Neogen at William Blair Conference: Strategic Integration and Market Outlook

On Wednesday, 04 June 2025, Neogen Corporation (NASDAQ:NEOG) presented at the 45th Annual William Blair Growth Stock Conference, offering a strategic overview that highlighted both challenges and opportunities. While the integration of the 3M food safety business progresses and strategic divestitures are planned, the company faces short-term headwinds impacting its financial performance. However, Neogen remains optimistic about long-term growth in the food safety market.

Key Takeaways

• Neogen anticipates Q4 revenues to align with guidance, despite challenges affecting gross margins.
• Inventory write-offs due to global footprint expansion have pressured EBITDA margins.
• Integration of 3M’s food safety business is advancing, with the petri film project ongoing.
• Planned divestitures aim to streamline operations and reduce debt.
• The company remains focused on long-term growth in the food safety sector.

Financial Results

• Q4 Revenue: Expected to meet previous guidance.
• EBITDA Margin: Projected in the high teens, impacted by inventory write-offs.
• Inventory Write-offs: Elevated due to supply chain alignment issues, with resolution expected in the coming quarters.
• Divestitures: Cleaners and disinfectants and genomics businesses will close in fiscal year 2025, reducing revenue by $150 million and EBITDA by a low twenties million in fiscal 2026.
• Tariff Impact: Estimated at $5 million annually after mitigation efforts.

Operational Updates

• 3M Integration: Progressing, with petri film manufacturing as a key focus.
• Sample Collection: Production volumes have improved, but inefficiencies remain.
• Leadership Team: Changes aim to support future growth.
• Divestitures: Targeting portfolio simplification and debt reduction.

Future Outlook

• Fiscal Year 2026: Revenue decline expected due to divestitures, but genomics EBITDA to improve post-restructuring.
• Growth: Aiming for historical mid to high single-digit growth rates.
• Petri Film Manufacturing: Completion remains a significant project.

Q&A Highlights

• Transitory Headwinds: Linked to inventory write-offs from supply chain issues.
• Market Conditions: Impacted by macroeconomic headwinds and trade uncertainty.
• Sample Collection: Efforts to regain market share as volumes improve.
• Divestiture Strategy: Focus on higher growth in the food safety market.
• Risks and Opportunities: Key risk in completing petri film project; opportunity in achieving consistent execution.

Neogen continues to navigate short-term challenges while positioning itself for long-term success. For further details, readers are encouraged to refer to the full conference call transcript.

Full transcript - 45th Annual William Blair Growth Stock Conference:

Brandon Vasquez, Research Analyst, William Blair: Good morning, everyone. Thank you for joining us here. My name is Brandon Vasquez. I am the research analyst here at William Blair covering Neogen. I am required to inform you that for a complete list of disclosures, please go to our website at WilliamBlair.com.

Happy to have CFO and COO Dave Namora with us from Neogen this morning who’s gonna present. We he will go over presentation if we have a couple minutes. Like usual, I’ll ask a couple questions here, and then we’ll go to a breakout session. So I’ll turn it over to Dave.

Dave Namora, CFO and COO, Neogen: That’s that’s great. Thanks. Thanks, Brandon. Really happy to be here at the conference. I have a few quick slides we’ll go through, and then happy to take some questions.

See if I can get the there we go. So there will be some forward looking statements today. Of course, this is the related disclaimer. Nothing you haven’t seen before. You know, we think we play this is our purpose in our vision, and we think we play an important role in food security, which admittedly is a lofty goal.

But as as the world’s largest food safety testing company, we think we’re uniquely positioned to help protect the world’s food supply. How we do that? We do that through really two two segments of our business, our food safety testing segment, which is a series of rapid tests, which is the largest and broadest portfolio in the food safety testing area, and then animal safety, which is we consider kind of food safety beginning at the farm, where we protect both the well-being from a preventative standpoint and a care standpoint of production animals. How did we get to the broad food safety testing platform is really through a transformational acquisition that happened almost three years ago. Prior to the acquisition of the the three m food safety division, Neogen was a little over $500,000,000 company, of which about 38% of the business was food safety testing, but had a significant portion focused on animal safety and then a genomics business as well focused on both production animals and companion animals.

