Q1 2025 Neogen Corp Earnings Call

Speaker Change: Good morning, ladies and gentlemen, and welcome to the Neogen Corporation for a quarter 2025 earnings call. At this time all lines are in listen only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call has been recorded on Tuesday, October 10, 2024. I would now like to turn the conference over to Bill Waelke, VP Investor Relations and Treasury. Please go ahead.

Operator: At this time, all lines are in listen-only mode.

Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator.

Operator: This call has been recorded on Tuesday, October 10, 2024.

Bill Waelke: I would now like to turn the conference over to Bill Waelke, VP, Investor Relations and Treasury. Please go ahead.

Bill Waelke: Thank you for joining us this morning for the discussion of the first quarter of our 2025 fiscal year.

Bill Waelke: Thank you for joining us this morning for the discussion of the first quarter of our 2025 fiscal year. I'll briefly cover the non-gap and forward-looking language before passing the call over to our CEO, John Adent, who will be followed by our CFO Dave Nemura.

Bill Waelke: I'll briefly cover the non-GAAP and forward-looking language before passing the call over to our CEO, John Adent, who will be followed by our CFO, Dave Nemura. Before the market opened today, we published our first quarter results, as well as a presentation, with both documents available in the Investor Relations section of our website. On our call this morning, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of historical non-GAAP financial measures are included in our earnings release and the presentation.

Bill Waelke: Before the market opened today we published our first quarter results as well as a presentation with both documents available in the investor relations section of our website. On our call this morning we will refer to certain non-gap financial measures that we believe are useful in evaluating our performance.

Bill Waelke: Reconciliation of historical, non-gap financial measures are included in our earnings release and the presentation. Slide two of which provide the reminder that our remarks will include forward-looking statements within the meeting of the private security's litigation reform act.

Bill Waelke: Slide two of which provide the reminder that our marks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC.

Bill Waelke: These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements.

Bill Waelke: These risks include among others.

Bill Waelke: Matters that we have described in our most recent annual report on Form 10K and in other we are going to discuss this in the next episode.

Bill Waelke: We disclaim any obligation to update these or looking statements.

Bill Waelke: With that, I'll turn things over, John. Thanks, Bill.

Bill Waelke: We disclaim any obligation to update these forward-looking statements with that, I'll turn things over, John.

John Adent: Good morning, everyone. And welcome to the earnings call for the first quarter of our 2025 fiscal year. At the beginning of September, we crossed the two-year anniversary of the closing of the three-year food safety transaction, which solidified our position as the largest player with the broadest product portfolio in geographic reach in an attractive and important market. That transactions strengthen our company in the food safety and market, where we generate approximately two-tharts of our revenue from products and solutions that help protect the food supply. We provide an important and relatively inexpensive line of defense in the rapid detection of contaminants in the production and distribution of food and beverages.

John Adent: Thanks, Bill. Good morning, everyone, and welcome to the earnings call for the first quarter of our 2025 fiscal year. At the beginning of September, we crossed the two year anniversary of the closing of the 3M Food Safety Transaction, which solidified our position as the largest player with the broadest product portfolio in geographic reach in an attractive and important

John Adent: That transaction strengthened our company in the food safety and market, where we generate approximately 2th of our revenue, and products and solutions that help protect the food supply.

John Adent: We provide an important and relatively inexpensive line of defense in the rapid detection of contaminants in the production and distribution of food and beverages.

John Adent: We believe the food safety market has a number of secular tailwinds. One of these tailwinds involves the expected increase in various food testing regulatory requirements around the world. We saw another example of this recently in the U.S., with the USDA's declaration of salmonella as a known adulterant and raw, breaded, and stuffed chicken products, joining E. coli, E. coli, in Syria, as the other known pathogenic adulterants in different food types. The USDA and other international regulatory bodies continue to focus on reducing severe illness and fatalities stemming from food-born pathogens. And we anticipate the emergence of additional regulatory requirements in the future.

John Adent: We believe the food safety market has a number of secular tailwinds.

John Adent: One of these tailwinds involves the expected increase in various food testing regulatory requirements around the world.

John Adent: We saw another example of this recently in the US, but the USDA's Declaration of Salmonella has a known adulterer and raw, breaded and stuffed chicken products, joining E. coli in the Syria as the other known pathogen adulterants in different food types.

John Adent: The USDA and other international regulatory bodies continue to focus on reducing severe illness and fatalities, stemming from food-born pathogens. And we anticipate the emergence of additional regulatory requirements in the future.

John Adent: Manager. Other retail winds in the food safety market include the increasing expectation from consumers to know what is in and not in their food, as well as the high cost associated with contaminated products reaching the shelves. Beyond the obvious tragic consequences that can result from consuming contaminated food or beverages, the cost to companies of the associated product recalls, litigation, brand damage, and even facility closures can be tremendous, as evidenced recently by several unfortunate high-profile breaks. These occurrences reinforce the value proposition of Neogen solutions and industry expertise, which have never been more relevant than they are today.

John Adent: Other key tailwinds in the food safety market include the increasing expectation from consumers to know what is in and not in their food. As well as the high cost associated with contaminated products reaching the shelves.

John Adent: Beyond the obvious tragic consequences that can result from consuming contaminated food or beverages.

