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• Revenue of $228.8 million.
• Net loss of $(2.0) million; $(0.01) per diluted share.
• Adjusted Net Income of $26.4 million; $0.12 per diluted share.
• Adjusted EBITDA of $52.7 million.
• Updating full-year outlook.

LANSING, Mich., April 9, 2024 /PRNewswire/ -- Neogen Corporation (NASDAQ: NEOG) announced today the results of the third quarter ended February 29, 2024.

"The third quarter saw us complete a number of milestone achievements related to the integration of the former 3M Food Safety business," said John Adent, Neogen's President and Chief Executive Officer. "We completed the relocation of the pathogen detection product line and the initial phases of the relocation of the sample handling product line, which we expect to complete in the fourth quarter. We also completed the exit of the transition service agreements covering back-office functions and distribution. Petrifilm manufacturing will ultimately transition into our new production facility in Lansing, the construction and outfitting of which remains on track."     

Adent continued, "The progress we've made on integration, particularly as it relates to the exit of the transition distribution agreement and the resulting increase in volumes in our primary distribution facility, has created operational inefficiencies that we continue to manage through. We believe these inefficiencies are temporary, but they are currently affecting our order fulfilment rates and preventing us from meeting the end-market demand on a consistent basis, and we are updating our full-year outlook to reflect the lower revenue we now expect to generate. We are encouraged, however, by the continuation of positive trends in our end markets. In Food Safety, sequential improvement in unit production volumes has generally continued across the industry, while channel inventories in Animal Safety have normalized after several quarters of destocking. Our primary focus now is improving our order fulfillment rates to meet the needs of our customers in this improving end-market environment. When we made the strategic decision to expand our scale and solidify our position as the global leader in food safety by merging with the former 3M Food Safety Division, we recognized there would be challenges along the way during the associated carve-out and integration of the business. While we are not pleased with the present level of inefficiencies, we are committed to rectifying them and ultimately realizing the long-term benefits of this combination."

Financial and Business Highlights

Revenues for the third quarter were $228.8 million, an increase of 4.8% compared to $218.3 million in the prior year. Core revenue, which excludes the impacts of foreign currency translation, as well as acquisitions completed and product lines discontinued in the last 12 months, was 6.2%. Acquisitions and discontinued product lines did not impact core growth this quarter, while foreign currency had a negative impact of 1.4%.

Net loss for the third quarter was $(2.0) million, or $(0.01) per diluted share, compared to net income of $8.2 million, or $0.04 per diluted share, in the prior-year period. Adjusted Net Income was $26.4 million, or $0.12 per diluted share, compared to $26.5 million, or $0.12 per diluted share, in the prior-year period, with the decline driven primarily by higher depreciation expense. 

Gross margin was 51.1% in the third quarter of fiscal 2024. This compares to a gross margin of 49.5% in the same quarter a year ago, with the increase primarily due to increased sales of higher-margin products in the Company's Food Safety segment.

Third-quarter Adjusted EBITDA was $52.7 million, representing an Adjusted EBITDA Margin of 23.0%, compared to $51.3 million and a margin of 23.5% in the prior-year period. The lower Adjusted EBITDA Margin was driven primarily by higher operating expenses compared to the prior-year period, reflecting additions to accommodate the integration of the former 3M Food Safety Division.

Food Safety Segment

Revenues for the Food Safety segment were $157.8 million in the third quarter, an increase of 4.1% compared to $151.5 million in the prior year, consisting of 5.8% core growth, a 0.2% contribution from acquisitions and discontinued product lines and a negative foreign currency impact of 1.9%. The core revenue growth was led by the Indicator Testing, Culture Media & Other product category, which benefited from higher sales of Petrifilm, as well as sample handling and nutritional analysis products, partially offset by a decline in culture media sales, due primarily to a larger, one-time order in the prior-year period. Within the Natural Toxins & Allergens product category, solid growth in allergens driven by tree nut test kits was partially offset by a decline in sales of natural toxin test kits, due largely to product availability issues. In the Company's Bacterial & General Sanitation product category, growth in sales of general sanitation products was partially offset by a decline in sales of pathogen detection products, largely the result of product availability issues in Latin America and Asia.

