challenges attributable, in part, to our recent exit from the transition distribution services agreement with 3M.

Revenues

|  | Three Months Ended November 30, |  |  |  |  |  |  |
(in thousands) |  | 2023 |  |  | 2022 |  |  | Increase/(Decrease) |  |  | % |
Food Safety |  |  |  |  |  |  |  |  |  |  |  |
Natural Toxins & Allergens |  | $ | 21,110 |  |  | $ | 22,251 |  |  | $ | (1,141 | ) |  |  | (5 | )%
Bacterial & General Sanitation |  |  | 42,774 |  |  |  | 41,121 |  |  |  | 1,653 |  |  |  | 4 | %
Indicator Testing, Culture Media & Other |  |  | 83,758 |  |  |  | 82,084 |  |  |  | 1,674 |  |  |  | 2 | %
Rodent Control, Insect Control & Disinfectants |  |  | 10,954 |  |  |  | 10,377 |  |  |  | 577 |  |  |  | 6 | %
Genomics Services |  |  | 5,807 |  |  |  | 5,510 |  |  |  | 297 |  |  |  | 5 | %
|  |  | 164,403 |  |  |  | 161,343 |  |  |  | 3,060 |  |  |  | 2 | %
Animal Safety |  |  |  |  |  |  |  |  |  |  |  |
Life Sciences |  | $ | 1,677 |  |  | $ | 1,427 |  |  | $ | 250 |  |  |  | 18 | %
Veterinary Instruments & Disposables |  |  | 16,937 |  |  |  | 16,433 |  |  |  | 504 |  |  |  | 3 | %
Animal Care & Other |  |  | 8,985 |  |  |  | 10,569 |  |  |  | (1,584 | ) |  |  | (15 | )%
Rodent Control, Insect Control & Disinfectants |  |  | 19,953 |  |  |  | 20,665 |  |  |  | (712 | ) |  |  | (3 | )%
Genomics Services |  |  | 17,674 |  |  |  | 19,596 |  |  |  | (1,922 | ) |  |  | (10 | )%
|  |  | 65,226 |  |  |  | 68,690 |  |  |  | (3,464 | ) |  |  | (5 | )%
Total Revenues |  | $ | 229,629 |  |  | $ | 230,033 |  |  | $ | (404 | ) |  |  | (0 | )%

|  | Six Months Ended November 30, |  |  |  |  |  |  |
(in thousands) |  | 2023 |  |  | 2022 |  |  | Increase/(Decrease) |  |  | % |
Food Safety |  |  |  |  |  |  |  |  |  |  |  |
Natural Toxins & Allergens |  | $ | 43,378 |  |  | $ | 42,038 |  |  | $ | 1,340 |  |  |  | 3 | %
Bacterial & General Sanitation |  |  | 87,998 |  |  |  | 51,849 |  |  |  | 36,149 |  |  |  | 70 | %
Indicator Testing, Culture Media & Other |  |  | 165,644 |  |  |  | 101,338 |  |  |  | 64,306 |  |  |  | 63 | %
Rodent Control, Insect Control & Disinfectants |  |  | 22,044 |  |  |  | 19,952 |  |  |  | 2,092 |  |  |  | 10 | %
Genomics Services |  |  | 11,617 |  |  |  | 10,809 |  |  |  | 808 |  |  |  | 7 | %
|  |  | 330,681 |  |  |  | 225,986 |  |  |  | 104,695 |  |  |  | 46 | %
Animal Safety |  |  |  |  |  |  |  |  |  |  |  |
Life Sciences |  | $ | 3,338 |  |  | $ | 3,016 |  |  | $ | 322 |  |  |  | 11 | %
Veterinary Instruments & Disposables |  |  | 29,869 |  |  |  | 31,106 |  |  |  | (1,237 | ) |  |  | (4 | )%
Animal Care & Other |  |  | 17,160 |  |  |  | 21,095 |  |  |  | (3,935 | ) |  |  | (19 | )%
Rodent Control, Insect Control & Disinfectants |  |  | 42,639 |  |  |  | 42,879 |  |  |  | (240 | ) |  |  | (1 | )%
Genomics Services |  |  | 34,929 |  |  |  | 38,300 |  |  |  | (3,371 | ) |  |  | (9 | )%
|  |  | 127,935 |  |  |  | 136,396 |  |  |  | (8,461 | ) |  |  | (6 | )%
Total Revenues |  | $ | 458,616 |  |  | $ | 362,382 |  |  | $ | 96,234 |  |  |  | 27 | %

