Welcome to the Neogen Corporation Third Quarter Fiscal Year 2014 Earnings Result Conference Call. My name is Sherrie and I will be your operator on today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now like to turn the call over Jim Herbert. Jim, you may begin..

Thanks, Sherrie and good morning and welcome again to our regular quarterly conference call for investors and analysts. Today, as you know, we'll be reporting to you the results of our third quarter that ended on February the 28th.

And I'll remind you that some of the statements that are made here today could be termed as forward-looking statements, and these forward-looking statements, of course, are subject to certain risks and uncertainties, the actual results may differ from those that we discuss today.

These risks that are associated with our business are covered in part in the Company's Form 10-K that's filed with the Securities and Exchange Commission. In addition, to those of you who are joined by a live telephone conference this morning, I would also welcome those who may be joined by way of the simulcast on the World Wide Web.

Following comments this morning, we'll entertain questions from participants who are joined in this live conference. And I'm joined today by Steve Quinlan, our Chief Financial Officer; and Steve Snyder, Neogen's President and Chief Operating Officer.

Earlier today, Neogen issued a press release announcing the results of our third quarter that ended on February 28. And again those revenues broke all records for the Company's third quarter at almost $62 million or a 21.4% increase compared to last year's $51 million.

On a year-to-date basis revenues through the first three quarters have approximately 19% as compared to a year earlier to a bit over $180 million this compares with last year’s three quarters of $151.5 million. Third quarter net income was approximately $6.6 million and about even with the same number of 2013.

Adjusted for the 3-for-2 stock split that was effective back in November, our earnings per share in the current quarter were $0.18 a share as compared to $0.18 a year ago.

On a year-to-date basis through the first three quarters net income is approximately $20.6 million as compared to approximately $20.2 million that equates to $0.56 a share as compared to $0.55 a share a year earlier. I think it should be noted that number of fully diluted shares is approximately 2% greater than it was a year ago.

This third quarter marks the 88th quarter in the past 93 quarters that Neogen has reported revenue increases as compared with the prior year. And at this time, I sure want to thank -- special thanks to our 915 employees who are scattered around the world for this continuation of our steady growth record that’s been established now for 22 years.

Noted that even though was had a 21% increase in revenues, bottom-line earnings were the same as the prior year or put more harshly the $11 million increase in revenues didn’t provide additional bottom-line profits. The explanation is generally the same as what we reported to you last quarter.

The third quarter a year ago was a part of that perfect storm. The third quarter a year ago we reported gross margins of 53.5%. This 53.5% gross margin compares to the third quarter of this year of 49.5%. At the same time, I can tell you that after thorough investigation, we have not seen a slippage in gross margins within our various product lines.

It’s just the fact that some of our products have higher gross margins than others and when we have an unusual mix of those products, it changes the metrics. A year ago, we benefited significantly from contaminated grain harvest both in the U.S.

and major portions of Europe that provided sales of high margin test kits and this just didn’t reoccur this year. As you heard say in the past, we found success in overall management of the company if we work around the goal of a 20% operating profit, 20% of revenue.

When this dropped below 20%, we look back upstream to find out where we might have invested too much money for top-line growth or we might have a leak somewhere. When it goes above the 20% mark, we feel kind of like we are eating seed corn and we need to be investing more in order to grow that top-line.

We knew that during these past two quarters that we were up against some tough year ago comparables at the same time we knew that we needed to invest more heavily for revenue growth or see these opportunities go to competition. This quarter we invested 14% more in sales and marketing than we did in the prior year.

We also invested more in our R&D effort. Earlier in the fiscal year, we also had an opportunity to make three strategic acquisitions that put us in a very strong position in our biosecurity efforts for our animal safety group. So all this, we will continue to be accretive at the top-line and at the bottom-line.

There have been non-reoccurring expenses that are associated with these acquisitions and the integration of them. On top of that we had harsh weather across the Midwest and even down into the Carolinas that slowed this integration process, every one of our U.S.

operations at closures during the quarter because of extremely cold temperatures, snow and ice and this kept us from absorbing some overhead and building of inventory.

I am proud of our continued growth in revenue, I am sure that we made the right decisions to make these strategic acquisitions, I am also sure that the money we invested in sales and marketing to push the revenue growth was a wise decision even though it temporarily penalized the bottom line.

At this point let me stop and ask Steve Snyder our Chief Operating Officer for his comments, as most of you know Steve has been with us now for most of this fiscal year and his leadership in our organizational ideas have been helpful and preparing for a continued strong growth, Steve has spent most of his time recently working with our food safety group, frankly has given me some much-needed time to work on more strategic longer term opportunities.

Steve..

