Neogen - Earnings Call - Q3 2020
March 24, 2020
Transcript
Speaker 0
Welcome to the Neogen third quarter results conference call. My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star and then one on your touch tone phone.
I will now like to turn the call over to mister John Attend, CEO. Sir, you
Speaker 1
may begin. Good morning, and welcome to our regular quarterly conference call for investors and analysts. Today, we'll be reporting on the third quarter of our 2020 fiscal year, which ended on February 29. 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, I also welcome those of you joining us via the Internet. Following our prepared comments this morning, we will entertain questions from participants who have joined this live conference. I'm also joined this morning by our Chief Financial Officer, Steve Quinlan, who will provide details on our results for the quarter.
Before we get started, I want to start and tell you what I believe is the most important thing you need to know about Neogen Corporation during this difficult time. We were built to respond in times of crisis, and that's what we're doing right now. We've done our best to assist the broader civic efforts to combat COVID-nineteen by making our sanitizers and disinfectants available outside of our traditional agriculture and veterinary markets. At the same time, our entire worldwide team has continued its outstanding work to help ensure the global food supply is as safe and as plentiful as possible. 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. Now a little bit about the quarter. Starting in early January, we completed four acquisitions, one in Argentina, one in Uruguay, Italy and Australia. With these acquisitions, we're strategically expanding our international reach. In each of the four countries, we're further enhancing our penetration of these rapidly growing and sizable markets as we can now directly sell our entire portfolio of food safety, animal safety and genomics products into those countries.
At this point, I'm going turn it over to Steve to provide more color on the quarter.
Speaker 2
All right, thank you, John. Earlier today, Meagen issued a press release announcing the results of our third quarter, which ended on February 29. Revenues for the third quarter increased 2% to $99,900,000 from the previous year's third quarter of $97,700,000 Now this third quarter marked the January in the past 01/2017 that Neogen has reported revenue increases as compared to the same quarter in the previous year. This record, which we're obviously proud of, has now spanned over twenty eight years and all consecutive quarters in the last fourteen years. On a year to date basis, fiscal year 'twenty revenues have also increased 2% to $309,100,000 compared to last year's 304,400,000.0 Net income for the third quarter was $12,200,000 or $0.23 per share compared to $13,100,000 or $0.25 a share a year ago.
Year to date net income for the 2020 was $43,100,000 or $0.82 a share compared to $44,400,000 or $0.85 a share for the same period last year. During the quarter, the impact of currency fluctuations on our revenues was minimal, reducing our comparative revenues by approximately $360,000 for the quarter. The pound and the peso were each stronger against the dollar than the prior year quarter, while the Brazilian real was 10% lower than this time last year against the dollar. For the year to date, in a neutral currency environment, revenues would have been approximately $2,500,000 higher than we actually reported. With the spread of COVID-nineteen across the world, currency markets have been extremely volatile as we've moved into the fourth quarter, and I would expect a larger adverse impact from currency translations this quarter.
We do continue to hedge a portion of our foreign balance sheet exposure for currency risk. Overall, revenue growth at 2% for the quarter was disappointing. We were forecasting a 5% to 6% growth through the first two months of the quarter, and then February was extremely soft, particularly for our diagnostic test kit businesses in North America and Europe. Overall revenues in the Food Safety segment were 1% below last year's third quarter. Revenue highlights in the Food Safety segment include strong growth in biosecurity products such as cleaners, disinfectants, rodenticides and insecticides sold into international markets as customers dealing with African swine fever and COVID-nineteen have realized the importance of effective biosecurity programs in protecting the food supply.
Natural toxins and allergen test kit sales increased 4% in the third quarter, while our AccuPoint product line designed to help monitor environmental sanitation rose 5% for the quarter. Offsetting this growth were lower sales of culture media products, down 7% due to lower end market demand and order timing, and sales of drug residue test kits decreased 47% compared to last year's third quarter, resulting from lower demand at our European distributor. As we discussed on our previous call, we modified our contract with this distributor on January 1 to eliminate their exclusive distribution rights across most of the world, and we're now selling this product line directly to end customers utilizing our own European sales force. We believe it may take some time to regain our market share and begin to grow this business again. Internationally, we had some puts and takes.
