Earnings Call Transcript - PAHC Q3 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Phibro Animal Health Corporation Q3 2020 Earnings Conference. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr. Richard Johnson. Sir, please go ahead.

Richard Johnson, CFO

Thank you, operator. Good morning, everyone. Welcome to our earnings call for our third quarter ended March 31, 2020. On the call today are Jack Bendheim, our Chief Executive Officer; and myself, Richard Johnson, Chief Financial Officer. We'll provide an overview of our quarterly results and then we'll open the line for your questions. Before we begin, a few housekeeping items. Let me remind you that the earnings press release and financial tables can be found on the Investors section of our website at pahc.com. We're also providing a simultaneous webcast of this morning's call which can be accessed on the webcast as well. Today's presentation slides and a replay and transcript of the call will also be available on the website later today. Our remarks today will include forward-looking statements and actual results could differ materially from those projections. For a list and description of the factors that could cause results to differ, I refer you to the forward-looking statements section on our earnings press release. Our remarks today will also include references to certain financial measures which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP. I refer you to the non-GAAP financial information section in our earnings press release for a discussion of these measures. Reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the press release. Looking at page three of the webcast and before we get into the numbers, we want to remind everyone that we present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual or non-operational or nonrecurring items, certain other income or expense items and then the income tax effects related to any of those pretax adjustments, plus any unusual or nonrecurring income tax items themselves. So with that introduction, I'd like to turn it over to Jack Bendheim for his introductory comments. Jack?

Jack Bendheim, CEO

Thanks, Dick. And first and foremost, we cannot overstate our gratitude for the medical professionals, first responders, and many others who are at the front line fighting COVID-19 and its effects on our family, friends, and communities. I'd also like to acknowledge and thank all those people such as supermarket workers, truck drivers, delivery personnel, and food processing plant workers, who day in and day out provide essential services, without whom the world would not be able to practice the social distancing necessary to get ahead of this pandemic. I'm immensely proud and heartened by the way the people of Phibro have responded to the biggest challenge we have faced as a company. Without missing a beat, our offices throughout the world have transformed to virtual ones. And our manufacturing facilities, essential to food production, have managed to continue producing at unchanged levels. We have maintained production despite numerous measures we have taken to safeguard our people's safety and significantly reduce the risks of infection. What this experience has made clear is a tremendous ingenuity and work effort across our company as we are getting our jobs done in ways that just 60 days ago would have seemed undoable. Examples are numerous, from figuring out which borders are open to deliver our products to creating, in a span of weeks, a Phibro online farm that has hosted speakers on topics during an excess of 1,000 global viewers to meeting our customers in the field with all participants safely staying in their pickups and sharing discussions and presentations via mobile hotspots. For the quarter ended March, we were able to grow our sales in our core Animal Health segment by a healthy 8% despite the pandemic challenges and the lower sales in China that we have experienced all year. Our vaccines and nutritional specialty products continue to show double-digit growth. While there has been modest swine restocking in China, we do not see any sales of MFAs in China in the quarter due to regulatory changes that took effect January 1. Included in the quarter was a minimal benefit from customers looking to build inventory at the early stages of the global lockdown. With regards to various pipeline newly introduced products and projects that I have been updating on a quarterly basis, one of the unfortunate truths of the current situation is that it has become extremely difficult to launch products in the current environment. In those areas where we are incumbents, this is a benefit but we have definitely seen a pause in the uptake of our OmniGen Pro, Provia Prime, Rejensa, and pHi-Tech launches and customer adoptions. We are hard at work building tools and processes to enable us to promote these new products and launches in the current environment and are optimistic that as the social distancing requirements are eased around the globe, we will resume the pace of success we were seeing and perhaps accelerate it as the financial benefits to our customers may be even more apparent than they previously were. For the upcoming quarter, we are seeing some softening due to impressive disruptions our customers are facing with their downstream demand and processing. We're also seeing an increase in costs as we look to navigate the logistics and disruptive supply chains as well as costs associated with reducing the risk of the virus to our manufacturing employees. As a result, while our sales to date have continued to close expectations, we anticipate a decline in demand for our products in the June quarter and we are therefore pulling our guidance for the fiscal year ending in June. The bottom line is that there are too many unknown unknowns for us to confidently predict that we will achieve our previous expectations for the business. With that, I will hand it back to Dick and I look forward to answering any questions you may have after his remarks.

