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 ~~August 31,~~November 30, 2021.

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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 ~~such~~ reports), and (2) has been subject to such filing requirements for the past 90 days.

~~Yes~~YES ☒ NoNO ☐

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~~YES ☒ NoNO ☐

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~~		☐
Non-accelerated filer	☐		Smaller Reporting Company	☐


Emerging growth 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~~: YES ☐ NoNO ☒

As of ~~August 31,~~November 30, 2021 there were ~~107,493,015~~107,768,342 shares of Common Stock outstanding.

~~Table of Contents~~

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


			Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Interim Consolidated Financial Statements (unaudited)	2

	Consolidated Balance Sheets – ~~August 31,~~November 30, 2021 and May 31, 2021	2

	Consolidated Statements of Income – Three and six months ended ~~August 31,~~November 30, 2021 and 2020	3

	Consolidated Statements of Comprehensive Income – Three and six months ended ~~August 31,~~November 30, 2021 and 2020	4

	Consolidated Statements of Equity – Three and six months ended ~~August 31,~~November 30, 2021 and 2020	5

	Consolidated Statements of Cash Flows – ~~Three~~Six months ended ~~August 31,~~November 30, 2021 and 2020	6

	Notes to Interim Consolidated Financial Statements – ~~August 31,~~November 30, 2021	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2327

Item 4.	Controls and Procedures	2327

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2428

Item 6.	Exhibits	2428

SIGNATURES		2529

	CEO Certification

	CFO Certification

	Section 906 Certification

~~Table of Contents~~

PART I – FINANCIAL INFORMATION

Item 1. Interim Consolidated Financial Statements

Neogen Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)

(in thousands, except share and

per share amounts)


	August 31,			May 31,			November 30,			May 31,
	2021			2021			2021			2021
Assets
Current Assets
Cash and cash equivalents	$	71,283		$	75,602		$	51,119		$	75,602
Marketable securities		329,597			305,485			338,130			305,485
Accounts receivable, less allowance of $1,500 and $1,400 at August 31, 2021 and May 31, 2021, respectively		87,291			91,823
Accounts receivable, less allowance of $1,500 and $1,400 at November 30, 2021 and May 31, 2021, respectively								92,498			91,823
Inventories		102,109			100,701			107,086			100,701
Prepaid expenses and other current assets		18,844			17,840			22,371			17,840

Total Current Assets		609,124			591,451			611,204			591,451
Net Property and Equipment		99,515			100,453			100,863			100,453
Other Assets
Other assets
Right of use assets		2,407			2,477			2,171			2,477
Goodwill		130,012			131,476			142,613			131,476
Other non-amortizable intangible assets		15,496			15,545			15,359			15,545
Amortizable intangible and other assets, net of accumulated amortization of $49,086 and $53,462 at August 31, 2021 and May 31, 2021, respectively		73,534			76,771
Amortizable intangible and other assets, net of accumulated amortization of $51,012 and $53,462 at November 30, 2021 and May 31, 2021, respectively								93,706			76,771
Other non-current assets		2,018			2,019			2,018			2,019

Total Assets	$	932,106		$	920,192		$	967,934		$	920,192

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	22,414		$	23,900		$	34,222		$	23,900
Accrued compensation		6,989			11,251			9,636			11,251
Income taxes		4,523			1,848			0			1,848
Other accruals		16,836			16,600			18,815			16,600

Total Current Liabilities		50,762			53,599			62,673			53,599
Deferred Income Taxes		21,827			21,917			21,829			21,917
Other Non-Current Liabilities		4,154			4,299			17,956			4,299

Total Liabilities		76,743			79,815			101,204			79,815

Commitments and Contingencies (note 10)		0			0			0			0
Equity
Preferred stock, $1.00 par value, 100,000 shares authorized, 0ne issued and outstanding		0			0
Common stock, $0.16 par value, 120,000,000 shares authorized, 107,493,015 and 107,468,304 shares issued and outstanding at August 31, 2021 and May 31, 2021, respectively		17,199			17,195
Preferred stock, $1.00 par value, 100,000 shares authorized,NaN issued and outstanding								0			0
Common stock, $0.16 par value, 120,000,000 shares authorized, 107,768,342 and 107,468,304 shares issued and outstanding at November 30, 2021 and May 31, 2021, respectively								17,243			17,195
Additional paid-in capital		297,687			294,953			304,959			294,953
Accumulated other comprehensive loss		(16,204	)		(11,375	)		(24,235	)		(11,375	)
Retained earnings		556,681			539,604			567,509			539,604

Total Stockholders’ Equity		855,363			840,377			865,476			840,377

Total Liabilities and Stockholders’ Equity	$	932,106		$	920,192		$	967,934		$	920,192

See notes to interim consolidated financial statements.

~~Table of Contents~~

Neogen Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(in thousands, except per share amounts)


	Three Months Ended						Three Months Ended					Six Months Ended
	August 31,						November 30,					November 30,
	2021			2020			2021		2020			2021		2020
Revenues
Product revenues	$	104,013		$	87,935		$	106,111	$	92,537		$	210,124	$	180,472
Service revenues		24,292			21,390			24,406		22,463			48,698		43,853

Total Revenues		128,305			109,325			130,517		115,000			258,822		224,325

Cost of Revenues
Cost of product revenues		54,726			46,595			56,374		49,275			111,100		95,870
Cost of service revenues		13,571			12,428			13,549		12,511			27,120		24,939

Total Cost of Revenues		68,297			59,023			69,923		61,786			138,220		120,809

Gross Margin		60,008			50,302			60,594		53,214			120,602		103,516
Operating Expenses
Sales and marketing		20,555			16,516			21,188		17,729			41,743		34,245
General and administrative		13,383			11,013			22,605		12,184			35,988		23,197
Research and development		4,325			3,878			4,332		4,056			8,657		7,934

Total Operating Expenses		38,263			31,407			48,125		33,969			86,388		65,376

Operating Income		21,745			18,895			12,469		19,245			34,214		38,140
Other Income (Expense)
Interest income		203			722			224		555			427		1,277
Other income (expense)		(221	)		193			235		(465	)		14		(272	)

Total Other Income (Expense)		(18	)		915
Total Other Income								459		90			441		1,005

Income Before Taxes		21,727			19,810			12,928		19,335			34,655		39,145
Provision for Income Taxes		4,650			3,950			2,100		3,450			6,750		7,400

Net Income	$	17,077		$	15,860		$	10,828	$	15,885		$	27,905	$	31,745

Net Income Per Share
Basic	$	0.16		$	0.15		$	0.10	$	0.15		$	0.26	$	0.30

Diluted	$	0.16		$	0.15		$	0.10	$	0.15		$	0.26	$	0.30

Weighted Average Shares Outstanding						Weighted Average Shares Outstanding
Basic		107,490			105,984			107,641		106,258			107,565		106,044
Diluted		108,109			106,570			108,122		106,808			108,099		106,600

See notes to interim consolidated financial statements.

~~Table of Contents~~

Neogen Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)


	Three Months Ended						Three Months Ended						Six Months Ended
	August 31,						November 30,						November 30,
	2021			2020			2021			2020			2021			2020
Net income	$	17,077		$	15,860		$	10,828		$	15,885		$	27,905		$	31,745
Other comprehensive income (loss), net of tax: foreign currency translations		(4,623	)		4,121
Other comprehensive loss, net of tax: unrealized loss on marketable securities		(206	)		(119	)
Other comprehensive income (loss), net of tax:
foreign currency translations								(7,649	)		938			(12,272	)		5,059
Other comprehensive loss, net of tax:
unrealized loss on marketable securities								(382	)		(317	)		(588	)		(436	)

Total comprehensive income	$	12,248		$	19,862		$	2,797		$	16,506		$	15,045		$	36,368

See notes to interim consolidated financial statements.

~~Table of Contents~~

Neogen Corporation and Subsidiaries

Consolidated Statements of

Equity (unaudited)

(in thousands)


							Accumulated														Accumulated
					Additional		Other												Additional		Other
	Common Stock				Paid-in		Comprehensive			Retained					Common Stock				Paid-in		Comprehensive			Retained
	Shares		Amount		Capital		(Loss)			Earnings		Total			Shares		Amount		Capital		Income (Loss)			Earnings		Total
Balance, June 1, 2021		107,468	$	17,195	$	294,953	$	(11,375	)	$	539,604	$	840,377			107,468	$	17,195	$	294,953	$	(11,375	)	$	539,604	$	840,377
Exercise of options and share-based compensation expense		6		1		1,838		—			—		1,839			6		1		1,838		—			—		1,839
Issuance of shares under employee stock purchase plan		19		3		896		—			—		899			19		3		896		—			—		899
Net income for the three months ended August 31, 2021		—		—		—		—			17,077		17,077			—		—		—		—			17,077		17,077
Other comprehensive loss for the three months ended August 31, 2021		—		—		—		(4,829	)		—		(4,829	)		—		—		—		(4,829	)		—		(4,829	)

Balance, August 31, 2021		107,493	$	17,199	$	297,687	$	(16,204	)	$	556,681	$	855,363			107,493	$	17,199	$	297,687	$	(16,204	)	$	556,681	$	855,363
Exercise of options and share-based compensation expense																275		44		7,272		—			—		7,316
Net income for the three months ended November 30, 2021																—		—		—		—			10,828		10,828
Other comprehensive loss for the three months ended November 30, 2021																—		—		—		(8,031	)		—		(8,031	)

