Neogen Corporation (NEOG) Q1 2020 Earnings Report, Transcript and Summary

Welcome to the Neogen first quarter fiscal year 2020 conference call. My name is Adrianne and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. Please note, the conference is being recorded. I will now turn the call over to John Adent. John Adent, CEO, you may begin.

Thank you Adrianne. Good morning and welcome to our regular quarterly conference call for investors and analysts. Today, we will be reporting on the first quarter of our 2020 fiscal year, which ended August 31. 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 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 live by telephone conference, I also welcome those of you joining us via the Internet. Following our prepared comments this morning, we will entertain questions from participants who have joined this live conference. I am joined this morning by our Chief Financial Officer, Steve Quinlan, who will provide more detail on our results for the quarter. Earlier today, Neogen issued a press release announcing the results for our first quarter. As stated in the release, our revenues were up 2% to approximately $101 million. Our net income for the first quarter was $14.7 million or $0.28 per share compared to last year's quarterly net income of $15.2 million or $0.29 per share. As a bit of perspective on our net income performance, those first quarter earnings last year represented a 28% increase over the prior year and that net increase was primarily the result of higher deductions relating to employee stock option exercises, which contributed to an effective tax rate of 11% for the quarter. In the quarter, we were once again challenged by currency headwinds. In a neutral currency environment, our sales would have been $1.2 million higher this quarter. As with other international organizations, we are committed to riding out the difficult international business climate that all U.S.-based companies now face. While some of our businesses did well in the quarter, our overall results did not meet the performance expectations that we had for ourselves. Steve will detail some very strong performances that we had in individual market segments, including our genomics and natural toxin diagnostic test kits. He is also going to address some of the areas where we had weakness. Steve?

