Q1 2023 Neogen Corp Earnings Call
Good day and welcome to the Neogen Corporation first quarter.
For fiscal year, 'twenty 'twenty three earnings call.
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I'd now like to turn the conference over to John <unk>, CEO and President Clay.
Please go ahead.
Good morning, and welcome to our regular quarterly conference call for investors and analysts today, we will be reporting on the first quarter of our 'twenty 'twenty three 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 the oldest of you joining us by live telephone conference I also welcome those of you joining us via the Internet. Following our prepared comments. This morning, we will entertain questions from participants who have joined this live conference.
I'm joined this morning by Steve Quinlan, our Chief Financial Officer, who will provide some additional details on our results for the quarter.
As we stated in our press release. This morning, we reported 3% growth across our business in the first quarter of our new fiscal year, despite the challenging business environment and we've been operating under throughout these months, Steve will talk about it more in his comments later on the call, who we faced particularly strong currency headwinds that impacted our business without these total revenues would have increased.
6% and our food safety business would've been up 9%.
I can't say enough about our incredible team here at Neogen and their continued dedication to our mission and Neogen success.
The first quarter presented us with many challenges both with the current state of the economy and the added responsibilities of our existing job duties as we work to close the three on food safety transaction on September one.
Thanks to the collective efforts of the Neogen team and our new three M team members from around the World. We were pleased to successfully close the transaction on the morning of September 1st and begin the integration of the former three on food safety business with our operations.
Since day, one members of our Neogen team, including myself have been traveling to visit our new food safety teams in person.
I just returned home from a trip abroad.
I was able to visit many of our new locations and team members.
All my trip I met with teams across Europe , and I returned home more excited than when we announced the deal the enthusiasm among our team members was fantastic and we were able to discover new synergies between our businesses.
I feel confident that under the new management structure, we can accelerate the growth of the business and capture this untapped potential.
The sales teams are very excited to be part of the Neogen team and are very eager to begin cross selling neogen products with their former <unk> safety products.
Also visited the Bridgend facility in the UK that we obtained in the merger and it was tremendous I was so impressed with the team's resources and capabilities, there and I'm really excited about the opportunity to grow that business. The team is excellent and having been a pilot site for three <unk> S. A P implementation they will be one of the first teams to implement our S. E. P plan.
Form.
They've been instrumental in assisting with the blueprinting of the system and their assistance and expertise will be invaluable in the months to come.
While I was there I found our bridge en team in our Ireland based magazine business had already found opportunities to increase the efficiencies of both locations because of similar manufacturing processes and systems.
These are just a few examples of what we believe can be achieved with these businesses as we more fully integrate them into neogen.
I really enjoyed being able to interact face to face with these new members of the new engine family answering questions and providing updates in person.
The excitement of gain from this trip as a great motivator as we look to the rest of the fiscal year.
These are very strong teams that bring great value to neogen now be looking to them to strengthen our leadership across Europe .
We also welcomed our new food safety divisional leaders to our corporate headquarters in Lansing, Michigan. During the second week of September where they connected with their teammates and began holding important conversations regarding our 30 60, and 90 day plans and they've helped us identify a number of new sales and operational synergies.
Overall, it's been an incredibly positive first month as a combined company and I feel very confident about the team that we put together. This has been a busy time for neogen with many positive changes and we're very excited about the future.
We're well positioned at the forefront of food safety and Digitization and together as a global industry leader in food security will be able to better serve our customers at every stage of the food chain from behind the farm gate, all the way to the dinner plate.
Now I'm going to turn it over to Steve for some more insights into our numbers for the quarter.
Thank you John and welcome to everyone listening. This morning before I talk about the numbers I'd like to also recognize our neogen team members for both their efforts in the quarter and in getting the three M food safety transaction across the finish line.
Earlier today, we issued a press release announcing the results for our first quarter, which ended on August 31.
Revenues for the quarter were $132 3 million, an increase of 3% compared to 128 3 million in the same quarter a year ago.
Excluding the impact of currency translations this increase would have been 6%.
Income for the quarter was $5 2 million or five cents, a share compared to $17 1 million or 16 cents a share a year ago excluding.
Excluding 13.7 million in deal costs associated with the three M transaction and after adjusting for taxes net income would have been $15 9 million or 15 cents a share.
