Neogen Corporation

Good morning, ladies and gentlemen, and welcome to the Neogen Corporation third quarter 2024 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, April 9, 2024. I would now like to turn the conference over to Bill Welke. Please go ahead.

Thank you for joining us this morning for the discussion of the third 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 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. 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 for the third quarter of our 2024 fiscal year, which saw us complete a number of milestone achievements on our integration journey. We completed the relocation of the former 3M pathogen detection product line and are now manufacturing in one of our Lansing facilities. We also completed the first two of our four-phase relocation of the former 3M sample handling product line to one of our facilities in Lexington. with the remaining two phases expected to be completed by the end of the fiscal year and production beginning in Q1. The manufacturing of Petrofilm will continue under the current transition agreement until we have our own Petrofilm line operational in our new facility in Lansing. The construction of the facility is almost complete. Work has begun on outfitting the interior, and we have taken delivery of several initial shipments of production equipment, with the more significant shipments expected to arrive in the fall. Our plan is to exit the Petri Film Transition Agreement gradually as we first qualify and then ramp up our own production. The initial term of the Petri Film Agreement ends in August of 2026, with our goal clearly being to exit before that time. Over the past several quarters, we've scaled up our back office and distribution capabilities, and during the third quarter, completely exited the transition services and distribution agreements we had with 3M. This, in combination with the related system implementation, has, however, created inefficiencies in our operations that we're continuing to work through. These inefficiencies have negatively affected the rate at which we're able to meet end user needs and ship products to customers. This has contributed to an extended period with a higher than usual backlog of open orders that invariably has negatively impacted demand when our products have not been readily available. In most instances, we believe these situations represent lost sales more than lost customers, but there are clearly some customers we're going to have to win back. Moving to the results of the quarter, we had solid core revenue growth in both segments, although it was below our expectations due to the aforementioned shipping inefficiencies. We're encouraged, though, by the continued improvements we've seen in the end market environment. On the food safety side of the business, Most food producers saw continued sequential improvement in unit production volumes, a trend that we expect to continue. Our food safety core revenue grew in the mid-single-digit range, led by another strong quarter of petri film sales, including a return to growth in Japan, where we had previously experienced some customer attrition due to supply constraints. In animal safety, destocking in the large veterinary distributors was no longer a headwind. with inventory levels having normalized and some distributors having selectively begun to rebuild inventory in certain product categories based on end market demand. Our core revenue growth in this segment was also in the mid-single-digit range, led by our broad portfolio of biosecurity products and vet instruments. Excluding our genomics business, animal safety core revenue growth in the quarter was strong, up in the mid-teens range, albeit on an easier compare against a destocking quarter in the prior year. In genomics, we're seeing the business stabilize as we shift our focus toward the large animal end of the market. Although still down on a year-over-year basis, we did see core revenue trend positively for the second quarter. While the end market environment is improving, we're updating our full-year outlook to reflect the expected impact of our shipping issues. We believe these challenges are temporary and that we will be able to recover the lost revenue. but we do expect to see a near-term impact on the lower shipments in Q3 and the rate we're carrying into Q4. It is clear that it will take additional time to get the shipping levels where they need to be on a sustainable basis to serve end market demand. Resolving these challenges and meeting our customers' needs are our highest priority. On the product development front, we continue to see benefits from our broad R&D capabilities. particularly as it relates to our pathogen detection product offering. We recently received approval of a new molecular detection assay from AOAC, which is an independent body of analytical science professionals that validates testing methods for the food safety industry. This new assay, which we expect to officially launch later this month, provides rapid and specific detection of two salmonella serotypes that are highly relevant for the poultry industry. We believe this assay utilizes a simpler protocol and is more user-friendly than competitive options, and it allows users of the Neogen molecular detection system platform to seamlessly run these additional serotype tests. Pathogen detection is a significant area we are focused on to drive growth, leveraging the complementary product technologies and technical capabilities of our combined organization. We also continue to drive innovation in our food quality and nutritional analysis business. We have recently developed a testing method utilizing proprietary technology that allows bioethanol producers to determine how much of their production is from cellulose versus starch-based raw materials. This test is the first to market of its kind and can provide significant value to these producers as they're able to command a premium for cellulose-based bioethanol. Food quality and nutritional analysis is an attractive market, and we're excited about the additional opportunities we have to capitalize on the demand for greater visibility in food content overall. When we made the strategic decision to expand our scale and solidify our position as the global leader in food safety by acquiring the former 3M Safety Division, we recognized that it would be a complex and challenging carve-out and integration of the business. While I am not pleased with the present inefficiencies, we are committed to navigating the challenges and ultimately realizing the long-term benefits of this combination. I'll now turn the call over to Dave for some more insights into the results for the quarter.