Q4 2020 Neogen Corp Earnings Call
[music].
All participants will be in listen only mode.
Sure sure neither.
In summary, corporate specialists, but those are the starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions.
That's a question your first order will be postponed.
So withdraw your question. Please press Star then too.
Please note today's <unk> is being recorded.
No it's gotten a called mature over to John.
She old manager. Please go ahead.
Thank you Rocco.
Good morning, everyone at Walker <unk> regular quarterly conference call for investors and analysts today, we'll be reporting on the fourth quarter about 2020 fiscal year and the entire year, which ended on may 31st.
As usual similar statements made here today it could be terminals forward looking statements. These statements of course are subject to certain risks and uncertainties actual results may differ from those that we discussed today.
The companys risks associated with our business are covered apart in the company's form 10-K as filed with Securities Exchange Commission.
In addition to those of you who are joining us block telephone conference wheels goal. We also welcome those who joined us via the Internet.
Following our prepared comments. This morning, we will entertain questions from participants who joined us life contracts.
I'm joined this morning Bar, Chief Financial Officer, Steve Quinlan will provide detail on our results for the quarter end the year.
Normally we do use this conference call to provide perspective on the performance or various business segments, but our fourth quarters anything but normal.
During the quarter our team worked tirelessly to fight the Cobot 19, global pandemic and I'm sure food safety food supply for our customers around the world.
As we mentioned in our third quarter call, we moved very quickly to secure and diversify our supply chain in December and January.
As the virus began to spread around the world, we took immediate action to protect our employees and our business.
We stood up our emergency response team and help twice daily meetings console and refine our response plans and implement those plans.
In the first week of March we shifted nearly 30% of our total employees to work remotely from home and banned all travel.
Those who are central to our onsite operations were protected were split chefs elimination of Interoffice travel temperature check social distancing face masks and many other safety measures.
We have constant communication with our team members as we continue to operate in our new normal.
We consider ourselves very lucky that we've not lost a neogen employee and that's a very dangerous time, well, we realized as bright as far from over now is not the time to let up.
Hi, I'm extremely proud of our our Neogen employees responded to the crisis.
Their hard work creative solutions to unprecedented challenges and dedication to doing the right thing safely gotten us through this so far.
To protect our business, we've adjusted our workforce levels to better match or changing customer demands and Im Institute, a cost controls to better protect Neogens financial health.
Steve will provide a bit more color on these later on.
Many people have asked me why is the food industry been hit so hard by the pandemic you know people still have to eat regardless of their eating at home or outside.
People do have deep with the pandemic has caused a massive disruption on how they.
According to the U.S.T. a prior to the pandemic American spent approximately 50% other food budget away from home.
For most of us that percentage came close to zero for weeks at a time.
And you saw the affects every time you went to the grocery store and we're confronted with empty shelves.
I've seen estimates at 40% of the food produced in the U.S. as eventually thrown away.
As consumers prepared their own meals, they dramatically reduce the waste on the system.
Now people are preparing the rightsize meals for their family and eating the leftovers. This has caused unprecedented disruptions in the food supply chain with a shift toward eating at home and I'll give an example, we've a very customer that specializes in providing 50 pound 50 pound tubs have bought her to restaurants on commercial kitchens.
Its entire production supply process is geared to efficiently producing and delivering those 50 pound tubs.
Once its market abruptly crash a company no place to sells its products you know most customers other than Steve don't want 50 pound jobs, but are we.
We've heard numerous stores just like this and the good news is the food industries, adjusting but it's going to take time.
As the world changes to adapt to our new normal sodas Neogen, we're being proactive in finding new ways to communicate train and assist our customers and industries to allow them to survive and thrive into the future.
Not going to turn it over to Steve to run on the numbers for you.
Alright, Thanks, John and good morning, everyone on the call today.
Before I start with the numbers I'd like to Echo John's comments and how proud we are the quarter that we're reporting on today part of this pride comes in the numbers.
More of that comes from the effort of the team across the globe and keeping things going in stepping up on what has been an unprecedented and difficult operating environment.
As an initial example, we said 70% of our administrative sales another nonmanufacturing employees home to work remotely beginning in mid March has the coded pandemic spread through the countries in which we operate.
