Q1 2021 Neogen Corp Earnings Call
Good day and welcome to the Neogen first corner first quarter fiscal year 2021 earnings results Conference call.
Participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After todays presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
Now to turn the conference over to John Adams, President and CEO. Please go ahead.
Thank you Matt.
Good morning, and welcome to our regular quarterly conference call for investors and analysts.
Today, we will be reporting on the first quarter or 2021 fiscal year, which ended on August 31st.
As usual some of the statements made here today could be termed as forward looking statements. These statements of course are subject to certain risks and uncertainties. The actual results may differ from those that we discuss today.
The risks associated with our business are covered in part of the company's form 10-K as filed with the Securities and Exchange Commission.
In addition to those of you are joining US live telephone conference I also welcome welcome those are you're joining us via the Internet.
Following our prepared comments. This morning, we'll entertain questions from participants who are joined Thislife conference.
I'm joined this morning at an appropriate social distaste for Steve Corlanor, Chief Financial Officer, who will provide financial details on the results for quarter.
We're pleased to report increased revenues and net income compared to our prior year's fiscal or prior years first quarter are very difficult operating environment.
Well, we are developing and marketing products and services to help protect and enhance the global food supply. We continue to take extraordinary measures to protect our business and employees.
We remain vigilant with our cobot 19 safety measures, we continue to see cases around the world affect our business.
Through it all our employees have done an outstanding job of adapting to these constant challenges to deliver these excellent results for the quarter. They worked.
They worked extremely hard and I'm very proud of that.
Well this is far from over and it's not time to let up <unk>.
We continue to implement safety measures we've had in place since the beginning of the pandemic underwritten by refine and develop new best practices.
We're constantly adding to our list of alternate suppliers are essential raw materials as well as seeking even more efficiencies with our production facilities.
Everyone is feeling the effects of colder 19.
We've had numerous customers go out of business, where others have dramatically cut staff and output.
Adaptability is vital now is customer demands and raw material supplies are impacted daily.
The food livestock industries continue to be adversely affected by the supply chain disruption that started months ago.
Let me give an example, then.
The National Restaurant Association recently did a survey of its members after six months of the pandemic and from one in six restaurants in the U.S., we either closed for an extended period or close permanently.
That means more than 100000 restaurants, and the rest loan that will close at least temporarily with an associated to estimate that the domestic restaurant industry will lose $240 billion in sales by the end of 2020.
Just thinking about this hundred thousand close restaurants, and a 240 billion or lost sales and their effects on our pre pandemic food chain.
But at the current was foodservice catering and similar businesses that have been devastated by the pandemic and the restaurant shipped to customers eating a far greater percentage of their mills huh.
Economic recovery to pre pandemic levels was gonna take many months of my ears.
The immediate future is further cloud is the northern hemisphere begins to enter its flu season.
As we face. These challenges we will continue to develop contingency plans across our businesses to prepare for what may come.
Well the futures unclear due to colder 19, what is clear is the future of Neogen.
We will find opportunities for growth and development in all of our markets. Little later I will address some of those opportunities have arisen for Neogen do a pandemic as well as some of the very encouraging developments from our global R&D groups before I do I'm going to pass it over to Steve to run down the numbers work.
Well, thanks, John and welcome to everyone listening this morning.
Before I talk about the numbers I'd like to Echo John's comments about how proud we are of our global team.
For how seriously they're taking their responsibilities to keep their fellow employees safe during this pandemic and for the results they've been able to produce in this very difficult operating environment.
Earlier today, we issued a press release announcing the results for our first quarter, which ended on August 31st revenues for the quarter were $109.3 million compared to 101.4 million in the same quarter a year ago.
Net income for the quarter was $15.9 million or 30 cents, a share compared to 14.7 million or 28 cents a share a year ago.
In the next few minutes I'll give you some color around the numbers and I'll start by talking about the currency impacts to the business in the first quarter, which were mixed.
The pound and the euro were each up 3% against the dollar compared to the first quarter fiscal 2020, which provided a bit of tailwind for our European results, but.
