管理層發言
Good morning, ladies and gentlemen. Welcome to Neogen Corporation Fourth Quarter FY 2025 Earnings Call. This call is being recorded on Tuesday, July 29, 2025. I would now like to turn the conference over to Bill Waelke. 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 Adent, who will be followed by our CFO and COO, Dave Naemura. 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 2 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. 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 that 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 the 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 worsened 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 4 years, we estimate that many food producers are still experiencing year-over-year declines in the 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 has historically seen. As it relates to the regulatory environment in the U.S. specifically, there have been cuts made at both the USDA and the FDA. To date, these cuts have primarily been in areas outside of normal course food safety testing and impacted things like avian flu testing in 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, in the last 2 weeks, the USDA, Food Safety and Inspection Service, or FSIS, announced our food safety policy plan and separately their fiscal 2025 research priorities.
The key tenets of the food safety policy plan were announced at the grand opening of the 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 tenets 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 the 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 and 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 Right Now 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, and 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 in the channel remained 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 2 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, but plan to continue to take actions to mitigate our exposure. Our new Petrifilm facility continues to progress well, but our expectation remains that initial testing production will begin in a few months. Once Petrifilm 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 suggests that Petrifilm 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. Petrifilm 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 derisked 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.
Thank you, John, and welcome to everyone on the call today. Jumping into the results. Our fourth quarter revenues were $225 million. Core revenue, which excludes the impact of foreign currency, acquisitions and discontinued product lines, was down 290 basis points for the quarter, while foreign currency and discontinued products were a headwind of 190 basis points compared to the prior year. At the segment level, revenues in our Food Safety segment were $162 million in the quarter, down 3% compared to the prior year, including a core revenue decline of 1.3%. We saw growth in biosecurity products as well as in the bacterial and general sanitation product category, which benefited from strong growth in pathogen detection products. In the indicated testing, culture media and other product category, solid new product growth in our food quality product line was offset by the decline in sample collection as well as a decline in Petrifilm that was mostly compare driven.
Outside of the sample collection issues, Food Safety's core revenue was up low single digits in Q4 and mid-single digits for the full fiscal year. Accordingly, revenues in the Animal Safety segment were $64 million, which includes a core revenue decline of 6.7% compared to the prior year quarter. Solid growth in our small animal supplements and rodenticides product lines was offset by declines in the rest of our major products. As we discussed, we believe this end market has been in or around a trough for several quarters now. Excluding genomics, the Animal Safety segment has had core revenue growth at a compound annual rate of 3.5% over the last 4 fiscal years. This is below the typical through-the-cycle growth rate but about what we would expect for 3 of those 4 years representing periods of weakening market conditions. Genomics core revenue declined low single digits in Q4, reflecting a sequential improvement and benefits from refocusing the business on more attractive end market opportunities.
From a regional perspective, core revenue growth in the fourth quarter was mixed. Growth was led by our Europe region, up mid-single digits with strong sales of pathogen and food quality products as well as Petrifilm, partially offset by a decline in sample collection. Asia Pacific core revenue was down mid-single digits on a year-over-year basis with solid growth in pathogen detection, offset by declines in most other major product categories with some impact from the global trade uncertainty we've experienced, particularly in China. After several quarters of strong growth, our Latin America region was down mid-single digits on a core basis with growth in culture media and general microbiology products, offset by declines in general sanitation testing, sample collection and Petrifilm, which faced a very difficult compare against the prior year quarter. In our U.S. and Canada region, Food Safety core revenue improved sequentially to low single-digit growth.
Solid growth in our food quality, allergen and pathogen product categories was partially offset by declines in most other major Food Safety product categories as well as a decline in the Animal Safety segment. Gross margin in the fourth quarter was 41.2%, which was primarily impacted by lower volume, elevated inventory write-offs, sample collection production inefficiencies and some tariff impact. Given the focus on improving our internal processes around inventory planning, we believe the fourth quarter should be the peak of these costs and that we will see a benefit from these improvements in fiscal 2026. For sample collection, we've discussed that as part of the integration of the 3M business, we relocated this production to a Neogen facility and have been operating with a very high level of inefficiency. We noted that revenue in Q4, although still down year-over-year, represented a significant sequential improvement from Q3, but was achieved with significant inefficiencies.