Thanks John, and welcome to everyone listening this morning. While John has reported the overall sales and profit performance for the first quarter of our fiscal year, in the next few minutes, I will give you some color behind those results and we’ll start by discussing the performance of the food safety group. We do continue to be impacted by fluctuations in currencies in the countries we operate in. As john mentioned, revenues would have been $1.2 million higher for the quarter in a neutral currency environment. With the Euro down 4% and the Pound down 5%, each largely the result of the Brexit uncertainty, the Chinese RMB declined 4% due in part to the continuing trade stand-off with the U.S., and the Aussie dollar declined 7% in the quarter. And about $1 million of that shortfall is in the food safety segment as the majority of the international businesses report in through this segment. Revenues overall for the food safety segment were $51 million in the first quarter of fiscal 2020, and that's a decrease of 2% compared to $52.2 million in last year's first quarter. The currency issues impacted the segment, but there were other issues within our international businesses which also affected our results. Our Brazilian operations had a 42% increase in sales of food safety diagnostic products led by continued market share gains in aflatoxin sales during the country's corn harvest, and an 18% increase in dairy antibiotic test kit sales, but lost a large commercial lab customer testing for drugs in commercial drivers in Brazil as that customer changed to a higher throughput method for testing. And as we noted in last year's first quarter, we had a nonrecurring about $1 million insecticide sale to a government agency in that quarter. These two items offset the gains I discussed, and the result was a 16% decline in sales in Brazil overall in the current quarter. The lost forensic sales will impact the second and third quarters by approximately $800,000 each quarter, and a lesser amount in the fourth quarter. Our European operations had sluggish results for the quarter with revenues up 1% in local currency, primarily on the strength of a 6% increase in our England-based cleaner disinfectant business. Genomics revenues, which grew at a double-digit pace throughout 2019 and 24% in last year's first quarter, rose 4% in the first quarter of this year. These increases were partially offset by declines in culture media revenues, lower sales of our products to detect spoilage organisms due to a large equipment sale in the first quarter of the prior year, and relatively clean crops after a mild DON outbreak last year in France. After converting to U.S. dollars, revenues for the European operations declined by 4% for the quarter. Neogen Latinoamerica, our business based in Mexico City, had strong 36% growth in sales of our food safety products led by mycotoxin kit sales due to an aflatoxin outbreak in corn in Mexico. Sales rose broadly across all of the diagnostic product lines. Sales of cleaners, disinfectants, and rodenticides however dropped 32%, due in large part to lower demand and delayed orders from larger customers and distributors, and this resulted in an overall increase in revenues of 5% for the quarter for this group. Our operations in China were negatively impacted by the African swine fever outbreak in that country, which resulted in lower genomic testing for pork in the quarter and contributed to an 18% decline in revenue in China. Our domestic food safety business only grew by 5% for the quarter but there were some nice areas of growth within the business. Revenues for our industry-leading product line to detect inadvertent allergen contamination, which includes diagnostic tests to determine the presence of milk, peanuts, and processed soy, among others, were up 11% domestically in the quarter. Tree nut and gliadin test kit sales were particularly strong, up 45% and 17% respectively for the period. We have continued to strengthen our allergen test kit portfolio and recently added new tests for contaminants such as coconut. Our AccuPoint line, which is used to detect general sanitation and cleanliness in food processing environments, had a strong 12% increase in disposable sample revenues during the quarter. Our domestic natural toxin product sales decreased 3% compared to last year's first quarter due in part to the late planting of corn and other grains this spring caused by the severe weather, which has delayed the harvest of these crops. We believe that as the crops mature, we will see an uptick in new in the second and third quarters. Revenues for our test to detect the presence of antibiotics in milk declined by 8% in the quarter, due primarily to lower demand from a large European distributor. Our domestic culture media business declined 13% in the quarter. A number of our larger customers, particularly those in animal vaccine production, have pushed their orders for these products to the second quarter and second half of the year due to weakness in their markets. Finally, we were unable to ship a number of readers for our product line to detect spoilage organisms such as yeast and mold due to backorders of a key part with one of our equipment suppliers. This resulted in approximately $400,000 shortfall in reader sales for the quarter. These readers are expected to ship in the second quarter. The animal safety segment continues to be adversely impacted by the ongoing trade impasse between the U.S. and China, which has disrupted our market. However, we recorded revenues of $50.4 million for the quarter, up 6% over the $47.4 million achieved in last year's first quarter. This growth was driven by a 24% increase in service revenue with our domestic genomics testing and bioinformatics business located in Lincoln, Nebraska with continued strength in the commercial beef and dairy cattle markets and market share gains in the companion animal parentage and wellness testing markets. Worldwide, genomics revenues rose 17% with additional growth in Brazil, Australia and Canada offset by lower sales in China. Animal care products sold out of our Lexington, Kentucky-based manufacturing and distribution center such as small animal supplements, wound care, antibiotics were up 10% and vet instruments such as disposable syringes and marketing products rose 9% for the quarter. Now these gains were partially offset by lower sales of life science products, the result of more forensic kit sales to commercial labs and higher promotional rebates. Rodenticide sales declined 8% in the quarter due primarily to lower rodent pressure in certain areas of the country. And domestic cleaner and disinfectant sales were essentially flat and insecticides rose 6% in the quarter. Gross margins were 47.5% for the quarter compared to 46.9% in last year's first quarter. The improvement here is due to increased margins at our domestic genomics operation in the animal safety segment and the shift in product mix in the food safety segment toward products which have higher gross margins and lower sales of lower margin products such as culture media and biosecurity products. Overall, our operating expenses rose 6% on the quarter compared to last year's first quarter. Sales and marketing expenses increased 2%, in line with revenue growth for the quarter. General and administrative expenses rose 5% for the quarter, due primarily to higher depreciation expenses resulting from our continued investments in information technology infrastructure, stock-based compensation and increased legal fees. Research and development expenses increased $869,000 or 31% over the prior year as we continue development spending on a number of new products which are scheduled to be launched in late fiscal 2020 and early fiscal 2021. The $3.8 million we spent this quarter is similar to the $3.6 million we spent in the last quarter of 2019. And we expect this run rate to continue throughout fiscal 2020. Operating income for the first quarter was $16.3 million, compared to $16.5 million in last year's first quarter. And expressed as a percent of revenues, operating income was 16% exactly compared to 16.5% last year, with the decline in the result of the higher R&D spending level. We recorded $1.5 million in interest income for the quarter compared to $930,000 last year. This reflects our higher cash and marketable securities balances and higher interest rates on those balances. Foreign currency losses totaling $117,000 in the first quarter compares to $386,000 in losses in the same period last year. Our pretax profit was $17.7 million compared to $17.1 million in last year's first quarter. And our effective tax rate for the first quarter was 17% compared to 11.1% in last year's first quarter. Last year's effective rate was unusually low due to $2.3 million in tax benefits recognized from the exercise of stock option. This year, the comparable number was $769,000. As I have mentioned on previous calls, the volume of option exercises can result in large fluctuations in the effective tax rate for the comparative periods. On the balance sheet, our net receivables balance declined by 4% compared to year end and our collection period was 64 days for the first quarter. Inventory increased by $1.7 million or 2%. We are focusing significant effort this year on improving our inventory turns and have objectives and programs in place at each operation to make that happen. We generated $23.7 million in cash from operations during the quarter, invested $4 million of that in property, plant and equipment and additional amounts to license technology. I will stop here to say that we realize that we need to accelerate the organic growth performances of our business. There were number of areas in the business which performed well in the quarter, which were obscured by one-time factors and other market noise. We continue to be excited about the remainder of the year and appreciate your support. And at this point, I will turn it back to John for further comments.