The Brazilian real and the Mexican peso on the other hand were 27% and 14% lower on average than in last years first quarter.
Revenues would have been 2.1 million higher for the first quarter in a neutral currency environment.
Almost all of that impact was felt in the food safety segment as the majority of our international businesses report in through this segment.
Revenue for the food safety segment were 54.2 million in the first quarter of fiscal 2021, an increase of 6% compared to 51 million even in last year's first quarter revenue.
The revenue gains in the segment were driven by a $2.4 million increase at our English eight England based manufacturer of cleaners and disinfectants on sales of hand, sanitizer products to the UK National Health service.
In a 1.2 million an increase in sales in China with gains across the product portfolio, and particularly in cleaners, and disinfectants to kind of combat the African swine fever and cold at 19.
At our Brazilian operations 2021, first quarter sales increased 38% in local currency and included the large nonrecurring insecticide sales to government health organization in Nicaragua.
Additionally, sales were strong across our entire portfolio of products, including a 16% increase in dairy drug residue test kits continued market penetration and aflatoxin test kits and growth in Rodenticides and genomic services.
However, negative currency translation, resulting from the reality, though devaluation lowered the growth reported from Brazil to 1% in U.S. dollars.
At Neogen Latino America, 13% growth in revenues in local currency in the first quarter resulted primarily from increased sales of cleaners, disinfectants and sanitizers, mostly in Mexico adjusting for the devaluation of the peso relative to the dollar resulted in a revenue decline of 2%.
You S. dollars compared to last years first quarter.
Combined revenues at our UK operations increased 21%, primarily resulting from a large order of hand, sanitizers to the UK government's health organization and strong cleaner and disinfectant sales to Asia Pacific Africa, and the Middle East.
Histamine test kit sales also contributed to the growth due to increased business from tuna producers as did our Raptor test system for Mike attacks on.
Our domestic food safety business grew 2% for the quarter.
As we discussed on our year end call. There is still a significant amount of disruption in the food processing and food production markets with certain of our customers serving the grocery market is doing very well well other customer serving bars restaurants and other commercial foodservice are struggling.
But there are there were areas of growth within the business.
We introduced our next generation Slayer system in late July two U.S. markets and they have had strong positive reactions and great initial demand for the system, which is used to detect spoilage organisms, such as yeast and mold and processed foods.
On a worldwide basis, our test to quickly detect environmental listeria and food processing plant Listeria right now continues to gain acceptance in the market with revenues up 9% in the quarter.
Revenues for our industry, leading product line to detect allergen contamination in foods were down 3% in the quarter and our Accupoint line, which is used to detect general sanitation and cleanliness and food processing environments declined 7%.
Each the result of lower market demand end market demand reflective of the continued disruption at our customers and in our markets.
[noise] natural toxin product sales increased 1% compares to last year's first quarter as continued market share gains on aflatoxin kit sales in Brazil were largely erased by the revenue to dollar currency conversion higher deal in sales in the prior year in Europe from an outbreak did not repeat in similar.
Literally domestic sales were flat due to clean crops. So far this year.
Revenues for our test to detect the presence of antibiotics in milk declined by 33% in the quarter as customers in Europe work through distributor inventory right.
Recall that in January we announced that we terminated the exclusive rights to distribute these products with our European distributor and we're now ramping up our direct sales force for that product line.
The animal safety segment recorded revenues of $55.1 million for the quarter up 9% over the 50.4 million achieved in last years first quarter.
The growth was led by a 3 million dollar increase in sales of Rodenticides, resulting from rodent pressures across the U.S., particularly in the Pacific Northwest.
Revenues at our Austrian salient operations Rose 1.2 million on the strength of increases in sheep and cattle genomic testing and the incremental revenues, resulting from our acquisition of cell Bio sciences in March of this year.
Revenues at our domestic genomics testing and bio informatics business located in Lincoln, Nebraska increased $1 million and continued market share gains in the companion animal parentage, and wellness testing space and sales from our recent launch of a chip for shrimp testing, which offset lower sales to a large poultry customer.