The elevated level of manual work is causing us to incur costs for expensive temporary labor and excessive scrap rates. We have multiple work streams underway in parallel to address this challenge, including reviewing potential opportunities to involve global manufacturing partners with certain areas of the product line. We continue to have periods of improvement followed by setbacks, and clear line of sight to consistent performance at higher output levels will likely be a gradual progression over the coming quarters. Adjusted EBITDA was $41 million in the quarter, representing a margin of 18%. In addition to lower volume, the adjusted EBITDA margin was negatively impacted by the previously covered inventory write-offs, tariffs and sample collection inefficiencies, a portion of which were not considered start-up costs, but rather run rate inefficiencies. The elevated inventory write-offs negatively impacted adjusted EBITDA margin by a few hundred basis points compared to what we had anticipated.
The tariff impact was driven by some purchases that were in route, particularly from China prior to the current pause going into effect and subject to the higher rates. And there was also some time lag in the implementation of our offsetting actions. Fourth quarter adjusted net income and adjusted earnings per share were $11 million and $0.05, respectively, compared to $22 million and $0.10 in the prior year quarter due primarily to the lower adjusted EBITDA, which more than offset the lower interest expense and effective tax rate. During the fourth quarter, in connection with our annual goodwill valuation assessment, we further impaired the carrying value of goodwill primarily associated with the 3M Food Safety division acquisition. As we have seen end market conditions weaken and some impacts from the global trade environment as well as inconsistent execution in our start-up of sample collection production, we determined that a further impairment under U.S. GAAP was warranted and recorded an additional $598 million noncash charge.
Moving to the balance sheet. We ended the quarter with gross debt of $900 million, 61% of which is at a fixed rate and a total cash position of $129 million. Just under 2 weeks ago, we completed the divestiture of our cleaners and disinfectants business, which resulted in approximately $115 million in net proceeds that will be used to pay down $100 million of debt in Q1. On a pro forma basis, this would reduce our net leverage by approximately 0.4 turns. Free cash flow in Q4 was roughly breakeven, representing an improvement of $14 million compared to Q3, but lower than we had anticipated due to lower EBITDA, some pull forward of CapEx from fiscal 2026 and the timing of certain international cash taxes. Total capital expenditures declined to $16 million in Q4, a trend we expect to continue with substantially lower CapEx in fiscal 2026 compared to fiscal 2025. Moving to our outlook. We are not assuming the current end market conditions will improve meaningfully over the course of the fiscal year.
The cumulative effect on the consumer from the protracted period of elevated inflation and the related pressure on overall food production are conditions we currently expect to continue through fiscal year '26. Until we see signs that the Animal Safety market is beginning to meaningfully improve, our expectation is that we will continue to work through the trough of the cycle. In addition to the underlying market weakness, we see indications that the uncertain global trade environment is having some effect on food producers' import/export planning as well as distributors' purchase decisions. Taking these factors into account, our current expectation is for revenue to be between $820 million and $840 million, which excludes 10.5 months of annualized revenue from our cleaners and disinfectants business, which was in the low $60 million in fiscal 2025. Our current view is that revenue in the second half of fiscal 2026 will be higher than in the first half due in part to the normal seasonality of the business.
Regarding adjusted EBITDA, our current expectation is a range of $165 million to $175 million, which similarly excludes 10.5 months of an annualized EBITDA impact of approximately $11 million from cleaners and disinfectants. Compared to fiscal 2025, we are planning for gross margin in fiscal 2026 to include a tailwind from lower inventory write-offs and headwinds from sample collection and tariffs, which will flow through to impact adjusted EBITDA. Our work to reduce these headwinds continues, but we believe it is prudent to reflect them in our outlook. Accordingly, we would anticipate higher adjusted EBITDA margins in the second half of the year as we make improvements in these areas and also benefit from the higher expected second half revenue from normal seasonality. Due in part to our expectation of capital expenditures coming down significantly to approximately $50 million, we expect free cash flow in fiscal 2026 will be positive. Finally, I am pleased to share that we have successfully remediated 2 of the Sarbanes-Oxley material weaknesses, which will be reflected in the upcoming filing of our 10-K.
Thanks, Dave. Before we wrap up today's call, I want to thank you for your engagement and support as the company progresses into the later stages of the integration of the former 3M Food Safety business. While we have made significant progress, the integration has been complex, and we've had some execution shortfalls, which have been exacerbated by the soft end market conditions, foreign currency headwinds and more recently, the global trade environment. We are taking clear steps to address the sample collection production challenges and in parallel, implementing pricing actions to improve the profitability. As it relates to inventory, we are implementing more robust planning and coordination across the key organizational functions and expect to see a decreasing impact from this issue moving forward. At the same time, I want to emphasize that we believe the company is well positioned, particularly in the attractive Food Safety end market and that our long-term growth drivers remain fully intact.
