Q1 2022 Neogen Corp Earnings Call
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Good day and welcome to the Neogen first quarter fiscal year 'twenty 'twenty two earnings call all participants will be in a listen only mode.
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I'd now like to turn the conference over to John.
President and CEO. Please go ahead.
Thanks Betsy.
Good morning, and welcome to our regular quarterly conference call for investors and analysts today, we're gonna be reporting on the first quarter of our 2022 fiscal year, which ended on August 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 in the company's Form 10-K as filed with the Securities and Exchange Commission.
In addition to those of you joining us by live telephone conference I also want to welcome those of you on the Internet.
Following our prepared comments. This morning, we will entertain questions from participants who have joined this live conference.
With me the sorting is Steve Quinlan, our Chief Financial Officer, who will provide some additional details on our results for the quarter.
As you saw in our press release. This morning, we're pleased to report a strong first quarter towards 2022 fiscal year, we had a 17% revenue growth across our worldwide business compared to the prior year's first quarter. We also had double digit growth in both our food and animal safety segments, including double digit organic sales growth in both units.
In addition, our overall gross margin improved versus last year's first quarter that improvement really was due to a shift in product mix toward our higher margin food safety products and a price increase that we implemented on August 1st.
So for the first time in seven quarters, I think we're beginning to see business return close to a pre COVID-19 environment in the U S.
With the loosening of restrictions, it's really allowed our sales team to get back out in the field to have face to face meetings with their customers.
And then the quarter, we've seen our customers get back really came back the confidence they lost over the past 18 months and start to make purchases that they previously held off on due to the uncertainty of the pandemic now not all the markets we operate in.
Doing us, but I'm pleased with the general trend is good.
These conditions have positively impacted our core product lines.
Clothing food allergens pathogens are natural toxin test kits as the sales of these products, where they have returned to our pre COVID-19 levels.
I'm also happy because our new products continue to succeed in the marketplace. In this first quarter, where I could go into advanced Nexgen ATP sanitation monitoring system, which we launched in May of 2020. One does continue to gain market share. This quarter was really impressive sales growth.
Handheld system, it quickly and effectively to tech's ATP as a measure of the cleanliness of our facility.
And it's nice because it connects to our Neogen analytics platform, which helps our customers manage their data and create a streamlined testing process.
I've talked about our Nextgen system before but boy the sales of that system just continue to impress.
In a year since we've launched the next Gen spoilage detection system. It seemed tremendous tremendous success in the marketplace.
This is providing fast reliable diagnostics to customers across many different industries, including selling food beverage nutraceutical and cosmetics.
Compared to the first quarter two years ago sales of that system and nearly doubled and we continue to be really excited about this system.
It's also worth mentioning our direct care supplements for the treating of hyperthyroidism in dogs, it's regained market share really nicely since we relaunched in February.
Sales in the supplement contributed really until the impressive quarter of our animal care products.
This quarter.
It was an excellent quarter for Neogen and I'm really proud of the tireless work with the members of our team have put in to achieve these results, especially through all the challenges that COVID-19 has presented and still continues to present.
<unk> strength continues to be our ability to adapt to changing times, we always find new market spaces, we expand and then we expand on our mission of protecting that people animals, we care about.
Now I'm going to turn it over to Steve for some more color on the numbers for the quarter Steve. Thanks.
Thanks, John and welcome to everyone listening this morning and.
Before I talk about the numbers I'd like to Echo John's comments about how proud we are of our global team. Our results. This quarter are largely result of their collective hard work.
Earlier today, we issued a press release announcing the results for our first quarter, which ended on August 31 revenues for the quarter were $131.0 million, an increase of 17% compared to $112.0 million in the same quarter a year ago net.
Net income for the quarter was $18.0 million or <unk> 16, a share compared to $24.0 million or 15 cents a share a year ago.
The earnings per share for both periods reflect our two for one stock split.
On June 4th of this year.
And 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 positive.
Several currencies in which we operate were stronger against the dollar in the first quarter as compared to the first quarter of fiscal 'twenty, one, including the pound, which was 9% higher than the Mexican peso up 11%, even the Brazilian real which has devalued significantly the last couple of years was 3% higher against the dollar.
And this year's first quarter <unk>.
Revenues were $5.0 million higher on a comparative basis for the first quarter due to these currency tailwind.
Most of that impact was felt in the food safety segment as the majority of the international businesses report in through this segment.