Food Safety

Natural Toxins & Allergens – Revenues in this category decreased 5% during the three months ended November 30, 2023 compared to the same period in the prior year. Excluding currency impact and sales of drug residue test kits that were largely discontinued in fiscal 2023, core revenue in this category decreased 4%. In the second quarter of the fiscal year, growth in sales of allergen test kits was offset by a decline in the sale of natural toxins test kits, driven primarily by shipment delays. During the six months ended November 30, 2023, revenues in this category

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increased 3% compared to the same period in the prior year. On a core growth basis, revenues increased 1% in the year-to-date period, driven by strong sales of allergen test kits, primarily gluten and milk, during the first quarter, which offset the headwinds in sales of natural toxin test kits during the most recent fiscal quarter.

Bacterial & General Sanitation – Revenues in this category increased 4% and 70% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth in this category was 5% and 6%, during the three and six months ended November 30, 2023, respectively. The increase during the current quarter was driven primarily by higher sales of pathogen test kits and hygiene monitoring products in Latin America. Strong placements of Soleris® microbiological diagnostic equipment in the first quarter also contributed to the year-to-date core growth.

Indicator Testing, Culture Media & Other – Revenues in this category increased 2% and 63% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth was slightly positive during the quarter and decreased 1% during the year-to-date period. Strong indicator testing revenues during the quarter in North America and Latin America more than offset softer culture media sales due to a large, non-recurring sale to a vaccine manufacturer in the prior year and, to a lesser extent, shipment delays. For the year-to-date period, a first-quarter decline in sales of Megazyme food quality and nutritional analysis products, due to distributor ordering patterns, contributed to the year-to-date core revenue decline.

Rodent Control, Insect Control & Disinfectants – Revenues in this category increased 6% and 10% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. During the second quarter, core revenue decreased in this category by 1%, driven by lower sales of cleaners and disinfectants in China and rodent control products in Latin America. On a year-to-date basis, core revenue increased 6%, driven primarily by strong cleaner and disinfectant sales in the Middle East and U.K.

Genomics Services – Revenues of genomics services sold through our international Food Safety operations increased 5% and 7% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth in this category was 1% in the second quarter, driven by increased sales in China. On a year-to-date basis, core growth was 4%, led by new business in beef markets in the U.K. and Brazil.

Animal Safety

Life Sciences – Revenues in this category increased 18% and 11% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year, primarily due to increased demand for substrates from manufacturers of diagnostic tests.

Veterinary Instruments & Disposables – Revenues in this category increased 3% during the three months ended November 30, 2023 compared to the same period in the prior year, driven by increases in sales of detectable needles and syringes. During the six months ended November 30, 2023, revenues in this category decreased 4% primarily driven by inventory de-stocking at some of our large veterinary distributors in the first quarter.

Animal Care & Other – Revenues of these products decreased 15% and 19% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth in this category, which excludes currency impact and the discontinued Thyrokare product line, declined 13% and 17% during three and six months ended November 30, 2023, respectively. This decrease was driven by lower sales of small animal supplements and wound care products caused primarily by distributor ordering patterns.

Rodent Control, Insect Control & Disinfectants – Revenues decreased 3% and 1% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. The core revenue declines were equal to the reported revenue decreases and were driven by the phasing of certain insect control booking programs in North America compared to the prior year.

Genomics Services – Revenues in this category decreased 10% and 9% during the three and six months ended November 30, 2023, respectively, compared to the same periods in the prior year. Core growth declined 9% during the quarter and 8% during the year-to-date periods. Core revenue in both periods was negatively impacted by a

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strategic shift in the business to focus primarily on large production animals to improve profitability and the associated customer attrition.