The three m food safety testing business is a % food safety testing. That was below just under a $400,000,000 business when acquired. And, collectively, it has reshaped the portfolio now where food safety testing is almost two thirds or, call it, 65% of the overall portfolio. This is a high level look at our portfolio. The columns the first three columns on the left are our primary food safety testing categories.

The first column, indicator testing and culture media. This includes petri film. Petri film is the gold standard in indicator, a convenience method indicator testing, and we also have sample collection devices to help preserve and collect samples for testing as well as culture media to help incubate samples. Bacterial and general sanitation is the detection, biological detection of the presence of pathogens as well as the detection of swabs and things for the detection of cleanliness in a food production environment. And then allergens and natural toxins is really the foundation of Neogen and the legacy food safety testing business, rapid tests for presence of allergens and toxins within grains and foods.

Animal safety products are really focused again on the prevention of disease in production animals as well as care for both for principally for, you know, cattle and other production protein categories. And then our genomics business, we have a large probably the largest we have a very nice position in cattle genomics where we can help optimize herds, and we also play in companion genomics, which helps with the, preventative care for our pets.

Unidentified speaker: I won’t go too much into this. You’ve probably

Dave Namora, CFO and COO, Neogen: seen this slide before, but we are we serve large markets. The the full round bar represents the TAMs, and the smaller light green represents the SAM that we participate in. But we generally have market exposures that historically have grown in the mid single digit plus type range, and they’re driven by a number of attractive drivers. At the end of the day, the food is increasing. Emerging market emerging market middle class is growing faster than the overall population.

We’re seeing more and more outbreaks in foods. We’re seeing a higher number of of of allergens and people’s sensitivity to allergies. And overall, we think these are great secular drivers for the food safety for the food safety market. I won’t go into our I won’t go into the right side too much right now, but I’ll talk more about our transformational journey. You know, following the acquisition of the three m business, we went from being a a small company to a to a maybe almost double the size company.

It’s been a significant transformation for this company, and we’re well along that journey. We’re approaching three years and a quarter. We’ll be at three years since the acquisition of the three m business, And that we’re estimating another kind of year year and a half from now probably until we’re fully integrated with the three m businesses. It’s been for sure more challenging than we would have anticipated. We’re down to a key work stream, which is the integration of petri film manufacturing, and six of the six of the seven work streams are now completed.

We’ll talk more about that in a moment. But, ultimately, we’re we will have reshaped the portfolio to have this, have the bar on the right that I showed you about the two combined businesses. And then as we’ve announced the divestiture, also a few of our animal safety businesses. So we announced the signing of the sale of our cleaners and disinfectants business, which is one of the four product components within our animal safety business, and then we’re actively marketing a second piece of our animal safety space, which is really the genomics platform. As things have been a little rougher, we’re very focused on improving execution and and, frankly, driving better results.

We’ve put out, and you may have seen, and I’ll show it here later, a series of execution focus areas that the company’s working on, kinda nine key nine key areas that or what we anticipate being the focus areas that we’ll talk a lot about over the next kind of year or two. So a quick update on how where things are at. I don’t know if you, for those of you that don’t know, we’re on May fiscal year end, so last Saturday. So this is usually we hit this conference with some numbers that are pretty pretty fresh, and we’re not in a position to talk about where we finish, but we try to do our best to give some directional guidance. So we think that our q four revenues for for the quarter just ended will materially approximate where we where we had put our guide.

We have a lot of work to do to kinda finish closing the books and that kind of thing. It takes us more than two business days, but early results would say we’re we’re we’re in the zone, so to speak. We are seeing some transitory headwinds that’ll negatively impact gross margin, but they are the that’ll flow through EBITDA margin. We would expect EBITDA margin to probably be around the high teens, once we get things, fully fully closed and ready to report. The market conditions that we talked about in q three, we talked about seeing softening, both from macroeconomic headwinds, particularly in The US, to some uncertainty international internationally related to global trade.

We definitely saw those persist through the fourth quarter. Sample collection, which is was a difficult integration work stream for us, bringing in that manufacturing from three m had been rough. We exited q three with improved production rates as planned, and we saw that continue through q four. Very focused on taking care of our customers here. And we saw I don’t know.