Thanks Steve. Although we didn't reach all the financial goals we had set for ourselves in the quarter, we were able to solidify some partnerships that we believe will help drive our future performance. Earlier this year, FDA Deputy Commissioner Frank Yiannis spoke about a new era of smarter food safety. He said that this new era would be an enhancement to FSMA and focused on utilizing new and emerging technologies to make our food supply safer. The blueprint for the new era would address several areas, including traceability, digital technologies and evolving food safety platforms. I believe in this vision and at Neogen, we are leading the way in several areas. First, we signed a partnership with Corvium, the leading producer of food safety and risk management software. The success that we have had developing and marketing food safety tests have led to an almost overwhelming amount of data that our customers can sort through to protect their customers and businesses. This platform will help our food safety diagnostic customers aggregate, analyze and act on that data. The combination of world-class testing products with the world-class food safety and risk management system will allow our customers to reduce their food safety risk. The Neogen analytics platform will help our customers make quicker data driven decisions. For example, let's say a tester receives a positive result using our Listeria Right Now test. What caused that result? Was it a one-time event that resulted from a transit probably can be solved by a single repeated sanitation effort? Or is it a systemic problem that the company must address through permanent operational changes? The software will help our customers determine the extent of the problem and provide a digital record for the remediation and mitigation efforts. We continue to investigate new and novel blockchain, artificial intelligence and machine learning solutions to enhance our Neogen analytics platform and help our customers identify and eliminate food safety issues. We feel that providing products and services in an integrated and easy-to-use platform will continue to drive Neogen's market-leading status. Additionally, last week we announced a collaboration with International Genetic Solutions to make our market-leading Igenity Beef profile even better. Beef cattle producers use the product to select the best animals for their breeding programs. That selection is now absolute critical as replacement heifers represent an investment of about $2,000 per head to the cost of development and lost sale opportunity. As part of this partnership, Neogen will benefit from access to information that will improve the Igenity Beef profile and IGS will endorse and promote the use of the product, an important seal of approval from one of the largest genetic evaluation services in the world. We believe that we have only just begun to realize the tremendous potential that our genomics technology can offer to livestock and companion animal industries as well as food processors. We have continued our genomics laboratory expansions in China, Brazil and Canada and have just broken ground on an expansion at our flagship operation in Lincoln, Nebraska. We are doing all that we can to satisfy the accelerating demand for our genomic services. As Steve mentioned, while our overall performance for the quarter did not meet our goals we feel good about where we are going from here. We continue to be well-positioned in our growing markets with the right people and products and with the organizational strength to reach anywhere in the world where need exists. We believe our continued worldwide dedication to food and animal safety will allow us to provide the results that our customers, shareholders, and employees have come to rely upon. I am excited about our future and look forward to stronger performances going forward. Let me stop at this point to entertain any questions from those of you who have joined the call.

