Full Transcript: Neogen Q1 2027 Earnings Call

Neogen (NASDAQ: NEOG ) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call. This content is powered APIs. 1% core growth driven by improvements in commercial excellence.

The company's strategic initiatives focus on commercial prowess, high-impact innovation, and operational efficiency, with significant investment in enterprise systems and technology to enhance customer service and competitive advantage. Neogen raised its fiscal year 2027 revenue guidance to $885-$890 million and adjusted EBITDA to $181-$183 million, indicating confidence in continued growth and operational improvements. Operational highlights include the successful validation of the first Petrifilm SKU as part of the integration of the former 3M Food Safety business and a strategic collaboration with Hinalea Imaging to leverage novel technologies in food safety.

Management emphasized the importance of disciplined execution, accountability, and focus on sustainable growth through enhanced sales models and strategic customer engagement. Full Transcript OPERATOR Hello everyone. Thank you for joining us and welcome to the Neogen first quarter fiscal year 2027 earnings call. After today's prepared remarks, we will host a question and answer session.

If you'd like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Bill Welke, Head of Investor Relations. Bill, please go ahead.

Bill Welke, Head of Investor Relations Thank you for joining us this afternoon to discuss our fiscal 2027 first quarter results. Here in attendance with me today are Mike Nassif, our Chief Executive Officer, Brian Rigsby, our Chief Financial Officer, and Joe Friels, our Chief Commercial Officer. Before we begin, I would like to remind everyone that during today's call we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in these forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements is contained in the company's most recent annual report on Form 10-K, the company's quarterly reports on Form 10-Q, and the company's other filings with the SEC, as well as the press release and presentation issued in connection with today's call. We encourage you to review those documents. The company does not undertake any obligation to update any forward-looking statements. With that, I'm pleased to turn the call over to Mike.

Mike Nassif — CEO & President Thank you, Bill. Good afternoon and thank you for joining us today. Last quarter we described fiscal 2026 as a year of stabilization and foundation building with a focus on becoming experts in the fundamentals. As we entered fiscal year 2027, our focus shifted to scaling those fundamentals to drive more consistent execution, better outcomes for customers, and profitable growth.

The first quarter showed continued progress. Brian will discuss the results in more detail. But from an operating perspective, we saw tangible signs that the changes underway across Neogen are taking hold. We are strengthening commercial execution, rebuilding our innovation engine, and improving how we connect supply, demand, inventory planning and customer service.

We had an encouraging start to fiscal year 2027 with solid core revenue growth in both our food and animal safety segments. This represents an acceleration from the fourth quarter and while timing of certain customer orders benefited growth to some extent, it is a positive start to the year. Given these results, we believe that the changes we are making are gaining momentum. We are encouraged by the progress, but we remain focused on the work ahead and the areas where further improvement is needed.

We understand the constraints that remain, have clear accountability for our priorities, and are implementing more disciplined operating mechanisms to drive execution. Our objective is to build on this momentum and deliver more consistent growth and margin expansion over the long term. We remain focused on near-term execution while also making targeted investments to strengthen Neogen's long-term leadership position. A key theme of fiscal 2027 is accelerating investment in our future.

We are investing in innovation, technology, enterprise systems and commercial capabilities to better serve customers and widen our competitive advantage in both of our segments. At the same time, we remain focused on profitability. Sustainable margin expansion starts with restoring consistent growth, improving execution and building scale. As we make progress in those areas, we expect to create additional opportunities for efficiency and margin improvement.

Those efforts are centered around three strategic priorities: commercial prowess, high-impact innovation and operational excellence. I will now provide an update on each. First, Commercial Prowess: across our business, we are seeing early evidence that greater focus, a stronger operating cadence and more targeted customer engagement are translating into improved results. During the quarter, each region benefited from segment-focused initiatives, competitive conversions and new product promotions.

We also advanced several important strategic account opportunities by working as one global team across commercial, technical, product and operations functions. To sustain that momentum, we recently enhanced our sales KPI review process across each region. This gives us weekly visibility into performance and allows us to act faster when adjustments are needed. At the same time, we continue rolling out our new sales operating model through global training and capability building.