Probably, again, it’s not all done yet, but we saw a significant uptake in revenue in q four from what we did in q three. So we saw those efforts kind of hold, which was very good. And as I said, we’re announcing that the second divestiture that we’re working on is our genomics business. We had talked about having a second divestiture in the marketing phase, but had not talked about specifically what business that is, and and we can now say it’s the genomics business. And, also, you saw maybe in an eight k a few weeks back, we’ve done a reasonable amount of work to identify what would be the net impact of tariffs as they sit right now.

And on a after mitigating efforts and some agricultural exemptions and a little bit of pricing and looking at what we have in inventory and redirecting supply chain, we think that there’s a reasonably nominal impact to us for the full year next year. Again, based on based on the tariff rates that are in place today, we stood at about at about $5,000,000 annually. I talked about the areas we’re focusing on for improvement. These are them. I won’t go through all these, but they’re kinda categorized into three buckets, growth acceleration and margin expansion.

You know, we participate in in in what has traditionally been very kind of stable growth, mid to high single digit growth end markets. The markets are under a little bit of pressure today because of some of the external headwinds, but we would anticipate that we will return to kind of some of the growth rates that we’ve enjoyed historically, and it’s our our job to make sure we have products manufactured and delivered on time to do that. And, particularly in The US, we we have opportunities to go kinda reassert ourselves in the markets that we serve and the customers that we serve. And we have to complete the three m integration. So we have the petri film manufacturing line to complete.

That is a that is a stand up of a new plant. It’s not a cutover or bringing in a facility. It’s it is, phasing up production while we phase down supply that we put on our manufacturing partner three m, and that’ll continue to happen over the next kinda year and a half time frame. We’ve had a number of changes to the leadership team. We think we’re now coming closer to having the kind of the team that’ll scale into the future.

So we continue to have some efforts ongoing there. We’ve made very good progress in recent quarters. We talked about simplifying and focusing the portfolio through a couple named divestitures, and those proceeds from those divestitures will be used to help delever from the debt that we took on as part of the three m acquisition. And finally, from a governance and compliance standpoint, as we operate as a larger company, both governance activities focus being focused on by the board as well as just kind of becoming a larger company and having the associated processes are focus areas for us as we move into the future. So we won’t go through the standard investment highlights here other than to say, you know, we we serve really attractive end markets, and we like being the large player servicing an attractive niche niche market.

We have a great portfolio of products, 95% about of which are consumable in nature. And we think we have a market position and a global footprint that allows us to take advantage of our leadership position. We have to we have to do a few things better, and we’re focused on those as you see from the action plan of what we have a number of actions underway to help us kind of enjoy the benefits of the market we participate in. So with that, happy to go to some questions.

Brandon Vasquez, Research Analyst, William Blair: Thanks, Dave. Maybe in this in our broader group here, and we’ll the breakout, we’ll go into more specifics. But let’s start with some of the Q4 updates that you just provided. Let’s start on margins, right? What what can you tell us about these transitory headwinds?

What is it and what’s transitory about them? Part of the question is trying to understand, is this a one quarter transitory impact? Is it multi quarter? As people are trying to sharpen their pencils or other models on fiscal twenty six, how do we think about that going forward?

Dave Namora, CFO and COO, Neogen: Yeah. And and too tough to quantify exactly right now, I would say. But as we came out of fiscal twenty four, you know, we we had gone through a period of kinda supply constraint, and we’ve kind of remedied that. And over the course of fiscal twenty five, have loaded inventory into our new larger global footprint. I think what we’ve seen is the underlying processes to get the right inventory in the right place need to be improved, and we’re working on that.

But the result has been an elevated level of inventory write offs that we’ve seen beginning in q three and then actually being a little larger in q four. We’ve gotten to the root cause of it, and we’ll get that fixed. So we should see that abate over the coming quarters.

Brandon Vasquez, Research Analyst, William Blair: So in in if I’m understanding correctly, there isn’t an underlying fundamental gross margin issue. It’s more it’s an accounting writing inventory off. And so you should be able to kind of return I guess, this point, it’s too early to say at what time frame you can return to more normalized margins. Is it if I can push, is it a one quarter or is it several quarters?

