Neogen Corp (NEOG) 2019 Q1 法說會逐字稿

Welcome to the Neogen First Quarter FY 2019 Earnings Announcement Conference Call. My name is John, and I'll be your operator for today's call. (Operator Instructions) Please note the conference is being recorded. And now I will turn the call over to John Adent.

Thank you, John. Good morning, and welcome to our regular quarterly conference call for investors and analysts. Today, we will be reporting on the first quarter of our 2019 fiscal year, which ended on August 31. As usual, some of the statements made here today could be termed as forward-looking statements. These forward-looking statements, of course, are subject to 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 who are joining via the Internet. Following our prepared comments this morning, we will entertain questions from participants who have joined this live conference.

Those of you who regularly follow Neogen might notice something a little different this quarter. In keeping with our succession plan, Jim Herbert and I decided that I would take over the lead with our financial reporting starting this quarter. Jim is still here, and he's active as ever. He's here today with me and Steve Quinlan, our Chief Financial Officer. Jim will provide his perspective on our genomics and international operations, and Steve will provide more detail on Neogen's financial results in the quarter.

Earlier today, Neogen issued a press release announcing the results of the first quarter of our 2019 fiscal year. As stated in the release, our net income increased 28% as we again benefited from the U.S. corporate tax reform from December 2017 and tax benefits from employee stock option exercises. On a per-share basis, our earnings increased to $0.29 from last year's $0.23, which has been restated due to our December 2017 stock split.

Our revenues were up 6% and included only relative minor contributions from acquisitions of Neogen Australasia in September 2017 and Colitag in 2018. Put bluntly, the 6% revenue increase from the quarter is not what most of you expect from us and certainly not what we expect from ourselves. Our focus in the fourth quarter of hitting our goal of $400 million in annual revenues and thus doubling our revenues again in a 5-year span affected our first quarter. The excitement we build in reaching the double-digit growth needed to reach our goal was, of course, great, but then we started the new fiscal year more slowly than planned.

Over the course of the last several months, we brought on several new managers to the team and reassigned responsibilities for probably another half dozen or so. None of them have had time to get up to full speed yet. I'm excited about the progress they're making and look forward to the contributions they will make in the future.

As mentioned in the press release, sales from our Food Safety segment increased 13% during the first quarter compared to the prior year. Our highlights for this segment include sales of our rapid tests for foodborne pathogens such as Listeria and Salmonella, which increased 43% in the quarter. This increase included sales of our Listeria Right Now test system, which detects pathogens in less than an hour. Other test systems require an incubation time of about 24 hours. In August, our test system was validated by the AOAC, which is an independent organization that validates the performance of various test systems.

Other Food Safety highlights included an increase in sales of 17% for our sanitation test systems, which include our AccuPoint Advanced products and our Culture Media products, which Jim will address in his comments.

As stated in the release, sales for Animal Safety segment were off about $500,000 or 1% in the first quarter of 2019 compared to the first quarter in 2018. This follows our previous quarter, the fourth quarter of 2018, in which our Animal Safety segment sales increased about $6.5 million or 13% compared to the fourth quarter of 2017.

Those of you who may cover the animal protein industry, including dairy and pork companies, may have seen a softness in the industry and especially with companies who export products to China and Mexico. These companies are trying to do business in an environment with almost daily changes to propose tariffs on their products while at the same time, dealing with oversupply issues. We've seen some impact with sales of products in the dairy industry, as many dairy producers are struggling with continued low milk prices. But we believe, in general, that Neogen offers products and services that only increase the importance as profit margins tighten for livestock producers. It's now more important than ever for producers to select the best animals for their breeding programs using our genomic products and then protect their investment in those animals with our biosecurity and veterinary products. Consumers will never stop demanding high-quality plentiful animal protein products even as the segments of the animal protein industry struggle with oversupply and tariffs. More than ever, we believe Neogen is perfectly positioned to partner with all segments of the global food industry to meet the demands of its consumers.

