Good day and welcome to the Neogen Fiscal Year 2021 Year-End Earnings Results Conference call. All participants will be in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to John Adent, President and Chief Executive Officer. Please go ahead, sir..

Thank you, Chuck. Good morning everyone and welcome to our regular quarterly conference call for investors and analysts. Today, we'll be reporting on our fourth quarter and our full 2021 fiscal year, which ended May 31. As usual, some of the statements made here today could be termed as forward-looking statements.

These statements are subject to certain risks and uncertainties, and our actual results may differ from those that we discuss today. The risks associated with our business are covered in part 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, I also welcome those of you participating via the internet. Following our prepared comments this morning, we will entertain questions from conference attendees.

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. While we're beginning to see some relief due to the rollout of COVID-19 vaccinations, particularly in the United States, Europe and Latin America, we recognize that the pandemic is a global issue.

And as a global company, we remain vigilant, continually monitoring the spread of any variance and any lockdowns are going to affect. We eagerly await our new normal, whatever that's going to look like, and we stand ready for whatever comes our way. Well, this year has been challenging, our dedication to serving our global community is not wavered.

As it was mentioned in the press release this morning, we're pleased to report record top line growth, although we took the appropriate steps to protect our people, focused on remaining connected with our customers and grew our business.

We recognize the important role we play in protecting the global food supply and keeping people, animals, and food safe, especially during a global pandemic.

Furthermore, as a leader in the food animal safety markets, we remain focused on continuing to innovate for our customers across our major product categories to ensure food supply networks across the globe remain as safe as possible. And I will further elaborate on some of our breakthrough products in a few minutes.

We finished our fiscal year with a very strong fourth quarter, reporting an increase of 17% over the prior year, as we began to see key areas of our business, like our food allergen test kits rebound from the lows of COVID-19 pandemic. And what's been a challenging year, I'm extremely proud of our Neogen team members and their results.

The new products that we launched in fiscal year 2021 helped to lead this growth in all areas of our business.

Despite our inability to travel and conduct much business physically face-to-face, our teams have continued to innovate and connect with our customers, providing new solutions that are making it easier than ever to detect potential hazards in the global food supply. You know, I've mentioned Soleris NG system on past calls, but I want to do it again.

This next generation spoil detection system, which we launched in July of 2020, evaluates microbial activity and provides quality diagnostic to customers in the food, beverage, nutraceutical, cosmetics, and cannabis industries, helping us to expand on our food safety mission.

In the fourth quarter alone, we saw Soleris equipment sales more than double over last year, bringing the growth of 64% on the year. In addition to Soleris NG, we recently relaunched our ThyroKare canine hyperthyroidism supplement and sales have taken off very nicely as we were gained share after leaving that market in 2016.

Our December acquisition of Megazyme increased sales in our Food Safety segment, especially in the fourth quarter, as we've continued to integrate the company and their expertise in food quality and nutrition into our existing business.

Megazyme's diagnostic assay kits and reagents are used to measure dietary fiber, polysaccharides and sugars and acids such as lactose. This acquisition has added more products for our portfolio, which in turn have allowed us to offer more solutions to help meet the needs of our customers.

We wrapped up our 2021 full fiscal year with revenue growth of 12%, with double-digit increases in both our Food and Animal Safety segments, showcasing the continued strength of our two segments, stretching across dozens of industries across the world, all in all a very strong performance in incredibly challenging year.

I'm now going to turn it over to Steve to elaborate a little bit more on the quarter and the year..

Well, thanks, John and good morning to everyone on the call today. Before I start with the numbers, I'd like to echo John's comments on just how proud we are of the quarter we're reporting on today. It was a very difficult year due to the pandemic, but our entire team pulled together and did an outstanding job working through the challenges.

While we're seeing some loosening of restrictions, we're not yet through with these challenges. We still have many individuals working remotely and are experiencing some adverse effects of supply chain and workforce shortages.

But as markets are opening up, our sales team is starting to increase their business travel, and we're working towards getting back to our normal operating conditions. Earlier today, we issued a press release, announcing the results of our fourth quarter and full year, which ended on May 31st.

Revenues for the fourth quarter were $127.4 million compared to $109.1 million in the same quarter a year ago, and that's an increased 17%. For the full year, revenues were $468.5 million, a 12% increase over last year's $418.2 million.

Net income for the quarter was $15.8 million or $0.15 a share compared to $16.3 million a year ago, also $0.15 a share. Full year net income for fiscal 2021 was $60.9 million or $0.57 a share compared to $59.5 million or $0.56 a share for fiscal 2020.

You'll remember we announced a two-for-one stock split effective June 4th, and these per share amounts have been adjusted to reflect this. After several quarters of negative impact from currency, we had some good news in the fourth quarter, as several currencies and in particular, the pound and peso, strengthened against the dollar.