Or has it moved to one of our lower density lower cost chips.
Domestic commercial beef and dairy sales were also sluggish in the quarter. The result of the cobot outbreaks in our customer supply chains and continued poor economic conditions in dairy markets.
Worldwide, our genomics revenues increased 11% with some additional growth in China and increased testing in the swine market.
[noise] animal care products sold out of our Lexington, Kentucky based manufacturing and distributing center, such as vitamin Injectables equine and small animal supplements wound care and antibiotic products were up 8%. These increases were somewhat offset by a 25% decrease in sales of dairy supplies, which we did.
Attributed for a number of years for a large manufacturer of dairy equipment, our distribution agreement with that manufacturer ended in June of this year.
Sales of veterinary instruments, and disposables, such as needles, and syringes declined 8% for the quarter on lower sales to our larger animal health distributors.
Life Science product revenues declined about 400000, the result of lower forensic kits sales to commercial labs as they process fewer samples due to corporate related shutdowns slowdowns.
Our domestic cleaner and disinfectant business benefited from a 31% increase in hand, sanitizers and wipes, resulting from cold at 19 demand.
Almost offset by lower sales of water treatment products parents.
Our insecticides revenues in the U.S. rose, 6% boosted by our purchase in July of the Sandguard product line.
Gross margins were 46% for the quarter compared to 47.5% in last year's first quarter lower margins are primarily the result of the shift in product mix and the food safety segment toward products, which have lower gross margins the impact of the stronger dollar on our product costs in Mexico and Brazil.
And increased duties free then and other overhead costs in our Lansing operations.
Partially offset by the increased sales were down the sides, a higher margin product and increased efficiencies at our Australian operations due to increased throughput in the animal safety segment.
Overall, our operating expenses dropped 2% compared to last year's first quarter, primarily the result of a 6% reduction in our sales and marketing spend.
Lower global travel trade show and other onsite come or customer facing activities caused by travel restrictions from the cobot pandemic drove the decrease in expense here.
General and administrative expenses rose, 3% for the quarter due primarily to increased compensation and legal and professional fees.
Our R&D expenses increased 5% over the prior year quarter and outside services related to the launch of the next generation Soleris product, which as I said was launched in July and as Weve been receiving very positive reviews.
Operating income for the first quarter was $18.9 million compared to 16.3 million in last year's first quarter with the increased the result of the higher sales and gross margins and reduced operating expenses.
Expressed as a percent of revenues operating income was 17.3% compared to 16% even in last years first quarter.
We recorded 722000, and then interest income for the quarter and this compares to 1.5 million last year, the lower <unk>. The lower amount recorded despite was despite increased cash balances reflect the tremendous decline in yield and fixed income investments.
As an example, the rate one year Treasury bills, which was 1.8% in last year's first quarter decline to 12 basis points. This year as the financial markets reacted to the pandemic.
Our effective tax rate for the first quarter was 19.9% compared to 17% even in last years first quarter.
Last year's effective rate was lower due in large part to $769000 in tax benefits recognized from the exercise of stock options. This year that comparable comparable number was 421000.
I've mentioned on previous calls that the volume of option exercises and the gain on those exercise.
Exercises can result in significant fluctuations in the effective tax rate for the comparative periods.
Another factor impacting the higher tax rate for this year's first quarter was a lower benefit recognized from foreign derived income due to the timing of full year estimated income from our international operations.
On the balance sheet, our net receivable balances declined by 7 million compared to year end and our collection period dropped from 68 days at year end to 61 days for the first quarter and we feel good about those strong collections, particularly in this environment.
Inventory increased by two and a half million or 3% primarily due to increases in the UK for long lead time items.
As discussed on our year end call given the uncertainty around the supply chain caused by coated and potential Brexit disruptions. We believe it's prudent to carry a little bit more inventories and we than we normally might.
We continue to generate cash nicely and produce 25 million in cash from operations during the quarter, our strong cash position gives us the flexibility to pursue just about any of the many growth opportunities we have in front of us.
I'll stop here and again emphasize that we're proud of the team and their overall performance in what continues to be a very challenging operating environment. We can.