John Adent: The cost to companies of the associated product recalls litigation, brand damage, and even facility closures can be tremendous. As evidence recently by several unfortunate high profile breaks.

John Adent: These occurrences reinforce the value proposition of new-gen solutions and industry expertise, which have never been more relevant than they are today. Our commercial teams have been engaging in an increasing number of these conversations with customers.

John Adent: Our commercial teams have been engaging in an increasing number of these conversations with customers, offering not only the breadth of our products and services, but also the longstanding knowledge and expertise we can provide in structuring robust food safety testing programs. We expect these factors to continue to support growth in the food safety and market, and a continuation of the progress we've made in expanding and, in some cases, winning back market share.

John Adent: Offering not only the breadth of our products and services, but also the long-standing knowledge and expertise we can provide in structuring robust food safety testing programs.

John Adent: We expect these factors to continue to support growth in the food safety and market, and a continuation of the progress we've made in expanding, and in some cases, winning back market share.

John Adent: In animal safety, we continue to manage through end market conditions we believe are at or near cyclical lows, particularly in the United States, for most of our business and the segment is focused. Our animal safety sales are influenced by net farm income, which after peaking in 2022 in the U.S. declined in 23 and is declining again in 2024. The majority of our business and this segment goes through large distributors, and despite weaker conditions, sales of our products out of the distribution channel have continued to grow. However, our sales too do our distributive partners, subject to movements in the timing of orders and inventory levels, as well as any other factors or initiatives specific to individual distributors.

John Adent: In Animal Safety, we continue to manage through end-market conditions we believe are at or near cyclical lows. Particularly in the United States for most of our business and the segment is focused.

John Adent: Our animal safety sails are influenced by net farm income, which after peaking in 2022 in the US declined in 2023 and is declining again in 2024.

John Adent: The majority of our business in this segment goes through large distributors, and despite weaker conditions, sales of our products out of the distribution channel have continued to grow.

John Adent: However, our sales to our distributor partners is subject to movements in the timing of orders and inventory levels, as well as any other factors or initiatives specific to individual distributors.

John Adent: In the first quarter, some of our key distributors reduced inventory levels due to order timing from the fourth quarter. While others did so as resolves some specific challenges they're experiencing in their particular business. We are not seeing the indications of a destocking trend, and believe the sales out of our products, supporting improvement in our animal safety growth rates in the coming quarters. And of course, we'll continue to monitor the channel dynamics closely.

John Adent: In the first quarter, some of our key distributors reduced inventory levels due to order timing from the fourth quarter. While others did so as resolves some specific challenges they're experiencing in their particular business.

John Adent: We are not seeing the indications of a destocking trend, and believe the sales out of our products, support an improvement in our animal safety growth rates in the coming quarters. And of course, we'll continue to monitor the channel dynamics closely.

John Adent: In our genomics business globally, first quarter revenue was down on a year-over-year basis, but improved from the decline we saw on the fourth quarter. We began to round trip the impact of the strategic shift towards larger production animals in the quarter and did see growth in our large animal business. This growth was offset by weakness in the companion animal side of the business, driven by a lower number of new puppies than increased inflationary pressure on customers. We are continuing to focus on driving growth in the direct to producer beef and dairy segments, while also targeting actions to right-size the cost base, the better line with current level of revenue.

John Adent: In our genomics business globally, 1st quarter revenue was down on a year over your basis, but improved from the decline we saw on the 4th quarter. We began to roundtrip the impact of the strategic shift towards larger production animals in the quarter and did see growth in our large animal business.

John Adent: This growth was offset by weakness in the companion animal side of the business, driven by a lower number of new puppies and increased inflationary pressure on customers.

John Adent: We are continuing to focus on driving growth in the direct-to-producer beef and dairy segments. We'll also target any actions to right-size the cost base, the better line with current level of revenue.

John Adent: With respect to our integration progress, the ERP-related challenges that we've been experiencing in our primary distribution center have been resolved, and we no longer are constrained by shipping. That being said, we do see opportunity to drive improvements in the efficiency of that operation, and our teams are focused on executing a number of initiatives there. On the production side, we've completed the relocation of the former 3M sample collection product line. While we've been in the process of ramping up our production, we haven't been able to fully keep up with that user demand, which weighed on our sample collection sales in the quarter.

John Adent: With respect to our integration progress, the ERP-related challenges that we've been experiencing in our primary distribution center have been resolved and we no longer are constrained by shipping.

John Adent: That being said, we do see opportunity to drive improvements in the efficiency of that operation and our teams are focused on executing a number of initiatives there. On the production side, we've completed the relocation of the former 3M sample collection product line.

John Adent: Well, we've been in the process of ramping up our production. We haven't been able to fully keep up with that user demand, which weighed on our sample collection sales in the quarter. We currently have all lines operational with the line of site to reach normal production levels in the third quarter.

John Adent: We currently have all lines operational with the line of site to reach normal production levels in the third quarter. Our new future from facility is progressing well, and the first of our two major shipments of equipment is expected to land in January. It will take several months to create everything and get a move into the new building, but the receded equipment is clearly an important milestone in that process.

John Adent: Our new future from facility is progressing well, and the first of our two major shipments of equipment is expected to land and land in January.