Dave Namora, CFO and COO, Neogen: I think it’s a couple quarters.

Brandon Vasquez, Research Analyst, William Blair: Okay. Okay. And then this, I assume, is part of the adjusted EBITDA line, right? Because the adjusted EBITDA line in high teens is frankly one of the lower numbers you printed in a long time. That’s coming from the gross margin write down.

Dave Namora, CFO and COO, Neogen: That’s right. I think it’d be in the low 20s, if not for the elevated inventory write downs.

Brandon Vasquez, Research Analyst, William Blair: Okay. Good good context. Market conditions, let’s hit on that as well since you guys talked about that. What are the market conditions being weak mean for you guys? Talk to us a little bit more, especially if there’s any investors here newer to the story.

We always think of food safety as this really resilient market. What are you guys still seeing from the end markets in terms of things being a little weak in q four?

Dave Namora, CFO and COO, Neogen: Yeah. I think there’s two pieces. You know, the people we sell to are food producers, and we’re seeing we monitor in a number of spaces kind of food production, and we’re seeing that under pressure from the kind of twenty five or longer year high in grocery inflation, so forty year high. And and so as we’ve seen volume production volume under pressure, that doesn’t mean food safety testing is negative when production volume is negative, but it negatively impacts the the range of growth in our marketplace. So we think food safety testing space is growing slower than the range we would usually grow in.

That has been persistent for the last, probably, close to ten quarters, but it had been on a sequential improvement path for six quarters up until last quarter where we saw production volumes in the proxies that we measure move backwards again. And we we think that softness is for sure carried into the fourth quarter. I think the global trade environment too has created a level of uncertainty, exports from Latin America, exports from Asia Pacific, particularly in areas like ready to eat foods where the volumes that’ll be produced and the volumes that’ll be exported to The US is now far less certain. So some of those folks internationally aren’t losing some volume. They’re losing a customer.

And that that that definitely impacts the level of testing. Testing is different depending on the on the end market. So I think that uncertainty has people, you know, kind of taking a step back. Now at the same time, I don’t think I believe we work in a or we serve a market that kinda can’t hold its breath that long. I mean, people people will eat.

And and so we had seen things continue to improve. And although this recent period seems to have moved backwards some, we think the kind of robust nature of this end market remains fully intact. It’s just we’re going through a time that’s been impacted by some unprecedented things like forty year high inflation.

Brandon Vasquez, Research Analyst, William Blair: Yep. Okay. And, again, going down the next q four update that you had provided here, sample collection side, volume continues to improve. They sustain. I think the prior commentary you’ve given around this last quarter call was that this should be within the next one to two quarters resolved.

Is this update meant to suggest you’re still on track for that maybe in the next quarter or so?

Dave Namora, CFO and COO, Neogen: We are. Yeah. The teams have done some great work to get production volumes up, albeit it’s very inefficient. And so we’re incurring more startup costs than we’d like. We’ll we’ll we’ll dimensionalize that for you for you guys when we get to July.

But we’re looking at weekly production rates and and shipping rates, and those have achieved been been achieved as per our plan.

Brandon Vasquez, Research Analyst, William Blair: Okay. Maybe before we go, just the genomics, and it might even actually tie into this question, which essentially, you know, at this point, you guys just closed the book, so I’m not gonna ask you to give us a number.

Dave Namora, CFO and COO, Neogen: Haven’t closed them yet. Haven’t closed them yet.

Brandon Vasquez, Research Analyst, William Blair: The books are in the process of being

Dave Namora, CFO and COO, Neogen: closed. As

Brandon Vasquez, Research Analyst, William Blair: we think of fiscal twenty six, though, walk us through again, in the spirit of a lot of investors here trying to sharpen their models for what fiscal twenty six EBITDA or even on the revenue line can look like. Walk us through the puts and takes of both the top line and on the bottom line, what we should be keeping in mind for that model.

Dave Namora, CFO and COO, Neogen: Yeah. That’s great. So if we look at the two divestitures that we’ve named, cleaners and disinfectants was about 60,000,000 roughly of revenue contribution to fiscal twenty five, and genomics will be about 90. Collectively, those two businesses, I think net of maybe a little bit of stranded cost, would contribute, probably, low twenties EBITDA to fiscal twenty five. So that revenue and that EBITDA would would kinda come out next year.

