Neogen Corporation (NASDAQ:NEOG) Q1 2021 Earnings Conference Call September 22, 2020 11:00 AM ET

Company Participants

John Adent – Chief Executive Officer and President

Steve Quinlan – Chief Financial Officer

Conference Call Participants

David Westenberg – Guggenheim Securities

John Kreger – William Blair

Mark Connelly – Stephens, Inc

Jon Braatz – Kansas City Capital

Operator

Good day, and welcome to the NEOGEN First Quarter Fiscal Year 2021 Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to John Adent, President and CEO. Please go ahead.

John Adent

Thank you, Matt. 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 2021 fiscal year which ended on August 31.

As usual, some of the statements made here today could be termed as forward-looking statements. These statements 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 by live telephone conference, I also welcome those of you joining us via the Internet. Following our prepared comments this morning, we will entertain questions from participants who’ve joined this live conference. I’m joined this morning in an appropriate social distance by Steve Quinlan, our Chief Financial Officer who will provide financial detail on our results for our quarter.

We’re pleased to report increased revenues and net income compared to our prior year’s first quarter in a very difficult operating environment. While we are developing and marketing products and services to help protect and enhance the global food supply, we continue to take extraordinary measures to protect our business and employees. We remain vigilant with our COVID-19 safety measures, but we continue to see cases around the world affect our business. Through it all our employees have done an outstanding job of adapting to these constant challenges to deliver these excellent results for the quarter. They worked extremely hard, and I’m very proud of them.

But this is far from over. And it’s not time to let up. We will continue to implement safety measures we’ve had in place since the beginning of the pandemic and refine and develop new best practices. We are constantly adding to our list of alternate suppliers of essential raw materials as well as seeking even more efficiencies with our production facilities. Everyone is feeling the effects of COVID-19. We’ve had numerous customers go out of business, while others have dramatically cut staff and output. Adaptability is vital now as customer demands and raw material supplies are impacted daily. The food and livestock industries continue to be adversely affected by the supply chain disruption that started months ago.

Let me give an example. The National Restaurant Association recently did a survey of its members after six months of the pandemic and found one in six restaurants in the US were either closed for an extended period or closed permanently. That means more than 100,000 restaurants in the US alone that will close at least temporarily with an associated estimate that the domestic restaurant industry will lose $240 billion in sales by the end of 2020. Just think about those 100,000 closed restaurants and the $240 billion in lost sales and their effects on our pre pandemic food chain. Then add the countless food service, catering and similar businesses that have been devastated by the pandemic and the restaurant shift to customers eating a far greater percentage of their meals at home. Economic Recovery to pre pandemic levels is going to take many months, if not years.

The immediate future is further clouded as the northern hemisphere begins to enter its flu season. As we face these challenges, we will continue to develop contingency plans across our businesses to prepare for what may come and while the future is unclear due to COVID-19 what is clear is the future of NEOGEN. We will find opportunities for growth and development in all of our markets. Later on, we’ll address some of those opportunities that have arisen for NEOGEN due to the pandemic, as well as some of the very encouraging developments from a global R&D groups. But before I do, I’m going to pass it over to Steve to run down the numbers for you.

Steve Quinlan

Well, thanks, John, and welcome to everyone listening this morning. Before I talked about the numbers, I’d like to echo John’s comments about how proud we are of our global team for how seriously they’re taking the responsibilities to keep their fellow employees safe during this pandemic, and for the results they’ve been able to produce in this very difficult operating environment. Earlier today, we issued a press release announcing the results for our first quarter, which ended on August 31. Revenues for the quarter were $109.3 million, compared to $101.4 million in the same quarter a year ago. Net income for the quarter was $15.9 million, or $0.30 a share, compared to $14.7 million or $0.28 a share a year ago.