John Adent: It will take several months to ungrade everything and get a moved into the new building, but the receipt of the equipment is clearly an important milestone in that process.

John Adent: With the recent shipping challenges behind us, regaining market shares is of top priority. The response for initial efforts in this area has been encouraging. We are a known and trusted partner in the industry with leading products that are globally validated. And most customers are primarily focused on a demonstrated period of reliable supply. Because of this, share recapture will not happen overnight, but the progress we've made so far is in line with our expectations. Our commercial teams are executing detailed tactical plans that are driving constructive dialogue with previously impacted customers. And we're looking forward to continuing to demonstrate our capabilities as a reliable, knowledgeable source of leading food safety testing solutions.

John Adent: With the recent shipping challenges behind us, we're getting market shares of top priority.

John Adent: The response to our initial efforts in this area have been encouraging. We are a known and trusted partner in the industry with leading products that are globally validated. And most customers are primarily focused on a demonstrated period of reliable supply.

John Adent: Because of this, share recapture will not happen overnight, but the progress we've made so far is in line with our expectations. Our commercial teams are executing detailed tactical plans that are driving constructive dialogue with previously impacted customers.

John Adent: and we're looking forward to continuing to demonstrate our capabilities as a reliable, knowledgeable source of leading food safety testing solutions.

David Naemura: I'll now turn the call over today for some more insights in our results from the quarter. Thank you, John, and welcome to everyone on the call today. Jumping into the results, our first quarter revenues were 217 million. Core revenue, which excludes the impact of foreign currency, acquisitions, and discontinued product lines, declined 1% for the quarter. While foreign currency was a headwind, a 390-based point compared to the prior year.

John Adent: I'm now turning the call over today for some more insights in our results from the quarter.

Speaker Change: Thank you, John. Welcome to everyone on the call today.

Speaker Change: Jumping into the results, our first quarter revenues were 217 million.

Speaker Change: Corps revenue, which excludes the impact of foreign currency, acquisitions and discontinued product lines, declined 1% for the quarter, while foreign currency was a headwind of 390-based points compared to the prior year. The first quarter is historically our seasonally lowest of the year, with this year's first quarter, deemed the impact of sales related to our shipping challenges in the second half of fiscal 2024.

David Naemura: The first quarter is historically our seasonally lowest of the year, with this year's first quarter, Dean, the impact of law sales related to our shipping challenges in the second half of fiscal 2024. At the segment level, revenues in our food safety segment were 159 million in the quarter, a decrease of 4% compared to the prior year, including core growth of 1%. The core growth was led by the indicator testing, culture media, and other product category, which benefited from strong growth in our feature film product line, as well as in food quality, nutrition and analysis, and culture media.

Speaker Change: At the segment level, revenues in our food safety segment were $159 million in the quarter, a decrease of 4% compared to the prior year, including poor growth of 1%.

Speaker Change: The core growth was led by the indicator testing, culture media, and other product category which benefited from strong growth in our Petri film product line as well as in food quality, nutrition analysis and culture media.

David Naemura: This growth was partially offset by decline in sample collection, as we fell behind demand during the process of ramping up production in our own facility. The bacterial and general sanitation product category saw modest growth in pathogens, which was offset by declines in general sanitation and microbiology. Within the natural toxins and allergens category, modest growth and allergens was offset by decline in natural toxins. Quarterly revenues in the animal safety segment were 58 million, which includes a core revenue decline of 8% compared to the prior year, quarter. Within bio-security, strong growth and growth in control products was offset by declines in insect control and cleaners and disinfectants.

Speaker Change: This growth was partially offset by decline in sample collection as we fell behind demand during the process of ramping up production in our own facility.

Speaker Change: The bacterial and general sanitation product category saw modest growth in pathogens, which was offset by declines in general sanitation and microbiology.

Speaker Change: Within the National Toxicons and Allegens Category, modest growth and allergens was offset by the client and natural toxins.

Speaker Change: Quarterly revenues in the animal safety segment were 58 million, which includes a core revenue to 9.8% compared to the prior year quarter.

Speaker Change: Within Biosecurity, strong growth and road control products was offset by declines and insect control and cleaners and disinfectants.

David Naemura: The vet instruments and disposable product line had a slight core revenue to climb, while the animal care and other product category had a larger core revenue to climb. You're an impart by supplier-related product availability issues. Worldwide genomics revenue was down in a single digit on a core basis. Solid growth and beef markets was offset by the shift away from small production animals in the U.S.

Speaker Change: The vet instruments in disposable product line had a slight core revenue to climb, while the animal care and other product category had a larger core revenue to climb.

Speaker Change: and I, you have been imparted by supplier-related product availability issues.

Speaker Change: Worldwide genomics revenue was down in mid-Single digits on a core basis. Solid growth and beef markets was offset by the shift away from small production animals in the U.S. The impact of which we have mostly anniversaryed as of the end of Q1.

David Naemura: The impact of which we have mostly anniversaryed as of the end of Q1.

David Naemura: From a regional perspective, core revenue growth in the first quarter was mixed. Growth was led by Latin America, which saw double-digit growth with strong performance across most key product categories. The growth was driven by continued build-out of inventory across the distribution channel, as well as some new business winds. Our business in Europe was roughly flat on a core basis with growth in Petrifilm, cleaners and disinfectants, culture media, and vet instruments, offset by declines in sample collection, general sanitation, and genomics. Asia-Pacific core revenue was down slightly on a year-over-year basis, with growth in Petrifilm, cleaners and disinfectants, and food quality, offset by declines in pathogens and general sanitization.