[Operator Instructions]. And our first question comes from Brian Weinstein from William Blair. Your line is open.

Hi guys. Good morning. This is actually Andrew Brackmann on for Brian.

Good morning Andrew.

Good morning Andrew.

Good morning. Maybe we can just first start off on the food safety side. It seems like there were several moving pieces there. I appreciate the commentary on some of these being sort of one-offs, but what gives you the confidence that there is not really an underlying structural demand issue there?

Yes. I think Andrew, it's because we can quantify exactly what were those issues on a one-off basis. So, as Steve talked about in Brazil, it was a change of a customer going to a high-throughput solution that we don’t offer and the Rogama tender to a government agency, and a year ago, we talked about that. I know Steve has got the details of exactly how that walk up looks. So, I will let him tell you a little bit, Andrew, on how the walk-up looks to get to a number where we feel it's more normalized.

Sure John. So, Andrew, that Rogama tender was about $1 million. And if we just stay on the food safety side of the business, that would have been about a 2% improvement in the results on that side. We talked about the currency being about $1 million on that side, which again is about 2%. That forensic business that the customer switched out, that's about $800,000 impact for the quarter, about 1.5% or 1.6%. And then we had, what I would characterize as equipment and distributor issues that were about another $1.4 million [ph] that would have been another 2.5%. So, when you look at those, that's about an 8% differential from the food safety results that we reported, and that gets you to about 6%. And then I would tell you that there were just other results that I would characterize as being somewhat sluggish this quarter, but not systemic and didn't indicate a problem in the business. So that's why I think John and I are both excited about the future of the business and that we aren't -- I mean, disappointed in the quarter, yes, but still excited about the prospects going forward.

Okay. That's very helpful. And I don't want to put words in your mouth, and I know you guys don't guide on the segment level detail, but the expectation should be that as we move into the second quarter and sort of through the end of the year, that growth rate on the organic and reported basis should improve more to that mid-to-high single digits?

Yes. Like I said, I am looking forward to stronger quarters. I want to get this one behind us and get going.

Okay. And then just last question for me. I know we have talked in the past a little bit about the M&A strategy. But any update there on the pipeline or what you are thinking about in terms of size of deal or timing? Thanks.

Size of deal, we are looking at a wide range from tuck-ins to a bit more chunky, which we have said we wanted to do. From a timing standpoint, on the tuck-ins, I would have liked to have those done already this quarter, but it's hard to push some sellers. So, we know that those are in the queue and we are working actively on those, and we continue to work the channel. The pipeline looks good. It's just getting some deals closed.

Okay. Thanks guys.

Thanks Andrew.

And your next question comes from Paul Knight from Janney. Your line is open.

Hi John. Could you go over the genomics business a bit? You had mentioned various expansions. If you could recap that and what are customers buying? I know that you do a microarray-based testing, but are you offering database inquiries, et cetera? So, if you could kind of go over the bricks-and-mortar? And then secondly, what the product offering encompasses today?