In the next few minutes, I’ll give you some color around the numbers. And I’ll start by talking about the currency impacts to the business in the first quarter, which were mixed. The pound and the euro were each up 3% against the dollar compared to the first quarter of fiscal 2020, which provided a bit of tailwind for our European results. The Brazilian real and the Mexican peso, on the other hand, were 27% and 14% lower on average than in last year’s first quarter. Revenues would have been $2.1 million higher for the first quarter in a neutral currency environment. Almost all of that impact was felt in the food safety segment as the majority of our international businesses report in through this segment.

Revenues for the Food Safety segment were $54.2 million in the first quarter of fiscal 2021, an increase of 6% compared to $51 million even in last year’s first quarter. The revenue gains in the segment were driven by a $2.4 million increase in our England based manufacturer of cleaners and disinfectants on sales of hand sanitizer products to the UK National Health Service and a $1.2 million increase in sales in China with gains across the product portfolio and particularly in cleaners and disinfectants to combat the African swine fever and COVID-19. At our Brazilian operations, 2021 first quarter sales increased 38% in local currency, and included a large non recurring insecticide sale to a government health organization in Nicaragua.

Additionally, sales were strong across our entire portfolio of products, including a 16% increase in dairy drug residue test kits, continued market penetration in aflatoxin test kits and growth in rodenticides and genomic services. However, negative currency translation resulting from the real devaluation lowered the growth reported from Brazil to 1% in US dollars. At NEOGEN Latino America 13% growth in revenues in local currency in the first quarter, resulted primarily from increased sales of cleaners, disinfectants and sanitizers mostly in Mexico. Adjusting for the devaluation of the peso relative to the dollar resulted in a revenue decline of 2% in US dollars compared to last year’s first quarter. Combined revenues at our UK operations increased 21% primarily resulting from a large order of hand sanitizers to the UK government’s health organization, and strong cleaner and disinfectant sales to Asia Pacific, Africa and the Middle East. Histamine test kit sales also contributed to the growth due to increased business from tuna producers, as did our Raptor test system for mycotoxin.

Our domestic Food Safety business grew 2% for the quarter. As we discussed on our year end call there is still significant amount of disruption in the food processing and food production markets, with certain of our customers serving the grocery markets doing very well, while other customers serving bars, restaurants and other commercial food service are struggling. But there were areas of growth within the business. We introduced our next generation Soleris system in late July to US markets and had strong positive reactions and great initial demand for the system, which is used to detect spoilage organisms such as yeast and mold in processed foods.

On a worldwide basis, our test to quickly detect environmental Listeria in food processing plant Listeria right now continues to gain acceptance in the market with revenues up 9% in the quarter. Revenues for our industry leading product line to detect allergen contamination in foods were down 3% in the quarter, and our AccuPoint line which is used to detect general sanitation and cleanliness in food processing environments declined 7%. Each the result of lower end market demand reflected as a continued disruption in our customers and in our markets.

Natural toxin product sales increased 1% compared to last year’s first quarter, as continued market share gains on aflatoxin kit sales in Brazil were largely erased by the real to dollar currency conversion. Higher DON sales in the prior year in Europe from an outbreak did not repeat. And similarly domestic sales were flat due to clean crops so far this year. Revenues for our test to detect the presence of antibiotics in milk declined by 33% in the quarter as customers in Europe work through distributor inventory. Recall that in January, we announced that we terminated the exclusive rights to distribute these products with our European distributor, and we’re now ramping up our direct sales force for that product line.

The animal safety segment recorded revenues of $55.1 million for the quarter, up 9% over the $50.4 million achieved in last year’s first quarter. The growth was led by a $3 million increase in sales of rodenticides resulting from rodent pressures across the US particularly in the Pacific Northwest. Revenues at our Australian operations rose $1.2 million on the strength of increases in sheep and cattle genomic testing, and the incremental revenues resulting from our acquisition of Cell BioSciences in March of this year.