The significant investment we've made a night T systems and infrastructure. The last couple of years paid off as we recruit quickly able to shift to a primarily remote workforce with relatively minor speed issues and minimal additional costs.
And in some cases, where thriving not just surviving and what appears to be or new normal going forward.
Our manufacturing and supply chain group has worked tirelessly to source critical and in some cases scarce materials.
Production employees have embraced our safety measures and we were able to continue making quality products, while keeping the employees safe.
And the packaging and shipping teams got the product weren't needed to go.
These folks did all the while operating under the uncertainty and stress with Cobot 19.
They've done their jobs, remarkably well and deserve recognition for that effort.
Earlier today, we issued a press release announcing the results of our fourth quarter and full year, which ended on may 31st revenues for the fourth quarter were $109.1 million compared to 109.7 million in the same quarter a year ago for the full year fiscal 2020 revenues were 408.
10.2 million, a 1% increase over last years 414.2 million.
Net income for the quarter was 16.3 million or 31 cents, a share compared to 15.8 million or 30 cents.
A year ago.
Full year net income for fiscal 2020 was 59.5 million or $1.13, a share compared to 60.2 million or $1.15 per share for fiscal 2019.
During the fourth quarter, we were significantly impacted by currency movements in our international operations when the magnitude of the pandemic became evident and as it began moving around the world. There was a move toward the safety of the U.S. dollar negatively impacting local currencies international locations.
Particularly those were the outbreaks were less controlled the Brazilian real high and the Mexican peso were hit, especially hard depreciating against the dollar by 25%, an 18% respectively. The euro and pound also fell but by less than 5% for the compared quarter.
As a result, our comparative revenues were three and a half million less for the quarter than they would have been in a neutral currency environment.
For the full year in a neutral currency environment revenues would've been approximately 6 million higher than we reported.
Currency markets has settled down a bit as we've moved into the first quarter fiscal 2021, moving back towards pre Colbert levels, but we expect continued volatility in these markets for the near term we.
We do hedge a significant portion of our international balance sheet exposure for currency risk.
While revenues for the quarter were flat we were encouraged by the performance as sales held up well through the quarter in spite of the shutdowns and operating difficult in many of our markets and with many of our customers.
Our team worked extremely hard during this first threep first few months of the pandemic, Kentucky to connect with our customer base and make sure they were well supplied.
And as John said, we took a number of steps to protect our employees during the quarter, but we also made a number of moves to protect our business.
Given the on initial uncertainty of demand, we took immediate actions to lower our operating costs.
These actions included temporary pay reductions at the senior management level, furloughing or reduced hours for approximately 5% of our U.S. workforce.
Tailwind of discretionary spending throughout the organization and the cessation of most business travel.
These actions resulted in savings of approximately $2 million in the fourth quarter.
And obviously this included attendance at industry trade shows and outside meetings and related meal meals and entertainment expense in the U.S. and similar reductions in most of our international operations.
Brought a number of our people back but have continued to restrict business travel until further notice.
We've also temporarily suspended the company match on our core one K. plan affected the beginning of June and we'll continue to monitor conditions in our businesses and react accordingly.
Overall revenues in the food safety segment were 4% below last year's fourth quarter and were flat for the full year.
We believe that quarterly shortfall is reflective of the market disruption and temporary closure is of a number of our customers and not permanently lost business.
Our sales team has been reaching out to the customer base and his corroborated. This information while also determining the extent of damage. The pandemic has done to our customers.
Highlights in the food safety product line for the full year include 4% increases in sales in both natural toxin and allergen test kits.
Our ask you point product line, which monitors environmental sanitation and food processing environment rose, 7% for the year and our Listeria right now products rose, 24% as we continue to gain share with this fairly new pathogen detection product.
Offsetting this growth were lower sales of culture media products due to lower end market demand at our larger customers.
And a 600000 dollar non recourse nonrecurring order in the prior year.
Sales of our drug residue test kits decreased 30% for the year due to lower demand in our European distributor.
As I mentioned on previous calls we modified our contract with this distributor in January to eliminate their exclusive distribution rights across most of the world and are utilizing our European sales force to sell these products directly to end customers.
Internationally, we continued to integrate the acquisitions, we completed in the third and fourth quarters.
They performed above our expectations, providing $1.2 million of revenue for the quarter and 1.9 million for the year.
