Good day, and welcome to the Neogen Year-End Conference Call. All participants will be in listen-only mode [Operator instructions]. Please note today's event is being recorded. I would now like to turn the conference over to John Adent, CEO of Neogen. Please go ahead..

Thank you, Rocco. Good morning, and welcome to our regular quarterly conference call for investors and analysts. Today, we'll be reporting on the fourth quarter of our 2020 fiscal year and the entire year, which ended on May 31st. As usual, some of the statements made here today could be termed as forward-looking statements.

These statements, of course, are subject to certain risks and uncertainties. The actual results may differ from those that we discuss today. The company’s 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 who are joining us by live telephone conference, we also welcome those of you joining us via the Internet. Following our prepared comments this morning, we will entertain questions from participants who joined this live conference.

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. Normally and we'd use this conference call to provide perspective on the performance of our various business segments. But our fourth quarter was anything but normal.

During the quarter, our team worked tirelessly to fight the COVID-19 global pandemic, and ensure a safe food supply for our customers around the world. As we mentioned in our third quarter call, we moved very quickly to secure and diversify our supply chain in December and January.

As the virus began to spread around the world, we took immediate action to protect our employees and our business. We stood up our emergency response team and held twice daily meetings to constantly refine our response plans and implement those plans.

In the first week of March, we shifted nearly 30% of our total employees to work remotely from home and banned all travel. Those who were essential to our on site operations were protected with split shifts, elimination of interoffice travel, temperature checks, social distancing, face mask and many other safety measures.

We have constant communication with our team members as we continue to operate in our new normal. We consider ourselves very lucky that we've not lost a Neogen employee in this very dangerous time. But we realized there’s plenty to start from over and now's not the time to let up. I'm extremely proud of how our Neogen employees responded to the crisis.

It's their hard work, creative solutions to unprecedented challenges and dedication to doing the right thing, that has safely gotten us through this so far. To protect our business, we've adjusted our workforce levels to better match our changing customer demands and have instituted cost controls to better protect Neogen's financial health.

Steve will provide a bit more color on these later on. Many people have asked me why is the food industry been hit so hard by the pandemic. People still have to eat regardless of breathing in home or outside. Well, people do have to eat but the pandemic has caused a massive disruption in how they eat.

According to the USDA prior to the pandemic, Americans spent approximately 50% of the food budget away from home. For most of us that percentage came close to zero for weeks at a time. And you saw the effects every time you went to the grocery store, and we're confronted with empty shelves. I've seen estimates that 40% of the food produced in the U.S.

is eventually thrown away. As consumers prepare their own meals, they dramatically reduced the waste in the system. Now people were preparing the right sized meals for their family and eating the leftovers. This has caused unprecedented disruptions in the food supply chain with this shift toward eating at home. And I'll give an example.

We have a dairy customer that specializes in providing 50 pound tubs of butter to restaurants and commercial kitchens. Its entire production and supply process is geared to efficiently producing and delivering those 50 pound tubs. Once its market abruptly crashed, the company had no place to sell its product.

Most customers other than Steve don't want 50 pound tubs of butter. We've heard numerous stories just like this. And the good news is that food industry is adjusting but it's going to take time. As the world changes to adapt our new normal so does Neogen.

We’re being proactive in finding new ways to communicate, train and assist our customers in the industries to allow them to survive and thrive into the future. I'm now going to turn it over to Steve to run down the numbers for you..

All right, thanks, John. And good morning, everyone on the call today. Before I start with the numbers, I'd like to echo John's comments and how proud we are of the quarter that we're reporting on today.

Part of this pride comes in the numbers but more of it comes from the effort of the team across the globe in keeping things going, and stepping up in what has been an unprecedented and difficult operating environment.

As an initial example, we sent 70% of our administrative sales and other non-manufacturing employees home to work remotely beginning in mid March as the COVID pandemic spread through the countries in which we operate.