As a result, our comparative revenues were $3.3 million higher for the quarter than they would have been in a neutral currency environment. Now this offset currency headwinds for the first half of the year resulting in a net negative currency impact of only $85,000 on revenue for the full fiscal year.

In the fourth quarter, we also benefited from our December 30th acquisition of Ireland-based Megazyme and to a lesser extent, our July 20th 2000 -- our July, 2020 acquisition of the StandGuard product line. Excluding these acquisitions, our organic sales grew 14% in the fourth quarter and 9% for the year.

Overall, revenues in the Food Safety segment increased 18% in the fourth quarter and 10% for the year. Excluding the Megazyme acquisition and several international acquisitions of distributors in fiscal 2020, our same-store sales growth was an impressive 12% in the fourth quarter and 6% for the year.

In the first half of the year, the Food Safety segment struggled with some core product lines, as many of our customers were disrupted by COVID and were forced into shutdowns or reduce capacity at their operations around the globe.

We've seen business in many markets pick up in the last several months, as restrictions are eliminated, but we still have adverse conditions in several countries in which we have operations, such as India and Brazil.

Highlights in the Food Safety product line for the full year, include a 19% increase in sales of our Soleris product line for general microbial testing, such as yeast and mold. This was driven by strong sales of our next-generation instrument that Soleris NG that John was talking about, which has exceeded our expectations in fiscal 2021.

Additional placements of this instrument also resulted in higher sales of the consumables used for ongoing testing. Sales of our natural toxin test kits increased 6%, while sales of our allergen test kits rose 5%.

Our AccuPoint product line, which monitors environmental sanitation and food processing environment, was flat for the year, as many customers lower their purchase volumes earlier in the year, because business was down. In the fourth quarter, this line increased 14%.

We recently launched a new reader for this product line and are excited about its potential for fiscal 20. Our Listeria Right Now product continued its steady growth increasing 21%. While our Culture Media products grew 1%, as lower ordering from a number of large domestic customers offset some new business to a manufacturer -- a vaccine manufacturer.

We continue to face adverse conditions with our drug residue in product line as those sales decline 30% in fiscal 2021 and inability to make in-person sales calls during COVID has hurt our ability to convert customers after we ended our exclusive distribution agreement with our European distributor.

Continuing Internationally, sales were up 11%, despite COVID related challenges throughout most of the year in most of the countries we operate in. Sales in the U.K. increased 10%, with some of this growth coming from a stronger pound compared to the dollar. Our increase in pounds was 4%.

The growth was led by a 22% increase in sales of cleaners and disinfectants, primarily due to strong sales to China as that country continues to fight the African swine fever outbreak and COVID-19, as well as high sales of hand sanitizers to the U.K. government in our first quarter.

After a difficult year relating -- resulting from COVID related lockdowns, Food Safety sales are starting to increase, with our One Broth One Plate micro workflow solution to detect listeria and salmonella and increased allergen testing leading the way. Revenues in our Brazilian Food Safety operations increased 5% in U.S.

dollar for the quarter, led by a large increase in forensic test kit revenues as supply issues from a competitor allowed us to pick up additional business with customer.

Higher sales of aflatoxin test kits for corn, culture media and genomic services for the bovine market also contributed to their increase, which was 10% for the quarter in Brazilian real. For the full year, sales in Brazil increased 15% in local currency, but decreased 8% when converted to U.S.

dollars as the real devalued significantly against the dollar, especially in the first half of this year. Sales at our Mexican operations increased 2% for the quarter in pesos. And this converted to a 17% increase in U.S. dollars due to that strengthening peso.

Broad-based increases in our diagnostic test kits were partially offset by lower sales of gloves and cleaners and disinfectants, which were abnormally strong in the fourth quarter of last year, as those products were in high demand early in the pandemic. Our China operation had a great year, with revenues more than doubling in U.S.

dollars for both the fourth quarter and full year periods from continued sales increases of cleaners and disinfectants to help and fighting against outbreaks of African swine fever and COVID-19 in that country. Our Genomics business in China also had higher sales to the bovine and swine markets.

While the pork industry is still struggling from the African swine fever outbreak, we've seen increased testing as producers have rebuilt their animal stocks. Revenues for the Animal Safety segment rose 16% for the quarter and 14% for the full year.

So, this is especially impressive considering last year's fourth quarter results included a $4.5 million increase in sales of sanitizers, disinfectant products and personal protective equipment, such as gloves, as demand for those products exploded early in the pandemic.

As most of you know from personal experience, supply caught up to demand last summer and those opportunistic sales fell off. Additionally, our pre-COVID protective wear business was down this year due to back orders on these distributed products.