These acquisitions in which we purchased three of our existing distributors in the southern cone area of South America.
Distributor in Italy, and a manufacturer of key raw materials for our European operations enhance our position in markets that we believe have significant growth potential and approve our cost position.
Our European business finished the year strong with a 17% increase in cleaners, and disinfectants and veterinary instruments in the fourth quarter and a 15% increase in culture media products as orders delayed from the third quarter shipped in the fourth.
Genomic services in Europe rose, 25% in the fourth quarter on increased poultry and beef cattle volume for the full year genomics increased 7% in Europe.
Overall sales from our Scotland based operations rose, 1% in us dollars for the full year.
Were up 4% in local currency as the increased genomics revenues were partially offset by lower Allergan revenues.
Revenues for our Brazilian food safety operations declined 30% in us dollars for the quarter, primarily from a 400000 dollar reduction and forensic test kit sales due to the loss of a large commercial lab customer earlier in the year and the negative impact of the 25% currency devaluation in the quarter.
In local currency the revenue shortfall was 6% for the quarter.
Genomic services in Brazil declined 20%, 27% for the year as a project in the prior year for the Brazilian government first study I caught cattle did not recur in the current year.
We've won new business with the government for further genomic testing I cattle and are expecting to begin receiving samples in the first half of the new year.
Our insecticide business was up 5% end the year due to sales to government health organizations.
[noise] revenues were flat for the quarter end up 5% for the year in us dollars for our Mexican operations in local currency revenues rose, 20% for the quarter and 11% for the year with strong market gains across our food safety diagnostic portfolio, partially offset by weakness in sales to our largest.
Distributor of our bio security products in Mexico, and Central America.
China close the year strong with revenues up 20%, 28% in us dollars for the quarter and 22% up for the year with continued sales increases of cleaners, and disinfectants to help and fighting against outbreaks of African swine fever, and cold with 19 in that country and upticks for the quarter.
In our food safety diagnostic business on equipment and vial sales of our Soleris product line used to detect spoilage organism processed foods.
Revenues for the animal safety segment, which have been soft for most of the year due to continued tear fours and result weakness and uncertainty in the agriculture markets. We serve rose 3% for the quarter led by a three and half million dollar increase in sales of Sanitizers, all disinfecting products, which we manufacture.
And 1 million dollar increase in sales of personal protective equipment, such as love them down, which we distribute.
As demand for these products exploded as a result to the pandemic.
That we were able to pivot that quickly to this surge in demand, particularly on the manufacture of hand sanitizer is a testament to our operations group.
For the full year animal safety.
Revenues Rose, 2%, primarily the result of 13% rise in genomics service revenues and our laboratory operational Lincoln, Nebraska, driven by strong market gains into the domestic companion animal service space.
Growth in the commercial beef market and increased volumes in the domestic core sign market.
Additionally, our business in Australia rose, 18% for the year on share gains in the sheep testing market in Australia.
A 390000 dollar increase in sales of bio security products and 420000 dollar increase in sales.
Food safety diagnostic products aided by the March acquisition of cell Bio Sciences.
Other highlights in the animal safety segment for the year were an 8% rise in water treatment disinfectant sales on share gains in the swine and poultry markets and a 9% increase in wound care products.
Partially offsetting these gains were an 8% reduction in sales of animal care products, and 7% reduction veterinary instruments, primarily needles and syringes to our largest U.S. distributors.
Has also continued weakness in their end user sales and inventory reductions at these distributors due to the uncertainty of covert 19.
Gross margins were 47.4% for the quarter compared to 46% last year.
Aided somewhat by opportunistic business on Sanitizers and disinfectants related to the cobot 19 outbreak, but also by cost reductions and efficiencies gained in our manufacturing manufacturing groups.
For the full year gross margins rose to 46.9% from 46.3% last year increases due to a 170 basis point improvement in animal safety margins on the strong sales of Sanitizers and disinfectants in the fourth quarter and full year growth in sales of genomic services for.
You guys Densification and companion animals, so the retail veterinary market.
These increases were offset somewhat by a 40 basis point reduction in margin for the food safety segment due primarily the lower sales of higher margin forensic kits sales in the adverse currency impact on our international operations.
Overall operating expenses were flat for the fourth quarter and up 4% for the full year.