Balance, November 30, 2021																107,768		17,243		304,959	$	(24,235	)	$	567,509	$	865,476




Balance, June 1, 2020																105,892	$	16,943	$	249,221	$	(19,709	)	$	478,722	$	725,177
Exercise of options and share-based compensation expense																172		28		5,811		—			—		5,839
Issuance of shares under employee stock purchase plan																18		3		665		—			—		668
Net income for the three months ended August 31, 2020																—		—		—		—			15,860		15,860
Other comprehensive income for the three months ended August 31, 2020																—		—		—		4,002			—		4,002

Balance, August 31, 2020																106,082	$	16,974	$	255,697	$	(15,707	)	$	494,582	$	751,546
Exercise of options and share-based compensation expense																406		64		9,279		—			—		9,343
Net income for the three months ended November 30, 2020																—		—		—		—			15,885		15,885
Other comprehensive income for the three months ended November 30, 2020																—		—		—		621			—		621

Balance, November 30, 2020																106,488		17,038		264,976		(15,086	)		510,467		777,395

Accumulated


Additional

Other


Common Stock

Paid-in

Comprehensive

Retained


Shares

Amount

Capital

Income (Loss)

Earnings

Total

Balance, June 1, 2020
   105,892    $ 16,943    $ 249,221    $ (19,709 ) $ 478,722    $ 725,177
Exercise of options and share-based compensation expense
   172    28    5,811    —   —      5,839
Issuance of shares under employee stock purchase plan
   18    3    665    —   —      668
Net income for the three months ended August 31, 2020
   —      —      —      —   15,860    15,860
Other comprehensive income for the three months ended August 31, 2020
   —      —      —      4,002 —      4,002










Balance, August 31, 2020
   106,082    $ 16,974    $ 255,697    $ (15,707 ) $ 494,582    $ 751,546

See notes to interim consolidated financial statements.

~~Table of Contents~~

Neogen Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Three Months Ended						Six Months Ended
	August 31,						November 30,
	2021			2020			2021			2020
Cash Flows From Operating Activities
Net Income	$	17,077		$	15,860		$	27,905		$	31,745
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		5,682			4,720			11,511			9,523
Share-based compensation		1,690			1,681			3,438			3,192
Change in operating assets and liabilities, net of business acquisitions:
Accounts receivable		4,036			8,350			(1,500	)		6,662
Inventories		(1,863	)		(1,319	)		(6,929	)		4,063
Prepaid expenses and other current assets		(1,029	)		(1,045	)		(3,709	)		(2,080	)
Accounts payable, accruals and other changes		(2,383	)		(3,113	)		10,341			(5,581	)

Net Cash From Operating Activities		23,210			25,134			41,057			47,524
Cash Flows Used for Investing Activities
Cash Flows For Investing Activities
Purchases of property, equipment and other non-current intangible assets		(1,295	)		(4,248	)		(5,235	)		(11,092	)
Proceeds from the maturities of marketable securities		112,636			139,184
Proceeds from the sale of marketable securities								197,941			309,030
Purchases of marketable securities		(136,748	)		(168,318	)		(230,586	)		(308,524	)
Business acquisitions, net of cash acquired		—			(2,350	)		(26,864	)		(2,350	)

Net Cash Used for Investing Activities		(25,407	)		(35,732	)
Net Cash For Investing Activities								(64,744	)		(12,936	)
Cash Flows From Financing Activities
Exercise of stock options and other		1,048			5,095
Exercise of stock options and issuance of employee stock purchase plan shares								6,619			12,658

Net Cash From Financing Activities		1,048			5,095			6,619			12,658
Effects of Foreign Exchange Rates on Cash		(3,170	)		181
Effect of Foreign Exchange Rates on Cash								(7,415	)		352

Net Increase (Decrease) in Cash and Cash Equivalents		(4,319	)		(5,322	)
Net Increase (Decrease) In Cash and Cash Equivalents								(24,483	)		47,598
Cash and Cash Equivalents, Beginning of Period		75,602			66,269			75,602			66,269

Cash and Cash Equivalents, End of Period	$	71,283		$	60,947		$	51,119		$	113,867

See notes to interim consolidated financial statements.

~~Table of Contents~~

NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The accompanying unaudited 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 have been included in the accompanying unaudited consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the ~~three-month period~~three and six month periods ended ~~August 31,~~November 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2022. For more complete financial information, these 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, 2021.

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 income (loss). Gains or losses from foreign currency transactions are included in other income (expense) on our consolidated statement of income.

Share and per share amounts reflect the June 4, 2021

2-for-1

stock split as if it took place at the beginning of the periods presented.

Recently Adopted Accounting Standards

Income Tax Simplification

On June 1, 2021, the Company adopted ASU 740 Update

2019-12,

Income Taxes (Topic 740). This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued Update

2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued. Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract. This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022. We will adopt this standard when LIBOR is discontinued and our lender begins using the new reference rate. We are evaluating the impact the new standard will have on our consolidated financial statements and related disclosures, but do not anticipate a material impact.

Comprehensive Income

Comprehensive income represents net income and any revenues, expenses, gains and losses that, under U.S. generally accepted

accounting principles, are excluded from net income and recognized directly as a component of equity. Accumulated other

comprehensive income (loss) consists of foreign currency translation adjustments and unrealized gains ~~and~~or losses on our marketable securities.

~~Table of Contents~~

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments other than cash equivalents and marketable securities, which include accounts receivable and accounts payable, approximate fair value based on either their short maturity or current terms for similar 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 ~~ownassumptions.~~own

assumptions.

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, all our leases are classified as operating leases. Topic 842 requires the Company to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a

right-of-use

asset representing its right to use the underlying asset for the lease term.

Right-of-use

assets are recorded in other assets on our consolidated balance sheets. Current and

non-current

lease liabilities are recorded in other accruals within current liabilities and other

non-current

liabilities, respectively, on our consolidated balance sheets. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. The

right-of-use

assets were ~~$2,407,000~~$2,171,000 and $2,477,000 at ~~August 31,~~November 30, 2021 and May 31, 2021, respectively. The total current and

non-current

lease liabilities were ~~$2,408,000~~$2,181,000 and $2,492,000 at ~~August 31,~~November 30, 2021 and May 31, 2021, respectively.

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. 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 Allowance

Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends ~~current economic conditions~~ and other information. Collateral or other security is generally not required for accounts receivable. 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.

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.

~~Table of Contents~~

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. Other intangible assets include customer relationships, trademarks, licenses, trade names, covenants

not-to-compete

and patents. Customer-based 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 generally amortized over 5 to 25 years. We review the carrying amounts of goodwill and other

non-amortizable

intangible assets annually, or when indications of impairment exist, to determine if such assets may be impaired. If the carrying amounts of these assets are deemed to be less than fair value based upon a discounted cash flow analysis and comparison to comparable EBITDA multiples of peer companies, 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.

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 ~~other~~ 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 ~~handle~~

accommodate

most of the specific features included in the options granted, which are the reason for their 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 8.7.

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.

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 ~~$71,283,000~~$51,119,000 and $75,602,000 at ~~August 31,~~November 30, 2021 and May 31, 2021, 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 at ~~August 31,~~November 30, 2021. Changes in market value are monitored and recorded on a monthly basis; in the event of a downgrade in credit quality subsequent to purchase, the marketable ~~security~~securities investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable ~~security~~securities portfolio.

~~Table of Contents~~

These securities are classified as available for sale. 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 income on the income statement. Adjustments in the fair value of these assets are recorded in other comprehensive income.

Marketable Securities as of ~~August 31,~~November 30, 2021 and May 31, 2021 are listed below by classification and remaining maturities.


							November 30,		May 31,
(in thousands)	Maturity	August 31, 2021		May 31, 2021		Maturity	2021		2021
Commercial Paper & Corporate Bonds	0 - 90 days		82,115		106,631	0 - 90 days		79,830		106,631
	91 - 180 days		78,299		78,727	91 - 180 days		88,246		78,727
	181 days - 1 year		90,026		87,590	181 days - 1 year		64,526		87,590
	1 - 2 years		76,647		26,752	1 - 2 years		104,275		26,752
Certificates of Deposit	0 - 90 days		1,253		3,262	0 - 90 days		1,002		3,262
	91 - 180 days		1,006		1,260	91 - 180 days		251		1,260
	181 days - 1 year		251		1,263	181 days - 1 year		0		1,263
	1 - 2 years		0—		0—	1 - 2 years		0		0

Total Marketable Securities		$	329,597	$	305,485		$	338,130	$	305,485

The components of marketable securities at ~~August 31,~~November 30, 2021 are as follows:


										Amortized		Unrealized		Unrealized
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cost		Gains		Losses			Fair Value
Commercial Paper & Corporate Bonds	$	327,157	$	53	$	(123	)	$	327,087		337,437		18		(578	)		336,877
Certificates of Deposit		2,503		7		0—			2,510		1,251		2		0—			1,253

Total Marketable Securities	$	329,660	$	60	$	(123	)	$	329,597	$	338,688	$	20	$	(578	)	$	338,130

The components of marketable securities at May 31, 2021 are as follows:

(in thousands)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair Value

Commercial Paper & Corporate Bonds
   $ 299,524    $ 209    $ (33 )    $ 299,700
Certificates of Deposit
   5,755    30    0—      5,785








Total Marketable Securities
   $ 305,279    $ 239    $ (33 )    $ 305,485

~~Table of Contents~~


	Amortized		Unrealized		Unrealized
(in thousands)	Cost		Gains		Losses			Fair Value
Commercial Paper & Corporate Bonds		299,524		209		(33	)		299,700
Certificates of Deposit		5,755		30		0—			5,785

Total Marketable Securities	$	305,279	$	239	$	(33	)	$	305,485

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,		May 31,
(in thousands)	August 31, 2021		May 31, 2021		2021		2021
Raw materials	$	50,244	$	47,588	$	53,940	$	47,588
Work-in-process		6,704		6,412		6,303		6,412
Finished and purchased goods		45,161		46,701		46,843		46,701

	$	102,109	$	100,701	$	107,086	$	100,701

4. REVENUE RECOGNITION

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

Identification of the contract with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, the Company satisfies the performance obligations.