Revenues for the food safety segment were $69.0 million in the first quarter of fiscal 2022, an increase of 16% compared to $56.0 million in last year's first quarter.
Magazine, our acquisition from last December.
Contributing to the increase excluding these sales organic growth in the food safety segment was 10% the third straight quarter of double digit organic growth for this segment.
As John mentioned, we experienced broad growth across most of our core product lines as our markets have opened up and we've capitalized on new product introductions.
Our international revenues rose, 20% for the quarter aided in part by the currency tailwind.
And China continued its strong growth posting a 59% increase.
Theres still recording strong sales of cleaners, and disinfectants, but most of their growth was in genomics as our commercial dairy swine and sheep customers all significantly increased sample volumes compared to the first quarter in the prior year.
China also performed or outperformed our expectations of sales of <unk> products in the first quarter.
At Neogen Latino America, 4% revenue growth in local currency in the first quarter resulted in a 16% increase in U S dollars due to assistance from the strength in peso. This operation posted nice increases in environmental sampling products and culture media.
Our U K operations posted a 9% increase.
<unk> sales were converted to U S dollars had had an overall decline of 2% in pounds due to lower sales at Quad Kim.
If you remember in the prior year first quarter quiet Kim recorded large sales of hand, sanitizers to the UK government health Ministry, which did not recur this year, but I am pleased to report growth in our genomics business and with our diagnostic test kits in the UK and Europe.
This is despite issues, we've had exporting into the EU. After Brexit, we do have a plan in place to resolve these issues that will go into effect next month.
At our Brazilian operations 2022.
First quarter sales decreased 15%, primarily due to a large nonrecurring insecticide sale to a government health organization in Nicaragua in the first quarter of the prior year.
Additionally, Brazil has experienced an extended drought during the growing season, which greatly reduce the corn harvest the reduced volume along with relatively clean crops resulted in a 36% decrease in sales of aflatoxin test kits in Brazil.
Our domestic food safety business grew 13% for the quarter accelerating on the growth we started to see last year as many of our customers have resumed to more normal operations.
As John mentioned, we recently launched <unk> launched our next generation Acupoint reader used for environmental sampling, which contributed to 14% growth in this product line.
Sales of our new Solaris instrument, which was just launched just over a year ago were flat, but the number of new placements. We've had over the past year contributed to a 9% increase in sales of the consumables used in these instruments, which detect spoilage organisms in processed food.
On a worldwide basis sales of our mycotoxin test kits were up 6% with nice growth in our deal and Zarrella known test kits offset by the decline in <unk>.
<unk> test kit sales in Brazil that I previously mentioned.
Our line of Allergen test kits increased 17% in the first quarter and Listeria right now continue to record nice increases with revenues up 51% in the quarter.
We also experienced strong growth in culture media products, which were up 36% with increases in sales to our diagnostics customers and increased business with a vaccine manufacturer.
About the only.
Ongoing negative in our food safety products this quarter was drug residues, which declined 22% as.
As I've been mentioning for the past few quarters, we're struggling with this product line due to the prior year termination of the European distribution agreement and competitive price pressure.
The animal safety segment recorded revenues of $71.0 million for the quarter up 19% over the $56.0 million achieved in last year's first quarter organic sales were also up 19% with just a small contribution from the standard card acquisitions.
From the same guard acquisition, which occurred in the first quarter of the prior year.
Our animal safety segment is also benefiting from strong markets, especially the companion animal and veterinary markets.
Sales of our animal care products increased 28% as higher consumer spending on pets continues.
We also made big gains in veterinary instruments, which rose 52%.
This category includes needles, and syringes and we benefited from strong gains in our private label needle line.
Sales of insect control products increased 23% primarily from growth in the stand guard product line and business with restaurants that is recovering after many were closed or had reduced operations in the first quarter of the prior year.
Even though our rodent control products were coming off an extremely strong year in fiscal 2021, we still posted a gain of 5% in those products and.
And our cleaners and disinfectants sales through the animal safety segment increased 6%.
Worldwide genomics revenues increased 14% on growth in beef and dairy cattle and swine and sheet Geno typing.
Our Lincoln, Nebraska Lab also recorded a large sale for nonrecurring plant research project.
Partially offsetting this growth was a decline in sales to the U S companion animal market as sample volumes were lower compared to a strong prior year first quarter. We believe that this is timing more than a shift in demand and anticipate higher sample volumes in the second quarter and second half of the year.
In addition to recording nice gains in genomics business at our Australian operations.