Richard Johnson, CFO

Thank you, Jack. So let's start by reviewing the results for our March 2020 quarter. Consolidated sales were $211 million for the quarter. That was a $5 million or 2% increase versus the same quarter last year. Increased sales in the Animal Health business were partially offset by lower average selling prices in Mineral Nutrition and slightly decreased sales in Performance Products. The increase in Animal Health was driven by nutritional specialties and vaccine products. We'll get into further details regarding segment results later in the presentation. Reported net income of $13.5 million declined $1.3 million. Higher gross profit driven by volume growth in the Animal Health segment was more than offset by increased SG&A expenses across the business. Diluted earnings per share of $0.33 per share for the current quarter was $0.04 below the same quarter last year. Let's discuss adjusted results on Page 6. First of all, look at net sales in more detail at the individual segment level. But on a consolidated basis, adjusted gross profit increased $5 million or 8% when compared to the prior year. That was the same amount as the increase in sales. So overall, a favorable product mix effect for the company. The gross profit increase was driven by sales growth in the Animal Health segment, primarily volume growth in nutritional specialty and vaccine products. We did see slightly lower volumes in MFAs and other products as a partial offset. Gross profit in the Mineral Nutrition segment decreased, as lower average selling prices and unfavorable product mix more than offset lower raw material costs. Our Performance Products gross profit was comparable to the prior year. For operating expenses or what we refer to as selling, general and administrative, adjusted SG&A increased $5.5 million or 13%, driven by strategic investments in key product development projects in part due to the effect of the recent Osprey acquisition and also the effect of variable compensation returning to more normalized levels. Our adjusted net interest expense increased $300,000 year-over-year on higher debt levels. That was – the higher debt levels were partially offset by the benefit of lower variable interest rates. And from an adjusted income tax perspective, our effective income tax rate for the quarter was 26.3%. That was comparable to the prior year. Looking more closely at the Animal Health business, net sales of $139 million increased almost $10 million or 8% compared to the same period last year. MFAs and other product net sales were $82.7 million, a decline of $1.4 million or 2%. We saw very nice increased demand from our poultry and cattle customers in the United States and Latin America. This helped to largely offset lower volumes in China, due to the effects of African swine fever and a phased regulatory change that began January 1, 2020. Nutritional specialty products net sales were $34.6 million, an increase of $6.4 million or 23%. We experienced organic volume growth in the domestic dairy and poultry markets. In addition, the recent Osprey acquisition accounted for approximately half of the year-over-year sales growth. Net sales of vaccines were $21.7 million, an increase of $4.8 million or 28% over last year, driven by strong international demand for poultry vaccines as well as growth in adjuvant products that we also produce. For the segment, adjusted EBITDA was $34.6 million for the quarter. That was an increase of $1.4 million or 4%. The increase in gross profit from the strong volume growth at the sales level, particularly nutritional specialty and vaccine products, was offset by higher SG&A costs for strategic product development and marketing initiatives plus, in part, the effect of the Osprey acquisition. So all in all, I – that accounted for the increase in profitability in the quarter. Looking at the other segments on page 8. Mineral Nutrition reported net sales of $56.2 million for the quarter. That was a decline of $4.5 million or 7% due to lower average selling prices. We did see some volume growth in the quarter compared to last year. The lower average selling prices are generally correlated with the movement of underlying raw material costs. However, gross profit declined $800,000 year-over-year as the decline in average selling prices and an unfavorable product mix more than offset the lower cost of goods. The gross profit decline coupled with some increase in SG&A led to a $1.2 million decline in segment EBITDA compared to last year. Performance Products net sales were $15.6 million, slightly below last year. We saw a slight decline in sales of ingredients for personal care products and while gross profit was comparable to the prior year due to a favorable product mix. And as a result, segment adjusted EBITDA increased slightly over the prior year, a $200,000 increase. Corporate expenses were $10.1 million in the quarter, a $200,000 increase over last year due among other reasons to increased public company costs. Capitalization on page 9. Our gross leverage ratio, our debt-to-EBITDA ratio at March 31 was 3.5 times with $368 million of total debt on our balance sheet and $105 million of trailing 12-month adjusted EBITDA. We had $82 million of cash and short-term investments on the balance sheet at quarter-end. And for the March quarter, we generated $19 million of cash, excluding changes in short-term investments and before financing activities.