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

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

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

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

Product revenue consists of shipments of:

Diagnostic test kits, dehydrated culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation;

Consumable products marketed to veterinarians, retailers, livestock producers and animal health product distributors; and

~~Table of Contents~~

Rodenticides, disinfectants and insecticides to assist in the control of rodents, insects and disease in and around agricultural, food production and other facilities.

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

Service revenue consists primarily of:

Genomic identification and related interpretive bioinformatic services; and

Other commercial laboratory services.

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

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

The following table presents disaggregated revenue by major product and service categories for the three and six month periods ended ~~August 31,~~November 30, 2021 and 2020:


	Three Months ended August 31,				Three Months ended November 30,				Six Months ended November 30,
(in thousands)	2021		2020		2021		2020		2021		2020
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,408	$	19,015	$	21,028	$	20,001	$	41,432	$	39,016
Bacterial & General Sanitation		11,165		9,931		12,252		11,235		23,421		21,166
Culture Media & Other		18,046		12,171		19,935		14,215		37,981		26,387
Rodenticides, Insecticides & Disinfectants		7,649		8,830		8,232		7,059		15,882		15,888
Genomics Services		5,454		4,238		5,685		5,024		11,138		9,262

	$	62,722	$	54,185	$	67,132	$	57,534	$	129,854	$	111,719
Animal Safety
Life Sciences	$	1,363	$	1,325	$	1,309	$	1,398	$	2,672	$	2,723
Veterinary Instruments & Disposables		15,337		10,375		15,572		11,974		30,909		22,349
Animal Care & Other		9,219		7,658		10,849		9,371		20,068		17,029
Rodenticides, Insecticides & Disinfectants		22,149		19,914		18,269		18,471		40,418		38,385
Genomics Services		17,515		15,868		17,386		16,252		34,901		32,120

	$	65,583	$	55,140	$	63,385	$	57,466	$	128,968	$	112,606

Total Revenues	$	128,305	$	109,325	$	130,517	$	115,000	$	258,822	$	224,325

5. NET INCOME PER SHARE

The calculation of net income per share follows:

Three Months Ended


August 31,

(in thousands, except per share amounts)

2021

2020

Numerator for basic and diluted net income per share:

Net income
   $ 17,077    $ 15,860
Denominator for basic net income per share:

Weighted average shares
   107,490    105,984
Effect of dilutive stock options
   619    586




Denominator for diluted net income per share
   108,109    106,570
Net income per share:

Basic
   $ 0.16    $ 0.15




Diluted
   $ 0.16    $ 0.15


	Three Months Ended				Six Months Ended
	November 30,				November 30,
(in thousands, except per share amounts)	2021		2020		2021		2020
Numerator for basic and diluted net income per share:
Net income attributable to Neogen	$	10,828	$	15,885	$	27,905	$	31,745
Denominator for basic net income per share:
Weighted average shares		107,641		106,258		107,565		106,044
Effect of dilutive stock options and RSUs		481		550		534		556

Denominator for diluted net income per share		108,122		106,808		108,099		106,600
Net income attributable to Neogen per share:
Basic	$	0.10	$	0.15	$	0.26	$	0.30

Diluted	$	0.10	$	0.15	$	0.26	$	0.30

~~Table of Contents~~

6. SEGMENT INFORMATION AND GEOGRAPHIC DATA

We ~~have 2~~have2 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. 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 rodenticides, disinfectants and insecticides 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, rodenticides, insecticides, veterinary instruments and genomics services. These additional products and services are managed and directed by existing 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 has 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.

Segment information follows:


					Corporate and										Corporate and
	Food		Animal		Eliminations						Food		Animal		Eliminations
(in thousands)	Safety		Safety		(1)			Total			Safety		Safety		(1)			Total
As of and for the three months ended August 31, 2021
As of and for the three months ended November 30, 2021										As of and for the three months ended November 30, 2021
Product revenues to external customers	$	55,945	$	48,068	$	—		$	104,013		$	60,112	$	45,999	$	—		$	106,111
Service revenues to external customers		6,777		17,515		—			24,292			7,020		17,386		—			24,406

Total revenues to external customers		62,722		65,583		—			128,305			67,132		63,385		—			130,517
Operating income (loss)		10,131		12,762		(1,148	)		21,745			10,894		12,701		(11,126	)		12,469
Total assets		291,018		240,208		400,880			932,106			298,437		278,994		390,503			967,934
As of and for the three months ended August 31, 2020
As of and for the three months ended November 30, 2020										As of and for the three months ended November 30, 2020
Product revenues to external customers	$	48,663	$	39,272	$	—		$	87,935		$	51,323	$	41,214	$	—		$	92,537
Service revenues to external customers		5,522		15,868		—			21,390			6,211		16,252		—			22,463

Total revenues to external customers		54,185		55,140		—			109,325			57,534		57,466		—			115,000
Operating income (loss)		7,963		12,165		(1,233	)		18,895			8,960		12,246		(1,961	)		19,245
Total assets		225,716		228,390		367,486			821,592			226,735		228,126		390,765			845,626

(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.


					Corporate and
	Food		Animal		Eliminations
(in thousands)	Safety		Safety		(1)			Total
As of and for the six months ended November 30, 2021
Product revenues to external customers	$	116,057	$	94,067	$	—		$	210,124
Service revenues to external customers		13,797		34,901		—			48,698

Total revenues to external customers		129,854		128,968		—			258,822
Operating income (loss)		21,026		25,463		(12,275	)		34,214
As of and for the six months ended November 30, 2020
Product revenues to external customers	$	99,986	$	80,486	$	—		$	180,472
Service revenues to external customers		11,733		32,120		—			43,853

Total revenues to external customers		111,719		112,606		—			224,325
Operating income (loss)		16,923		24,411		(3,194	)		38,140

(1)	Includes elimination of intersegment transactions.

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


					Three months ended				Six months ended
	Three months ended August 31,				November 30,				November 30,
(in thousands)	2021		2020		2021		2020		2021		2020
Domestic	$	77,779	$	67,324	$	76,378	$	69,832	$	154,156	$	137,156
International		50,526		42,001		54,139		45,168		104,666		87,169

Total revenue		128,305		109,325		130,517		115,000		258,822		224,325

131

~~Table of Contents~~

7. EQUITY COMPENSATION PLANS

Incentive and

non-qualified

options to purchase shares of common stock have been granted to directors, officers and employees of Neogen under the terms of the Company’s stock option plans. These options are granted at an exercise price of not less than the fair market value of the stock on the date of grant. Options vest ratably over three and five year periods and the contractual terms are generally five or ten years. A summary of stock option activity during the ~~three~~six months ended ~~August 31,~~November 30, 2021 follows:


				Weighted-					Weighted-
				Average					Average
(Options in thousands)	Options			Exercise Price		Shares			Exercise Price
Options outstanding June 1, 2021		2,957		$	30.38		2,957		$	30.38
Granted		0			0		392			40.93
Exercised		(5	)		27.71		(262	)		22.42
Forfeited		(11	)		30.79		(21	)		31.11

Options outstanding August 31, 2021		2,941		$	30.38
Options outstanding November 30, 2021							3,066		$	32.40

During the ~~three-month~~three and six month periods ended ~~August 31,~~November 30, 2021 and 2020, the Company recorded ~~$1,690,000~~$1,748,000 and ~~$1,681,000,~~$1,511,000 and $3,438,000 and $3,192,000, respectively, of compensation expense related to its share-based awards.

The weighted-average fair value per share of stock options granted during the first six months of fiscal ~~year~~years 2022 and 2021, estimated on the date of grant using the Black-Scholes option pricing model, was ~~$7.71.~~$9.54 and $7.71, respectively. The fair value of stock options granted was estimated using the following weighted-average assumptions. ~~NaN options were granted in the first quarter of fiscal year 2022.~~


	~~FY 2021~~
~~Risk-free interest rate~~		~~0.2~~	%
~~Expected dividend yield~~		~~0.0~~	%
~~Expected stock price volatility~~		~~31.3~~	%
~~Expected option life~~		~~3.25 years~~


	FY 2022			FY 2021
Risk-free interest rate		0.4	%		0.2	%
Expected dividend yield		0.0	%		0.0	%
Expected stock price volatility		32.8	%		31.3	%
Expected option life		3.12 years			3.25 years

The ~~Company granted 118,250~~company grants restricted stock units (RSUs) to directors, officers and employees under the terms of the 2018 Omnibus Incentive Plan, ~~in fiscal year 2021,~~ which vest ratably over three and five year periods. ~~NaN RSUs were gra~~

~~ted in the first quarter of fiscal year 2022. RSUs have a weighted average value of $34.21 per share and will be~~The current units are expensed

~~on a~~

straight-line

~~basis~~

over the remaining weighted-average period of ~~4.0~~4.32 years. On ~~August 31,~~November 30, 2021 there was ~~$2,908,000~~$6,501,000 in unamortized compensation cost related to

non-vested

RSUs.