In the next few minutes I'll give you some color around the numbers and I'll start by talking about the negative currency translation impacts to the business in the first quarter, the pound and euro have each devalued, 13% against the U S dollar compared to the first quarter a year ago.
To a lesser extent, we also experienced negative impacts of a weakened Australian dollar and Argentine peso.
In total revenues would have been 3.9 million higher in the first quarter had currency been neutral, which would have resulted in 6% growth.
Our overall organic increase excluding the currency impact was 4% for the quarter with the acquisitions of cap into that Dell G V S and Ty Neal biotech contributing the remainder of the grow.
The dollar has strengthened further into the second quarter, which will adversely impact our top line for this quarter as well.
Revenues for the food safety segment were $64 6 million in the first quarter of fiscal 'twenty, three an increase of 3% compared to $62 7 million in last year's first quarter.
As our U K and Ireland operations report through the food safety segment most of the adverse currency impact was felt here exclude.
Excluding currency overall food safety segment sales increased 9% and organic sales increased 7%.
International revenues rose, 2% for the quarter. This increase was 10% excluding the currency headwinds.
Our U K operations posted a 5% increase when the sales were converted to U S dollars rose 19% in pounds, partially due to the contribution of Dell the cleaner and disinfectant business in Liverpool, we acquired in November 2021.
Organic growth for our U K operation in pounds was 12% led by strength in aflatoxin test kits cleaners, and disinfectants genomic services that instruments and animal care products.
Setting some of this growth were lower sales in several of our diagnostic product lines and softening market conditions in Europe , and the Russia, Ukraine conflict are impacting customer buying pattern.
At our Brazilian operations fiscal 2023 first quarter sales increased 13% driven by strong sales of aflatoxin antioxidant have Alan I'll test kits as increased presence of these mycotoxins during harvest season are requiring more testing.
Brazil also posted strong increases in sales of vet instruments and genomic services.
At Neogen Latin American operations sales increased 19% led by broad based gains in our diagnostic test kits and culture media.
Broken control products and cleaners, and disinfectants sold through distributors also recorded revenue increases.
Sales in China were down 18% in U S dollars and 14% in Chinese one our business there was negatively impacted by COVID-19, lockdowns in the first quarter.
Our domestic food safety business was flat for the quarter.
As I already mentioned in regards to Europe . We're also seeing the impact of inflation and softening market conditions in the U S and Canada. Our sales team has seen customers tightening their belts and reducing testing volumes, where they can they've also reported prolonged pipelines, especially in regards to equipment sales.
Increases in Aflatoxin test kits, Soliris consumables and food quality test kits were offset by a significant decline in solaris equipment due to a difficult comparison against strong sales in the prior year.
Our Allergan and environmental sanitation product lines also declined.
Due to reduced buying patterns from customers and supply chain disruptions on certain products.
On a worldwide basis sales of our mycotoxin test kits increased 3% food quality products manufactured by magazine in Ireland increased 9% and Soliris consumables increased 6%.
Offsetting some of this growth allergens decreased 9% general sanitation products declined, 2% and Solaris equipment placements were lower.
The animal safety segment recorded revenues of 67.7 million for the quarter up 3% over the $65 6 million achieved in last year's first quarter.
Our Australian business reports through this segment and the Australian dollar was 7% lower in this years first quarter compared to the same period a year ago.
In a neutral currency basis animal safety segment revenues increased 4% this.
This increase was 1% after excluding contributions from the cap in Nevada, and genetic veterinary sciences acquisitions.
Sales of our core animal care products, including supplements and vitamin Injectables increased 16% over the prior year with continued strong end customer demand.
We also recorded a 14% increase in insect control products and a 7% increase in cleaners and disinfectants.
Really offsetting these increases rodent control products declined 12%. The result of diminished rodent pressure in the U S and sales of veterinary instruments declined 6% off a very strong quarter in the prior year.
Genomics revenues recorded in the animal safety segment increased 7% with sales from the G. V. S acquisition, partly offsetting lower sample volumes in the porcine market and a difficult prior year comparison due to large research project in fiscal 'twenty two.
On a worldwide basis genomics revenues increased 5% as our international labs were negatively impacted by currency headwinds in the U K and Australia.