Gross Profit

Gross margin was 50.9% during the three and six months ended November 30, 2023 compared to 48.9% and 48.2% during the three and six months ended November 30, 2022, respectively. The 200 basis point increase in the second quarter was primarily due to product mix from increased sales of higher margin products in the Food Safety segment. The increase in the year-to-date period was primarily due to incremental revenues from the FSD transaction, which generated gross margin higher than the legacy company average gross margin. Within each reporting segment, increased raw material costs pressured gross margins in certain product lines, specifically in the prior fiscal year periods. However, while inflation continues to impact the business, raw material price increases and freight costs declined significantly during the comparative period, particularly benefiting the Animal Safety segment. Finally, pricing actions taken during the prior fiscal year also mitigated the impact of cost increases.

Operating Expenses

Operating expenses were $102.3 million and $199.9 million during the three and six months ended November 30, 2023, respectively, compared to $120.2 million and $176.4 million during the three and six months ended November 30, 2022, respectively. The decrease during the three months ended November 30, 2023 was primarily the result of lower transaction fees and integration expenses. The increase during the six months ended November 30, 2023 was primarily the result of an entire six months of ongoing expenses resulting from the acquired 3M FSD employees, additional costs added to facilitate providing back office and distribution activities related to the acquired 3M FSD product lines and amortization of intangible assets acquired in the FSD Transaction. As the transaction was executed on September 1, 2022, these additional costs were not incurred in the first quarter of the prior year.

Sales and marketing expenses were $44.8 million and $90.6 million during the three and six months ended November 30, 2023, respectively, compared to $36.3 million and $59.7 million during the three and six months ended November 30, 2022, respectively. The increase was primarily driven by incremental costs resulting from the FSD transaction. These costs consisted of compensation and related expenses for the acquired FSD sales and marketing teams and charges for transition services provided by 3M. These invoicing and distribution services will be provided under contract for an initial period of up to 18 months, concluding on March 1, 2024. The remainder of the increase during the comparable periods was due primarily to higher personnel related spending, the result of headcount additions and compensation increases.

General and administrative expenses were $51.7 million and $96.8 million during the three and six months ended November 30, 2023, respectively, compared to $77.0 million and $104.9 million during the three and six months ended November 30, 2022, respectively. Decreases for the periods were primarily the result of lower transaction fees and integration expenses, partially offset by additional personnel hired to accommodate the increased size and complexity of the organization, compensation increases across the organization, the issuance of share-based compensation grants, software license fees and other information technology infrastructure investments.

Research and development expense was $5.8 million and $12.5 million during the three and six months ended November 30, 2023, respectively, compared to $6.8 million and $11.7 million during the three and six months ended November 30, 2022, respectively. The decrease during the three months ended November 30, 2023 is primarily the result of lower contracted services and employee costs. The increase during the six months ended November 30, 2023 was primarily the result of cost associated with the acquired FSD employees.

Operating Income

Operating income was $14.5 million and $33.6 million during the three and six months ended November 30, 2023 respectively, compared to an operating loss of $7.7 million and $1.6 million during the three and six months ended November 30, 2022, respectively. Operating income increased compared to the prior year comparative periods primarily due to incremental revenues and higher gross profits from the FSD transaction. The prior year also included transaction and integration costs of $39.1 million and $52.9 million during the three and six months ended

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November 30, 2022 compared to $4.7 million and $6.6 million during the three and six months ended November 30, 2023, respectively.

Other (Expense)/Income

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Interest income |  | $ | 1,863 |  |  | $ | 553 |  |  | $ | 3,653 |  |  | $ | 1,523 |
Interest expense |  |  | (18,032 | ) |  |  | (20,545 | ) |  |  | (36,488 | ) |  |  | (20,547 | )
Foreign currency transactions |  |  | (2,072 | ) |  |  | (6,108 | ) |  |  | (2,535 | ) |  |  | (6,530 | )
Contingent consideration adjustments |  |  | (150 | ) |  |  | - |  |  |  | (450 | ) |  |  | — |
Other |  |  | 179 |  |  |  | (335 | ) |  |  | 136 |  |  |  | (284 | )
Total Other Expense |  | $ | (18,212 | ) |  | $ | (26,435 | ) |  | $ | (35,684 | ) |  | $ | (25,838 | )

The interest expense recorded during the three and six months ended November 30, 2023 was the result of debt incurred to fund the 3M transaction. In the first quarter of fiscal 2023, the Company had no debt outstanding. Interest income relates to earnings on our marketable securities portfolio. Higher yields on the portfolio during the three and six months ended November 30, 2023 were partially offset by lower balances. Other expense resulting from foreign currency transactions was the 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 $0.3 million and $0.1 million during the three and six months ended November 30, 2023, respectively, compared to $7.8 million and $9.2 million of income tax expense during the three and six months ended November 30, 2022, respectively. The net tax benefit during the three and six months ended November 30, 2023 is primarily related to pre-tax losses resulting from amortization expense, interest expense and continued FSD integration efforts. In the prior comparable periods, the net tax expense, despite pre-tax losses, is primarily related to certain non-deductible acquisition and transaction costs related to the 3M FSD transaction.