Thanks Jim, appreciate that. On the call today I want to focus my comments on our results in both food, animal safety as it relates to selected markets. I’ll also provide some more specific examples of product lines within segments where we see particular strength going forward where we’re still working to improve.

In our food safety business we saw solid organic revenue growth of 10.7%, with most market segments showing significant quarter-to-quarter growth.

The major exception being our milling and grain market segment, and that segment it was another difficult competitive quarter to the last year’s outbreak which generated unusually high margins for mycotoxin test kits.

Bottom line for milling and grain was that we had the write new product for the market which were Reveal Q+ in a year with significant mycotoxin outbreaks in both U.S. and European crops; otherwise there were no big surprises across the food safety business.

In terms of product and marketing highlights for the quarter, our grocery product segment showed healthy gains of 10% compared to same quarter last year, driven largely by our industry leading food allergen test kit product line. These products allow our customers to detect knowledge and contamination of full range of consumer proved products.

Some of the more popular test kits were for milk proteins, eggs and soy. Market demand is really growing - driving the growth for fast and easy detection of these allergens.

Example of this is the plant based dairy alternative beverage market which includes product based on soy, almond, rice and other substitutes designed to address lactose intolerants, milk allergies and generally provide non-dairy options. This segment is reported to be growing at 15% annually, reaching a value of $14 billion in consumer sales by 2018.

Neogen is well positioned to address these opportunities. In addition to allergen detection in grocery products sales of our AccuPoint 2 ATP detection system added to the results.

As customers continued to look for ways to improve sanitation and to implement new cleanliness protocols AccuPoint 2 and AccuPoint 2 with RFID provide a logical and easy use tool. The RFID product comes enabled with RFID tracking capability that allows you to monitor results by specific locations within your facility.

Our AccuPoint business grew 11.1% overall this quarter compared to quarter three of 2013. Other strong markets for us were the beverage and nutraceutical segments. Together they grew 31% when compared to last year’s third quarter driven by continued strong product sales of our Soleris line the rapid optical microbial testing systems.

Soleris systems are used to detect spoilage organisms’ yeast, molds and fruits, our convenient ampoule media in Neogen filter test also contributed to the advance in beverage, market sales showing growth of 26% this quarter versus same quarter last year.

Overall we had global sales growth of 17% in our Soleris line, including both disposals of vial and instrument sales. Instrument placements grew nicely for the quarter and we also have a strong pipeline of newly identified applications and customer prospects which bode well for the future of vial and equipment sales.

Dairy is another strong market for food safety products. Neogen’s products address the needs for detection of spoilage organisms, residual antibiotics in fresh milk and the presence of allergens. The world dairy market is expected to show above average growth in emerging markets such as Brazil and China where we’re already adding resources.

Growth in U.S. and Europe is expected to further to grow in further processed categories like cheese and yogurt. This includes new consumer dairy products such as the currently popular Greek yogurts and the drink of healthy beverages.

In order to capitalize on market opportunities like dairy we stepped up our attention on a range of micro-biological oriented products. One example of this is our recently launched film based general micro-product called NeoFilm, and we’re seeing promising initial orders.

Our solutions based approach to selling our micro line of products is perfectly suited to generate growth in NeoFilm sales. As mentioned earlier these advances help offset our milling grain mycotoxin related sales that were off 34% due this year’s clean grain crops.

Switching over to our animal safety markets, we had overall growth of 32% versus the same quarter of last year. Successful integration of recent acquisitions by our team in Lexington is really the important headline here.

In the quarter we concluded the acquisition of Chem-Tech, a Pleasantville Iowa based leader in insect control to the food and animal industry. This business bodes nicely into both our animal safety and food safety businesses.

The Chem-Tech products are an important aspect of our biosecurity offering which includes rodenticides, cleaners and disinfectants. These other products are made by our Hacco division located in Randolph, Wisconsin. Chem-Tech also brings intake protection for food related storage facilities providing a natural wind to our food safety business.

Integrations gone well and we’ll continue into the next quarter as normal seasonal demand is expected to grow. Back in October of 2012, we acquired Macleod Pharmaceuticals this provide us with a strong product in the animal safety business called UNIPRIM. UNIPRIM is an antibody powder usage treat a wide spectrum of bacterial infections.

Sales of UNIPRIM were up 28.4% in this third quarter compared to the same quarter last year.

The strong performance of UNIPRIM was offset by a tough comparison quarter to quarter last year with our Thyrocare pet pharma products where sales were up versus historic levels but were below the 2013 figures when we benefited from competitor outages during the year.

But that instrument market has become significantly stronger for Neogen with the SyrVet Prima Tech acquisitions earlier in the fiscal year. We now offer a full line of veterinary instruments and many well-known brands in this space. Sales in our historic ideal instrument line were up 14.1% this quarter even before the addition of acquisition revenues.