Sales and marketing expenses declined 7% in fourth quarter as we ended most business traveler early in the quarter.
Meals and entertainment and all trade show up related activity also stopped at that time.
These savings totaled approximately 1 million in half dollars for the quarter.
Domestic business travel continues to be shut down and travel in our global operations has been curtailed dramatically.
Our sales customer service and technical service teams have adjusted and are continuing our contacting and engaging customers via video conference emails and even the old fashioned phone call.
General and administrative expenses were up 13% for the quarter and 9% for the full year.
Increases in legal and professional expense due in part to the acquisition activity and spending on a nimble number of legal issues stock based compensation, which has risen due to the increase in the price of the company stock.
And an increase in personnel costs from higher head counts were the primary drivers of the increase for each period.
DNA for the new businesses acquired totaled 388000 for the quarter and 520000 for the full year.
Additionally, we recognized an increase of 370000 depreciation expense related to investments in our IP infrastructure for the full year and as I noted earlier that infrastructure has been rock solid during the first few months of the pandemic as hundreds of our employees continue to work effectively from home.
Research and development expenses were 14.7 million for the year compared to 12.8 million last year, that's an increase of 15%.
Increased spending has there been primarily for development costs for a number of new products, one of which the next generation Solaris was just recently launched.
And expenditures to obtain product approvals and certifications.
Spending will normalize at these levels in fiscal <unk> 21, as the group continues to work on additional new product initiatives.
Operating income for the fourth quarter at 19.9 million was a strong 18.3% of sales helped by the growth in gross margins.
And that compares to 18.7 million or 17.1% of sales recorded in last year's fourth quarter.
For the full year operating income was 67.5 million were 16.1% of sales compared six to 68.1 million or 16.4% of sales in the prior year.
Other income for the year was almost 4.8 million compared to 4.9 million in the prior year and included 6 million in interest income the result of higher cash and marketable securities balances.
Re sign off fixed income securities have dropped precipitously in the second half of the year and we expect to earn less on these investments in the 2021 fiscal year.
Our effective tax rate for the fourth quarter was 22.8%.
That's an increase from the 18.9% recorded in last year's fourth quarter as our benefit related to stock option exercise was lower in the current your quarter and we recorded year end us and international tax adjustments.
Primarily related to income earned at our international operations.
For the full year, our effective tax rate of 17.7% compares to 17.5% last year.
We continue to produce strong cash flow generating 87 million from operations for the full year versus 64 million in the prior fiscal year.
We invested about 18 million of that cash in property and equipment and 13 million in acquisitions during the year.
Our inventory balances increased 11% in fiscal 2020 or about $9 million.
During the second half the year the company began stocking up on critical raw materials and long lead time items domestically to ensure their availability in the avantas supplier shutdown due to cobot, resulting in a foreign half million dollar increase in inventory at our domestic operations.
Additionally, our European operations added about $1 million in inventory this year to ensure that we have adequate stack to support our European customers in the event of the disorderly Brexit, which is currently scheduled for December 2020.
We also added about a million half inventory millions of inventory with the businesses, we purchased earlier in the year.
We have set target inventory levels for each of the business units for the new year with the goal of improving inventory turns where possible.
Our accounts receivable balances rose by 3% over levels that last year end and our days sales outstanding move to 68 from 61 last year.
Payments worldwide have been delayed somewhat due to disruptions and shutdowns at a number of our customers. We're closely monitoring these bell at these balances and payment trends.
Fiscal 2020 was a challenging year in many respects for the company, but as I said at the beginning of my comments Im very proud of our almost 1800 employees worldwide and how they've pulled together during the initial stages of this crisis.
As John indicated, we're certainly not declaring victory as we know there would be many more challenges in front of us as we adjusted this new normal but theres also much to look forward to and we're cautiously optimistic and excited as we enter the 2021 fiscal year John Thanks, Steve.
Yeah as I've said previously our mission matters today more than ever as the world fights to this crisis to eventual recovery.
There are few things more importantly continue than a continuing safe from plentiful food supply.
Neogen was built to respond in times of crisis, and we have responded.
We've done our best to assist the broader civic efforts to combat coven 19 by making our sanitize isn't disinfectants available outside of our traditional agriculture vendor markets.
