Q4 2021 Neogen Corp Earnings Call
[music].
Good day and welcome to the Neogen fiscal year 2021 year and earnings call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. You ask a question you May Press Star then 1 on your touch.
And on phone and to withdraw your question. Please press Star then 2 please note. This event is being recorded I would now like to turn the conference over to John 8 and President and CEO. Please go ahead Sir.
Thank you Chuck.
Good morning, everyone and welcome to our regular quarterly conference call for investors and analysts.
And they will be reporting on our fourth quarter, and our fall 2020, 1 fiscal year, which ended May 31.
As usual some of the statements made here today could be termed as forward looking statements. These statements are subject to certain risks and uncertainties and our actual results may differ from those that we discuss today.
The risks associated with our business are covered in part and the company's form 10-K as filed with the Securities and Exchange Commission.
In addition to those of you joining us for live telephone conference I also welcome those of you participating via the Internet.
Following our prepared comments. This morning, we will entertain questions from conference attendees and I'm joined this morning by our Chief Financial Officer, Steve Quinlan, who will provide detail on our results for the quarter and the year.
Yeah.
Well, we're beginning to see some relief due to the rollout of COVID-19, vaccinations, particularly in the United States Europe, and Latin America, we recognize that the pandemic is a global issue and as a global company. We remain vigilant continually monitoring the spread of any variance and any lockdowns and go into effect.
And we eagerly await our new normal whatever that is going to look like and we stand ready for whatever comes our way.
Well this year has been challenging our dedication to serving our global community has not wavered and.
And it was mentioned in the press release this morning.
We're pleased to report record top line growth.
Oh, well, we took the appropriate steps to protect our people focused on remaining connected with our customers and grow our business we.
We recognize the important role, we play and protecting the global food supply and keeping people animals and food safe, especially during a global pandemic.
And more as a leader in the food and animal safety markets. We remain focused on continuing to innovate for our customers across our major product categories.
To ensure food supply networks across the globe remain as safe as possible and I will further elaborate on some of our breakthrough products and a few minutes.
We finished our fiscal year with a very strong fourth quarter reporting an increase of 17% over the prior year and.
As we began to see key areas of our business like our food allergen test kits rebound from the lows of COVID-19 of the COVID-19 pandemic.
And what's been a challenging year I'm extremely proud of our Neogen team members and their results.
The new products that we launched in fiscal year, 'twenty, 1 and help to lead this growth and all areas of our business.
Despite our inability to travel and conduct much business physically face to face. Our teams have continued to innovate and connect with our customers, providing new solutions and are making it easier than ever to detect potential hazards and the global food supply.
You know I've mentioned and Soliris LNG system on past calls, but I wanted to do it again. This next generation spoilage detection system, which we launched in July of 2020.
Evaluates microbial activity and provides quality diagnostic the customers and the food and beverage nutraceutical cosmetics and cannabis industries, helping.
Helping us to expand and our food safety mission.
And the fourth quarter alone and we saw soliris equipment sales more than doubled over last year, bringing the growth of 64% on the year.
In addition to Soliris and G. We recently relaunched our direct care Kenai and hyperthyroidism supplement and sales have taken off very nicely as we regained share after leaving that market and 2016.
Our December acquisition of magazine and increased sales and our food safety segment, especially in the fourth quarter as we've continued to integrate the company and their expertise and food quality and nutrition into our existing business and.
<unk> diagnostic assay kits and reagents are used to measure dietary fiber polysaccharides, and sugars and acid such as lactose and <unk>.
Acquisitions added more products for our portfolio, which in turn have allowed us to offer more solutions to help meet the needs of our customers.
We wrapped up our 2021 full fiscal year with revenue growth of 12% with double digit increases and both our food and animal safety segments showcasing the continued strength of our 2 segments stretching across dozens of industries across the world All and all of a very strong performance and an incredibly challenging year I'm now going to turn it over to Steve.
To elaborate a little bit more on the quarter and the year.
Well, thanks, John and good morning to everyone on the call today before I start with the numbers I'd like to Echo John's comments and just how proud we are of the quarter. We're reporting on today. It was a very difficult year due to the pandemic, but our entire team pulled together and did an outstanding job working through the challenges while we're seeing some loosening.
And of restrictions were not yet through with these challenges we still have many individuals working remotely and are experiencing some adverse effects of supply chain and workforce shortages.
But as markets are opening up our sales team is starting to increase their business travel and we're working towards getting back to our normal operating conditions.
Earlier today, we issued a press release announcing the results of our fourth quarter and full year, which ended on May 31.
Revenues for the fourth quarter were $127.4 million compared to $109.1 million and the same quarter, a year ago, and that's and increased 17%.
For the full year revenues were $468.5 million, a 12% increase over last year's $418.2 million net.
Net income for the quarter was $15.8 million or 15 cents a share compared to $16.3 million a year ago also 15 cents a share.