First, the acquisitions we completed during the quarter to purchase three of our distributors and a supplier of key raw materials gave us $1,000,000 in incremental revenues. These acquisitions enhance our position in markets we believe have significant growth potential, and we're excited to bring them into the Neogen fold. Our European business grew 5% overall on the strength of a 24 increase in cleaner and disinfectants and veterinary instruments, offset somewhat by a 9% decline in culture media products due to orders delayed into the fourth quarter and lower demand. Genomic services conducted out of our Scottish operation rose only 2% due to sluggish conditions in the poultry market. Sales in Brazil declined 16% for the quarter, primarily from the forensic test kit business due to the previously discussed loss of a large commercial lab customer that moved to an alternative technology platform earlier this year.
This resulted in an $860,000 revenue shortfall this quarter. Genomic services in Brazil declined $450,000 for the quarter due to a large sale in the prior year, which did not recur. Partially offsetting these declines was the final shipment of a nonrecurring sale of insecticides to a government agency for about $420,000 this quarter. Sales at Neogen Latino America increased 15% during the quarter as an 11% increase in diagnostic test kits was enhanced by a large sale of rodenticides in Mexico. China had a revenue increase of 38% for the quarter led by robust sales increases of cleaner and disinfectants to help in fighting conditions that have led to outbreaks of African swine fever and COVID-nineteen.
Our international revenues were 40% of our overall sales for both the quarter and year to date, essentially the same as the prior year periods. Revenues for the animal safety segment for the third quarter increased 6% and were led by a 14% increase in genomic services. This was primarily the result of continued penetration into the domestic companion animal service space, increased volumes in the domestic porcine market and growth in the sheep testing market in Australia, even with the devastating wildfires that affected that country throughout the quarter. Other highlights during the quarter were a 25% increase in rodenticides on the strength of successful retail marketing programs, water treatment disinfectant sales up 31% on share gains in the swine markets, and insecticide sales rose 5%. Partially offsetting these gains were lower sales in our animal care, certain cleaner and disinfectants, and veterinary instrument product lines due to high inventory levels at our largest U.
S. Distributors, the result of continued weakness and end user sales. Gross margins were 45.4% for the quarter compared to 45.7% in last year's third quarter. The change in gross margin is due primarily to a change in product mix resulting from a higher proportion of sales from the Animal Safety segment, which have lower gross margins and products sold through the Food Safety segment. Margins within Food Safety were negatively impacted by mix as well, as strength in international sales of cleaners, disinfectants and rodenticide, relatively lower margin items within the segment and lower sales of higher margin products such as forensic kits resulted in a 120 basis point reduction in margin percentage.
Margins were enhanced in the animal safety segment from strong sales of higher margin genomic services to the companion animal market, resulting in a 90 basis point improvement in that segment. A quarterly fluctuation in our gross margins are common in our business due to mix and the wide range of margins in our product portfolio. For the year to date, margins were 46.8% versus 46.4% last year. Operating expenses overall increased 8% for the quarter and were up 5% for the year to date. Sales and marketing expenses rose 6% for the quarter on higher personnel related costs, increased shipping, regulatory and product registration expenses.
For the year to date, these expenses are up 1%. General and administrative expenses were up eight percent for the quarter and are up 7% for the year to date. The increase for both the quarter and year to date is due to higher stock based compensation expense, personnel costs and legal and professional fees partially resulting from acquisitions completed during the third quarter. Additionally, incremental G and A expense from the acquisitions was $260,000 of the increase. R and D expenses increased 18% in the third quarter and are up 22% for the year to date, the result of development costs and outside services relating to new products expected to be launched in late fiscal twenty twenty or early next fiscal year.