Speaker Change: From a regional perspective, Corre revenue growth in the first quarter was mixed. Growth was led by Latin America, which saw double-digit growth with a strong performance across most key product categories.

Speaker Change: The growth was driven by continued build-out of inventory across the distribution channel as well as some new business wins.

Speaker Change: Our business in Europe was roughly flat on a core basis, with growth in Petri film, cleaners and disinfectants, culture media, and vet instruments, offset by declines, in sample collection, general sanitation, and genomics.

Speaker Change: Asia Pacific Corps revenue was down slightly on a year-over-year basis, with growth in Petrofilm, Pena's Indigenous Effective and Food Quality, offset by declines in pathogens and general sanitation.

David Naemura: Our U.S. and Canada region saw the largest carry-over impact from the shipment delays last year, with core revenue down in the mid-single digit range. Despite this impact, Petrifilm and culture media had solid growth, which was offset by declines in most other food safety product categories. In the animal safety segment, strong growth and rodent control products was offset by declines in the other major product categories. Growth margin in the first quarter was 48.4%. Representing a decrease of 260 basis points from 51% in the same quarter year ago, and improvements sequentially do mostly to some reclass and one-time items that impacted Q4.

Speaker Change: Our U.S. and Canada region saw the largest carryover impact from the shipment delays last year, with core revenue down in the mid-single digit range. Despite this impact, Petri Film and Culture Media had solid growth.

Speaker Change: which was offset by deploying to most other food safety product categories.

Speaker Change: In the animal safety segment, John Gross and Rodent Control Products was offset by declines in the other major product categories.

Speaker Change: Gross margin in the first quarter was 48.4% representing a decrease of 260 basis points from 51% in the same quarter a year ago and an improvement sequentially due mostly to some reclass and one-time items that impacted Q4.

David Naemura: Adjusting for transaction and integration related costs, as well as discontinued products, the year-over-year growth margin decline in Q1 was 90 basis points. The decline was driven primarily by lower volume and continued higher distribution costs. Adjusting EBITDAB was 44 million in the first quarter, representing an adjusted EBITDAB margin of 28.1%, a year-over-year decline of 280 basis points. The decline in adjusted EBITDAB margin was driven by lower revenue in the quarter, and the decline in gross margin, with additional negative impact from having the full cost to exit the various transition agreements, including some impact from higher shipping, a portion of which are reflecting in operating expenses.

Speaker Change: A Justin for Transaction and Integration Related Cost, as well as this continued products, the year over year gross margin to climbing Q1 was 90 basis points.

Speaker Change: The client was driven primarily by lower volume and continued higher distribution costs.

Speaker Change: I've just said EBITDAB was 44 million in the first quarter, representing an adjusted EBITDAB margin of 20.1% a year-rear decline of 280 base points.

Speaker Change: The decline and adjusted Eva Domargent, the driven by lower revenue in the quarter, and the decline in gross margin, with additional negative impact from having the full cost to exit the various transition agreements, including some impact from higher shipping, a portion of which are reflecting in operating expenses.

David Naemura: First quarter adjusted net income and adjusted earnings per share were 14 million and 7 cents, respectively, compared to 24 million and 11 cents in the prior year quarter. The decline in the current year Q1 were driven primarily by the lower adjusted EBITDAB. We ended the quarter with gross debt of 900 million, 67% of which remains at a fixed rate and a total cash position of 120.

Speaker Change: 1st quarter adjusted net income and adjusted earnings per share for 14 million and 7 cents respectively compared to 24 million and 11 cents in the prior year quarter.

Speaker Change: The declines in the current year, two-one were driven primarily by the lower adjusted EBITDA.

Speaker Change: We ended the quarter with gross debt of $900 million.

Speaker Change: 67% of which remains at a fixed rate and a total cash position of 120 million.

David Naemura: William. Compared to the fourth quarter, the lower first quarter cast position was driven by higher capital expenditures, a semi-annual interest payment on our senior notes, and the negative impact from working capital. The working capital increase was largest in payables, which was mostly timing driven, and inventory where we built stock of higher running products.

Speaker Change: Compared to the fourth quarter, the lower first quarter cast position that's driven by higher capital expenditures, a semi-annual interest payment on our senior notes and the negative impact from working capital. The working capital increase was largest in payables.

Speaker Change: which is mostly time in driven and inventory where we don't stock of higher running products.

David Naemura: Q1 represented the high point in the year for cap expense. We believe we are still on track with the free cash flow guidance we provided in July, but are off to a slower start than we anticipated.

Speaker Change: Q1 represented the high point in the year for CapEx spend.

Speaker Change: We believe we are still on track with the free cash flow guidance we provided in July, but are off to a slower start than we then anticipated.

David Naemura: Moving to our outlook for the 2025 fiscal year, we are maintaining our previously issued guidance. First quarter revenue developed in line with the expectations we communicated regarding lower, the normal first half seasonality, and we are encouraged by the performance we saw in September, which was an improvement over the first month of Q1. We expect our first quarter adjusted EBITDA margin to be the lowest of the year and expect margin improvement in the balance of the year to be driven by higher revenue volumes, gross margin improvement, including actions in our shipping and distribution operations, and operating expense efficiency.