And COVID-19 related closures in China.
Excluding the FX impact growth here was 8%.
Gross margins were 47% for the quarter compared to 46, 8% in last year's first quarter. The slightly improved gross margin as a result of pricing actions taken earlier in the year and favorable product mix in the animal safety segment.
We're still experiencing significantly higher freight costs and a couple of years ago, but I'm pleased to report our cost for inbound container shipments have gradually come down over the past several months.
Operating expenses included $13.7 million of three M transaction related costs.
Excluding these charges operating expenses increased 11%.
This growth 2.1 million was a result of our recent acquisitions.
Within sales and marketing, which rose 14% business travel trade shows and other customer facing activities increased significantly as in person events. We're still limited in the first quarter of last year.
Compensation and other personnel related expenses also increased including head count from recent acquisitions as did shipping costs on higher rates and volume.
G&A expense increased 6% after excluding the deal costs, primarily due to higher accruals for performance based incentives and new expense, including amortization from recent acquisitions.
R&D expense increased 13%.
This includes incremental expense at G B S.
Some R&D personnel absorbed in the acquisition and a large increase in external product development costs.
Operating income for the first quarter was $6 1 million compared to 21.7 million in last year's first quarter.
Excluding the $13.7 million and three M food safety deal costs operating income was $19 8 million.
Expressed as a percent of revenues adjusted operating income was 15% compared to 16.9% in last year's first quarter.
We recorded 969000 in interest income as yields on our investment portfolio continue to rise due to higher interest rates. This compares to 203000 in the prior year.
Our effective tax rate for the first quarter was 21, 8% compared to 21, 4% in last year's first quarter. There was minimal tax benefit in the first quarter from the exercise of stock options. Our adjusted EBITDA was $26 9 million or 24% of sales compared to 20.
$8 9 million or 22.5% of sales in the first quarter of the prior year.
On the balance sheet, our net receivable balances declined by 6.6 million compare to year end and our days to collect is currently at 60 compared to 59 in the prior year first quarter and 62 at May 31.
Inventory increased by $6.7 million or 5% and raw material cost increases and increased safety stock levels to avoid back orders and delays caused by the ongoing and unpredictable global supply chain issues.
Our operating cash flow was negative for the quarter due enlarge part to payments made relating to the three M deal and to a lesser extent increases in inventory.
Deal expenses will continue into the second quarter and we should then returned to positive cash generation from operations in the third quarter.
On the September 1st close of the three M food safety business, we assumed $1 billion of debt and we will be paying the principal down aggressively in the next few months as we unwind our marketable securities portfolio at.
At the end of September we plan on paying down $60 million on the term loan.
In addition to the three M food safety transaction, we made a small acquisition in July purchasing our Thailand distributor, which provided some minor incremental revenues and also created a legal operating entity in the country, making it easier to absorb the three M business in Thailand.
Although we will be laser focused on the integration of the three M business. We will continue to look at smaller acquisitions that add to our product or geographic portfolio and that are good fits with our existing business.
Our teams continue to perform in a very challenging operating environment and we're grateful for and proud of their efforts we.
We got a lot accomplished in the first quarter and despite some of the headwinds currently in our faces are cautiously optimistic for the remainder of the year head.
At this point I'll turn it back to John for further comments.
Thanks, Steve.
We are well underway to integrating the new business and providing customers with new products and solutions to enhance their food safety systems.
Post close we've added 28, new countries to our employee footprint, which also expanded our commercial presence to over 40 countries.
We're thrilled to have had a very high can branch right of the former three M. Food safety employees. The outstanding work done by our HR team has allowed us to retain the talent, who bring critical business knowledge with them the neogen, placing us in a strong position for continued for growth and maintaining business continuity.
In addition, 55% of those conveying employees, where sales and marketing focused which greatly expands our ability to penetrate our markets and grow our customer base around the world.
Our I T team has been working diligently to integrate our systems with the former three M food safety systems and evaluating efficiencies as we manage a lot of new data and work to share it with each other the tumors to appoint a global CRM instance to support harmonization between our conveying sales teams and our existing sales teams.
This platform helps the teams to align targets across the groups and ensure that the targeted benefits associated with the merger are clearly defined and tracked.
We are currently in the design phase of our global ERP platform implementation as we look to bring their organization together.