Our core mission, helping to protect the world's food supply, has never been more relevant. The global food system is under increasing pressure to be safer, more transparent and more resilient. We believe the regulatory backdrop is favorable, particularly in the U.S. with the USDA having made key announcements this month focused on the priority of food safety. We have a long history as a trusted food safety partner and source of expertise for our customers resulting from our over 40-plus years in the industry. Our commercial teams, in combination with our leading product portfolio and innovation opportunities, should be valuable partners for both customers and regulators to maximize the effectiveness of their food safety efforts. I'd like to once again thank the Neogen team for their dedication and perseverance throughout my tenure at the company. We faced and overcame real challenges, and the team is entirely focused on the road ahead and executing our improvement plan with precision. I'm excited about the positive future I believe is in store for the company. I'll now turn things over to the operator to begin the Q&A.
分析師問答
With that, our first question comes from the line of Subhu Nambi with Guggenheim.
At this time, with Mike as a new CEO appointment, why is this the right time to put out guidance? And why are these the right numbers? How much prudence is built in?
I believe that ultimately, we want to provide clarity about the direction of the year. We anticipated some changes, but we are moving forward as we typically would, and I don't think we have put Mike in an unusual situation. So, I would describe it as more of the same business approach.
And then, David, along those lines, you articulated some of the assumptions here, recognizing that you limited the tariff impact to $10 million annualized after supply actions. So how much of a headwind is built for next year?
Yes. $10 million is the headwind for fiscal '26 that we're trying to communicate.
I see... And then I have 2 questions, real quick, recognizing there are others on the line. We've seen some of the major food brands continue to emphasize that consumer backdrop is pressured, just as you mentioned today. How do you work around that headwind this year? And then what are some of the ways that you'll be able to grow above market?
Yes. As we enter the year, we carry forward the market conditions we faced in the second half of last year. The sample collection presents an opportunity for us to increase volumes, but we are exercising caution due to the inefficiencies we've encountered. Additionally, there's a regulatory context in our portfolio that offers us a good opportunity. John, could you elaborate on that?
Yes, thank you, Dave. A way to help us continue to outgrow the market is to leverage the regulatory tailwinds. As we mentioned, testing at the FDA and USDA has seen almost a 200% increase in Listeria testing because the administration is focusing on pathogens like Listeria and Salmonella. We believe we are well positioned for this. Regarding Salmonella, we are collaborating with the National Chicken Council, the Meat Institute, and FSIS to develop a program, and we think our MDS quant Salmonella and serotyping kits will provide valuable data to help them create a strong program for the protein industry. Working with these stakeholders will assist us in our growth.
And one last one real quick. What are you pointing investors to in terms of clear KPIs in regards to Petrifilm, SKU numbers, transition, CapEx targets or just other beyond just timing of these projects? I know you said Q4 is going to be the largest impact in terms of duplication cost, but anything else that you would point out when it comes to Petrifilm transition?
Yes, thanks, Subbu. We have significantly reduced our capital expenditures compared to last year, and we plan to remain within that budget. As we enter this transition period, we have discussed initiating test production, which is a key milestone. During the test production phase, we will be certifying SKUs for saleable products. There are 17 SKUs of Petrifilm that we expect to finalize over the next four to five quarters after we begin test production, and this will be an important milestone that we will update everyone on. We expect to share more details this quarter as we progress.
And your next question comes from the line of Brandon Vazquez with William Blair.
The first one, I just wanted to focus a little bit on the macro side first and clarify. It sounds like, correct me if I'm wrong, are things getting incrementally worse on a sequential basis on the macro front? Anywhere that you can point to what you think might be causing it getting worse, if I'm understanding that correctly. And then maybe just talk about, historically, we've said even though food volumes from the manufacturers are declining, the food testing segment is still growing somewhere in the mid-single digits. Where do you guys expect that to be over the next 4 quarters? What are you assuming within the guidance?
