Neogen - Earnings Call - Q2 2020

Transcript

Speaker 0

Welcome to Neogen's Second Quarter Earnings Results Conference Call. This is Sylvia and I will be your operator for today's call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer I will now turn the call over to John Eddant, CEO of Neogen. Mr.

Eddant, you may begin.

Speaker 1

Thank you, Sylvia. Good morning, and welcome to our regular quarter conference call for investors and analysts. Today, we will be reporting on the second quarter of our 2020 fiscal year, which ended on November 30. 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 ks 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 have joined this live conference. I'm 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 of our second quarter. As stated in the release, our net income for the quarter was approximately $16,300,000 or $0.31 a share, up slightly from the prior year quarter when we reported a $0.31 per share. Our year to date net income was approximately $31,000,000 or $0.59 per share, down from the same period a year ago when we reported $0.60 a share. Our revenue for the quarter were up 1% from our prior year to about $108,000,000 On a year to date basis, our revenues improved 1% to over $2.00 $9,000,000 We had a number of strong performances in the quarter at our international locations, as our revenues from international sources grew 41% of our total revenues, up from 39% in the prior year's second quarter. However, like most American companies with significant international sales, Neogen continues to be adversely affected by the recent strength of the dollar against most other currencies.

In a neutral currency environment, sales would have been approximately $1,000,000 higher in the second quarter. As we've previously stated, we believe that two thirds of our growth potential exists outside significant opportunities throughout the more than 120 countries we have served in the past year. In some cases, these opportunities come through meeting expanded regulatory requirements, as with the recent introduction of our tests for ergot alkaloids to meet expected new regulations in the European Union. Other, even more significant opportunities exist in meeting the needs of the expanding milk classes in China and India who are demanding the same high quality food products available in other parts of the world. I just returned from visiting our teams in Australia, and despite the current difficult environment of extreme heat, fires, and floods, they're really excited about numerous growth opportunities we have.

I also met several customers and distributors to discuss new offerings that were developed specifically for the Australian market. And meeting after meeting, I saw our Neogen team is providing unique and valuable solutions to help our customers meet their needs. At this point, I'm going turn it over to Steve for more detail on the quarter. Steve?

Speaker 2

Thanks, John, and welcome to everyone listening this morning. John's reported the overall sales and profit performance for the second quarter and first six months of our fiscal year. In the next few minutes, I'll give you some color behind those results. As John mentioned, we continue to be negatively impacted by currency fluctuations in the countries in which we operate. Revenues would have been $1,000,000 higher for the quarter in a neutral currency environment, with the euro 4% lower than this time last year and the pound 3% lower.

On a positive note, the pound was 6% higher at the end of the second quarter than at the beginning of the quarter on optimism regarding a possible Brexit solution. The Brazilian real continues to hurt our comparative results, as that currency was 6% lower than a year ago, and the Aussie dollar was 5% lower. About $875,000 of that comparative revenue shortfall is in the food safety segment, as the majority of our international businesses report in through this segment. Revenues for the food safety segment were $56,900,000 in the 2020, an increase of 6% compared to $53,700,000 in last year's second quarter. Our Brazilian food safety operations had a 15% increase in sales of diagnostic products, led by continued market share gains in aflatoxin sales during the country's corn harvest, and a 15% increase in dairy antibiotic test kit sales.

Additionally, we recorded a $900,000 nonrecurring sale of insecticides to the Nicaraguan government and two smaller sales of insecticides totaling about $300,000 to Brazilian government agencies. Now, these sales are non recurring in that they are tenders or bids that are won for a set period of time with no assurance that the business will be put out for bid the next year. This business is somewhat opportunistic and is what we characterize as lumpy business, resulting in tough year over year comparisons, but it is good, profitable business. If you recall, we discussed on our first quarter call a $1,000,000 sale in last year's first quarter, which did not repeat this year. Overall, our Brazilian businesses achieved revenue growth of 20% in the quarter, even after taking into account a $700,000 sales shortfall from their loss to the forensic testing customer we also talked about on the first quarter call.