The significant investment we've made in IT systems and infrastructure the last couple of years paid off as we were quickly able to shift to a primarily remote workforce, with relatively minor speed issues and minimal additional costs. And in some cases, we are thriving not just surviving in what appears to be our new normal going forward.

Our manufacturing and supply chain group has worked tirelessly to source critical and in some cases scarce materials. The production employees have embraced our safety measures and we were able to continue making quality products, while keeping the employees safe. And the packaging and shipping teams got the product where it needed to go.

These folks did all this while operating under the uncertainty and stress of COVID-19. They've done their jobs remarkably well and deserve recognition for that effort. Earlier today we issued a press release announcing the results of our fourth quarter and full year, which ended on May 31st.

Revenues for the fourth quarter were $109.1 million compared to $109.7 million in the same quarter a year ago. For the full-year, fiscal 2020 revenues were $418.2 million, a 1% increase over last year's $414.2 million. Net income for the quarter was $16.3 million or $0.31 a share compared to $15.8 million or $0.30 a year ago.

Full-year net income for fiscal 2020 was $59.5 million or $1.13 a share compared to $60.2 million or $1.15 per share for fiscal 2019. During the fourth quarter, we were significantly impacted by currency movements in our international operations.

When the magnitude of the pandemic became evident and as it began moving around the world, there was a move toward the safety of the U.S. dollar, negatively impacting local currencies in our international locations, particularly those where the outbreaks were less controlled.

The Brazilian reais and the Mexican peso were hit especially hard, depreciating against the dollar by 25% and 18% respectively. The Euro and pound also fell but by less than 5% for the comparative quarter. And as a result are compared to revenues were $3.5 million less for the quarter than they would have been in a neutral currency environment.

And for the full year in a neutral currency environment, revenues would have been approximately $6 million higher than we've reported. Currency markets have settled down a bit as we've moved into the first quarter of fiscal 2021, moving back towards pre-COVID level, but we expect continued volatility in these markets for the near-term.

We do hedge a significant portion of our international balance sheet exposure for currency risks. While revenues for the quarter were flat, we were encouraged by the performance as sales held up well through the quarter in spite of the shutdowns and operating difficulties in many of our markets and with many of our customers.

Our team worked extremely hard during these first few months of the pandemic and [helped] to connect with our customer base and make sure they were well-supplied. And as John said, we took a number of steps to protect our employees during the quarter. And we also made a number of moves to protect our business.

Given the initial uncertainty of demand, we took immediate actions to lower our operating costs. These actions included temporary pay reductions at the senior management level, furloughing or reduced hours for approximately 5% of our U.S.

workforce, the curtailment of discretionary spending throughout the organization and the succession of most business travel. These actions resulted in savings of approximately $2 million in the fourth quarter. And obviously, this included attendance at industry trade shows and outside meetings and related meals and entertainment expense in the U.S.

and similar reductions in most of our international operations. And we've brought a number of our people back, but have continued to restrict business travel until further notice.

We have also temporary suspended the company match on our 401-K plan effective at the beginning of June, and we will continue to monitor conditions in our businesses and react accordingly. Overall, revenues in the Food Safety segment were 4% below last year's fourth quarter and were flat for the full year.

And we believe that the quarterly shortfall is reflective of the margin disruption and temporary closures of the number of customers and not permanently lost business. Our sales team has been reaching out to the customers base and has collaborated this information, while also determining the extended damage the pandemic has done to our customers.

Highlight from the Food Safety product line for the full year include 4% increases in sales of both natural toxin and allergen test kits.

Our AccuPoint product line, which monitors environmental sanitation and food processing environment, rose 7% for the year and our Listeria Right Now product rose 24% as we continue to gain share with this fairly new pathogen detection product.

Offsetting this growth were lower sales of culture media products due to lower end market demand at our larger customers, and $600,000 non-recurring orders from the prior year. Sales of our drug residue test kits decreased 30% for the year due to lower demand at our European distributor.

As I’ve mentioned on previous calls, we modified our contract with this distributor in January to eliminate their exclusive distribution rights across most of world, and are utilizing on European sales force to sell these products directly to end customers.