We capitalized on a number of market opportunities during the quarter and we continue to be excited about both our current business and the new products that we're launching this year.
And as always we appreciate the support of our shareholders and all those listening on the call today.
This point I'll turn it back to John for further comment thanks, Steve.
You know as I previously said, our mission matters today more than ever as the world flights through this crisis to eventually recover there are a few things more important than a continuing safe and plentiful food supply.
Neogen was built to respond in times of crisis and they have responded we've done our best to get to assist the broader civic efforts to come back Koeppen Knight team are making are sanitizers and disinfectants available outside of our traditional agriculture veterinary markets.
Another example of an opportunity for Neogen that was created by the pandemic as sales of our test to detect system in that Steve talked about it's a spoilage indicator and some fish and especially used them to not sales.
Sales of Cantuta have spiked as consumers have saw less expensive sources of protein to consume at home and sales of our test kits for histamine increased by 20% compared to the prior year quarter.
We've also benefited from the now well documented increase of spending on pets, especially dogs and cats during the cobot era.
Our genomic operations recently, Mark the 2 million test performed on companion animal samples, mostly for dog breed of identification, but now expanding into chain as keen on wellness tests.
As we respond to the pandemic. We've also recently launched some significant new products from our R&D pipeline.
As mentioned before in July we launched our new Soleris next generation, which is an automatic test system that detects micro organisms, such as Houston mold in a fraction of the time of traditional testing methods.
As Steve mentioned, we've had a tremendously positive market reaction is product launch, especially to the nutraceutical and cosmetic industries.
Just last week, we launched an improved test for Glu, which has been one of our major food allergen test it.
[music] test rapidly detects gluten food products raw ingredients and environmental samples.
What that means is companies can now use the same set the same method to test for allergens and food and environmental samples as opposed to using different methods for different sample types. We believe that this is a major advancement for one of our core product lines and we're in the final stages of development for similar improvements to more of a food allergen tests.
We also expect another major product launches in the coming months are going to be very successful. We're encouraged by many of our other developments in the quarter. For example, our revenues in China more than doubled for the quarter. Our management team. There is experienced and is working on and improve operating structure and growing our revenues across all of our product lines.
Our animal safety and genomics revenues have more than doubled in China, and we've had really solid broad based gains in the food safety side.
We're also encouraged by the initial performance of the companies we acquired within the past year that are now under new engine management.
In Australia, we added our food safety lined or animal safety genomics offerings and is providing very promising results in it.
In Italy, we're starting to see the benefits of Neogens ownership of our previous distributor there as we are in Argentina, Uruguay and Chile.
Through it all we've made gains where we can as we work to protect our employees and business and once again I'm extremely proud of our team has acted and reacted to this unprecedented business and social environment.
I'm sure that a lot of you have questions. So at this point I'm going to stop and open it up to a those who joined the call.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question. That's been a trust and you would like to withdraw. Your question. Please press Star then two at this time, we pause momentarily to assemble Iraq.
Hi, there.
Our first question comes from David Westenberg from Guggenheim Securities. David You are live. Please go ahead.
Hi, and thanks for taking my question and good job executing on a in a really challenging environment. So since then so I guess I'm going to start with with the Roses Rodenticide sales on <unk> I know, we're getting news articles about rodents, taking over New York City, I, just trying to kind of understand whether or not.
Hi, this pick up in sales or something that you think can increase and if you can maybe quantify what sort of a dentist sides, where worsens. We also.
We also kind of want to figure out that in a different segments and and take it kind of ties. There's an end rodenticides did very well in the quarter. So where we are trying to understand contribution for.
Contribution from Rodenticides, if that could be recurring in nature, there's a way to quantify that nor did I understand you know Ah also in terms of what the sanitation products that might be a cobot left our Hank I get Thats, a long question sorry about that [laughter].
Sorry.
Well the big lift for us on the road done aside it was really as Steve talked about in the Pacific Northwest and the AG market.