Full year net income for fiscal 2021 was $60.9 million or <unk> 57, a share compared to $59.5 million or <unk> 56, a share for fiscal 2020.
You'll remember we announced a 2 for 1 stock split effective June 4 and these per share amounts have been adjusted to reflect this.
After several quarters of negative impact from currency, we had some good news and the fourth quarter as several currencies and in particular, the pound and peso strengthened against the dollar.
As a result, our comparative revenues were $3.3 million higher for the quarter than they would've been and a neutral currency environment.
And this offset currency headwinds for the first half of the year, resulting in a net negative currency impact of only 85000 and revenue for the full fiscal year and.
And the fourth quarter. We also benefited from our December 30th acquisition of Ireland based magazine and to a lesser extent our July 20th it to our July 2020 acquisition of the steam guard product line.
Excluding these acquisitions, our organic sales grew 14% and the fourth quarter and 9% for the year.
Overall revenues and the food safety segment increased 18% and the fourth quarter and 10% for the year.
Excluding the magazine acquisition and several international acquisitions of distributors in fiscal 'twenty. Our same store sales growth was an impressive 12% and the fourth quarter and 6% for the year.
And the first half of the year the food safety segment struggled with some core product lines as many of our customers were disrupted by Covid and we're forced into shutdowns or reduced capacity at their operations around the globe, we've seen business in many markets pick up and the last several months as restrictions are eliminated, but we still have adverse.
<unk> and several countries in which we have operations, such as India and Brazil.
Highlights and the food safety product line for the full year include a 19% increase and sales of our Solaris product line and for general and microbial testing such as Houston more.
This was driven by strong sales of our next generation instrument that Soliris and G that John was talking about which has exceeded our expectations and fiscal 2021 additional.
Additional placements of this instrument also resulted in higher sales of the consumables used for ongoing testing.
Sales of our natural toxin test kits increased 6%, while sales of our allergen test kits rose 5%.
Our <unk> product line, which monitors environmental sanitation and food processing environment was flat for the year as many customers lowered their purchase volumes earlier in the year because business was down in the fourth quarter. This line and increased 14%.
We recently launched a new reader for this product line and are excited about its potential for fiscal 'twenty 2.
Our listeria right now product continued its steady growth increasing 21%, while our culture media products grew 1% as lower ordering from a number of large domestic customers offset some new business to a manufacturer a vaccine manufacturer.
We continue to face adverse conditions with our drug residue and product line as those sales declined 30% in fiscal 'twenty 1 and.
And inability to make and personal sales calls during COVID-19 has hurt our ability to convert customers and after we ended our exclusive distribution agreement with our European distributor.
Continuing internationally sales were up 11% despite COVID-19 related challenges throughout most of the year and most of the countries we operate and.
Sales and the U K increased 10% with some of this growth coming from a stronger pound compared to the dollar.
Our increase in pounds was 4%.
The growth was led by a 22% increase and sales of cleaners, and disinfectants, primarily due to strong sales to China as that country continues to fight the African swine fever outbreak and COVID-19, as well as high high sales of hand, sanitizers to the UK government and our first quarter.
After a difficult year relating resulting from COVID-19 related Lockdowns and food safety sales are starting to increase with our 1 broth 1 plate micro workflow solution to detect listeria and salmonella and increased allergen testing leading the way.
Revenues and our Brazilian food safety operations increased 5% and U S. Dollar for the quarter led by a large increase and forensic test kit revenues and supply issues from a competitor allowed us to pick up additional business with customer.
Higher sales of aflatoxin test kits for corn.
Culture media and genomic services for the bolt on and market also contributed to their increase which was 10% for the quarter and Brazilian reais.
For the full year sales and Brazil increased 15% and local currency, but decreased 8% when converted to U S dollars as the Reais devalued significantly against the dollar, especially in the first half of this year.
Sales at our Mexican operations increased 2% for the quarter in pesos and this converted to a 17% increase and U S dollars due to that strengthening peso.
Broad based increases and her diagnostic test kits were partially offset by lower sales of gloves and.
Cleaners, and disinfectants, which were abnormally strong in the fourth quarter of last year as those products were in high demand early in the pandemic.
Our China operations had a great year with revenues more than doubling and U S dollars for both the fourth quarter and full year periods from continued sales increases of cleaners, and disinfectants to help and fighting against outbreaks of African swine fever, and COVID-19 and that country.
Our genomics business in China also had higher sales to the bovine and swine markets.
While the pork industry is still struggling from the African swine fever outbreak, we've seen increased testing as producers have rebuilt their animal stocks.
Revenues for the animal safety segment rose, 16% for the quarter and 14% for the full year.
This is especially impressive considering last year's fourth quarter results included a $4.5 million increase and sales of Sanitizers disinfecting products and personal protective equipment, such as gloves as demand for those products exploded early and the pandemic.
As most of you know from personal experience supply caught up to demand last summer and those opportunistic sales fell off.