Speaker Change: Moving to our outlook for the 2025 fiscal year, we are maintaining our previously issued guidance.

Speaker Change: First Quarter revenue developed in line with the expectations we communicated regarding lower than normal first half seasonality. And we are encouraged by the performance we saw in September, which was an improvement over the first month of Q1.

Speaker Change: We expect our first quarter adjusted Eva Dalmargin to be the lowest of the year, and expect margin improvement in the balance of the year to be driven by higher revenue volumes, gross margin improvement, including actions in our shipping and distribution operations and operating expense efficiency.

David Naemura: As I noted on capital expenditures, we anticipate our first quarter spending to be the highest level of the year, followed by the second quarter. We also continue to believe higher adjusted EBITDA combined with lower capbacks and the 3M working capital load in not repeating were result in free cast flow for this year being positive.

Speaker Change: As I noted on Capitol expenditures, we anticipate our first quarter spending to be the highest level of the year, followed by the second quarter.

Speaker Change: We also continue to believe higher adjusted Eva Dawne, combined with lower capex and the 3M working capital load and not repeating will result in free cash flow for this year being positive.

John Adent: I'll now hand the call to John for some closing thoughts. Thanks, Dave.

John Adent: I'll now hand the call to John for some closing thoughts.

John Adent: In a separate announcement this morning, we share that Doug Jones, our Chief Operating Officer, has communicated his intent to retire in the early part of calendar 2025. Doug has had a long career across a number of industries, and his experience has been a great value to the agenda, particularly his broad commercial expertise and contributions to the integration of the 3M transaction. In preparation for Doug's coming retirement, we have begun the search for a Chief Commercial Officer who will report to me and have responsibilities for our global sales, marketing, and communications organizations. Would Doug insisting with the transition once that role is filled.

John: Thanks, David.

John: In a separate announcement this morning, we share the Doug Jones, our Chief Operating Officer, has communicated his attempt to retire in the early part of calendar 2025.

John: Doug has had a long career across a number of industries.

John: and his experience has been a great value to the engine.

John: Particularly his broad commercial expertise and contributions to the integration of the 3M transactions.

John: In preparation for Doug's coming retirement, we have begun the search for a chief commercial officer, who will report to me and have responsibilities for our global sales, marketing and communications organizations.

John: with Doug Assistant with the transition once I roll this field.

John Adent: Our new vice president of global operations will transition to report to Dave Niamura, our CFO, who has worked closely with the operations team here in the region, as well as other organizations in the past. This realignment will provide a dedicated focus on our commercial activities, while also enabling Dave to work more closely with the operations and supply chains teams. The further on tap improvement opportunities.

John: Our new Vice President of Global Operations, while transition to report to Dave Naemura, our CFO, who has worked closely with the operations team here in the region, as well as other organizations in the past.

John: This realignment will provide a dedicated focus on our commercial activities, while also enabling Dave to work more closely with the operations and supply chains teams to further to have improvement opportunities.

John Adent: Our head of Latin America also readlessly announced his impending retirement after a long career in the region. And we have hired his replacement in Rikai Kaveido, who brings commercial experience from a number of multinational corporations in the diagnostic space. Most recently is the head of Latin America for Buy Red.

John: I've had a blight in America, also readlessly announced his impending retirement after a long career in the engine.

John: and we have hired his replacement in Rikai Cabrillo.

John: who brings commercial experience from a number of multinational corporations in the diagnostic space. Most recently is the head of Latin America for buy a red.

John Adent: Finally, we recently announced the edition of a new member of our board. Teary Bernard. Who is the current CEO of Kianjin? A leading global provider of molecular diagnostic solutions and insight. This edition brings the valuable insights and perspectives of an independent public company CEO at our board, including those gained from experience in the food safety industry and prior roles. The goal of these editions and organizational reliance is to continue to bring experience and capabilities in the Neogen that puts us in the best position to execute on the significant opportunities we have in our primary and market of food safety.

John: Finally, we recently announced the edition of a new member of our board.

John: to Erie Benard.

John: who is the current CEO of Kyenjin, a leading global provider of molecular diagnostic solutions and insights.

John: This edition brings the valuable insights and perspectives of an independent public company CEO of our board, including those gained from experience in the food safety industry and prior roles.

John: The goal of these additions and organizational reliance is to continue to bring experience and capabilities in the region that puts us in the best position to execute on the significant opportunities we have in our primary and market of food safety.

John Adent: We are the established leader in this market and look forward to continuing to build on that position that drafts sustainable long-term growth.

John: We're the established leader in this market and look forward to continuing to build on that position the draft sustainable long-term growth.

Operator: Now we'll turn things over to the operator to begin a Q&A. Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star, followed by the one on your touchstone phone. Will I hear a prompt that your hand has been raised? To do wish to decline from the pulling process, please press star, followed by the two. If you are using a speaker phone, please let the hands up before pressing any keys. One moment, please, for your first question.

John: Now we'll turn things over to the operator to begin a Q&A.