				Weighted-
				Average
(Options in thousands)	Shares			Fair Value
RSUs outstanding June 1, 2021		121		$	34.21
Granted		120			40.92
Released		(25	)		34.24
Forfeited		(3	)		34.49

RSUs outstanding November 30, 2021		213		$	37.97

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 either the 2011 or 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.

8. BUSINESS COMBINATIONS

The Consolidated Statements of Income reflect the results of operations for business acquisitions since the respective dates of purchase. ~~All~~A

l 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.

On July 31, 2020, the Company acquired the U.S. (including territories) rights to Elanco’s StandGuard

Pour-on

for horn fly and lice control in beef cattle, and related assets. This product line fits in well with Neogen’s existing agricultural insecticide portfolio and organizational capabilities. Consideration for the purchase was $2,351,000 in cash, all paid at closing. The final purchase price allocation, based upon the fair value of these assets determined using the income approach, included inventory of $51,000 and intangible assets of $2,300,000 (with an estimated life of 15 years). This product line is ~~currently being toll manufactured for the Company but is eventually expected to be~~ manufactured at Neogen’s operation in Iowa; the sales are reported within the Animal Safety segment.

~~Table of Contents~~

On December 30, 2020, the Company acquired all of the stock of Megazyme, Ltd, an Ireland-based company, and its wholly-owned subsidiaries, U.S.-based Megazyme, Inc. and Ireland-based Megazyme IP. Megazyme is a manufacturer and supplier of diagnostic assay kits and enzymes to measure dietary fiber, complex carbohydrates and enzymes in food and beverages as well as animal feeds. This acquisition ~~will~~

has

allow

Neogen to expand its commercial relationships across food, feed and beverage companies, and provide additional food quality diagnostic products to commercial labs and food science research institutions. Consideration for the purchase was net cash of $39.8 million paid at closing, $8.6 million of cash placed in escrow payable to the former owner in two installments in two and four years, $4.9 million of stock issued at closing, and up to $2.5 million of contingent consideration, payable in two installments over ~~the next~~

one

year, based upon an excess net sales formula. The ~~preliminary~~

final

purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $1,376,000, inventory of $5,595,000, net property, plant and equipment of $12,599,000, prepayments of $69,000, accounts payable of $4,000, other current liabilities of $1,815,000, contingent consideration accrual of $2,458,000,

non-current

liabilities of $319,000,

non-current

deferred tax liabilities of $3,306,000, intangible assets of $22,945,000 (with an estimated life of

15-20

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. In February 2021, the former owner was paid $1,229,000 for the first installment of contingent consideration, based upon the achievement of sales targets. The Irish companies continue to operate from their current locations in Bray, Ireland, reporting within the Food Safety segment and are managed through Neogen’s Scotland operation. The U.S. company’s business is managed by our Lansing-based Food Safety team.

~~Subsequent to the end of the quarter, on~~On September 17, 2021, the Company acquired the stock of CAPInnoVet, Inc., a companion animal health business that provides pet medications to the veterinary market. This acquisition provides entry into the retail parasiticide market and enhances the Company’s presence in companion animal markets. Consideration for the purchase was net cash of $17.9 million paid at closing, including $150,000 of cash placed in escrow payable to the former owners in twelve months. There is also the potential for

performance

milestone payments to the former owners of up to $6.5 million

and

the Company could incur up to $14.5 million in

future roya

lty payment

. The preliminary purchase allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of $308,000, inventory of $408,000, prepayments of $296,000, accounts payable of $120,000, other current liabilities of $132,000,

non-current

liabilities of $13.9 million, intangible assets of $21.0 million (with an estimated life of

15-20

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. The business

operated from our location in Lexington, KY, reporting within the Animal Safety segment.

On November 30, 2021, the Company acquired the stock of Delf (UK) Ltd., a United Kingdom-based manufacturer and supplier of animal hygiene and industrial cleaning products, and

Abbott

Analytical Ltd.,

a related service provider. This acquisition will expand the Company’s line of dairy hygiene products and will enhance our cleaner and disinfectant product portfolio. Consideration for the purchase was net cash of $8.8 million paid at closing, including $722,000 of cash placed in escrow payable to the former owner in one year. The preliminary purchase price allocation, based upon the fair value of these assets and liabilities determined using the income approach, included accounts receivable of 806,000, inventory of $659,000, net property, plant and equipment of $160,000, prepayments of $43,000, accounts payable of $543,000, other current liabilities of $489,000,

non-current

deferred tax liabilities of $533,000, intangible assets of $2.6 million (with an estimated life of

10-15

years) and the remainder to goodwill

(non-deductible

for tax purposes). These values are Level 3 fair value measurements. The companies continue to operate from their current location in Liverpool, England, reporting within the Food Safety segment and are managed through Neogen’s Scotland operation.

Subsequent to the end of the quarter, on December 9, 2021, the Company acquired the stock of Genetic Veterinary Services, Inc., a companion animal genetic testing business providing genetic information for dogs, cats and birds to animal owners, breeders and veterinarians. This acquisition will further expand the Company’s presence in the companion animal market. Consideration for the purchase was $11.8 million in cash. Due to the timing of the transaction, the preliminary purchase price allocation was not complete at the time of filing. The business will be operated from ~~our~~its current location in ~~Lexington, KY,~~Spokane, Washington, reporting within the Animal Safety segment.

Subsequent

to the end of the quarter, on December 13, 2021, the Company entered into an agreement to combine with 3M’s food safety business in a Reverse Morris Trust transaction. Please refer to Forms

8-K

and Forms 425 filed with the Securities and Exchange Commission for more information.

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

9. LONG TERM DEBT

We have a financing agreement with a bank providing for a $15,000,000 unsecured revolving line of credit, which expires on November 30, 2023. There were 0 advances against the line of credit during fiscal 2021 and there have been none thus far in fiscal 2022; there was ~~0balance~~0 balance outstanding at ~~August 31,~~November 30, 2021. Interest on any borrowings

at LIBOR plus 100 basis points (rate under the terms of the agreement was ~~1.08%~~1.09% at ~~August 31,~~November 30, 2021). Financial covenants include maintaining specified levels of tangible net worth, debt service coverage, and funded debt to EBITDA, each of which the Company was in compliance with at ~~August 31,~~November 30, 2021.

10. 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. We expense these annual costs of remediation, which have ranged from $38,000 to $131,000 per year over the past five years. The Company’s estimated remaining liability for these costs was $916,000 at both ~~August 31,~~November 30, 2021 and May 31, 2021, 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 agreed to a pilot study in which chemical reagents are injected into the ground in an attempt to reduce

on-site

contamination and is currently working with its consultant to design the system. 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 $300,000 as a current liability, and the remaining $616,000 is recorded in other

non-current

liabilities in the consolidated balance ~~sheet.~~sheets.

On March 6, 2020, the Company received an administrative subpoena from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) regarding activities or transactions involving parties located in Iran. The Company subsequently conducted an internal investigation under the direction of outside legal counsel and disclosed information concerning certain genomic testing services provided to an unrelated U.S.-based party engaged in veterinary activities involving an Iranian party. The Company continues to cooperate with OFAC’s investigation and is currently examining whether certain of these activities may be eligible for OFAC General Licenses authorizing agricultural and veterinary activities.

~~Table of Contents~~

In addition to responding to the administrative subpoena, the Company is implementing additional compliance measures to prevent inadvertent dealings with restricted countries or parties. These measures will further enhance the Company’s international trade compliance program, which is designed to assure that the Company does not conduct business directly or indirectly with any countries or parties subject to U.S. economic sanctions and export control laws. Although it is too early to predict what action, if any, that OFAC will take, the Company does not currently have any reason to believe that OFAC’s pending investigation will have a material impact on its operations, the results of operations for any future period, or its overall financial condition. In fiscal 2020, the Company took a charge to expense and recorded a reserve of $600,000 to provide for potential fines or penalties on this matter. At this time, the Company believes that it is adequately reserved for

this issue.

The Company is subject to certain

~~other~~

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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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.

For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be ~~forward looking~~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. There are a number of important factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, effects of the ongoing

COVID-19

pandemic on our business, identification and integration of acquisitions, research and development risks, patent and trade secret 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.

COVID-19

As we ~~continue to~~ closely monitor the

COVID-19

pandemic, our top priority remains protecting the health and safety of our employees. While operations continue in our locations around the world, many of our

non-manufacturing

and distribution employees continue to work remotely and ~~although it is starting to increase, business~~ travel remains limited. Safety guidelines and procedures, including social distancing, mask wearing and enhanced cleaning, have been developed for

on-site

employees and these policies are regularly monitored and updated by our internal Emergency Response Team.

In the first ~~quarter~~half of fiscal 2022, the

COVID-19

pandemic continued to impact our business operations and financial results. There has been a positive impact in sales of our biosecurity product lines, as the pandemic has created increased demand for these products, and sales into companion animal markets have benefitted, as remote work and stay at home orders have driven increased pet ownership. A number of our food safety diagnostic product lines have been negatively impacted due to decreased demand in many of our customers’ businesses around the world, particularly those serving restaurants, bars and other institutional food service markets. ~~A number~~Many of our markets across the world are recovering, but the pandemic has continued to adversely impact our customers and ultimately, our revenues. We have also experienced supply chain difficulties including vendor disruptions, border closures, shipping issues and significantly increased shipping costs; labor shortages and higher labor costs, as we have had to use staffing agencies and increase our base pay in many areas of the company to fill open positions; and restricted travel, which hinders our ability to connect with customers. During the current fiscal year, we have incurred less expense for travel, meals, trade shows and some other customer-facing marketing activities; some of these activities have resumed but have not yet returned to

pre-pandemic

levels. Higher spend on shipping and labor are offsetting these savings.