We're well positioned financially to weather the continuing expected threats for the global economy, and 20, Tony with a cash and investments balance of about $344 million no debt and as Steve mentioned very strong free cash flow.
We fully understand and except the inherent risks are seeking to grow our businesses internationally, even during these worst times.
As with all American companies have sizable opportunities overseas, we understand that at times, we're going to be hit with currency headwinds negatively impact our results and another times are going to benefit from currency Tailwinds.
That's a short term risks that we accept to achieve our long term growth goals.
We feel good about the robustness of our raw material supply chain and our ability to secure the inputs that we required a producer products were necessary, we've outsourced or we've sourced alternative suppliers to ensure the continued availability of critical raw materials.
Once again I'm extremely proud of our team acted and reacted in this unprecedented business and social environment.
Neogens, well prepared and position for whatever our 2020 fiscal year holds for all of us where the product services and team members our customers need to operate through the pandemic and what lies beyond.
We also the financial organizational strength to rapidly adapt to known and currently enforce unforeseen challenges as demonstrated in this last quarter.
I'm sure that you have many questions for Stephen I'm going to throw it back to Rocco So taken an open it up for questions Rocco.
Thank you Sir we will now begin the question and answer session.
You asked a question your press Star then one other touchtone phone.
If you're using your speaker phone, we ask you. Please pick up your hedge for pressing the keys.
The charter question. Please press Star then too.
Well pause momentarily well in several roster.
Okay.
And ladies and gentlemen, our first question today comes from John Kreger with William Blair. Please go ahead.
Thanks, very much nice to talk to you again John.
Hey, Jeff.
Hey could you go back to the issue that you talked about earlier in the call about big shift within food safety from.
Institutional restaurants to two grocery stores, how does that impact you. Just curious if there are margin difference is our market share differences that are notable as we think about how 21 could play out. Thank you.
Yes, John it's not really around margin, it's more on customer type.
All right. So we have we have disparate customer types that service those different food supply chains.
And once.
Well it was traditionally has been a strength of the engine a very.
Highly fragmented customer base, where we had very few customers that made up a significant portion of our business that actually kind of hurt us because during the last couple of quarters, it's a smaller customers that.
Just shut down.
So.
We had a number of smaller customers within our customer base, where they just stop producing doesn't mean, they're stopped forever, but whether they were.
They didnt have employees that in other raw material the market changed on them. We saw a significant number than say look for the last three four months. We're just we're going to sit here on the side and see what happens.
So that's really what's kind of affected us more than.
Margin change because really they use the same type of products and those different channels. It's just crew services that customer base.
Excellent. Thank you Thats that's helpful. And then a follow up can you talk a little bit more about the boost you got in the quarter on the sanitizer and infection control from your perspective is that durable as you move into into the next fiscal year.
Yes, it was about a.
Three and half million dollars bomb and look I got to give the team credit I mean, we went.
We ramped up supply not only manufacturing and Lexington, we were able because we had the proper permitting to actually start making and in Lansing also and ship in both down to Lexington to redo.
We had a number of customers that were outside the normal chain, who needed. How we think we're going to continue with that because customers have seen our product like any news.
You know there then thats et cetera, as we have nine products that are EPA registered for cobot 19 on the cleaners and disinfectants side.
Which.
I think thats going to help us so.
I think we got that short term bump, but our plan is to continue to drive that long term.
Great. Thanks, and one last one similar question about China, I'm sure African science, eager and cover 19 growth because a lot of sales as you think about the coming quarters does that momentum also seem sustainable or would you expect it to normalize.
No I think African swine fever, John's real threat worldwide I mean, nobody is talking about it because of coal, but it still there and it's it's still moving in growing especially in Europe.
I see than I've seen new countries.
Come on say, so I think I think thats still going to be there.
I think it will be overshadowed by the Kobin news, but I think in agriculture segments. It's something everyone is very very concerned about.
And you know the AG markets right now are really really tough.
Around the world, So just going to be it it's going to be a challenging environment, but we had the right products and services, they're going to help our customers because they need to make sure that they keep their bio security issues very very high.
Excellent. Thank you.
Next year.
Our next question today comes from David Westenberg Guggenheim Securities. Please go ahead.
Hi, Thanks for taking the question can you talk about cattle macro on your exposure to that market on.