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of November 30, 2023 and May 31, 2023 are $1.0 million and $1.1 million, respectively. Changes in unrecognized tax benefits are primarily associated with the acquired 3M FSD, including positions for transfer pricing and research and development credits.

Net Loss

Net loss was $3.5 million and $2.0 million during the three and six months ended November 30, 2023, respectively, compared to net loss of $41.8 million and $36.6 million during the three and six months ended November 30, 2022, respectively. The decrease in the net loss during the three and six months ended November 30, 2023 was primarily the result of higher transaction fees and integration costs in the prior year, which were $39.1 million and $52.9 million during the three and six months ended November 30, 2022, respectively. Since completion of the 3M transaction, increased expenses were partially offset by incremental revenues, which generated gross profits higher than the legacy company average margin.

Non-GAAP Financial Measures

This report includes certain financial information for the Company that differs from what is reported in accordance with GAAP. These non-GAAP financial measures consist of core revenue growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share. 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.

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Core revenue growth

We define core revenue growth as net sales for the period excluding the impacts of foreign currency translation rates, the first-year impacts of acquisitions and divestitures, where applicable, and net sales from discontinued product lines. We present core revenue growth because it allows for a meaningful comparison of results across periods without the volatility caused by foreign currency gains or losses, or the incomparability that would be caused by the impact of an acquisition or divestiture.

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:

•
Share-based compensation. We believe it is useful to exclude share-based compensation to better understand the long-term performance of our core business and to facilitate comparison with the results of peer companies.
•
FX translation (gain)/loss on loan revaluation. We exclude the revaluation impacts of foreign currency fluctuations on our intercompany loan balances that we initiated in conjunction with the FSD transaction.
•
Certain transaction fees and integration costs. We exclude fees and expenses related to certain transactions because they are outside of Neogen’s underlying core performance. These fees and expenses include deal related professional and legal fees and costs incurred to integrate acquired businesses.
•
Other one-time adjustments. We exclude one-time adjustments recorded within operating income to better understand the long-term performance of our core business.

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.

Adjusted Net Income

We define Adjusted Net Income as Net Income, adjusted for share-based compensation, FX translation gain/(loss) on loan revaluation, certain transaction fees and expenses, and other one-time adjustments, all of which are tax effected.

Adjusted Earnings per Share

We define Adjusted Earnings per Share as Adjusted Net Income divided by diluted average shares outstanding.

These non-GAAP financial measures are presented for informational purposes only. Core Revenue Growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share are not recognized terms under GAAP and should not be considered in isolation or as a substitute for, or superior to, net income (loss), operating income, cash flow from operating activities or other measures of financial performance.

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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, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Earnings per Share 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:

•
they do not reflect changes in, or cash requirements for, Neogen’s working capital needs;
•
they do not reflect Neogen’s tax expense or the cash requirements to pay taxes;
•
they do not reflect the historical cash expenditures or future requirements for capital expenditures or contractual commitments;
•
they do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; and
•
they may be calculated differently from other companies in Neogen’s industries limiting their usefulness as comparative measures.

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.