Revenues at our domestic genomics testing and bioinformatics business located in Lincoln, Nebraska increased $1 million and continued market share gains in the companion animal parentage and wellness testing space and sales from our recent launch of a chip for shrimp testing, which offset lower sales to a large poultry customer as it moves to one of our lower density, lower cost chips. Domestic commercial beef and dairy sales were also sluggish in the quarter the result of the COVID outbreaks in our customer supply chains and continued poor economic conditions in dairy markets. Worldwide, our genomics revenues increased 11%, with some additional growth in China and increased testing in the swine market.

Animal Care Products sold out of our Lexington, Kentucky based manufacturing and distributing center, such as vitamin injectables, equine and small animal supplements, wound care and antibiotic products were up 8%. These increases were somewhat offset by a 25% decrease in sales of dairy supplies, which we’ve distributed for a number of years for a large manufacturer of dairy equipment. Our distribution agreement with that manufacturer ended in June of this year.

Sales of veterinary instruments and disposables such as needles and syringes declined 8% for the quarter, and lower sales to our larger Animal Health distributors. Life Science product revenues declined by $400,000 the result of lower forensic kits sales to commercial labs, as they process fewer samples due to Covid related slow downs.

Our Domestic Cleaner and Disinfecting business benefited from a 31% increase in hand sanitizers and wipes resulting from COVID-19 demand somewhat offset by lower sales of water treatment products. And our insecticides revenues in the US rose 6% boosted by our purchase in July of the StandGuard product line. Gross margins were 46% for the quarter compared to 47.5% in last year’s first quarter. The lower margins are primarily the result of the shift in product mix and the food safety segment toward products which have lower gross margins. The impact of the stronger dollar on our product costs in Mexico and Brazil and increased duties, freight in and other overhead costs in our Lansing operations, partially offset by the increased sales rodenticides, a higher margin product and increased efficiencies that are Australian operations due to increased throughput in the animal safety segment.

Overall, our operating expenses drop 2% compared to last year’s first quarter, primarily the result of a 6% reduction in our sales and marketing spend. Lower global travel, trade show and other on site customer facing activities caused by travel restrictions from the COVID pandemic drove the decrease in expense here.

General administrative expenses rose 3% for the quarter, due primarily to increased compensation and legal and professional fees. Our R&D expenses increased 5% over the prior year quarter on outside services related to the launch of the next generation Soleris product, which as I said was launched in July and has been receiving very positive reviews.

Operating income for the first quarter was $18.9 million, compared to $16.3 million in last year’s first quarter, with the increase the result of the higher sales and gross margins and reduced operating expenses, expressed as a percent of revenues operating income was 17.3% compared to 16% even in last year’s first quarter. We recorded $722,000 in interest income for the quarter and this compares to $1.5 million last year. The lower amount recorded despite increased cash balance reflects the tremendous decline in yield in fixed income investments. As an example, the rate on one year treasury bills which was 1.8% in last year’s first quarter declined to 12 basis points this year, as the financial markets reacted to the pandemic.

Our effective tax rate for the first quarter was 19.9% compared to 17%, even in last year’s first quarter. Last year’s effective rate was low due in large part to $769,000 in tax benefits recognized from the exercise of stock options. This year that comparable number was $421,000. I’ve mentioned on previous calls that the volume of option exercises and the gain on those exercises can result in significant fluctuations in the effective tax rate for the comparative period. Another factor impacting the higher tax rate for this year’s first quarter was a lower benefit recognized from foreign derived income due to the timing of full year estimated income from our international operations.

On the balance sheet, our net receivable balances declined by $7 million compared to year end, and our collection period dropped from 68 days at year end to 61 days for the first quarter. And we feel good about those strong collections, particularly in this environment. Inventory increased by $2.5 million or 3% primarily due to increases in the UK for long lead time items. As discussed on a year end call, given the uncertainty around the supply chain caused by COVID, and potential Brexit disruptions, we believe it’s prudent to carry a little bit more inventory than we normally might. We continue to generate cash nicely, and produce $25 million in cash from operations during the quarter.

Our strong cash position gives us the flexibility to pursue just about any of the many growth opportunities that we have in front of us.