We are making positive progress in building a world-class commercial organization and the transformation is becoming more tangible. We are moving beyond organizational design and process definition into account-level execution, disciplined pipeline management and competitive wins. These fundamentals are helping us build the commercial foundation needed to support our goal of sustainable, profitable growth over the long term. Second, High-Impact Innovation: as we have said previously, innovation is the backbone of our growth strategy and our largest area of investment in fiscal year 27.

We have several discovery projects underway and remain on track against our pipeline objectives for the year. As a category leader, we are focused on solving our customers' most significant problems. These high-priority opportunities are designed to strengthen our technology leadership and deliver faster, easier-to-use solutions for customers. Just as important as the projects themselves is how we are approaching innovation.

We are bringing commercial, technical and product teams together more intentionally around customer needs, opportunity identification and prioritization. While we believe our biggest opportunity for innovation is within our existing portfolio, our commitment to innovation also extends beyond our own walls. Earlier today we announced a strategic collaboration with Himalaya, an early leader in hyperspectral imaging. We see potential applications for this technology across several areas of our food safety business.

This collaboration is part of our strategy of applying advanced, novel technology in food safety. This allows us to create new solutions that have the potential to simplify customer workflows. This is the first of many potential partnerships in our pursuit of elevating global food safety testing at the point of processing to enable automation and faster decision making. We are becoming more disciplined in how we identify customer problems, prioritize opportunities and allocate resources.

Over time, we believe this will translate into a customer-focused pipeline, more differentiated solutions and a sustainable source of growth. Third, Operational Efficiency: we view operational excellence as much more than a short-term recovery effort. Our objective is to build the processes, capabilities and culture that can create sustainable value for years to come. We are encouraged by the progress we are seeing across the organization.

Teams are operating with greater accountability, stronger cross-functional collaboration and a willingness to challenge legacy approaches in pursuit of better outcomes. Those changes are being reinforced by more disciplined planning and supply chain management. We continue to strengthen our sales and operations planning process to improve visibility across our global network and make progress in inventory optimization. This enables our teams to deliver the right inventory in the right place at the right time while improving efficiency in customer service.

We are beginning to see evidence that these efforts are working. We previously mentioned our focus on continuous improvement. Today, black belts and dozens of green belts are leading projects across the organization. Combined with stronger daily management, operational dashboards and regular operating reviews, this work is improving visibility, accountability and execution.

There's still work to do, but we believe a simpler, more scalable and more resilient operating model will position us to improve customer satisfaction, expand margins and generate stronger cash flow over time. Another major operational priority, the manufacturing transfer of Petrifilm remains on track and is expected to begin the planned multi-quarter transfer next month. This represents the last step in the integration of the former 3M Food Safety business. We have achieved an important milestone with a full validation of our first Petrifilm SKU.

Full validation confirms that the product has completed production quality and stability testing and has demonstrated equivalent performance to product manufactured by our transition partner. We believe this is a major de-risking milestone for the program. As a reminder, Petrifilm, similar to the overwhelming majority of our products, is not regulated by the FDA. Our sales of FDA-regulated products totaled less than 10 million in fiscal year 26, with almost the entirety of that amount being comprised of several animal safety products including those manufactured by unaffiliated third parties.

We continue to approach this transition with a high degree of rigor and discipline. Our objective is a seamless transition for customers, maintaining the supply, reliability and product performance they expect from Petrifilm. I'll now turn the call over to Brian to cover our results. Brian Rigsby, CFO Thank you, Mike, and thanks to everyone participating in the call today.

I'm pleased to provide an overview of our financial results for the first quarter of fiscal year 2027. 1%. This continued momentum is driven by the positive progress of our focus on commercial excellence. I would like to call out two items which benefited core growth in the first quarter by approximately 300 basis points.