So we had yeah really there was a really strong outbreak kind of out there we are seeing in our worldwide markets. It lifted our PCL, which is to the more metropolitan areas, but that's a market that is relatively new the new engine, but it's one that we're pretty excited about and see some long term growth opportunities and.
In the cleaners and disinfectants as Steve mentioned, you saw we had you know increases in hand, sanitizers in the UK, where we're working with the UK government you know.
We continue to look for opportunities there I think when we stepped up at the beginning of the outbreak and provided sanitizers outside of the market. There's a lot of new customers we picked up.
Everybody else has kind of gotten there.
Supply chain in order. So there's a lot of sanitizer pressure, there's not a run on it like there was but we're seeing pretty good retention rate for the customers that we picked up.
Early in the year.
Got it Okay, and then another I'm asking tend to kind of quantify odd.
You got contribution to stand guard, but it was only about a month and I know you give an organic revenue number and you know we could subtract out what what the the topline as and [laughter] and kind of figure out what acquisitions did but if there was a couple of pieces I can probably I'd just try to get out for in terms of trying to model out I would you be able to call.
Stand guard anywhere from one month I'd Die you, we'd just times that by 12 to get kind of the run rate for stand Guard and then I'm kind of the distributor acquisition contributions.
If you can't give a specific if you if you can maybe give us a a qualitative oh kind of way to think about it. So our models next year a little correct.
Okay, Steve I'll handle that one.
Thanks, John you're welcome to do [laughter] Ah So David on the stand guard product, we had about $160000 of revenue for that product.
Remember, we we just bought it right near the end of July we just kinda launched it into our markets. So its just starting off but we're really encouraged about the prospects for the product line.
On the distributors that we purchased I think it's important to note that we.
We were doing business with a number of those distributors already in those numbers were already somewhat in our food safety numbers. So you're really seeing incremental revenues there right. So it's really tough to call out and say well, Chile was X because it was already where we're getting the incremental margin there, but as John said.
Okay.
We're worksite is about the opportunities in those markets, we're staffing them off we're kind of putting that neogen infrastructure in and we're just excited about the future of those businesses.
I think I'd, probably stop there on that.
Got it and just further on that question.
Is it responsible too wide times that 161 hundred $60000 by by 12 to get the your run rate or is there just too much kind of noise and you just got the asset and you know I am not it's a little early you know there's seasonality in that product and that's a little early <unk>.
I wouldn't I wouldn't do that as a straight run rate will have a little bit more clarity after next quarter probably.
God, we are happy with it.
[laughter] good all right.
Just one more question before I hop in the queue I don't want to hog all the questions here I. Just lastly on competition are you seeing anything differently from maybe some of the odd the players in the life science tools traditional ones like waters or Perkinelmer I know Perkinelmer I think they launched a a micro toxin tasks are you seeing that.
In New York, He had and kind of a impact on the market and then you know as a a a follow up to that we when you do see competitive products do you is that kind of one of the things where you step on the gas in terms of R&D or is that one of the things where you maybe step on the gas in terms of of acquisitions.
So the answer is yes.
[music].
So we have seen competitors and they continue to launch right you saw hygiene to launch a new ATP reader you saw perkinelmer by their business in China before the cobot and you see others that are buying up smaller.
Maybe a small portfolio of allergen testing or others. So there's continued competition and that's why you know our strategy is like we've talked about we continue to invest in R&D. So you know.
You know I think that goes right hand in hand, with what we just launched the gluten test where before you were having to do a test to test for raw materials for gluten and on a separate test to test environmental samples to separate tests on two separate ways. I know, we have one to us that's going to be much simpler for the customer when they want to buy one gluten test to make.
Do it across the markets so.
So yeah, we were continuing to invest in R&D to stay ahead, we do think there's opportunities for acquisitions.
You know we've got a very nice pipeline that we're looking at we've got things that we're in different stages of the pipeline and we're going to keep executing on that strategy.
Great I'll hop back in queue.
Thanks, David.
Our next question comes from John Kreger from William Blair, John You're alive. Please go ahead.
[noise] [noise] John either.
[noise] John.
Matt We may have to put John back down or move somebody else can you hear me John.