We almost doubled revenues of food safety products there as our sales team continues to grow the business, we purchased from our former distributor in March of 2020.
Gross margins were 46, 8% for the quarter compared to 46% even in last year's first quarter. The higher margins are primarily the result of sales of <unk>.
Higher margin products in our food safety segment, including incremental sales of magazine products and strong performance across many of our diagnostic test kit product lines.
In the prior year quarter food safety segment sales included a higher percentage of lower margin cleaners, and disinfectants sold through our quad, Kim and Neogen China operations.
I'm very pleased with our gross margin improvement as we've absorbed significant increases in supply chain costs this quarter.
As an example, a container shipments from China cost approximately $4000 prior to the pandemic.
This cost had increased to about 7000 by the summer of 2020 and in this quarter, our average container shipment rose cost.
$22000.
Overall, our freighting costs are up 82% over last year.
Delivery times on these shipments have also increased significantly.
Our operations team teams continue to take actions to mitigate the negative impacts of these supply chain issues and raw material cost increases.
The increase order, increasing order sizes to fill containers and gained price breaks qualifying alternative suppliers consolidating outgoing orders and our commercial teams have implemented price increases where appropriate.
As a comparison to the prior year, we also recorded higher labor and employee benefit costs this quarter.
We've increased base wages to address labor shortage.
<unk> and are still struggling to fill open positions.
Last year, we have taken actions to place some employees temporarily on furlough or reduced work hours and suspended our company 401K match during the during the first quarter due to the economic uncertainty surrounding COVID-19.
We also had a significant reduction in health health insurance costs in the prior year as Doctor visits were restricted in many elective procedures were deferred due to the pandemic.
In the second quarter of last year, we reinstated the 401K match and most employees returned to their normal work hours. Additionally, our health insurance costs have risen as the loosening of restrictions and resumption of those procedures and doctor visits deferred last year have resulted in significant increases in healthcare expenditures.
Overall operating expenses increased 22% compared to fiscal 'twenty, one partly the result of the increased compensation health insurance and four one K expenses that I, just discussed within sales and marketing, which was up 24% business travel trade shows and other.
Customer facing activities have begun to resume while still below pre pandemic levels, we recorded us $780000 increase in these areas compared to the prior year first quarter, which had minimal travel.
Shipping expenses rose, 27% on the higher volume and increased rates.
G&A expense increased 22%, primarily due to higher accruals for performance based incentives the impact of senior management hires in the prior fiscal year and a $608000 increase in amortization expense, primarily resulting from the magazines acquisition.
And R&D expense increased 11%. This includes $200000 of incremental expense that magazine.
Operating income for the first quarter was $28.0 million up 15% compared to $27.0 million in last year's first quarter with the increase the result of the higher sales and gross margins, partially offset by higher operating expenses.
Expressed as a percent of revenue.
Operating income was 16, 9% compared to 17, 3% in last year's first quarter.
We only recorded 203000 in interest income.
Despite higher cash balances as interest rates continued to decline.
This compares to 722000 in the prior year.
Our effective tax rate for the first quarter was 21, 4% compared to 19, 9% in last year's first quarter last.
Last year's effective rate was lower due in large part to 421000 in tax benefits recognized from the exercise of stock options.
This year that comparable number was only 15000 fewer options were exercised 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 $548000 one time charge at our UK operations to revalue their deferred tax liabilities.
UK enacted a tax rate increase from 19% to 25%.
In our first fiscal quarter, and we were required to adjust our tax liabilities now despite that new rate not going into effect until fiscal 'twenty three.
On the balance sheet, our net receivable balances declined by $9.0 million compared to year end and our days to collect is currently at 59 compared to <unk> 61 in the prior year first quarter.
And 66 days at May 31.
We feel good about these strong collections, particularly in this challenging environment.
Inventory increased by $5.0 million or 1%.
Do continue to run with higher levels in fiscal 'twenty two to avoid back orders and delays caused by the continued global supply chain issues.
We continue to generate cash nicely and produced $25.0 million in cash from operations during the quarter.
As you can see from yesterday's press release on the cap into vet acquisition. We are focused on acquisitions that add to our product portfolio and are good fits with our existing business.
Our teams continue to perform well in today's challenging operating environment, and we're grateful for and proud of their efforts. It was a strong first quarter, we've gained momentum across our markets and as John has indicated we remain optimistic for the remainder of the year ahead.
We appreciate the support of our shareholders and all of those listening on the call today and at this point I will turn it back to John for further comments. Thanks, Steve.
