Q3 2025 Neogen Corp Earnings Call
David Naemura: and Dave Naemura.
Bill Waelke: Before the market opened today, we published our third 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. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the presentation, slide two of which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Before the market opened today, we published our third quarter results as well as a presentation with both documents are 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.
Conciliations of historical non-GAAP financial measures are included in our earnings release and the presentation slide two of which provides a reminder that <unk>.
<unk> will include forward looking statements within the meaning of the private Securities Litigation Reform Act.
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. 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.
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: We disclaim any obligation to update these forward-looking statements.
We disclaim any obligation to update these forward looking statements.
Bill Waelke: I'll now turn things over to John. Thanks, Bill.
John: I'll now turn things over to John.
John Adent: Good morning, everyone, and welcome to the earnings call for the third quarter of our 2025 fiscal year.
John: Thanks Bill.
John: Morning, everyone and welcome to the earnings call for the third quarter of our 2025 fiscal year.
John Adent: You may have seen the press release issued earlier today announcing that I will be stepping down as CEO. It's been an honor to lead Neogen, and I'm incredibly proud of the team we've built and everything we've accomplished, including making a significant amount of progress on the complex integration of a transformational acquisition. I would like to extend my sincere gratitude to the team for all their hard work and sacrifice over the last several years, and firmly believe these efforts have put the company in a stronger position. I will remain in my role while the board conducts a search for my successor, and I'm fully committed to ensuring a smooth transition for our customers and employees.
John: You may have seen the press release issued earlier today announcing but I'll be stepping down as CEO, it's been an honor to lead near Gem and I'm incredibly proud of the team, we've built and everything we've accomplished including making a significant amount of progress on the complex integration of a transformational acquisition.
John: I would like to extend my sincere gratitude to the team for all their hard work and sacrifice over the last several years and firmly believe these efforts have put the company in a stronger position.
John: I will remain in my role while the board conducts a search for my successor, and I'm fully committed to ensuring a smooth transition for our customers and employees.
John Adent: With that behind us, let's move into some color on the quarter. Over the course of the third quarter, we saw the broad development of uncertainty, primarily related to the goals and policies of the U.S. government, most notably deregulation, government spending cuts, tariffs, and global trade. As we've all seen, the administration is aiming to reduce federal spending and has made cuts across a number of government agencies, including those relevant to food safety, like the FDA and the USDA. While these cuts could possibly affect the speed with which outbreaks of foodborne illness can be addressed or possibly delay or eliminate certain research spending, we don't currently see them as having a significant effect on food safety testing.
With that behind US, let's move into some color on the quarter.
John: Over the course of the third quarter, we saw the broad development of uncertainty primarily related to the goals and policies of the U S government.
John: Most notably deregulation government spending cuts tariffs and global trade.
John: As we've all seen the administration's aiming to reduce federal spending.
John: It cuts across a number of government agencies, including those relevant to food safety like the FDA and the USDA.
John: While these cuts could possibly affect the speed with which outbreaks of food borne illness can be addressed where possibly delay or eliminate certain research spending we don't currently see them as having a significant effect on food safety testing.
John Adent: This is still a developing environment, but the leaning out of these agencies could result in more testing being pushed to the plants, which is where the ultimate responsibility lies for safe food production. Food quality, which by extension includes food safety, appears to be a priority for the administration, and we believe it has the potential to be a tailwind over time. The administration's position on tariffs and the actions announced last week have added to this uncertain environment. Despite almost half of our revenue being generated outside of the U.S., a significant portion of our manufacturing is based in the U.S.
John: This is still a developing environment, but the leaning out of these agencies could result in more testing being pushed to the plants, which is where the ultimate responsibility lies for safe food production.
John: Food quality, which by extension includes food safety appears to be a priority for the administration and we believe it has the potential to be a tailwind over time.
John: The administration's position on tariffs and the actions announced last week have added to this uncertain environment.
John: Despite almost half of our revenue being generated outside of the U S.
John: Significant portion of our manufacturing is based in the U S.
John Adent: As it relates to our purchases, the situation is similar. Within our food safety business, approximately 75% of our direct purchase spend is in the U.S. In animal safety, the number is about two-thirds, with our needle and syringe products having initially been subjected to tariffs back in September of last year. While acknowledging the tariff landscape has been and can continue to be fluid, we believe that our domestic manufacturing footprint provides some level of insulation in this environment, particularly in our largest markets, the U.S. We have been exploring alternative sources for supply for certain items procured from outside the U.S.
John: As it relates to our purchases the situation is similar.
John: Within our food safety business, approximately 75% of our direct purchase spend is in the U S.
John: And animal safety, the number's about two thirds with a needle and syringe products, having initially been subjected to terrorists back in September of last year.
John: While acknowledging the tariff landscape has been and could continue to be fluid.
John: We believe that our domestic manufacturing footprint provides some level of installation on this environment.
John: Particularly in our largest markets the U S.
John: Yes.
John: We have been exploring alternative sources for supply for certain items procured from outside the U S and we'll continue to do so.
John Adent: and will continue to do so. Given our large domestic manufacturing footprint, we are closely monitoring responses from other countries, and we'll consider those impacts as they become more clear. With respect to the retaliatory tariffs announced by China last week, a small portion of our total revenue is generated there, roughly 2.5%. of that revenue, approximately 40% is served by U.S. manufacturers.
John: Given our large domestic manufacturing footprint, we are closely monitoring responses from other countries.
John: So there are those impacts as they become more clear.
John: With respect to our retaliatory tariffs by China last week.
John: Small portion of our total revenue is generated there at roughly two 5%.
John: Of that revenue approximately 40% is served by U S manufacturing.
John Adent: We believe that uncertainty increased as the quarter progressed and read through to our end markets, which contributed to our third quarter results being below our expectations. In the face of faltering consumer confidence, a lack of clarity with respect to global trade, and concerns about the potential for recession, we saw both domestic and international distributors and customers being less willing to commit to inventory. This uncertainty was reflected in our proxy for global food production, which decelerated for the first time in six quarters. Food safety is typically a resilient end market that has historically been relatively insulated against periods of economic weakness, the unique combination of lingering inflation, which had been particularly acute in food, and the current elevated macro uncertainty has resulted in an end market that's still growing, but we believe at a rate below normal levels.
John: We believe the uncertainty increased as the quarter progressed and read through to our end markets, which contributed to our third quarter results being below our expectations.
John: In the face of faltering consumer confidence or lack of clarity with respect to global trade concerns about the potential for recession, we saw both domestic and international distributors and customers being less willing to commit to inventory.
John: This uncertainty was reflected in our proxy for global food production, which decelerated for the first time in six quarters.
John: Food safety is typically a resilient end market that has historically been relatively insulated against periods of economic weakness the unique combination of lingering inflation, which is particularly acute in food.
John: And the current elevated macro uncertainty.
John: Noted in an end market, that's still growing but we believe at a rate below normal levels.
John Adent: Our performance in food safety is also impacted by the challenges we've discussed with our sample collection product line, which we located from a former 3M facility to one of our own. It took longer than we'd originally anticipated, but the relocated product lines are now producing at the prior levels. From this point forward, our immediate focus is on improving the production efficiency and catching up with our customers' demand. Outside of the specific challenges and sample collection, core revenue in our food safety business was up 7% in the quarter. In our animal safety segment, we believe we continue to work through the cyclical trough of the market.
John: Our performance in food safety was also impacted by the challenges we've discussed with our sample collection product line, which relocated from our former three M facility to one of our own.
John: It took longer than we had originally anticipated relocated product lines are now producing at the prior levels.
John: From this point forward, our immediate focus is on improving the production efficiency and catching up with our customers' demand.
John: Outside of the specific challenges in sample collection core revenue in our food safety business was up 7% in the quarter.
John: And our animal safety segment, we believe we continue to work through the cyclical trough of the market.
John Adent: Inventory levels in the distribution channel remain broadly stable. Eds did the positive level of sales out of our products. Although it's a relatively small part of the business, we saw notable softness in China amidst the uncertain macro environment there, with many of our distributors being in a wait-and-see mode or, in some cases, opting for local supply. Outside of the decline in genomics, our animal safety core business was down just over 1% on a year-over-year basis. For our genomics business in total, third quarter core revenue was down mid-single digits year over year. We believe the actions we took last quarter to focus and restructure this business were the right moves to make.
John: Inventory levels in the distribution channel remained broadly stable I understood the positive level of sales out of our products.
John: Although it's a relatively small part of the business. We saw notable softness in China.
John: The uncertain macro environment, there with many of our distributors being in a wait and see mode or in some cases opting for local supply.
John: Outside of the decline in genomics, our animal safety core business was down just over 1% on a year over year basis.
John: For our genomics business in total third quarter core revenue was down mid single digits year over year.
John: We believe the actions we took last quarter to focus and restructure this business what are the right moves to make.
John Adent: We are focusing the business on our leading differentiated bovine product offering, and have either stopped or will wind down most of the rest of the business over the coming quarters. Although genomics in total has been a headwind for the past seven quarters, our bovine business has performed better during this period, including many quarters of growth.
John: We are focusing the business on our leading differentiated bovine product offering.
John: Either stopped or wind down most of the rest of the business over the coming quarters.
John: Although genomics in total has been a headwind for the past seven quarters.
John: <unk> business has performed better during this period, including many quarters of growth.
John Adent: On the integration front, we continued to make progress on the quarter. With sample collection recovering to prior production levels, Petri film remains the last outstanding integration work stream. Construction of the new facility is complete, as is the installation of the first two Petrie film production lines. The shipment of the second production line has landed in Lansing and is in the process of being staged and rigged for installation, and we remain on track for our goal of beginning initial test production in the fall of 2025. As we mentioned on our prior earnings call, we are undertaking actions to accelerate the building of a more profitable focus near June.