During the first quarter we saw a positive impact from the timing of certain orders which we had expected in the second quarter. In addition, the first quarter of fiscal year 2026 was negatively impacted by inventory adjustments at two large distributors. 1% core growth which included a benefit of approximately 400 basis points from the items previously mentioned. Key product lines in food safety performed well, led by the continued strength in our indicator testing and culture media products, including Petrifilm, which were up 11%, and solid growth in our bacterial and general sanitation products which grew 7%, including double-digit growth in pathogen detection.

From a market perspective, food safety is not tied directly to food production, but understanding what's generally happening with food production can be useful from a high-level trend perspective. Recent earnings calls for food producers seem to suggest a slight improvement in general volume trends, but the commentary is mixed with consumers remaining under pressure from inflation. Although higher food production volumes can positively influence demand, evolving regulatory requirements have the potential to increase food safety testing independently of production growth.

6 million in revenue with core growth of 8%, including a benefit of approximately 100 basis points from the timing of certain customer orders. This growth represents a significant acceleration from the fourth quarter and was led by our veterinary instruments product category with strong growth in needles and syringes from improved supply and our biosecurity product category which had strong growth in insect control products. From a macro perspective, signs in the animal safety end market continue to be encouraging although farmers are facing some elevated input costs, namely fuel and fertilizer. S.

remains at multi-decade lows and pricing is favorable. S. herd size in coming years based upon favorable prices supporting investment. S.

revenue was 49% of sales in the quarter and our international revenue was 51%. S. Dollar Index. We saw growth in each of our regions led by double-digit growth in Asia Pacific.

8%, which is an increase of 30 basis points year over year on an adjusted basis. The adjusted gross margin expansion was due to the benefit from higher revenue, offset by our deliberate investments to accelerate our focus in operational excellence and inventory optimization. Adjusted operating expenses in the quarter were approximately flat on a year-over-year basis. Investment in R&D and G&A functions was offset by a reduction in sales and marketing expenses, primarily from lower logistics and distribution expenses, the centralization of regional marketing resources, and the divestiture of our cleaners and disinfectants business.

Despite the overall decline in sales and marketing expenses in the quarter, we made targeted investments in our commercial capabilities including key account and channel management. On a sequential basis, the largest increase in spend was in R&D, where we made investments in product and instrumentation engineering as well as in assay and microbiology development. 7% and 170 basis points of expansion. We delivered this margin improvement while investing in the things Mike mentioned to position the company for the future: commercial capabilities, high-impact innovation, and enabling technology and enterprise systems.

08, respectively. 7 million in the quarter represented a year-over-year improvement of approximately $18 million. This improvement was driven by both higher operating cash flow and reduced capex as we move closer to the completion of the Petrifilm manufacturing transition. Turning to the balance sheet, we ended the quarter with approximately $774 million of debt and a total cash balance of $172 million.

We remain fully compliant with all debt covenants and believe we are well positioned to further strengthen our balance sheet as free cash flow continues to improve. We took advantage of our cash balance to pay down $20 million of our term loan in June followed by an additional $10 million we paid at the end of September. We're also continuing to advance treasury opportunities to free up global cash to lower our required cash balances to operate the business and support further debt repayment. We continue to work towards completing the previously announced divestiture of our genomics business.

The transaction is moving through the review process with the regulatory authorities in Australia and New Zealand from whom we expect to receive a final decision by the end of December. As a reminder, we intend to use the expected net proceeds of approximately $140 million primarily for debt reduction. We believe this would put our net leverage below three times at closing and closer to two and a half times by the end of the fiscal year. Now I'd like to discuss our guidance for fiscal year 2027.

While it is still early in the fiscal year, we are raising our revenue guidance to $885 to $890 million. We are also raising our adjusted EBITDA guidance to $181 to $183 million to reflect the higher expected revenue. The genomics business continues to be included in our guidance, which we will update following the closing of the divestiture. Contemplated in our increased revenue guidance is the expectation we had entering the fiscal year that the second quarter would see the lowest level of core growth.

Given the timing items mentioned earlier which impact the year-over-year comparisons, we believe that looking at the first half in total is most reflective of the current trajectory of the business. 5%, which is generally consistent with how we've thought about the full year. For adjusted EBITDA margin, our expectation is for the first half of the year to be in line with the first quarter.