Additionally, our pre Covid protective where business was down this year due to back orders and these distributed products.
The increase and animal safety revenues for the year were broad based with animal care products, such as vitamin Injectables small animal supplements and antibiotics up 31% driven by an increase in spending and companion animals, especially dogs and cats during the pandemic.
Our thyroid replacement product Xyrem care, which we just introduced late in the year produced strong sales and its first quarter and much excitement with high expectations for fiscal 'twenty 2.
Veterinary instruments, such as needles, and syringes increased 16%, while rodenticides increased 42% due to significant road and pressure in the U S throughout the year.
Our insecticides line increased 15% with notable benefit from our acquisition of the stand Guard product line last July.
Partially offsetting this growth was a $2.5 million decline and sales of dairy supplies due to the June 2020 termination of an agreement and we.
Which we distributed these products for a large manufacturer dairy equipment.
Cleaner and disinfectant sales sold through the segment were also down 15% from lower sales and water treatment products and the U S and opportunistic sales of sanitizing products and the fourth quarter of the prior year fell off after the first quarter of fiscal 'twenty 1.
Revenues at our Lincoln, Nebraska, Genomics lab increased 17% and the fourth quarter as companion animal sales continued to grow with pet adoptions, increasing significantly during the past year as a result of Covid and our service was offered and more retail operations.
We also benefited from a 15% increase and bovine sales from higher sales to beef associations and dairy AI companies.
And for the full year revenues and Lincoln increased 10% for the reasons just listed with additional increases and the aquaculture market earlier in the year driven by a new partnership with a large customer and a new test for shrimp.
Our business and Australia rose, 71% for the quarter and 78% for the year.
Now a portion of that full year growth is from our acquisition of the food safety distributor at the end of February 2020, which added to our product portfolio and that country.
But if we exclude those new sales our organic growth for fiscal 'twenty, 1 was still an impressive 59%.
Our sales team exceeded expectations with the food safety products and our genomics lab continued to post impressive gains.
Sales of companion animal tests more than doubled and as Australia and is also flocked to pet ownership during the pandemic and we recorded a 39% increase and revenues to the beef market.
On a worldwide basis genomics revenues increased 21% and the fourth quarter and were up 13% from the full year.
Gross margins were 45, 3% for the quarter compared to 47, 4% last year as we reported large increases in supply chain and personnel related costs.
I think it is important to note that the 47, 4% gross margin and the prior year fourth quarter was driven higher by the $4.5 million of opportunistic sales of hand, sanitizers and protective where such as gloves and that period.
The demand for those products and the early stages of the.
Covid pandemic far outstripped supply.
The decrease and our gross margins and the current year quarter is due to a 210 basis point decline and the food safety segment and <unk>.
<unk> caused by higher sales of lower margin products, such as cleaners, and disinfectants and China.
We also experienced significantly higher cost for freight and personnel costs due to both increased volume and rate increases, resulting resulting from labor shortages.
International freight and cost rose precipitously across the business as port delays and supply constraints drove see rates higher while airfreight rates also rose again, the result of lower supply.
Due to fewer commercial airliners flying during the pandemic.
These conditions do persist and we are taking steps to address them, including consolidation of orders and purchasing larger orders less frequently changing modes and potentially passing on increases.
We had an increase and scrap and our food safety operations and the fourth quarter higher outside contracted services costs related to our newly launched instruments and health insurance expenses driven by electric procedures postponed during the initial phase of the pandemic also increased for both the quarter and the year for.
For the full year gross margins were 45, 9% from 46, 9% last year.
Overall operating expenses were up 18% from the fourth quarter and 9% for the full year.
This year's fourth quarter as a difficult comparison since we had no business related travel and the prior year and also took prompt and proactive measures at that time, such as senior management salary reductions furloughs or reduce hours for some staff and a spending freeze to protect the business due to the uncertainty of the Covid impact.
These actions eliminated approximately $2 million of expense and the prior year fourth quarter and.
While we're still not at pre COVID-19 levels of travel our sales teams and certain areas of the world have started to have face to face interaction with customers again in the past few months as a result sales and marketing expenses increased 25% and the fourth quarter, but only 5% for the full year.
Increases in salaries and commissions and shipping expense both in line with revenue growth were offset by a $3 million decrease and spending on travel and meals for the full year.
General and administrative expenses rose, 8% from the quarter and 15% for the full year earlier in fiscal 2021, we spent $3.1 million on consulting legal and other professional fees related to acquisition activity for targeted business, which we ultimately were not successful.
And acquired <unk>.
Excluding these costs the increase in G&A for fiscal 'twenty, 1 was 8%.
Increases in head count, including a number of senior management positions, where we are today.
General Counsel and a chief commercial officer.
Incremental and amortization expenses, which are non cash, resulting from our recent acquisitions and higher levels of investment also contributed to the increase.