Operating income for the quarter was $13,000,000 compared to $14,600,000 in last year's third quarter. Expressed as a percent of sales, operating income was 13.1% compared to 15% in the third quarter a year ago. For the year to date, operating income was $47,600,000 or 15.4% of sales compared to $49,400,000 or 16.2% of sales last year. The decline in operating income for each period was primarily the result of the increased operating expenses. Other income for the third quarter was $1,200,000 with interest income of $1,600,000 offset by currency losses of about $400,000 Cash and marketable security balances have increased by $60,000,000 during the year.
However, yields have declined from 2.4% at the beginning of the year to about 1.5% at the end of the third quarter and have obviously dropped significantly since then. Our effective tax rate was 14.4% in the third quarter compared to 21.4% in the third quarter last year. For the year to date, our effective tax rate is 15.6% compared to an effective rate of 17% in the prior year. For each period, the primary difference between the 21% statutory rate and the reported effective rate is the benefit resulting from the exercise of stock options. Additionally, for each comparative period, there have been refinements to our tax calculations relating to certain areas of the Tax Reform Act of 2017.
The company generated $19,800,000 in cash from operations in the third quarter and has generated $60,300,000 for the year to date. We spent about $9,700,000 on the four acquisitions we closed in the third quarter and have invested $16,300,000 in property, equipment and intangible assets this year. Inventory balances have risen 4% since our prior year end. The higher balances are reflective of an inventory build in Europe for possible Brexit disruptions and lower than anticipated sales levels in the quarter. Our third quarter operating results were clearly not what we had planned.
We've now entered into a very uncertain period in the near term as we deal with the COVID-nineteen crisis. We've taken a number of steps to protect our employees and our business as we manage our way through this. And personally, there is no team I'd rather be working with than our team of nearly 1,800 employees. I remain very bullish about our future. I'll now turn it back to John for some additional comments.
Speaker 1
Thanks, Steve. While we fell short of our performance expectations in the quarter, Neogen has never been better positioned with the right products, solutions and team members for our worldwide customers. Neogen is unique in that we keep food, animals and people safe from behind the farm gate all the way to the dinner plate. We are well positioned globally to assist our food industry partners to produce the best, safest products possible, and to assist our animal care partners in providing world class animal husbandry and biosecurity practices in their operations. Over the years, we've extended our biosecurity portfolio to include cleaners, disinfectants, sanitizers, personal protection equipment, and more.
This biosecurity portfolio has given us the ability to strengthen and extend our relationships with our customers, as we can also provide them with products to stop contamination issues before they appear as positive results in one of our diagnostic tests. We are well positioned financially to weather the continuing and expected threats to the global economy in 2020, with cash and investment balance of about $328,000,000 no debt and strong free cash flow. We feel good about the robustness of our international supply chain and our ability to secure the raw materials we require to produce our products. Where necessary, we have secured alternative suppliers to ensure the continued availability of critical raw materials. To do our best to maintain the normal product supply to our customers, we've executed many initiatives in an effort to keep our global workforce as safe and healthy as possible.
For example, we've halted travel, suspended in person meetings, eliminated interbuilding travel, instituted remote work directives, split critical teams by location and shifts, and are identifying new employees by location if and when we need additional manpower later. Last week, the White House issued COVID-nineteen guidelines that reinforced what we already knew. Neogen's employees work in industries that are essential to The US and the world. As the guideline states, employees at companies such as Neogen have a special responsibility to maintain our normal work schedule. We simply can't wait this one out on the sidelines as a company.
Our food safety and biosecurity experts stand ready to help any way we can. Secretary Sonny Perdue recently thanked those on the frontlines of the food supply, calling them heroes, and I agree with them. More than ever, we all depend on folks stocking the shelves of our local grocery stores, the truck drivers, food service workers, farmers and ranchers, food safety inspectors, and Neogen employees ensuring the food we eat is safe. I'm sure there'll all be many questions for Steve and I. I'll stop at this point, and we're gonna answer any questions you have.