Yeah, I can hear you now John Okay great.
So my question was trying to get at your view of how the markets are going to play out in the coming months. He talked about the fact that there's still a lot of uncertainty.
You guys were able to really show some nice sequential improvements in the money out of your business as we move into the colder season.
It from your perspective can the momentum continue, particularly Lee in the food service side or are you thinking that maybe things may even slow down a little bit as.
Oh restaurants have to deal with the fact that they can't just rely on outdoor seating anymore.
Yeah, I think I think it's.
I think it's going to be tough I mean.
It seems like every quarter is a year right I mean, the way the team has to react and Jim.
[noise] change to the adapting environment and it's from a standpoint of not only what's happening with the customers, but raw material supplies I mean.
There are many cases, where we have something that is a minuscule raw material to us.
We're all of a sudden.
They haven't called it outbreak and they're shut down for two months and then it's you know well wait a minute we didn't realize over that critical because it's so far down the list, but we've done a really good job of quantify.
Quantifying alternative suppliers so.
No I I'm optimistic and I'm not optimistic on the market I'm optimistic on the engine.
I think the market is going to continue to be tough I think we're going to we're going to continue to see some challenges.
I don't know, what's going to happen in the flu season, but I'm nervous about it you know.
Oddly enough, we've seen a bigger impact in this quarter on a.
Unemployment is cobrand related than last quarter.
And you wouldn't think that you're.
Because with all the news and talk but around the world I just think it's.
Couple of things that you know the weather was nice when people want to get outside and I'm like everybody else I am worn out of covance and worn out or being by myself and my office and all the video conferences, but we have to stay vigilant because.
That's social distancing is going to protect our employees and protect the business. So.
So we're really doing everything we can to make sure everybody is still I'm still on point here, we think there's opportunities to help customers. We think that we've got things that are going to help.
That are going to help them run their business better so.
As they're approaching opportunities and they can't be in the plants, that's a great opportunity for Neogen analytics.
To be able to show them, what they need without physically being in the facility and show them, what they need across multiple sites. So we think we've got a technology platform.
It's going to allow us to only accelerate you know this.
On this type of environment, and and I think that goes to a lot of things that are happening I don't know if you guys saw that you know freight gannett's just put out.
The F.D.A. rule to advance traits ability on certain foods under the new Smart Air you know smarter Food Act so.
You know that plays into what we're doing I mean, I'm. So glad we started down that path over a year ago and developing out our analytics in our block chain because now the industry is coming to where we're going and I think it's going to be a real opportunity for us.
That's helpful. Thank you can you give us an update on African swine fever, and how it's impacting a year swine business and your customers in that and that species.
Yeah. So John that's a that's something everybody seems to be forgetting about with covance, but it is still a major issue and if if total wasn't around this is what we'd be talking about you saw the out you know they found one that bore on the border of Germany, and Poland in China band German airports support.
And you know that's $867 million of exports for Germany.
Well, that's why you saw are kinda pork futures bump.
You know the hog guys were getting killed in April and May they were losing the producers are losing almost.
Almost $50 I had no that coincides with record profits for or the processors at the same time because of raw materials are so cheap but.
But that's been paired now I mean, there's still losing money, but it's only down to $10 ahead.
So I'm hopeful that those markets are going to strengthen and we saw that across a lot of the markets. You know John the boiler price the broiler prices have come off their lows in April and May.
It may there were making about 52 cents a pound and now it's up to about 63.
The five year average is 88, so we'd like to see them get back to historical averages layer guys are making money today.
Class three milk has come off its lows it was $12 and now it's you know it was up to 21 in July is now to about 17 in August but you know that's enough for that group to make money.
The beep guys were losing money about $10 and.
April May June there now at break even or a little better so.
So I you know I think the initial shock on the food supplies kind of worked its way through so I'm pretty optimistic or.
It's well I'm not let me put it it's nice to see the majority of our customers on the animal safety side, making money rather than losing money.
Great. Thank you one last one a solaris are you still in a back order position or have you been able to catch up with the initial orders.