The increase in Animal Safety revenues for the year were broad-based with animal care products, such as vitamin injectables, small animal supplements and antibiotics up 31%, driven by an increase in spending on companion animals, especially dogs and cats during the pandemic.

Our thyroid replacement product ThyroKare, which we just introduced later in the year, produced strong sales in its first quarter and much excitement, with high expectations for fiscal 2022. Veterinary instruments, such as needles and syringes increased 16%, or rodenticides increased 42% due to significant rodent pressure in the U.S.

throughout the year. Our insecticide line increased 15%, with notable benefit from our acquisition of the StandGuard product line last July.

Partially offsetting this growth, was a $2.5 million dollar decline in sales of dairy supplies due to the June, 2020 termination of an agreement in which we distributed these products for a large manufacturer of dairy equipment.

Cleaner and disinfected sales sold through the segment were also down 15% from lower sales of water treatment products in the U.S. and opportunistic sales of sanitizing products in the fourth quarter of the prior year fell off after the first quarter of fiscal 2021.

Revenues at our Lincoln, Nebraska Genomics lab increased 17% in the fourth quarter, as companion animal sales continued to grow, with pet adoptions increasing significantly during the past year as result of COVID and our service was offered in more retail operations.

We also benefited from a 15% increase in bovine sales from higher sales to beef associations and dairy AI companies. For the full year, revenues in Lincoln increased 10% for the reasons just listed, with additional increases in the aquaculture market earlier in the year, driven by a new partnership with a large customer and a new test for shrimp.

Our business in Australia rose 71% for the quarter and 78% for the year. Now a portion of that full year growth is from our acquisition of a food safety distributor at the end of February, 2020, which added to our product portfolio in that country. But if we exclude those new sales, our organic growth for fiscal 2021 was still an impressive 59%.

Our sales team exceeded expectations with the Food Safety products and our Genomics lab continued to posting impressive gains. Sales of companion animal tests more than doubled, as Australians also flocked the pet ownership during the pandemic, and we recorded a 39% increase in revenues to the beef market.

On a worldwide basis, Genomics revenues increased 21% in the fourth quarter and were up 13% for the full year. Gross margins were 45.3% for the quarter compared to 47.4% last year, because we recorded large increases in supply chain and personal related costs.

I think it's important to note that the 47.4% gross margin in the prior year fourth quarter was driven higher by the $4.5 million of opportunistic sales of hand sanitizers and protective wear such as gloves in that period, as the demand for those products in the early stages of the COVID pandemic far outstrips supply.

The decrease in our gross margins in current year quarter is due to a 210 basis point decline in the Food Safety segment in part caused by higher sales of lower margin products, such as cleaners and disinfectants in China.

We also experienced significantly higher costs for freight and personnel costs due to both increased volume and rate increases resulting from labor shortages.

International freighting costs rose precipitously across the business as port delays and supply constraints drove sea rates higher, while air freight rates also rose, again, the result of lower supply due to fewer commercial airliners flying during the pandemic.

These conditions do persist and we are taking steps to address them, including consolidation of orders, purchasing larger orders less frequently, changing modes and potentially passing on increases.

We had an increase in scrap in our Food Safety operations in the fourth quarter, higher outside contracted services costs related to our newly launched instruments and health insurance expenses driven by electric procedures postponed during the initial phase of the pandemic also increased for both the quarter and the year.

For the full year gross margins were 45.9% from 46.9% last year. Overall, operating expenses were up 18% for the fourth quarter and 9% for the full year.

This year's fourth quarter is a difficult comparison since we had no business-related travel in the prior year and also took proactive measures at that time, such as senior management salary reductions, furloughs, or reduce hours for some staff and a spending freeze to protect the business due to the uncertainty of the COVID impact.

These actions eliminate approximately $2 million of expense in the prior year fourth quarter. Now we're -- while we're still not at pre-COVID levels of travel, our sales teams in certain areas of the world have started to have face-to-face interaction with customers again in the past few months.

As a result, sales and marketing expenses increased 25% in the fourth quarter, but only 5% for the full year. Increases in salaries and commissions and shipping expense both in line with revenue growth were offset by a $3 million decrease in spending on travel and meals for the full year.

General and administrative expenses rose 8% for the quarter and 15% for the full year. Earlier in fiscal 2021, we spent $3.1 million on consulting, legal and other professional fees related to acquisition activity for targeted business, which we ultimately were not successful in acquiring.

Excluding these costs, the increase in G&A for fiscal 2021 was 8%.

Increases in headcount, including a number of senior management positions, where we added a General Counsel and Chief Commercial Officer, incremental amortization expenses, which are non-cash, resulting from our recent acquisitions and higher levels of IT investment also contributed to the increase.

The Megazyme acquisition added almost $1 million of costs, including amortization to this category in the last five months of fiscal 2021. Research and development expenses were $4.1 million for the quarter. That was an increase of 18% for the prior year's quarter fourth quarter. For the full year R&D expense increased 10% to $16.2 million.