So I think you can see we feel this first quarter was an excellent start to our new year.
<unk> lined out we remain hopeful in the face of Covid and the Delta virus.
Delta variant.
While we see the success at the beginning of a rebound. We also recognize that there are still many variables at play that could move things, one way or and in others, we'll talk a little bit bottle and the question and answer about supply chain, because that's something that we pointed out.
With addition to the built environment continues to be a real concern around the world and we're actively monitoring the state of the pandemic as we move forward.
Going into our second quarter, though and looking at the rest of the year I am optimistic and excited about the things that are going to come from Neogen.
As Steve mentioned, if you didn't see yesterday, we announced our acquisition of <unk>.
Companion Companion Animal Health company that provides really high quality high value pet medications to the vet market.
Im really excited about this acquisition as it gives us entry into the fast growing $12 billion retail parasiticide market.
Company is going to be a great fit its going to go right with the right inside our animal safety segment and I'm pleased to announce that John <unk> will be joining neogen as our VP of operations and business development.
Cash she is going to be our new VP of commercial pet healthcare and contain about co founder Rudy Hauser is going to work with us as a trusted business consultants.
The integration of <unk> food diagnostic company that we acquired back in December of 2020, with our sales and marketing team is now complete.
Our SaaS fully trained they are really enthusiastic about the new products. They have already begun to offer these new products and services to our customers across the country.
We've seen a lot of excitement surrounding these diagnostic assay kits and reagents from the market and whether it's new products now fully incorporated into our product portfolio. We can offer our customers more solutions to help them meet their food safety needs.
We are also seeing significant growth in sales of our Neogen analytics food safety and risk management software as a service in the first quarter.
We have a strategy in place to continue this trend over the course of the fiscal year.
<unk> analytics offers us a great opportunity.
Pairs with our answer on Acupoint advanced systems and provides increased visibility around the testing on our customers do.
Once the customers a fully integrated financial analytics and other environmental monitoring program.
We immediately see their consumable products increase as they realize the value of our product portfolio.
As our customers build enhance our environmental monitoring programs they benefit from our ability to provide reliable and trusted products that integrate cohesively and build and provide results and statistics and improve their existing procedures.
Our international businesses continue to thrive I'm optimistic for our second quarter and the remainder of the fiscal year.
We also have.
Number of new products and services in our R&D pipeline and we'll be really excited to share those with you later on in the fiscal year.
Over the past year are an agent team has really set us up well for success and I believe that the strength of our first quarter.
Our first quarter results was a culmination of all of their hard work and dedication to our mission.
In uncertain times, we've all rallied together to ensure our business remains innovative diverse and growing I'm very proud of the entire team for their perseverance and motivation as we move into our 2022 fiscal year I'll now open up the floor for any questions you may have.
Thank you we will now begin the question and answer session to ask a question you May press star one on your Touchtone phone.
If you are using speaker phone please pickup your handset before pressing me Keith.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from David Westenburg with Guggenheim Securities. Please go ahead.
Hi, and thanks for taking the question and great job on the on the top line this quarter.
So I wanted to start with.
Tap into that.
And kind of what you're doing strategically there when I think of Neogen I think of it more as devices diagnostics and food safety and animal safety I don't necessarily think of it as is.
Is it drug company so strategically.
Strategically is this something where you kind of see this is ed.
And ability to layer on pharmaceutical products.
Or is this more just taking the existing products to the markets that you have right now.
I think.
Thanks for the question, David I think it's a little bit of both so are we have a lot of products and animal safety that you would technically viewers diagnostic whether it's.
Anything in our animal care line, whether it's our wound care needles and syringes.
Many many different things right and this is really going to allow us entire care is another great example, right viral care, which we just relaunched this is really going to allow us to expand our existing portfolio into the AG segment in the vet channel because we're already there today. So we already reach those customers, we already have a relationship with them and it is going to allow us to expand that.
<unk>.
And going forward, we're always looking for new and novel or like product mix, that's going to allow us to.
Continue to grow the business and profitably grow the bottom line to those existing customer base. So.
We think it's a great way to add accretive margin and sales and really fast growing categories.
Like Paris, or the size Biologicals therapeutics I mean, those are great markets.
Having an opportunity to participate in a $12 billion fast growing personal aside market is interesting.
Okay.
Very much and then I guess moving on to culture media.
You had.
Really strong year over year growth.
Can you comment is there any specific products you want to call out in that particular product line that might have done that in terms of how we should think about this in a former quarters.