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

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
(in thousands, except for percentages) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net Loss |  | $ | (3,487 | ) |  | $ | (41,841 | ) |  | $ | (1,984 | ) |  | $ | (36,632 | )
Net loss margin % |  |  | -1.5 | % |  |  | -18.2 | % |  |  | -0.4 | % |  |  | -10.1 | %
Provision for income taxes |  |  | (260 | ) |  |  | 7,750 |  |  |  | (100 | ) |  |  | 9,200 |
Depreciation and amortization |  |  | 29,469 |  |  |  | 26,738 |  |  |  | 58,203 |  |  |  | 32,467 |
Interest expense, net |  |  | 16,169 |  |  |  | 19,992 |  |  |  | 32,835 |  |  |  | 19,024 |
EBITDA |  | $ | 41,891 |  |  | $ | 12,639 |  |  | $ | 88,954 |  |  | $ | 24,059 |
Share-based compensation |  |  | 3,512 |  |  |  | 2,632 |  |  |  | 6,150 |  |  |  | 4,499 |
FX transaction loss on loan and other revaluation (1) |  |  | 1,002 |  |  |  | 5,789 |  |  |  | 712 |  |  |  | 5,789 |
Certain transaction fees and integration costs |  |  | 4,688 |  |  |  | 39,132 |  |  |  | 6,639 |  |  |  | 52,864 |
Restructuring (2) |  |  | 1,856 |  |  |  | — |  |  |  | 2,415 |  |  |  | — |
Contingent consideration adjustments |  |  | 150 |  |  |  | — |  |  |  | 450 |  |  |  | — |
ERP expense (3) |  |  | 2,075 |  |  |  | — |  |  |  | 2,203 |  |  |  | — |
Discontinued product line expense |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | — |
Recovery on sale of minority interest |  |  | (74 | ) |  |  | — |  |  |  | (74 | ) |  |  | — |
Inventory step-up charge |  |  | — |  |  |  | 3,859 |  |  |  | — |  |  |  | 3,859 |
Adjusted EBITDA |  | $ | 55,100 |  |  | $ | 64,051 |  |  | $ | 107,469 |  |  | $ | 91,070 |
Adjusted EBITDA margin % |  |  | 24.0 | % |  |  | 27.8 | % |  |  | 23.4 | % |  |  | 25.1 | %

(1)
Net foreign currency transaction loss associated with the revaluation of non-functional currency intercompany loans established in connection with the 3M Food Safety transaction and other non-hedged foreign currency revaluation resulting from 3M agreements.
(2)
Primarily relates to costs associated with consolidation of U.S. genomics labs.
(3)
Non-capitalizable expenses related to ERP implementation.

Adjusted EBITDA decreased $9.0 million during the three months ended November 30, 2023 and increased $16.4 million during the six months ended November 30, 2023. Expressed as a percentage of revenue, adjusted EBITDA was 24.0% and 23.4% during the three and six months ended November 30, 2023, respectively, compared to 27.8% and 25.1% during the three and six months ended November 30, 2022, respectively. Decreases in the margin reflect prior year periods when operating expenses had not yet been fully added to accommodate the increased size of the Company following the completion of the 3M transaction.

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Reconciliation between net loss and Adjusted Net Income and earnings per share and Adjusted Earnings per Share are as follows:

|  | Three Months Ended November 30, |  |  | Six Months Ended November 30, |
(in thousands, except per share amounts) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net Loss |  | $ | (3,487 | ) |  | $ | (41,841 | ) |  | $ | (1,984 | ) |  | $ | (36,632 | )
Loss per diluted share |  | $ | (0.02 | ) |  | $ | (0.19 | ) |  | $ | (0.01 | ) |  | $ | (0.23 | )
Amortization of acquisition-related intangibles |  |  | 23,094 |  |  |  | 22,116 |  |  |  | 46,419 |  |  |  | 23,957 |
Share-based compensation |  |  | 3,512 |  |  |  | 2,632 |  |  |  | 6,150 |  |  |  | 4,499 |
FX transaction loss on loan and other revaluation (1) |  |  | 1,002 |  |  |  | 5,789 |  |  |  | 712 |  |  |  | 5,789 |
Certain transaction fees and integration costs |  |  | 4,688 |  |  |  | 39,132 |  |  |  | 6,639 |  |  |  | 52,864 |
Restructuring (2) |  |  | 1,856 |  |  |  | — |  |  |  | 2,415 |  |  |  | — |
Contingent consideration adjustments |  |  | 150 |  |  |  | — |  |  |  | 450 |  |  |  | — |
ERP expense (3) |  |  | 2,075 |  |  |  | — |  |  |  | 2,203 |  |  |  | — |
Discontinued product line expense |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | — |
Recovery on sale of minority interest |  |  | (74 | ) |  |  | — |  |  |  | (74 | ) |  |  | — |
Inventory step-up charge |  |  | — |  |  |  | 3,859 |  |  |  | — |  |  |  | 3,859 |
Other adjustments(4) |  |  | — |  |  |  | 4,350 |  |  |  | — |  |  |  | 4,350 |
Estimated tax effect of above adjustments (5) |  |  | (7,953 | ) |  |  | (4,676 | ) |  |  | (14,400 | ) |  |  | (9,769 | )
Adjusted Net Income |  | $ | 24,863 |  |  | $ | 31,361 |  |  | $ | 48,550 |  |  | $ | 48,917 |
Adjusted Earnings per Share |  | $ | 0.11 |  |  | $ | 0.15 |  |  | $ | 0.22 |  |  | $ | 0.30 |