With that said, I'd like to turn it over to Jim for his perspective.

Well, thanks, John, and I'd like to share with you some of the activities that I'm working on. They're quite -- really quite exciting. As we've expanded our management team, this has and should continue to allow us to spend more time focusing on several areas of, what I would call, additional integration. First, let me take just a second and talk about the fast-growing and exciting area in genomics and one would have to look back about 10 years ago as we tried to anticipate exactly what -- or think about exactly how we got to this point. About 10 years ago, we knew that we needed genomic technologies, but at that time, we knew that we needed to acquire a start versus trying to develop it internally. This led to the acquisition of GeneSeek in Lincoln, Nebraska about 8 years ago. And then we added acquisitions in 2012 and 2013 and also built our capabilities internally. We next took that technology to our existing labs that we had at that time and continued to operate quite successfully in Ayr, Scotland. And then we acquired a genomics lab in Brazil, and then we expanded through the acquisition of a lab in Australia. So you can see -- refresh your memory on how that rollout happened. Within the last couple of months, we began establishing a laboratory in Shanghai, China. And in this past quarter, this has meant that our animal genomics revenue increased to about $15.5 million. That's up 15% over what the total combined was in the same quarter last year.

There's yet another chapter in the integration story that I'd like to feed you in on, and that took place during this past quarter. About 3 years ago, we acquired a nice Culture Media business in Haywood, England and we knew that we could bolt it together with our Acumedia operations doing the same thing back here in the U.S. Over the past several months, we had an opportunity to harmonize the technology, the production and the marketing activities to do a better job of providing the whole world market with a new and better improved product line. And this first quarter, revenues for the worldwide Culture Media business is now about 16% greater than it was in the same quarter a year ago when the 2 units were operating separately. And I'm also getting a good opportunity to spend some more time with our Neogen Europe operations that offer us some huge opportunities as we move forward.

Within that market that they claim credit or claim staked out, if you will, we have 114 countries and we actually do business in about 90 of these. Most of this is through independent distributors, though we do have our own sales force in the U.K., Ireland, Germany, France and the Netherlands. We've started that business, it was there, and we celebrated a few weeks ago when I was over a 15-year anniversary that we acquired a little business out of about a dozen employees and this team has now expanded to 260 employees operating from our central facility that's located in Ayr, Scotland, right south of Glasgow.

The combination of our Neogen Europe businesses had revenues for this first quarter of about $15 million or 18% greater than for the same period last year. And as we look forward, we're gaining market share in markets that are growing. Those markets are all growing, and I think we're gaining market share. Our European Union R&D programs that operate from Ayr are generating some new products that particularly fit in that marketplace. And we've also got some opportunities to look for some additional acquisitions within the Neogen Europe geography that, frankly, are quite good. So perhaps as you can see from my comments that I'm as excited as ever and [still have plenty] to do to retain that excitement and doing some things hopefully to help John with the future growth. Oh, and by the way, I still have a sign that sits in the middle of my desk, it says, learning to let go. And most days, I think I'm -- that learning process is continuing quite well. I'll stop at this point and turn it over to Steve.

All right. Thanks, Jim. As John indicated, we got off to a sluggish start for fiscal 2019 as our Animal Safety segment reported revenues which trailed the prior year and the currency winds were also in our face. There's a devaluation of the Brazilian real and the Mexican peso, which have declined 16% and 7%, respectively, compared to the same period a year ago, resulted in comparative revenues which were $1.3 million lower than the first quarter a year ago.

Before we get into the financials, I want to spend a little time discussing the new revenue recognition accounting standard in our prior year revenue numbers. We adopted the new standard on June 1, the beginning of our fiscal year. We've historically accounted for variable considerations such as rebates, marketing support and incentives in our contracts with certain of our customers as components of cost of sales and sales and marketing expense. As part of our work in adopting the new standard, we've reclassified those prior year expenses as contra revenues to make the numbers for last year's first quarter directly comparable to this year's first quarter. The results of these reclassifications is that our reported revenues from last year's first quarter declined by $1 million with corresponding decreases in cost of sales and sales and marketing expenses totaling $1 million. There was no change in our previously reported operating or net income from those reclassifications just from certain line items on the income statement. Our 10-Q will have all the details on the adoption of the new revenue recognition standard.