Our European operations had solid results for the quarter, with revenues up 10% in local currency and growth across the entire product portfolio, with particular strength in the culture media line, which was up 15%, a 9% increase in cleaners, disinfectants, bed instruments, and a 48% increase in aflatoxin test kits due to increased business and an outbreak in Africa. This was a nice recovery off a fairly sluggish first quarter. Genomics revenues, which grew at a double digit pace throughout 2019 and thirty percent in last year's second quarter, rose 3% in the second quarter of this year in Europe. The 10% growth overall in Europe was reduced to 7% after currency conversion. Neogen Latino America, our business based in Mexico City, had strong 20% growth in sales of our food safety products, with sales up across all of the diagnostic product lines.

Sales of cleaners, disinfectants, and rodenticides declined 15%, due primarily to continued sluggish demand from our largest distributor in Central America, and this resulted in an overall increase in revenues of 5% for the quarter for this group. Our operations in China reported a revenue increase of 40%, aided by increased sales of cleaners and disinfectants, driven by increased awareness of the importance of biosecurity products to counter the African swine fever outbreak in that country. Our domestic food safety diagnostic business grew by 6% for the quarter, with 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 17% domestically in the quarter. Our Gliadin, egg, and milk test kit sales were particularly strong, up 27%, 21%, and 16%, respectively, for the period.

Now we've continued to strengthen our allergen test kit portfolio and have seen commercial success with our recently introduced test to detect coconut contamination, which grew nicely for the quarter. Our AccuPoint line, which is used to detect general sanitation and cleanliness in food processing environment, had a strong 21% increase in revenues during the quarter on strength in both equipment and disposable sampler sales. Year to date, this line is up 16%. Our domestic natural toxin product sales declined 7% compared to last year's second quarter. This year's crop was planted late due to the severe spring weather and is not yet fully harvested and has been relatively clean with only small pockets of BON outbreaks.

Revenues for our tests to detect the presence of antibiotics in milk declined by 30% in the quarter and are down 18% for the year to date, due primarily to lower demand from a large European distributor. Now, to address this loss in business, which has been steadily occurring over the past few years, we've modified our contract with the distributor to make them nonexclusive, and we'll begin direct sales in these markets in the third quarter. Our domestic culture media business, which had declined 13% in the first quarter of this year, recovered somewhat to post a 2% gain for the quarter. Now, there is still weakness in this market, resulting from lower end market demand from a number of our larger customers, particularly those in animal vaccine production, and orders have been pushed into the second half of the year. The Animal Safety segment continued to be adversely impacted by the trade impasse between The US and China during the second quarter and recorded revenues of $50,900,000 for the quarter, down 4% to the $53,300,000 achieved in last year's second quarter.

There appeared to be a truce called in the trade war near the end of the quarter with an agreement signed to increase agricultural exports to China. As yet, it's too soon to have seen positive impacts on our market. Animal care products sold out of our Lexington, Kentucky based manufacturing and distribution centers, such as small animal supplements, wound care, and antibiotics, decreased 13%, and bed instruments declined 10% for the quarter, primarily the result of lower sales for our largest US distributors due to lower end market demand and related destocking efforts by these distributors. Rodenticide sales declined 8% in the quarter, and insecticide revenues were down 30% for the same period due primarily to lower rodent and insect pressure in certain areas of the country. Domestic cleaner and disinfectant sales also declined 14% during the quarter due to reduced demand from our larger US distributors as they worked to reduce their inventory levels.

Partially offsetting the weak market conditions in the majority of our animal safety markets was a robust 18% increase in service revenue at our domestic genomic testing and bioinformatics business located in Lincoln, Nebraska. With market share gains in the companion animal parentage and wellness testing markets, which more than doubled during the quarter, a 21 increase in revenues to the porcine market, and continued strength in the commercial beef and dairy cattle market. Worldwide, genomics revenues rose 17%, with strong growth in The US, Australia, and Canada, offset by slower growth in Europe. Gross margins were 47.3% for the quarter compared to 46.7% in last year's second quarter. Improved margins are due to a shift in mix toward food safety products, which have higher gross margins, and margin improvements at our domestic genomics business resulting from a product mix shift toward higher margin companion animal services and efficiencies achieved with the higher volume.