Eventually, enabling shared services and optimizing our supply chain once complete.
The former three on food safety commercial software and cloud capabilities are being migrated to the Neogen cloud and both groups have pulled together to accelerate our commercial data and analytics roadmap.
We're also evaluating our global R&D platforms between teams and are developing a plan for the optimization and acceleration of our product development activities. We expect this activity to align with the targeted deployment of our new R&D facility in Minnesota in Q1 of the 20th twenty-three calendar year.
Our operational teams are working diligently with three of them to fix or back order situation, which has slowed their food safety sales over the last few quarters by 5% to 6%.
Doing so will improve sales in the remainder of the fiscal year.
We are receiving a positive reception from customers around the world, which gives us a lot of excitement and momentum as we move forward to combine the company post close we met with the senior leadership of a leading commercial lab company and presented a unique opportunity that Neogen was now able to provide there very excited about the opportunity to work with the combined business and immediately saw improved search.
Louis levels longer term, the combined company will offer them opportunities to invest in improved automation technology, which will drive further customer efficiencies and increase the usage of nutrients consumable products. This excitement from our customers is incredibly encouraging and is driving our teams to work together to find the best systems and solutions to reach our markets around the.
World.
In July we ceremoniously broke ground on our plan to $85 million expansion of our Lansing food safety facility. This expansion of Senator on the construction of a three story 175000 square foot dedicated manufacturing and research building for our food safety products.
We're pleased to report that in August we received the necessary approvals and secured the desired state incentives to move forward with the expansion construction will begin immediately and continue for the next 14 months with the completion target date of December 20, twenty-three with validation and other progress taking place through 2024.
This expansion represents a significant investment on our business technology people and community demonstrating our strong belief in Neogen <unk> long term success. This is an important step in our growth and as we focus on the integration of the former three M food safety business with our operations. This Lansing expansion won't be the location for the manufacturing of the <unk>.
From indicator organism testing line of products.
We are currently expanding our distribution centers in Kentucky in Ireland to ensure that we were able to ship products quickly getting our customers the solutions they need in a timely manner.
These are critical for our business as we grow our markets and reach new customers through our expanded food safety Division.
These larger distribution centers will help us as we make our animal safety products available to our new food safety Division customers.
As we educate them on the importance of protecting the food supply from farm to fork and creating a sustainable food chain.
A lot of potential growth for Neogen and our entire team is ready to capture it.
Now, let the three M food safety transaction is closed and these expansions are underway neogen looks at a transformed over the remainder of the 20th twenty-three fiscal year.
We've just acquired a business that generated $370 million in revenue in its last reported 12 month period, we have over 400, new talented team members worldwide and we're excited about the potential of this business. We have a great team working here, who are passionate about protecting the global food supply and dedicated to our mission to be the leading company in the development and Mark.
Getting our solutions for food and animal safety.
This group does not back down from challenges and takes all change in stride and working together to make Neogen. The best company that it can be.
The detailed work of capturing deal synergies is ongoing and as we seek to position our new global portfolio and set the tactical direction for our line sales and marketing teams, we continue to validate our growth opportunities and refine our targets across the combined portfolio, including our microbiological immuno diagnostic and genomics platform.
Execution against these growth strategies at a customer and product level have already begun.
There'll be a lot of change in the upcoming months and years, but we are well prepared and confident in our ability to continue growing and leading the food security market.
Now back to Steve for some additional comments from him regarding our forward looking financials.
Thanks, John as you all realize we've owned the business for less than a month we've.
We've had numerous calls from analysts trying to model the company going forward given some of the recent headwinds in the three M business in particular.
We're currently working with the commercial teams to review the forecast for the rest of this fiscal year and our plan is to present, our revised projections for the combined business for at least the rest of this fiscal year at our second quarter earnings call, which is currently scheduled for the first week of January we appreciate your patience and your support as we better understand it.
And integrate the businesses.
Thanks, so much Steve.
Before we move to Q&A I'd like to take a moment to announce that Steve will be retiring next year. So.
He and I have been working together to plan for this transition and he will remain with the company through May 31, 2023, the end of Neogen fiscal year.
As you all know Steve served as Neogen CFO since 2011, leading the company through more than 30 acquisitions, including the Companys. Most recent acquisition of <unk> food safety business.