Jack Bendheim, CEO

Turning to page 10. As Jack mentioned during his opening remarks, the animal production industry is currently facing unprecedented demand disruption and production impacts including its ability to process animals, all as a direct result of the COVID-19 pandemic. Animal producers are rapidly adjusting the amount of animals and milk being produced, and significant price declines at the producer level for all proteins have also contributed to reduced production levels. We anticipate a decline in demand for our products during our quarter ended June 2020. And due to the uncertainties of the pandemic, we're unable to estimate the overall effects on our operations and financial results in the near term. And as a result, we're withdrawing all previously issued financial guidance for our fiscal year ended June 2020. We believe the current difficult situation will begin to normalize in the second half of the calendar year and the industry gradually will return to typical operating levels. We believe we have the financial resources to weather a downturn in our business. We're actively monitoring the ever-changing environment and stand ready to take additional operational actions as necessary to protect our financial position. And that is the conclusion of my prepared remarks. So operator, if you would open it up for questions, please.

Operator, Operator

Our first question comes from Balaji Prasad of Barclays.

Balaji Prasad, Analyst

Hi. Good morning. This is Balaji. Thanks for taking the questions. A couple of them from me. Firstly can you help me understand what drove the distributor stocking variation which we have seen this quarter across the industry? There seems to be pretty wide variations between all those companies which had reported earlier than you. How should we interpret this? Thanks.

Jack Bendheim, CEO

Our business is quite different from other companies in this industry. Our segment in the companion animal market, which depends heavily on distributors, is relatively small. Therefore, the amount of product competitors have with distributors—which has been significantly impacted by their inability to reach customers—differs from our situation. We primarily sell directly around the globe, and we use distributors mainly for logistical purposes. As a result, we don't have a large amount of product in the pipeline. I did note that when the lockdowns began, we observed some of our distributors increasing their purchases slightly, but overall, this has a minimal impact on our business.

Balaji Prasad, Analyst

Got it. Yes, there's been an increase in stocking units in livestock, which is helpful. Secondly, are you seeing or do you expect an increase in demand for poultry vaccines, which is already strong? I'm asking because there seems to be a significant shift towards cheaper proteins like poultry from consumers as demand patterns change. Could you separate what you're seeing in the U.S. market from the international markets?

Jack Bendheim, CEO

That’s a great question. We're noticing some changes. Many of our markets depend on industries that export from the United States. With our current lockdown and reduced shopping, we're importing significantly fewer products, which means suppliers in the Far East are not operating. If they're not working, they're not making payments, and consequently, they aren't purchasing any protein, particularly poultry. We're experiencing fluctuations, though they're not major in the U.S. Many protein products were typically intended for restaurants, and it's evident this demand is changing. There are declines happening, and I would say the impact of COVID-19 has also affected some slaughterhouses, forcing closures due to illness, which has caused significant delays. In the poultry sector, the operation is manageable because the cycle is under 30 days, allowing for rapid turnover. The cattle sector has more flexibility, and with swine, getting pigs to market at a specific weight is critical. If they gain too much weight, it presents handling issues, leading to depopulation. The situation is unpredictable; we can't determine which slaughter plant might close next. Given we're in early May with the quarter ending soon, we face many uncertainties regarding which customers will be impacted. I believe the significant effect in the U.S. is occurring in the hog industry, while the cattle sector will slow down and the poultry industry globally faces economic stagnation. If consumers lack funds, they won't buy chicken. Compounding this is that China continues to import pigs and some chickens from various countries, adding to the complexity. The situation is fluid and evolving week by week. As the disease is controlled, we'll eventually return to normal, but right now there are weekly surprises.

Balaji Prasad, Analyst

Thanks Jack.

Operator, Operator

Our next question is from Kevin Kedra of G. Research.

Kevin Kedra, Analyst

Thanks for taking questions. Jack I'm sorry I missed some of your comments on China. So, I was wondering if you could just speak to kind of what you're seeing there not only in terms of African swine fever but also how that country seems to be emerging from COVID? And then secondly just wanted to get a sense if you see any long-term changes to the livestock industry coming out of COVID, or should we think of most of what we're seeing as simply being kind of transitory and reverting back to normal full scale as we get into 2021 or so?