Corporate-wide, gross margins were 46.9% for the quarter compared to last year's recast first quarter gross margins of 47.7%. Margins were impacted by mix changes resulting from strong sales growth at Lab M, Quat-Chem and Rogama and new revenues from our Australian genomics operation. Each of these units have gross margins which are lower than the company's historical average.

Our operating expenses overall increased 6% for the quarter with sales and operating expenses rising 7%, primarily due to increases in salaries and other personnel-related expenses, shipping expense and higher bad debt expense caused by the reversal of reserves from the collection of receivables in the prior year.

General and administrative expenses rose 9% for the quarter. The prior year first quarter included $365,000 in economic development grant credits which did not recur in this fiscal quarter. Other increases related to salaries, health insurance costs and depreciation and licensing fees relating to IT equipment and software.

Our R&D expenses declined 9% in the first quarter. Last year's first quarter had higher levels of contracted outside services related to new product development efforts at that time.

Our operating income for the quarter was $16.5 million, up just slightly compared to last year's first quarter operating income of $16.4 million, and expressed as a percent of sales, operating income was 16.5% compared to 17.4% in the first quarter last year. The decline in gross margin percentage explains the decrease in operating income as a percent of revenues.

Other income was $658,000 compared to income of $812,000 in the prior year first quarter. Interest income of $927,000 compares to $369,000 in the first quarter of last year as interest rates have risen and our cash and marketable securities balance is $66 million higher than a year ago. We recorded currency losses of $386,000 in the first quarter, primarily related to devaluation of the Brazilian real and Mexican peso compared to currency gains of $465,000 in the prior year first quarter.

Our effective tax rate was 11.1% in the first quarter of this year compared to 30.7% in the first quarter of last year. Corporate tax reform enacted last December dropped the statutory rate from 35%, in effect in last year's first quarter, down to 21% this quarter. And we also gained an additional $2.3 million tax benefit related to the exercise of stock options. If you remember on past calls, I've indicated that this tax benefit will result in fluctuations of our effective tax rate and our overall net income each quarter depending on the price of the company stock and the auction activity in that particular quarter. And we believe that could impact earnings by between $0.01 to $0.04 each quarter.

The company generated $16.1 million in cash from operations in the first quarter. This compares favorably to our $15.2 million in net income. We invested $1.9 million in property, equipment and intangible assets this quarter. We've got a number of investments being considered this year to help enhance our efficiency through automation. Inventory balances rose 4% with an increase of $2.8 million, primarily in finished good levels.

We improved our inventory turns in fiscal 2018 and continue to work on improvements with programs at each of our operations. Our accounts receivable balances decreased slightly compared to year-end balances and our average days sales outstanding were 64 at August 31 compared to 60 days at year-end, primarily the result of the increase in international revenues, which generally take longer to collect. Now although the year got off to a little bit of a slow start, we remain positive about our prospects for the remainder of the year. I'll now turn it back to John for some additional comments.

Thanks, Steve. As some of the numbers show, we may have experienced some bumps in the road, but we firmly believe that we're on the right road. The strategies that we've employed to build Neogen to where it is today continue to be very viable. Our existing portfolio of products and services and personnel groups have never been stronger than they are today. We continue to look for opportunities, as Jim would say, to bolt on our existing operations and have them hit the ground running once under our ownership.

In the past 2 months, we've made 2 small acquisitions that have sizable potential for us. The Colitag water testing technology is a perfect fit for us. It enables our customers to quickly test the purity of the water consumed by poultry and livestock even in water used in food production. It complements the other food safety tests that we have available for our customers to test the quality and safety of the raw ingredients.