The acquisition of Megazyme, which has a small R&D team, contributed about $500,000 to the fiscal 2021 increase. As a percent of sales, R&D expense was 3.5% in both the current and prior years.

Other increases in this category included spending with outside partners to develop the new readers which we launched in fiscal 2021 and higher spend on salaries, contracted services and product approvals.

Operating income for the fourth quarter at $20.3 million was up 2% over the prior year quarter due to the previously discussed reduction in gross margin percentage and increase in operating expenses. For the full year, our operating income was $74.2 million or 15.8% of sales compared to $67.5 million or 16.1% of sales in the prior year.

Our 2021 operating income represented a 10% increase over fiscal 2020. Excluding our $3.1 million spend on the acquisition opportunities, operating income would have been 16.5% of our sales and would have been a 14% increase over 2020.

While John and I know that we have plenty of room for improvement in this area, we're very proud of our 2021 operating performance, particularly given the pandemic and considering the supply chain and labor challenges we've experienced in the past year. Other income for the year was $1.1 million compared to $4.8 million in the prior year.

This significant reduction is due to a $4.4 million drop in interest income despite having higher cash balances throughout the year, resulting from a precipitous drop in yields on our marketable securities portfolio due to U.S. Federal Reserve efforts to stimulate the economy during the pandemic.

Our effective tax rate for the fourth quarter was 21.8%. This compares to 22.8% recorded in last year's fourth quarter. For the full year, the effective rate increased from 17.7% in fiscal 2020 to 19.1% this year, despite a higher tax benefit from the exercise of stock options in the current year.

The increase in effective rate for the year was driven by international operations, as we had higher profitability in some countries with higher tax rates, and we also paid more tax in the U.S. under the newer rules that tax profitability at our international operations.

We continue to produce strong cash flow, generating $81 million from operations for the full year versus $86 million in the prior fiscal year, and invested about $27 million in property and equipment and $52 million in acquisitions during the year. Our inventory balances increased 6% in fiscal 2021 or $5.6 million.

Excluding inventory acquired from the Megazyme acquisition, our inventory balances were flat compared to the prior year-end.

As we continue to weather supply chain issues and product delivery challenges resulting from both the pandemic and the Brexit transition in January, we've been forced to increase inventory levels in some areas in order to ensure product is available for end customers.

Our operations team have done well to balance that need with a continued focus on keeping our overall inventory levels down. Accounts receivable balance rose by 8% over levels that last year-end and the increase is primarily due to higher sales in the fourth quarter of this year compared to the same period last year.

Our day sales outstanding improved to 66 days at May 31st, 2021 compared to 68 days a year ago. And our collections team has focused their efforts in the past year due to the economic uncertainty of the pandemic. And I'm pleased to report that we've not seen in appreciable interest in bad debt write-offs or bankruptcies.

This was an extraordinary year we've just gone through. And I believe the performance of the team was outstanding, as we fought our way through all the obstacles put in front of us from COVID lockdowns and quarantines, through supply chain issues, labor shortages, and Brexit.

I could not be prouder of our more than 1,800 employees worldwide and how they've handled the year. In fiscal 2021 during very difficult conditions, we continue to invest in future growth, launching a number of new products, spending on new development opportunities and looking at potential acquisitions.

So, this will continue as we build the product portfolio and infrastructure to allow us to accelerate our growth. Going into fiscal 2022, as our markets open up across the world, our travel and selling expenses will increase disproportionately, but we believe the magnitude of our projected revenue growth will be sufficient to cover that growth.

As John's indicated there's much to look forward to in fiscal 2022. We have tremendous momentum going into the New Year and are optimistic and excited for the year ahead.

John?.

Thanks Steve. Steve's right. There's a lot of different variables affecting our numbers for this quarter and the year. And we recognize that this has been an unusual year and we're actively managing the effects of the pandemic and what those effects have been on Neogen.

Like so many others around the world, Neogen has been dealing with supply chain issues due to the pandemic. Steve mentioned this, but we've seen our costs, both inbound and outbound freight increased tremendously, in some cases tripling. And we've been dealing with the impacts on our margin and earnings all year.

Steve talked about the actions that we're taking to help curb those costs going forward. So, we feel pretty confident. We're going to get those back into control. Steve went through this in a lot of detail, but I think it's worth talking about some more. Comparing our performance last year's fourth quarter is difficult.

In the last year at this time, we were just -- the world was just entering a lockdown and we were unsure as to how the global pandemic would impact our business. So, as Steve talked about, we implemented a number of cost-saving -- really aggressive cost-saving measures. We reduced or eliminated pay of our senior management.