I’ll stop here and again emphasize that we’re proud of the team and their overall performance of what continues to be a very challenging operating environment. We capitalized on a number of market opportunities during the quarter. And we continue to be excited about both our current business and the new products that we’re launching this year. And as always, we appreciate the support of our shareholders, and all those listening on the call today.

At this point, I’ll turn it back to John for the moment.

John Adent

Thanks, Steve. As I’ve previously said, our mission matters today more than ever, as the world fights through this crisis to eventually 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 may have responded. We’ve done our best again to assist the broader civic efforts to combat COVID-19 making by our sanitizers and disinfectants available outside of our traditional agriculture and veterinary markets. Another example of an opportunity for NEOGEN that was created by the pandemic is sales of our test to detect histamine that Steve talked about. It’s a spoilage indicator and some fish and especially used in tuna. Sales of canned tuna have spiked as consumers have sought less expensive sources of protein to consume at home, and sales of our test kits for histamine increased by 20% compared to the prior year quarter. We’ve also benefited from the now well documented increase of spending on pets, especially dogs and cats during the COVID era.

Our genomic operations recently marked the 2 million tests performed on companion animal samples, mostly for dog breed identification, but now expanding into canine wellness tests. As we respond to the pandemic, we’ve also recently launched some significant new products from our R&D pipeline.

As mentioned before, in July, we launched our new Soleris next generation, which is an automatic test system that detects micro organisms such as yeast and mold in a fraction of the time of traditional test methods. As Steve mentioned, we’ve had a tremendously positive market reaction to this product launch, especially to the nutraceutical and cosmetic industries. Just last week, we launched an improved test for gluten, which has been one of our major food allergen tests. The improved test rapidly detects gluten in food products, raw ingredients and environmental samples. What that means is companies can now use the same method to test for allergens and food and environmental samples, as opposed to using different methods for different sample types. We believe that this is a major advancement from one of our core product lines. And we’re in the final stages of development for similar improvements to more of our food allergen tests.

We also expect that other major product launches in the coming months are going to be very successful. We’re encouraged by many of our other developments in the quarter; for example, our revenues in China more than doubled for the quarter. Our management team there is experienced and is working under an improved operating structure and growing our revenues across all of our product lines.

Our Animal Safety and Genomics revenues have more than doubled in China. And we’ve had really solid broad base gains in the food safety side. We’re also encouraged by the initial performance of the companies we acquired within the past year that are now under NEOGEN management.

In Australia, we added our food safety line to our animal safety genomics offerings, and are providing very promising results.

In Italy, we’re starting to see the benefits of NEOGEN’s ownership of our previous distributor there, as we are in Argentina, Uruguay, and Chile. Through it all, we’ve made gains where we can as we work to protect our employees and business. And once again, I’m extremely proud of how our team has acted and reacted to this unprecedented business and social environment. I’m sure that a lot of you have questions. So at this point, I’m going to stop and open it up to those of you who have joined the call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from David Westenberg with Guggenheim Securities.

DavidWestenberg

Hi and thanks for taking my question. Good job executing on a — in a really challenging environment. So I’m going to start with the rodenticides sales. I know we’re getting news articles about rodents taking over New York City. I’m just trying to kind of understand whether or not this pickup in sales is something that you think can increase. And if you can maybe quantify what the rodenticides were versus — because we also kind of want to figure out that disinfectants and sanitizers and rodenticides did very well in the quarter. So we are trying to understand contribution from rodenticides, if that could be recurring? And then if there’s a way to quantify that in order to understand also in terms of what the sanitation products that might be a COVID lift are? I get that’s a long question. Sorry about that.

JohnAdent

That’s all right. Yes, well, the big lift for us on the rodenticides was really as Steve talked about in the Pacific Northwest and the Ag market. So we had a really — there was a really strong outbreak kind of out there. We are seeing in our worldwide markets a lift in our PCO, which is to the more metropolitan areas. But that’s a market that is relatively new to NEOGEN. But it’s one that we’re pretty excited about and see some long term growth opportunities in. In the cleaners and disinfectants, as Steve mentioned, you saw we had increases in hand sanitizers in the UK where we were working with the UK Government. We continue to look for opportunities there. I think when we stepped up at the beginning of the outbreak and provided sanitizers outside the market there’s a lot of new customers we picked up, everybody else have kind of gotten their supply chain in order.