The acquisition of Livestock Genetic Services expands a critical component of our animal genomic services. The company will help our customers translate the genomic sequences that we generate in our labs around the world to make the best decisions for their operations.

We continue to have an active corporate development program and currently have several opportunities under consideration, but we will continue our traditional approach toward acquisitions. Since 2000, we have now completed 39 acquisitions that have all been successful. This success has been mostly due to our ability to integrate the acquired businesses into our existing businesses. We will continue to use 3 hard rules to make sure that we know what we're going to do with the business the morning after we write the check. Our 3 cardinal rules are: first, we must understand the technology and its application; second, we must be able to manufacture the product ourselves; and third, we must have access to the market.

I'm excited about Neogen's direction as we move through our 2019 fiscal year. We continue to be well positioned in our growing markets with the right people and products, and we have the organizational strength to reach anywhere in the world where need exists. Let me stop at this point and entertain any questions from those of you who have joined the call.

(Operator Instructions) And our first question is from Kevin Ellich from Craig-Hallum.

I guess, Steve, starting off with you. Did you give the organic growth number? And if not, can you give us that?

I did not give the organic growth number. It is about 4% overall.

Okay. That's fantastic. And then, John, I guess, just going back to the Animal Safety, kind of pressure that you guys are seeing. You talked about pricing and supply challenges. Is it really only dairy and swine? Can you give us little bit more color? And have those -- has the pricing and supply challenges persisted, as you've kind of gone here, have you continued to see that?

Sure. Kevin, I think it's across the whole animal protein sector and it's just because of this uncertainty. I mean, you saw that on the pork side, you saw tariffs of 78% for China and they bumped up to almost 20% for Mexico. Now those things are moving daily. And so I think people are operating in lot of different uncertainty. As you know, they always continue to buy products to make sure they're going to keep their animals safe and healthy. It just depends on when they're going to buy them. So I think this thing is going to get better as we go on, as some of that uncertainty is eliminated from the marketplace as we go forward.

So would you say it's more of a timing issue then? And I guess, it's just impossible to figure out when we'll see them buy products.

I would. I would. I think as soon as you start to see some of the uncertainty around the market, it's going to change.

Okay. And then also in the press release, you talked about, I guess, some weakness in the distribution channel. Can you give us little bit more color as to what that means and exactly what you're seeing there?

Yes. I think it's a reflection of the general market. The distributors have to sell on to an end market. And so if the end market is a little soft, the distribution channel tends to be a little bit soft. But as that market picks up, then that channel will strengthen also.

Got you. Okay. That makes sense. And then, Steve, sorry to flip back to you. So DSO, you called out the 4-day sequential increase really due to, I guess, greater international sales. How much higher is your DSO for your international revenue? And I guess, what should we expect going forward?

DSO, generally, it's longer internationally, Kevin, just because it takes longer to get product to the end customer. It could be -- it's anywhere, call it, 10 days to 2 weeks kind of on average. So the fact is our international revenues were up 18% this quarter over last year. So I would have expected that DSO number to increase. I think it'll probably drop back a little bit. It's a point in time measurement, and in those numbers, the calculation moves around. But if our international sales increase like they are, that number will go up a little bit.

Great. Great. And then, Jim, just lastly for you. Good to see some acquisition activity. You guys have certainly done a number of deals in the last 10-plus years. Cash balance continues to build. Give us a little bit of color on the pipeline. How does it look now?