John: On the integration front, we continued to make progress in the quarter.
John: With sample collection recovering to prior production levels future phone remains the last outstanding integration work stream.
Construction of the new facility is complete.
John: The installation of the first two Patriots film production lines.
John: The shipment of the second production line has landed in Lansing and is in the process of being staged and ready for installation and we remain on track for our goal of beginning initial test production in the fall of 2025.
John: As we mentioned on our prior earnings call.
John: Undertaking actions to accelerate the building of a more profitable focused neogen.
John Adent: We have made solid progress on this front with one potential portfolio action in the later stages and one that is starting the marketing phase. These actions represent a step towards focusing our business on the highly attractive food safety and market and are expected to be accretive to margins, with net proceeds being prioritized for debt repayment. Last week, we completed the refinancing of our Term Loan A, extending the maturity by close to three years and realizing 60 basis points of interest rate savings. Combined with the expected near-term debt repayment, this provides us with balance sheet flexibility as we continue to work to bring down our net leverage.
John: We have made solid progress on this front with one potential portfolio actions in the later stages.
John: And that has started in the marketing phase.
John: These actions represent a step towards focusing our business on the highly attractive food safety end market.
John: And I expect it to be accretive to margins with net proceeds being prioritized for debt repayment.
John: Last week, we completed the refinancing of our term loan extending the maturity by close to three years, and realizing 60 basis points of interest rate savings.
John: Combined with the expected near term debt repayment. This provides us with balance sheet flexibility as we continue to work to bring down our net leverage.
John Adent: In addition to future EBITDA growth, improving cash flow is a priority to contribute to the reduction of net leverage. Some of the improvements in free cash flow is expected to come naturally as a result of integration cap backs reducing in fiscal year 2026 and then mostly tapering off in fiscal 2027. We expect to see additional improvement come from the significant opportunity we have to reduce working capital over time. We've seen some progress from our initial actions, but a larger opportunity remains, mostly related to our inventory levels.
In addition to future EBITDA growth improving cash flow as a priority to contribute to the reduction of net leverage.
Some of the improvements in free cash flow is expected to come naturally as a result of integration capex, reducing in fiscal year 2026, and then mostly tapering off in fiscal 2027.
John: We expect to see additional improvement come from the significant opportunity we have to reduce working capital over time.
John: We have seen some progress from our initial actions, but a larger opportunity to remains mostly related to our inventory levels.
John Adent: The evolution of our leadership team has continued with a number of changes recently made. We have a new head of R&D, we have a new head of our North America commercial organization, and a new commercial head for North American food safety in place. as well as a new Chief Human Resources Officer who started this week. We continue to make good progress on the search for a chief commercial officer, and we expect to fill the role in the first quarter of fiscal 2026. The standing up of our own petri film production is progressing well, but we nonetheless want to ensure that we are de-risking as much as possible.
John: The evolution of our leadership team has continued with a number of changes recently made.
We have a new head of R&D, we have a new head of our North America commercial organization and a new commercial head for North American food safety in place.
John: As well as our new Chief Human Resources Officer, who started this week.
John: We continue to make good progress on the search for a chief commercial officer, and we expect to fill the role in the first quarter of fiscal 2026.
John: The standing up of our own Petri from production is progressing well, but we nonetheless want to ensure that we are de risking as much as possible.
John Adent: To that end, we have made additions to the operating team to enhance key areas of expertise, and I also expanded the existing project governance.
John: To that end, we've made additions to the operating team to enhance key areas of expertise and also expanded the existing project governance.
John Adent: As it relates to our outlook for the full year, the current environment is very dynamic. With respect to the macro environment, it is not yet clear what the ultimate impact and duration might be from the rising level of uncertainty. We are updating our full-year view based on the information we have today to reflect the third quarter being below our expectations and a fourth quarter that will likely not be as strong as we had previously anticipated, given the softening market backdrop and the uncertain impact of tariffs. We also plan to take further actions to ensure the cost base is more aligned with the current level of revenue and the macro environment, the full impact of which will be reflected in fiscal 2026.
John: As it relates to our outlook for the full year.
John: Current environment is very dynamic with.
John: With respect to the macro environment. It is not yet clear what the ultimate impact and duration might be from a rising level of uncertainty.
John: We are updating our full year view based on the information we have today.
John: To reflect the third quarter being below our expectations and a fourth quarter that will likely not be as strong as we had previously anticipated.
John: Given the softening market backdrop, and the uncertain impact of tariffs.
John: We also plan to take further actions to ensure the cost base is more aligned with the current level of revenue and the macro environment, the full impact of which will be reflected in fiscal 2026.
John Adent: The sample collection production delays have improved. We have targeted commercial plans that we expect will return that product line to more normal revenue levels over the coming quarter. In genomics, we restructure a portion of the business in the second quarter and will continue to focus on a differentiated offering for the more attractive bovine market. We are taking actions to control what we can control, to navigate the current situation, and to de-risk the final piece of the 3M integration.
John: The sample collection production delays have improved.
John: We've targeted commercial plans that we expect will return that product line to more normal revenue levels over the coming quarters.
John: And genomics, we restructured a portion of the business in the second quarter and will continue to focus on a differentiated offering for the more attracted ball bond market.
John: We are taking actions to control what we can control to navigate the current situation and to de risk. The final piece of the three integration.
John Adent: And I'll turn the call over today for some more insights into our results for the quarter and our outlook.
Dave: Now I'll turn the call over to Dave for some more insights into our results for the quarter and our outlook.
David Naemura: Thank you, John, and welcome to everyone on the call today. Jumping into the results, our third quarter revenues were $221 million. Core revenue growth, which excludes the impact of foreign currency, acquisitions, and discontinued product lines, came in at 20 basis points for the quarter, while foreign currency was a headwind of 310 basis points compared to the prior year. At the segment level, revenues in our food safety segment were $153 million in the quarter, down 3.2% compared to the prior year, with core revenue growth of 1.5% offset by the negative impact of that fact. The core growth was led by our biosecurity products and the bacterial and general sanitation product category, which benefited from strong growth and pathogen detection products.
Dave: John and welcome to everyone on the call today.
Dave: Jumping into the results our third quarter revenues were $221 million core revenue growth, which excludes the impact of foreign currency acquisitions and discontinued product lines came in at 20 basis points for the quarter, while foreign currency was a headwind of 310 basis points compared to the prior year.
Dave: At the segment level revenues in our food safety segment were $153 million in the quarter down three 2% compared to the prior year with core revenue growth of one 5% offset by the negative impact of FX. The core growth was led by our bio security products and the bacterial in general.
Dave: Sanitation product category, which benefited from strong growth in pathogen detection products.
David Naemura: In the indicator testing, culture media, and other product category, solid growth in our food, quality, and petrofilm product lines was partially offset by a decline in sample collection as we continue the process of ramping up the relocated production in our facility. Excluding the headwinds and sample collection, core revenue in the food safety segment grew 7%, which we believe reflects a solid underlying Quarterly revenues in the animal safety segment were $68 million, which includes a core revenue decline of 2.6% compared to the prior year quarter. Within our animal care and other product category, solid growth was driven primarily by small animal supplements with an increase in private label business.
Dave: And the indicators testing culture media and other product category solid growth in our food quality and feature film product lines was partially offset by a decline in sample collection as we continued the process of ramping up the relocated production in our facility.
Dave: Excluding the headwinds in sample collection core revenue in the food safety segment grew 7%, which we believe reflects the solid underlying business.
Dave: Quarterly revenues in the animal safety segment was $68 million, which includes a core revenue decline of two 6% compared to the prior year quarter.
Within our animal care and other product category solid growth was driven primarily by small animal supplements with an increase in private label business.
David Naemura: This growth was offset mainly by lower sales of vet instruments and disposals. Our global genomics revenue was down mid-single digits on a core basis. Core revenue growth and our differentiated bovine business was offset by declines in other areas, and consistent with the focused restructuring we executed in Q2 of this year. From a regional perspective, core revenue growth in the third quarter was mixed. Growth was again led by Latin America, which saw double-digit growth and a strong performance across most key product categories. Asia-Pacific core revenue was up mid-single digits on a year-over-year basis, with solid growth in petri film and pathogen detection, partially offset by decline in sample collection.
Dave: This growth was offset mainly by lower sales of vet instruments and disposables.
Dave: Our global genomics revenue was down mid single digits on a core basis core revenue growth in our differentiated bovine business was offset by declines in other areas and consistent with the focused restructuring we executed in Q2 of this year.
Dave: From a regional perspective core revenue growth in the third quarter was mixed growth was again led by Latin America, which saw double digit growth at a strong performance across most key product categories.
Dave: Pacific core revenue was up mid single digits on a year over year basis with solid growth in Petri film and pathogen detection, partially offset by a decline in sample collection.
David Naemura: Our business in Europe was down mid-single digits on a core basis, with growth in cleaners and disinfectants and food quality and nutritional analysis offset by declines in genomics, general sanitation, and sample collection, as well as Petri film, which came down after strong growth in Q2.
Dave: Our business in Europe was down mid single digits on a core basis with growth in cleaners, and disinfectants and food quality and nutritional analysis offset by declines in genomics general sanitation and sample collection as well as Petri film, which came down after strong growth in Q2.