The magazine acquisition added almost $1 billion of cost, including amortization to this category and the last 5 months of fiscal 'twenty 1.
Research and development expenses were $4.1 million for the quarter that was an increase of 18% for the prior year's quarter fourth quarter for the full year R&D expense increased 10% to $16.2 million.
The acquisition of magazine, which has a small R&D team contributed about 500000 to the fiscal 'twenty 1 increase.
And as a percentage of sales R&D expense was 3.5% and both the current and prior years.
Other increases in this category included spending with our outside partners to develop the new readers, which we launched in fiscal 'twenty, 1 and higher spend on salaries and contracted services and product approvals.
Operating income for the fourth quarter at $23 million was up 2% over the prior year quarter due to the previously discussed reduction and gross margin percentage and increase in operating expenses.
For the full year, our operating income was $74.2 million or 15, 8% of sales compared to $67.5 million or 60, 16, 1% of sales and the prior year.
Our 2021 operating income represented a 10% increase over fiscal 'twenty.
Excluding our $3.1 million dollar spend on the acquisition opportunities operating income would've been 16, 5% of our sales and would have been a 14% increase over 2020.
While John and I know that we have plenty of room for improvement in this area. We are very proud of our 2021 operating performance, particularly given the pandemic and considering the supply chain and labor challenges we've experienced in the past year.
Other income for the year was $1.1 million compared to $4.8 million in the prior year. This significant reduction is due to a $4.4 million dollar drop in interest income despite having higher cash balances throughout the year, resulting from a precipitous drop and yields on our marketable securities portfolio.
Do you and federal reserve efforts to stimulate the economy during the pandemic.
Our effective tax rate for the fourth quarter was 21, 8%. This compares to 22, 8% recorded in last year's fourth quarter, but for the full year. The effective rate increased from 17, 7% in fiscal 'twenty to 19, 1% this year, despite a higher tax.
Fit from the exercise of stock options and the current year.
The increase and effective rate for the year was driven by international operations as we had higher profitability and some countries with higher tax rates and we also paid more tax and the U S. Under the newer rules that tax profitability at our international operations.
We continued to produce strong cash flow generating $81 million from operations for the full year versus $86 million and the prior fiscal year and invested about $27 million and property and equipment and $52 million and acquisitions during the year.
Our inventory balances increased 6% and fiscal 2021 or $5.6 million.
Excluding inventory acquired from the magazine acquisition, our inventory balances were flat compared to the prior year and.
And we continue to whether supply chain issues and product delivery challenges, resulting from both the pandemic and the Brexit transition in January.
We've been forced to increase inventory levels and some areas in order to ensure product is available for and customers. Our operations team has done well to balance that need with a continued focus on keeping our overall inventory levels down.
Accounts receivable balance rose by 8% over levels net last year and and the increase was primarily due to higher sales and the fourth quarter of this year compared to the same period last year.
Our days sales outstanding improved to 66 days at May 31, 2021, compared to 68 days a year ago and our collections team has focused our efforts and the past year.
Due to the economic uncertainty of the pandemic and I'm pleased to report that we have not seen an appreciable interest and bad debt write offs or bankruptcies.
This was an extraordinary year, we've just gone through and I believe the performance of the team was outstanding as we fought our way through all the obstacles put in front of us from Covid, Lockdowns and quarantines through supply chain issues labor shortages and Brexit.
Could not be prouder of our more than 800 employees worldwide and how they've handled the year.
In fiscal 'twenty, 1 during very difficult conditions, we continue to invest and future growth launching a number of new products spending on new development opportunities and looking at potential acquisitions.
This will continue as we build the product portfolio and infrastructure to allow us to accelerate our growth.
Going into fiscal 'twenty, 2 as our markets open up across the world are travel and selling expenses will increase disproportionately, but we believe the magnitude of our projected revenue growth will be sufficient to cover that growth.
As John indicated there is much to look forward to and fiscal 'twenty..2 we have tremendous momentum going into the new year and are optimistic and excited for the year ahead John.
John.
Thanks, Steve.
And Ah Steve's right and Theres, a lot of different variables affecting our numbers for this quarter and the year and we recognize that this has been an unusual year and where.
We actively managing the effects of the pandemic and what those effects had been a neogen.
Like so many others around the world Neogen has been dealing with supply chain issues due to the pandemic and Steve mentioned this but we've seen our costs, both inbound and outbound freight increased tremendously and some cases tripling and we've been dealing with the impacts on our margin and earnings all year.
And Steve talked about the actions that we're taking the hub curve those costs going forward. So we feel pretty confident we're going to get those back and the control.
Steven went through this and a lot of detail.
But I think it's worth talking about some more comparing our financial performance to last years fourth quarter is difficult and <unk>.
Last year at this time, we were just the world was just entering a lockdown and we were unsure as to how the global pandemic would impact our business. So as Steve talked about we implemented a number of cost saving really aggressive cost saving measures.