We furlough to reduce the hours of approximate 5% of our U.S. workforce. We cut discretionary spending and we halted all business travel and that saved us nearly $2 million in the quarter of last year.

We then quickly find opportunities to support customers around the world in protecting the facilities and staff with opportunistic sales of gloves, sanitizers, and disinfectants of over $4.5 million. Now that being said, we feel well-prepared to handle these variables. And I'm extremely optimistic about the business as we move into our new year.

This July, we're going to be fully integrating Megazyme into the U.S. and sales and marketing teams. We've already seen a tremendous amount of excitement from our customers regarding the products offered by Megazyme. And we look forward to carrying these -- that excitement into the marketplace and offering these new solutions.

Our Animal Safety segment had a strong recovery year on the strength of animal care products, veterinary instruments, and biosecurity products. We received EPA approval for the U.S. distribution Neogen Viroxide Super and launched it domestically at the World Pork Expo in June. Demand continues to be strong for rodent control products across the U.S.

as we move into fiscal 2022, and I look forward to seeing continued growth with this segment and then the next fiscal year. We're seeing our forensic toxicology sampling -- samples beginning to increase as we expecting -- as we are expecting the industry to bounce back after the COVID-19 shutdowns of workplaces and racetracks.

Our worldwide Genomics offering continues to grow, reaching new markets and new customers. We're really excited about the growth we've seen in the agriculture sector.

On June 24th, we announced the expansion of our partnership with the Center for Aquaculture Technologies, a leader in the field of genetic improvement for aquatic species, which continues to open doors for us to work with aquatic breeders, to help make more informed breeding decisions and ensure sustainable farming.

We've also seen our companion animal genomic services continue to be strong. Our canine parentage test remains the most common test, none in the United States and used by the American Kennel Club and our sales of that product, as Steve mentioned, more than doubled in Australia.

We also see tremendous potential in the new Igenity Canine Wellness test, which we launched in December of 2020. This test is veterinarians. The opportunity to screen for predisposed risk factors so they can make informed recommendations on diet and exercise, as well as screen for possible health concerns.

In May, we launched our new AccuPoint NG ATP sanitation monitoring system, which has been redesigned to be more user-friendly or offering the fastest, most precise and easy to monitor testing data. We feel confident that this new system will continue to gain market acceptance within the food, beverage and healthcare industries in fiscal 2022.

This last year we began offering our new Neogen Analytics food safety risk management Software-as-a-Service.

The service delivers the most comprehensive environmental monitoring program automation solutions for food companies and is compatible with innovation -- innovative technologies like our new AccuPoint NG and ANSR systems where the users can implement systems and increase the bill of business -- the visibility of food testing and results, reducing risk and elevating food safety standards.

In Q4, we quadrupled the number of sites using the Neogen Analytics, and we have a strong customer demand and we'll continue new placements throughout fiscal year 2022.

We also recently received AOAC approval for our Soleris Direct Yeast and Mold test for use in cannabis, allowing us to provide a valuable service to the growing cannabis industry, offering safe and secure options from potentially harmful microorganisms. Yeah, I agree with Steve.

I was very proud of our Neogen team members for how they were able to tackle a very challenging year head on and doing it by leading through new products and acquisitions, continuing to grow our market share and giving our customer solution to make their jobs easier and the global food supply safer.

Our entire team has done a great job of adapting to the changing business landscape and working hard in order to give us this positive momentum going into the next fiscal year. We have several new product and service offerings preparing to launch that will help our customers protect the people and animals they care about.

I am really excited about our continued growth and expect a strong fiscal 2022 year. I'll now open it up for any questions that you may have..

We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from David Westenberg with Guggenheim Securities. Please go ahead..

Hi. Thank you for taking the question and congrats on a great year. And appreciate all the color in terms of the margin, that was a lot of very good commentary and helpful and I'm happy to hear everyone gets their -- got their salaries back.

So, can you quantify some of the shipping costs, that might've occurred in the quarter and when they're expecting to roll off? And then just kind of on a ballpark on a go-forward gross margins maybe for this year and the year -- in the year next, because there's been obviously a lot of funkiness in this last year, whether it be like the shipping costs.

And then I guess the prior year, you had some opportunistic sales, traditionally I think Neogen is like this 47-ish gross margin company is, that kind of the still the way to think about it?.

Yeah. Dave, I will let Steve comment directly on shipping -- that's all right. I'll let Dave -- I'll let Steve comment on the shipping and then I'll follow-up with the rest..

Yeah. David, I would say that in the fourth quarter, the incremental freight impact was about $700,000 on us. That was more than the volume increase. And then going to your question about, the -- what we see as our margin profile going forward, I think you're probably on that 47% is probably about right.

I think that's an achievable target for 2022 and obviously as you know, a lot of it depends on product mix and just how that rolls out and going. You also asked about what we see in terms of freight for next year. All the reports that we read and people we talk to are that the freight supply demand imbalances are going to continue into 2022.