Companies like Langkow fiber, our all calling out a weakness in the cattle market does an oversupply of cattle a effect market areas like your genomics business, you're right you're detectable needles and then I think you also called out you're up the I. If I heard you correctly in terms of doing well in that I can you tell us why there.
It might be a good European market with maybe being a little bit less robust than the last thank you.
Yeah sure David Yes.
You guys have heard me talk about this over and over about the cyclicality of the livestock market I'm, a quit talking about it because it hasn't gone up yet.
But it's not good I mean, the cattle markets are bad the swine producers are losing $10 ahead I saw something the other day, where.
You know in the U.S., we euthanized 400000 market weight animals, because we couldn't get them slaughtered hey estimate lightweight animals over a million were euthanized.
Swine producers are losing 10 Bucks ahead.
So yes, it's a very tough market I think though the genomics piece holds up well.
Because even within the us.
When you're breeding animals, you need you're going to make the right.
We need to make the right decisions about which animals to keep.
And which animals to use to improve the heard so that business has held up very well I think what Steve mentioned that is our vet instruments business, that's more of a durable goods business and Thats where.
So you've got a guy that's got a.
Product, whether it's a pig member or caf pull or something like that and where normally and replaced.
Every year. This year. He may so you know what I'm, just going to keep using it for another year and try to get everything out of it because I'm just lose.
I'm, losing money, so therefore, I can't buy a new ones. So.
So there were areas with the that will negatively impact of the business and I think you're seeing that in kind of the durable goods, whether it's the vet instruments are needles and syringes.
[music].
Not only the and the thing is that markets still going to be tough I think we've outperformed our competitors, which I'm proud of but it is a tough market.
Got it I appreciate so just in terms of quantifying the exposure Q2 cattle I mean is is there way to.
To give us that I know genomics is mostly cattle right I mean is that I'm.
Okay. That's fine Yeah, David just genomics is really we've got a nice spread between cattle poultry and swine.
So and the now companion is growing very very quickly. So I don't think we have an over exposure.
I would say that there I don't have that exact amount Steve can follow up with the Ana but.
We don't have an overexposure to cattle, we've got a really good diversification of the business.
I appreciate that and then.
In terms of again going onto the end market exposure I know if you didn't quantify it or qualify because there has always been never need I think you just mentioned in the last question. You've always you haven't had this customer concentration issue in the past, but now we're thinking about eating at restaurants versus.
Eating at home.
Is there a quantitative way or maybe a qualitative way to talk about your exposure to each in terms of percentage like percentage going to rent going to restaurants versus like for producer I mean, maybe this is impossible, but I would love to just know this on a go for basis, as we see maybe restaurants, piling and or or excess demand or if this uh huh.
It is around for longer than we expected.
Yeah, you only both Buddy.
No I think that.
And we can on data we can on certain customers because we know that their dedicated certain like that large. The example, again for that customer and like I don't know what Steve does with the fit together on top of butter, but most.
Times that only goes to those commercial type entities. So we know like the impact of that particular customer, but we do have customers that make the 50 bound to UBS and then they make the one ounce.
You know single serving pieces that.
Those also go to restaurants, but then can they move that to consumer setting and make a.
Stick so.
I don't have that for you today.
It goes it's a mix within the customer base.
Got it all right and I have about three more but I'm going to jump back in queue. Just ask one last one what was the organic growth in the quarter and if you maybe just or maybe give us that how much of an impact was acquisitions in this in this quarter.
Now I'll jump back in queue for a few more.
So yes, David organic we were down 1.9% organically and the the growth we talked about was 1.2 million of incremental revenue from act.
I'm sorry.
Thanks.
[music].
1.4 million from total.
1.4 million revenue from acquisitions for the quarter.
And about 3 million in total for the full year.
Okay.
All right. Thank you very much I got a bunch more but I'll jump back in Q.
Right, Okay daily.
And ladies and gentlemen, as a reminder, please ask your question. Please press Star then one.
Next question comes from Mark.
Please go ahead.
Thanks.
I Wonder if you could walk us through dairy both both Europe and us in terms of how you're thinking about the current market situation and how both of those issues resolved.
Sure so.
Dairy in the U.S. this kind of the same story, we've we've been repeating you saw early on Mark.