David Naemura: In our U.S. and Canada region, which has experienced the largest carryover impact from last year's shipping delays, core revenue was also down mid-single digits compared to the prior year period. Solid growth in food quality and nutritional analysis was offset by declines in most other food safety product categories, including a larger impact in sample collection. In the animal safety segment, solid growth of the biosecurity and animal care products categories was offset by declines in genomics and vet instruments. Gross margin in the third quarter was 49.9%, representing a decrease of 120 basis points from 51.1% in the same quarter a year ago, excluding integration and restructuring costs, as well as the reclassification of certain expenses in the prior year period gross margin.
Dave: In our U S and Canada region, which has experienced the largest carryover impact from last year's shipping delays core revenue was also down mid single digits compared to the prior year period solid growth in food quality and nutritional analysis was offset by declines in most other food safety product categories, including a larger impact in the sample.
Dave: Collection.
Dave: In the animal safety segment solid growth in the Biosecurity and animal care products categories was offset by declines in genomics and vet instruments.
Dave: Gross margin in the third quarter was 49, 9% representing a decrease of 120 basis points from 51, 1% in the same quarter a year ago.
Dave: Excluding integration and restructuring costs as well as the reclassification of certain expenses in the prior year period gross margin Q3 was down 30 basis points year over year, primarily due to lower revenues.
David Naemura: Q3 was down 30 basis points year-over-year, primarily due to lower revenue. Adjusted EBITDA was $49 million in the third quarter, representing a margin of 22% roughly flat from Q2 on lower revenue. On a year-over-year basis, the decline in adjusted EBITDA margin was driven primarily by the lower revenue level. Third quarter adjusted net income and adjusted earnings per share were $21 million and $0.10 respectively, compared to $26 million and $0.12 in the prior year quarter due primarily to the lower adjusted EBITDA and a nominally higher effective tax rate. We ended the quarter with gross debt of $900 million, 61% of which is at a fixed rate, and a total cash position of $128 million.
Dave: Adjusted EBITDA was $49 million in the third quarter, representing a margin of 22% roughly flat from Q2 on lower revenue on a year over year basis. The decline in adjusted EBITDA margin was driven primarily by the lower revenue level.
Dave: Third quarter, adjusted net income and adjusted earnings per share were $21 million.10, respectively compared to $26 million and 12 in the prior year quarter due primarily to the lower adjusted EBITDA and a nominally higher effective tax rate.
Dave: We ended the quarter with gross debt of $900 million, 61% of which is at a fixed rate and a total cash position of $128 million free cash flow in Q3 was an outflow of approximately $14 million, representing an improvement of $49 million compared to Q3 of fiscal year 2024, net working capital was at <unk>.
David Naemura: Pre-cash flow in Q3 was an outflow of approximately $14 million, representing an improvement of $49 million compared to Q3 of fiscal year 2024. Net working capital was a $10 million source of cash in the quarter, reflecting some progress on our multi-year improvement. Capital expenditures in the quarter were elevated, driven in part by some acceleration of spending related to our new petrochrome plant and production equipment. As John mentioned earlier, last week we completed refinancing of the $550 million remaining on our Term Loan A. We issued a new $450 million Term Loan A with an upsized $250 million revolving facility on which we've drawn $100 million and obviously utilized those funds as part of the payoff of the previous $550 million Term Loan A.
Dave: 10 million source of cash in the quarter, reflecting some progress on a multiyear improvement journey.
Capital expenditures in the quarter were elevated driven in part by some acceleration of spending related to our new <unk> plant and production equipment.
Dave: As John mentioned earlier last week, we completed the refinancing of the $550 million remaining on our term loan eight we issued a new $450 million term loan a with an upsized $250 million revolving.
Dave: Revolving facility on which we have drawn $100 million and obviously utilize those funds as part of the pay off of the previous $550 million term loan.
David Naemura: Further, this draw on the facility, which allows us to currently maintain the same $150 million of available liquidity, should be taken as indicative of a portion of our near-term expectations for the portfolio actions we've discussed. In addition to extending the maturity of our term loan by over two and a half years, we were able to realize 60 basis points of interest rate savings.
Dave: Further this draw on the facility, which allows us to currently maintains the same $150 million of available liquidity should be taken as indicative of a portion of our near term expectations for the portfolio actions we've discussed in.
Dave: In addition to extending the maturity of our term loan by over two and a half years, we were able to realize 60 basis points of interest rate savings.
David Naemura: Moving to our outlook, the market environment softened as the third quarter progressed, and we believe the macroeconomic uncertainty has led to somewhat of a pause taken by many customers and channel partners. In addition to the uncertain trade environment, grocery inflation in particular has persisted and continues to affect the consumer, contributing to the move backwards that we saw in our proxy for global food production. In animal safety, we see healthy channel inventory levels and positive sales out of the channel, but saw a slowdown of sales into some of our larger distributors. We expect these impacts that we saw in Q3 will continue through Q4, when we will also begin to see the impact of tariff.
Dave: Moving to our outlook the market environment softened as the third quarter progressed, and we believe the macroeconomic uncertainty that's led to somewhat of a pause taken by many customers and channel partners.
Dave: In addition to the uncertain trade environment grocery inflation in particular has persisted and continues to affect the consumer contributing to the move backwards that we saw in our proxy for global food production.
Dave: In animal safety, we see healthy channel inventory levels and positive sales out of the channel, but saw a slowdown of sales into some of our larger distributors. We expect these impacts that we saw in Q3 will continue through Q4. When we will also begin to see the impact of tariffs. We are therefore updating our revenue outlook for the year to approximately.
David Naemura: We are therefore updating our revenue outlook for the year to approximately $895 million. We are accordingly also updating our outlook for adjusted EBITDA to approximately $195 million. With a lower adjusted EBITDA and some acceleration of CapEx, which we now expect to be approximately $100 million, our current view of free cash flow for the year is an outflow of approximately $20 million. We would emphasize that the end market conditions are about as dynamic as we have seen, but we will focus on what is within our control, which includes the near-term actions John has highlighted.
Dave: <unk> $895 million, we are accordingly, also updating our outlook for adjusted EBITDA to approximately $195 million with a lower adjusted EBITDA and some acceleration of Capex, which we now expect to be approximately $100 million. Our current view of free cash flow for the year is an outflow of approximately $20 million.
Dave: We would emphasize that the end market conditions are about as dynamic as we have seen but we will focus on what is within our control which includes the near term actions. Jon has highlighted I will now hand, the call back to John for some final thoughts.
John Adent: I'll now hand the call back to John for some final thoughts. Thanks, Dave. We view this as a critical period in Neogen's transformation and are focused entirely on improved execution. During this environment of rising macro uncertainty, this means taking decisive action to influence those things that we are within our control. In addition to FX, there have been two primary things weighing out our results over the last few quarters, genomics and sample collection.
Jon: Thanks, Dave.
Speaker Change: We view this as a critical period and the agents transformation and are focused entirely on improved execution.
Speaker Change: During this environment of rising macro uncertainty this means taking decisive action to influence those things that we are within our control.
Speaker Change: In addition to FX there've been two primary things weighing on our results over the last few quarters genomics and sample collection.
John Adent: And there are clear plans in place to address both. In the third quarter specifically, these areas were a headwind of over 400 basis points to our consolidated core revenue growth. Through strategic alignment and substantial cost reductions, we are addressing our genomics business. which has been a meaningful headwind for the better part of two years.
Speaker Change: And there are clear plans in place to address both.
Speaker Change: In the third quarter, specifically these areas were a headwind of over 400 basis points to our consolidated core revenue growth.
Speaker Change: Through strategic alignment and substantial cost reductions, we're addressing our genomics business.
Speaker Change: Which has been a meaningful headwind for the better part of two years.
John Adent: For sample collection, we expect it will take a couple of quarters for the revenue to return to its prior run rate. The production has been restored to prior levels and is now undergoing intense operational scrutiny to ensure the efficiency is improved as quickly as possible.
Speaker Change: Our sample collection, we expect it will take a couple of quarters for the revenue to return to its prior run rate.
Speaker Change: But production has been restored to prior levels and is now undergoing intense operational scrutiny to ensure their efficiencies improve as quickly as possible.
John Adent: As we've discussed, this leaves PetriFILM as the final integration work stream, which continues to progress well. The establishment of our own petrochrome production will be a more gradual transition than the other key integration workstreams were. which have either been a lift and shift of production or a cutover from a 3M systems to our own. Once test production and the performance of the equipment have been validated, a process we still expect will begin in the fall of this year, we will start to ramp up our own production on a skew-by-skew basis.
Speaker Change: As we've discussed this leaves pizza from US a final integration work stream, which continues to progress well.
Speaker Change: Establishment of our own feature film production will be a more gradual transition.
Speaker Change: Other key integration work streams were.
Speaker Change: Which have either been a lift and shift of production or a cutover from a three <unk> systems to our own.
Speaker Change: Once test production from the performance of the equipment have been validated.
Speaker Change: The process, we still expect will begin in the fall of this year, we will start to ramp up our own production on a SKU by SKU basis.
John Adent: The Petri film product line consists of a total of 17 SKUs. Once we have a SKU fully validated and running on our own equipment, we will turn off production of that SKU at our transition manufacturing partner. We plan to move through the entire product line that way, very gradually, one SKU at a time.
Speaker Change: The feature film product line consists of a total of 17 skus.
Speaker Change: Once we have a SKU fully validated and running on our own equipment, we will turn off production of that SKU at our transition manufacturing partner.
Speaker Change: We plan to move through the entire product line that way very gradually one SKU at a time.
John Adent: This will result in some temporary duplicate manufacturing costs that begin to increase in fiscal 2026. which we will dimensionalize to provide for an orderly transition of petrochrome production. Key members of the Petrifilm manufacturing engineering team who have done this before are part of the Neogen team, and we currently have employees undergoing advanced training and manufacturing testing in a current Petrifilm facility. We feel good about where things stand today, and we will continue to take all actions available to us to make this as seamless a transition as possible.