Im not sure we had I mean last year, we had.
Opportunistic sales to a vaccine manufacturer, but really this is just growth and I think this is this is growth across the line.
We talked about that Steve and I talked about is we're seeing a bit of a normalization in the us and our customers kind of coming back online and we're benefiting from that so I don't see any.
One particular product that really did better than the other so it's really a broad growth across the portfolio.
Got it and in a similar type question on the other side of your business. The private label business that you called out in veterinary instruments was there any one time sales or again is this something that we should see continuing on a forward basis and I know that was.
Yes, no that was that was not a onetime sale that was just.
Products that we had private label for someone that are really starting to take off in the marketplace.
Thank you very much I'll hop back in queue.
Thanks, Paul.
As a reminder, if you have a question. Please press star one to be joining the queue.
The next question comes from John Kreger with William Blair. Please go ahead.
Hey, Thanks, very much John.
John just another follow up on kept into that can you tell us.
Any more details on the financials, if youre willing to share.
And our revenues margins and maybe what you paid for it.
Yes.
Tell you what we paid it's a small it's a small business, it's really a pipeline business. So.
They've got relatively small products today, our revenues today, because they just launched last year a permits ran in our footprint all product for dogs and cats.
<unk> is just starting out but.
It's a big market. So if you think about.
For me, that's really a <unk>.
Our like for like with came on at <unk> and the <unk> is really a like for like frontline plus.
So we're excited to get a hold of that group.
Much of a sales team was more of a developmental shop. So we're excited.
And about that and we've got products in the pipeline.
Get us pretty excited so.
And you know what those margins look like John you're always comparing may to pharmaceutical companies anyway. So you know that market pretty well.
All right. Thanks, that's helpful.
Sure.
John do you expect to.
R&D dollars to work there to bring new products out or.
After those two are not necessarily yes, I think so I mean, thats why im excited about.
It's not always align but the team we have coming over.
Okay.
John and Leslie but in that market for a long long time rudi's started that business. So having their experience to help us navigate and look at those opportunities.
There's a big there's a big benefit for us and our management team. We added Doug Jones Doug's got a lot of experience in this marketplace.
We've really strengthened the team top to bottom kind of in our our companion animal segment makes us very comfortable getting into those market and growing it.
Great. Thanks, and then one one last one can you talk a little bit about your outlook for that.
The food safety business.
Our <unk>.
Particularly on the institutional side are things kind of getting back to normal there are we still on a fairly steep ramp in terms of.
Back to school and restaurants reopening and the like.
I think I think we're getting back and again I prefaced it in the US right because we do business in so many different places and it's hard to say that.
Coming out of it because it really depends by region, but in the U S.
We are starting to see a return to normal we can debate, whether or not we shouldnt be right, but I think we are in <unk>.
<unk> seen it kind of in the last three quarters, we've had really strong growth in the last three quarters.
Across the businesses and the food safety segment so.
I think.
Like I said I'm optimistic about the rest of this fiscal year, we're really pushing hard the team is doing a good job.
And you make a good point about geographies should we assume your non U S food safety businesses, perhaps lag in the coming year or do you expect a strong growth there too.
I expect strong growth there it's just.
We're not out of the woods around Covid, John I mean, we've got.
Australia continues to do Lockdowns, often on China's continuing to do lockdown in India.
Doing that Europe moves back and forth, depending on which country. We're in so.
But during that environment last year. We also grew our expectation is to grow so it's not going to be easy.
Great. Thank you.
The next question is a follow up from David Westenburg from Guggenheim Securities. Please go ahead.
Alright, Thank you for taking the follow ups.
So you didn't talk a little bit about more than the labor headwinds.
You said continue to persist is this a global issue or is there anything specific to maybe lansing or lexington or any.
Any other.
Specific stephanite.
I need to call out.
No. This is David this is a global.
While our global but it's definitely a U S problem.
I saw something the other day that talked about.
Participation in the Labor force between men between 18, and 64 and how over the last 30 years, it's dropped 26%.
And the question was how did these people survive right and so there was a lot of consternation around that but what we're we're seeing a couple of things Steve talked about supply chain and you guys cover a lot of businesses. The supply chain disruptions are real and it's a challenge and it's an everyday challenge and it's not just freight costs.
It's getting stuff in our inherent again, you think about on the animal safety side, when Hurricane Ida came and shut down the ports.
Down in New Orleans in themselves you instantly solve the grain prices drop.
You couple that kind of width.