It looks good. And as I've said many times before, acquiring them is sometimes easier than integrating them. We've looked back since we started the company, we've done about 40 acquisitions, and we've not had anyone ever go south on us, some have prospered better than others, but -- and that's because we were able, as John pointed out in his comments, we were able many times to bolt on. I talked about some bolt-ons, particularly with -- in my brief comments a minute ago about what we did with the genomic side. We had a meeting yesterday. John and I spent some time with our corporate development activities. And there's -- we have half a dozen acquisitions that are clearly on the radar, nothing that we've got letters of intent out on now and we're selectively looking at places where we can make acquisitions that we can bolt on to strong management teams. And as John pointed out, we got a few management teams that are rebuilding right now. So we don't want to bolt something big on to them. It's like my -- a friend of mine at one time said, I was going [buy some other] business and [it got a multiple] and he equated it to me trying to tie 2 concrete blocks together and thinking they float, and we certainly don't want to be guilty doing that. So -- but we've got -- and we're going to be looking pretty seriously at some international opportunities. We've talked about in our own way, I think, we're up to 40% in total revenues this year that -- this quarter, that came from international. And I think that's a record for us. We've been pushing at that number before, but that's a record for us going forward. And we've got some opportunities, some freestanding businesses. We've got some distribution businesses that might need to be bolted in and to be able to tie to part of the company. That's something we've got to announce yet, but I can assure you that in addition to having the money to make the acquisitions, we certainly have the desire and I think the right team to do them.

Our next question is from Brian Weinstein from William Blair.

This is actually Andrew Brackmann, on for Brian this morning. I wanted to go back to your comments on the disruptions in the channel and maybe you could talk a little bit more about those in context of the overall market. And is there anything really that Neogen can specifically do to overcome these challenges in the short term?

Sure, Andrew. Yes. I think, absolutely, we can. I mean, when you think about the overall market and you think about our market share, we continue to have opportunities to grow our product portfolio within the existing customers out there. So even if the market is a little soft, we have tremendous growth opportunities because we don't have a high penetration rate. So some of the things that we can do, specifically on the Animal Safety side, I'm assuming you're talking about, is that we can continue to try to drive demand through the customers, which means getting out, working more and doing a lot of pull-through activities to help our distributors, partners pull product through their facilities and warehouses to the end users. And those are the things that we're working on and we've been starting and really focusing on to drive business through the end of the year.

Our next question is from David Westenberg from CL King.

And so a couple of questions for Steve here. Operating margins were a little bit below us and normally when we see Food Safety do so well and Animal Safety do a little bit more poorly, we kind of expect to see gross margins kind of improve. So can you maybe give us a little bit of color on the mix shift where there are and maybe why that would have happened?

Sure, David. It's -- in my comments, I tried to point that out a little bit where the specific groups that grew probably the most on a percentage basis were some of the areas that are -- have the lower gross margins on that food side. So your question, you're dead on, that that's what you would have thought would have happened. But our Quat-Chem, our Rogama, Lab M businesses, although they're good strong businesses, but they are -- their gross margins just are less than the profile on the food side. So the fact that they grew the most on that side resulted in the gross margins not growing like you would have thought they would have.

Yes. And then just on the new revenue recognition or the new contra revenue. I know you don't give guidance. But just kind of -- should we think about this quarter you saw $1 million roughly in less revenue than you would have seen under your prior accounting recognition standards? So is that this quarter representative of what we should see in maybe, say Q2, Q3 and Q4? Or is this atypical?

No. That's exactly what you'll see. It'll be about $1 million and that's not really giving guidance, it's really telling you what we're going to adjust our future or prior quarters by. So it was -- it's about $1 million a quarter, yes.

Okay. Yes, on a go-forward basis. Okay. That helps with the modeling. And then maybe just a question on Neogen Brazil. 40% growth was very, very strong. But is that something that is going to purely be seasonal, and we should see that kind of trail off? Or is there something you saw there where you -- there's reason to be optimistic to say we can see this kind of growth for a prolonged period of time?

I think it's a bit of both, David. We've picked up some really good customers on multiple sides of the business. We've picked up some big customers in our toxin business, which has a little bit of seasonality, but that's big customers that will continue to work with us going forward. And then we've also picked up some business in other segments in Brazil. So we're really happy with the Brazilian team and the Mexican teams' growth. Both of them had great quarters.