Jack Bendheim, CEO

Let me address the second question first. I believe that in the long run, things will return to a state of normalcy as we understand it. There will be some changes among those affected by this disease, particularly among people involved in animal farming who might struggle with the financial losses, especially in the swine sector. This could lead to consolidation in the industry. However, it’s important to note that animals are still being produced and consumed. If one producer exits the market, another will step in to take their place. While there may be shifts globally or among different countries, the overall number of animals being raised should remain stable, and we are likely to revert to the growth patterns observed before the economic downturn. This disruption has not been anticipated in any business models, including yours, Kevin. We'll have to see how people adapt to the situation. While no one will emerge from this stronger or smarter—since there are limitations to what can be done—the modifications may occur in slaughterhouses. There will likely be increased awareness of potential risks, which could lead to changes such as maintaining greater distances between workers, incorporating more automation, or employing fewer people in these facilities. Nonetheless, I expect the production volumes to return to normal. Regarding China, many have described the situation as experiencing two pandemics. They are currently navigating the effects of their coronavirus situation, which appears to be improving as restrictions are gradually being lifted. Just this week, for example, people are now permitted to fly from Shanghai to Beijing without needing to quarantine upon arrival—a new development. As a result, people are gradually returning to normalcy. The economy has taken a hit, leading families to have less disposable income, which is reflected in lower purchasing levels. However, recovery is underway, albeit slowly, especially regarding the restocking of pork supplies as challenges with African swine fever persist. In relation to our efforts, the pandemic has delayed our progress in developing a vaccine for African swine fever, as the focus has shifted to COVID-19. Testing facilities have been repurposed to prioritize the search for a COVID-19 vaccine, which, while important, has overshadowed the economic challenges posed by African swine fever. We are facing a setback as a result, but eventually, we will start to move forward again, although it may take one to three months.

Kevin Kedra, Analyst

Good. Thanks for the color.

Operator, Operator

Our next question is from Michael Ryskin of Bank of America.

Michael Ryskin, Analyst

Hi. Mike Ryskin here. Jack, I want to follow-up on some of your earlier comments on sort of the medium and long-term impact to the domestic livestock industry in the U.S. primarily focusing on there in swine as you indicated those seem to be the hardest hit here. Are you having any changes in terms of conversations with your customers where they're becoming so pressured by this outbreak that they're changing their purchasing patterns? They're either becoming more price sensitive or they're outright reducing the medicalization of animals. And we understand that the products you provide the vaccine, the nutritional specialties, they're critical to the health and wellbeing here, but to some degree when the future prices are down 30% to 40% for these products and schools are closed, restaurants are closed. There just some economic considerations to have. Are you seeing any meaningful shift in terms of purchase patterns behavior of customers? I'm just wondering could that have a slightly more long-term impact. As you said, there is going to be disruption here in turnover in your customer base. So it may take a while for that to come back.

Jack Bendheim, CEO

I believe the short answer is that there won't be a long-term impact. To elaborate, we need to look at the current situation. You have invested in dairy, and these animals are quite productive. They require daily feeding and upkeep. The main issue is one of volume. Can you manage your herd size? It's not practical, regardless of whether it's dairy, pigs, or cattle, to continue investing in these animals if it leads to financial losses. Milk production is one aspect, but you are also considering the larger investment you made, which already faced losses when sold to the packing house. The answer to that is no; you wouldn’t destroy your significant investment due to some temporary losses. Instead, growth will be slowed, which will have an impact. You might adjust their diet and the products we and our competitors offer that help the animals stay healthy, grow quicker, and be more productive. If you’re facing losses, it doesn’t make sense to invest in more animals that aren't contributing positively at the moment. You will aim to reduce costs and slow growth. While these changes can be made, they are not long-term solutions. The key to sustaining profitability in this business is ensuring your animals remain as productive as possible. This is a short-term situation. If I’m losing $15 per animal, I have to decide whether to accept a slightly lesser loss or continue at that rate. Our customers are experienced in this field, and they have not encountered a situation like this before, nor have we. They will adapt, but this is a temporary adjustment. We are witnessing a reduction in populations across chickens and more significantly in the hog industry. We may see some reduction in certain cattle markets, but eventually, things will rebound as they always do.

Michael Ryskin, Analyst

Thank you for that. Can I ask a broader question regarding international markets outside of the U.S.? Much of the news about slaughterhouse closures and their short-term effects has primarily focused on the U.S. However, we haven't seen the same reports internationally. This seems related to the current state and structure of the livestock industry overseas, particularly in Latin America and Western Europe. Are you observing any impacts there beyond the overall economic conditions and recession effects, or can we say that those markets are holding up relatively well, perhaps better than the U.S.?

