Neogen Corporation

Welcome to the NIAGEN Corporation First Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please send to our conference specialist for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now turn the conference over to Bill Welke, Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us this morning for the discussion of the first quarter of our 2024 fiscal year. I'll briefly cover the non-GAAP and forward-looking language before passing the call over to our CEO, John Adant, who will be followed by our CFO, Dave Naimura. Before the market opened today, we published our first quarter results, as well as the 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. 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. We disclaim any obligation to update these forward-looking statements. With that, I'll turn things over to John. Thanks, Bill.

Good morning, everyone, and welcome to our earnings call covering the first quarter of our 2024 fiscal year. We've made significant progress across a number of fronts on the integration of the former 3M food safety business while continuing to navigate soft market conditions. Our results for the quarter were largely as anticipated. with two primary exceptions, greater than expected weakness in Asia and in genomics, along with a couple of unanticipated cost items. For Neogen in total, we saw core revenue growth decline by 0.4% in the quarter on a pro forma basis, which includes a negative impact from China of approximately 1%. In our legacy food safety business, core revenue growth was in the mid single digit range, including positive volume growth, in an end market where food production volumes continue to be down on a year-over-year basis for many producers. Additionally, certain producers have taken capacity offline in order to right-size output from higher levels last year to the current environment. In our animal safety segment, we continue to see the impact of destocking in the distribution channel. Sales out of the channel to our end customers remain positive compared to the prior year, but large veterinary distributors continue to reduce their purchases. Based on the data we have from the larger distributors in North America, channel inventories are at a three to four year low. In the former 3M food safety division, the progress made with production levels at our transition manufacturing partner in Q4 of last year was maintained. For the former 3M division in total, core revenue grew by approximately 1% in the first quarter on a pro forma basis. Backlog remains at reasonable levels following the progress in the prior quarter catching up on past two orders. which helped drive a strong fourth quarter. We continue to work on rebuilding demand through targeted initiatives as we demonstrate reliable supply of Petrofilm, and progress has been notable. Although pro forma growth was lower in Q1, impacted by weakness in Asia, a tough comparison against some elevated activity last year, and a strong Q4 where we caught up on fulfilling orders, We have seen good progress so far in Q2 and remain very optimistic about the opportunities ahead of us. As we operate through a rather dynamic market environment, we are encouraged by our performance. The destocking and animal safety will ease as inventories right size and end user sales out of the distribution channels continue to grow. On the food safety side, we are dealing with a few challenges unique to us in Asia Pacific and macro weakness in China specifically that is common in most companies. However, outside of Asia Pacific, our food safety core revenue grew over 4% with positive volume, despite the lower production volumes we see across much of the food production landscape, demonstrating the resiliency of our business. On the integration front, the relocation of the former 3M pathogen and sample handling product lines in the Neogen facilities remain on track for completion in the third quarter. Hiring and training of new employees and inventory builds are underway. as our initial equipment transfers, with site preparation expected to wrap up later this month. These two product lines account for nearly 30% of the revenue of the former 3M business and are a strong complement to the NeonGen product portfolio that we're looking forward to have fully embedded within our operations. After these moves, we will have nearly 50% of the former 3M product lines fully integrated, all but Petri film. The planned exits of the two transition services agreements, those covering back office functions and distribution, are also on track to be completed in the third quarter. A key step that enables the exit of these agreements is the implementation of our new ERP system, which will allow us to take over order fulfillment services currently provided for the former 3M products. Last month, we had the initial go live with our food safety business in the U.S. and Canada, as well as corporate. making the cutover to the new ARP on which we are now up and running. Implementation has generally gone well in that we are fully operational on the new system, processing orders and shipping products. But as is typical, we are not as efficient yet on the new system as we were on the old. As a result, we've exited the month of September with an elevated level of open orders in our legacy food safety business that we expect will mostly ship in October and November. But, as we continue to work our way up the efficiency curve, it is possible that some level of revenue will shift from Q2 into Q3. What will be most important, however, is continuing to see end-user demand in line with our expectations and working diligently to satisfy it. The final phase of integration activities involves the construction of our new facility in Lansing, which will house the production of feature film and other products from the legacy Neogen portfolio. The new facility continues to progress on track, with construction of the exterior expected to be completed during Q3, at which point the focus will shift to the completion of the interior work and the installation of the custom manufacturing equipment. We're pleased with the progress we've made on the integration to date and are focused on the execution of the upcoming key transition activities in the second and third quarters that will bring the former 3M business closer to full autonomy within the one NEOGEN we're building. Now I'll turn the call over to Dave for some more insights into our results for the quarter.