For the year to date, gross margins are at 47.4% versus 46.8% last year. Overall operating expenses were up 3% compared to last year's second quarter and 4% for the year to date. Sales and marketing expenses decreased 3% and are down 1% for the year to date from lower commissions, shipping, and other variable expenses tied to revenues, and a reduction in bad debt expense due to the reversal of reserves for collected receivables. General and administrative expenses rose 9% for the quarter due primarily to increased non cash stock based compensation, higher legal and professional fees, and increased depreciation expenses resulting from our ongoing investments in information technology infrastructure. R and D expenses increased $615,000 or 19% over the prior year, as we continue development spending on a number of new products, which are scheduled to be launched in late fiscal twenty twenty or early twenty twenty one.

The $3,800,000 we spent this quarter is similar to the run rates for the past two quarters, and this run rate will continue to be elevated throughout fiscal twenty twenty. Operating income for the second quarter was $18,300,000 compared to $18,200,000 in last year's second quarter. Expressed as a percent of revenues, operating income was 16.9% compared to 17% last year. We recorded $1,300,000 in interest income for the quarter compared to $1,000,000 last year, reflecting our higher cash and marketable securities balances and higher interest rates on those balances. Yields on our investments have dropped in this quarter compared to the first due to the impact on fixed income investments from the Fed lowering the prime rate three times this year.

Foreign currency losses totaling $350,000 in the second quarter compares to $70,000 in the same period last year. Our pretax profit of $19,200,000 compares to $19,700,000 in last year's second quarter. Our effective tax rate for the second quarter was 15.3% compared to 18.5% in last year's second quarter, with the reduction in rate driven primarily by the recognition of tax benefits of $1,200,000 from the exercise of stock options. In last year's second quarter, those benefits totaled 484,000 As I've mentioned on previous calls and will continue to point out, the volume of auction exercises, the strike price, and the stock price at time of exercise can all result in large fluctuations in the effective tax rate for these comparative periods. On the balance sheet, our inventory levels at $86,400,000 are essentially flat with year end levels, and we continue to work on improving our inventory turns.

We generated $40,500,000 in cash from operations during the first half of the year and have invested $12,800,000 of that in property, plant, and equipment, and other assets. Included in that total are investments in companies technologies, which we believe will give us a competitive edge going forward. I'll stop here to say that although the numbers were sluggish, we were encouraged that we were able to get back to growth in the food safety segment and also capitalized on some significant growth opportunities in the genomics business. We know what we need to do to return to growth in the rest of the animal protein markets we serve. Our more than 1,700 employees worldwide believe in our cause, are excited about our future, and appreciate your support.

At this point, I'll turn it back to John for further comments.

Speaker 1

Thanks, Steve. While we didn't meet all of our performance expectations for the quarter, I'm really optimistic about where we're going from here. First and foremost, Neogen is in the right markets. Helping our customers improve the safety of the worldwide food supply is a dynamic and growing market. And with our products and services that reach from behind the farm gate all the way to the dinner plate, we're uniquely positioned in that market.

The demand for our products are only going to increase going forward. For example, I just wrote a report that stated more than six fifty food products were recalled last year in The United States alone, One of the leading causes might just be the easiest to prevent, and that's food allergens. According to the report, undeclared allergens are the leading cause of US food recalls. It accounted for about 48 percent of the food recalls from the FDA and 63% of the food pounds recalled by the USDA. You know, that stat becomes even more alarming when you consider that roughly eleven percent of adults in The US have a food allergy.

So we can do even more to help the global food industry protect its consumers. We've recently signed up our first major users for our Neogen Analytics product, a world class food safety and risk management system that will allow our customers to reduce their food safety risks. We believe combining Neogen Analytics with our leading food safety diagnostics creates a powerful combination that provides Neogen a distinctive competitive advantage. The success that we've had in developing and marketing food safety tests has led to an almost overwhelming amount of data that our customers must sort through to protect their consumers and businesses. Our new platform will help our food safety diagnostic customers efficiently aggregate, analyze, and act on all that data.

We've also made recent advancements in the development of blockchain technology that's going to benefit our customers and their customers. As consumers are increasingly demanding transparency in the origin and supply chain processes of the products they purchase, blockchain technology is being developed to deliver just that. For example, let's consider a production of premium beef products. Our customer is a cattle rancher who's going to start with a DNA data produced by Neogen Analytics test for an animal, And then we're going to connect additional blocks of information on that animal, which could include its health, its medical history, what it ate, its diet, the ranch environment, and other production variables. Information on that animal could then be shared with processors, retailers, or even consumers who are seeking that level of transparency.