(1)
Net foreign currency transaction loss associated with the revaluation of non-functional currency intercompany loans established in connection with the 3M Food Safety transaction and other non-hedged foreign currency revaluation resulting from 3M agreements.
(2)
Primarily relates to costs associated with consolidation of U.S. genomics labs.
(3)
Non-capitalizable expenses related to ERP implementation.
(4)
Income tax benefit associated with non-deductible transaction costs that were recognized as expenses in prior periods.
(5)
Tax effect of adjustments is calculated using projected effective tax rates for each applicable item.

Adjusted Net Income decreased $6.5 million and $0.4 million, respectively, during the three and six months ended November 30, 2023 due to the lower Adjusted EBITDA.

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of Neogen was $230.3 million as of November 30, 2023, compared to $245.6 million as of May 31, 2023. Cash flow from operating activities was $38.7 million during the six months ended November 30, 2023, which was primarily the result of fewer transaction fees and working capital improvements. Cash flow from investing activities was $2.9 million during the six months ended November 30, 2023 from proceeds from the sale of marketable securities of $57.8 million, partially offset by purchases of property and equipment of $55.0 million. Cash flow from financing activities was $0.8 million during the six months ended November 30, 2023.

Net accounts receivable balances were $150.5 million as of November 30, 2023 compared to $153.3 million as of May 31, 2023. Days' sales outstanding, a measurement of the time it takes to collect receivables, was 56 days as of November 30, 2023, compared to 57 days as of May 31, 2023 and 54 days as of November 30, 2022.

As part of transition services agreements between the Company and 3M, related to the merger of the Food Safety business, 3M is invoicing our customers for products that 3M is manufacturing and shipping on our behalf. We are currently in the process of exiting a number of transition service contracts, which is expected to be completed in the third quarter of fiscal 2024. As of November 30, 2023, there were $35.1 million in customer receivables billed by 3M on our behalf, compared to $57.3 million as of May 31, 2023. The Company is working collaboratively with 3M

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on managing the credit risk associated with the former FSD customers during the period when 3M is providing transition invoicing and distribution services to the Company.

Net inventory was $160.5 million as of November 30, 2023, an increase of $26.7 million, compared to a May 31, 2023 balance of $133.8 million. The higher inventory levels are primarily the result of the Company now stocking FSD products manufactured by 3M. We currently expect to spend approximately $40 to $50 million to initially stock FSD inventory globally in fiscal year 2024. Additionally, we expect to spend approximately $130 million in capital expenditures in fiscal year 2024; $100 million of the total is related to our new building, systems implementation and related food safety integration projects.

Debt and Liquidity

On September 1, 2022, Neogen, 3M, and Neogen Food Safety Corporation, a subsidiary of 3M created to carve out 3M’s Food Safety business, closed on the FSD Transaction that previously was announced in December 2021, combining 3M’s Food Safety business with Neogen in a Reverse Morris Trust transaction.

In June 2022, Neogen Food Safety Corporation entered into a credit agreement consisting of a five-year senior secured term loan facility in the amount of $650 million and a five-year senior secured revolving facility in the amount of $150 million (collectively, the “Credit Facilities”), which became available in connection with the merger and related transactions. The loan facility was funded to Neogen Food Safety Corporation on August 31, 2022, and upon the effectiveness of the merger on September 1, 2022, became Neogen’s obligation. Financial covenants include maintaining specified levels of funded debt to EBITDA and debt service coverage. The Credit Facilities, together with the Notes described below, represent the financing incurred in connection with the merger of the 3M FSD with Neogen. In accordance with the prepayment feature, the Company paid $100 million of the term loan facility’s principal in fiscal year 2023, in order to decrease the outstanding debt balance.