Speaker 0
Thank you. We will now begin the question and answer session. If you have a question, please press star and then one on your touch tone phone. If you wish to be removed from the question queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question, please press star and then one on your on your touch tone phone. Please stand by while we allow parties to queue up. We have a question from Paul Knight from Janney.
Speaker 3
Hi, guys. Thanks for the question. Regarding your genomics business, U. S, could you talk about I think you were adding some capacity and where you are with the growth rate U. S.
For starters? And then secondly, Europe slow growth, what was going on with Europe growth of only percent? Thanks.
Speaker 1
Sure. Thanks, Paul. Yes, The U. S. Growth was about 14% for the quarter and we are nearing the end of that expansion in Lincoln.
So we're continuing to to push that out, and we we need that capacity because this is a a growth market we're gonna continue to see move. The the slowdown in Europe was mainly driven by one customer on the poultry side. And, you know, we keep thinking about how we're gonna manage. In a number of the international countries, it wasn't an issue around them wanting to doing testing. It was getting samples because we're having issues with some of the postal delivery services.
So Got it. Okay. We continue to work through those. So we we're we're monitoring that, but right now, we feel pretty comfortable.
Speaker 3
And then the operating margin, obviously dipping down to 13.1%, and you're obvious, I guess you're having to invest in alternative distribution channels. When do those comps get easier? How should we think about operating margin over the next calendar year?
Speaker 1
Yeah, I think there's three things that I saw. I mean, that really stood out to me or three things within was the R and D spend. Steve talked about R and D going up and we two major projects that we've been working on. We brought our new Raptor equipment about a year ago And very shortly, we're gonna have two new pieces of equipment for our two significant other platforms for our business. So once those come off, you're gonna see quite a bit of a drop off on spend.
The other is something you'll see coming out this week, but we are launching our new e commerce site. And, you know, we put a significant amount of time and energy into this site. We're really excited about it. Timing could not be better. It's not that we planned it, but timing could not be better with that.
And we're really excited about kind of the state of the art e commerce system we're gonna have compared to the system we have today. So those are three big projects that were driving expense that I think you're gonna see kind of fall off here going forward. Regarding where we wanna be in a normal operating cycle, I think I feel very comfortable getting above the 16%, 17%, always pushing to Jim's number at 20%. In today's environment, we are watching very, very carefully a number of different things. The raw materials coming in from our partner vendors, the health and safety of our employees to make sure we have workers to produce, and demand from our customers.
And right now, all three look pretty good. And Steve mentioned that February was soft, and it surprised us how soft it was. March, I think Steve will tell you, surprises us at how strong it is compared to what we were expecting in this type of environment.
Speaker 4
Okay. Thank you.
Speaker 1
Yep.
Speaker 0
We have a question from David Westenberg from Guggenheim Securities.
Speaker 4
Hi. Thanks for taking the question. And I had a lot of trouble getting on, so sorry if this already got asked. Can you talk about how much of China was actually maybe African swine fever versus, I think you called it out as mostly COVID-nineteen, but was there also impact from a rebound from ASF?
Speaker 1
Yeah. No. So I think if you think about the timing of the quarter, the majority of the disinfectant sales that we had in the quarter was for African swine fever.
Speaker 5
Got it.
Speaker 1
Now we do expect, David, that, you know, with COVID nineteen, we have we have two products currently registered in The US with emerging pathogen claims, which COVID-nineteen falls under. We have two more within EPA submittal right now that we expect are going to get fast tracked. We have three products that have coronavirus labels. So with COVID-nineteen being a coronavirus, we feel very comfortable that those are effective, but COVID-nineteen falls under an emergent pathogen label. So we continue to push registrations around the world to help those customers worldwide get the products they need to clean and sanitize across.