That is very helpful. And then just one last question for me. You talked about some of the disruption related to tariffs on the Animal Safety side, and obviously, milk is something else that you've called off -- called out. But can you maybe walk us through disruptions in the U.S. versus outside U.S. so we can kind of -- just kind of understand how the dynamics would work with maybe, say, tariffs or weakness in animal protein and your exposure there?

Okay. Jim, you can help me with this one, too, on the poultry. I mean, I think on the pork side, what's interesting is, we have more hogs. I saw the stat the other day, we have more hogs today than they've ever had since they were keeping records since 1964. So we've got a big supply of meat. And then we've got -- the American consumer continues to eat more meat, which is great, but we produce more than we can eat here, so we need the export markets. So I know that there's a little bit of that going on. But Jim can talk a lot about the poultry. So Jim, can you help me?

Yes. One of the things that -- we don't really know what Florence -- total impact of Florence going forward either. I was on the phone with them, again, it's been on regular contact as late as last night. And remember that where she touched land, you've got the headquarters of the world's largest pork producer, you got the headquarters of Butterball or turkey and you got the headquarters of -- you've got the production area of 4 of the major broiler producers, and that's going to have some immediate impact. What the long-term impact is will be dependent on how many pullets we drowned and how many sows we killed. The numbers are quite sizable over there now. But on the poultry side, North Carolina alone produces something like 10% of the United States' total chicken. So the fact it's headquartered into that part of the world is important. The numbers look like that we drowned about 4 million birds. Now how many of those would be layers that are going to be breeder products, or are going to produce hatching eggs, I don't think we know yet. During the few days prior to that, we -- I think they shuttered 10 to 12 meat processing plants and -- so those birds are still backed up out there somewhere, those that are still alive. But -- so that's going to be important going forward. As John's talked about the hog side, about 12% of the total hogs in the United States are produced in North Carolina. So we're talking there about some pretty heavy production. And again, now how many did we -- how many of those sows did we kill? Probably the bigger issue is what we did to all those lagoons that were holding back, all the manure coming from not the chicken products operations, but mostly from the hog operations. And what that's done to the groundwater, that's part of the country that relies a lot on private wells. Our new acquisition allowed us to do some things that were -- I was real proud of our folks. We got a big batch, we took some stuff out of California and some Colitag out of California, sent it to North Carolina, and we had people, our own employees and people that owned the animals that were testing water yesterday trying to make sure that they didn't have coliforms and E. coli in the water that they were using. And so that acquisition is off to a great start. We didn't make a lot of money out of it, but we sure got a lot of goodwill from what's going on there. And so it's -- I think it's yet to be seen. And the industry on the poultry side, they can adjust pretty fast. It still takes 21 days to hatch an egg, and they don't have to put those eggs in the machines. So they can cut back. It still takes about 42 days to get that day-old chick up to ready to go to market. And so that adjustment can take place pretty quick. So I think the longer term probably on swine is a bigger issue than it is for chickens. But I think we're in the right place. I'm awful proud that we've been able to be helpful in the North Carolina area. Our guys were smart enough that they immediately when they saw this was coming, they loaded up a load of disinfectant out of our Memphis plant and got it as far as where they thought the water would come to. So when the water started to go down or is going down, we got disinfectant then go in there to help clean up some of the stuff now. So it's nice to be on both sides of that. So I don't know whether that answers your question or not, but the...

I actually -- I broke my promise. I, actually, now have one more question because of your answer. The -- I wasn't thinking about maybe Florence enough as I should have. And is there any kind of maybe -- I don't think guidance is the right word, but what should be in our model kind of anticipate this August, I mean, or quarter ending November in terms of impact from Florence?

I really don't know. It depends on how fast they recover. And as I said, they -- we'll probably never know how many animals were drowned, and we probably don't want to know -- the general public don't want to know because there's not much you could do about it. And it just depends on how long it takes for them to recover, how long -- we've got a lot of business. There's a dozen plants that got shuttered. Some significant portion of those plants are our customers, I'm sure. So it may have a little -- I think -- I don't think we're going to get hurt that bad for the quarter because we -- our world operates -- Europe looks good, everything we're seeing there. I think John says Mexico and Brazil looks good. So we're big enough now that we're over that $400 million mark that we don't have to get -- we're not too cluttered by one part of North America. So I think we probably get hurt a little bit for the first few weeks in here, but I don't think it's going to be -- from my viewpoint, it's not going to be critical company-wide.