We reduced or eliminated the pay of our senior management, and we furloughed or reduced the hours of approximately 5% of our U S workforce.
We cut discretionary spending and we halted all business travel and let's say just normal and $2 million and the quarter of last year. We then quickly found opportunities to support customers around the world and protecting their facilities and staff with opportunistic sales with gloves, sanitizers and disinfectants of over $4.5 million.
And that being said, we feel well prepared to handle these variables and I'm extremely optimistic about the business as we move into our new year.
This is John and we're going to be fully integrating magazine and in the U S and sales and marketing teams.
And we've already seen a tremendous amount of excitement from our customers regarding the products offered by Microsoft.
And we look forward to carrying news and excitement into the marketplace and offering these new solutions.
Our animal safety segment had a strong recovery year on the strength of animal care products veterinary instruments and bio security products.
And we received EPA approval for the U S distribution and Neogen for oxide Super and launched a domestically at the world Pork Expo in June.
<unk> continues to be strong for road and control products across the U S. As we move into fiscal 'twenty, 2 and I look forward to seeing continued growth of this segment and in the next fiscal year.
We're seeing our forensic toxicology sampling samples beginning to increase as we go.
We expect and we are expecting the industry to bounce back after the COVID-19 shutdowns of workplaces and race tracks.
Our worldwide genomics offering continues to grow and our <unk>.
And new markets and new customers, we're really excited about the growth we've seen in the agriculture sector on June 24th we announced the expansion of our partnership with the center for Agriculture technologies, a leader and the field of genetic improvement for aquatic species, which continues to open doors for us to work with aquatic breeders that will make more than.
And breathing decisions and ensure sustainable farming.
We've also seen and our companion animal genomics services continue to be strong our canine parentage test remains the most common tests done in United States and used by the American Kennel club.
And our sales of that product as Steve mentioned more than doubled and Australia.
We also see tremendous potential and a new identity Cana and wellness test, which we launched in December of 2020. This test gives veterinarians and opportunity to screen for predispose risk factors. So they can make informed recommendations on diet and exercise as well as screening for possible health concerns.
And May we launched our new Acupoint Mg ATP sanitation monitoring system, which has been redesigned to be more user friendly or offer and the fastest most precise and easier to monitor testing data.
We feel confident that this new system will continue to gain market acceptance within the food beverage and health care industries and fiscal 'twenty 2.
This last year, we began offering our new Neogen analytics food safety and risk management software as a service the.
And the service delivers the most comprehensive environmental monitoring program automation solutions for food companies and it's compatible with innovation innovative technologies like our new Acupoint Mg and answer systems.
What are those users can and implement systems and increase the bill of the visibility of food testing results, reducing risk and elevating food safety standards and.
And Q4, we quadrupled the number of sites using Neogen analytics, and we have a strong customer demand and that will continue and new placements throughout fiscal year 'twenty 2.
We also recently received <unk> approval for our Soliris direct Houston mold test for use in cannabis and allowing us to provide a valuable service to the growing cannabis industry offering safe and secure options from potentially harmful microorganisms.
Yes, I agree with Steve I was very proud of our Neogen team members for how they were able to tackle a very challenging year head on and.
And doing it by leading through new products and acquisitions, continuing to grow our market share and giving our customer solutions and make their jobs easier and the global food supply safer or.
Our entire team has done a great job of adapting to the changing business landscape and working hard in order to give us this positive momentum going into the next fiscal year, we have several new product and service offerings preparing to launch that will help our customers protect the people animals. They care about and I'm really excited about our continued growth and expect a strong fiscal 'twenty 2 year.
<unk> and.
And I'll open it up for any questions that you may have.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star and then 2 and at this time, we will pause momentarily to assemble our roster.
And the first question will come from David Westenburg with Guggenheim Securities. Please go ahead.
Hi, Thank you for taking the question and congrats on a great year and.
And I appreciate all the color and in terms of the margin that was a lot of very good commentary and helpful and Im happy to hear everyone gets there, but there are their salaries that channel.
And can you quantify.
Can you quantify some of the shipping costs that might have occurred and in it.
Quarter in and when Theyre expecting to roll off and then just kind of on a ballpark on a go forward gross margins may be for this year and and the year and.
And a year next because theres been obviously a lot of <unk>.
Funkiness.
Last year, whether it be like the shipping cost and and I guess the price.
Prior year.
You had some opportunistic sales and a traditionally I think and Neogen is like this 47 ish gross margin company.
And that kind of.
Still the way to think about it.
Yeah.
And that kind of direct mail and ship. It that's all right I'll, let Dave I'll, let Steve comment on the shipping and then I'll follow up with the rest and yes, David I would say that in the fourth quarter.
And the incremental freight impact was about $700000 on us.
No.
It was more than the volume increase.
And then going to your question about the.
What we see is our margin profile going forward I think youre, probably on a net 47%.
As is probably about right.
I think that's an achievable target for 'twenty 2 and.