Speaker Change: Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please for us? Follow by the one on your touch-toe phone.

Speaker Change: [inaudible] if you are using a speakerphone, please let the hands up before pressing any keys. One moment, please for your first question.

David Westenberg: Your first question comes from David Westenberg with Piper Stamler; your line is now open. Okay, guys, no thank you for taking the question. So you've had 3M for a little while now, and there's definitely some great products that fit with your overall portfolio.

Speaker Change: Your first question comes from David Westonberg with Piper Sandler. Your line is now open.

David Westonberg: Thank you for taking the question.

John Adent: How are you looking at maybe investments this year in sales and marketing, R&D, etc. In terms of allocation towards food safety overall, now that you have this new new toys in the portfolio. Yeah. Hey, I gave it today. A good question. I think what you've heard from us over the last years, a couple things. A lot of commercial investment, particularly building out the international regions. We think there's continues to be a lot of opportunity. And now that we have critical mass, both 3M acquisition, we've been putting a lot of energy there. And also, you know, you've heard us talk about Petry Film as a platform.

Speaker Change: David, David, a good question. I think what you've heard from us over the last years, a couple things.

Speaker Change: A lot of commercial investment particularly building out the international.

Speaker Change: Regents, we think there's continues to be a lot of opportunity and now that we have critical mass.

Speaker Change: Post 3M acquisition. We've been putting a lot of energy there and also, you know, you've heard us talk about Petri Film as a platform. It's very exciting and clearly an R&D priority for us to invest in and of course in Q1 and Alcina readers, well, the new feeder for a high high-bying processing. So I think you've heard that from us and your take is right. It's very exciting and I think...

John Adent: It's very exciting, and clearly an R&D priority for us to invest in. And of course, in Q1 and now senior readers, well, the new feeder for high-pire-boying processing. So I think I think you've heard that from us, and your take is right. It's very exciting. And I think, hopefully, you'll continue. We'll continue on that theme. Yeah. And like, thanks David.

David Westonberg: Hope we all continue on that theme. Thanks David.

David Naemura: We've talked a lot about capital allocation, right? And we're going to spend our money in something we do and look at as a group and understand. And, you know, we see the profitability profile of those products in really, you know, a number of our other products in the food safety. And that's what we're going to continue to invest. It was a thesis of the deal. That's why we're still excited about the deal. That's why we're going to continue to put money behind it. Yep. That only sounds right.

David Westonberg: We've talked a lot about capital allocation, we're going to spend our money and it's something we do and look at as a group and understand.

David Westonberg: We see the profitability profile of those products in a number of other products in the food safety and that's where we're going to continue to invest. It was a thesis of the deal. It's why we're still excited about the deal. That's why we're going to continue to put money behind it.

David Westenberg: And then, in terms of debt and how we're thinking about debt over the course of the next three years, I know you don't get three or four years out of your guidance. But just in terms of the priority to pay that down, I still think that is the big capital priority for you. So, you know, I know you guys continue to think about tokens on a pretty ongoing basis.

Speaker Change: No, that only sounds right. And then in terms of debt and how we're thinking about that over the course of the next three years, I know you don't get it.

Speaker Change: 3-year 4-year out of your guidance, but just in terms of the priority to pay that down, I still think that is a big capital priority for you, though you know, I know you guys continue to think about tuck-ends on a pretty ongoing basis.

Speaker Change: Yeah, look, I think you've heard us consistently talk about capital allocation priority, first funding the integration, which is vital, but then on a net basis, reducing leverage.

Speaker Change: and as we do so, that presupply aminacopacity, right? So I think no change there.

Speaker Change: We got to keep getting the integration work done which we made obviously huge strides.

Speaker Change: in 2024. And, you know, as the years progress here, you know, we think we'll be on locate path. The guide implies around three times net leverage at the end of the year of the fiscal year.

Speaker Change: Little higher than we thought we'd be a few years ago at this time, but...

Speaker Change: but clearly manageable and I think reflect.

Speaker Change: to the War Prairies.

Speaker Change: Perfect. And then just one last one here, you know, the stock out of the Petrie film, you know, that is now well behind you. Can you talk about the customer recovery ratio? Where, what kind of any you are in terms of?

Speaker Change: Winning all those back is there's still a big group that you have left to win back, or did you get them pretty much all back over the last, you know, say year or so when, you know, now that you're, you've had product on a pretty consistent base.

Speaker Change: Susan, that's my last one, thank you.

Speaker Change: Yeah, I think this two pieces of this, one is Petri Phones specifically, which is what you asked about. In Japan, where we had the major issues, we've won those customers back, and we're actually seeing growth in Japan, and that's been a good story for us, I mean, that was...

Speaker Change: I think we have multiple quarters of decline and we finally started to see that business turnaround and returned to growth and it's a really strong team.

Speaker Change: I think on the broader business where we struggled a little bit for a couple of quarters regarding our EWM system at the warehouse and her customers, that continues to be a...

Speaker Change: Focus for us to win those customers back. That's going to take a little bit longer. You know, we knew that we need to rebuild trust. I've had a number of discussions with customers. And like I said, my opening remarks, what they want to see is consistent supply.

Speaker Change: and we've done that for a quarter and we want to see us do it again and so we're still on that journey. That's why we talked about you know for the year how it was going to pace out and you first quarter was going to be our lowest and I'm going to be

Speaker Change: Thank you.