Internationally, we continued to integrate the acquisitions we completed in the 34 quarters, and they’ve performed above our expectations providing $1.2 million of revenue for the quarter and $1.9 million for the year. These acquisitions in which we purchased three of our existing distributors in the Southern Cone area of South America.

Our distributor in Italy and a manufacturer of key raw materials for our European operations enhanced our position in markets that we believe has significant growth potential and improve our cost position.

Our European business finished the year strong with a 17% increase in cleaners and disinfectants and veterinary instruments in the fourth quarter, and a 15% increase in cultural media products as orders delayed from the third quarter shipped in the fourth.

Genomic services in Europe rose 25% in fourth quarter and increased poultry and beef cattle volume. And for the full year, genomics increased 7% in Europe. Overall, sales from our Scotland based operations rose 1% in U.S.

dollars for the full year and were up 4% in local currency as the increased genomics revenues were partially offset by lower allergen revenues. Revenues for our Brazilian food safety operations declined 30% in U.S.

dollars for the quarter, primarily from a $400,000 reduction in forensic test kit sales due to the loss of a large commercial lab customer earlier in the year, and the negative impact of the 25% currency devaluation in the quarter. In local currency, the revenue shortfall was 6% for the quarter.

Genomic services in Brazil declined 27% for the year as a project in the prior year for the Brazilian government for study on cattle did not recur in the current year. We won new business with the government for further genomic testing on cattle and are expecting to begin receiving samples in the first half of the new year.

Our insecticide business was up 5% in the year due to sales to government health organizations. Revenues were flat for the quarter and up 5% for the year in U.S. dollars for our Mexican operations.

In local currency revenues rose 20% for the quarter and 11% for the year, with strong market gains across our food safety diagnostic portfolio, partially offset by weakness in sales for our largest distributor of our bio-security products in Mexico and Central America. China closed the year strong with revenues up 28% in U.S.

dollars for the quarter and 22% up for the year with continued sales increases of cleaners and disinfectants to help in fight against outbreaks of African swine fever and COVID-19 in that country, and uptick for the quarter in our food safety diagnostic business on equipment and vial sales of our Soleris product line used to detect spoilage organisms process foods.

Revenues for the animal safety segment, which have been soft for most of the year due to continued tariff wars and result weakness and uncertainty in the agricultural markets we serve rose 3% for the quarter, led by $3.5 million increase in sales of sanitizers and disinfectant products, which we manufacture and $1 million increase in sales of personal protective equipment, which is gloves and gowns, which we distribute as demand for these products exploded as a result of the pandemic that we were able to pivot that quickly to this surge in demand, particularly on the manufacture of hand sanitizer is a testament to our operations group.

For the full-year animal safety revenues rose 2%, primarily the result of a 13% rise in genomic service revenues at our laboratory operation in Lincoln, Nebraska, driven by strong market gains into the domestic companion animal service space, growth in the commercial beef market and increased volume in the domestic porcine market.

Additionally, our business in Australia rose 18% for the year on share gains in the sheep testing market in Australia, a $390,000 increase in sales of biosecurity products and $420,000 increase in sales of Food Safety Diagnostic products aided by the March acquisition of Cell Biosciences.

Other highlights in the Animal Safety segment for the year were an 8% rise in water treatment disinfectant sales on share gains in the swine and poultry markets and a 9% increase in wound care products.

Partially offsetting these gains were an 8% reduction in sales of animal care products and 7% reduction in veterinary instruments, primarily needles and syringes to our largest U.S. distributors. The result of continued weakness in their end user sales and inventory reductions at these distributors due to the uncertainty of COVID- 19.

Gross margins were 47.4% for the quarter compared to 46% last year, aided somewhat by opportunistic business on sanitizers and disinfectants related to the COVID-19 outbreak but also by cost reductions and efficiencies gained in our manufacturing groups. For the full year, gross margins rose to 46.9% from 46.3% last year.