Like Brian really one of the pandemic really we want to unlock down kind of in March I don't know if you saw the news articles about the dairy producers dumping milk because of processors wouldn't take.
Again thats.
That's a function of kind of what I've talked about as that shift from.
The restaurant too.
No.
And I'll give you had kind of an anecdotal story with myself. So I have five kids and when we go out to eat.
It would always lot of times I don't order.
Because I know, they're all going over order and all those eat everybody else's stuff.
Right.
And I watch a lot of times, where.
The only half of the last you want to box or no I wouldn't want to boxers Senate sent it back.
That is tremendous waste in the system right you think about all that food when you're eating out even when you do and everyone listening I mean, how many times you actually the always take all the leftovers home Needham right.
Well, one that shifted in people stopped doing out they started making the right size. So even though people were eating the same amount the system became more efficient.
And therefore, we didn't have the wastage and you saw demand technically drop right because the waste as result of the system.
I think we're going to continue to have that.
For a while until we kind of get back into people eating out now again eating out is different I think we look across the restaurant chains.
Drive their businesses have done well people that have gone to remote and you know you see the delivery of Grubhub maneuvering its and all those are you starting to see you know people continue to drive that so I think I think thats going to its going to help but I don't think it's going to be a V shaped recovery were.
Everyone's going to be very comfortable I tell us to our group as of the days of.
I'd walk in to Mcdonald's and the people would get up and I take my hand, and I'd wipe off the table.
To get all the crimes off and then I'd sit down and that is my same hand to eat my Hamburger is gone I'm not doing that anymore.
All right.
So I think thats the same for the U.S. I see the same.
I see the same type of things for.
The European markets.
With that same supply chain and you still have constant erosion for other alternatives you know whether it's on them. So it coconut they continue to eat in the traditional milk segmentations.
So I think there is going to be tough for awhile.
That's very helpful.
I was hoping you could just.
Talk a little bit about the companion animal genetic space and what you think the longevity of that growth is you know when those are where there is new product at petco lots of people buy it but how how confident are you that this is a long term growth business.
I think it as a long term growth business and this is one of the businesses that actually benefit and I think from Cowen 19, I think people got home.
They were working from home and we saw a bump and.
Pet ownership.
And the the product that we offer is a.
As a.
Parentage product that tells you what is what's your dog made of is it half husky as it half malamute as apart.
Occur spaniel.
So we see.
We have a partnership with would Mars.
And as they are driving kind of that product within their own systems in the banfield blue approvals and receive phase of their internal network, we're saying that product grow internally within theirs.
And we're we're working on our next generation of offerings.
For that marketplace that could really be Newman, and an exciting and I am I don't want to talk too much about it because I don't want to give my competition too much of a heads up.
But today, we have the one product or we're going to have more and Thats why I think we're going to continue to grow in that space.
Super and just one last question does the Sandguard acquisition have a meaningful impact on your customer list.
I won't go was a pretty pretty broad company I'm just curious how the two stacked up next to each other.
I haven't seen the customer list, yet because it's technically not done I would hope it does right. So.
But I definitely something we're going to.
And they're going to be targeting is to make sure those customers now by the whole neogen portfolio.
Super Thank you.
Thanks Mark.
Our next question as a follow up then Westenberger Guggenheim Securities. Please go ahead.
Hi, Thank you for taking the <unk>.
A follow up on so just on that 3.5 million that you pointed out was the access from that disinfectants and the Sanitizers I can if it was that it had a very at a higher margin than the overall business I'm just kind of your margin target did beat me and I did want to get a sense for for how much of a lift that might have been.
Yeah.
It was higher than the.
Average cleaner and disinfectant margin, David and I would tell you that those were opportunistic sales.
I think they were.
They were priced appropriately but not.
Certainly not gouging.
But yes, they were higher margin products for that side of the business.
David I will tell you.
That animal safety team has done an outstanding job and reducing our cost of goods.
And and we're doing that across our whole businesses now it's.
It's challenging in this environment right when you need in raw material. Its insert short supply you just have to go get it but we are constantly looking at how can we leverage our size and scope.
And and negotiate better to continue to increase operating to increase the gross margin and in turn increase operating margins. So it's not just that it's we're actively working and have measures in place to continue to grow that gross margin line.
I appreciate it and then getting back had come to macro odd.