So there’s a lot of sanitizer pressure, there’s not a run on it like there was but we’re seeing pretty good retention rate for the customers that we picked up early in the year.

DavidWestenberg

Got it. Okay. And then another — asking to kind of quantify. You got contribution in StandGuard, but it was only about a month. And I know you give an organic revenue number, and it’s — we could subtract what the top line is and kind of figure out what acquisitions did. But if there’s a couple of pieces; I can probably just try to get at for — in terms of trying to model out. Would you be able to call out StandGuard and if one month — just times that by 12 to get kind of the run rate for StandGuard? And then kind of the distributor acquisition contributions, if you can’t give a specific, if you can maybe give us a qualitative kind of way to think about it, so our models next year look correct?

JohnAdent

Okay, Steve will handle that one.

SteveQuinlan

Thanks, John.

JohnAdent

You’re welcome, Steve.

SteveQuinlan

So David, on the StandGuard product, we had about $160,000 of revenue for that product. Remember, we just bought it right near the end of July; we just kind of launched it into our market. So it’s just starting off. But we’re really encouraged about the prospects for the product line. And the distributors that we purchased, I think it’s important to note that we were doing business with a number of those distributors already – and those numbers were already somewhat in our food safety numbers. So you’re really seeing incremental revenues there. So it’s really tough to call out and say, well, Chile was x, because it was already — we’re doing the incremental margin there. But as John said, we’re excited about the opportunities in those markets. We’re staffing them up, we’re kind of putting that NEOGEN infrastructure in, and we’re just excited about the future of those businesses. I think I’d probably stop there on that.

DavidWestenberg

Got it. And just further on that question, is it responsible to times that $160,000 by 12 to get the year run rate? Or is there just too much kind of noise and you just got the asset and —

JohnAdent

Yes, it’s a little early. There’s seasonality in that product. And that’s a little early. I wouldn’t do that as a straight run rate. W will have a little bit more clarity after next quarter, probably. But we [are] [ph] happy with it so.

DavidWestenberg

Got it. All right. I’m going to ask just one more question before I hop into queue. I don’t want to hog all the questions here. Just lastly on competition are you see anything differently from maybe some of the players in the life science tools, traditional ones, like Waters or PerkinElmer? I know PerkinElmer I think they launched a micro toxin test. Are you seeing that in your — in kind of impact on the market, and then as a follow up to that, when do you see competitor products is that kind of one of the things where you step on the gas in terms of R&D or is that one of the things where you maybe step on the gas in terms of acquisitions?

JohnAdent

So the answer is yes. So we have seen competitors and they continue to launch, right, you saw Hygiena launch a new ATP reader, you saw PerkinElmer buy the business in China before the COVID. And you see others that are buying up smaller, maybe a small portfolio of allergen testing or others. So there’s continued competition. And that’s why our strategy is like we’ve talked about; we continue to invest in R&D. So I think that goes right hand-in-hand with what we just launched with the gluten test, where before you were having to do a test to test for raw materials for gluten and then a separate test to test environmental samples, two separate test on two separate ways. And now we have one test, that’s going to be much simpler for the customer when they want to buy one gluten test, and they can do it across the markets. So yes, we’re continuing to invest in R&D to stay ahead. We do think there are opportunities for acquisitions. We’ve got a very nice pipeline that we’re looking at. We’ve got things that were in different stages of the pipeline, and we’re going to keep executing on that strategy.

Operator

Our next question comes from John Kreger from William Blair.

JohnKreger

Can you hear me, John?

JohnAdent

Yes, I can hear you now, John.