Blockchain technology enables our customers to tell the story of their brand, mitigate the risks in their supply chains, and as well as enhance their operational efficiencies. We believe our markets are moving quickly toward more informed, data driven decisions, and we're working to be at the movement's forefront. As we work to improve and expand what we can offer our customers, we're also looking to acquire additional technologies and capabilities. While I'm not ready to announce anything yet, we have an active acquisition program and a number of acquisition targets under investigation. As shown on our balance sheet, we're perfectly positioned.

There's plenty of dry powder, as Jim Herbert used to say, to pursue any of our growth strategies going forward. But all I can do is encourage you today to stay tuned for upcoming announcements from us. I'm excited about our future, and I look forward to stronger performances going forward. Let me stop at this point and entertain any questions from those of you who joined us on the call.

Speaker 0

Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. And our first question comes from Paul Knight from Janney Montgomery.

Speaker 3

Hi, John. Could you give us some granularity on these distributors? Specifically, you mentioned on vet instruments and animal care within the animal safety market, Your distributors are destocking. Can you tell us what's going on with those distributors for them to take these kind of actions?

Speaker 1

Sure. So, Paul, I think when you look at some of the results that you've seen on move out, and I saw the Patterson results, their livestock business was down one. MWI's livestock business was down. Their companion animal was up, but what matters to us is their livestock business. And what's happening is, as their sales are slowing to their customers, distributor margins are very thin, they need to make sure they're controlling their operating working capital, and

Speaker 4

they're

Speaker 1

forcing, their management groups are looking at their businesses, and they're tidying up their inventory days. And that's something that we've seen happen before when markets are a little soft, distributors tighten up inventory. When markets grow, they loosen up inventory. That's what's the So happening animal safety side in The US. Steve also mentioned Paul, a distributor with our food safety product in Europe.

And we worked with them for a long time. A good company. They just have not had the growth that we've seen across all of our other businesses for that same line, and we've been working with them to try to find ways to grow. We ultimately sat down and worked out a solution. They're going to continue to be a distributor, but it's going be on a non exclusive basis.

Speaker 3

And this weak demand that they're facing, is it a commodity driven event? Is it the trade restrictions that they're seeing in the pork markets due to China? What do you think are those key factors?

Speaker 1

I think it's profitability for the producer. You know, you've got to look at it again by segmentation. I saw today exports for pork were actually up in the quarter. They were still down versus last year. But, you know, I saw a tweet the other day that said watch out for big, big news on ag exports.

So this could be something that would help those customers reopen an ag market specifically for pork. Dairy business is still an interesting challenge. We continue to see smaller and smaller dairy farmers going out of business, which the number of cows are staying the same. It's just moving to larger farms, but that has an impact on how those type of entities spend money. So I think the thing to watch is really trying to understand what are the producers' profitabilities.

I mean, if they're making money, they tend to expand and grow. If they are losing money and it's a cash flow issue, even though they know it makes good economic sense to use our products, from a cash flow standpoint, they just tighten their belt.

Speaker 3

Okay. And then lastly, my last question would be your cash and investments totaling $313,000,000 Is your pipeline getting richer due to this blockchain and IT outlook that you have? Or what's your view on this building cash that isn't being deployed of note?

Speaker 1

Paul, you're talking to a guy that's just as disappointed as you about deploying cash. I mean, I wanna go buy stuff. And and we looked at in the last six months, we looked at 15 different businesses and said no on 13. So we're shaking the trees. We're looking at opportunities, but we're still gonna be judicious in what we wanna buy.

And I think it goes back to what Jim had talked about all along is do we understand it? Can we make it? Do we have a market for it? And those types of things. Those questions still resonate as when we look at acquisition opportunities.

So we are looking at some right now that are very exciting to us that that answer yes to all three of those things, and we're executing we're working to execute to get those deals done.

Speaker 2

Thanks, John. You bet. Thank you.

Speaker 0

Our following question comes from Kevin Ellich from ACE Research.

Speaker 4

Hey, John. Thanks for taking the questions. Just wondering, you know, with African Swine Fever in China, you guys saw some pretty strong growth there. How much benefit did you see from increased sales of disinfectants and cleaners with biosecurity measures?

