Neogen Corporation

welcome back a question and answer session. If at any time during this call you require immediate assistance, please press the star zero for the operator. This call is being recorded on Tuesday, July 29, 2025. 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 fourth quarter of our 2025 fiscal year. I'll briefly cover the non-GAAP and forward-looking language before passing the call over to our CEO, John Aydin, who will be followed by our CFO and COO, Dave Zamora. Before the market opened today, we published our fourth 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 FCC. We disclaim any obligation to update these forward-looking statements. I'll now turn things over to John.

Thanks, Bill. Good morning, everyone, and welcome to the earnings call for the fourth quarter of our 2025 fiscal year. You may have seen the press release issued last week announcing the board has identified my successor as CEO, and I will be officially stepping down from the role in a couple of weeks. I remain committed to ensuring a smooth transition for our customers and employees, and will work with Mike as needed as he takes the helm of a company that I believe is well positioned to capitalize on the significant potential ahead of it. Now moving on to some color for the quarter. The end market conditions that we saw worsen over the course of the third quarter continued into the fourth quarter, particularly in food safety. With consumers continuing to be under pressure from the cumulative inflation over the last four years, we estimate that many food producers are still experiencing year-over-year declines in their production volumes, with many of them not expecting this trend to meaningfully reverse in the near future. Our view is that the food safety end market is still able to grow in this environment, but certainly not at the mid to high single-digit levels we believe it is historically seen. As it relates to the regulatory environment in the U.S. specifically, there have been cuts made at both the USDA and FDA. To date, these cuts have primarily been in areas outside of normal course food safety testing and impacted things like avian flu testing and milk. The emergency response network focused on bioterrorism and certain local food assistance programs. The USDA and FDA are interacting more with state and local agencies in an effort to improve efficiency and responsiveness. And both agencies appear to be fully committed to continuing their mission of food safety. In fact, the last two weeks, the USDA Food Safety and Inspection Service, or FSIS, announced their food safety policy plan and separately their fiscal 2025 research priorities. The key tenants of the Food Safety Policy Plan were announced at the grand opening of a new state-of-the-art USDA facility in St. Louis, Missouri. I won't run through all of them, but the first of these key tenants is enhanced microbiological testing and inspection oversight. USDA is placing particular emphasis on listeria and detecting results quicker and for a broader set of species. In 2025 so far, the FSIS has increased the volume of samples that is tested for listeria by over 200% and uses the Neogen Molecular Detection System, or MDS, as its primary method. It is also performing more robust in-person food safety assessments at an increasing rate with the intent of proactively identifying and addressing potential food safety concerns and a priority placed on ready-to-eat meat and poultry facilities. In 2025, the number of these assessments conducted is up by over 50% to date. Another key tenet of the USDA plan is charging ahead to reduce salmonella illnesses. In April, the USDA withdrew the previously proposed salmonella framework that would have extended beyond raw breaded stuffed chicken to include all poultry products. This appears to have been done mainly as a result of the practical complications of implementing the framework as proposed. and not due to any lack of commitment by the USDA to address salmonella illnesses. The agency has said they are convening discussions with key stakeholders on the development of a new common sense strategy to address salmonella, and we view it as a question of when, not if, a revised salmonella framework is proposed. A few days after the Food Safety Policy Plan was announced, FSIS released the research priorities for fiscal 2025 in which the prevention, detection, and analysis of pathogens, particularly salmonella and campylobacter, are prominent studies. While responsibility for food safety ultimately lies with the producers, and we are not dependent on the regulatory action to drive growth, it is certainly a positive to see this prioritization of food safety in the administration. On the topic of the enhanced focus on microbiological testing, Just yesterday, we announced the launch of our Listeria RightNow for use on our MDS platform for pathogens. MDS utilizes loop-mediated isothermal amplification, providing customers the opportunity to use one robust platform for the fast detection of environmental pathogens in up to 96 samples per cycle. The pathogen detection market is one of our top priorities. but we are continuing to invest in the development of additional assays to ensure customers have access to fast, accurate results in order to minimize the risk of product recall or disposal costs and help keep contaminated products from reaching our customers. In our animal safety segment, we believe we continue to work through an environment that is in a cyclical trough. Net farm incomes are expected to improve in 2025. However, the size of the cattle herd on which most of our animal safety business is focused, has declined for several years and is currently at a 70-year low. Inventory levels on the channel remain largely stable, but the veterinary distributors and ag retailers through which we go to market seem to be taking a cautious approach given the broader market uncertainty. For our genomics business in total, fourth quarter core revenue growth improved sequentially and was down low single digits on a year-over-year basis. Strong core growth in the bovine business was offset by expected declines in companion animal and other markets. We've disclosed that we have a process underway to divest this business, and we have seen a strong level of interest. The process continues to progress, but we won't be commenting beyond that, given the active nature of the project. This portfolio action, in addition to the recently completed cleaners and disinfectants divestiture, will help to simplify the business and focus our efforts on core areas while also accelerating our deleveraging. Although we are currently in a pause as it relates to some of the steeper tariff rates that have been in effect, the uncertainty has persisted with numerous discussions with key U.S. trade partners still underway. Our most recent communication on tariffs was that we expected a $5 million annualized impact on a fully mitigated basis. We have now had an additional two months to assess the landscape and believe this impact is likely to be closer to $10 million on an annualized basis, given the status of surcharges, competitor actions, and the timing of certain resourcing opportunities. We expect the trade environment to remain dynamic and plan to continue to take actions to mitigate our exposure. Our new PQFM facility continues to progress well. but our expectation remains that initial testing production will begin in a few months. Once petri-film production is fully up and running, our intent is to move some additional product lines that we have in Lansing into the new facility, which will affect overhead absorption rates. We've been able to complete this detailed overhead analysis and also refine our buildup of the bill of material and labor costs with the most current information available. This work has validated our previous estimates and suggest that Petri film gross margins in our facility, once fully running, will be slightly better than what we see today on sales of these products made by our transition manufacturing partner. Petri film is clearly an important product line for the company. We made additions to the team and implemented an enhanced governance process to ensure the remainder of the integration is de-risked as much as possible during the eventual gradual transition of production from our transition manufacturing partner to our own facility. We saw improved output of sample collection production during the quarter, which enabled a sequential revenue improvement around 50% in the overall product category, although it remained lower than prior year levels. The challenge with achieving these higher rates is that we were very inefficient in doing so. The production equipment is of an advanced age. And we continue to struggle with sustaining consistent uptime of the automated processes, which is causing us to produce a significant amount of products manually. Our experience so far in the first quarter has continued to be inconsistent. We are, however, seeing reductions in back orders and hopefully a more normalized production rate, combined with our engineering efforts, will allow productivity to improve in the coming quarters. Given the softer market backdrop, we are squarely focused on controlling what we can in order to put the company in the best position to capitalize as conditions improve. To that end, you may have seen the targeted improvement plan we released last month. This is effectively the near-term blueprint in place for managing through the current transition period for Neogen. As we mentioned on our prior earnings call, we are undertaking actions to accelerate the building of a more profitable, focused Neogen. We believe that rigorously managing these discrete items with a focus on improved execution will maximize the company's ability to take full advantage of its position in attractive end markets. I'll now turn the call over to Dave for some more insights into our results for the quarter and our outlook for the year.