NEOG

• Overall Business Performance & Strategic Ambition

  • The company closed fiscal 2026 with strong results, exceeding full-year adjusted EBITDA guidance. Core growth improved sequentially across both segments in the fourth quarter, marking a turnaround from the negative core growth seen in fiscal 2025.
  • Neogen's core strategic ambition is to become the undisputed global leader in the food safety category, with three core strategic pillars: commercial capability expansion, high-impact innovation, and operational efficiency.

• Commercial Transformation

  • The company is executing a cultural and organizational transformation of its global commercial operations, shifting from a defensive posture to an offensive strategy focused on market share gain.
  • It has reallocated commercial resources to 14 high-priority countries, concentrated direct sales efforts on high-value strategic accounts, and is investing in e-commerce and customer service automation to better serve the long tail of smaller customers. Approximately 40% of current food safety revenue flows through e-commerce, with significant room to expand penetration.
  • The company has established a dedicated strategic account function to engage C-level decision makers at large global customers, enabling enterprise-wide solution sales instead of the prior site-level sales approach. It is also shifting from a product-centric sales model to a solutions-based model with segment-specific frameworks tailored to key end markets like protein production.

• Innovation Investment

  • The company plans to increase R&D investment by 50% in fiscal 2027, with a long-term target of reaching 5% of total revenue. Investments are focused on customer-centric, differentiated solutions for core markets including pathogen detection, general sanitation, and Petri Film expansion.
  • Neogen is actively evaluating technology licensing and partnership opportunities to accelerate innovation and reduce development timelines. It is also expanding its digital ecosystem, including upgrades to the Neogen Analytics platform to deliver more actionable customer insights.
  • A new Petri Film innovation pilot line is being installed at the company's Oakdale, Minnesota facility, which will enable the launch of 2 new Petri Film SKUs per year starting in future fiscal years. Most innovation investments are expected to begin contributing to revenue growth starting in fiscal 2029 due to 18-24 month organic development cycles.

• Operational & Supply Chain Progress

  • The multi-quarter Petri Film manufacturing transition remains on track, with the first SKU validation expected to complete in August 2026 and full production transition starting in November 2026, with no major issues encountered to date.
  • The company has reduced inventory by more than $36 million year-over-year, while full and on-time delivery performance has improved 40% since the implementation of a new sales and operations planning process.
  • The company is making targeted investments in enterprise technology and automation, including AI-enabled demand planning software and finance process automation, to improve long-term scalability and reduce incremental headcount needs as the business grows.

• Full Fiscal Year 2027 Guidance: Total revenue is guided to $880 to $885 million, with adjusted EBITDA of $180 to $182 million, implying a 20.5% adjusted EBITDA margin at the midpoint of the range, which represents slight margin expansion over fiscal 2026. This guidance assumes 3% overall core growth, a 1% negative currency impact, and includes $92 million in revenue and $13 million in adjusted EBITDA from the genomics business unit prior to its upcoming divestiture. Guidance will be updated after the divestiture closes.
• First Quarter Fiscal 2027 Guidance: Revenue is guided to $207 to $209 million, with adjusted EBITDA of approximately $37 million. The lower sequential EBITDA reflects typical first quarter seasonality and incremental planned transformation investments.
• The company plans to use the $140 million in net proceeds from the upcoming genomics divestiture (expected to close by the end of the first half of fiscal 2027) to pay down debt and invest in core business growth. This is expected to bring net leverage below 3x by the end of calendar 2026 and close to the 2.5x target leverage range by the end of fiscal 2027.
• Management expects overall operating cash flow and free cash flow to increase meaningfully year-over-year in fiscal 2027, even with the elevated planned investments.

For the fourth quarter of fiscal 2026:

1. Food Safety Segment: Revenue of $166.8 million, accounting for 74% of total fourth quarter revenue, with 5.8% year-over-year core growth. This segment was led by 9% growth in indicator testing and culture media products, and 10% growth in bacteria and general sanitation products.
2. Animal Safety Segment: Revenue of $58.5 million, accounting for 26% of total fourth quarter revenue, with 0.5% year-over-year core growth and 7% sequential revenue growth from the third quarter of fiscal 2026, following the resolution of most global supply issues.

From a regional perspective, U.S. revenue made up 49% of total fourth quarter revenue, while international revenue accounted for 51%. The LATAM business unit delivered double-digit growth, and food safety achieved growth across every global division.

• Persistent inflationary cost pressures on customers stemming from the Iran war create uncertainty for near-term industry demand trends.
• The path and potential impact of the New World Screw Worm outbreak in the southern U.S. is unclear, and only modest first quarter revenue contribution from related new products is expected.
• The genomics business divestiture is still awaiting second-phase regulatory review from Australian and New Zealand competition authorities, creating uncertainty around the exact closing timeline.
• All planned transformation and innovation investments are forward-looking, and actual revenue and margin benefits may differ from expectations due to long 18-24 month development cycles for new products.

Q: Why is ex-genomics adjusted EBITDA guidance lower than street consensus, even amid strong fourth quarter growth? What is the implied core growth split between segments?

A: The lower-than-expected ex-genomics EBITDA is intentional, driven by the company's planned accelerated investments in R&D and commercial infrastructure for long-term growth. Management emphasized that total revenue guidance (including genomics) is 3% above street consensus, and prioritizes rebuilding investor credibility by committing to achievable targets. Management confirmed that overall 3% core growth implies food safety growth above 3% and animal safety growth below 3%, but declined to provide an exact segment-specific split.

Q: Is the lower-than-expected first quarter 2027 EBITDA driven by early investment spending, and is the commercial transformation catching up to competitors or building new leading capabilities?

A: The Q1 EBITDA guidance primarily reflects normal seasonality, not outsized early investment, and EBITDA is still up 80 basis points year-over-year with clear underlying operating leverage. Management noted minor catch-up for missing back-office capabilities, but frames most changes as building category-leading capabilities: the reorientation to enterprise-level strategic accounts and segment-specific solutions (instead of fragmented product-level, site-level sales) will open larger new opportunities and extend market leadership.

Q: What will be the P&L impact of the Petri Film manufacturing transition, and what is the focus of the 50% R&D investment increase?

A: Margin benefits from the new manufacturing will be gradual, with meaningful contribution starting in fiscal 2028 as the multi-quarter transition completes. The 50% R&D increase builds out a new innovation pipeline that Neogen has historically lacked, with focus on Petri Film expansion (enabled by a new pilot line that will support 2 new SKU launches per year), pathogen detection, digital connectivity for traceability, and molecular microbiology. Investments are being made now because of 18-24 month development cycles, so contributions will start appearing in fiscal 2029, with cost efficiency initiatives offsetting near-term margin pressure from higher R&D spending.