Speaker 1

We did see increased sales. Know Steve's looking right now to see what that number was. So we are seeing that, Kevin. And I think that's gonna continue as we can train the smaller customers to understand biosecurity. The larger swine guys in China understand biosecurity and that's who we do really well with.

The smaller backyard is harder because those pigs are one common fence touching noses, and that's how that disease spreads really quickly through the backyards in China. So reaching that group is highly fragmented. You've got to do a lot of dealers. It's a lot of training. So there's opportunity for that, but most of our growth has been with a large wine producer.

Gotcha.

Speaker 4

I mean, while while Steve while Steve looks that up, can you give us an update? You know, do you think the spread has slowed a little bit, or do you think we're still on pace like we've seen in the last six months?

Speaker 1

Kevin, I don't know. Haven't heard anything one way or the other. I mean, I think we talked about this, I think it was last quarter or two quarters ago, that we'd seen some large guys repopulate and then get hit again, which is really devastating for them. But honestly, I haven't heard anything that kind of changed what's happening over there. I think I would take that as a good thing.

It doesn't seem like it's continuing to escalate, but it's been such a dramatic impact on losing half their animals. You would think by losing half the animals it would slow just from a number standpoint. Steve, do have that? Sure.

Speaker 2

Kevin, that was about a half a million dollars. Now, only caveat there is it may not all be directly African swine fever related. It's really biosecurity and the importance of having a clean environment to raise your animals, not all directly going into the pork production market.

Speaker 4

Sure. Okay. And then, Steve, while I got you, so sales and marketing expense was actually down in terms of absolute dollar basis for the first time in a while. Just wondering, you know, what caused this? I mean, should we expect it to to continue to decrease?

And then, you know, kind of on the other hand, you talked about going direct, I think, over in Europe. Wondering if you need to add any Salesforce or infrastructure, and could that lead to a little bit of higher cost in the second half of the year?

Speaker 2

Yeah, I guess I would say as long as our sales on the animal safety side are sluggish, or in this case declining, you would see related sales expenses would kind of follow along with that. Our goal is to stay positive. We want want our sales and marketing expenses to grow because that means our revenues are growing and all the related commissions and shipping and advertising and promotional things. It means the markets are growing and those are good things for us. We are, for the distribution business in Europe, we have added staff to market those products there.

I don't think it's gonna have a material impact on our sales expenses in the second quarter because we're also using our existing sales force to go after that business.

Speaker 1

We've got, you know, Ken, we've got existing teams in a lot of those markets. So it's they weren't allowed to sell those because it was an exclusive relationship, and now they're gonna be able to.

Speaker 4

Okay. And then lastly, John, you know, your veterinary instruments and other business, both disposals and animal care, pretty weak this quarter. And I know you had a tough comp on the animal care side with vaccines. Just wondering what's going on there and do you think that's going to continue will that continue to decline or should we see reversal in the second half?

Speaker 1

I think going go back and look but I think we had pretty strong growth in those last quarter.

Speaker 4

You did? Well, instruments was up 9% last quarter.

Speaker 1

Yeah. And so I was one so that's the one that stuck out with me, Kevin, is I'm wondering if there's a little bit of if you average the two, you're gonna see it a little bit as a normalized to what this market is. And it was kind of a little bit of timing on we're up one quarter down on the other. I don't think there's anything fundamentally different going on other than it's a tough animal safety market.

Speaker 4

Got you. That's all I have. Thanks, guys. Have a good holiday.

Speaker 1

Thank you, Kevin. Yeah, you too.

Speaker 0

And our next question comes from David Westenberg from Guggenheim Securities.

Speaker 5

Hi. Thanks for taking the question. Glad to see the pickup in R and D. I think you guys can develop some good products. How should we expect those new products to hit the market?

Is that fiscal year 2021? I guess you said that we expect the spending to continue. And how big are these the products that might be coming out in 2021? Should we expect a growth lift in our models to come then?

Speaker 1

Sure. Thanks, David. Look, we're excited about the R and D. That's why we're doing it. I mean, you saw the ergot testing.

That's the only one available for rapid testing today worldwide. We're the only one that has it. We're trying to stay ahead of some of the regulations. We think that's the position that we want to be in. That was driven by our European team.