Obviously as you know a lot of it depends on product mix and.
Just how that rolls out and.
You also asked about what we see in terms of freight for next year.
All the reports that we read.
And.
People, we talk to our that the freight supply demand imbalances are going to continue into 'twenty 2.
So John I don't you have more to add there and I think Steve mentioned some of the things we're doing about it David.
We're going to make sure that we're doing full truckloads full container loads.
Planning looking at ways that we can be more efficient and we're looking also at.
These costs are coming through so our.
Our customers and all of these costs are coming through so they are expecting price increases and we don't want to disappoint them. So we will see some of that happen within the year alright and.
So youre going to see and opportunity for us to improve margins that way and I agree with Steve I think.
The baseline that Youre looking at is not unrealistic and we know that there is upside opportunity there.
Perfect.
And then just a quick and 1 quick 1 on that on the Jbs plant shutdown and due to the cyber attack and Brazil did that have any impact on you I realize that you have a lot of customers and maybe maybe 1 customer doesn't do anything but just wondering if that if that might've done anything.
And there was nothing material for us.
It's something to watch across all others.
The thing I'm really watching more and David is the.
2 confirmed cases of African swine fever, and a commercial heard and Germany that came out last week.
And that could be a much bigger.
Impacts so I think.
We continue to look for what's going on around the world and find ways to.
And as Steve mentioned, we did the opportunistic sales last year, and we will find a way to fill that gap.
New opportunities this year, because that's what we do.
Got it and I'll just ask 1 more before hopping back in queue.
Can you talk about acquisition priorities.
And if you have them in terms of.
Animal versus food safety, if youre looking at more value or growth or international or domestic.
And I'm guessing the answer is everything but if you maybe.
And of course are a little bit to give us kind of a framework and how you might be looking at it and go forward and that'd be great and I'll hop back in queue after that.
Yeah, No. We've got we've got a very I think a very good plan on the way that we evaluate our acquisitions I mean, we've.
And we've identified the markets, we want to be in and any ancillary markets that we feel are important and magazine as a great example of that I mean, you wouldn't think about magazine.
It does it fit what we consider true food safety, it's more around food analytics and.
And but it really is a.
Excellent fit for our business because it's the same customer type and allows us to increase our products and pipeline to that same customer and I like to think about it is it gives us the other side of the <unk>.
Consumer packaged box on 1 side, we're talking about is allergen free is not free.
Gluten free and on the other side, we're talking about you know how much dietary fiber it has how many polysaccharides what.
What are those other.
And 1 of those other measurements and are important for consumer so it's really a nice expansion for our business.
So we've done a really nice job of looking at the markets, we want to be and and then the regions, we want to be and because I think we're underrepresented in some regions. We have a lot of opportunity worldwide to continue to grow and I think Australia is a great example, you look at what we did.
4 years ago, and Australia, and when we bought the genomics business. There and then we added we brought in our animal safety products and we added the food safety distributor and man and look at that business is just growing like crazy and they are doing a great job. So we see that model, we like that model I think that.
And when I look at it and as a team and we've talked about is.
Our priorities really are around growth and our bigger growth markets, our food safety and genomics and.
And I think those are 2 key areas and when we say if we had our preference and we had 3.
Equally accretive businesses and we're going to look at food safety and genomics first and then animal safety within the animal safety.
I want to increase our exposure and the companion, because thats faster growing and production now and they're all great businesses as we've shown this year right. All the businesses grew double digit so they're all great businesses. So its kind of like pick and your favorite child, you don't ever talk about it and public but you have to do it sometimes behind closed doors. So that's kind of what we look at it is.
And we love all the businesses, we're in but that's where I would say our focus.
Thank you.
The next question will come from John Kreger with William Blair. Please go ahead.
Hey, Thanks, John can you maybe I know you guys don't give official guidance, but could you maybe just sort of step back and talk a little bit more about key priorities and goals for fiscal 'twenty..2 since that's just getting started and also what you think the key headwinds are you talked a lot about supply chain for example.
And do we do we expect those headwinds to actually get worse or or just a question of when they might start to ease a bit. Thanks.
Yes.
Sure. Thanks, John So I think for priorities, it's continuing the momentum we have right and even though we were in a very difficult.
Environment last year, you think about it we've launched.
You know very significant products and platforms with our.
With our.
Thank you point Mg and our Soliris LNG in a COVID-19 environment, we had a lot of discussion about do we do that because we have to meet customers face to face to explain the benefits of this and the team did it and a very challenging environment and and did a great job and we have great acceptance at the same time, we continue and invest in new products. So we've got new stuff coming and what is a priority.
So it is really driving continue to drive market share gains and adoption of and the things that we launched this year and the new products that we have coming and so we're really excited about what's coming down the pipeline and that's going to be our focus to make sure that we continue growth.