Speaker Change: This will result in some temporary duplicate manufacturing costs to begin to increase in fiscal 2026.
Speaker Change: Which we will dimensionalize.
Speaker Change: But provide for an orderly transition of our feature film production.
Speaker Change: Key members of the future for manufacturing engineering team, who have done this before our part of the management team and.
Speaker Change: And we currently have employees undergoing advanced training and manufacturing testing and a current feature phone facility.
Speaker Change: We feel good about where things stand today, and we will continue to take all actions available to us to make this as seamless a transition as possible.
John Adent: We also have taken and will continue to take actions to maintain balance sheet flexibility. The refinancing of our term loan extended the maturity by close to three years, and net proceeds, we may realize from the portfolio actions we discussed, will be prioritized for debt paid out. Along with the reduced integration capex and the resulting improvement in free cash flow, we expect our balance sheet to continue to improve moving forward.
Speaker Change: We also have taken and will continue to take actions to maintain balance sheet flexibility.
Speaker Change: Financing of our term loan extended the maturity by close to three years and net proceeds we may realize from the portfolio actions, we've discussed will be prioritized for debt paydown.
Speaker Change: Along with the reduced integration Capex and the resulting improvement in free cash flow, we expect our balance sheet to continue to improve moving forward.
John Adent: Following the completion of the 3M food safety transaction, we added a substantial amount of cost to the business to both catch up legacy Neogen capabilities and accommodate the increased size of the business. For a number of reasons, including FX and market weakness and integration challenges, revenue is currently below the levels that were contemplated when these costs were being added. We took actions in the second quarter to address a portion of these costs mainly in genomics business. As mentioned, we will be taking additional actions in this area in Q4.
Speaker Change: Following the completion of the three on food safety transaction, we added a substantial amount of cost to the business to both catch up legacy the agent capabilities and accommodate increased size of the business.
Speaker Change: For a number of reasons, including FX and market weakness and integration challenges revenue is currently below the levels that were contemplated when these costs are being added.
Speaker Change: We took actions in the second quarter to address a portion of these costs mainly in genomics business.
Speaker Change: As mentioned, we will be taking additional actions in this area in Q4.
John Adent: We have continued to make enhancements to the team to address key areas of the business that we believe put us in the best position to generate demand and capitalize on the opportunities we have in front of us. Two of these enhancements are in the customer-facing leadership roles in our largest region of North America. will replace a particular emphasis on demand generation through targeted commercial initiatives. We expect these changes, in combination with the Chief Commercial Officer role that should be filled in Q1, to provide us with momentum in the market as we leverage our full portfolio solution.
Speaker Change: We have continued to make enhancements to the team to address key areas of the business that we believe put us in the best position to generate demand.
Speaker Change: Capitalize on the opportunities we have in front of us.
Speaker Change: Two of these enhancements are in the customer facing leadership roles in our largest region in North America.
Speaker Change: Where we place a particular emphasis on demand generation through targeted commercial initiatives.
Speaker Change: We expect these changes in combination with the chief commercial officer role that should be filled in Q1 to provide us with momentum in the market as we leverage our full portfolio of solutions.
John Adent: It's too early to determine if customer conservatism for macro headwinds will be temporary or more sustained. We're staying attuned to the market and will provide additional perspective in the future on the expected duration as the trade landscape continues to change. However, we have a leading franchise in critical diagnostic solutions for food safety, which, while not immune to macrouncertainty, is an end market where we would expect to generally be resilient, as it has been in the past during periods of turbulence. We remain optimistic about the future trajectory of the business and believe the changes we are making will allow us not only to manage through the current uncertainty, but also position us to deliver on the long-term growth opportunity in front of us.
Speaker Change: It's too early to determine of customer conservatism from macro headwinds will be temporary or more sustained.
Speaker Change: We're staying attuned to the market and will provide additional perspective and the future of the expected duration of the trade landscape continues to change.
Speaker Change: However, we have a leading franchise in critical diagnostic solutions for food safety switch.
Speaker Change: Which while not immune to macro uncertainty as an end market, where we would expect to generally be resilient as it has been in the past during periods of turbulence.
Speaker Change: We remain optimistic about the future trajectory of the business and believe the changes, we're making will allow us not only.
Speaker Change: And to manage through the current uncertainty, but also position us to deliver on the long term growth opportunity in front of us.
Operator: I'll now turn things over to the operator to begin the 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 touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.
Speaker Change: I'll now turn things over to the operator to begin the Q&A.
Speaker Change: 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 Touchtone phone, you'll hear a prompt that Johan has been raised should you wish to decline for the polling process. Please press star followed by the Q.
Operator: If you are using a speakerphone, please lift the handset before pressing any key.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys. Your first question comes from Brandon Vazquez with William Blair. Your line is now open.
Brandon Vazquez: Your first question comes from Brandon Vazquez with William Blair. Your line is now open. Hey, good morning, everyone. Thanks for taking the question. First, I just wanted to talk a little bit about the guide and talk a little bit about macro and the moving pieces there. So, can we just start by talking a little bit about how much of the lowered guide is coming from macro specifically at this point? It sounds like, and correct me if I'm wrong, it's less of execution on maybe sample handling or any of those other integration. This is primarily a macro headwind.
Brandon Vazquez: Hey, good morning, everyone. Thanks for taking the question first I just wanted to talk a little bit about the guide and talk a little bit about macro and the moving pieces. There. So can we just start by talking a little bit about how much of the lowered guide is coming from macro specifically at this point it sounds like and correct me if I'm wrong, it's less of execution on <unk>.
Speaker Change: Sample handling or any of those other integration. This is primarily a macro headwinds so talk to us one about how much of it is macro and two a little bit more of like what volumes are you seeing in food safety, even as macro worsened I think in.
Brandon Vazquez: So, talk to us, one, about how much of it is macro, and two, a little bit more of like what volumes are you seeing in food safety even as macro worsens? You know, I think in the past, we've always talked about this market as being kind of resilient but not immune. So, are there any numbers you can put on that to help us understand, is this a market that even if things get bad, can stay positive growth, or is it something that should start to decline with food safety? So, sorry, a couple questions there just all around macro guidance and what you guys are seeing.
Speaker Change: In the past, we've always talked about this market as being kind of resilient, but not immune.
Speaker Change: Are there any numbers you can put on that to help us understand is this a market that even if things get bad.
Speaker Change: A positive growth or is it something that should start to decline with food safety.
Speaker Change: So sorry, a couple questions there just all around macro guidance and what you guys are seeing.
David Naemura: Thanks Brandon.
Speaker Change: Thanks, Brandon Let me go first as Dave and then I'll pass it pass it to John to what we saw during the quarter. As we noted was a broader softening as the quarter progressed.
David Naemura: Let me go first. This is Dave and then I'll pass it pass it to John. So what we saw during the quarter as we noted Some broader softening as the quarter progresses. hesitancy, I think, driven by some of the macro uncertainty, and we're assuming that that condition continues into the future. through the second half into the fourth quarter. So if we look at Q3, we probably came in about six million below where we thought at the time. I'd say a good four million of that was clearly just uncertainty. Two million of that alone was China.
Speaker Change: And see I think driven by some of the macro uncertainty and we're assuming that that condition continues into the second.
Speaker Change: Through the second half into the fourth quarter. So if we look at Q3, we probably came in about $6 million below where we thought at the time.
Speaker Change: Say, a good $4 million that was clearly just uncertainty $2 million of that alone was China.
David Naemura: And a million of genomics, which is timing of ramp down from some of the business we're getting away from. And then maybe roughly a million lighter in sample handling, although we exited at the rates we had anticipated, I think, the shape of the ramp through the quarter. ended up being a little light, but predominantly macro. Look, then, as the global trade situation has developed, that'll have that, you know, dramatically heightens the uncertainty, in my opinion, particularly on the animal safety side for us. And that's where we have the most exposure to some of the existing.
Speaker Change: <unk> one.
Speaker Change: Millions of genomics, which is timing of ramp down from some of the business, we're getting away from.
Speaker Change: And then maybe roughly $1 million lighter in sample handling, although we exited at the rates we had anticipated I think.
Speaker Change: The shape of the ramp through the quarter.
Speaker Change: And it has been a little light, but predominantly macro look.
Speaker Change: That is the global trade situation has developed that will have that dramatically heightened uncertainty in my opinion, particularly on the animal safety side for us and Thats why we have the most exposure.
Speaker Change: To some of the existing.
David Naemura: Tariff Activity that, you know, we will obviously have some commercial efforts to offset, but the ability to do that, there'll be some level of uncertainty given the of the actions as far as the environment.
Speaker Change: Tariff activity that we will obviously have some commercial efforts to offset but the ability to do that there'll be some level of uncertainty given the magnitude of.
Speaker Change: The actions as far as the environment, Let me turn it over to John to talk a little bit about what we saw more specifically yeah. Thanks, Dave So Brandon.
John Adent: Let me turn it over to John to talk a little bit about what we saw. Thanks Dave. So Brandon, like we had talked about in the past, we had, we follow a basket of companies and we had seen, you know, six quarters of kind of sequential improvement and that really, for the ones that are closer to our reporting cycle, that reversed where, you know, instead of seeing sequential improvement, we saw 300 to 400 basis point decline on a quarterly basis.
Speaker Change: We had talked about in the past we had we follow a basket of companies and we had seen six quarters of kind of sequential improvement.
Speaker Change: That really for the ones that are closer to our reporting cycle.
Speaker Change: That reversed where instead of seeing sequential improvement we saw 300 to 400 basis point decline.