From from what I've been talking to the other companies that are involved in the food supply they talk about.
And being a little bit of improvement and the into food supply now yes. This quarter did not have any impacts from improvement in June.
If you are on a traditional quarter would you see can you confirm that there would have been a positive impact from food producers in June just to help us kind of think about.
The next quarter, I, and I don't need to be kind of short term, but I do have to tell a model that.
Well like.
I think from an end market standpoint.
You know, we're kind of like Steve said, we're cautiously optimistic.
But I think what people need to recognize is the internal operating system and covert as weird dead set in the middle of this this is not something that Mike is going to go away.
We and we see it around the world in different stages. So.
The environment of having to test employees, if you have a positive.
Quarantining, everyone that they came in contact with sending those employees home for the quarantine period doing a deep clean that has an impact on the productivity of the business and your ability to manufacture and meet customer needs.
I'm extremely proud that we have not had any reinfection rate.
At the company's so someone did test positive at Neogen It was outside.
And we were able to control isolate quarantine and claim that it didnt reinfected anybody else, but these are things that you know these are incidents that we're dealing with all the time in locations all around the world.
And as a constant struggle.
To continue to operate in those types of environments.
If you lose a suite because somebody went to.
Somebody's birthday party and were exposed and they brought covidien and we have to shut down a whole suite.
We have shut down the whole suite, we have to send everybody home deep clean and we try to get other workers to come in step up but we just don't have excess manpower laying around so.
It will be in extremely challenging operating environment.
For a while I mean people asking me or is this the second wave. This is still the first wave I'm unclear as to what falls going look like.
From an operating standpoint.
So.
But what we're focusing on is what are we doing better than everybody else right. So I saw no and David I think it was yours that said you know market was down 11.
We were down one for the quarter.
No I'm proud of that I think the team outperformed the market. That's what we're going to continue to do we can't control of the general markets doing what we're going to outperform everybody else.
Got it okay.
In terms of expectations for new products, because that's maybe a good segue no. You said you had been keeping employees healthy.
Can you talk about your expectations for new part a new product left and in then in the next year and then you know maybe we can even out in commentary from from your products that you. Just recently launched like Raptor and in Listeria I'm, just kind of trying to what I'm basically trying to do it impacts from maybe a delay in new product launches or maybe.
Winning market share in this kind of market might be a little bit tougher than in and regular market, suggesting commentary on on how you can you maybe use these new products to grow in the next year.
Would be helpful. Yeah, I think and thing Dave in the second half your thing is right is it.
We're not we're not getting delayed on the product launch, but I think rapid adoption of new technology. In this environment is a little bit more challenging because you can't go to their facility and help them.
Quantify and show them how to do it right. It has to be done virtually so it's not impossible, but it's a little bit more cumbersome. So I do think adoption rates couldn't be slower than what we've traditionally seen but we've got some we have some great. Thanks, Scott I mean are.
Our next Gen. Solaris is a fantastic new piece of equipment is.
I will tell you that from our initial forecast.
We sold.
All units from the initial forecast even before we launched.
So sales team is really happy operations is really upset because they want him back order before leaving launch the product.
Right, but thats great news.
We have.
Another significant launch coming this quarter.
Next month, we're really excited about that I think you guys are going to see.
And we've got other things coming off the line. This year that we've got a number of new products coming that we think are going to be really success successful, helping us grow short term and long term.
Got it yeah I would ask my my fair share already so I'll take the rest offline, but I got asked a question everyone's wondering Steve what are you using the 50 pound butter for.
[laughter], that's pretty personal question.
[laughter] spacing hi, Thanks to these are big Big area. This is leave it at that.
Thanks, everyone is because the question answer session I wouldn't turn the conference back over to the management team for any final remarks.
Thanks Rocco.
I just want to thank everyone again for for joining us today.
As we talked about we're really proud of the way the team reacted and react.
Acted in reacted in the quarter.
We're continuing to use that same type of.
Planning and proactive thought process to continue to help us drive the business forward.
Again, we're focusing on keeping our customer safe in the business safe.
I think we're doing that and I would just encourage all of you to stay safe where are your face masks and keep watching your hands. So.
Thank you for joining us today.
Thank you Sir Thank you all for joining todays presentation. This concludes today's conference you may now disconnect your lines another wonderful back.