We are still in a back order for a few products, but we've been able to trim that tremendously.
Great. Thank you told me that we've had great demand on our new product launch.
Excellent. Thanks.
Our next question comes from Mark Connelly from Stephens Mark you are live. Please go ahead.
Thanks, you know what part of the appeal of Listeria right now was that was a huge gap between what the old tests could do a new one which which not only increased demand, but it changed the incentive some users had to begin testing where they didnt before is there anything in this gluten test.
Has the kind of characteristics that could actually change the audience for your testing with that one did.
I think I think mark better analogy might be Solaris.
Our soleris nexgen traditional methods for Solaris is to test for that used in mold is five to seven days.
And we can do it in 28 or 24 to 48 hours.
So just like you're talking about with L. around where it.
Did you know that was a traditional test it took five days and we did it in less than 24.
It kind of change the way that they looked at it and moved it more to an environmental test and it could I see that same type opportunity for Solaris right. Okay.
Simona mentally there should we think about so we should think about soleris that with the gluten test we've really done should probably just think of as building out the.
The the reveal portfolio.
I do and I think you know it is a major convenience for the customer to not have to have two separate test, whether they're going to do environmental or ingredient or.
Environmental ingredient or finished product. They just have to put one test off the shelf for all their needs.
Okay that makes sense. So so just one well two related questions I'm sure are you start.
Sure are you starting to see any kogan 19 changes at your customers that you think are going to be permanent permanent in terms of of protocols that may be.
They've learned a little bit in this process and on a related note has has come in 19 can you.
Do you have in any change in your thinking about what you want to acquire.
Ah, yes, and yes, so not only with our customers, but also with US you know like we what we.
You know we talked about this earlier and Steve what was the number what percent of our kind of back office group one remote.
70% and if you think about that and how many are still remote.
Third.
Yeah, and you know we didn't come back to.
Pre covert looking.
We're looking at saying there are certain jobs within our <unk>.
Our business that they were here that can work remotely and they've been very successful working remotely so.
So.
We really challenge the team to say what do we learn to what's the best practice coming out a code that we can take forward and some of it is the remote workforce.
Other is how we interact with the customers I think you know like I've talked about cost.
Customers have changed in the way, we interact you're going to have less face to face meetings going forward right for a while.
And we've been able to really develop and adapt.
Because if you think about even our new Solaris equipment installed a lot of those were doing remote we.
We have set up our virtual items, we've got virtual installations, we have training materials.
You too based training materials, it's really changed the way we've talked about interacting with the customers that has made us very efficient and I think made us better right and so I think that's going to continue.
To be a positive now on the acquisition side I think we have to look at those types of opportunities you know we've talked about.
You know they have to rule on trace ability I think that's going to continue the U.S.J. just put out a plan many per shares put out a plan.
Yesterday or the day before about how to reduce salmonella and the food chain and you know, we're getting ready to launch our.
Our salmonella to us so I think we're.
We're heading down the right path, we're moving in sync with the industry and the government and.
And I think we'll continue to find new ways to address customer needs that we haven't done in the past that's going to keep us on the front front end of things.
Super Thank you.
As a reminder, if you have a question. Please press star then one to be joined into the queue. Our next question comes from David Westenberg from Guggenheim Securities. David You are live. Please go ahead.
Hi, and thanks for taking the follow up so I can you just talk about potential additional government contracts I believe that you can.
Called out something in the prepared remarks, I should we be expecting mark maybe contract wins, if they are in the hopper for this year and I don't know if you can quantify or give us ballpark <unk> on what kind of a contribution from that kind of thing could could look like.
Yeah, a lot of those tenders are international tenders.
And.
What's challenging with some of those David as they may be a three year tender and you win the tender, but they don't take the product for six months or seven months, depending on the government if they have any money or not so even though we win the tender we don't get to recognize any revenue for a time period. After we win the tender. So there there are little bit there.
Great when you get them they are hard to forecast, but we do see it as an opportunity because you know as a large player in the market place, we're able to efficiently supply those customers in a way that they really appreciate so.
We continue to push on those types of opportunities around the world.