The increase is due to 170 basis point improvement in Animal Safety margins on the strong sales of sanitizers and disinfectants in the fourth quarter and full year growth in sales of genomic services for breed identification on companion animals to the retail veterinary market.

These increases were offset somewhat by a 40 basis point reduction in margin for the Food Safety segment due primarily to lower sales of higher margin forensic kit sales and the adverse currency impact on our international operations. Overall, operating expenses were flat for the fourth quarter and up 4% for the full year.

Sales and marketing expenses declined 7% in the fourth quarter as we ended most business travel early in the quarter. Meals and entertainment and all trade show related activity also stopped at that time. These savings totaled approximately $1.5 million for the quarter.

Domestic business travel continues to be shut down and travel in our global operations has been curtailed dramatically. Our sales, customer service and technical service teams have adjusted and are contacting and engaging customers via video conference, emails and even the old fashion phone call.

General and administrative expenses were up 13% for the quarter and 9% for the full year, increases in legal and professional expense due in part to the acquisition activity and spending on a number of legal issues, stock-based compensation, which has risen due to the increase in the price of the company's stock and an increase in personnel costs from higher headcounts, were the primary drivers of the increase for each period.

G&A for the new businesses acquired totaled $388,000 for the quarter and $520,000 for the full year. Additionally, we recognized an increase of $370,000 in depreciation expense related to investments in our IT infrastructure for the full year.

And as I noted earlier that infrastructure has been rock solid during the first few months of the pandemic as hundreds of our employees continue to work effectively from home. Research and development expenses were $14.7 million for the year compared to $12.8 million last year, that's an increase of 15%.

Increased spending has been primarily for development costs for a number of new products, one of which, the next generation Soleris was just recently launched and expenditures to obtain product approvals and certifications. Spending will normalize with these levels in fiscal '21 as the group continues to work on additional new product initiatives.

Operating income for the fourth quarter at $19.9 million was a strong 18.3% of sales, helped by the growth in gross margins and that compares to $18.7 million or 17.1% of sales recorded in last year's fourth quarter.

For the full year, our operating income was $67.5 million or 16.1% of sales compared to $68.1 million or 16.4% of sales in the prior year. Other income for the year was almost $4.8 million compared to $4.9 million in the prior year and included $6 million in interest income, the result of higher cash and marketable securities balances.

Rates on all fixed income securities have dropped precipitously in the second half of the year, and we expect to earn less on these investments in the 2021 fiscal year.

Our effective tax rate for the fourth quarter was 22.8%, that's an increase from the 18.9% recorded in last year's fourth quarter as our benefit related to stock option exercise was lower in the current year quarter, and we recorded year end U.S. and international tax adjustments, primarily related to income earned in our international operations.

And for the full year, our effective tax rate of 17.7% compared to 17.5% last year. We continue to produce strong cash flow, generating $87 million from operations for the full year versus $64 million in the prior fiscal year. We invested about $18 million of that cash in property and equipment and $13 million in acquisitions during the year.

Our inventory balances increased 11% in fiscal 2020 or about $9 million.

During the second half of the year, the company began stocking up on critical raw materials and long lead time items domestically to ensure their availability in the event of supplier shutdowns through the COVID, resulting in a $4.5 million increase in inventory at our domestic operations.

Additionally, our European operations added about $1 million in inventory this year to ensure that we have adequate stock to support our European customers in the event of a disorderly Brexit, which is currently scheduled for December of 2020. We also added about $1.5 of inventory with the businesses we purchased earlier in the year.

We have set target inventory levels for each of the business units for the new year with the goal of improving inventory turns where possible. Our accounts receivable balances rose by 3% over levels at last year end, and our days sales outstanding moved to 68 from 61 last year.

Payments worldwide have been delayed somewhat due to disruptions and shutdowns at a number of our customers, and we're closely monitoring these balances and payment trends. Fiscal 2020 was a challenging year in many respects for the company.

But as I said at the beginning of my comments, I'm very proud of our almost 1,800 employees worldwide and how they have pulled together during the initial stages of this crisis.