Sure Paul. So, on the expansion standpoint, I think the biggest one is expanding our facility in Lincoln, Nebraska. We have run out of room there, and we have got a building next door that we are building out. So, we are going to increase capacity there. We are moving into a brand-new facility in Canada that is already lab equipped. So, when we bought the Canadian business, we knew we were going to have to expand it. So, we did that. We have increased in Brazil. We have moved that facility, boy, I think that was probably about two quarters ago. We are really getting that up ramped and rolling, and then an increase in China. So, on a physical standpoint, we are really increasing the square footage and the amount of tests we can run, and we need to, because we have got to keep up with the demand from the customers. On the product portfolio side, we continue to grow in our Beef Igenity profile product, which allows commercial producers to choose the right animals for their system. I think what's exciting about the announcement with IGS is that that's a pretty progressive group. It's made up of 12 [ph] breed associations. They’ve got over 16 million animal records and they add about 400,000 new animals annually. So, think about using that data for us to improve the predictiveness and the effectiveness of our products. We are really excited to continue that type of relationship. We are seeing growth in market share on the dairy side and picking the dairy heifers. And then, we have seen nice growth in companion whether it is both, our wellness testing and our parentage testing. So, it's been a really nice growth story, and it's continued to be a nice growth story and this quarter was no exception to that.

And then lastly, John, what would be your goal on operating margin?

You want me to channel Jim? I think if Jim is listening, I know he is smiling right now. I think you got to have a goal of 20% or more. I think our business can do that. It's something that we continue to strive for. But I think what we really want to focus on is continuing to incrementally expand operating margin and not so much say, if I hit 20%, that's the goal, because it's not the goal. I think we want to continue to expand operating margins and do it in a way that balances our growth. So we don't stifle growth, we don't stifle innovation, but we continue to improve that financial metrics for our shareholders.

Okay. Thank you.

Thank you.

And the next question comes from Jason Rodgers with Great Lakes Review.

Yes. I just wanted to follow up on the loss of the Brazil lab customer. I wonder if you could provide any more detail as far as why they changed solutions? And is there any other lab customers you have in Brazil at risk there?

So when that business started, that was really a great, opportunistic solution that our team provided to the marketplace. We had a test that really can meet the needs there but that really wasn't our business. We didn't know those customers very well. And what happened was that Brazilian hair market grew so quickly that the customer needed and it was the largest in that market, needed a higher throughput solution and we just didn't offer it. So we continue to sell our test kits to other labs within that market that just don't have that same level of throughput. And I am not as concerned because that equipment is extremely costly from a capital standpoint and only the largest can really afford to do that type of solutions. So I am not as concerned. I think what the risk there going forward is if the new President decides to eliminate that regulation and he ran on that from a campaign promise. Now he hasn't changed anything yet but that could be something looking forward that if he stops requiring the test, then high throughput or ours doesn't matter. They are just not to test for it.

All right. And then looking at the genomics market, you talked about some good growth in that whole companion animal business. How large is that now as a percent of your total genomics business? And how fast do you expect that to grow? And how large the market could that be?

Steve is going to have to look. I don't know if we have ever split that out. But let me talk, Jason, a little bit about how big it could be. I mean think about kind of the tremendous growth that, on the human side you had ancestry.com or some of those other parentage sites. I mean their growth has been just phenomenal. And I think that always those type of trends always seem to trickle down to the companion segment as pets are part of the family and people want to know the history of where my dog came from and what its traits are and did it have a champion in it's pedigree in the background. So I think those things are very important and it's going to continue to grow. The other piece we are really excited about is the wellness piece. And that, we are just getting started with and working on as looking at, can we help pet owners and veterinarians make better decisions around treatments if we could predict that this, your puppy, perhaps has a tendency for hip dysplasia or for some other disease that we can find a market for. That would that help you customize a diet or a training program or an exercise program that's going to help mitigate that to give your pet a much better quality of life. So I think those are big markets and we are just scratching the surface on them.

Okay. Thanks for the detail there. And just one final one. Given all the increase that's underway in genomics, I wondered if you have an updated CapEx estimate for fiscal 2020?