I and all of the Neogen employees are very grateful for Steve service and commitment in the region over the past 11 years, helping us deliver on our mission of protecting the world's food supply from behind the farm gate to the dinner plate.
And I want to wish him well on his retirement.
Simultaneously I'm excited to welcome Dave Nomura, who will take on the role of Chief Financial Officer effective January 2nd 20 twenty-three.
They will work closely with me and Steve until his retirement in may to ensure a smooth transition.
Dave has extensive experience working as chief financial Officer for public companies. Most recently for Volunteer Corporation, where he played an instrumental role in the company's separation on launch as an independent public company.
Steve is there anything you'd like to add.
Thanks, John a little more than a year ago, I discussed with John My future with Neogen, including my potential retirement plans.
And here we are.
I've had the good fortune to be the CFO of this great company since the beginning of 2011.
We ended our fiscal 2011 with $147 million in revenues and 654 employees.
The end of last year, we were at $527 million in revenues and over 2000 employees.
It's been a great ride with a lot of great experiences and friendships made but I'm now looking forward to a lot of quality time with my wife, our three daughters and their families, which includes four grandchildren and making up for a lot of time spent away. There's a lot of traveling in our near future.
I'm excited about the future of the company, we have a passionate and committed employee base.
John has taken what Jim Herbert and land Bohannan put together and is built on that putting a great leadership team together to take the company to the next level.
And Dave comes in with large public company experience. So I believe we're in good hands and I look forward to what I'm sure will be a successful integration of the three M food safety business and then to see what will be next.
And I'm not done just yet I've committed to staying through the end of the 2023 fiscal year to assist in whatever way I can to assure a smooth transition as.
As I ask it I'll still be a shareholder and I plan to continue to be one going forward.
I've always appreciated the support the investing community has shown me and the company over these past nearly 12 years and I. Thank you all for that John .
Thank you Steve now I'll open up the floor to any questions you may have.
Okay.
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 has been addressed or you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes.
It's from David Westenburg from Piper Sandler. Please go ahead.
Hi, thank.
Thank you for the question and congrats Steve it's.
Been nice working with you and it's nice to read that I think I still get to work with you until may so.
Yes.
Advocate chatting so.
Thanks, Dave.
Yeah.
Before before I get into the nits of avoided nano assessed to do and you know it is my responsibility to give those net I'll just thank you congrats again guys.
On closing this on time and this you.
You had a lot of work to do all this stuff in and you know congrats on it so.
<unk>.
Anyway.
I'm going to start with the 300 million dollar EBIT target and I know you mentioned.
You're still kind of assembling the the way to think about it on it.
Yes.
Are we pushing out the time frame to that 300 million or is it maybe youre going to give a number lower than that I mean, just any kind of way to think about.
What what what what it is here and then can you confirm that it is a three M business that would be the culprit for kind of the.
The changes of way to think about that that 300 million.
Yeah, Thanks, David So.
Steve and I talked about we've had the business for about 28 27 days. So we're learning more about it.
The positive is we're finding a lot more synergies than what we even thought we were there before.
The negative was that the three of them business over the last couple of quarters has not performed.
So the way it was forecasted when we kind of put out the initial 300 million. So what we want to do is take this time to sit down with that team and we're doing it already and really going over kind of the forecast for the businesses where the opportunities are.
What our execution is going to be at a 30 60 90 day plan and then give you and the rest of the Investor community a lot clearer picture kind of going into January .
Where we see the business going and to your point, whether it's the bridge on 300 or whether it's a timeframe to 300 and that's that's what we're working through right now.
Okay. Okay, and then maybe I'll ask another kind of way I mean, what what about in terms of.
I think when when you laid out the borrowing case, we saw you borrowed 1 billion.
I think you had about $300 million on the balance sheet, and then we had that $300 million.
Estimate and you know you added.
Leverage was well, it's going to be below two and a half.
As we think about leverage here I mean, it is what I mean.
I know you can't necessarily say that EBIT number, but I think it is it is important to give some sort of framework and context of that that that leverage target I don't know how comfortable you feel about getting that.
Yeah, No I think that.
You know when we said I think on a net leverage basis, we're at 2.8.
And then we had about $370 million in assets.