Animal Safety Segment

Revenues for the Animal Safety segment were $71.1 million in the third quarter, an increase of 6.5% compared to $66.7 million in the prior year, consisting of 7.0% core growth, a 0.2% headwind from discontinued product lines and negative foreign currency impact of 0.3%. Within the segment, core growth was led by the Company's portfolio of biosecurity products, driven by new business wins and increased demand for cleaners and disinfectants and insect control products. In the Veterinary Instruments & Disposables product category, strong growth was led primarily by increased demand for detectable needles and syringes. The Company's Animal Care & Other product category also experienced strong core revenue growth, due largely to the easing third-party backorder situation in vitamin injectables and higher sales of biologics products.

On a global basis, the Company's Genomics business experienced a core revenue decline in the mid-single-digit range, reflecting modest sequential improvement from the second quarter. Increased sales in international beef and dairy markets were offset by customer attrition in the U.S., a result of the shift in strategic focus towards larger production animals.

Liquidity and Capital Resources

As of February 29, 2024, the Company had total cash and investments of $168.4 million and total outstanding non-current debt of $900.0 million, as well as committed borrowing headroom of $150.0 million.

Fiscal Year 2024 Outlook

The Company is updating its full-year outlook to reflect a slower-than-anticipated recovery of order fulfillment rates, which are impacting the ability to consistently meet end-market demand. Revenue is now expected to be in the range of $910 million to $920 million, with Adjusted EBITDA in the range of $210 million to $215 million. The Company continues to expect capital expenditures to be approximately $130 million, including approximately $100 million related specifically to the integration of the former 3M Food Safety Division.

Conference Call and Webcast

Neogen Corporation will host a conference call today at 8:00 a.m. Eastern Time to discuss the Company's financial results. The live webcast of the conference call and accompanying presentation materials can be accessed through Neogen's website at neogen.com/investor-relations. For those unable to access the webcast, the conference call can be accessed by dialing (800) 836-8184 (U.S.) or +1 (646) 357-8785 (International) and requesting the Neogen Corporation Third Quarter 2024 Earnings Call. A replay of the conference call and webcast will be available shortly following the conclusion of the call, and can be accessed domestically or internationally by dialing (888) 660-6345 or +1 (646) 517-4150, respectively, and providing the entry code 90261, or through Neogen's Investor Relations website at neogen.com/investor-relations.

About Neogen

Neogen Corporation is committed to fueling a brighter future for global food security through the advancement of human and animal well-being. Harnessing the power of science and technology, Neogen has developed comprehensive solutions spanning the Food Safety, Livestock and Pet Health & Wellness markets. A world leader in these fields, Neogen has a presence in over 140 countries with a dedicated network of scientists and technical experts focused on delivering optimized products and technology for its customers.

Certain portions of this news release that do not relate to historical financial information constitute forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Actual future results and trends may differ materially from historical results or those expected depending on a variety of factors listed in Management's Discussion and Analysis of Financial Condition and Results of Operations in the company's most recently filed Form 10-K.

NEOGEN CORPORATION  UNAUDITED CONSOLIDATED BALANCE SHEET  (In thousands, except share amounts)
		February 29, 2024				May 31, 2023
Assets
Current Assets
Cash and cash equivalents		$	161,437			$	163,240
Marketable securities			7,010				82,329
Accounts receivable, net of allowance of $4,099 and $2,827			173,592				153,253
Inventories, net			182,390				133,812
Prepaid expenses and other current assets			78,042				53,297
Total Current Assets			602,471				585,931
Net Property and Equipment			272,282				198,749
Other Assets
Right of use assets			15,301				11,933
Goodwill			2,136,338				2,137,496
Intangible assets, net			1,539,744				1,605,103
Other non-current assets			16,356				15,220
Total Assets		$	4,582,492			$	4,554,432
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of finance lease		$	2,521			$	-
Accounts payable			89,748				76,669
Accrued compensation			20,305				25,153
Income tax payable			11,573				6,951
Accrued interest			3,438				11,149
Deferred revenue			5,486				4,616
Other accruals			24,773				20,934
Total Current Liabilities			157,844				145,472
Deferred Income Tax Liability			353,853				353,427
Non-current debt			887,653				885,439
Other non-current liabilities			36,968				35,877
Total Liabilities			1,436,318
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