The biggest item for CapEx in the genomics business is going to be the expansion of the Lincoln facility that John mentioned. That's probably going to ultimately be about $2.5 million renovation or build out. And then there will be some equipment that will follow behind it that may move into fiscal 2021. But it will be about $2.5 million of spending in this year.

So where would that put CapEx overall in companywide for fiscal 2020?

CapEx, it's going to be, I would put it somewhere in the $15 million to $18 million range depending on timing of spend, somewhere in that.

Okay. Thank you.

You are welcome.

Thanks Jason.

And your next question comes from Kevin Ellich from Craig-Hallum. Your line is open.

Good morning guys. Thanks for taking the questions. I guess let's start off with the African swine fever. You guys did call out the 18% decline in revenue in China. Just wondering what the outlook is now? And do you expect this pressure to continue? And I guess, for how long?

Yes. That's a good question, Kevin. I think the pressure will continue on the genomic side a little longer because they just are unclear how they are going to go forward. And the nice thing about the diversity of our business is the puts and takes because while we had that decline there, I mean we had increased sales of cleaners and disinfectants in China for the exact same reason, right. So it's a negative on one side of the business, it's an opportunity on the other. And I just don't know whether China's got a good handle on how they are going to manage this disease. And not just China, I mean everybody else, to be quite honest.

Right. And have you seen the impact of African swine fever spread to some of the other markets, John?

Yes. I mean you saw South Korea just announced last week that they have confirmed cases that came from North Korea who hasn't announced but I am not as shocked that North Korea hasn't announced anything. I think now it's in 13 countries and the challenge now is I think -- Philippines was the other one, Kevin. And that one was a little concerned because now it's not just land-based. So you could see how it goes from China to the Korean peninsula through land, but now this thing, when you got to the Philippines, they had to go on a boat or a plane. So it's going to be a little interesting.

Well, hopefully that will be good for your cleaners and disinfectants business.

That's exactly right.

Right. So as for it impacting on the companion animal genetic testing, we really appreciate those comments, I see that you have your own test. But are you doing any private-label work? I mean clearly, there is a lot of genetic test brands out there now like Wisdom Panel, Embark. Are you doing any private-label or have you thought about doing any of that?

We do. Look, we do help out. We are the back office for some of the larger ones in the industry.

Okay. That's kind of what I was thinking. And then lastly, you talked about accelerating organic growth and clearly appreciate the comments on the food safety side. But what other things are you putting in place to drive organic growth and I guess over what timeframe do you think it will take before we see that benefit?

Yes. Well, we have got new products and technology coming in the second half of the year that we are pretty excited about that is going to help us long-term in the back half of the year. I can't say that I am counting on it to be a big driver for this fiscal year. We are adding salespeople. We continue to add sales teams in our end markets to continue to try to grow and find the marketplace. We are constantly evaluating our distributors. I think what was interesting was, we had some programs that were pretty successful on the animal safety side that got distributors interested in the U.S., which helped that growth. I don't think the market got any better but I think some of the things that we offered had a positive influence on those distributors. But as Steve mentioned, I have got a distributor in Europe that we have been working with for a while and we have had declining sales for two to three years and we have got to address things like that. And so those are some of the things that we have got to do to continue to drive organic growth is to continue to put more people in the field to help drive our direct sales, work with our distributor partners to help them reach the end customer and influence the end customer to pull product through their warehouses so we can drive sales that way also.

Got you. Makes sense. Thanks for all your help. Thanks John.

Thanks Kevin

Thanks Kevin

[Operator Instructions]. And your next question comes from Kevin Ellich from Craig-Hallum.

We just did Kevin.

I actually queued back up. I don't know if anyone else is in, John.

Well, go ahead, Kevin. You are back on, all right. Nice hearing from you, Kevin.

Thank you. You talked a little bit about the wet summer that we have had in the Midwest and I think you said you expect sales to improve here in the next couple of quarters with the corn crop coming in. Just wondering how much that affected growth this quarter or if it had any impact?