Overall, the impact

of COVID-19 remains

uncertain and ultimately depends on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus; the federal, state, and local government actions taken in response; vaccination rates and effectiveness; the impact of vaccination requirements; and the macroeconomic environment. We ~~expect the~~

~~COVID-19~~

~~pandemic~~ will continue to evaluate the nature and extent to

which COVID-19 will

impact our business, supply chain, including labor availability and attrition, consolidated results of operations, financial condition, and ~~financial results~~liquidity; we expect it to impact us through at least the end of our current fiscal year.

~~Table of Contents~~

Executive Overview

Consolidated revenues were ~~$128.3~~$130.5 million in the ~~first~~second quarter of fiscal 2022, an increase of ~~17%~~13% compared to ~~$109.3~~$115.0 million in the ~~first~~second quarter of fiscal ~~2020.~~2021. Organic sales ~~increased 14%~~growth in the second quarter of fiscal 2022 was 10%. For the six month period, consolidated revenues were $258.8 million, an increase of 15% compared to $224.3 million in the same period in the prior fiscal year. On a year to date basis, organic sales rose 12%.

Food Safety segment sales were ~~$62.7~~$67.1 million in the ~~first~~second quarter of ~~the current~~ fiscal ~~year,~~2022, an increase of ~~16%~~17% compared to ~~$54.2~~$57.5 million in the same period ~~of the prior year.~~a year ago. Organic sales in this segment rose ~~10%~~11% for the comparative period, with revenues from the acquisition of Megazyme (December 2020) providing the remainder of the ~~increase.~~increase in revenues for the segment. For the year to date, Food Safety segment sales were $129.9 million, an increase of 16% compared to $111.7 million in the same period of the prior fiscal year; the organic sales increase was 10% for the comparative period, with the Megazyme acquisition providing the additional contribution to revenue.

Animal Safety segment sales were ~~$65.6~~$63.4 million in the ~~first~~second quarter of fiscal 2022, an increase of ~~19%~~10% compared to ~~prior year first~~$57.5 million in the second quarter ~~sales~~ of ~~$55.1 million.~~fiscal 2021. Organic sales in this segment also rose ~~19%~~10% in the second quarter, with a minor contribution from the CAPInnovet acquisition (September 2021). For the six month period, Animal Safety segment sales were $129.0 million, an increase of 15%, compared to $112.6 million in the same period a year ago. Year to date organic sales rose 14%, with revenues from the StandGuard (July 2020) and CAPInnovet acquisitions contributing the difference.

International sales in the ~~first~~second quarter of fiscal 2022 were ~~39.4%~~41% of total sales compared to ~~38.4%~~39% of total sales in the ~~first~~second quarter of fiscal 2021. For the year to date, fiscal 2022 international sales were 40% of total sales compared to 39% of total sales in the same period of the prior year.

~~The~~Our effective tax rate in the ~~first~~second quarter ~~of fiscal 2022~~ was ~~21.4%~~16.2% compared to ~~19.9%~~an effective tax rate of 17.8% in the prior year ~~first quarter.~~second quarter; the fiscal 2022 year to date effective tax rate was 19.5% compared to 18.9% for the same period a year ago.

Net income for the quarter ended ~~August 31,~~November 30, 2021 was ~~$17.1~~$10.8 million, or ~~$0.16~~$0.10 per diluted share, ~~an increase of 8%~~ compared to $15.9 million, or $0.15 per diluted share ~~for~~in the same period in the prior year. For the year to date, net income was $27.9 million, or $0.26 per diluted share compared to prior year to date net income of $31.7 million, or $0.30 per diluted share. Net income was decreased by $9.3 million of legal and consulting expenses for due diligence related to our recently announced agreement to combine with 3M’s Food Safety business.

Cash ~~generated~~provided from operating activities in the first ~~quarter~~six months of fiscal 2022 was ~~$23.2~~$41.1 million, compared to ~~$25.1~~$47.5 million in the first ~~quarter~~half of fiscal 2021.

~~Neogen’s results reflect a~~

International sales rose 20% ~~increase~~ in both the second quarter of fiscal 2022 and also increased 20% for the year to date, each compared to the same respective periods in the prior year. Excluding international sales of the Megazyme acquisition, the increase was 14% for both the quarter and year to date periods. Revenue changes, expressed in percentages, for the ~~first quarter~~three and six month periods of fiscal 2022 compared to the same ~~period in the prior year. Revenue changes, expressed in percentages, in the first quarter of fiscal 2022 compared to the same quarter~~respective periods in the prior year are as follows for each of our international locations:


	Revenue Change USD			Revenue Change Local Currency			Three Months Ended						Six Months Ended
U.K. Operations (including Neogen Italia)		9	%		(2	)%
Neogen Italia		228	%		217	%
							November 30, 2021						November 30, 2021
							Revenue			Revenue			Revenue			Revenue
							% Inc (Dec)			% Inc (Dec)			% Inc (Dec)			% Inc (Dec)
							USD			Local Currency			USD			Local Currency
U.K Operations (including Neogen Italia)								20	%		14	%		13	%		6	%
Brazil Operations		(15	)%		(17	)%		(5	)%		(6	)%		(10	)%		(12	)%
Neogen Latinoamerica		16	%		4	%		13	%		10	%		18	%		10	%
Neogen Argentina		15	%		54	%		44	%		84	%		28	%		68	%
Neogen Uruguay		15	%		17	%		(4	)%		(2	)%		3	%		5	%
Neogen Chile		71	%		63	%		48	%		54	%		59	%		59	%
Neogen China		59	%		47	%		28	%		22	%		42	%		34	%
Neogen India		15	%		14	%		(10	)%		(9	)%		1	%		1	%
Neogen Canada		89	%		75	%		34	%		28	%		60	%		50	%
Neogen Australasia		49	%		41	%		29	%		27	%		38	%		33	%

Currency translations increased comparative revenues by approximately ~~$2.3~~$1.0 million in the ~~first~~second quarter of fiscal 2022 and $3.3 million for the year to date, each compared to the same ~~quarter~~periods a year ago, primarily due to the increased strength of the British pound and Mexican peso relative to the U.S. dollar. Combined revenues at our U.K. operations increased ~~approximately 9%, with our Neogen Europe and Neogen Italia operations experiencing combined 17% growth~~20% in ~~diagnostic test kits and genomics services. This~~the second quarter; growth was ~~partially offset~~led by ~~a 10% decrease~~strong cleaner and disinfectant sales into Asia, as the African swine fever outbreak continues to drive demand, and new culture media business with commercial laboratories in the ~~first quarter~~U.K. that have adopted our recently launched One Broth One Plate workflow. For the six month period, revenues at ~~Quat-Chem,~~our U.K. operations increased 13% as ~~the~~ a large

non-recurring

prior year ~~quarter included a large~~ shipment of hand sanitizers to the U.K. government’s health organization and strong cleaner and disinfectant sales to China, Africa and the Middle East. Due to shipping and tax issues caused by Brexit, Neogen Italia is fulfilling orders to many European Union customers that were previously managed through Neogen Europeaffected growth in the ~~U.K.~~

first quarter.

~~At our Brazilian operations, fiscal 2022 first~~Sales in Brazil decreased 5% in this year’s second quarter, ~~sales decreased 15%~~ as ~~the prior year first quarter included a large~~

~~non-recurring~~

~~insecticide sale to a government health organization. Additionally,~~ an extended drought led to a significantly reduced corn crop and the associated testing, resulting in a ~~36%~~large decrease in sales of aflatoxin test kits. ~~At Neogen Latinoamerica,~~For the ~~growth in local currency~~six month period, sales at our Brazilian operations decreased 10%, primarily due to the reduced aflatoxin test kit sales and a large

non-recurring

insecticide sale to a government health organization in the first quarter ~~was led by strength~~of the prior fiscal year. Neogen Latinoamerica sales rose 13% for the second quarter, primarily due to increases in natural toxins test kits, environmental sanitation, culture media and ~~culture media.~~biosecurity products. Sales at Neogen China increased ~~59%~~28% and 42% for the three and six month periods, respectively, from new sales of Megazyme products and ~~strong~~ growth in genomics, as the commercial dairy, swine and sheep markets have increased sampling volumes. The Neogen Australasia location benefitted from increased genomics business with customers in the beef and sheep markets.

Service revenue, which ~~consists primarily of~~includes genomics testing and other laboratory services, ~~to animal protein and companion animal markets,~~ was ~~$24.3~~$24.4 million in the ~~first~~second quarter of fiscal 2022, an increase of ~~14%~~9% over prior year ~~first~~second quarter revenues of ~~$21.4~~$22.5 million. For the six month period, service revenue was $48.7 million, an increase of 11% over prior year revenues of $43.9 million. The growth for both the quarter and year to date periods was led by ~~strong~~ increases in ~~genomics~~ revenues inat our Australia, China, U.K., Brazil and Canada genomics operations; growth in our domestic ~~operations~~operation was reduced by lower ~~sales in~~volumes of companion animal ~~markets,~~samples, the result of difficult ~~comparisons~~comparison from ~~a 61% increase~~large increases in the prior ~~year first quarter.~~year.