Speaker Change: Your next question comes from Brandon Vaskov with William Blair. The line is now open.

Brandon Vaskov: Hey, good morning, everyone. Thanks for taking the question. Let's maybe start on the customer losses that you guys were just touching on. John , are you able to quantify it all with the customer losses? We're over the past couple of quarters. I know when you guys lost customers in Japan, you were able to give us a number. So, curious if you can quantify it all. And then maybe just spend a couple more minutes talking about when you're sitting down with these accounts.

Speaker Change: What are they saying in terms of what they want to see from you consistently and then if you're getting a good sense that once I show them one or two quarters is apply, they will come back predominantly for most of the shared losses that you kind of lost in those accounts.

Speaker Change: Brandon, it's Dave, just real quick maybe quantifying a little bit as we entered the year, Bill recall we talked about.

David Westonberg: But we thought the share headwind would be a couple of points at least a couple of points of growth for the year. I think what we saw on the first quarter was reasonably consistent with that.

David Westonberg: the data.

David Westonberg: We look at, we think our share, kind of, share headwind impact was about 8 million in the first quarter. That was globally the majority of that in the US and all that John talked to kind of the customer interaction and how this is coming along.

John: Yeah, thanks Steve.

John: So, Brian, a lot of discussion with the customers I have is first they want to express to me their frustration.

Speaker Change: and so and I tell them there's no one more frustrated than me in the way that we were not able to meet their needs.

Speaker Change: Pretty much right after that, we've talked about what are the things that we've done and the improvements we've seen. So we share that with them. I'll give you a good example. One is regarding MDS. We've already have efficiency improvements in that line in six months being under our roof, then when it was in 3am.

Speaker Change: And I think that's what gives me a lot of excitement is we spend a lot of time and energy in the last two years.

Speaker Change: of working at integration to carve the business out and bring it into ours. And now we're starting to significant teams in the engine, we're starting to re-focus that energy in time from integration efforts to efficiency and growth efforts, which is what I'm really excited to see the team do.

Speaker Change: I can show those points to customers. I show them the peachy foam how we've increased.

Speaker Change: the availability of the product line. I can show them the efficiency and MDS. I can show them the progress we're making. And, you know, those are the things that allow us to continue to have discussions. The majority of the time, it's, I listen. We have a discussion and then we'll resign the contract.

Speaker Change: You know, those are the way that those, a lot of those discussions have been progressing.

Speaker Change: Good.

Speaker Change: Great, and David, maybe you expect to now with one quarter under the belt and maybe one month under the belt into the next quarter and knowing the conversations that you're having with customers at this point, just curious if there's any, you have a range out there for guidance for the year, curious if conversations are leaning you towards one way or another on the range or even if you could just talk about what gets you to the high and the low end of those ranges to the rest of the year.

David Westonberg: Yeah, thanks Brandon. I think here just with the first quarter behind us and yes, up a view of September, which

David Westonberg: First month of the quarter, we saw some improvement for the first month of Q2, versus Q1. I don't think it informs that we would narrow the range, per se. They're still...

David Westonberg: Uncertainty around the timing of pace to share recovery, there's uncertainty more broadly in our end markets. And so I think the things we talked about when we set the guide, you know, kind of still exist.

David Westonberg: kind of one quarter, one quarter in here and...

David Westonberg: And most importantly, when we talked about the guy, we talked about this year being a little more second half weighted, so historically, maybe would be 48% the first half 52 in the second. We see that shifting to a little more second half weighted, which I think creates the...

David Westonberg: You know, the need for the volume ramp makes it a little bit bigger. So I think we still remain where we are and to your point is that your develops here. Hopefully we can help color it a little better.

Speaker Change: Okay, and maybe I'll throw a lot, two quick ones out there. John , is there any feedback in the early days of the high-volume feature film feeder that you could share with us at this point? And then they've just for you, just so that we can kind of talk about it on the broad call, any impacts that we should keep in mind from the past two hurricanes in Southeast. Thanks, Edwin.

Speaker Change: Jerry, but um...

John: I only have one anecdotal story where we ran and were, we had a customer that was testing it and we said, okay, it's time to take it back and he said there's no way you're taking it back

John: So that's my one anecdotal story.

Speaker Change: I think if I could add something else, this quarter has been challenging for us as an industry.

Speaker Change: And you think about if you think about relevancy of our business, we've had two major outbreaks with major companies that have had devastating impact on their consumers.

Speaker Change: and it just goes to show.

Speaker Change: You know what we do and why we're important and you know one of the things I'll say is we had a meeting where

Speaker Change: You know, one of the things we did for our research, our text service teams was, like we put up the number of people that were affected by, you know, they died to food borne illness in the United States and, you know, our job is to make sure that doesn't happen.

Speaker Change: And while we continue to see these things go up, the issue is you have to continue to look forward. A lot of these companies didn't have a problem for a hundred years until they had a problem.

Speaker Change: And I think that's why it's important when you look at what we do with our environmental monitoring programs, our risk assessments to help these customers continue to look forward and that backwards and rest on kind of where they are because the world is constantly changing and whether it's your point, whether it's environmental change.