So John, I don’t know, you have more to add..

Yeah. And I think, Steve mentioned some of the things we're doing about it, David, right, is we're going to make sure that we're doing full truck loads, full container loads, planning, looking at ways that we can be more efficient. We're looking also at -- these costs are coming through.

So, our customers know these costs are coming through, so they're expecting price increases and we don't want to disappoint them. So, we'll see some of that happened within the year, right? And so, you're going to see an opportunity for us to improve margins that way.

And I agree with Steve, I think, that baseline that you're looking at is not unrealistic and we know that there's upside opportunity there..

Perfect. And then just a quick -- one quick one on the JBS plant shutdown in -- due to the cyber attack in Brazil, did that have any impact on you? I realize that you have a lot of customers and maybe one customer doesn't do anything, but just wondering if that might've done anything..

It was nothing material for us. I mean, it's something to watch across all others. I mean, the thing I'm really watching more, David, is the -- two confirmed cases of African swine fever and a commercial herd in Germany that came out last week. I think that could be a much bigger impact.

So, I think, we continue to look for what's going on around the world and find ways to -- as Steve mentioned, we did the opportunistic sales last year and we'll find a way to fill that gap, but new opportunities this year, because that's what we do..

Got it. And I'll just ask one more before hopping back in queue.

Just can you talk about acquisition priorities if you have them in terms of Animal versus Food Safety, if you're looking at more value or growth or international or domestic? And I'm guessing the answer is everything, but if you maybe could rank order a little bit to give us kind of a framework and how you might be looking at it and go forward, that'd be great.

And I'll hop back in queue after that..

Yeah. No. We've got a very -- I think a very good plan on the way that we evaluate our acquisitions. I mean, we've identified the markets we want to be in and any ancillary markets that we feel are important and Megazyme is a great example of that. I mean, you wouldn't think about Megazyme, does it fit -- well, we consider true food safety.

It's more food analytics. And -- but it really is a excellent fit for our business, because it's the same customer type and allows us to increase our products and pipeline to that same customer. And I like to think about it is it gives us the other side of the consumer package box. On one side, we're talking about it's allergen free.

It's not free, it's gluten free. And on the other side, we're talking about how much dietary fiber it has, how many polysaccharide, what are those other measurements that are important for consumers? So, it's really a nice expansion for our business.

So, we've done a really nice job of looking at the markets we want to be in and then the regions we want to be in, because I think we're underrepresented in some regions. We have a lot of opportunity worldwide to continue to grow. And I think Australia is a great example.

You look at what we did four years ago in Australia when we bought the Genomics business there. And then we added -- we brought in our Animal Safety products and we added the Food Safety distributor. And man, look at that business is just growing like crazy and they're doing a great job. So, we see that model. We like that model.

I think that when I look at it and as a team what we've talked about is, our priorities really are around growth and our bigger growth markets, our Food Safety and Genomics.

And I think those are two key areas that when we say, if we had our preference and we had three equally accretive businesses, we're going to look at Food Safety and Genomics first, and then Animal Safety second. Within the Animal Safety, I want to increase our exposure in the companion, because that's faster growing than production.

Now they're all great businesses as we shown this year, right? All the businesses grew double-digit. So they're all great businesses. So, it’s kind of like picking your favorite child. You don't ever talk about it in public, but you have to do it sometimes behind those doors. So, that's kind of what we look at is.

We love all the businesses we're in, but that's where I would say our focus..

Thank you..

The next question will come from John Kreger with William Blair. Please go ahead..

Hey, thanks.

John, can you maybe -- I know you guys don't give official guidance, but could you maybe just sort of step back and talk a little bit more about key priorities and goals for fiscal 2022 since that's just getting started? And also, what you think the key headwinds are? You talked a lot about supply chain, for example, do we expect those headwinds actually get worse, or just a question of when they might start to ease a bit? Thanks..

Sure. Thanks, John. So, I think for priorities, it's continuing the momentum we have, right? And even though we were in a very difficult environment last year, you think about it, we've launched very significant products and platforms with our AccuPoint NG and our Soleris NG in a COVID environment.

We had a lot of discussion about, do we do that because we have to meet customers face-to-face to explain the benefits of this. And the team did it in a very challenging environment and did a great job. And we have great acceptance. At the same time, we continue to invest in new product. So, we've got new stuff coming that is a priority.

So, it's really driving -- continue to drive market share gains and adoption of the things that we launched this year and the new products that we have coming. And so, we're really excited about what's coming down the pipeline and that's going to be our focus to make sure that we continue growth. We've done a nice job.

I think if you look at some -- where some of our competitors have reported for the last quarter, our growth is significantly higher. So that tells me we're taking market share on the Food Safety side and the Animal Safety side, which is where we want to be. We like being in growing markets, but we also want to continue to grow faster than the markets.