I mean, there was probably a little bit of timing, Kevin, but it really, I can't say that much. I mean, I know the harvest is delayed because it was such a wet spring and everything's delayed. But maybe some early crop corn last year would have been in the first quarter and now it's in second. But I don't think it's that big of an impact. Most that corn harvest is always in the second quarter anyway.

Got it. Excellent. Thank you.

And our next question comes from David Westenberg from Guggenheim. Your line is open.

Hi. Thank you for taking the question. So you have talked about your long-term growth rate around high single digits, 8%-ish, with animal safety being 6% to 8% and food safety being 8% to 10%. So just wondering, do you still see that as the long term growth rates of the business? And how confident are you that that you can grow back to that rate? And do you think there might be any market share dynamics over the last few quarters that might have been affecting those growth rates?

So David, I think there's been some market dynamics, especially on the animal safety side and we beat that up pretty good. I mean that's a cyclical market and we are kind of in a trough on that one. And that's just a tougher one to squeeze out those type of rates. Food safety, I feel very confident. I mean, there was a report that came out the other day from, I think, it was the Swiss Federal Institute of Technology. And what's interesting about that, they talked about that meat consumption has risen by more than half in Africa and up by two-thirds in Asia and Latin America. So our long-term prospects, whether it's on the farm side helping those producers produce clean healthy the animals or even on the food safety side is going to continue to grow. So I think we have got really good opportunities. And then when we start getting some acquisitions and layer them on top, then I am really excited.

Right. Thank you. And then on the acquisition front, so how would you categorize a private equity right now? Do you still feel like the valuations do seem a little bit higher than they are historically? And do you see any pick-up in terms of competition for acquisition?

It depends, David, how far your history goes back and looks. I mean, if you go back. This has been a pretty -- there's been a lot of money in the market the last couple of years. And yes, if you go back and say, you want to look over 10 years, then yes, the rates are probably higher than the 10-year average. But over the last couple of years, there's still a lot of money on the sideline trying to get put to use. And so maybe we have done to good to a story to tell them how great a market this is, because not everybody wants to come in and put. But you know, come on in, I am ready to go. I mean, we travel all day, every day, right. So we really believe in the team. We believe in our products. We believe in the people we have and we are ready to compete.

Got it. All right. Just one last question. I know you already kind of got into it with Kevin's question, but just want to get further, kind of conceptualize what the long term opportunity around ASF. So can you maybe give maybe some feedback from customers in Asia or some way for us to think about all the opportunities, because obviously, I mean, cleaners and disinfectants business picked up. But could this be some sort of 10-year drive of multi-products? I mean, just really it would help us think about the upside of what that could be.

Yes. I mean if you think conceptually, right and you would say with this type of issue, a strong efficacious product encompassed with a biosecurity program would be a benefit to Neogen in the long term with this. But you can't have one without the other. You have to have a program in which you are doing things properly to stop the spread of the disease. So I think long term, C&D absolutely. I also think, if you think longer term, on the genomics side, when they have to repopulate all those animals, it's going to be in their best interest to try to pick the best breeding stock to repopulate all those animals, whether it's in China, Romania or South Korea or Philippines and we work with all those companies today. So I think we have opportunities here, but it's a put and take. I mean you are going to have some negatives because if they are just depopulating 30%, 40%, you are not going to process those animals. If you are not going to process the animals, you may not use our pathogen testing. So there are upsides to this and there are downsides. But either way, Neogen can help customers find the right solutions.

Thank you very much.

Thanks David.

And this concludes the question-and-answer session. I will turn the call back over to John Adent for final remarks.

Great. Adrienne, thank you. Thanks to all of you for joining the call today. And if you haven't already, please be sure to return your proxy votes via the mail. And whether you vote via mail or not, you are all welcome to attend our Annual Meeting on October 3 in Lansing. And if you have any questions about that, please contact Rod Poland. So thanks everybody. We appreciate it.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.