JohnKreger

Okay, great. So my question was trying to get at your view of how the markets are going to play out in the coming months. You talked about the fact that there’s still a lot of uncertainty. But you guys were able to really show some nice, sequential improvements in the momentum of your business as we move into the colder season. From your perspective, can the momentum continue, particularly in the food service side? Or are you thinking that maybe things may even slow down a little bit as restaurants have to deal with the fact that they can’t just rely on outdoor seating anymore?

JohnAdent

Yes, I think I think it’s going to be tough. I mean, it seems like every quarter is a year, right? I mean, the way that the team has to react in, and change to the adapting environment, and it’s from a standpoint of not only what’s happening with the customers, but raw materials, supplies, I mean, there are many cases where we have something that is a minuscule raw material to us, where all of a sudden, they have an COVID outbreak, and they’re shut down for two months. And then it’s we didn’t realize that was that critical because it’s so far down the list. But we’ve done a really good job of quantifying alternative suppliers. So no, I’m optimistic. And I’m not optimistic on the market. I’m optimistic on NEOGEN. I think the market is going to continue to be tough, I think we’re going to continue to see some challenges. I don’t know what’s going to happen in a flu season, but I’m nervous about it. Oddly enough, we’ve seen a bigger impact in this quarter on employees COVID related than last quarter. And you wouldn’t think that because with all the news and the talk at around the world, I just think it’s a couple of things that the weather was nice, and people want to get outside and I’m like everybody else I am worn out of COVID. I’m worn out of being by myself in my office and all the video conferences. But we have to stay vigilant because that social distancing is going to protect our employees and protect the business. So we’re really doing everything we can to make sure everybody’s still on point here. We think there are opportunities to help customers; we think that we’ve got things that are going to help them run their business better. So as they are approaching opportunities and they can’t be in the plants. That’s a great opportunity for NEOGEN analytics to be able to show them what they need without physically being in the facility and show them what they need across multiple sites.

So we think we’ve got a technology platform that’s going to allow us to only accelerate in this type of environment, and I think that goes to a lot of things that are happening. I don’t know if you guys saw that Frank Yiannas just put out the FDA rule to advance traceability on certain foods under the new Smarter Food Act. So that plays into what we’re doing. I mean, I’m so glad we started down that path over a year ago and developing out our analytics and our blockchain because now the industry is coming to where we’re going. And I think it’s going to be a real opportunity for us.

JohnKreger

That’s helpful. Thank you. Can you give us an update on African swine fever and how it’s impacting your swine business and your customers in that species?

JohnAdent

Yes, so John, that’s something everybody seems to be forgetting about with COVID. But it is still a major issue. And if COVID wasn’t around, this is what we’d be talking about. You saw the out — they found one dead boar on the border of Germany and Poland and China banned German imports of pork. And that’s $867 million of exports for Germany, which why you saw our kind of pork futures bump. The hog guys were getting killed in April and May; they were losing, the producers were losing almost $50 a head. Now that coincides with record profits for the processors at the same time because the raw materials are so cheap. But that’s been paradigm and they’re still losing money, but it’s only down to $10 a head. So I’m hopeful that those markets are going to strengthen. And we saw that across a lot of the markets, John, the boiler price, the boiler prices have come off their lows in April.

In May, they’re making about $0.52 cents a pound. And now it’s up to about $0.63. And the five year average is $0.88. So we’d like to see them get back to historical averages, the layer guys are making money today. Class III milk has come off its lows, it was $12. And now it’s you know, it was up to $21 in July is now at about $17 in August. But that’s enough of that group to make money. The beef guys were losing money about $10 a head through April, May, June; they’re now at breakeven or a little better. So I think the initial shock on the food supplies kind of worked its way through. So I’m pretty optimistic. It’s not — let me put it this, it’s nice to see the majority of our customers on the animal safety side making money rather than losing money.

JohnKreger

Great, thank you. One last one, Soleris, is you still in a backorder position? Or have you been able to catch up with the initial orders?

JohnAdent

We are still in a backorder for a few products. But we’ve been able to trim that tremendously. But we’ve had great demand on our new product launch.