Speaker Change: On a quarterly basis for their report so we did see the softening in the market, but like we talked about even with that.
John Adent: Thank you so much for your time. Thank you. for their report. So we did see the softening in the market, but like we talked about, even with that, you know, excluding the sample handling, the food safety business in the US grew 7% for the quarter. I will tell you, that disappointed Like, my expectation was double-digit growth, but when the market started to soften at the end of the quarter, I think that's what really pulled it down. When you think about the underlining firmness of the business, I think there is an underlining firmness. I still think the market is growing, right?
Speaker Change: Excluding the sample handling the food safety business in the U S grew 7% for the quarter.
Speaker Change: I will tell you that disappointed me.
Speaker Change: My expectation was double digit growth, but when the market started to soften at the end of the quarter I think that's what we really pulled it down for a while.
Speaker Change: You think about the underlying firmness of the business I think there is an Atlanta farmers I still think the market is growing right.
David Naemura: And I think there's It just isn't as growing as robustly as it did traditionally. David, do you have anything else you want to add with that? Yeah. Just specifically, Brandon, we've talked before about our production. proxy that we tried. That had been coming, it was it was frankly coming towards even after the after the six quarters of improvement, eight quarters of decline, you know, of negative numbers, it was approaching kind of par and it moved backwards 70 to 80, basically. in total across the 15 companies that we track. We have a couple folks that we watch that share a year end with us and that's where we saw more recent reporting that would show that getting worse.
Speaker Change: And I think there is.
Speaker Change: Isn't as growing as robustly as it traditionally Dave you have anything else you want everything just specifically Brandon we've talked to you before about our RP production.
Speaker Change: <unk> that we track.
Speaker Change: That had been coming it was it was frankly coming towards even after this.
Speaker Change: After the six quarters of.
Speaker Change: Improvement eight quarters of decline of negative numbers. It was approaching kind of par and it moved backwards 70 to 80 basis points in total across the 15 companies that we track we have a couple of folks that we watched that share at year end with us and Thats, where we saw more recent reporting that would show that getting.
Speaker Change: Worse and kind of.
David Naemura: you know, three-ish hundred basis point type moves to the negative. So we think it's consistent with what we saw in the marketplace. And again, I think it's worth emphasizing. sample collection side. 7% as a core growth for our food safety business. Felt pretty good, I'll be on an easier compare. So still growing consistent with what you said. a rather durable end market, but not growing at the rates. Okay.
Speaker Change: <unk> hundred basis point type moves to the negative. So we think it's consistent with what we saw in the marketplace and again I think it's worth emphasizing.
Speaker Change: Sample collection side.
Speaker Change: 7%.
Speaker Change: As a.
Speaker Change: Core growth for our food safety business felt pretty good, albeit on an easier compare so still growing consistent with what you said.
Speaker Change: Rather durable end market, but not growing at the rates we've seen historically.
Speaker Change: Okay, and following up switching a little bit to tariff headwinds one kind of a clarification into just an operational question, but when you guys talk about tariff headwinds just to be clear.
Brandon Vazquez: And following up, switching a little bit to tariff headwinds, one, kind of a clarification, and two, just an operational question. But when you guys talk about tariff headwinds, just to be clear, are we talking mostly here that the tariff headwinds is going to be from margins because, obviously, your COGS will go up? Or is part of the tariff headwind here that you guys are expecting you're going to lose some sales because your products are going to become more expensive and you could potentially lose some share through that?
Speaker Change: Are we talking mostly here that.
Speaker Change: The tariff headwind is going to be for margins because obviously your Cogs will go up or as part of the tariff headwind here that you guys are expecting you're going to lose some sales because your products are going to become more expensive and you could potentially lose some share through that and then the follow up kind of the operational side of tariffs is what can you do I think in the past it's been a while since.
Brandon Vazquez: And then the follow-up kind of the operational side of tariffs is, what can you do? You know, I think in the past, it's been a while since we've discussed this, but in the past, we discussed that this is actually a very sticky business and that you probably have some ability to push price. You maybe also have some operational efficiencies you can do to offset some tariff headwinds. So, what can you do over the coming months if these tariffs actually stay a little sticky to kind of offset some of these headwinds?
Speaker Change: We've discussed this but in the past we discussed that this is actually a very sticky business and that you probably have some ability to push price.
Speaker Change: Maybe also had some operational efficiencies you can do to all states to offset some tariff headwinds. So what can you do over the coming months. If these tariffs these tariffs actually stay a little sticky.
Speaker Change: To offset some of these headwinds.
John Adent: Yeah, Brandon, I'll start and then I'll turn it over to Dave. The analysis we're doing is a market-by-market analysis, right? And it really depends. For example, China is a different dynamic, right, than kind of the rest of the world and some of the other markets. So when we look at it, yes, China, for example, we, in the products we sell to China, 40% on the animal safety side come from the U. S. The rest, you know, is not. So, we look at how do we mitigate those because we have manufacturing in Europe. So our European product is going in there and it's not effective.
Speaker Change: Yeah, Brian I'll start and then I'll turn it over to David I mean the.
Speaker Change: The analysis, we're doing as a market by market analysis right and it really depends for example, China is a different dynamic than kind of the rest of the world and some of the other markets.
David: So when we look at it yes, China for example, we in the products we sell to.
David: China, 40% on the animal safety side come from the U S. The rest is <unk>.
David: So we look at how do we mitigate those because we are manufacturing in Europe. So our European product is going in there and is not affected.
John Adent: So it's really market by market. And It is extremely dynamic. I mean, since, you know, yesterday, it's gone up, what, 100 percent, 50 percent? I mean, it's things we're moving very quickly on, so. Understanding that and then it's anything coming out of China on the bisel nature is, you know, having an impact. We have to recognize China's about 2.5% of the total business. So while yes, that is a very dynamic, it's a smaller piece, it is not the kind of this tariff market overall. And I know Dave's got better specifics, but I just want, I think the key is that it is a market by market analysis.
David: It's really market by market.
David:
David: And.
David: It is extremely dynamic I mean since <unk>.
David: Yesterday, it has gone up 100% at 50% I mean, it's things we're moving very quickly on so.
David: Understanding that and then is anything coming out of China on the buy sell nature is.
David: And impact.
David: We have to recognize China is about two 5% of the total business. So while yes that is a very dynamic it's a smaller piece it is not the kind of.
David: This tariff market overall, and I know Dave's got better specifics, but I just want I think the key is that it is a market by market analysis.
David Naemura: I think that's right. And Brandon, just to frame it up for you a little bit, I think thinking about this in two buckets, so tariff impacts around. U.S. import. based on. What we know today, as current as with what was enacted yesterday, just from the analysis, without any mitigating actions, and you just took kind of a last 12 months run rate and straight up applying tariffs to that based on country of origin, you'd probably be around 30 million, close to it, 29. and of that two-thirds of it roughly would be China. We import a lot from China, and this is predominantly animal safety.
Dave: That's right Brandon just to frame it out for you a little bit I think thinking about this in two buckets, so tariff impacts around U S imports.
David: Just on <unk>.
Speaker Change: What we know today as current as with what was enacted yesterday just from the analysis without any mitigating actions and you just took kind of a last 12 months run rate and straight up applying.
Speaker Change: Applying tariffs to that based on country of origin, you'd probably be around $30 million close to at 29.
Speaker Change: And of that.
Speaker Change: Two thirds of it roughly would be China.
Speaker Change: We import a lot from China and this is predominantly animal safety.
David Naemura: And so we have to look at that by resale business and how that'll be impacted. You asked a very specific question. how much of it will be just impact to the bottom line versus impact to volume. And I think there'll be. And so, again, it's very dynamic, but, you know, we'll see what happens in the coming weeks, but that's what we're preparing. And to John's point, China's about two and a half points, roughly 24, 25 million of sales in, about 40% of that comes from the U.S. roughly 10 million. And again, we have to look at that dynamic and our ability to compete locally.
Speaker Change: And so we have to look at that by resell business and how that will be impacted you asked a very specific question.
Speaker Change: How much of it will be just impacted the bottom line versus impact to volume and I think there'll be some of each and so again, it's very dynamic but.
Speaker Change: Yes.
Speaker Change: We'll see what we'll see what happens in the coming weeks, but that's what we're preparing for.
Speaker Change: And to John's point, China's about two and half points roughly $24 $25 million of sales in about 40% of that comes from the U S roughly roughly $10 million.
Speaker Change: And again, we have to look at that dynamic in our ability to compete locally and so we did see more headwind there in the third quarter. So we think net net it's a headwind some impact to the top line.
David Naemura: and so you know we did see more headwind there in the third quarter. So we think net net it's it's a headwind, some impact to the top line and it's it's the uncertainty that we called out. I mean we've updated the guide, we've got seven weeks left, we've seen March. March has March has been consistent with, I think, what we saw coming through the third, but, you know, uncertainty continues to creep up. So we're monitoring it closely. And just just to point out again, the tariff impact would be before we were able to mitigate anything with price and obviously.
Speaker Change: It's the uncertainty that we called out I mean, we've updated the guide we've got seven weeks left we've seen March March has.
Speaker Change: March has.
Speaker Change: Ben consistent with I think what we saw coming through the third but.
Speaker Change: Uncertainty continues to creep up so we're monitoring that closely.
Speaker Change: And just just to point out again, the tariff impact will be before we we.
Speaker Change: We're able to mitigate anything with price and obviously there will be some of that in.
David Naemura: You know, there will be some of that. And we've had some products that have, this is the incremental amount, because we've had some products in the needles and syringes space, again, animal safety, that has been tariffed since last September. And we were able to pass a decent amount of that, a decent amount. And then we also have to look at the competition. We're looking at that and some people aren't that disadvantaged where we're in some of our larger markets where we're advantaged, but some people, you know, it is a headwind for some others. So, we'll look to play offense where it's applicable as well.