I think the headwinds are going to be -- last year headwinds were on customer shutdown. And how are you going to sell? I think headwinds this year are going to be in the cost side. Like Steve talked about with supply chain and Steve talked about another one, that's going to be a challenge, which is headcount.

I mean, it is a -- it is challenging now to find hourly workers for the plants and the jobs that we have. And I think everybody knows the reasons why that is. And I won't get into any discussions about that, but it's just been a challenge. So, we've had to be very aggressive. We've had to be very creative. It hasn't caused any -- we've done a great job.

Our operations team has done a fantastic job. We've had no back orders or shortages because of that, but it is something that we're battling every single day and trying to find employees and keep jobs filled. So, those would be the two major headwinds and also our objectives..

Great. Thank you. That's helpful. Steve quantified the freight hit in the fourth quarter. I think you said $700,000.

Curious, do you think you're losing out on any sales due to stock outs and delays as well?.

I don't think so. I mean, we watch that really closely, John. I think what will happen is, we're going to end up on some of our lower margin products that are freight intensive. We're going to raise the price and either we're going to make money at it, or we're not going to sell it. That's how that's going to work..

Make sense. Okay. And then one last one. A year ago, John, you talked a lot about the pressure on the institutional side of the food service business, really kind of hurting Food Safety.

Where do you think that is now? Is that sort of back to normal, or do we still have an opportunity to see a ramp in demand in the fall is -- kids go back to school and maybe conferences are back?.

Yes, you are correct. I think it's come back really nicely, but I think there's more upside there. And again, it's -- that comment is specifically around North America, around the U.S. When we look at kind of where we are within this pandemic across our businesses, we're in a lot of different stages and a lot of different countries.

So, I think we're just starting the opportunity of opening up and seeing some of that business come back. And we see that with our internet sales are up or e-commerce businesses doing really well. And that's kind of what shows me the leading indicator of those smaller customers are coming back.

They're starting to buy again and you saw it with our allergen test kits. That was a nice bump for the quarter..

Great. Thank you..

Thanks, John..

The next question will come from Mark Connelly with Stephens. Please go ahead..

So, John, I was hoping that you could talk a little bit more about the growth drivers in your animal genetics business outside of companion animals.

Curious where in a year and a couple of years ahead think -- you think the growth is going to be there? How important issues like ASF and plant-based meat are versus productivity in animal health?.

Yeah. Mark, I think that when you look at the growth drivers in production animal, a couple of things that stand out. One is the adoption, right? We still have a tremendous opportunity to increase our customer base with adoption in beef and dairy.

And we've talked about this in the past, right, about how -- we do very, very well with seed stock producers who understand the value and the traits they're looking for.

But as we start to go farther down the food pyramid and we start getting into more commercial growers, kind of what we're doing around the cow, calf producer, the dairy producer, and then even going deeper into the feedlots, that is a big, big opportunity for us.

And we're just now just really scratching the surface on that, because it's more of a blend of phenotypical and genotypical data to make sure that you can take the genotypical traits and use -- make decisions around phenotypical around feeding and environment to produce the best outcome.

So, those are the things that really get us excited about production agriculture within the segments are we're already in.

Secondarily, like we talked about with the agriculture business, that business is up very nicely and we see a tremendous amount of opportunity with our new shrimp test or whiteleg shrimp test, which we think is going to be very, very big. That's going to help us grow in regions of the world where maybe we're underrepresented.

I mean, if you think about Southeast Asia, that's a market that we need to do. We have opportunities for growth in, and we think this could help be the platform for us to really drive the Neogen story into some of those markets. So, we think there's a tremendous amount of upside.

And I also think, companions are too -- we continue to see that as a growing market and we've got opportunities around that genomics business and it's something that we're focused on and things that we want to continue to invest in..

You mentioned the Nebraska lab.

Do you get to a point at a facility like that where you have capacity constraints or reinvestment needs that are significant?.

Yeah. We just expanded that facility. We spent quite a bit of money over the last couple of years increasing the footprint. I think we almost added 50%. We may have doubled that facility. We doubled that facility in size over the last two years. So, that's the thing that's challenging with Neogen as you have to stay ahead of your growth curve.

So, we have to keep building and investing to make sure that we have the facilities to continue to grow. And we've done a really nice job of doing that so far. But yeah, we always look at that. I mean, I don't think it's so much from a -- I don't think it's as much as a footprint or equipment issue. It is labor.

So, we're looking at what are other things we can do? So, we have -- with our growth, we have now genomics labs in China, Scotland, Australia, Brazil, Canada. And what we do is we say, okay, where can we were before? A lot of that stuff was flowing into Lincoln, because we didn't have opportunities.