On the balance sheet.
Cash so.
Stephen I, our expectation is we're not going to be far from that.
We're going to I can't give you the exact number but it's not going to be far from that.
2.8 number so we feel pretty confident.
It'll still be a very reasonable.
Debt.
The EBITDA ratio for the business Steve.
No I agree.
Yes.
Okay. Okay. Good got it and then can we I know you've only had that business for 28 days.
They either are or so.
I think the last asked for was it was a few months ago can you talk about you mentioned that the backlog and it being if you wanted to clarify it with a 5% headwind to that can you maybe give us the the number at which it's been growing over the last couple of months, maybe what it is.
This exact month, and then kind of on a forward basis of that three M growth rate.
Our business and.
I got them. They can continue this question by maybe asking if this is a backlog issue can we expect.
Some numbers above.
The above market growth rates as you're fulfilling that backlog is it is kind of double sales because I would have to imagine you're you're.
Customers have to keep using these products like I can't imagine they have to stop.
Yes, no that's right maybe there's some maybe theres some net attrition I dunno anyway.
So I'll talk about the back order situation and Steve can talk about the other so.
Yes, you know we've quantified the backorder situation and it's about a 5% to 6% headwind that's been on the business for the last quarter or two and we're working diligently with three M to fix that and the way that we're doing that was when three of them food safety was a part of <unk>. They were a very.
Very small part in a very big business. So they were at the end of the line for manufacturing there at the end of the line for critical raw materials are at the end of line forever.
As of September 1st the role has changed where three of them as our contract manufacturer for these products. So we've been able to work with three am to re prioritize.
Kind of those things under the new reality of the business.
And so those are the things that we're saying that we're going to help us alleviate back orders much faster than what three.
That team would have traditionally been able to do through no fault of their own. So we feel confident in three of its been a really good partner to help us move that forward.
On the second part of your question I'll take the Steve Yes, I think David you asked if it will get.
And have a kick in sales from the the back order situation I think it's really going to it'll be gradual and it's really going to restore the growth to the levels that we were contemplating when we when we signed the deal originally but I don't know that youre going to get a massive.
Bump in in and results, it's really just getting the growth back to where we think it needs it can be and needs to be.
Got it and then hop back in queue.
I think Andrew probably has some question in and I'll take it from there.
<unk>.
And our next question comes from Brandon Vazquez from William Blair. Please go ahead.
Hi, everyone. Thanks for taking my question and congrats on closing the <unk>.
Deal.
John you talked a lot about more of these new synergy opportunities as you kind of meeting the team and traveling across the new location I was hoping maybe you could talk a little bit about where.
Where youre seeing some of these synergies.
Either qualitatively or quantitatively both on the sales and profitability lines any kind of additional details you can give us there would be helpful.
So you know the.
I think I'll give you an anecdotal one Brian so when I was at.
Day after close those in Europe meeting with the team members.
And when I went to the bridge facility.
And I was talking about that we're starting the facility and the group has got.
Bioreactors and Theyre, making.
<unk> and Theyre, making this product line.
Let's say 10 liter reactor and I go to Ireland, and you know, we've got 400 liter reactors.
The magazine James Oh, Yeah, we've already talked to that group and you know we're going to help them, we'll take that over because we do it much more efficiently. We can do a lot cheaper we can send it to them and so that was a big raw material for the bridge on group that now we've got scale and efficiency in our other manufacturing thats going to help reduce the cost and those are that's just one of many men.
The things that we saw as the team member started talking and working together and what I was <unk>.
Happiest about was you know this is day, three and they've already identified new opportunities and I already had a plan to execute on it which I was really excited about the teams arent waiting they're finding opportunities of documenting them and theyre getting started and so.
Around a broader.
Larger opportunities that's the stuff that we're gathering now right and that's the things that we keep telling everybody look.
You know theres opportunities around make sure that if you have a question about why things operate something ask ask alright. So I'll give you. Another example, I was in France and the group is.
Complaining because.
They were forced to use a pan European distributor that was a larger three M distributor, but the distributor had no food safety business.
But they couldn't have a threat and they could never food safety distributor because they were forced to use this one well we fixed it alright, then automatically increase sales because now you have a distributor that knows the business is tied to the market and is it being driven by a larger organization better relationship them with other product lines. All right. So we're just keep finding a little bit of opera.