And I think, you know, I talked about this a little bit was, you know, we expanded our facilities for the manufacture of sanitizers because we opened that product group across the marketplace. We had so many food safety customers calling and asking. I mean, we had our lawyers call us and say we can't get any hand sanitizers. Can you guys help? The local hospitals are calling about PP and E.
So we're doing everything we can to try to open up our resources to help the broader community. And it's something I'm really proud that the employees are doing. I mean, the group is working tremendously hard. We have emergency response meetings every morning and every evening. The teams are engaged, and there's a real sense of purpose here.
Speaker 6
That's great.
Speaker 4
And then just for clarification, I mean, I would have to assume that maybe 100% of your business would be considered essential business by terms of shelter in place, etcetera?
Speaker 1
Yes. In every country that's put a shelter in place, Neogen has been exempt as an essential industry.
Speaker 4
Perfect. Thank you. And then maybe if we can talk about potential for recession or just a plain economic slowdown. Do you see or what are the common changes you see in food consumption? I mean, I would think that maybe people will switch to cheaper proteins and how might that impact you?
And then, as a as a kind of a a follow-up to that, you know, does things like Raiz Without Antibiotics or some of your products around, you know, testing for allergens, does that maybe become a little bit less essential or maybe even more essential? Just if you can remind us about the dynamics that happened during recessions in terms of food consumption.
Speaker 1
Sure, David. I think I think in in this in this market today, what we have seen that that's and
Speaker 5
this
Speaker 1
is a very broad statement, but the majority of our products are sold to food processors selling to grocery stores. We don't sell a lot of products into retail or into restaurants. So as demand moves from restaurants to grocery, in broad terms, we feel like that could be a tailwind for us. Around general recessions, you do you see people end up going to lower protein, lower cost protein. So you'll see a a down move from beef to pork, pork to chicken.
But I'm not I'm not sure, you know, I'm not sure what's gonna happen with that moving forward. I think this is you know, what we're seeing right now is some hoarding behavior, and we're seeing some stocking up across all proteins. I'm not sure what's gonna happen. You know, I don't know if this is gonna be a as everybody's talking about, is this gonna be a v or a u on the return? So I'm I'm I'm not comfortable kinda thinking through that piece on the protein side.
Speaker 4
Got it. Alright. Well, thank you for for taking my questions.
Speaker 1
Yep. You're welcome, David.
Speaker 0
We have a question from Mark Connelly from Stephens.
Speaker 5
Thank you. Two questions. First, how should we think about where we are in the, you know, the secular decline in regular dairy versus the alternative dairy growth? Are we getting to a point where the regular dairy losses are beginning to slow to the point where the alternative can actually provide you enough of an offset, or is it still too early?
Speaker 1
I think it's still too early to say. And, again, with it it's so hard to look right right now, Mark, with, the way this market is in just such flux and fluid terminal. I mean, I was at the store the other day, and a gallon of milk was $3. And I a gallon of milk was a dollar 20. I mean so I think I think what you're in a normal state.
I think with the input prices coming down, I think the dairyman could start to do better, but it's not a normal state. So I'm unclear as to how I'm gonna kinda forecast that forward. Does that does that make sense?
Speaker 5
Yeah. No. That's that's that's fair fair. Just just we're we're starting to see some indications that regular dairy declines have slowed, but that doesn't mean you're gonna see it yet. And and just a a second question on on the the the the new new product front.
We're still seeing a lot of venture capital and private equity money moving into new and innovative food companies. That has not slowed down in the last couple of weeks. Presumably, of that money is being forwarded to to to provide bigger cushions. But have you seen any pullback in demand from some of your smaller private, food food companies?
Speaker 1
No. Nothing yet? No. No. Okay.
Speaker 5
Very good. Thank you.
Speaker 0
We have a question from Kevin Ellich from ACE Research.
