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…

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…

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.