1821

~~Table of Contents~~

Revenues


											Three Months Ended November 30,
	Three Months ended August 31,														Increase/
(in thousands)	2021		2020		Increase/ (Decrease)			%			2021		2020		(Decrease)			%
Food Safety
Natural Toxins, Allergens & Drug Residues	$	20,408	$	19,015	$	1,393			7	%	$	21,028	$	20,001	$	1,027			5	%
Bacterial & General Sanitation		11,165		9,931		1,234			12	%		12,252		11,235		1,017			9	%
Culture Media & Other		18,046		12,171		5,875			48	%		19,935		14,215		5,720			40	%
Rodenticides, Insecticides & Disinfectants		7,649		8,830		(1,181	)		(13	)%		8,232		7,059		1,173			17	%
Genomics Services		5,454		4,238		1,216			29	%		5,685		5,024		661			13	%

	$	62,722	$	54,185	$	8,537			16	%	$	67,132	$	57,534	$	9,598			17	%
Animal Safety
Life Sciences	$	1,363	$	1,325	$	38			3	%	$	1,309	$	1,398	$	(89	)		(6	)%
Veterinary Instruments & Disposables		15,337		10,375		4,962			48	%		15,572		11,974		3,598			30	%
Animal Care & Other		9,219		7,658		1,561			20	%		10,849		9,371		1,478			16	%
Rodenticides, Insecticides & Disinfectants		22,149		19,914		2,235			11	%		18,269		18,471		(202	)		(1	)%
Genomics Services		17,515		15,868		1,647			10	%		17,386		16,252		1,134			7	%

	$	65,583	$	55,140	$	10,443			19	%	$	63,385	$	57,466	$	5,919			10	%

Total Revenues	$	128,305	$	109,325	$	18,980			17	%	$	130,517	$	115,000	$	15,517			13	%


	Six Months Ended November 30,
					Increase/
(in thousands)	2021		2020		(Decrease)			%
Food Safety
Natural Toxins, Allergens & Drug Residues	$	41,432	$	39,016	$	2,416			6	%
Bacterial & General Sanitation		23,421		21,166		2,255			11	%
Culture Media & Other		37,981		26,387		11,594			44	%
Rodenticides, Insecticides & Disinfectants		15,882		15,888		(6	)		0	%
Genomics Services		11,138		9,262		1,876			20	%

	$	129,854	$	111,719	$	18,135			16	%
Animal Safety
Life Sciences	$	2,672	$	2,723	$	(51	)		(2	)%
Veterinary Instruments & Disposables		30,909		22,349		8,560			38	%
Animal Care & Other		20,068		17,029		3,039			18	%
Rodenticides, Insecticides & Disinfectants		40,418		38,385		2,033			5	%
Genomics Services		34,901		32,120		2,781			9	%

	$	128,968	$	112,606	$	16,362			15	%

Total Revenues	$	258,822	$	224,325	$	34,497			15	%

Food Safety

Natural Toxins, Allergens

& Drug Residues –

Sales in this category increased ~~7% in~~5% and 6% for the ~~first quarter of fiscal 2022 due primarily to a 17% increase in sales of our allergen test kits, as customers have increased their testing~~three and six month periods ended November 30, 2021, respectively, compared to the same periods in the prior ~~year when many were shut down or operating at lower capacity due to~~

~~COVID-19~~

~~restrictions. Sales~~year. In the second quarter, sales of our natural toxin test kits rose ~~6%,~~10% as higher sales ~~of deoxynivalenol (DON), zearalenone~~in the domestic pet food market and ~~fumonisin test kits~~Europe were partially offset by lower aflatoxin ~~test kit~~ sales in Brazil, as a drought significantly reduced crop size and associated testing. ~~Drug~~Sales of allergen test kits rose 6% in the second quarter, while sales of our drug residue test ~~kit sales~~kits declined ~~22%~~23% due to the termination of a European distribution agreement and competitive pressure within the marketplace.

Bacterial

& General Sanitation –

Revenues in this category increased ~~12%~~9% and 11% for the second quarter and for the year to date, compared to the same periods in the ~~first~~prior year. In the second quarter, ~~led by a 14% increase in~~ sales of ~~our environmental sanitation product line, in which we launched a new reader in the previous quarter. Pathogen test kit revenues increased 15%, led by a 32% increase in sales of~~

~~Listeria~~

products ~~including our innovative~~

~~Listeria~~

~~Right Now~~

™

~~system. Sales of our Soleris product line~~ to detect spoilage organisms in processed foods increased 6%22%, resulting from sales of our new instrument which continued to gain market acceptance after launching over a year ago. Sales of our AccuPoint sanitation monitoring product line increased 8% in the second quarter as ~~9% growth in~~strong sales of our ~~consumable vials was~~new reader partially offset ~~by flat~~lower sales of ~~equipment. Our Soleris~~

~~NG instrument was launched~~consumables due to supply issues. Sales of products to detect pathogens increased 3% in the ~~first quarter of the prior year; equipment sales, although flat to prior year, are approximately double compared to the first quarter two years ago.~~second quarter.

Culture Media

& Other –

Sales in this category ~~rose 48%~~increased 40% in the quarter ended November 30, 2021 compared to the second quarter in the prior year; for the six month period, sales increased 44%. Excluding sales from the December 2020 acquisition of Megazyme, Veterinary which are reported in this category, sales increased 17% and 19% for the three and six month periods, respectively. This category includes sales of instruments and other veterinary products at some of our international locations; these sales increased significantly over the prior year due to recovering markets and expanded market share. Sales of Neogen Culture Media products increased 11% in the second quarter as our new workflow, One Broth One Plate, continued to drive increased sales to commercial labs in the U.K.; the growth was partially offset by a decline in domestic sales due to

non-recurring

business in the prior year. For the six month period, Neogen Culture Media sales increased 22%, due to strength in the U.K. and also a large domestic sale to a vaccine manufacturer in the first quarter.

Rodenticides, Insecticides

& Disinfectants –

Revenues in this category increased 17% in the second quarter of fiscal 2022 compared to the same period ~~in the prior year; excluding sales from the December 2020 acquisition of Megazyme, sales increased 21%. Sales of Neogen Culture Media products increased 36%,~~a year ago, due primarily to ~~high demand with diagnostics customers globally and a large domestic sale to a vaccine manufacturer.~~

~~Rodenticides, Insecticides~~

~~& Disinfectants –~~

~~Sales of products~~continued strength in this category decreased 13% in the first quarter of fiscal 2022, compared to last year’s first quarter. The prior year first quarter included a 73% increase in sales of hand sanitizing products at our U.K. based Quat-Chem operation and a large

~~non-recurring~~

~~insecticide order, recorded at our Brazilian operation, to a government health organization. Additionally, sales of~~ cleaners and disinfectants into ~~China in the prior year more than doubled, primarily due to~~Asia resulting from increased demand ~~resulting~~ from the African swine fever outbreak in that ~~country~~region; there was also higher sales of rodenticides in Mexico. For the year to date, sales were flat, with the previously discussed increases being offset by large

non-recurring

sales of hand sanitizers in the U.K. and ~~the~~

~~COVID-19~~

~~pandemic. Sales of cleaners and disinfectants into Asia~~insecticides in Brazil in the first quarter of the prior fiscal ~~2022 continued to be strong, increasing approximately 18%.~~year.

Genomics Services –

Sales of genomics services sold through our international Food Safety operations ~~rose 29%~~increased 13% and 20% for the three and six month periods ended November 30, 2021, respectively. The increase in the ~~first~~second quarter ~~of fiscal 2022, compared to~~was from overall strength at our labs in the ~~same period last year,~~U.K., Brazil and China as ~~genomics services~~improved economic conditions in ~~China more than doubled, due~~several markets have contributed to increased ~~commercial dairy and swine business. Genomics revenue in Europe also increased 15% on strength in poultry~~ testing.

~~Table of Contents~~

Animal Safety

Life Sciences –

Sales in this category ~~increased 3%~~decreased 6% in the ~~first~~second quarter, ~~due~~compared to ~~drug testing at doctor’s offices and workplaces increasing to more normal levels following~~

~~COVID-19~~

~~restrictions that impacted testing~~the same period in the prior ~~year.~~year; for the year to date, the decrease in this product line was 2%. The ~~growth~~decline in both periods was ~~partially offset by~~due primarily to the loss of hair testing business with a large U.S. commercial laboratory that moved to a different testing platform.

Veterinary Instruments

& Disposables –

Revenues in this category increased ~~48%~~30% for the three month period ended November 30, 2021, led by a large increase sales of in ~~the first quarter of fiscal 2022 compared to the prior year. Veterinary~~veterinary instruments, including ~~disposable~~needles and syringes, ~~and needles, increased 52% as we gained new~~resulting from recently won private label ~~business.~~business; revenues increased 38% for the year to date.

Animal Care

& Other –

Sales of these products increased ~~20%~~16% and 18% in the ~~first~~three and six month periods ended November 30, 2021, respectively. Excluding the contribution of parasiticides from the September acquisition of CAPInnovet, revenues in this category increased 13% in the second quarter, ~~compared~~primarily due to ~~the same period a year ago. Small~~strength in equine and companion animal ~~supplements, including~~markets. Additionally, we continued to regain customers with our recently

re-launched

ThyroKare

™

~~product, increased 78% and antibiotics increased 56%, both due to strength in the veterinary market.~~product. Partially offsetting these ~~increases,~~gains was a decline in sales of ~~our~~ dairy ~~supply products decreased 81%~~supplies of 67% and 76% for the quarter and year to date periods, respectively, due to the June 2020 termination of an agreement in which we distributed these types of products for a large manufacturer of dairy ~~equipment, in the first quarter of fiscal 2021.~~equipment.