Speaker 6
Hey, John. Thanks for taking the question. I guess, you know, you made a comment about some of the genetic tests, I believe, seeing some issues with postal delivery kind of flow there. Wondering if you're seeing any other supply chain issues.
Speaker 1
Kevin, thanks for the question. We got we really got on the supply chain probably in mid January when this hit in China because we had so you know, with our workers there and now the good news is, just for everyone, we today, we have no confirmed cases of COVID nineteen with the engine employees, which I'm really excited about. But when we saw that happen in China, we got we brought everybody home, and we were really watching closely kinda what was going on with that supply chain because we were getting very, very nervous about how long, you know, if China if China had a long delay where they shut down factories for a long time and they shut down the ports, everybody was gonna be in big trouble. So we really stayed on it. Now we've we've seen that loosen up.
We saw China resort and kinda return back to normal faster than what I was expecting. And because we were early, we got our orders in, So we had shipments coming across kinda before the rest of the pandemic spread across the world. So I feel pretty comfortable. Now, again, I'm knocking on wood. I feel comfortable today because I I I lengthened my inventory stock, but, you know, there's no saying what's gonna happen.
If I have a critical if I have a critical supplier whose workforce becomes infected and they have to shut down for an extended period of time, that's gonna be a challenge. Right? I don't have that today. I think we've we've linked in our inventories as best we can, and we continue to find alternative suppliers as much as we can to to make sure we have the products for our customers.
Speaker 6
Yep. I know that that's great. Good to see that you guys are are on top of that. And then, you know, going back to, you know, David touched on African swine fever. You know, we know some of the smaller producers in China last year were starting to repopulate the herds.
Just do you still think this year is going to be, I guess, a lot better than last year? And then also, can you give us kind of your thoughts on any benefits from your genomics business to help replenish the swine herd in China if if we could see some tailwind there?
Speaker 1
Yeah. I mean, I I think, again, for the smaller producer, it's not you know, they're not they're not thinking about that, but there's still there are very many large producers who use genomic testing in China. So, yes, we think there's an opportunity to continue to help them find and repopulate because they want to make sure they have the right stock when they're resetting up these farms. I'm not sure I know where that turn's gonna be. I mean, African swine fever is still around.
It's just been overshadowed by COVID nineteen. Still there, and it's still a threat, and which is why we continue to get label claims. You know, unfortunately, there was one laboratory in the world doing label claim or doing testing for African swine fever, and it was in Italy. So that slowed that down for just about everybody, but we're continuing to push that. We're working a lot with different governments because now the governments are being a little bit more reasonable around some of the requirements where before it would take us two years to get a license, we're hoping that we can see significant reductions in those times because people need our products.
We have products that are efficacious. We have products that work, people need them. And it's a shame if we can't do it because, you know, it takes two years to get a registration.
Speaker 6
Sure. And then last question for me, John. You guys have clearly been a little bit more active on the M and A front in the last several months. With the changing environment, you guys have a great balance sheet, still generating very good cash flow. Just wondering if kind of the changing landscape here has affected your capital allocation strategy.
Speaker 1
I'm not I don't think it has, Kevin. I mean, we're still actively looking at opportunities every day. And, actually, in this environment, we're probably gonna be more active because there are some great smaller companies out there that maybe are gonna struggle because of cash flow issues. And with our balance sheet, we might be able to be able we we could be able to step in and help them that would allow us to have access to technology or companies where, you know, four months ago, there was plenty of VC money and nobody wanted and, you know, nobody was interested, but things are changing. So we are being very, very active in our m and a and business development moves right now.
Speaker 6
I I think that makes a lot of sense, and let's hope that it is a v recovery versus a u or as he talks about this morning, even a w. We don't want that. So anyway, thanks for taking the
Speaker 1
questions. Thanks, Kevin. Appreciate it.
Speaker 0
The next question comes from Brian Gaines from Springhouse Capital.
Speaker 7
Hey, guys. Can you tell us what the organic growth rate was in the quarter?