Speaker Change: We're also new got plants that it wasn't never flooded before, it wasn't as human now it's more human. Those are all risk assessments that we have to update, help our customers update to continue to protect the food supply. So I'll let the data are specifically about the hurricanes, but I just want to make sure that

Speaker Change: The two major things happen in this quarter we need to keep an eye on.

Speaker Change: and Brandon, I don't have quantification.

Speaker Change: of the, you know, recent storms in the south, obviously, you know.

Speaker Change: The results of Milton here are pretty fresh and so it's something we're keeping an eye on, the logistical impacts.

Speaker Change: and other things to this stage, but they don't have a quantification.

Speaker Change: Ah, it is time.

Speaker Change: Ladies and gentlemen, as a reminder, should you have a question please for a star one? Your next question comes from Thomas, Debukri, with Neffron Research. Your line is now open.

Speaker Change: Hi guys, can you hear me alright?

Speaker Change: Yeah, Tom DeBoursy, I'm here here.

Thomas, Debukri: Yeah, okay, great. So my question is...

Thomas, Debukri: I guess it's either...

Thomas, Debukri: around the Chief Commercial Officer position that you know you're creating I know you know it's kind of big carved out of an existing role, but I guess.

Thomas, Debukri: kind of, it seems like it ties together at an opportunistic time where, you know, maybe both your end markets have been cyclically weaker and now are kind of going back to a period of, you know, you know, the strikes and revenue generation opportunities, you know, you be meeting with more customers that are more receptive to offerings. And so, how are you thinking about both, you know, the C-suite role, but that also, what else Neogen can do in terms of, I guess, you know, additional revenue generation and, you know, new customer acquisition?

Speaker Change: Yeah, great. No, thanks Tom.

Speaker Change: A couple of things with that.

Speaker Change: I think that's why we're splitting it to a key commercial officer role and not a chief operating officer role because we see the opportunity to continue to focus and the reason we're able to do that is because Doug did such a fantastic job when we was here building on his team.

Speaker Change: and we have a really, really strong vice-president of operations that we are very happy to have on board. Jim's been with us over a year, right around a year, and is making tremendous impact. And so it gives us great confidence in him running the operational side, and really then hiring someone that's going to focus fully on demand generation. And you know, for those of you know, I've worked with Doug for over a decade. He's done a great job. We're really happy that, you know, he's got the opportunity to retire and...

Speaker Change: Do some of the things that he wanted to do. And I'm even happy that he built such a strong team that's allowing us to make these types of organizational moves in a way that is...

Speaker Change: Plan and allows us to meet the needs of the business going forward.

Speaker Change: And just to get this as a follow-up to the cost side, I can see I'm going portfolio review. You know, is it think about part of the three-year business you acquire?

Speaker Change: It seems like there were some areas where you might have some overlapping products and whether there's some, I guess, consolidation opportunities or maybe they serve different customers, but then also, you know, how you're looking at, you know, potential lower margin products and whether, exiting those products or separate selling some products maybe a good return out capital.

Speaker Change: Yeah, no, I think that's right, Tomman

Speaker Change: And we've done some of that already. I mean, it's not something that we went out and publicized, but we've paired some of the...

Speaker Change: We've already worked with customers in a new part of Paris and Lyons that we've got from 3M.

Speaker Change: We have, but we also have to look at that with our own portfolio, right? And that's something that we told you we've been working on for the last year and why we don't have anything to announce today. It's something that we continue to focus on and continue to evaluate because we're looking at where we get the greatest return for our capital. So capital allocation right now is really important for us and making sure that we are investing in the areas for the greatest return is what we're, ladies are focused on right now.

Speaker Change: And then just to be the last question, geographically, you know, Chaita has continued to be a focus, you know, on the animal health, that will save the, you know, side, whether it's advocates might fever or other issues that obviously have been happening the last few years, just how do you view kind of the importance of that market for Deogit's growth?

Speaker Change: Don't do it for me.

Tom DeBoursy: Yeah, I think Tom.

Speaker Change: Looking at the Asia-Pacific region and the whole is more important for us. It is a tremendous growth opportunity for us on a lot of different markets. We've got a really strong team in Japan. We've got a strong team in Korea. We're building out a strong team in the Philippines. We've got a strong team in Thailand. We've got a strong team in China. So we're not reliant on just China for our growth. And as you know, China's been challenging, which has been good because we have such a broad mix and such a broad sales.

Speaker Change: Sales mix across that region. So we're really focusing on Asia-Pacific. And as Dave talked about earlier, really all of our international regions. That's where we're placing our money to expand those teams internationally, because we have such a little market share.

Speaker Change: and we've seen really good opportunities for that. You know, you continue to see, you know, we've seen Japan, which is our largest market, single country outside the U.S. turn the corner and start to grow again, which we're excited about. You know, we've continued to see significant growth in Latin, the continued to see growth in Europe , and you know, if those markets continue to have growth in North America, we're going to continue to invest in those markets.

Speaker Change: Thank you for being appreciated.

Speaker Change: Don't forget to comment and subscribe!

Speaker Change: There are no further questions at this time I will now turn the call over to John for closing remarks.

John: Again, thank you very much for joining and like we talked about.

John: As we saw this quarter, it shows the relevancy of the engine to protect the world's food supply because you've...