A strong year for cater ranchers is a positive factor for sales of many of our animal safety products. After the draughts of 2012 and 2013, 2014 could shape up to be a record year driven by lower count numbers and grain prices.

This certainly applies to our trademark D3 detectable needles one of our star product lines in our animal safety business developed over 10 years ago using proprietary alloys and designs factors this product line continues to grow with revenues up 9.5% in quarter three of 2014 versus same quarter of 2013 were up 11.7% on a year to date basis versus last year.

This product is a great example of how Neogen’s food safety strategy reaches back inside the farm gate to deliver food safety. This product prevents broken needles from getting into the food supply by allowing simple needle detections prior to the shipment of product.

GeneSeek our animal genomics based testing and bioinformatics business located in Lincoln, Nebraska achieved growth of 6% for the quarter versus last year’s quarter. This indicates that our moves into this cutting edge technology are showing utility and easy to use applications within the segment.

We continue to find new ways of leveraging this technology across our platforms. Our NeoSeek test that allows positive DNA-based conformation of dangerous E. Coli strains is a good example of that.

Now throughout the quarter filled with acquisition integration and unusually difficult weather conditions on top of all usual challenges our team of employees gave the extra effort needed and did a great job making sure we stayed on track taking care of our customers.

I believe the key for us right now is continued emphasis on execution of our strategy to deliver customer solutions. With the ongoing support of our product development, manufacturing the rest of our Neogen team we are optimistic about facing the year strong. With that I’ll turn it back over to you Jim..

Well, thanks Steve and it’s pretty easy to call on Steves around here now. We used to get we used to have lot of Jims, now we are outnumbered by Steve so that was Steve Snyder and I’d now like to call on Steve Quinlan, Chief Financial Officer, to give you a bit of the numbers caller and these general comments. Steve..

Thank you, Jim. Jim’s reported on the overall sales and profit performance for the third quarter of our fiscal year and Steve is taking you through some highlights of our revenues and markets. I’d like to give you some color on our earnings for the quarter and year to date and talk as well about some of our significant balance sheet changes.

Gross margins on our $62 million in revenues for the quarter were 49.5% compared to 53.5% on the $51.1 million in revenues in the February 2013 quarter. This decrease was due in large part to the shift in overall company revenues toward animal safety products a result of the three acquisitions the company has completed this fiscal year.

These acquisitions SyrVet Prima Tech Chem-Tech were all on the animal safety side of the business and added $7.8 million of revenue to that segment for the quarter.

As we discussed on the second quarter earnings call these businesses are bolt-ons and although they are gross margins fall somewhere in the middle of the animal safety average they generally require less operating support and should provide nice contributions to operating income once fully integrated into the company.

The SyrVet and Prima Tech acquisitions also significantly improve our market leading position in the animal protein veterinary instruments business while the Chem-Tech purchase broadens our product portfolio for our biosecurity offerings for the same animal protein market.

I think it’s important before we go on to note that the 53 plus percent gross margins last year were the highest the company had ever achieved primarily due to the aflatoxin outbreak we’ve previously mentioned and the capture of high margin small animal supplement business.

If we analyze Neogen’s gross margins for the past four years before fiscal ’13 we find gross margin averages of about 50.8%. But the good news is that gross margins have not deteriorated in our existing product lines the margin percentage decline is truly a mixed phenomenon.

Gross margins were strong in the Food Safety segment even with the continuing natural toxin revenue short fall that we discussed in our second quarter call and earlier today, caused by the aflatoxin outbreak in the corn crops in the prior year.

In our third quarter, we had our $500,000 shortfall in the natural toxin product line and this is the high gross margin product and our gross margin percentage declined only slightly for that segment as other products largely made up for their short fall.

In the animal safety segment, margins and Lexington’s base business were stable and GeneSeek’s gross margins improved compared to the second quarter as its mix turns towards higher margin platforms.

Disinfectants and rodenticides sales were negatively impacted by weather and order timing and this did result in slightly lower margins for these products due to unabsorbed overhead. On the year-to-date basis, gross margin was 50.3% compared to the unusually high 53.5% in the prior fiscal year.

And this decrease in gross margin on year-to-date basis is due to an overall shift in total revenues which I just discussed regarding the quarter and shifts in product mix within each segment.

Looking at operating expenses, our sales and marketing expenses increased $3.3 million for the first nine months and as a percentage of sales they were 19% compared to 20% a year ago.

General and administrative cost for the first nine months increased from 9.5% of revenues to 10% and primarily due to amortization of certain intangible assets from the recent acquisitions compensation and stock option expenses and legal fees. The amortization charges and stock option expense are non-cash charges.