<unk> like that to where once you carve this crude up group out and get them more focused on what they do they can make other decisions that will help drive the business forward, so putting all that together.
Quantifying it and like I said in January we're going to have a much better picture of what that kind of forecast looks like going forward.
Okay.
That's helpful. Thanks, and then.
In terms of going back to the kind of the back orders within the three M business is there any any kind of timing that you could give us and how long. It may take it sounds like you may need to ramp their manufacturing internally, how long of a process does that usually take and then.
Kind of a follow up to that is correct me, if I'm wrong, but I think the three M business used to be more like a double digits organic.
Growers, so how do you get maybe from that 5% to six points gets you into the mid single digits.
It gets you to the delta to like a high single or a double digit grower I think.
Proxies, we in the filings we saw some other headwinds like China, Russia, Ukraine any other.
Kind of color you can give around those.
Yeah, So I think.
It's going to take a little while but I would.
Our expectation is we're going to see easing on the back orders by the end of the second quarter.
So we'll see some easing there.
Yes.
That alone is just the headwind of 5% to 6%.
The other things we have to do is continue to grow.
It was interesting because.
I thought three of them had a much larger share market and sitting now with their team members. When they were showing us the potential markets. We can go into that the team has our share of market at about 18%.
Which gives us a tremendous amount of runway for indicator testing even more than what we were expecting so there's big opportunities for us to continue to grow the market and take share from traditional methods because thats really our biggest.
<unk> is on the traditional method side and then even entering other market segmentation or picture film is applicable.
And can be used.
Three of them didn't at that point did not wanting to go into those markets, which are markets that neogen has already.
So these are big opportunities for us to accelerate those growth rates.
With the current business model.
Yeah.
Got it and then last one for me kind of pivot.
Pivoting a little bit and.
I appreciate it may be a little difficult to maybe take out a crystal ball here, but a lot of investor concerns kind of a run recession, especially as we head into calendar 'twenty three.
If you could just talk a little bit about how resilient your businesses, maybe the food safety and animal safety businesses may be during a more prolonged recession and what we're seeing today.
Businesses can still kind of grow on a year over year basis.
And I think that's a it's a great question.
Brandon I think you can go back and look if you looked at you know during the last time, we had a slowdown in 2008 to 2010. If you look at the edge of this growth we continue to grow.
And the reason for that is.
Even in a recession people need to eat.
It's not a discretionary item right, where you just I'm not eating today I mean, maybe if you're fasting.
No no I don't do that very often so I think there's opportunities for us to continue to find ways to grow in a recessionary environment and I do think we're heading there right I think we see it I think you can see it.
Round capital equipment, we mentioned that our placements for Soliris were lower than the past I think people are preparing we're talking a lot about it I think inflation.
Is it impacting other businesses, they're tightening their belts.
But even I saw a great report that came out of Wells Fargo. The other day that was talking about.
How food companies performed during <unk> and <unk>.
Recessionary environments and it's not that we are not impacted it's just that we're not impacted as much.
And I think <unk> ability to grow whatever the market situation has been kind of our trademark and our hallmark and I think that's something that we pride ourselves in were 121 out of 127 quarters of growth.
And so as we head into it in a tough environment, whether it's currency headwinds whether it's recession.
We know that we find ways to continue to grow because we've got a really strong resilient base market and I think we're blessed that we're in the right markets.
But we also work very very hard to find opportunities and to continue to meet customer needs and find new ways to be creative to help customers are in this tough times because.
When the times are tough as when customers are really looking for creative solutions. When everything is great and everybody's making money the resistance to try new things and change is very low. So we have a really good opportunity to now position the new organization with our breadth of solutions and portfolios to really be.
Bring something new and exciting to the market when they are looking for something new and exciting because their end market is a little more challenging.
Great. Thanks, a lot.
Thank you.
I would like to remind you that if you have a question still too please.
Please press Star then one.
And our next question is coming.
From David Westenburg back from Piper Sandler. Please go ahead.
Thank you guys for the further follow ups here.
Can you talk about because there is kind of a big big Delta between constant currency.
And the growth and the growth rate it looks like it's more than currency.
Can you talk about how much are sorry that day organic in the constant currency won.