Jack Bendheim, CEO

I believe there are some disruptions occurring. The U.S. is not the first to face the COVID challenge, but it is definitely ahead of South America. Similar effects can be observed there. Brazil, for instance, benefits from being one of the largest exporters of poultry and hogs, as does Mexico with hogs. China has increased its purchases this year compared to last year, and their frozen inventories are depleting. As China emerges from COVID, their exports have improved. However, with the global shutdown, many people are not earning money. In the United States, unemployment statistics are rising, but some individuals are receiving unemployment benefits. This is not the case worldwide. In situations of reduced income, people will still eat, but they will consume less and opt for cheaper food. This leads to typical recession-like effects. The quicker people return to work, the sooner they will resume normal eating habits. The duration of the recession in these countries and the speed of the U.S. recovery remain uncertain. The U.S. and China are key economic drivers globally. Therefore, modeling these scenarios is essential and challenging. However, strong companies will endure, and overall, we will eventually return to normalcy and growth, albeit possibly taking longer than anticipated.

Michael Ryskin, Analyst

Great. Thanks. Can I squeeze in one last one for Richard? Can you just comment quickly on sort of the balance sheet and your thoughts going forward? I know you recognize there's a lot of moving pieces in the environment and how you want to sort of control spend. But any comments you can make on the leverage and the balance sheet and also your commitment to the dividend?

Jack Bendheim, CEO

I'm going to pass it back to Dick okay. As you can imagine we're not in the same room here. So, Dick you want to pick up some of that?

Richard Johnson, CFO

We are confident in our liquidity position. At the end of March, our net debt, along with bank liquidity and cash on the balance sheet, was around $150 million, which provides us with sufficient liquidity. We are focused on conserving cash while maintaining normal operations. Recently, we announced a routine dividend that will be payable later in June, demonstrating our commitment to the dividend, although it is subject to future developments. We also plan to continue spending on high-priority projects, ensuring we slow down expenditures where it won't impact the business's growth.

Operator, Operator

Our next question comes from Erin Wright of Credit Suisse.

Haley Christofides, Analyst

Thank you. This is Haley on for Erin this morning. I was wondering if you touched on this a bit earlier, but if you could give a little more color into the impact across your relevant animal health businesses or business lines as it relates to the closure of the meat processing facilities? And when you think this can realistically be resolved? I know it's a tough question to answer. And also my second question, could you speak to how your businesses particularly across MFAs have performed in past recessionary environments? And how quickly you typically see a recovery? Thank you.

Jack Bendheim, CEO

So we're aware of the situation you are observing. Some processing plants are now reopening, but they face challenges in securing healthy labor willing to return. We are beginning to see these factories restart, which should help alleviate the bottleneck. However, as you can imagine, if you are processing around 10,000 pigs daily, ceasing for two weeks leads to a backlog that cannot be easily addressed. This has caused issues and disruptions for many of our customers. On a positive note, as these plants reopen, we expect prices to stabilize, and this improvement should gradually take effect. The timeline for resolution largely hinges on disease control, which remains uncertain. I cannot predict when a vaccine might become available, but until then, factories will need to closely monitor their workforce and manage responsibilities effectively. Adjustments in their operations will be necessary, and this will require time. Fortunately, there are enough slaughter plants across the United States to prevent a complete collapse. The system continues to adapt. Now, what was your second question again?

Haley Christofides, Analyst

I was wondering if you could speak to how your businesses have performed in recessionary environments in the past, and how quickly you typically see a recovery, particularly across MFAs?

Jack Bendheim, CEO

Our business has consistently performed well. We are an essential business. While the financial markets are experiencing layoffs and other changes, people still have jobs and continue to make purchases. Some may cut back on the type of meat they consume or try non-meat alternatives, but these options tend to be more expensive. In a recession, I believe people will return to basics and prefer meat; they usually don't want to downgrade too much. For instance, they might choose pork instead of steak, or poultry instead of eggs, but there will still be some flexibility. There may be a temporary dip depending on various countries, but I am confident that demand will recover as the recession evolves. I remain optimistic about the industry and our position within it. This challenge is unexpected, but we will overcome it.

Haley Christofides, Analyst

Great, thank you so much. It's helpful.

Operator, Operator

Our next question is from David Westenberg of Guggenheim Securities.

David Westenberg, Analyst

Hi. Thank you for taking my question. I understand there are many variables with COVID impacting the situation. I'd like to ask about the supply chain dynamics. With school closures, restaurant closures, and meat packing plants shutting down, is there a particular area in the supply chain that we should be more concerned about? For instance, if restaurants and meat packing are functioning well, but schools are still closed or restaurants remain shut down, while meat packing continues, which parts are more critical than others?