Speaker Change: We've had some products that this is the incremental amount because <unk> had some products in the needles and syringes space again animal safety that has been tariffs since last September.
Speaker Change: We were able to pass a decent amount of that.
Speaker Change: Decent amount of that through.
Speaker Change: Then we also have to look at the competition and we're looking at that and some people are that disadvantaged.
Speaker Change: Sure.
Speaker Change: In some of our larger markets, where we are advantaged, but some people. It is a headwind for some others. So we'll look to.
Speaker Change: Play offense, where it's applicable as well I hope that I hope that helps.
Brandon Vazquez: I hope that. Yep.
Brandon Vazquez: Okay. Thanks, guys.
Yes, okay. Thanks, guys I'll, let someone else have it.
Operator: I'll let someone else hop in. Thanks.
Speaker Change: Thanks Brendan.
Subhalaxmi Nambi: Your next question comes from Subhu Nandy with Guggenheim. Your line is now open. Thank you for taking my question. I kind of want to ask a similar question to Brandon and I'm now more confused by all the answers that you gave. Maybe I'm missing something, but it seems like you're largely insulated on tariffs, maybe a little bit on China, but otherwise largely insulated. Even insulated on policy, sample production is done, petri film is on track. So that leaves us with all the guide cuts related to either less than expected growth force. So food safety and softer animal business.
Speaker Change: Your next question comes from Subaru Nandan <unk> with Guggenheim. Your line is now open.
Hey, guys. Thank you for taking my question I kind of wanted to ask a similar question for Brendan and I are now more confused by all of the answers that you gave maybe im missing something but it seems like youre largely insulated on guidance, maybe a little bit on China.
Speaker Change: But otherwise largely insulated even insulated on policy sample production isn't gallon issue for me is on track so that leaves us with all the die cuts related to either less than expected growth for food safety and soft animal business is that did I conclusion.
John Adent: Is that the right conclusion? Yeah, Subha, I think you're really close, right? Like we talked about, so while we had 7% growth, core growth in the quarter, You know, our expectation was to be better than that. And what happened is we saw the food safety market soften a bit at the end of the quarter, like we had just talked about. Right. The other thing that we saw was, you know, we are in the trough for the animal safety. So the animal safety is in the trough. With that, you know, it has not been a growing.
Speaker Change: Yes, I think I think you're really close rate like we talked about so while we had 7% growth core growth in the quarter.
Speaker Change: Our expectation was to be better than that and what happened is we saw the food safety market.
Speaker Change: Soften a bit at the end of the quarter like we had just talked about right.
Speaker Change: The other thing that we.
Speaker Change: Sorry, what was.
Speaker Change: We're in the trough for the animal safety.
Speaker Change: So the animal safety is in the trough with that.
Speaker Change: It has not been a growing.
John Adent: market. So I think you're right on with that, is that, you know, those are the two things that impacted. This was not, you know, we improved our, we hit the goal we wanted on sample handling with production of reaching the 3M rates. Now, again, we have to exceed that. We're working hard to drive those volumes up because we have to, you know, being at those rates does not help us knock out the back order. So we have to to execute in the fourth, to continue to grow, to start chewing into some of the backorder piece.
Speaker Change: Market.
Speaker Change: No.
Speaker Change: I think youre right on with that is that.
Speaker Change: These are the two things that impacted this was not we improved our we hit the goal we wanted on sample handling with production of reaching the three of them rates now again, we have to see that we're working hard to drive those volumes up because we have to.
Speaker Change: Being at those rates does not help us knock out the back order so we have to.
Speaker Change: To execute in the fourth to continue to grow to start chewing into some of the back order piece.
John Adent: But I think, you know, the big takeaway was kind of with this uncertainty, too, is this softening that we see within the baskets of our customers that were coming in really later in the quarter. And while Well, I'm happy with the 7% growth. I wanted better. Okay. I just wanted to make sure that I was understanding it right. Thank you for that. The distributors who are less willing to commit to inventory, were they largely concentrated in the U.S. or was it all over global? Yeah, so our distribution is... We use multi-channel distribution around the world, so when we talk about, you know, distributors unwilling, it really is thinking about it across the worldwide basis, right?
Speaker Change: But I think.
Speaker Change: The big takeaway was kind of with this uncertainty too is this the softening that we see within the baskets of our customers that were coming in really later in the quarter and wall.
Speaker Change: Well I'm happy with 7% growth I wanted better.
Speaker Change: Okay I just wanted to make sure that I was understanding it all right. Thank you for that.
Speaker Change: The distributors, who are less willing to commit to inventory largely concentrated in the U S or was it all of them are global.
Speaker Change: Yes.
Speaker Change: Our distribution is we.
Speaker Change: We use multichannel distribution around the world. So when we talk about.
Speaker Change: Distributors unwilling it really is thinking about it across the worldwide basis right in with.
John Adent: And with. with Uncertainty. especially around tariffs and others. Nobody wants to get hung with high tariff inventory or other things. So we just saw that it was a. It was an environment where inventories weren't reduced, but it wasn't an aggressive where anybody was going to really step up. And we saw, we didn't see a lot of movement from the distributors, or normally at this time of year, heading into spring, you expect to see a little bit better uptake on. Okay, because some of your colleagues have called out pull forward because of all the tariff dynamics, but maybe you didn't see that.
Speaker Change: With uncertainty.
Speaker Change: Especially around tariffs and other is nobody wants to get hung with high tariff inventory or other things. So we just saw that.
Speaker Change: It was.
Speaker Change: It was an environment, where inventories weren't reduced but it wasn't an aggressive or anybody was going to really step up and we saw we didn't see a lot of movement from the distributors are normally at this time of year heading into spring you expect to see a little bit better uptake on distributor inventories.
Speaker Change: Okay, because I'm Raphael colleagues have called out food falling because of all the tariff dynamics, but maybe you didn't see that.
John Adent: My last question is, halfway through the year, we are looking at a ramp for a couple of different catalysts which would fall in place for Neogen to turn the corner. With one quarter left, what is the mission critical objective here that will deem the year a success for you guys? Yeah, I think it's, it's, I don't know if it's one. I mean, We've talked about this. We have plans on the specific things we need to do around the business, and it's driving to those critical areas. Petrifilm Manufacturing, right? We continue to talk about de-risking the Petrifilm Manufacturing, the things we're doing around that.
Speaker Change: My last question is.
Speaker Change: We are looking at it for a couple of different catalyst, which will fall in place for Neogen katana. The partner with one quarter left what is the mission critical objective here and actually the team to get a success for you guys.
Speaker Change: Yeah, I think it's.
Speaker Change: I don't know if it's one I mean.
Speaker Change: We've talked about this we have we have plans on the specific things we need to do around the business.
Speaker Change: It's driving to those critical.
Speaker Change: Critical areas.
Speaker Change: Feature phone manufacturing right. We continue to talk about Derisking the future for manufacturing the things we're doing around that we continue to execute on that plan. We are on track to begin.
John Adent: We continue to execute on that plan. We are on track to begin, you know, test production in the fall of this year, which puts us, you know, gives us two years to move away from our contract manufacturing business. We know we're going to do it significantly faster than that two year period. So, being on track with that. Sample handling. We have to, you know, that was a $25 million headwind for the year. We have to be able to continue to grow the manufacturing output to eat into the back order, to allow us to continue to make that a growth driver for the company.
Speaker Change: Test productions in the fall of this year, which puts us.
Speaker Change: Is two years too.
Speaker Change: Move away from our contract manufacturing business, we know we're going to do its significantly faster than that two year period.
Speaker Change: Being on track with that sample handling we have to that was a $25 million headwind for the year, we have to be able to continue to grow.
The manufacturing output to eat into the backwards to allow us to continue to make that a growth driver for the company and that will.
John Adent: And that will lead to, you know, a lot of things that we're going to be able to do in the fall of this year. tremendously improve the growth rates for the organization as we're going forward. The other thing is, you know, we contemplated being at a certain revenue level, and with us not being at that certain revenue level, then we are looking at How are we going to make sure that the cost structure fits the new revenue level? And we're being very active and aggressive looking at what is the exit run rate for the quarters to make sure that we're aligning the business from a cost perspective that fits that revenue drive.
Speaker Change: Tremendously improve the growth rates for the organization as we are going as were going forward the.
Speaker Change: The other thing is we.
Speaker Change: We contemplated being at a certain revenue level and with us not being at that certain revenue level. Then we are looking at.
Speaker Change: How are we going to make sure that the cost structure fits new revenue level, and we are being very active and.
Speaker Change: An aggressive looking at what is the exit run rate for the quarters to make sure that were aligning the business from a cost perspective.
Speaker Change: <unk> fits that revenue drive.
David Naemura: I know Dave's got a couple of thoughts on this too. The one I would add, John, is around portfolio. I think we've talked through the year about some advanced efforts there that we'd anticipate. a certain environment aside. Assuming things happen as we anticipate being able to come back, and I think that's an important demarcation for the year. Solid Progress.
Speaker Change: Dave has got a couple of thoughts on this to what I would add John is around portfolio as well.
Speaker Change: I think we've talked through the year about some advanced efforts, there and we would anticipate.
Speaker Change: Uncertain environment aside.
Speaker Change: Assuming things happens as we anticipate being able to come back and I think thats an important demarcation for the year those are things, we're looking to make.
Speaker Change: Progress on soup.
Subhalaxmi Nambi: Thank you for that, guys.
Speaker Change: Thank you for that.