Speaker 1
Sure, Brian. I'll let Steve do it. He hasn't had a question today. So thank you, Brian, for including Steve. Yes.
Speaker 2
Overall, the organic growth, so we had 2.2% growth. Overall, organic was 1.1.
Speaker 5
Okay. Thanks.
Speaker 7
Then, I'm just having trouble. Maybe you can can help us. You know, there's obviously so many moving parts, right now, and you kinda said February was a little weak. March was better than you thought. I mean, should we be thinking, organic growth rate kind of stays in this range, gets a little weaker, gets a little stronger?
Is there any way you can kind of, you know, frame things going forward with so many moving pieces?
Speaker 1
I think, Brian, I I think excluding some major shock, like I have an outbreak in a factory and have to shut it down or a supplier has an outbreak in a factory and shut it down, I feel comfortable with, you know, the the rates we were talking about. I don't but it's so fluid right now. I mean, we honestly, February seems like ten years ago to me. Right. The, you know, the the the meetings we're having, the things we're doing to try to forecast you know, we were we're running six or seven different business scenarios simultaneously saying, if this happens, this is what we're gonna do.
If that happens, this is what we're gonna these two things happen. So what I can tell you is the team is on it. We've got a great sense of purpose. Every Neage employee believes in what we're doing. We know we can help.
And, you know, as long as we can get to work and we got products, we're gonna make it and get it to our customers.
Speaker 5
Right.
Speaker 2
Okay.
Speaker 7
And what what would you say I mean, is your biggest concern the supply chain, or is it the demand from your customers?
Speaker 1
To all of them. Right? It's like, I'm looking we're looking at supply chain. We're looking at do I have the employee employees? Are my employees healthy?
Are my customers healthy? It's all of it. I mean, we're looking at every single scenario right now. And we and and the thing that we're doing that we have to do is we are over communicating. We are communicating with our customers on a daily basis.
We're talking to our employees on a daily basis. We're talking with the our the officials in the communities we live in on a daily basis. I was on the North American manufacturing call over in the week when we were talking about, you know, what is a a critical industry and what isn't. So we're really, really communicating to make sure that people understand what we do is important. And, you know, we've got so we are a critical industry.
Well, we've also made sure that we've gone down in the supply chain to supply them with letters saying they're critical because, for example, with my hand sanitizers, we're up 270% versus last year. You wouldn't think that the plastics maker would be a critical industry, but he is because if I don't have the bottle to put it in, I can't sell it. So we have to provide to them this a letter saying that they are a critical industry. So if they get pushed back that they need to shut down, they have something they can go back to the group and say, look. We need to manufacture for this customer who's classified as a critical industry.
So we're we're doing all that.
Speaker 7
Makes sense. And and your the sanitizer you produce, that goes that's going to the hospital channel or going to the retail channel, or or where
Speaker 4
where does it end up?
Speaker 1
Today, we're today, we're sending it to our customers. And that was a that was a cleaner and disinfectant and the hand sanitizer that we had marketed for veterinary clinics. But now we're we're growing production, and we're we're bringing that into food safety because we're seeing large customers here who just can't get cleaning supplies. So any ready to use, you know, that we have that have emergent pathogen label claims, we're getting the customers in food safety. I mean, this is really an opportunity where those customers didn't even realize we had that product portfolio.
So it's us explaining one knee agent and what we can do to help you in this time of need across your total plant.
Speaker 5
Got it. Thank you.
Speaker 1
Thank you, Brian. It's Brian.
Speaker 0
At this moment, we show no further questions. I would like to turn the call back to mister Adent for final remarks.
Speaker 1
Thank you, Hilda. And, you know, it's been a challenging time, I think, for all of us. I want to extend to all of you that I hope you, your families, loved ones, I hope you all stay safe and healthy. And the thing I tell everybody in every meeting I close and every email I send is please wash your hands. Thank you all for being on the call.
Speaker 0
Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.