We've done a nice job I think if you look at some of where some of our competitors have reported for the last quarter. Our growth was significantly higher. So that tells me, we're taking market share on the food safety side and the animal safety side, which is where we want to be we like being and growing markets, but we also want to continue to grow faster than the markets.
The headwinds are going to be last year headwinds or customer shut down and how are you going to sell I think headwinds. This year are going to be and the cost side like Steve talked about with supply chain and.
And Steve talked about another 1.
It's going to be a challenge, which is head count.
And as it is challenging now decline hourly workers.
John.
For the plants and the jobs that we have.
And I think everybody knows the reasons why that is and I won't get into discussions about that but it's just been a challenge. So we've had to be very aggressive we've got to be very creative it hasn't caused any.
We've done a great job our operations team has done a fantastic job. We've had no back orders of shortages because of that but it is something that we're battling every single day and trying to find.
Poise and keep jobs filled so those would be the 2 major headwinds and also our objectives.
Great. Thank you that's helpful.
Steve.
<unk>.
The freight hit and the fourth quarter I think you said 700000 curious do you think youre and losing out on any sales due to stock outs and delays as well.
I don't I don't think so.
That really closely John I think.
I think what will happen is we're going to and on <unk>.
Some of our lower margin products that are afraid and intensive we're going to raise the price and.
And we're going to we're going to make money at it and we're not going to sell and Thats, all thats going to work.
Makes sense, Okay, and then 1 last 1 a year ago, John you talked a lot about the.
And the pressure on the institutional side of the foodservice business really kind of hurting food safety, where do you think that is now is that sort of back to normal or do we still have an opportunity to see a ramp and demand in the fall is key.
Kids go back to school and maybe maybe <unk>.
I think it's come back really nicely, but I think theres more upside there and again it's.
That comment is specifically around North America around the U S. When we look at kind of where we are within this pandemic across our businesses.
We're in a lot of different stages and a lot of from countries.
So.
I think we're just starting the opportunity of opening up and seeing some of that business coming back and we.
We see that with our Internet sales are up our ecommerce business is doing really well and that's kind of what shows me the leading indicator of those smaller customers are coming back theyre starting to buy again and.
You saw with our allergen test kits that was a nice bump for the quarter.
Great. Thank you.
Thanks James.
The next question will come from Mark Connelly with Stephens. Please go ahead.
Thanks, John John and I was hoping that you could talk a little bit more about the growth drivers and.
And both genetics business outside of companion animals.
Curious, where and the year and couple of years ahead.
And for growth is going to be there how important issues like ASF and plant based meat R V.
Versus productivity and animal health.
Yes, Mark I think that when you look at the growth drivers and production animal.
Couple of things that stand out 1 is the adoption right, we still have a tremendous opportunity.
2.
Increase our customer base with adoption and beef and dairy and we've talked about this in the past try and about how we do very very well with feedstock producers, who understand the value and the trade started looking for but as we start to go farther down the food pyramid and we start getting into more commercial growers kind of what we're doing around.
The Cal cash producer the dairy producer and then even going deeper into the feedlots that is a big big opportunity for us and we're just now just really scratching the surface on that because.
It's more of a.
A blend of female typical and Gino typical data to make sure that you can you can take and Gino typical trades and use make decisions around typical around feeding and environment to produce the best outcome. So those are the things that that really get us excited about production agriculture within the segments are already.
And.
Secondarily like we talked about with the agriculture business.
That business is up very nicely and we see a tremendous amount of opportunity with our new shrimp Fest, our wildlife from tests, which we think is going to be very very big.
And that's going to help us grow and regions of the world, where maybe we're underrepresented I mean, if you think about.
Southeast Asia, that's a market that we need to do.
We have opportunities for growth and and we think this can help be the platform for us to really drive the Neogen story and then some of those markets. So we think theres a tremendous amount of upside and I also think companions or 2 we continue to see that as a growing market and we've got opportunities.
Earl and that genomics business and it's.
And it's something that we're focused on are things that we want to continue to invest and.
Well, you mentioned and the grasp and lab.
Do you get to a point and facility like that when you have.
Capacity constraints or reinvestment needs.
Moving.
Yeah, we just expanded that facility and we spent quite a bit of money.
Over the last couple of years.
Increasing the footprint.
And then we almost added 50% and double that facility, we doubled that facility and size over the last 2 years. So.
And that's the thing that's challenging with Neogen is you have to stay ahead of your growth curve. So we have to keep building and investing to make sure that we have the facilities to continue to grow and we've done a.
Really nice job of doing that so far.
Yes, we always look at that I mean, I don't think it's so much from a.
And I don't think it's as much as a footprint or equipment issue. It is labor. So we're looking at.
What are the other things we can do so you know we have.
With our growth we have now genomics labs and.
China, Scotland, Australia, Brazil, Canada, and what we do is we say okay work and we were before a lot of that stuff was flowing into Lincoln because we didn't have opportunities well now we can offload that under those labs that are more local which increases the capacity of Lincoln, which allows us to grow more internal.