Rodenticides, Insecticides

& Disinfectants –

~~Sales~~Revenues in this category decreased 1% for the three month period ended November 30, 2021, resulting from a 14% decrease in rodenticide sales due to supply constraints and a

non-outbreak

year. Insecticide sales rose ~~11%~~46% in the ~~first~~ quarter, ~~of fiscal 2022 compared to the same period in the prior year. Insect control products increased 23%,~~ led by growth in the StandGuard

product line ~~which was~~ acquired in July 2020. ~~We also had higher~~Cleaners and disinfectants sales ~~to customers in the restaurant industry,~~decreased 2% due to ~~many being affected in the~~a difficult prior year ~~by COVID shutdowns.~~comparison that included a large

non-recurring

sale. Sales of ~~rodenticides~~these products for the year to date period increased 5% on, as compared to a ~~difficult comparison to~~year ago, for the ~~prior year, when sales had increased 47%, and cleaners and disinfectant sales rose 6%.~~same reasons.

Genomics Services –

Sales in this category increased ~~10%~~7% and 9% in the ~~first three months,~~second quarter and the year to date periods, each compared to the prior year. The growth in both periods was led by ~~increased business~~increases in ~~the~~beef and sheep testing in Australia due to improved market conditions and higher sample volumes from domestic dairy and beef cattle and ~~swine markets; a large~~

~~non-recurring~~

~~plant research project also contributed to~~poultry customers. Growth in both the ~~growth in this category. Partially offsetting these gains~~three and six month periods was ~~a decrease in~~partially offset by lower domestic companion animal ~~testing services in the U.S.~~revenues due to ~~lower sampling volumes.~~difficult prior year comparisons.

Gross Margin

Gross margin, expressed as a percentage of sales, was ~~46.8%~~46.4% in the ~~first~~second quarter of fiscal 2022 compared to ~~46.0%~~46.3% in the same quarter a year ago. The slight change in gross margin percentage is the result of a 30 basis point improvement ~~was due primarily to a shift~~ in ~~product mix within the~~ Food Safety ~~segment resulting from~~gross margins, partially offset by a 20 basis point decline in gross margin percentage in the ~~incremental sales generated by Megazyme, which has products with higher gross margins. Reduced sales~~Animal Safety segment. The primary driver of ~~lower margin cleaners and disinfectants from our European and Chinese operations and insecticides from our Brazilian operations also contributed to~~ the improved Food Safety gross margin ~~improvement of 360 basis points.~~percentage was incremental revenue from the Megazyme product line; these products generate higher gross margins than the average in this segment. In the Animal Safety segment, the slight decline in gross ~~margins declined by 190 basis points, primarily due to~~margin percentage was the result of lower sales of higher margin rodenticide products due to a lessening of vole pressure across the domestic market, and a reduction in genomics service revenues in the domestic companion animal ~~services (a~~markets. Within each segment, higher raw material and freight costs, resulting from continued supply chain issues across most of our markets, put downward pressure on gross margins. The company has taken pricing actions where appropriate in response to these cost increases. For the year to date, gross margin ~~product), a mix shift towards lower margin products~~was 46.6% compared to 46.1% in ~~our rodenticide line, and significantly increased international freight costs,~~ the ~~result of ongoing global supply chain issues. Increased health insurance costs and~~prior year, for the ~~resumption of the 401k match, which had been suspended in last year’s first fiscal quarter, resulted in an incremental $530,000 expense within overhead on a consolidated basis.~~same reasons.

Operating Expenses

Operating expenses were ~~$38.3~~$48.1 million in the ~~first~~second quarter, compared to $34.0 million in the same quarter of the prior year, an increase of $14.2 million, or 42%. Legal, consulting and other professional fees totaling $9.3 million were incurred in the second quarter in conjunction with due diligence and negotiation of terms for the proposed business combination with 3M’s Food Safety business, which was announced on December 14, 2021. Excluding costs related to the transaction, run rate operating expenses were $38.8 million, an increase of 14% compared to the prior year. For the six month period ended November 30, 2021, excluding the $9.3 million in deal costs, operating expenses were $77.1 million, an increase of 18% compared to the prior year.

Sales and marketing expenses increased $3.5 million, or 20%, in the second quarter, primarily due to increases in personnel related expenses, the result of higher sales volumes and headcount. Additionally, travel, trade shows and other customer facing activities have continued to rise, the result of easing of restrictions in a number of our markets due to the

COVID-19

pandemic; for the year to date, sales and marketing expenses increased 22% compared to the same period last year.

General and administrative expense increased $10.4 million in the second quarter, primarily the result of $9.3 million in legal, consulting and other professional fees resulting from due diligence efforts and negotiation of terms relating to the proposed transaction with 3M referenced above. Run rate general and administrative expenses rose $1.1 million, or 9%, due primarily to increases in salaries and bonuses resulting from improved operating performance and additional senior management hires, higher amortization expenses from the Megazyme and CAPInnovet acquisitions, increased stock based compensation expense and higher depreciation and license fees relating to information technology infrastructure and software. These increases were partially offset by $1 million in spending on strategic consulting, legal and other professional fees related to acquisition activity in the prior year second quarter for businesses which we were not ultimately successful in acquiring. Year to date, run rate general and administrative expenses increased 15%, for the same reasons.

Research and development expense was $4.3 million in the second quarter, an increase of $270,000, or 7%, compared to the same period in the prior year. The increase was primarily the result of incremental costs of personnel absorbed from the Megazyme acquisition and outside service costs for development spending on new products. For the year to date, research and development expenses increased 9% over the same period last year, for the same reasons.

Operating Income

Operating income was $12.5 million in the second quarter of fiscal 2022, compared to ~~$31.4~~$19.2 million in the ~~first quarter of fiscal 2021, an increase of $6.9 million, or 22%. It is important to note that in last year’s first quarter, with the economic impact of the~~

~~COVID-19~~

pandemic uncertain, the Company took aggressive steps to control operating expenses and made cost reductions where possible. These steps included a reduction in workforce, temporary furloughs and reduced hours for a number of employees. In addition, the Company temporarily eliminated the match on the 401k plan during that period. These steps, in addition to the elimination of travel across mostsame period of the ~~organization, and lower utilization of medical services by our employees resulting from~~

~~stay-at-home~~

~~orders and a reduction in~~

~~non-emergency~~

~~procedures, resulted in an approximately $2.5~~prior year; year to date operating income was $34.2 million ~~reduction in operating expense in the first quarter of fiscal 2021~~ compared to $38.1 million in the prior year. ~~The 401k match~~Expressed as a percentage of sales, operating income was ~~restored~~9.6% for the second quarter and 13.2% for the year to date, compared to 16.7% and 17.0%, respectively, for the same periods in the prior year. Adjusting for the $9.3 million in transaction costs resulting from the proposed 3M transaction, operating income was 16.7% in the second quarter ~~of fiscal 2021,~~ and ~~medical service utilization has recovered, with procedures delayed~~16.8% for the year to date.

Other Income


	Three Months Ended						Six Months Ended
	November 30,						November 30,
(dollars in thousands)	2021			2020			2021			2020
Interest income (net of expense)	$	217		$	555		$	420		$	1,277
Foreign currency transactions		167			(432	)		15			(256	)
Insurance settlement		—			309			—			—
Legal settlement		—			(300	)		—			—
LGS contingent consideration		(135	)		—			(135	)		—
Other		210			(42	)		141			(16	)

Total Other Income	$	459		$	90		$	441		$	1,005

The decrease in ~~calendar 2020 now driving a significant increase~~interest income in the ~~last two consecutive quarters. These two expense items had an adverse impact on operating expenses of $546,000 in the first quarter~~six month period of fiscal 2022 compared to the same period a year ~~ago.~~

Sales and marketing expenses in this fiscal year’s first quarter were $20.6 million, an increase of $4.0 million, or 25%, compared to $16.5 million in last year’s first quarter. Personnel related expenses rose by $1.2 million due to an increase in headcount and performance-based incentives, reflective of the revenue increases across the Company. Shipping costs increased by $900,000, due to the increase in volume and an increase in rates. Travel and trade shows, which had declined by $1.3 million in last year’s first quarter due to restrictions resulting from the

~~COVID-19~~

~~pandemic, increased $780,000 in this year’s first quarter, as restrictions eased in a number of our markets and our sales force~~ago was ~~able to resume face to face meetings.~~

~~Table of Contents~~

General and administrative expenses were $13.4 million, an increase of $2.4 million, or 22%, compared to $11.0 million in last year’s first quarter, primarily due to a $791,000 increase in compensation related expense, the result of a number of senior management hires and higher performance-based incentives, a $608,000 increase in amortization expense resulting primarily from our acquisition of Megazyme in December 2020, higher depreciation and licensing costs related to continued investments in information technology infrastructure, and increases in legal and professional fees. Research and development expense was $4.3 million in the first quarter of fiscal 2021, an increase of $447,000 compared to the same period in the prior year, due primarily to personnel absorbed in the Megazyme acquisition and compensation increases for domestic employees.

