Neogen Corp
NASDAQ:NEOG
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Neogen Corp
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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 and later we will conduct a question-and-answer session. [Operator Instructions].
I would now like to turn the call over to Mr. John Adent, CEO. Sir, you may begin.
Thank you, Hilda. 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-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 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-19 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 a 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, on 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 sizeable markets, as we can now directly sell our entire portfolio of food safety, animal safety and genomics products in most countries.
At this point, I'm going to turn it over to Steve to provide more color on the quarter.
All right. Thank you, John. Earlier today, Neogen issued a press release announcing the results of our third quarter, which ended on February 29.
Revenues for the third quarter increased 2% to $99.9 million from the previous year's third quarter of $97.7 million. This third quarter marked the 112 quarter in the past 117 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 28 years and all consecutive quarters in the last 14 years. On a year-to-date basis, fiscal year 2020 revenues have also increased 2% to $309.1 million compared to last year's $304.4 million.
Net income for the third quarter was $12.2 million or $0.23 per share compared to $13.1 million or $0.25 a share a year ago. Year-to-date, net income for the first three quarters of fiscal 2020 was $43.1 million or $0.82 a share compared to $44.4 million 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 reais 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 $2.5 million higher than we actually reported.
With the spread of COVID-19 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 includes 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-19 have realized the importance of effective biosecurity programs in protecting their food supply.
Natural toxins and allergen test kits 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've 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 million 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.
Genomics 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 non-recurring 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-19.
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 US distributors, the results 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 change in product mix, resulting from a higher proportion of sales from the Animal Safety segment, which have lower gross margins than 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. Now, 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 8% 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&A expense from the acquisitions was $260,000 of the increase.
R&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 2020 or early next fiscal year.
Operating income for the quarter was $13 million compared to $14.6 million 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 $47.6 million or 15.4% of sales compared to $49.4 million 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 $1.2 million, with interest income of $1.6 million, offset by currency losses of about $400,000.
Cash and marketable security balances have increased by $60 million 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 $19.8 million in cash from operations in the third quarter and has generated $60.3 million for the year-to-date. We spent about $9.7 million on the four acquisitions we closed in the third quarter and have invested $16.3 million in property, equipment and intangible assets this year.
Inventory balances have risen 4% since our prior year-end, with 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-19 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.
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 the weather the continuing and expected threats to the global economy in 2020, with a cash and investment balance of about $328 million, 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 inter-building 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-19 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. USDA Secretary Sonny Perdue recently thanked those on the frontlines of the food supply, calling them heroes, and I agree with him.
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 will be many questions for Steve and I. I'll stop at this point and we're going to answer any questions you have.
Thank you. [Operator Instructions]. We have a question from Paul Knight from Janney.
Hi, guys. Thanks for the question. Regarding your genomics business US, could you talk about – I think you're adding some capacity. Where you are with growth rate US, for starters?
And then, secondly, Europe slow, growth, what was going on with Europe growth of only 2%? Thanks.
Sure. Thanks, Paul. Yeah, the US growth was about 14% for the quarter and we are nearing the end of that expansion in Lincoln. So, we're continuing to push that out and we need that capacity because this is a growth market we're going to continue to see move.
The slowdown in Europe was mainly driven by one customer on the poultry side. And we keep thinking about how we're going to manage. In a number of international countries, it wasn't an issue around them wanting to do any testing. It was getting samples because we're having issues with some of the postal delivery services. So, we continue to work through those. So, we're monitoring that, but right now we feel pretty comfortable.
And then, the operating margin, obviously, dipping down to 13.1%. 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?
Yeah. There's three things that I saw. One that really stood out to me – or three things within was the R&D spend. And Steve talked about R&D going up. And we have two major projects that we've been working on. We brought our new Raptor equipment about a year ago. And very shortly, we're going to have two new pieces of equipment for our two significant other platforms for our business. So, once those come off, you're going to see quite a bit of a drop off on spend.