In July 2022, Neogen Food Safety Corporation closed on an offering of $350 million aggregate principal amount of 8.625% senior notes due 2030 (the “Notes”) in a private placement at par. The Notes were initially issued by Neogen Food Safety Corporation to 3M and were transferred and delivered by 3M to the selling securityholder in the offering, in satisfaction of certain of 3M’s existing debt. Neogen Food Safety Corporation did not receive any proceeds from the sale of the Notes by the selling securityholder. Prior to the distribution of the shares of Neogen Food Safety Corporation’s common stock to 3M stockholders, the Notes were guaranteed on a senior unsecured basis by 3M. Upon consummation of such distribution, 3M was released from all obligations under its guarantee. Upon the effectiveness of the merger on September 1, 2022, the Notes became guaranteed on a senior unsecured basis by Neogen and certain wholly-owned domestic subsidiaries of Neogen.

In addition to the 3M transaction described above, 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.

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PART I – FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have interest rate and foreign exchange rate risk exposure but no long-term fixed rate investments. Our primary interest rate risk is due to potential fluctuations of interest rates for our variable rate borrowings.

Foreign exchange risk exposure arises because we market and sell our products throughout the world. Revenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. As such, our operating results are exposed to changes in exchange rates. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection. We use derivative financial instruments to help manage the economic impact of fluctuations in certain currency exchange rates. These contracts are adjusted to fair value through earnings.

Neogen has assets, liabilities and operations outside of the U.S. Our investments in foreign subsidiaries are considered long-term. As discussed in ITEM 1A. RISK FACTORS of our Annual Report on Form 10-K for the year ended May 31, 2023, our financial condition and results of operations could be adversely affected by currency fluctuations.

The following table sets forth the potential loss in future earnings or fair values, resulting from hypothetical changes in relevant market rates or prices:

Risk Category |  | Hypothetical Change |  | November 30, 2023 |  |  | Impact
(in thousands) |  |  |  |  |  |  |
Foreign Currency—Revenue |  | 10% Decrease in exchange rates |  | $ | 11,608 |  |  | Earnings
Foreign Currency—Hedges |  | 10% Decrease in exchange rates |  |  | 6,504 |  |  | Fair Value
Interest Income |  | 10% Decrease in interest rates |  |  | 939 |  |  | Earnings
Interest Expense |  | 10% Increase in interest rates |  |  | 2,227 |  |  | Earnings

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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 November 30, 2023 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, 2023.

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, 2023, management identified the following material weaknesses in internal controls over financial reporting during the year ended May 31, 2023: (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 (2) ineffective period-end invoice accrual controls and (3) ineffective operation of management review controls related to the accounting, valuation and purchase price allocation of the Company’s acquisitions and associated goodwill.

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, 2023, management concluded that our internal controls over financial reporting were not effective as of May 31, 2023. 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 and providing additional training to personnel including the appropriate level of documentation to be maintained to support internal controls over financial reporting.

As we continue to evaluate and work 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 November 30, 2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our material pending legal proceedings, see Note 12. “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, 2023. 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, 2023.

Items 2, 3, and 4 are not applicable or removed or reserved and have been omitted.

Item 5. Other Information

During the quarterly period ended November 30, 2023, our directors and officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) did not adopt, terminate or modify Rule 10b5-1 or non-Rule 10b5-1 trading arrangements (as defined in Item 408 of Regulation S-K).

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I tem 6. Exhibits

(a) Exhibit Index

3.1 | Amended and Restated Bylaws of Neogen Corporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Neogen Corporation on October 31, 2023).
10.1 | Form of Severance Letter Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Neogen Corporation on October 31, 2023).
10.2 | Neogen Corporation 2023 Omnibus Incentive Plan (incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed by Neogen Corporation on September 18, 2023).
31.1 | Certification of Principal Executive Officer
31.2 | Certification of Principal 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 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)

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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: January 9, 2024

/s/ John E. Adent
John E. Adent
President & Chief Executive Officer
(Principal Executive Officer)

Dated: January 9, 2024

/s/ David H. Naemura
David H. Naemura
Chief Financial Officer
(Principal Financial and Accounting Officer)

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