~~Operating Income~~

Operating income was $21.7 million in the first quarter of fiscal 2022, compared to $18.9 million in the same period of the prior year. Expressed as a percentage of revenue, operating income was 16.9% compared to 17.3% in last year’s first quarter. The decline in operating income as a percentage of sales is primarily the result of the 22% increase in operating expenses for the quarter.

~~Other Income~~

Three Months ended August 31,

(dollars in thousands)

2021

2020

Interest income (net of expense)
   $ 203    $ 722
Foreign currency transactions
   (151 )    175
Other
   (70 )    18




Total Other Income
   $ (18 )    $ 915

~~The reduction in interest income in the first quarter of fiscal 2022 compared to the prior year is primarily the result of~~ lower yields on our ~~cash and~~ marketable securities ~~balances, as interest rates have dropped significantly compared to rates in the first quarter of fiscal 2021.~~balances. Other income or expense resulting from foreign currency transactions iswas the result of changes in the value of foreign currencies relative to the U.S. dollar in countries in which we operate. In the second quarter of the current fiscal year, we recorded a charge of $135,000 for additional contingent consideration in the final payment to the former owner of Livestock Genomic Services.

Income Tax Expense

Income tax expense ~~for~~in the ~~first~~second quarter of fiscal 2022 was ~~$4,650,000,~~$2.1 million, an effective tax rate of ~~21.4%~~16.2%, compared to ~~prior year first quarter income tax expense of $3,950,000,~~$3.5 million, an effective tax rate of ~~19.9%.~~17.8%, in the same period of the prior year. For the year to date, income tax expense was $6.8 million, an effective rate of 19.5%, in fiscal 2022 and $7.4 million, an effective rate of 18.9%, in fiscal 2021. For each ~~quarter,~~period, the primary difference between the statutory rate of 21% and the effective ~~rate~~rates recorded is the benefit resulting from the exercise of stock options; this benefit was ~~$15,000~~$859,000 in the ~~first~~second quarter of fiscal 2022 compared to ~~$421,000~~$1,060,000 in the ~~first~~second quarter of the prior year. ~~The~~For the year to date, the benefit was ~~lower~~$874,000 in fiscal 2022 compared to $1,481,000 in fiscal 2021. The decrease in the effective tax rate for the second quarter was primarily due to lower taxable income resulting from fees related to the ~~decreased volume~~3M combination. The increase in effective rate for the year to date period is the result of lower benefit from stock option exercises ~~during the comparative periods,~~ and a ~~reduction~~$548,000 charge to expense in ~~benefit realized, on average, for each transaction. Additionally, as~~ the ~~result of~~first quarter because the U.K. enacted a higher tax rate ~~enacted~~effective in 2023. Since our deferred tax balances at this operation are expected to reverse in the ~~U.K., effective in 2023,~~future at the higher tax rate, we were required to revalue ~~our deferred tax balances at our U.K. operations to~~them when the new rate ~~we expect them to reverse in the future, resulting in $548,000 of expense in this year’s first quarter.~~was passed.

Net Income

Net income was ~~$17.1~~$10.9 million in the ~~first~~second quarter of fiscal 2022, ~~an increase of 8%~~ compared to $15.9 million ~~earned~~ in the ~~first~~same period in the prior year. The decline in earnings for this year’s second quarter was the result of $9.3 million in legal, consulting and other professional fees from the intended transaction with 3M. Excluding those charges, net income rose 14% in the second quarter of fiscal ~~2021. The increased earnings were~~2021 compared to the ~~result~~same period in the prior year. For the year to date, net income was $27.9 million, a decrease of 12% compared to $31.7 million in the prior year; excluding the $9.3 million of expense, net income rose 11% year to date. Six month net income in fiscal 2022 was also negatively impacted by a higher ~~sales and gross margins, partially offset by increased operating expenses, the $933,000 decline in other income and higher income~~effective tax ~~expense.~~rate.

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~~Table of Contents~~

Financial Condition and Liquidity

The overall cash, cash equivalents and marketable securities position of Neogen was ~~$400.9~~$389.2 million at ~~August 31,~~November 30, 2021, compared to $381.1 million at May 31, 2021. Approximately ~~$23.2~~$41.1 million was generated from operations during the first ~~three~~six months of fiscal ~~2022.~~2022 and spent $26.9 million on acquisitions. Net cash proceeds of ~~$1.0~~$6.6 million were realized from the exercise of stock options and issuance of shares under our Employee Stock Purchase Plan during the first ~~quarter.~~six months of fiscal 2022. We spent ~~$1.3~~$5.2 million for property, equipment and other

non-current

assets in the first ~~three months~~half of fiscal 2022.

Net accounts receivable balances were ~~$87.3~~$92.5 million at ~~August 31,~~November 30, 2021, ~~a decline~~an increase of ~~$4.5 million,~~$700,000, compared to $91.8 million at May 31, 2021. ~~Days~~Days’ sales outstanding, a measurement of the time it takes to collect receivables, were 5963 days at ~~August 31,~~November 30, 2021, compared to 66 days at May 31, 2021 and 61 days at ~~August 31,~~November 30, 2020. We have been carefully monitoring our customer receivables as the

COVID-19

pandemic has spread across our global markets; to date, we have not experienced an appreciable increase in bad debt write offs.

Net inventory ~~balances were $102.1~~was $107.1 million at ~~August 31,~~November 30, 2021, an increase of ~~$1.4~~$6.4 million, ~~or 1%,~~ compared to a May 31, 2021 ~~balances~~balance of $100.7 million. ~~We increased~~The two acquisitions completed in the second quarter added approximately $1.0 million to our inventory balance. Additionally, we have been increasing inventory levels ~~during fiscal 2021~~recently in an effort to ~~ensure we have adequate supplies of critical raw~~reduce freight costs and ~~finished products in the event our~~prevent backorders, as shipments are taking longer and some suppliers are requiring higher orders due to their supply ~~chain is adversely impacted by the~~

~~COVID-19~~constraints.

~~pandemic and Brexit.~~

Inflation and changing prices are not expected to have a material effect on operations, as management believes it will continue to be successful in offsetting increased input costs with price increases and/or cost efficiencies.

Management believes that our existing cash and marketable securities balances at ~~August 31,~~November 30, 2021, along with available borrowings under our credit facility and cash expected to be generated from ~~future~~ operations, will be sufficient to fund activities for the ~~foreseeable future.~~remainder of the current fiscal year. However, existing cash and borrowing capacity ~~may not~~will be ~~sufficient~~insufficient to meet ~~our~~ cash requirements for our planned combination with the 3M Food Safety business, which is currently expected to ~~commercialize products currently under development or our plans to acquire other organizations, technologies or products that fit within our mission statement. Accordingly, we may choose to issue~~close in the third quarter of calendar year 2022. The transaction will be funded by issuing equity securities ~~or enter into other financing arrangements for a portion of our future financing needs.~~to 3M’s shareholders and borrowing approximately $1 billion in cash under an agreement with JPMorgan Chase.

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~~Table of Contents~~

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 or borrowings. Our primary interest rate risk is due to potential fluctuations of interest rates for short-term investments.

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. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the British pound sterling, euro, Mexican peso, Brazilian real, Chinese yuan, Australian dollar and to a lesser extent, the Indian rupee, Canadian dollar, Guatemalan quetzal, Argentine peso, Uruguayan peso and Chilean peso; there is also exposure to a change in exchange rate between the British pound sterling and the euro. 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.

Neogen has assets, liabilities and operations outside of the U.S., located in Scotland, England, Ireland, Italy, Brazil, Mexico, Guatemala, Argentina, Uruguay, Chile, China, India, Canada and Australia where the functional currency is the British pound sterling, euro, Brazilian real, Mexican peso, Guatemalan quetzal, Argentine peso, Uruguayan peso, Chilean peso, Chinese yuan, Indian rupee, Canadian dollar and Australian dollar, respectively. Our investments in foreign subsidiaries are considered long-term. As discussed in ITEM 1A. RISK FACTORS of the Form

10-K

annual filing, 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

August 31, 2021

Impact

Hypothetical Change

November 30, 2021

Impact

(dollars in thousands)

Foreign Currency - Revenue

10% Decrease in exchange rates

5,053

Earnings

10% Decrease in exchange rates

5,414

Earnings

Foreign Currency - Hedges

10% Decrease in exchange rates

1,990

Earnings

10% Decrease in exchange rates

1,959

Earnings

PART I – FINANCIAL INFORMATION

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~August 31,~~November 30, 2021 was carried out under the supervision and with the participation of the Company’s management, including the President & Chief Executive Officer and the Vice President & Chief Financial Officer (“the Certifying Officers”). Based on the evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Controls over Financial Reporting

No changes in our control over financial reporting were identified as having occurred during the quarter ended ~~August 31,~~November 30, 2021 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

2327

~~Table of Contents~~

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to legal and other proceedings in the normal course of business. In the opinion of management, the outcomes of these matters are not expected to have a material effect on the Company’s future results of operations or financial position.

tem

6. Exhibits

(a) Exhibit Index


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

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)

Items 1A, 2, 3, 4, and 5 are not applicable or removed or reserved and have been omitted.

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~~Table of Contents~~

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: ~~September~~December 30, 2021

/s/ John E. Adent

John E. Adent

President & Chief Executive Officer

(Principal Executive Officer)

Dated: ~~September~~December 30, 2021

/s/ Steven J. Quinlan

Steven J. Quinlan

Vice President & Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

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