Now we we anticipate a q one close for cleaners and disinfectants. Genomics remains in the marketing stage. We think about it more as kind of a maybe a midyear close, think end of q two, assuming everything stays on track and these things aren’t fully fully predictable. But if you were to just kind of lift them out, that would be the impact. Genomics, you know, has been a area we’ve talked about a lot recently because we went through a big restructuring of that business here in the second quarter of fiscal twenty five that had us walk away from some revenue that was less profitable, but it also, improved the profitability.

So at about a $90,000,000 revenue contribution, set aside the potential divestiture they’re working on, all of the things being equal, we would see that business declining modestly in fiscal twenty six. And although we are eventually, you know, really focused on the cattle portion of that, there’s other business that we’ll continue to take, and we’re we’re we’re seeing a a ramp down of the companion business because we do a lot of testing outsource from others that are now insourcing some of that. But that ramp down will be reasonably slow even with the modestly lower EBITDA or sorry, modestly lower revenue for fiscal twenty six, all of the things being equal, we would actually expect EBITDA for that business to be higher in fiscal twenty six because we get a full year of the post restructured business, which happened midyear fiscal twenty five. So that’s probably the color I’d give you on how to handle that year over year.

Brandon Vasquez, Research Analyst, William Blair: In the genomics now that we know it’s genomics business that’s being targeted for the second divestiture, is the game plan the same use of the proceeds to pay down debt?

Dave Namora, CFO and COO, Neogen: It is. Okay.

Brandon Vasquez, Research Analyst, William Blair: And annualized direct tariff impacts of 5,000,000. What talk to us about what you’re assuming. I assume that doesn’t assume things go back up or kind of steady from here. Is that fair?

Dave Namora, CFO and COO, Neogen: That’s fair. Although we do you know, the the area where we focus the most is things where on the animal safety side, we buy and resell from China. Significant amounts of inventory. And many of those areas, we’re looking to redirect supply chain. So even if they did, I think the we’d still have other mitigating actions, maybe go up some, but but maybe maybe not as bad as we were initially thinking.

Brandon Vasquez, Research Analyst, William Blair: K. And so outside of the q four update, let’s take a step back, Dave, and, you know, we have sample handling as one of the last things that need to be integrated here. We have PG film, of course, but PG film remains on track for the the prior time lines that we’ve known of for later in this year to start ramping. What else you know, as investors start to take a fresh look at this story, what else needs to be done here? Right?

It almost feels like we’re at a point where integration is largely finished, except Petri Film again. What what else do you need to do to kind of I think I’ll I’ll use my own phrase, grow this business up to what it is as a as a much larger entity now? What’s the the or what do you have to do still ahead of you?

Dave Namora, CFO and COO, Neogen: Yeah. Good good question. Look. I think we tend to focus on the big milestone type items like petri film manufacturing or getting sample handling up and running. I think the key is after we complete those, kinda demonstrate demonstrate the kind of the robustness of the end market and the return to growth.

It’s been a bumpy ride, and we’ve had some implications from those bumps. You see those those are the things that kinda read through the focus areas that were that were very much, you know, zeroed in on at the executive level and and and really broadly throughout the company as well as as well as at the board. So I think we need to demonstrate execution and performance. We made a lot of changes to the team, and I think that’s gonna help a lot. You know, a couple things still to go there.

Couple, you know, a couple big items still to go, but, I think we we think we’re nearing zeroing in on the team of the future and positioning ourselves to kinda execute. And I think it’s a you know, that’s something that we gotta not talk about but demonstrate.

Brandon Vasquez, Research Analyst, William Blair: Can you also spend a minute it’s been a couple years since we’ve really even discussed this because there’s been a lot of integration headwinds as you’ve mentioned, but the whole the real big selling point of this deal with buying three m’s food safety business was to go on the offenses and take share of this space. Right? There’ll be the big pure play here. You have the the the golden product with Petri film. So, you know, I guess the pushback that I often get, I’d be curious to see what the strategy around it is, is, well, look, you know, in in somewhere like sample handling, you’ve actually lost some share.