As John indicated, we're certainly not declaring victory as we know there will be many more challenges in front of us as we adjust to this new normal, but there is also much to look forward to and we're cautiously optimistic and excited as we enter the 2021 fiscal year.

John?.

Thanks, Steve. As I've said previously, our mission matters today more than ever. As the world fights through this crisis to eventual recovery, there are few things more important than a continuing safe and plentiful food supply. Neogen was built to respond in times of crisis, and we have responded.

We've done our best to assist the broader civic efforts to combat COVID-19 by making our sanitizers and disinfectants available outside of our traditional agriculture vendor and markets.

We're well positioned financially to weather the continuing and expected threats for the global economy in 2020 with a cash and investments balance of about $344 million, no debt, and as Steve mentioned, very strong free cash flow.

We fully understand and accept the inherent risks of seeking to grow our businesses internationally, even when during these worst of times.

As with all American companies with sizable opportunities overseas, we understand that times are going to be hit with currency headwinds and negatively impact our results and another times are going to benefit from currency tailwinds. That's a short-term risk that we except to achieve our long-term growth goals.

We feel good about the robustness of our raw material supply chain and our ability to secure the inputs that we require to produce our products. Where necessary, we've outsourced or we've sourced alternative suppliers to ensure the continued availability of critical raw materials.

Once again, I am extremely proud of how our team acted and reacted in this unprecedented business and social environment. Neogen is well prepared and positioned for whatever our 2020 fiscal year holds for all of us. With the products, services and team members, our customers need to operate through the pandemic and what lies beyond.

We also have the financial and organizational strength to rapidly adapt to known and currently unforeseen challenges as demonstrated in this last quarter. I'm sure that you have many questions for Steve and I, so I'm going to throw it back to Rocco so he can then open it up for questions.

Rocco?.

We will now begin the question-and-answer session [Operator Instructions]. And ladies and gentlemen, our first question today comes from John Kreger with William Blair. Please go ahead..

Could you go back to the issue that you talked about earlier in the call about the big shift within Food Safety from institutional restaurants to grocery stores. How does that impact you? Just curious if there are margin differences or market share differences that are notable as we think about how '21 could play out? Thank you..

John, it's not really around margin, it's more round customer type. So we have disparate customer types that service those different food supply chains.

And once what was traditionally has been a strength of Neogen, a very highly fragmented customer base where we have very few customers that made up a significant portion of our business that actually kind of hurdles because during the last couple of quarters it's the smaller customers that just shutdown.

And so we had a number of smaller customers within our customer base where they just stop producing, it doesn't mean they stop forever. But whether they were, they didn't have the employees, they didn't have the raw material, the market changed on.

We saw a significant number that say, look, for the last three months, four months we're just we're going to sit here on the side and see what happens. So that's really what's kind of affected us more than margin change because really they use the same type of products in those different channels. It's just who services that customer base..

And then a follow-up.

Can you talk a little bit more about the boost you got in the quarter on the sanitizer and infection control? From your perspective, is that durable as you move into the next fiscal year?.

Yes, it was about $3.5 million bump. And look, I got to give the team credit. I mean, we ramped up supply not only manufacturing in Lexington, we were able because we had proper permitting to actually start making in Lansing also and shipping bulk down to Lexington to redo.

We had a number of customers that were outside the normal chain who needed help. We think we're going to continue with that because customers have seen our product, like it and use it.

The other thing that's exciting is, we have nine products that are EPA registered for COVID-19 on the cleaners and disinfectant side, which I think that's going to help us. So I think we got that short-term bump, but our plan is to continue to drive that long-term..

And one last one and a similar question about China, I'm sure African Swine fever and COVID-19 drove a lot of sales.

As you think about the coming quarters, does that momentum also seem sustainable or would you expect it to normalize?.

No, I think African Swine fever, John, is a real threat worldwide. I mean, nobody is talking about it because of COVID, but it's still there. And it's still moving and growing, especially in Europe. I've seen new countries come on and say. So I think that's still going to be there. I think it will be overshadowed by the COVID news.