Yes, Brandon, that's a good question. Looking back at the third quarter, we noticed a decline in the macro environment, which continued into the fourth quarter. We observed a lower environment sequentially. We have developed internal indicators to track food production levels, and we saw a decrease from Q3 to Q4. We're also closely monitoring feedback from our larger customers, and we believe the environment remains soft. For consumers to return to buying more products, we will need to see some recovery in the macro situation. Regarding the growth of the food safety industry, we do believe that food safety testing can grow even when production is down, but at a slower rate. Earlier this year, we expected growth in the mid-single digits, but it may be lower now; it's hard to say. Excluding our sample collection challenges, we experienced low single-digit growth in the fourth quarter in food safety testing. For the year, we have anticipated that the environment we faced at the end of the year will carry into this year. Given the uncertainties, including the global trade impacts, we have planned for a situation similar to what we dealt with in the second half of the year.
Okay. And just to clarify, Dave, on what you just said there, it sounds like from what you can tell, you are growing in line with the food safety market, the food testing market ex sample handling at that low single digit clip. And for the most part, that's kind of what you're assuming for the rest of the year. Is that the right way to categorize that?
Yes, Brandon, directionally, I think that's right. I mean if we step back and look for the full year, it would be 5%. So we think we're in that zone.
Okay. Dave, could you take a moment to discuss any sequential guidance you can provide regarding margins throughout the year? There are several factors to consider, such as when tariffs will affect inventory and have a significant impact on us, when the operating expenses from the disinfectants business will diminish, and when inventory write-offs will stabilize. Please help us understand how we should model the sequential changes in margins over the year.
Okay. So we usually start the year with Q1 as our lowest quarter. And I think a combination of volumes, plus some of the headwinds that we intend to make improvement upon over the course of the year, particularly sample collection, will most impact margins in the first quarter and will improve as the year progresses, and that's kind of compounded with a lower volume environment. On the margin side, I think we can point to some of the challenges we saw in the fourth and see some pretty clear path to doing better this year, but we will get a full year of sample handling, which is very inefficient. We have a path to doing better there, but it's going to take a few quarters at least here. So I think we'll see gradual improvement as well. I think all of these things are pointing to kind of directional improvement as the year progresses with some bias from a volume standpoint usually towards the second half, maybe not as large as we've seen in prior years because we've taken cleaners and disinfectants out of the business and that tended to drive a little bit of the seasonality and lumpiness. Does that help directionally, Brandon?
Yes, it does. I'll ask one last question before letting someone else jump in. As we consider the disinfectants you've announced for divestiture and the upcoming genomics updates, when will these businesses be divested? It seems that the key factor in understanding the margins of the stand-alone company will be how much operating expenses will decrease with these divestitures. Can you provide any insights on how quickly the operating expenses will be impacted by these businesses? Will there be stranded costs to address? Will this take a couple of quarters? Any details on this would be appreciated, and then I'll turn it over to someone else.
Yes. As we sell the businesses, particularly focusing on cleaners and disinfectants since that's completed, most of the related costs are direct costs tied to the business. Typically, we expect to have about $1.5 million to $2 million in additional costs that will remain. There will be some delays in addressing those because we will continue to provide services under a TSA arrangement for a period of time, likely a full year for this business, and then we anticipate some reductions. However, again, at around $1.5 million, it's not a significant amount, as the majority of the costs are closely associated with the business. Thank you for the questions, Brandon.
And your next question comes from the line of David Westenberg with Piper Sandler.
This is Jon on for Dave. So just first off, could you give any commentary, like any thoughts on the key differences in the management styles between Mike and John, any different priorities? And what we should be looking out for going forward?
Yes. Look, fair question. But again, let's remember, Mike hasn't started yet. And so I think we'll see. Getting to know Mike a little bit, I think very much a back-to-basics guy. But he'll start here in a few weeks, and we'll get into it. And I think as we do that, he'll be looking forward to kind of meeting you guys and sharing some of this philosophy in the coming quarters.
Got it. And you mentioned that genomics saw a sequential improvement, particularly in bovine. Do you see that, that business overall is stabilizing for fiscal '26? And can you give any thoughts on demand in the different species and use cases for it?
Yes. Look, if you recall back in midyear fiscal '25, we talked about a restructuring of that business, trying to refocus it on more attractive cattle end market where we think we're more highly differentiated. And with that, we brought down some of the second half revenue associated with genomics. I'd say the top line for genomics will be a little less in fiscal '26 as compared to fiscal '25. And I can't break it down for you by species, but recall that it's predominantly or the majority of the business is focused on the cattle end markets.
And we have no further questions. At this time, I would like to turn it back to John Adent for closing remarks.
Thank you all for joining us. I look forward to helping ensure a smooth transition to Mike. I will be here through the end of October working with him. I see great opportunities for Neogen in the future and am excited to watch the growth of this company. Thank you very much.
Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.