The other is something you'll see coming out this week, but we're launching our new ecommerce site. And we've put a significant amount of time and energy into the 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 going to have compared to the system we have today. So, those are three big projects that we're driving expense that I think you're going to see kind of fall off here going forward.
Regarding where we want to be in a normal operating cycle, I think I feel very comfortable getting above the 16%, 17%, always pushing to Jim's number of 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 in how strong it is compared to what we were expecting in this type of environment.
Okay. Thank you.
Yep.
We have a question from David Westenberg from Guggenheim Securities.
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-19. But was there also impact from a rebound from ASF?
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.
Got it.
Now, we do expect, David, that with COVID-19 – we have two products currently registered in the US with emerging pathogen claims, which COVID-19 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-19 being a coronavirus, we feel very comfortable that those are effective, but COVID-19 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 I talked about this a little bit – we expanded our facilities for the manufacture of sanitizers because we opened that product group across the marketplace. We have so many food safety customers calling and asking. We had our lawyers call us and say we can't get a hand sanitizer. Can you guys help? The local hospitals are calling about PP&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. 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.
That's great. And then, just for clarification, I would have to assume that maybe 100% of your business would be considered essential business by terms of shelter in place, et cetera.
Yes. In every country that's put a shelter in place, Neogen has been exempt as an essential industry.
Perfect, thank you. And then, maybe if we can talk about potential for recession or just a plain economic slowdown, do you see – what are the common changes you see in food consumption? I would think that maybe people would switch to cheaper proteins and how might that impact you?
And then, as kind of a follow-up to that, does things like [indiscernible] antibiotics or some of your products around 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.
Sure, David. I think in this market today, what we have seen that's – and this is a very broad statement, but the majority of our products are sold to food products as we're 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 see people end up going to lower protein – lower-cost protein. So, you'll see a down move from beef to pork, pork to chicken. But I'm not sure what's going to happen with that moving forward. I think this is – 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 going to happen. I don't know if this is going to be – as everybody's talking about, is this going to be a V or a U on the return? So, I'm not comfortable kind of thinking through that piece on the protein side.
Got it. All right. Well, thank you for taking the questions.
Yep. You're welcome, David.
We have a question from Mark Connelly from Stephens.
Thank you. Two questions. First, how should we think about where we are in 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?
I think it's still too early to say. And again, it's so hard to look right now, Mark. The way this market isn't just – such flex and fluid turmoil. I was at the store the other day and a gallon of milk was three bucks. And a gallon of milk was $1.20. So, I think what you're – in a normal state, I think with the input prices coming down, I think the dairymen could start to do better, but it's not a normal state. So, I'm unclear as to how I'm going to kind of forecast that forward. Does that make sense?
Yeah, no. That's fair. We're starting to see some indications that regular dairy declines have slowed. That doesn't mean you're going to see it yet.
And just a second question on the 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, some of that money is being forwarded to provide bigger cushions. But have you seen any pullback in demand from some of your smaller private food companies?
No.
Nothing yet?
No.
Okay, very good. Thank you.
We have a question from Kevin Ellich from Ace Research.
Hey, John. Thanks for taking the question. I guess, you made a comment about some of the genetic tests, I believe, seeing some issues with the postal delivery, kind of flow there. Wondering if you're seeing any other supply chain issues.
Kevin, thanks for the question. We really got on the supply chain probably in mid-January when this hit in China because we had so – without our workers there. Now, the good news is, for everyone, today we have no confirmed cases of COVID-19 with Neogen employees, which I'm really excited about. But when we saw that happen in China, we brought everybody home and we were really watching closely kind of what was going on with that supply chain because we were getting very, very nervous about how long – if China had a long delay where they had shut down factories for a long time and they shut down the ports, everybody was going to be in big trouble. So, we really stayed on it. Now, we've seen that loosen up. We saw China kind of 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 kind of 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 have lengthened my inventory stock. But there's no saying what's going to happen. If I have a critical supplier whose workforce becomes infected and they have to shut down for an extended period of time, that's going to be a challenge. Right? I don't have that today. I think we've lengthened our inventories as best we can and we continue to find alternative suppliers as much as we can to make sure we have the products for our customers.