But I think in agriculture segments, it's something everyone is very, very concerned about. And the ag markets right now are really, really tough around the world.

So it's just going to be a challenging environment, but we have the right products and services that are going to help our customers because they need to make sure that they keep their biosecurity issues very, very high..

And our next question today comes from David Westenberg at Guggenheim Securities. Please go ahead..

Can you talk about cattle macro and your exposure to that market? Companies like Elanco, Fibro are all calling out weakness in the cattle market.

Does an oversupply of cattle affect market areas, like your genomics businesses, your detectable needles? And then I think you also called out Europe, if I heard you correctly in terms of doing well in that. Can you tell us why there might be a good European market with maybe being a little bit less robust than the U.S.? Thank you..

Yes, you guys have heard me talk about this over and over about the cyclicality of the livestock, I'm going to quit talking about it, because it hasn't gone up yet. But it's not good. I mean, the cattle markets are bad, the swine producers are losing $10 a head. I saw something the other day where in the U.S.

we euthanized 400,000 market weight animals, because we couldn't get them slaughtered. They estimate lightweight animals over 1 million were euthanized, swine producers are losing $10 a head. So yes, it's a very tough market.

I think though the genomics piece holds up well, because even within this when you're breeding animals, you're going to make the right, you need to make the right decisions about which animals to keep and which animals to use to improve the herd. So that business has held up very well.

I think what Steve mentioned is our vet instruments business, that's more of a durable goods business and that's where you've got a guy that's got a product whether it's a pig nipper or a calf puller or something like that and where normally you'd replace that every year, this year and he may say, you know what, I'm just going to keep using it for another year and try to get everything out of it, because I'm just losing money, so therefore, I can't buy a new one.

So there were areas where that has negatively impacted the business. And I think you're seeing that in kind of the durable goods, whether it's vet instruments or needles and syringes. I don't think that, and the thing is that market is still going to be tough. I think we've outperformed our competitors, which I'm proud of, but it is a tough market..

So just in terms of quantifying the exposure to cattle, I mean, is there a way to give us that? I know genomics is mostly cattle. I mean, is that and if you can't, that's fine..

David, genomics is really we've got a nice spread between cattle, poultry and swine and now companion is growing very, very quickly. So I don't think we have an over exposure. I would say that there, I don't have that exact amount, Steve can follow-up with you on it. But we don't have an over exposure to cattle.

We've got a really good diversification of the business..

And then in terms of again going on to the end market exposure, I don't know if you can quantify it or qualify it because there has always been never a need. I think you just mentioned in the last question, you haven't had this customer concentration issue in the past. But now we're thinking about eating at restaurants versus eating at home.

Is there a quantitative way or maybe a qualitative way to talk about your exposure to each in terms of percentage, like percentage going to restaurants versus large food producer? I mean, maybe this is impossible, but I would love to just know this on a go forward basis as we see maybe restaurants piling in or excess demand or if this is around for longer than we expected?.

No, I think that and we can on -- David, we can on certain customers because we know that they're dedicated on a certain, like that large, example I gave for that customer. I don't know what Steve does with a 50 gallon tub of butter, but most times that only goes to those commercial type entities.

So we know like the impact of that particular customer. But we do have customers that make the 50 pound tubs and then they make the one ounce single-serving pieces that those also go to restaurants, but then can they move that to a consumer setting and make it a stick? So I don't have that for you today because it's a mix within the customer base..

And I have about three more, but I'm going to jump back in queue, just ask one last one. What was the organic growth in the quarter? And if you maybe just or maybe give us how much of an impact was acquisitions in this quarter? And I'll jump back in queue for a few more..

David, organic we were down 1.9% organically. And the growth we talked about was $1.2 million of incremental revenue from it. $1.4 million revenue from acquisitions for the quarter and about $3 million in total for the full year..

All right. Thank you very much. I got a bunch more, but I'll jump back in queue..