Jack Bendheim, CEO

With schools closed, there is a decrease in liquid milk consumption, but that doesn't imply a reduction in liquid milk production. The cows continue to be milked daily. Some of the milk will be processed into cheese, some into milk powder, and some may be purchased by the government for distribution. Milk is a crucial part of a nutritional package for children, and we need to ensure they continue receiving meals. This situation is likely a temporary challenge that could be costly for producers. However, producers have limited options; they can reduce their herd size or convert more dairy cows to beef, but they will generally continue their operations of feeding cows and producing milk. There are adjustments in the industry, particularly for businesses that catered primarily to the food service sector and not supermarkets. Those businesses are currently scrambling because the duration of this situation is uncertain. They will need to repackage their products and find ways to create cuts that appeal to supermarkets since more consumers are preparing food at home. Adjustments are necessary. As I mentioned earlier, farmers are resourceful individuals. They are excellent customers and will adapt their practices to ensure they can deliver their products to consumers and navigate through these challenges.

David Westenberg, Analyst

Okay. So is it accurate to say that, in the value chain from animal to plate, there isn't one particular aspect that concerns you more than the others? Is that correct? They all seem to be equally significant in relation to your business?

Jack Bendheim, CEO

Well again, it pertains to everyone's business. I think the species that is in the industry that's most affected here because of the way it works in the United States, and you have no choice, is the hog industry. So I think they're suffering the most. Everybody else has the ability to lower production or to depopulate or to hold onto the animals and to get through the same for months and months.

David Westenberg, Analyst

Okay. So then maybe can you talk about the life cycles of animals and in terms of a return to normalcy? I mean, we are looking at COVID playing out for maybe six months – or the summer might have a little bit of a return to normalcy maybe, maybe not who knows we overall trying to figure that thing out. But the life cycles of the different animals are different. I mean, I can imagine that poultry is going to come back quite quickly. Do we need to look at maybe cattle? Cattle as being something that's a little bit more something we need to worry about to play into 2021 just given the fact that the cow is probably a couple of years before it's slaughtered? So, just kind of if you can help us think about life cycle of the animal and how this kind of disruption might play into the next year?

Jack Bendheim, CEO

So – I mean you're absolutely right. So if you make a decision to produce less poultry now, you can correct that in five weeks, four to five weeks. You can make a decision you want to depopulate your hog production that could be changed in five to six months. If you want to make a decision that you want to depopulate and have fewer animals coming into your feedlot in the cattle business, that's something that's going to affect your production for two years from now. So it's not so much – it's probably the short term, but it's probably the result of when does this come back and then will you be in position to supply? I think what all this tells me because we don't know when there'll be a fast enough solution to COVID is – and everyone is guessing. That overall the result of all this, I believe, is that the consumer price for protein is going to go up, because of the losses because of the way things are going to change, because there's going to be fewer animals available to satisfy that demand a year or two years from now.

David Westenberg, Analyst

Okay. Then just the last one, I think in the prepared comments you said it's good for the incumbents. When we talk to food producers, we do find that there is a very formulaic approach into the way they buy. So I'm a little bit – and I guess, Mike already asked this in a different kind of way. But I'm still a little bit unclear on why it would always help the incumbent given the fact that they're so formulaic in the way that they approach medicine. So I would think on a lower price you would actually see a swap out of product. So just make – I don't know, I just want to tiny bit more clarity there.

Jack Bendheim, CEO

I think – so what I was trying to say is that, let's assume you develop a new product as we do as all of us do all the time. And you have to get it to the field. You want someone to try it on 5,000, 10,000 animals. So you got to – you have to get into the field. It has to be explained. You have to get the nutritionists and the vets involved. Well, you can't do that right now, because you can't make the sales calls you can't make the presentations. So it is formulaic; people are buying what they know and when they know works for them. But they have the inability to go look at new things that will work better for them.

Balaji Prasad, Analyst

Thanks Jack.

Operator, Operator

And we have no further questions at this time. Do you have any closing remarks?

Jack Bendheim, CEO

Dick?

Richard Johnson, CFO

We'll just say, thank you to everyone on the call this morning. Thank you for listening and we look forward to talking again when we update you on our year-end results, which will be right about the end of August. I don't believe we have a specific date yet, but thereabouts. So until then everyone be well. Stay safe and thank you again for listening.

Jack Bendheim, CEO

And I'll add in everyone stay healthy and take care of yourself.

Operator, Operator

Ladies and gentlemen this concludes today's program. You may now disconnect.