Yep. That's great. Good to see that you guys are on top of that. And then, going back to – David touched on African swine fever. We know some of the smaller producers in China last year were starting to repopulate the herd. 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 benefit from your genomics business to help replenish the swine herd in China, if you could see some tailwind there?
Yeah. Again, for the smaller producer, it's not – they're not thinking about that. But there's so – 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 will have the right stock when they're resetting up these forums.
I'm not sure I know where that turns going to be. African swine fever still around. It's just been overshadowed by COVID-19. It's still there. And it's still a threat and which is why we continue to get label claim. Unfortunately, there was one laboratory in the world 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 and people need them. And it's a shame if we can't do it because it takes two years to get a registration.
Sure. And then last question for me, John, you guys have clearly been a little bit more active on the M&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.
I don't think it has, Kevin. We're still actively looking at opportunities every day. And, actually, in this environment, we're probably going to be more active because there are some great smaller companies out there that maybe are going to struggle because of cash flow issues. And with our balance sheet, we could be able to step in and help them that would allow us to have access to technology or companies where, four months ago, there was plenty of VC money and nobody was interested. But things are changing. So, we are being very, very active in our M&A and business development moves right now.
I think that makes a lot of sense. And let's hope that it is a V recovery versus a U or, as we talked about this morning, even a W. We don't want that, though. Anyway, thanks for taking the questions.
Thanks, Kevin. Appreciate it.
[Operator Instructions]. The next question comes from Brian Gaines from Springhouse Capital.
Hey, guys. Can you tell us what the organic growth rate was in the quarter?
Sure, Brian. I'll let Steve do it. He hasn't had a question today. So, thank you, Brian, for including Steve.
Yeah. Overall, the organic growth – so, we had 2.2% growth. Overall organic was 1.1%.
Okay, thanks. And then, I'm just having trouble. Maybe you can help us. There's obviously so many moving parts right now. And you kind of said February was a little weak, March was better than you thought. 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 frame things going forward with so many moving pieces?
Brian, 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 the rates we were talking about. But it's so fluid right now. Honestly, February seems like 10 years ago to me. The meetings we're having, the things we're doing to try to forecast, we're running six or seven different business scenarios simultaneously, saying if this happens, this is what we're going to do; if that happens, this is what we're going to; if 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 Neogen employee believes in what we're doing. We know we can help. And as long as we can get to work and we got products, we're going to make it and get it to our customers.
Right. Okay. What would you say is your biggest concern, the supply chain? Or is it the demand from your customers?
It's all of them, Brian. We're looking at supply chain. We're looking at do I have employees. Are my employees healthy? Are my customers healthy? It's all of it. We're looking at every single scenario right now. And the thing that we're doing that we have to do is we are over communicating. We're communicating with our customers on a daily basis. We're talking to our employees on a daily basis. We're talking with the officials in the communities we live in on a daily basis. I was on the North American manufacturing call earlier in the week when we were talking about what is 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 we've got – so we are a critical industry. Well, we've also made sure that we've gone down on the supply chain to supply them with letters saying they're critical because, for example, 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 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 doing all that.
Makes sense. The sanitizer you produce, that's going to hospital channel or going to the retail channel or where does it end up?
Today, we're sending it to our customers. And that was a cleaner and disinfectant, the hand sanitizer that we have marketed for veterinary clinics. But now, we're growing production and 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 that we have that have emergent pathogen label claims, we're getting the customers in Food Safety. This is really an opportunity where those customers didn't even realize we had that product portfolio. So, that's us explaining one Neogen and what we can do to help you in this time of need across your total plant.
Got it. Thank you.
Thank you, Brian.
At this moment, we show no further questions. I would like to turn the call back to Mr. Adent for final remarks.
Thank you, Hilda. And 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 and 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.
Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.