Our R and D group out of Europe did a fantastic job of taking that and driving that with the help of the group here in Lansing. And we're excited. We've got some new products coming in the second half of the year. Now, again, I'd love for all of them to be blockbuster, but we've got some new things from a technology standpoint that's coming and from a product offering that's coming in the second half of the year and then into next year. I don't know what Steve, I don't think we've ever talked about what we forecasted for those other than that has always been a key piece of our growth.

And we know that it needs to be, and that's why we invest in it, and it's something that we're focusing on to continue to drive growth in the second half of the year and next year. Do you want to comment on that?

Speaker 2

No. I think you Okay.

Speaker 5

Good. So just essentially some some product growth there. Okay.

Speaker 1

Yep.

Speaker 5

So Yep. Then in terms of the the alternative piece, know, you know, stock price wise, they've been, hit. Are you seeing an increase in demand from these producers of alternative meat? How do you see that business playing out as kind of a in terms of food producers as kind of a market, let's just say.

Speaker 1

Yeah. Oh, dude. I think it's just like any other segmentation. I mean, you remember when organics came on the market and everyone said it's niche, it's grown into a nice market. I think that plant based proteins is going to continue to be a nice market.

I think got consumers who want it, and as long as consumers want it, it's going to continue to drive and grow. And what's interesting to me is they have the same issues whether they're making plant based hamburger patties or meat based hamburger patties. You still have to check for allergens, you still have to check for E. Coli, you still have to check for Listeria, still have to check for everything. So whether it's plant based or meat based, we sell the same products into those types of customers.

And so, you know, it's really around food production and anything around food production. That's where, you know, we're there to help those producers make the safest product they can for their consumers.

Speaker 5

Got it. No, thank you. And then I know there's not much you can say in terms of M and A here, but can you maybe talk about some of the priorities, whether it's a technology or maybe a product or Is IT something of interest? And then maybe if you can talk about what's more interesting, animal safety versus food safety. Get that you can't be specific.

So, any sort of generalities might be helpful here.

Speaker 1

Thank you. Yeah. I mean, I think you've seen kind of what we've done on the technology side with Neogen Analytics and blockchain. Right? This is something where, you know, we heard about it, and we heard loud and clear from our customers that, they're still keeping a lot of our customers still keep paper records for when the FDA comes in to do an audit to provide paper record keeping, which you just kind of shake your head and you think, we ought to be able to help.

So we got working with different outside groups and vetted what we felt was the best plant mapping software and risk management software available and partnered with them to develop Neogen Analytics. Same type of thing for blockchain. I just read about this. I think it was about six months ago, McDonald's said that in the future, that was the timeline they gave, that half of their beef was gonna be antibiotic free. Well, how are they gonna be able to prove that without a blockchain solution?

And really, we're on the forefront. We're leading that today to be able to provide that type of transparency for customers and consumers. So the IT side continues to drive. I think you have to, you know, if you just do tests and you don't give the customers capture and analyze and then act on data, it's kind of a waste. So we're really pushing that.

The other areas we look at, and and you mentioned it properly, is where is a technology that we have a hold in the portfolio? So where should we be looking? Where's the market going? What are those types of technologies? And we have a scientific advisory council where we are constantly vetting new technologies and what's coming down the pipeline that we can it's either being done in another market on the human side that we can bring into our segmentation, or it's brand new.

And we try to find those types of things and say, okay, how is this going to change the future of the way we do business? And then lastly, we look at geographic markets. You know, where are we underrepresented? I I think that kinda led this discussion even with our European distributor was they did a good job for us, but they weren't growing at the rate that we wanted. They weren't happy with the growth rate.

We weren't with the growth rate. And we came up with a solution that we think is gonna help both parties grow because we were underrepresented in specific markets. So where are we underrepresented, and what are the things we can do to accelerate those growth rates? And that could be geographically. It could be by a product.

It could be in a product segmentation. That's how we look at it.

Speaker 5

Got it. Thank you, and enjoy enjoy your holidays.

Speaker 1

Yeah. Thanks, David. You too.

Speaker 0

At this time, we have no further questions. I'd like to turn the call back over to mister Ada for closing remarks.

Speaker 1

Thanks, Sylvia. I just wanna thank all of you for your time today, and I wish everyone on the call and listening happy holidays and a prosperous New Year. Thank you very much, everyone.

Speaker 0

Thank you, ladies and gentlemen. This concludes the conference. Thank you for participating. You may now disconnect.