Operator

Our next question comes from Mark Connelly from Stephens.

MarkConnelly

Thanks. What part of the appeal of the Listeria right now was that — was a huge gap between what the old test could do and the new one, which not only increased demand, but it changed the incentive, some users had to begin testing where they didn’t before. Is there anything in this gluten test that has the kind of characteristics that could actually change the audience for your testing the way that one did?

JohnAdent

I think, Mark, a better analogy might be Soleris, or Solaris next gen, traditional methods for Soleris is to test for that yeast and mold is five to seven days. And we can do it in 28, or 24 to 48 hours. So just like you’re talking about with LRN, where it — that was a traditional tests that took five days, and we did it in less than 24. It kind of changed the way that they looked at it and moved it more to an environmental test. And it could, I see that same type of opportunity for Soleris, right, so that it’s fundamentally different.

MarkConnelly

So we should think about Soleris that way but the gluten test, we really then should probably just think of as building out the reveal portfolio then.

JohnAdent

I do. And I think it is a major convenience for the customer to not have to have two separate tests, whether they’re going to do environmental or ingredient or environmental ingredient or finished product; they just have to put one test off the shelf for all their needs.

MarkConnelly

Okay, that makes sense. So just one — well, two related questions. Are you starting to see any COVID-19 changes that your customers that you think are going to be permanent in terms of protocols that maybe they’ve learned a little bit in this process? And on a related note, has COVID-19 driven any change in your thinking about what you want to acquire?

JohnAdent

Yes and yes. So not only with our customers but also with us, like we — what we — we talked about this earlier and Steve, what was the number? What percent of our kind of back office group went remote?

SteveQuinlan

70%.

JohnAdent

And if you think about that and how many are still remote?

SteveQuinlan

30% -40%

JohnAdent

Yes. And we didn’t come back to pre Covid looking, we’re looking at saying; there are certain jobs within our business that they were here that can work remotely. And they’ve been very successful working remotely. So we really challenged the team and say, what have we learned, or what’s the best practice coming out of COVID that we can take forward, and some of it is the remote workforce. The other is how we interact with the customers, I think, like I’ve talked about customers have changed in the way we interact, you’re going to have less face-to-face meetings going forward, right for a while. And we’ve been able to really develop an adapt because if you think about even our new Soleris equipment installs, a lot of those we’re doing remote, we have set up our virtual labs, we’ve got virtual installations, we have training materials; YouTube based training materials, it’s really changed the way we’ve talked about interacting with the customers. And it’s made us very efficient, and I think made us better, right?

And so I think that’s going to continue to be a positive. Now on the acquisition side; I think we have to look at those types of opportunities. We’ve talked about the FDA rule on traceability; I think that’s going to continue the USDA just put out a plan, Mindy Brashears, put out a plan yesterday, the day before about how to reduce salmonella in the food chain. And we’re getting ready to launch our salmonella test. So I think we’re heading down the right path. We’re moving in sync with the industry in the government. And I think we’ll continue to find new ways to address customer needs that we haven’t done in the past. That’s going to keep us on the front end of things.

Operator

Our next question comes from David Westenberg from Guggenheim Securities.

DavidWestenberg

Hi. Thanks for taking the follow up. So can you just talk about potential additional government contracts? I believe that you called out some in the prepared remarks. Should we be expecting more maybe contract wins if they’re in the hopper for this year? And I don’t know if you can quantify or give us a ballpark on what kind of a contribution from that kind of thing could look like.

JohnAdent

Yes, a lot of those tenders are international tenders. And what’s challenging with some of those, David, is they may be a three year tender and you win the tender, but they don’t take the product for six months, or seven months, depending on the government they have any money or not. So even though we win the tender, we don’t get to recognize any revenue for a time period after we win the tender. So they’re a little bit, they are great when you get them, they’re hard to forecast. But we do see it as an opportunity. Because as a large player in the marketplace, we’re able to efficiently supply those customers in a way that they really appreciate. So we continue to push on those types of opportunities around the world. I can’t really do a good job. And I don’t think, Steve, can do it either forecasting what that’s going to look like just because the way that they pay in the way that they come in.