Well, now we can offload that into those labs that are more local, which increases the capacity of Lincoln, which allows us to grow more internationally. And we see the exact same thing. We just did a recent promotion of a team member in Brazil, where she was running our genomics business in Brazil.

Now she's taking over all of lab time, which means she's going to be coordinating our efforts in Chile, Uruguay, and Argentina and Mexico, which is going to allow us to leverage that lab better in Brazil. So, those are the things we're doing to make sure we stay ahead of our growth curve..

Super. Just one question. One of the big protein producers is having a significant listeria problem right now. I wonder how that affects your marketing program.

Do you tend to see a surge in interest after stuff like that? I mean, obviously, you've got a lot of functionality and other stuff that's more important to longer term, but I'm just curious how it affects the short-term..

We do. And no, listeria is a key basis. I mean, any pathogen, Mark, that's going to kill people. We want to make sure we can protect the food supply on.

So, we do see that because all of a sudden, sometimes -- everything's good until it's not, right?.

Right..

People are going along and like, oh, it's been good, it's been good. And then they see a competitor have an issue and everybody kind of says, oh, we need to -- let's do a couple more audits. And let's talk to the agent about their analytics platform.

So, we can put that in so we can get real-time data on an hourly basis to make sure that we're meeting the needs of the government and our customers and putting the safest food out there we can..

One last question.

Are there any parts of this inflation that you're fairly confident are permanent as opposed to the temporary stuff like maybe freight?.

I don't know. I think back when fuel prices were high, what was that seven, eight years ago and all those carriers put in a fuel surcharge and then fuel prices dropped by 50%. And gosh, for some reason there was a fuel surcharge still in there. So, I don't know. I'm skeptical, right, around their ability to lower prices.

So what we need to be is we need to increase our efficiency and that's what we look to do is what are the ways we're going to increase efficiency to make sure that in a rising cost environment, we can leverage our size and scale to continue to be more efficient than everybody else..

Super helpful. Thank you..

You bet. Thanks Mark..

[Operator Instructions] Our next question will come from David Westenberg with Guggenheim Securities. Please go ahead, sir..

Hi. Thank you for taking the follow-up. I just want to dive in. You had a lot of great commentary in terms of where kind of the cost inflation is. You mentioned labor as a component.

Do you feel comfortable with -- over maybe the next couple of years to add pricing in excess of maybe labor inflation, or if you think maybe relative to competitors, how do you feel with where your labor inflation is? Are you kind of probably just kind of equal the industry? I traditionally think of Neogen as being a very lean, strong operating company.

So, I'm wondering if -- you would have any differences relative to your competitors in terms of the labor cost component..

I think we are lean. I think we do a really good job of controlling our operational expenses. As Steve talked about we did investment spend in our leadership group this year, which I think is already paying great dividends, right? So, we added the Chief Commercial Officer. We added Doug Jones.

We added Amy Rocklin as our General Counsel and both of them an outstanding contributors. So, we see that as an investment spend for growth, because they're going to help us drive growth forward. I think we continue to -- I don't think we're out of the market on the way that our costs are. And I do think that pricing is a function of a lot of things.

I mean, we're bringing new technology, that's very valuable and that other people don't have that allows us to show a lot of value to the customer, which in turns allows us to have a lot of value in pricing.

When you have more commodity type products, which some we have, we have some steel type products in our instrument type business on the Animal Safety side. It's a lot harder to do premium pricing in those. But in our core businesses, we are the market leaders, we are the technology leaders.

We feel that we differentiate quite well against everybody else and we're leading the pack, which allows us to build a lot of value for our customers and take a little bit of that value for ourselves..

Great. And then maybe for the last -- my last question before I hop off would be, five-year outlook for Soleris in terms of a growth rate what you see, it sounds like a pretty promising new product.

And just as it sounds like it would be margin accretive particularly, and it's consumables, but I just want to confirm that that would be a margin accretive growth area. Thank you..

Yeah. It's a margin accretive growth area. And we're pretty excited about that technology and even, the way we're growing into what we would consider not food, because cosmetics is basically not food, but it is safety. And so, we've got other markets that were growing with that product line that we're pretty excited about.

So, we're going to keep pushing that. Thanks everybody.

Chuck, is that it?.

Yes, sir. This will conclude our question-and-answer session. I would like to turn the conference back over to Mr. John Adent for any closing remarks. Please go ahead..

Yeah. Thank you, Chuck. I think, as you saw from our press release and the tone that Steve and I [ph] comments, we're excited about the year in front of us. Once again, Neogen's diversity in our portfolio and our markets has really shown the strength of the company going into this post pandemic marketplace.

So, we're really excited about where we're going to be for the future. I appreciate all of you being on the call today and supporting us, and I hope you have a great rest of the day and we'll talk in September..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..