Thomas DeBourcy: Thank you. Your next question comes from Thomas DeBourcy with Nephron Research. Your line is now open. Hi guys, so just one question, I guess maybe first on animal safety, so I know you don't break out U.S. versus O.U.S. animal safety, but you know, I guess USDA estimates, you know, I guess have. You know, protein, you know, same as last year, I guess, expecting roughly 1% growth.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from Thomas <unk> with Nephron Research. Your line is now open.
Hey, guys.
Speaker Change: Just a couple.
Speaker Change: Thank you.
Speaker Change: So just one question I guess, maybe first on animal safety. So I know you don't break out U S versus O U S animal safety, but.
Speaker Change: I think USDA estimates.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Protein.
Speaker Change: Same as last year, I guess, we expected roughly 1% growth.
John Adent: And so, I guess, I'm a little confused your comments in terms of the, I guess, the weakness and sort of being in line with the market, where it seems like you're growing below market in animals. Well, Tom, one point is, as we look at, particularly in the U.S., our large distributors, I think our sales out of those channels remains positive in the low single digit. So I think, you know, we continue to kind of bounce along the trough. The timing at which large distributors take inventory varies dramatically. You you may or may not recall, you know, your year and a half ago, we were talking about the rebalancing of the inventory.
Speaker Change: So I guess.
Speaker Change: It's a little confusing in terms of I guess, the weakness sort of being in line with the market keeps like you're growing below market.
Speaker Change: Well, Tom one point as we look at particularly in the U S are large distributors I think our sales out of those channels remains positive in the low single digits.
Speaker Change: I think we continue to kind of bounce along the trough the timing at which the large distributors take inventory varies dramatically.
Speaker Change: You may or may not recall.
Speaker Change: Your year and a half ago, we were talking about the rebalancing of the inventories into those distributors and today.
John Adent: into those distributors. And today, you know, now we've been operating in a situation where I think inventories have come into balance. So I think it, I think it jives okay.
Now we've been operating in a situation, where I think inventories had come into balance so I think it.
Speaker Change: I think it jives okay.
David Naemura: Okay, and then I guess just one other question on the, I guess, global genomics business. So, you know, we're kind of in the finishing the second year of a reset of the genomics business. So, you know, is there a kind of annual run rate that we should think about, you know, in maybe the 80 million, 85 million range that I guess sort of would represent Yeah, I guess the go forward business, given that, you know, I guess we've had kind of incremental decline. Yeah, Tom, I don't have the exact numbers in front of me, but let me try to dimensionalize that for you.
Speaker Change: Okay.
Speaker Change: And then I guess just one other question on the I.
Speaker Change: <unk> global genomics business so.
Speaker Change: We're kind of in the <unk>.
Speaker Change: Finishing the second year of a reset of the genomics business.
Speaker Change: Is there a kind of annual run rate that we should think about.
Speaker Change: And maybe the $80 million to $85 million range that I guess.
Jordan: Jordan with referees Ed.
Speaker Change: Yes.
Speaker Change: Yes, I guess the go forward business given that I guess, we've had kind of.
Speaker Change: Incremental decline.
Speaker Change: Yeah, Tom I don't have the exact numbers in front of me, but let me try to Dimensionalize that for you I would say globally entered the year with Russ.
David Naemura: I'd say we globally entered the year with roughly a $90-ish million global genomics business that included serving a lot of end markets. Within that, our more differentiated Bovine business that's, you know, call it in the 50s. That's really the business that we're trying to restructure and is aimed at focusing around. And I will say that even though genomics was down in the single-digit scale, this last quarter and for this year, you know, we've seen growth in bovine. Bovine grew low single digits here in this last quarter and is a pretty strong global business for us.
Speaker Change: Roughly a 90 ish million dollar global genomics business that included serving a lot of end markets within that are more differentiated.
Bovine business, that's called an <unk>.
Speaker Change: That's really the business that we're trying a restructuring is aimed at focusing around and I will say that even though genomics was down mid single digits. This this last quarter and for this year, we've seen growth in bovine bovine grew low single digits here in this last quarter, and it's pretty pretty strong global business for us So as we worked through.
David Naemura: So as we work through some of the back office companion work and some of the other kind of protein categories and specialty categories that we're kind of moving away from over time, we would get down to that bovine business in that kind of 50s range, if that helps. Yep. Great. Thank you. That was it for me. Appreciate it. Thanks, Tom.
Speaker Change: Some of the back office companion work and some of the other kind of protein categories in specialty categories.
Speaker Change: That we're kind of moving away from over over time, we would get down to that debt bovine business in that kind of $50 range.
Speaker Change: Okay.
Speaker Change: Yep.
Speaker Change: Great. Thank you that was introduced I appreciate it.
Tom Russell: Thanks, Tom.
Speaker Change: Yeah.
David Naemura: Your next question comes from David Westenberg with Piper Sandler. Your line is now open. Thank you for taking the question. On the de-stocking commentary, can you maybe talk about the size, timing, and quantification of that if you possibly can? I know you said it's global. The reason why I'm trying to get a hold of that is essentially that should see a bounce back when people have an understanding of the tariffs, maybe even wanting to buy ahead of new tariffs, that kind of thing. So the quantification of that would probably help us understand if there is going to be potentially a snapback that we could see in the future.
Speaker Change: Your next.
Speaker Change: Comes from David Westenburg with Piper Sandler Your line is now open.
Speaker Change: Okay.
Speaker Change: Thank you for.
Speaker Change: For taking the question so on the Destocking commentary.
Speaker Change: Can you maybe talk about the size timing and any kind of quantification of that if the AP, possibly can I I know you said, it's global and the reason why I'm getting trying to get a hold of that is essentially.
Speaker Change: It should see a bounce back I mean, when people have like an understanding of the tariffs maybe even wanting to like buy ahead of new tariffs that kind of thing so.
Speaker Change: The quantification of that would probably help us understand.
Speaker Change: If there is going to be potentially a snapback that we could see in the future.
David Naemura: David, I don't, I don't think we characterize it as destocking. I think what we saw was people, you know, hesitancy to take inventory. So, a little bit of a pause, which I think is different than a longer term destocking cycle. I think in the quarter, you know, I said, we were probably came in about 6 million below where we thought we would, a million of genomics, a million of the timing of the ramp, a sample collection, and about 4 million other. I think in total, the 6 million was included both food safety and animal safety, maybe a little bias towards animal safety, but of the 4 million that was kind of broader, you know, 2 of that was China.
Speaker Change: David I don't I don't think we characterize it as Destocking I think what we saw was people hesitancy to take inventory, so a little bit of a pause, which I think is different than a longer term destocking cycle I think in the quarter. I said, we were probably came in about $6 million below where we thought we would $1 million of genomics millions of the timing of the ramp of sample collection.
Speaker Change: And about $4 million other I think in total the.
Speaker Change: $6 million.
Speaker Change: It included both food safety and animal safety, maybe a little bias towards animal safety, but of the 4 million that was kind of broader.
Speaker Change: <unk> that was China.
David Naemura: And I think that is just a unique dynamic. When you spread the rest around the world, I think it felt more like just not seeing the uptake and kind of the uncertainty reading through. So I don't, you know, and we'll see how the fourth develops, but I think it feels to us uncertainty potentially increasing here with the additional tariff actions from when we ended the quarter to where we're at today. So does that help? No problem. In terms of the tariff impacts, obviously this is probably something going on in April and May. When you contemplated the guidance for the year, how did you quantify the unquantifiable?
Speaker Change: And I think that is just a unique a unique dynamic when you spread the rest around the world I think it felt more like.
Speaker Change: Just not seeing the uptake and kind of the uncertainty uncertainty reading through so I don't.
Speaker Change: And we'll see how the fourth develops but I think it feels to us and.
Speaker Change: Uncertainty potentially increasing here with the additional tariff actions from when we ended the quarter to where we're at today. So.
Speaker Change: Does that help.
Speaker Change: Yeah, No no problem.
Speaker Change: In terms of like the tariff impacts I mean, obviously this is probably something going on in in April and May and when you contemplated.
Speaker Change: The guidance for the year.
Speaker Change: I mean, how do you how did you quantify the unquantifiable.
David Naemura: I know it's a really challenging question. Anyway, I'll stop there. Yeah.
Speaker Change: Yeah.
Speaker Change: I know that's a it's a really it's a really challenging question, but.
Speaker Change: <unk>.
Speaker Change: Anyway.
Speaker Change: I'll stop there.
David Naemura: Look, I think our timing here today is rough because the events of the last 24-48 hours have been pretty. pretty dramatic, but I think that's why you heard us emphasize uncertainty. We didn't give you a range. We kind of said about, because I think we recognize that there's a level of uncertainty that we can't quantify. Having said that, you know, we've got March under our belts. That felt a lot like how we how we kind of felt coming through February. So what we tried, what we've assumed is an environment reasonably consistent with probably some incremental headwind to EBITDA at a minimum from tariffs.
Speaker Change: Look I think we werent.
Speaker Change: Our timing here today as rough because the events of the last 24 48 hours have been have been pretty.
Speaker Change: Pretty dramatic, but I think thats why you heard us emphasize uncertainties. We didn't give you a range we've kind of set about because I think we recognize that there is a level of uncertainty that we cant quantify having said that we've got March under our belts that felt a lot like how we how we kind of felt coming through February. So what we tried what we've assumed is.
Speaker Change: Environment reasonably consistent with probably some incremental headwind to EBITDA at a minimum from tariffs and maybe thats kind of roughly five in there.