It’s a difficult market to get back. So some of these markets are a little less differentiated. So talk to us what is as a post integrated business in the next, you know, foreseeable future, how does this organization take share in kind of a tricky market like that? Yeah.

Dave Namora, CFO and COO, Neogen: You know, I I think, first of all, we have to have we have to be a a good supplier, which which we are. We are a good supplier, but we’ve we’ve had enough bumps that we need to kinda redemonstrate that, to folks. But as we do that, you know, being the broad player, being the folks that have been in the industry for forty years, excuse me, you know, people like doing business with us. We’re differentiated by our technical field sales support and the breadth of offering that we have and and our global penetration. Right?

So I think we’ve seen areas where we have lost some share, and we’ve seen it come back. Okay? In the area of sample collection, you know, I think we’ll see that share come back a little faster than we than we otherwise may have may have thought. Maybe that product is a little more differentiated than we thought. We were we were it’s not a huge margin product for us by any means, but it’s an important product to the portfolio.

When you sell testing, you need a way to kind of collect samples, and it ties together certain components That’s very important. And we got a lot of feedback from customers that said, no. We want your product. So it told us it’s a little less commoditized than we may have otherwise thought.

So, you know, it it but it starts with, you know, kind of consistently executing on behalf of our customers. And as we do that, we think we’ll see we think we’ll see demand come back, maybe not overnight. But I think we’ve seen that as we got through some of the integration challenges of ’24. I think we demonstrated that across ’25. Even going back before some of our integration issues when we had, some constraint of Petri film that came that was really before the deal closed that we inherited.

You know, in some tough markets like Japan, you know, we got all that back and more. So I think I think the portfolio, performs well when when we’re there with the products. You know, these are mission critical products.

Brandon Vasquez, Research Analyst, William Blair: And on the divestiture side of the animal safety, you know, that that pie continues to shrink more and more. What’s the ultimate goal here between animal safety and food safety mix? What should we think about in the long run?

Dave Namora, CFO and COO, Neogen: You know, I I think looking at it now with the two divestitures is how you should think about it. We haven’t announced anything beyond that. I think the profile of the remaining businesses is probably a little higher margin than people appreciate with a low OpEx burden. You know, we we kinda never say never, but we kinda like the position if we complete these two divestitures. And I think it reduces animal safety to a, you know, reasonably low but important part of the pie and, and and allows us to kind of focus our investment from an OpEx and a CapEx standpoint on on the on the the higher growth market exposure of food safety.

Okay.

Brandon Vasquez, Research Analyst, William Blair: I’ll ask kind of one more big picture question here, and then maybe we’ll break a minute or two early for the breakout session. As you look at the next twelve months specifically, Dave, what are your biggest risks and your biggest opportunities in the next twelve months as you look at fiscal twenty six essentially?

Dave Namora, CFO and COO, Neogen: Yeah. The I don’t know if it’s the biggest risk, but our biggest focus area for sure remains petri film manufacturing stand up. I mean, it’s a big product it’s a big project. A lot of you folks have actually seen it firsthand. It is it is when you look at it, you go, wow.

It’s a big deal. When you have people that are highly confident that have done this before and built these kinds of plants within three m that are now work for us, you know, and you talk to them, you get a lot more confident because they’ve because they’ve done it before. But it’s super important, super, you know, big investment in capital, and it kinda completes the transition. So we have to we have to complete that in good order. I think the big opportunity is really having that baseline year where where we’re operating without having something.

You know, we can take two steps forward without taking a step or two back. And we haven’t posted that year since since the deal was announced, and and I think we have the opportunity to do that. And if we do that successfully in fiscal twenty six and we sell better and we operate better and, work our way through the integration items better and create a a a better foundation year to then jump off of and carry some momentum into fiscal twenty seven. I think that I think that’s the opportunity before us. I mean, the opportunity is inherent in the business, I guess, is to say, you know, we need to execute against it.

Thank you.

Brandon Vasquez, Research Analyst, William Blair: Okay. Thanks, everyone. We are going to the breakout room Adler. So we’ll start up This presentation has now finished. Please check back shortly for the

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