Lastly, and we'd see the exact same thing we just did a recent promotion.
From a team member and <unk>.
Brazil, where she was running our genomics business in Brazil, now she's taking overall of Latam, which means she's going to be coordinating our efforts and Chile, Uruguay, and Argentina, and Mexico, which is going to allow us to leverage that lab butter and Brazil. So those are the things we're doing to make sure. We stay ahead of our growth curve.
Super.
Just 1 question on 1 of the big protein producers having.
Significant looks to be a problem right now.
I wonder how that affects your marketing program do you tend to see a surge in interest.
Like Adam and obviously, you've got a lot of functionality and other stuff that's more important.
And longer term, but I'm, just curious how it effects and short term.
We do and all of Mr. As a key basis I mean any pathogen.
And that's going to kill people, we want to we want to make sure we can protect the food supply and so we.
And we do see that because all of a sudden sometimes.
And everything is good until it is not right.
And people are going along and it's been good has been good and and I see a competitive and issue and everybody kind of X and we need to do a couple more audits and months, let's talk to manage and about their analytics platform. So we can put that and so we can get real time data.
On an hourly basis to make sure that we are.
Meeting the needs of the government and our customers and and putting the safest food out there we can.
Just 1 last question.
Are there any parts of this inflation.
Fairly confident are permanent.
And some of the temporary and stuff like maybe maybe great.
I don't know I think back when when fuel prices were high.
And.
7.8 years ago, and all those carriers put and a fuel surcharge and and fuel prices dropped by 50% and gosh for some reason there was a fuel surcharge still and there.
So yeah.
Hi.
Don't know.
Skeptical right around their ability to lower prices so well.
What we need to be as we need to increase our efficiency and that's what we look to do is 1 of the ways, we're going to increase efficiency to make sure that in a rising cost environment, we can leverage our size and scale to continue to be more efficient and everybody else.
Super helpful. Thank you.
You bet. Thanks Mark.
Again, if you have a question. Please press Star then 1 our next question will come from David Westenburg with Google Guggenheim Securities. Please go ahead Sir.
Hi, and thank you for taking the follow up I just wanted to dive in and you had a lot of great commentary in terms of of where kind of a cost inflation is you mentioned labor as a component do you feel comfortable with and its Tom over maybe the next couple of years.
To add pricing and access of maybe labor inflation or if you.
If you think maybe.
Relative to competitors, how do you feel with where you are.
Labor inflation is are you are you are you kind of probably just kind of equal the industry.
I would share traditionally think of Neogen neogen as being a very lean.
Strong operating company. So I'm wondering if you.
You would have any differences relative to your competitors and in terms of the labor.
Cost component.
I think I think we are lean I think we do a really good job of controlling our operational expenses.
Steve talked about we did investment spend and our leadership this year, which I think is already paying great dividends right. So we added a chief commercial officer, we added.
Jones, we added Amy Rockwell and there is a general counsel and both of them and outstanding contributors. So.
And we see that as an investment spend for growth because theyre going to help us drive growth forward.
I think we continue to I don't think we're out of the market.
The way that.
Our costs are and I do think that pricing is a function of a lot of things I mean, we're bringing new technology, that's very valuable and that other people don't have and that allows us to.
And so a lot of value to the customer which in turns allows us to have a lot of value and pricing. When you have more commodity type products, which some we have we have some steel type products and.
Our instrument type business on the animal safety side, it's a lot harder to do premium pricing and those but and our core businesses.
We are the market. We are the market leaders. We are the technology leaders, we feel that we differentiate quite well against everybody else and and we're leading the pack which allows us.
And to allow us to build a lot of value for our customers and take a little bit of that value for ourselves.
Great and then maybe from the last my last question before I hop off would be 5 year outlook for Soliris in terms of.
Growth rate, where you see it sounds like a pretty promising new product and just as it sounds like it would be margin accretive, particularly and it's consumables, but I just want to confirm that that would be it.
From a margin accretive growth area. Thank you.
Yeah, it's a margin accretive growth area and we're pretty excited about.
And that technology, and even the way we're growing into.
We would consider not food because cosmetics is basically not food, but it is safety.
And so we've got other markets that we're growing with that product line and we're pretty excited about and so.
We're going to keep pushing that.
Thanks, everybody and Chuck and set it.
Yes, Sara this will conclude our question and answer session I would like to turn the conference back over to Mr. John <unk> for any closing remarks. Please go ahead.
Yep. Thank you Chuck.
I think you know as you saw from our press release and the tone of Steven those comments, we're excited about the year in front of us.
Once again, <unk> diversity, and our portfolio and our markets has really shown the strength of the company and are going into those post pandemic marketplace. So we're really excited about where we're going to be for the future.
And I appreciate all of you being on the call today, and supporting US and I Hope you have a great rest of the day and we'll talk to in September.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
Yes.
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