Getting ships and getting containers as what we're seeing I mean, the ryzen the container cost is crazy I mean.
But if youre moving low volume products are low value products you can have.
Freight will be more than what the product is worth thats nuts.
So those are things that are real.
We do we do to address it so where.
We are raising wages, but we're also doing that in a way, where we're trying to be using technology to be more efficient.
So where we may have had.
10 people at $50000.
We're going to do.
Eight people at 65.
Youre going to see that.
Your total costs don't change that much but there are some cases on the hourly is where we've just got to get competitive to get <unk>.
People in the door and get product out the door.
Got it. Thank you and then maybe if I can do one last one on trends in China I know, it's been a long China and India has been a long term focus sorry for you do you have any can you give us maybe any color in terms of percent of revenue.
Profitability in that area and growth and then as we look at China in the future you are there any regulatory geopolitical or where any kind of procurement Chris on that could present itself from.
And that could stop from getting your aspirational goals in that specific market and I'll stop after that question, because I realize that one's pretty intense.
Steve do the first part but on the second David Yes of course I mean.
I think if you watch what <unk> is doing over in China.
And kind of the relation between the U S and China, it's going to be interesting.
And.
I can't forecast, what's going to happen there, but what we're going to do is we're going to we're going to make sure that we are able to adapt and move quickly around those existing markets I think yesterday's stock market dropped because of the real estate business in China shows everything is connected right.
So it is an important market for us.
There is still having challenges with African swine fever.
Youre still seeing hog prices severely depressed, it's just a very challenging time for them right now, but our business has been good.
I'll, let Steve given the numbers.
Yes, and David I think your question first was what percent they are of our overall sales and it's been growing very nicely for us, but our growth across the world has been nice as well so China is still less than 5% of our overall revenues.
As that growth has occurred in China.
Profitability has also grown very nicely.
We're very happy with the profit performance of China relative to our other businesses.
Thank you for taking the questions.
Sure.
This concludes our question and answer session.
My apologies we have one more question a follow up from John Kreger with William Blair. Please go ahead, hey, thanks. Thank you.
A few final or John just slid NII second in this market.
I think these are both.
Steve for you.
Can you just clarify.
That I think that the.
Total revenue growth in the quarter, a 17% can you just sort of breakdown what that would've been on a constant currency basis, and then constant currency organic just to make sure. There's no confusion there.
Sure so.
Constant currency, China revenue would have been.
15%.
Organic that number is 12%.
And that's still good.
That really aggressive yes, yes. Thank.
Thank you and then one last one John I think Brazil was pretty weak.
If I'm remembering correctly last quarter. It was quite good and I typically I think they've been very strong on the on.
On the animal export side can you just talk a little bit about why it was weak and what you expect in the coming year.
So one of it was.
Steve mentioned, the non reoccurring for insecticide been to Nicaragua, but the other big part of it was.
Really nice sales.
Aflatoxin test kits last year.
And I don't know if you.
Sam but John the first corn harvest in Brazil is a rack.
They had such a drought that it's down $33, 40% and so Brazil is actually the south is always imported corn, but the north the bigger regions have not but now theyre starting to import corn.
So it really was a function of the size of the corn harvest.
Because there just wasn't that much corn to test now again this is.
Because of the way the country spread over the northern and southern Hemispheres. This is their first corn harvest. The second corn harvest is bigger and they're going to start planting now, but this first corn harvest was was pretty rough on them now.
We think that's an opportunity right because now they're going to be importing.
With our acquisition in Argentina, and Uruguay, and Chile, if theyre going to be pulling from the southern cone, we think thats an opportunity to get.
The business on that side from those countries. So that's what we're focused on.
Okay. So it sounds like your outlook for Brazil is better for the rest of the year than what you signed in Q1.
I mean, they've got they've got their challenges.
Because of that but.
I don't know if its going to be it's not going to be a big hockey stick bounce back John.
That corn harvest goes through a couple of quarters. So it's going to it's going to have a bit of a drag but the total international business like you saw for this quarter, we're optimistic they're going to do really well the whole business for next quarter.
Okay. Thanks much.
You bet. Thank you.
This concludes our question and answer session I would like to turn the conference back over to John Abbott for any closing remarks.
Thanks Betsy.
Thank you everyone for joining the call and being Big sport as EMEA, Jim Just a reminder, if you haven't already please get your proxy votes and for animal annual shareholders meeting, which is going to be on Thursday October seven.
And we will talk to you all again in December Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.