DavidWestenberg

Got it. Okay. And then can you just maybe comment on what might be a little bit more color on the drags on margin. You called out a little bit of stuff, but I think you called out the rodenticides are a higher-margin product, and they did really well in the quarter. Maybe I heard that wrong. And then I traditionally have thought of genomics as being a higher-margin product, so — but that was the only account that did miss me in the quarter. So I was thinking if there’s anything to call out that I need to worry about.

JohnAdent

No, I mean, I think Steve called on genomics, we had one big customer and it was really an internal product mix that changed the way that they were using our product to a lower density chip, which was unfortunately for us it’s higher volume, lower margin, but it’s a lower density chip. So it really was a change by the large poultry customer that affected the margins in genomics. No, I mean, we just saw that. I think the big challenge is you got people that are tightening their belts, like everybody else; business is tough, environment is tough, and but we’re going to continue to grow and find opportunities and keep pushing forward.

DavidWestenberg

Perfect. Okay. So just to clarify, genomics is not necessarily a margin benefit. I know I’m sorry; I had that wrong because I thought it was a margin benefit.

JohnAdent

So within genomics there was a switch; genomics is a margin benefit within the total mix of the company.

DavidWestenberg

Got it. Okay. And then just lastly in terms of growth rate expectations, maybe next year, or you still see yourself as traditional — in Neogen, where you guys kind of say we’re a high single-digit growing business. Is it that still the expectation for the business maybe near term and long term? Put another way, we’re past COVID and —

JohnAdent

Yes, look, I’d love to get a little help from the industry. I think like we talked about last year; the market, last quarter the market was down 11 and we were relatively flat. I think the market was down 2 to 3 on food safety and we were up 8. So we’re outperforming the market. I’d love to get a little tailwind from the market, but I don’t think that’s going to happen for the next couple quarters, but that doesn’t stop us from growing.

Operator

Our next question comes from Jon Braatz from Kansas City Capital.

JonBraatz

Good morning. John, if there was a significant outbreak of African swine fever in Europe, how might that compare to the impact the African swine flu fever had on in China in terms of maybe sales of just your disinfectant products and cleaning products? I’m sort of trying to get an idea what — how Europe might be same or different than China?

JohnAdent

Yes. I think the — thanks, Jon. Thanks for the question. The difference is the type of farming, swine farming between the two regions. So when you think of China; there — even though there’s large industrial farms there’s so many backyard farms that when the disease spreads it’s just spread like wildfire because it was all those backyard hogs nose to nose touching the fences just spread through the whole country. Europe is going to have much better biosecurity measures, so while the outbreak will be could be severe and devastating for the industry; I don’t think it will be as big a ramification from an economic standpoint as it did in Asia. Now that still benefits us from a standpoint of increased hygiene protocols and increased cleaning and frequency, right? So if you were — if your process was you’re going to clean out that barn between lots of hogs and you may clean it disinfect it and then bring the next load. I can see very easily where they would clean it disinfect it; clean it disinfect and use our APT test to make sure there was nothing left over, clean it again and then bringing hogs.

JonBraatz

Okay. Is the biosecurity protocol in the hog farms in Europe as you know up to the U.S standards? I’ve been to a couple of them.

JohnAdent

Oh, yes.

JonBraatz

Okay.

JohnAdent

Yes, especially in Western Europe. I mean they’re very sophisticated, yes.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Adent, President and CEO for any closing remarks.

John Adent

Great. Thank you, Matt. And thank you all for joining us today. And if you haven’t already, please make sure that you return your proxy votes via mail and whether you vote via mail or not you’re certainly welcome to attend our Virtual Annual meeting which is going to be Thursday, October 8th. So if you’d like to attend, please contact Rod Poland, if you have any questions on how to participate. So thank you all very much. We appreciate your support.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.