Yes. And I'd agree with Jim. I think if you think about, David, there's puts and takes on that, right? Or maybe some opportunity where we're going to sell products because they've got to go back and then reclaim and do those things, but there may be some things where we have some customers that are shut down a little bit. So I agree with Jim. I think it could have a nominal impact, but I don't see there's a huge impact.

(Operator Instructions) And our next question is from Brian Gaines from Springhouse Cap.

How much of the revenue softness was kind of a pull forward you talked about earlier in the call versus issues with the protein market?

Thanks, Brian. I'm not sure exactly how much is pull through. I know that we were really excited to double our revenues again in 5 years, and I think it had a little bit of an impact. I think if you look at the 2 quarters combined for Animal Safety, you can kind of see that, but I don't know what the -- Steve, you want to comment?

I would say, if you ask me a number, I'd maybe say $2 million to $3 million, but it's a guess just based on softness with some of the larger distributors.

Just the $2 million to $3 million is what was kind of a pull-forward effect?

Yes.

Yes. It could be. I mean, we don't-- we haven't looked at it like that. But...

Right. Okay. Do you see any change? Have the markets gotten a little softer in the proteins? Do you see any change in competitive pressure from any other -- any of your competitors?

Not really. We've got good competitors out there who are continuing to push their message, but we haven't seen much. And the nice thing about our portfolio is we're so broad that we don't have someone that stacks up right on top of us that could have a big impact if they decided to really try to make a change. So it's pretty much been the way we've been operating. It's we've got to get our message out and show our value proposition to our customer base and that's what we're doing, and we're going to continue to grow share doing that.

Got it. In the animal area, who are your biggest competitors in kind of the market that's soft, the protein market?

Jim, if you...

Well, on that, if you looked at the biosecurity side, we got a couple of players in rodenticides. I don't think that's -- I don't think we've got much competitive pressure there, not particularly -- not in North America. We've got the same pressure we've had, I don't see that increasing any. We're going to have to put out a lot of rodenticides in some of that troubled area in the Southeast Coast, 3 or 4 states because the rats and mice are all looking for a better place to live now. And so that's -- the cleaner and disinfectant side, we have 2, 3 competitors there, and nobody that's -- the DuPont organization that we once distributed, that's changed hands a couple of times. They're there, they're formidable, but no increase. I don't think anybody's going to be giving product away. It's in strong hands. And there's not a lot to say about what's happening on security side. I think I don't know, John can talk more about it, but on -- with 1 or 2 minor exceptions, what we're facing on the diagnostic side, on Food Safety, they're in strong hands. They're in hands of folks like 3M and bioMérieux. They don't play pricing games. I'm sure that our guys in China probably are -- even though I don't talk to them on a regular basis, you've got some Chinese guys over there that will sell whatever they can get in the marketplace, that are locally produced stuff, but that's not where our market is in China anyway. So I don't know. I don't think that we're going to see a lot of competitive pressure.

I agree with Jim. I mean, we like strong rational competitors. And to Jim's point, they're out there trying to make money and we're trying to make money and we're going to go compete against value. And I think that's pretty much the landscape that's been.

Probably the biggest thing in -- you'll have to remind me what the numbers were, but that's currency fluctuation. We do have a competitor too in Europe where we've got -- a lot depends on what the advantage is against the euro and the pound sterling, particularly the euro. They're producing it under cost structure for the euro and we're selling in and out of the cost structure of the dollar. That might get a little bit of advantage, but I don't think it'd be enough to -- I don't think we're going to see any -- I don't want to anticipate, that's probably John will have to comment more on this, but I don't anticipate. I'm not hearing anybody talk about reducing prices. In fact, I'm hearing lots of noise about we need to be thinking about where our price increases are going to be as we move out here into the new calendar year or something.