[Operator Instructions] Today's next question comes from Mark Connelly with Stephens. Please go ahead..

I wonder if you could walk us through dairy both Europe and the U.S.

in terms of how you're thinking about the current market situation and how both of those issues resolve?.

So dairy in the U.S. is kind of the same story we've been repeating. You saw early on, Mark, like really when the pandemic, really we went on lockdown kind of in March. I don't know if you saw the news articles about the dairy producers dumping milk because the processors wouldn't take.

Again, that's a function of kind of what I've talked about is that shift from the restaurant to home, and I'll give you kind of an anecdotal story with myself. So I have five kids. And when we go out to eat it would always, lot of times I don't order because I know they're all going to over order and I'll just eat everybody else's stuff.

And I watch a lot of times where the only half of it, the last you want a box, and we're like, no, we don't want to box, just send it back. That's tremendous waste in the system.

You think about all that food when you're eating out, even when you do it and everyone listening, I mean, how many times you actually always take all the leftovers home and eat them. Well, when that shifted and people stopped eating out, they started making the right size.

So even though people were eating the same amount, the system became more efficient, and therefore, we didn't have the wastage and you saw demand technically drop, right, because the wastage was out of the system. I think we're going to continue to have that for a while until we kind of get back into people eating out.

Now again, eating out is different. I think when we look across the restaurant chains, drive-through businesses have done well. People that have gone to remote and you see the delivery of GrubHub and Uber Eats and all those. So you're starting to see people continue to drive that. So I think that it's going to help.

But I don't think it's going to be a V-shaped recovery where everyone is going to be very comfortable. I tell this to our group.

I said, you know the days of I'd walk into McDonald's and the people would get up and I take my hand and I'd wipe off the table to get all the crumbs off and then I'd sit down and I'd use my same handy to eat my hamburger is gone. I'm not doing that anymore. So, I think that's the same for the U.S.

I see the same type of things for the European markets with that same supply chain. And you still have constant erosion for other alternatives, whether it's almond soy coconut, they continue to eat in the traditional milk segmentations. So I think dairy is going to be tough for a while..

I was hoping you could just talk a little bit about the companion animal genetic space. And what you think the longevity of that growth is? When there is a new product at Petco, lots of people buy it.

But how confident are you that this is a long-term growth business?.

I think it is a long-term growth business. And this is one of the businesses that actually benefited I think from COVID-19. I think people got home, they were working from home and we saw a bump in pet ownership. And the product that we offer is a parentage product that tells you what's your dog made of.

Is it half Husky, is it malamute, is it pert, Taco Spaniel. And we have a partnership with Mars. And as they are driving kind of that product within their own systems in the Banfield, and BluePearl and VCAs of their internal network, we're seeing that product grow internally within there.

And we're working on our next generation of offerings for that marketplace that can really be new and exciting. And I don't want to talk too much about it because I don't want to give my competition too much of a heads up. But today we have the one product, but we're going to have more.

And that's why I think we're going to continue to grow in that space..

Just one last question. Does the StandGuard acquisition have a meaningful impact on your customer list? Elanco was a pretty broad company.

I'm just curious how the two stacked up next to each other?.

I haven't seen the customer list yet because it's technically not done. I would hope it does, but it's definitely something we're going to be targeting is to make sure those customers now buy the whole Neogen portfolio..

And the next question is a follow-up from David Westenberg with Guggenheim Securities. Please go ahead..

So just on that $3.5 million that you pointed out was the excess from the disinfectants and the sanitizers, was that at a higher margin than the overall business? I'm just kind of -- your margin target did beat me and I just want to get a sense for how much of a lift that might have been?.

It was higher than the average cleaner disinfectant margin, David. And I would tell you that those were opportunistic sales. I think they were priced appropriately, but not -- certainly not gouging. But yes, they were higher margin products for that side of the business..

But David, I will tell you that animal safety team has done an outstanding job reducing their cost of goods. And we're doing that across our whole businesses. Now it's challenging in this environment, right, when you need raw material that's in short supply, you just have to go get it.