I can't really do a good job and I don't think Steve can do.
I can do it either forecasting what that's going to look like just because the way that they do.
They pay and the way that they come in.
Got it Okay and then can you just maybe comment on what might be a a little bit more color on the drags on margin caught a little bit of stuff, but I you know I I think you called out the Rodenticides are a higher margin product and they did really well in the quarter I, maybe I heard that wrong, and then I've traditionally thought of genomics as being a higher margin product. So.
But that that was the only count that did Miss me in the quarter. So I was thinking if there's anything to call out that I need to talk to worry about.
No I mean, I think Steve called on genomics, we had one big customer and it was really an internal product mix did that change the way that they were.
Using our product to a lower density chip, which was.
Unfortunately for us its its higher volume lower margin, but its a lower density chip. So it really was a change where the large poultry customer that affected the margins in genomics.
No I mean, we just saw that you know I think the big challenges you got people that are tightening their belts just like everybody else business is tough environment is tough and but we're going to continue to grow and find opportunities and keep pushing forward.
Perfect. Okay. So you should just to clarify genomics is a is not necessarily a at a margin benefit I I don't sorry, I had that wrong, because I thought it was a margin Oh I'm. So within them well then genomics there was a switch genomics is a margin benefit within the total mix for the company.
Got it Okay, and then and then I guess lastly, I mean in terms of growth rate expectations. I. You know maybe next year or you still see yourself as is traditional gene in in Neo January where you guys kind of say you know we're a high single digit growing business is it that that's still the.
Yeah, you know the expectation for the business, maybe near term and long term I you know put another way.
Yeah, well I hope it in [laughter], Yeah look I'd love to get a little help from the industry.
You know I think you know like we talked about last year the market last quarter than market was down 11, 'em. We were relatively flat I think the market was down two to three on food safety and we were up eight so we're outperforming the market I'd love to get a little tailwind from the market, but I don't think that's going to happen you know from a couple of quarters, but that.
But that doesn't stop us from growing.
Thank you for taking my follow that.
Yep.
Thanks, David.
Our next question comes from Jon Braatz from Kansas City Capital John You're alive. Please go ahead good morning, Joe.
On if there was a significant outbreak of African swine fever in Europe, how might that compare to the impact of the African swine fever had on and in China in terms of maybe sales of just your disinfecting products and cleaning products I'm sort of.
Trying to get an idea of what how you're up my might be same or different than the chain.
Then the China.
Yeah, I think the thanks, John Thanks for the question. The the difference is the type of farming swine farming between the two regions. So when you think about China, there, even though there's large industrial firms. There's so many backyard farms that when the disease spread its just spread like wildfire.
Because it was all those backyard hogs nose to nose touching offensive just spread through the whole country.
Europe is going to have much better biosecurity measures so while the outbreak.
We'll be could be severe and devastating for the industry I don't think it will be as big a ramification from an economic standpoint as it did in Asia now.
No that's still benefit us from a standpoint of increased hygiene protocols and increased cleaning and frequency right.
Right. So if you.
If you or you know if your process was you were going to clean out that barn.
Home between lots of hogs, and you may cleanup disinfectant and then bringing the next low and I can see very easily where they were clean and disinfect a cleaner disinfectant user ATP test to make sure. There was nothing left over clean it again, and then bringing hogs.
Okay is the bio security protocol in.
In the hog farms in Europe.
As a you know up to see U.S. standards I've been to a couple of Oh, yes, okay. Okay, Yeah, I'm, especially in Western Europe, I mean, very sophisticated and again I I thought so all right. Thank you very much on yeah. Thank you.
This concludes our question and answer session I'd like to turn the conference back over to John Hayden President CEO for any closing remarks.
Great. Thank you I think Matt and thank you all for joining us today and if you haven't already you know please make sure. The return your proxy votes via email and whether you vote via email or not you're certainly welcome to attend our virtual annual meeting, which is going to be Thursday October eight so.
So if you'd like to attend please contact route Poland or if you have any questions on how to participate. So thank you all very much we appreciate your support.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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