I know you don't give guidance, but is this current organic growth rate kind of a good feel for -- unless situation changes with tariffs and things like that, it's just kind of a good run rate?

No. We're disappointed in this rate, too. We're not happy about it. This is not what we generally do. And we think we had a couple of things that worked against us, and -- but this is not indicative of who we are.

Our next question is from Casey Woodring from Janney Montgomery.

I'm actually on for Paul Knight. My question is for Steve. It's about the tax rate. Do you anticipate getting any more tax benefits moving forward? Or is it safe to assume that for our model, we can assume this tax rate from this quarter?

No. I would say, Casey, that it all depends on the exercises of options in a particular quarter. So it's really difficult for me to give you anything there. It all depends on when people exercise options and that depends on the availability of options that are vested in a quarter and the company stock price in that quarter. I would tell you that a $500,000 benefit is about a $0.01 or about -- I think that's about a 3% impact on our effective rate, and this quarter was about $2.3 million. I don't know what to tell you to put in your model, but I estimated that it could be $0.01 per share in a quarter to $0.04 depending on the option activity. Does that help?

Yes. Perfect.

Our next question is from David Stratton from Great Lakes Review.

When we look at the Listeria Right Now product contributing to growth in that particular segment, is that something that is really being driven by the new products? Or are you seeing a lot of underlying growth in that area?

Yes. I think most of that's by the new product because if you think about -- there's been Listeria testing solutions out there for a long time. But what's so different is our ability to do that in an hour rather than in a regimen and waiting 24 hours. So it really is kind of a revolutionary new platform. And that's what's got us and our customers so excited about it is that they're able to use it in ways that they hadn't used in the past.

Got you. And then is that also then increasing new customer business? So is there going to be an anniversary of the new product? Or are you seeing organic growth coming in behind it as people switch to this faster system?

We see organic growth coming to mind. We'll pick up new customers. And then as customers learn where they can use it to best utilize within their own process, that's where we're going to see big uptake.

All right. And then one final one. I was wondering if you could give an update on the ThyroKare and where that's heading. I think it's something we talk about every quarter, and just looking for an update?

Sure. I will let -- since Jim's got the history, I'll let Jim take this one.

Thank you, John. We have completed -- I don't know the exact number of dogs, but I think is the last 100th dog has now gone 100 days or whatever that amounts to. And it's all been a little bit preposterous. We were the market leader in that market for a long time that, that virtually millions of dogs without having any problem and saved a lot of dogs because of it. We have a competitor out there that really got ahead of us and filed and got an approval. We had all been making it under permission from the FDA. But once somebody got approved product, well that pushed the rest of us out of the market. I think we're -- I don't believe we're going to get there with -- all the stuff has been submitted to the FDA for their review. They can take anywhere from 30 minutes for that review or up to 6 months. And they've never been known to do it in 30 days, 30 minutes. But it just depends on how fast it moved. And we, obviously, are talking to them on a regular basis and trying to help them with their rating scales. So we might have a product to get back into the marketplace at the beginning -- before the end of this fiscal year. There's still a good market out there. We still got a lot of people out there that would I think we can switch back to our product because we're doing some other things with them. I'm sure that if my competitor listens to this recording, he probably would agree. But we're doing everything we can.

I will now like to turn the call back over to John Adent for closing remarks.

Thank you. Yes. Thank you, John. I appreciate it. Thank you all for being on the call today. We appreciate you taking the time. A quick reminder. I want to remind all of you, we're having our annual shareholder meeting, October 4, here in Lansing. So we'd love to see you if you have an opportunity to come out and join us for that. We're excited about the future. We're excited about where the company's going, and we really look forward to having a nice call with you in about 3 months. Thank you very much, John.

Thank you. Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating, and you may now disconnect.