David Naemura: And, you know, maybe that's kind of roughly five in there, which if you take kind of that 30 exposure that I talked about and kind of broke it down by weeks, that probably comes pretty close. But I think you're making a very good point, which is the level of uncertainty heightened. Look, even with that, we felt it was important to update our guide, even given that. as opposed to not with seven weeks left, but. You know, I think your point is a good one, and we would like to, we agree with it. It's very difficult.
Speaker Change: If you take kind of that 30 exposure that I talked about and kind of broken down by weeks that probably comes pretty close, but I think you're making a very good point, which is the level of uncertainty heightened look even with that we felt it was important to us.
Speaker Change: Update our guide even even given that.
Speaker Change: As opposed to not with seven weeks left but.
Speaker Change: I think your point is a good one and we would like to we agree with it.
Speaker Change: Very difficult at this stage.
David Naemura: Yeah, I guess. And again, I'm sorry to hammer on to this point. But like right now, I mean, it's like, and you're right, you have unfortunate timing. I mean, this is really happening in April. And you know, you have eight days of visibility since Liberation Day to kind of understand what the impacts are in the business. I mean, I don't really know if I guess I'm belaboring the point here, but the different buckets, the USDA, the FDA, the decreases in spend you're expected to see, but you have not necessarily seen yet. I don't know if you could quantify that, and then I don't know if you could quantify some of what you're saying in terms of deregulation.
Speaker Change: Yeah.
Speaker Change: I guess, John and again, I'm, sorry to hammer on to this point, but like right now I mean, it's it's.
Speaker Change: And you're right you have unfortunate timing I mean, this is really happening in April and you know you have like eight days of <unk>.
Speaker Change: Visibility.
Speaker Change: Since our liberation day to kind of understand what the impacts are in the business.
Speaker Change: I mean, I don't really know if if.
Speaker Change: I guess I'm belaboring, the point here, but.
Speaker Change: The different buckets, the USDA the FDA the increase decreases in spend youre expecting to see but you have not necessarily seen yet.
Speaker Change: I don't know if you could quantify that and then I don't know if you could quantify some of the like what you're saying in terms of deregulation.
Speaker Change: And.
John Adent: I guess you've already said the tariff impacts was $5 million-ish. Again, I know the timing is hard, but for us, we want to understand this guidance and what's happening until that August close, what all went in it, and I know it's extremely hard for you. I'm sorry to ask that question, but we're trying to get to it. Oh, David. No, look, that totally makes sense. What we were pointing out on the FDA and the USDA was while they are leaning out those If everyone remembers, they're not. Not all manufacturing facilities have NPA inspectors in. Actually, most do not.
Speaker Change: I guess, you've already kind of said that tariff impact was $5 million ish, but.
Speaker Change: Again, I I know like you cannot I know the timing is hard but for us.
Speaker Change: We want to understand this guidance and kind of like what's happening in the <unk> and <unk>.
Speaker Change: That April August close like.
Speaker Change: What all went in it and I know its extremely hard for you. So I'm I'm I'm, sorry to ask that question, but.
Speaker Change: So we're trying to get to it.
Speaker Change: David.
Speaker Change: Oh good.
Speaker Change: Totally understand it makes sense.
Speaker Change: What we were pointing out on the FDA and the USDA was while they are leaning out those agencies.
Speaker Change: Got it.
Speaker Change: If everyone remembers they're not.
Speaker Change: Not all manufacturing facilities are FAA inspectors and actually most do not.
John Adent: And so it, we feel this will continue to push food safety testing to the plant. or it should be done, right? Because that's where food safety is. So while the inspection services may have less inspectors, what I was trying to portray was that it is not the inspectors that are doing the tests. It is the companies that are doing the tests. So, I was trying to portray that there is a overall firmness there, even though there may be a leaning out of those types of agencies, right?
Speaker Change: And so we.
Speaker Change: We feel this.
Speaker Change: We will continue to push food safety testing to the plants.
Speaker Change: Or it should be done right, because that's where food safety is so wide.
Speaker Change: While the inspection services may have less inspectors, what I was trying to portray was that it.
Speaker Change: It is not the inspectors that are doing the tests. It is the companies that are doing the tests. So.
Speaker Change: I was trying to portray that there is a overall firmness there even though there may be a leaning out of those.
Speaker Change: Right Yeah.
John Adent: The other thing regarding some of the things we're doing around cost is, as Dave talked about, we did already in the genomics business, execute on a second and third quarter, a pretty significant restructuring of that, not only restructuring, but realigning that business and doing it also on the cost So we have that under our belt. And then we continue to look at where we are overall as a company to say, are the costs aligned? And I think Look, I think that's where if you go and you look at the quarter. The EBITDA percentage hung in there at a much lower volume level, which, if you look traditionally at Neogen, you know, would be very, very challenging for us pre, you know, kind of where we are at this stage of the company.
Speaker Change: They're they're they're they're regarding to some.
Speaker Change: Some of the things we're doing on cost is as Dave talked about we we did already in the genomics business execute on in the second and third quarter, a pretty significant restructuring of that.
Speaker Change: And when we restart, but realigning that business and doing it also on the cost side right. So we have that under our belt.
Speaker Change: Then.
Speaker Change: We continue to look at where we are overall as a company to say are the costs in line and I think.
Speaker Change: So look I think that's where if you go and you look at the quarter.
Speaker Change: The EBITDA percentage hung in there.
Speaker Change: Lower volume level, which if you look traditionally at Neogen.
Speaker Change: It'd be very very challenging for us pre you know kind of where we are at this stage of the company.
Speaker Change: Mhm.
David Naemura: Gotcha. I'll take the rest offline. I mean, I feel like I'm hitting the same guidance for the next five months kind of comments. Anyway, thank you. You've been great. Thanks, David.
Speaker Change: Got you.
Speaker Change: I, Oh I'll take the rest offline.
Speaker Change: I mean, I feel like I'm hitting the same like guidance like for the next five months kind of comments.
Speaker Change: The way that <unk> been great.
David Westenburg: Yeah. Thanks, David.
Brandon Vazquez: Your next question comes from Brandon Vazquez with William Blair. Your line is now open. Hey, thanks for the follow-up question. Just one real quick now that we're in a public setting.
Speaker Change: Your next question comes from Brandon Vazquez with William Blair.
Speaker Change: Your line is now open.
Brandon Vazquez: Hey, Thanks for the follow up question just one real quick now that we're in a public setting I think David as we start to look towards fiscal 'twenty six I'll be the guy to ask it I appreciate we're not going to get any numbers here, but just in a public setting here anything that we should be keeping in mind puts and takes for the model as we start to update our forward your numbers as well thanks guys.
Brandon Vazquez: Dave, as we start to look towards fiscal 26, I'll be the guy to ask it. I appreciate we're not going to get any numbers here, but just in a public setting here, anything that we should be keeping in mind, puts and takes for the model as we start to update our forward year numbers as well. Thanks, guys. Yeah, look, I think the the actions that we laid out that John highlighted will all have implications to that. I think, you know, we're looking at, we're looking at some cost actions here that we hope to impact the exit rate with.
Speaker Change: Yeah look I think the actions that we laid out that John highlighted will all have implications to that I think.
Brandon Vazquez: We're looking at we're looking at some cost actions here that we hope to impact the exit rate with.
David Naemura: We've added costs over a period of time, and I think we're operating at a level that we recognize is below what was anticipated, you know, even a year ago. And as a result, we need to readdress some of those costs. Portfolio obviously will have an impact both to kind of incrementals moving forward as we begin to refine. are end market exposures as a result of those actions. And then, you know, we talked earlier about how hard it is to call the next seven weeks. So, you know, with that caveat, Brandon. you know, progress on key integration items. and, you know, seeing.
Brandon Vazquez: We've added cost over a period of time and I think we're operating at a level that we recognize is below what was anticipated even a year ago and as a result, we to readdress some of those costs portfolio obviously.
Brandon Vazquez: We'll have an impact both to kind of incrementals moving forward as we begin to refine.
Brandon Vazquez: Our end market exposures as a result of those actions and then.
Brandon Vazquez: We talked with you talked earlier about how hard it is to call. The next seven weeks, so with that with that caveat Brandon.
Brandon Vazquez: Progress on key integration items.
Brandon Vazquez: <unk>.
Brandon Vazquez: Sin.
David Naemura: The focus areas around SEPA handling and those things come back will be kind of the big levers. As you know, the financial model here and the model, your guys' model is significantly revenue driven. That'll be a big part of our focus. So more to come and we look forward to Providing some guidance there. The other thing that John noted in his comment You know, we'll dimensionalize some costs that will be duplicative costs as we stand up the new Petri film facility, and those will be driven by the timeline as we get into that. So some more to come on that.
Brandon Vazquez: The focus areas around sample handling and those things come back will be kind of the big levers as you know the financial model here in the model you guys model is significantly revenue driven and that will be a big that'll be a big part of our focus so more to come and we look forward to.
Brandon Vazquez: Providing some guidance there the other thing that John noted in his comments was.
Brandon Vazquez: We will dimensionalize some costs that'll be duplicative costs as we stand up the new Petersfield facility and those will be driven by the timeline as we get into that so so more to come on that but look forward to look forward to having a broader conversation around that in summer.
Operator: Look forward to having a broader conversation. Ladies and gentlemen, as a reminder, should you have a question, please press star 1. There are no further questions at this time.
Speaker Change: Ladies and gentlemen, as a reminder, should do you have a question. Please press star one.
Speaker Change: There are no further questions at this time I will now turn the call over to John for closing remarks.
John Adent: I will now turn the call over to John for closing remarks. All right. Thank you. Thank you, everybody, for being here with us today, and we look forward to talking to you again in July. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.
Speaker Change: Alright. Thank you. Thank you everybody for being here with US today, and we look forward to talking to you again in July.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.