Can you talk about how much M&A wasn't food food safety business and for us better.
Not perfectly matte incline.
Maybe just give us a I.
A number of of the acquired business in that food safety and then obviously not the three of them, but the what was in the prior quarter.
Sure David.
On the food side, Theres about $1 million for AV AV acquisition revenue and that's the Gulf and.
The Neogen, Thailand business.
And then on the animal safety, it's more about to $2 1 million.
Okay perfect. Okay. Thanks. Thank you so much for that and then as we talk about.
You gave that kind of context of like you can be hit and you do think that there would be a.
Income coming recession.
We think about fiscal year 2023.
Is this is this a more mid single digit growth year for macro and I'm not saying your business, specifically I'm just thinking about the businesses that you operate in what's kind of the longer term way to think about the business and food and animal safety I know, you've historically said you know food safe.
I think it's eight to 10 animal safety of six to eight is that still the year out way to think about it.
Yeah, I think you know.
We've had some.
Got some really good years on the trail for animal safety for growth.
Because we had three really bad years so.
We've talked about David the cyclicality of that business and kind of how it moves. So I think that we're we're kind of at the.
Speaking of that so we may not see as that stronger growth rate going forward in animal safety food safety, it's harder to say because while we're entering what I think is going to be a tougher environment from a recession standpoint.
It just.
On the 20 <unk> by the administration announced that they were going to do.
They had a 2 billion dollar investment to strengthen global food security and they are putting $2 billion behind it.
So thats a huge tailwind for US now there is no details as to what it is.
So I'm not quite sure whether that's.
Gonna help with our analytics platform or whether it is going to be around our block chain solutions or whether it's going to be around our supply chain solutions for our customers or whether it's going to be around increased.
Testing because you know we've seen more food borne illness, we just saw a big recall listeria. The other day, so I'm unsure as to where that's going to go but that commitment, but that type of money and food security is a huge tailwind right.
For Neogen.
Im trying to balance that with kind of the recession on the environment side. So.
I'm not willing to say that we're going to slow down yet I'm, just I know, it's going to be challenging, but we've got some <unk> that could help push us around long. So I'm unwilling to go out and tell you, yes, David knock them back three points or four points because.
We've got some positive stuff that I see that I, just don't I don't know how to quantify yet.
Got you actually took my last question, but I'm going to ask it anyway and that was going on.
A couple of days ago, right. We did see the the Hungary I think it was called the hunger nutrition and health initiatives on anything anything there to test spot.
Anything that you see in there I know.
I I know, Jim Jim used to talk to a lot of the AR.
The centers what was the act in 2000 I think it is the food Safety Service Act.
And monetization Mac monetization Act I I know that was a.
A tailwind for the business is there anything in there that.
To call out and I know, you're just kind of answered that but yes, no I think so.
No youre right, because so that particular, one was $220 million for free.
Feeding programs for schools, but that was part of this $2 billion set aside.
We've had meetings I know.
Our regular or governmental affairs group has met with the Secretary Vilsack, we've had opportunities to.
Meet with the FDA F Gis and really the government groups and they are laying out this platform, but I think what's what's obvious is that everyone is very focused and you saw a little bit I don't know if you've seen it but I mean.
There are a lot of questions around.
Congressional questions around the FDA right, how do we improve the FDA on food. So all of those things are are tailwind for Neogen now I don't they haven't specifically said what that money is going for but.
With our breadth you know that part of that is going to be a positive for us. So we're working on it we're actively involved with government agencies to see how we can help in the direction. They want to go and help set policy.
Because we think that's a really big opportunity for us.
Alright, Thank you guys.
Thank you David.
This concludes our question and answer session I would like to turn the conference back over to John <unk> for any closing remarks. Please go ahead.
Great. Thank you. So again I appreciate you being on the call once again I want to thank Steve for just doing a great job over the last 10 plus years.
<unk>.
Hard to compete with the grandkids, that's what I learned we worked really hard to try to convince but hard to compete with the grandkids. So we're excited and Steve as you mentioned going to stay a shareholder and we've got a really nice transition put together so really.
Long time to make sure that successful lastly, just a reminder, get your proxy votes and the annual shareholder meeting is Thursday the sixth.
And we look forward to talking to you all again on our second quarter call in January Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.