But we are constantly looking at how can we leverage our size and scope and negotiate better to continue to increase the gross margin and in turn increase operating margins. So it's not just that, it's we're actively working and have measures in place to continue to grow that gross margin line..

And then getting back to macro. From what I've been talking to the other companies that are involved in the food supply, they talk about June being a little bit of an improvement in the food supply. Now this quarter did not have any impacts from improvement in June.

If you were on a traditional quarter, can you confirm that there would have been a positive impact from food producers in June? Just to help us kind of think about the next quarter, and I don't mean to be kind of short-term, but I do have to kind of model this..

Well, look, I think from an end market standpoint, like Steve said, we're cautiously optimistic. But I think what people need to recognize is the internal operating system in COVID as we are dead set in the middle of this. This is not something that is going to go away and we see it around the world in different stages.

So the environment of having to test employees, if you have a positive, quarantining everyone that they came in contact with, sending those employees home for the quarantine period, doing a deep clean that has an impact on the productivity of the business and your ability to manufacture and meet customer needs.

I am extremely proud that we have not had any reinfection rate at the company. So if someone did test positive at Neogen it was outside. And we were able to control, isolate, quarantine and clean that it didn't reinfect anybody else.

But these are incidents that we're dealing with all the time in locations all around the world, and it is a constant struggle to continue to operate in those types of environments. If you lose a suite because somebody went to somebody's birthday party and were exposed and they brought COVID in and we have to shutdown the whole suite.

We have to shutdown the whole suite. We have to send everybody home, deep clean and we try to get other workers to come in and step up, but we just don't have excess manpower laying around. So it will be an extremely challenging operating environment for a while. I mean, people are asking me, is this the second wave? This is still the first wave.

I'm unclear as to what fall is going to look like from an operating standpoint. So what we're focusing on is what are we doing better than everybody else, right? So I saw a note, and Dave, I think it was yours. It said, market was down 11, we were down one for the quarter. I'm proud of that. I think the team outperformed the market.

That's what we're going to continue to do. We can't control what the general market is doing. But we're going to outperform everybody else..

And then in terms of expectations for new products because that's maybe a good segue, you said you have been keeping employees healthy. Can you talk about your expectations for a new product lift in the next year? And then maybe can you even add any commentary from your products that you just recently launched, like Raptor and in Listeria.

I'm just kind of -- what I'm basically trying to do is impacts from maybe a delay in new product launches or maybe winning market share in this kind of market might be a little bit tougher than in regular markets.

So just any commentary on how you can maybe use these new products to grow in the next year would be helpful?.

Yes, I think, David, the second half of your thing is right. We're not getting delayed in the product launch. But I think rapid adoption of new technology in this environment is a little bit more challenging because you can't go to their facility and help them quantify and show them how to do it, right? It has to be done virtually.

So it's not impossible, but it's a little bit more cumbersome. So I do think adoption rates could be slower than what we've traditionally seen. But we have some great things coming. I mean, our next-gen Soleris is a fantastic new piece of equipment.

I will tell you that from our initial forecast, we sold all units from the initial forecast even before we launched. So sales team is really happy. Operations is really upset because they went on back order before they even launched the product but that's great news.

We have another significant launch coming this quarter, next month that we're really excited about, and I think you guys are going to see. And we've got other things coming off the line this year that, we've got a number of new products coming that we think are going to be really successful, helping us grow short-term and long-term..

And thanks everyone. This concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks..

Thanks, Rocco. I just want to thank everyone again for joining us today. As we talked about, we're really proud of the way the team acted and reacted in the quarter. We're continuing to use that same type of planning and proactive thought process to continue to help us drive the business forward.

Again, we're focusing on keeping our customers safe and the business safe. I think we're doing that. And I would just encourage all of you to stay safe, wear your face mask and keep washing your hands. So, thank you for joining us today..

Thank you, sir and thank you all for attending today's presentation. This concludes today's conference. You may now disconnect your lines and have a wonderful day..