Expenses of almost $700,000 for the first nine months from new locations in Colorado, North Carolina and Iowa resulting from the acquisitions in the past year are included in the increase. Year-to-date research and development expenses were 10.1% higher than last year primarily due to contract of services expenses for various projects.

However, they were only 3.6% of our total revenues. Our operating profit was $10.3 million for the quarter an increase of 6.5% compared to last year and our operating margin decreased from 18.9% in the February 2013 quarter to 16.6% in the February 2014 quarter.

On the year-to-date basis, operating margin was 18% compared to 20.1% in the same period of the prior year. For both the quarter and year-to-date the decline in operating margin percentage was due to the decrease in gross margin percentage as I have already described.

For the quarter ended February 28, currency losses were minimal; in last year’s third quarter other income included $180,000 currency gains as well as some royalty income.

On the year-to-date basis other expense of $522,000 was largely result of currency losses recorded at foreign subsidiaries as the Brazilian real and the Mexican peso devalued against the U.S. dollar during the first half of fiscal ’14.

Income tax expense in the third quarter of last year benefited from a federal research and development credit for calendar year 2013. That credit expired at the end of 2013 which is resulted in a higher effective income tax rate in the current quarter.

As Jim mentioned at the beginning of the call, we achieved net income of $6.6 million or $0.18 a share involved this quarter and year ago third quarter and for the year-to-date have earned a total profit of $20.6 million or $0.56 a share compared to $18.2 million or $0.55 per share last year.

We finished the first nine months of the year with the strong cash position even after spending $39 million on the SyrVet, Prima Tech and Chem-Tech acquisitions. The company has generated $17.2 million from operations in the first nine months of the year.

On the balance sheet our revenue balances are up 14% since last year primarily reflective of our revenue increase. Inventory levels have increased from last year levels but $9.1 million of that increase is inventory from the acquisitions. And we’ll be rightsizing this over the next few months.

To ramp up, we’re going to close out the year strong, execute our plan and continue to earn the trust that you have placed on us. Our entire management team is excited about our continued growth opportunities. That concludes my prepared comments, I appreciate your attention. At this point I’ll turn the call back to Jim for his closing comments..

Thanks Steve. As we continue to build the organization and product line to take advantage of both food and animal safety opportunities that drivers for our business continue to even be stronger. For instance of even though we generally got the U.S. food is been safe compared to at least the other parts of the world.

The nationwide recalls in the last three months of 2013 by the Food and Drug administrative to over the 134 in that same three months period the U.S. department of agriculture reported 19 recalls for meat, poultry and processed egg products.

All this regulatory activity is taking place even though the infamous food safety modernization act is still not been implement. Though regulatory recalls are certainly a driver job business and even bigger driver is increased activity by major food producers and processors who are working harder to make certain that their food is safe.

As Steve reported, we’re seeing healthy growth in a number of our products back inside the farm gate that have significant impact on animal proteins safety even though acquisitions have aided growth as you would expect.

The organic growth or same-store sales continues to be persuasive with our Food Safety group increasing same-store sales somewhere approaching 12% and animal safety of same-store sales over 8%. Some of the strategic opportunities that I have spoken up earlier involved our international business.

I expected two-thirds of our total market opportunities actually lie outside of the U.S. And then emphasis on international growth as some of you will remember has always been one of our drivers and one of our objectives, revenues from international sources in this third quarter were 12% higher than in the prior year.

And these revenues come from over 100 different countries around the world; however, we give major emphasis to those countries where the Neogen flag is planted and our own boots are on the ground. Our Neogen Europe operations continue to be a star in revenue and earnings growth with revenues up this third quarter by 22% as compared to the prior year.

And this is the one quarter phenomenon since on a year-to-date basis Neogen Europe revenues are up 32%. Though most of our Neogen Europe revenues come from food safety based products. Our business in animal genomics in Europe is becoming a stronger driver. We have our own sales organization in the UK, France, Germany and Holland.

And Neogen Europe also takes care of or is responsible for sales for all of our independent distributors throughout the European Union.

Though working from a smaller base, our revenues for Neogen Latino America headquartered in Mexico City also continues to show good strength during the quarter up almost 31% for the quarter and 25% for the first nine months.

Bottom line profits in Mexico have been fragile because of this rapid growth, but Neogen LA is reporting an operating profit for the quarter and in fact first time for this year. Neogen Brazil showed strong revenue increase of 31% for the third quarter and almost 47% on the year-to-date basis as our traction improves there.

Brazil will continue to be an important to Neogen and to the world as it becomes the major worldwide supplier of food. I feel good about the way our new organization is shaping up for China and it’s very clear that China is concerned about food safety and food security for its developing middleclass.

In addition to Chinese companies acquisition of Smithfield Foods back two quarters ago by the way Smithfield is the world’s largest pork producer and processor.

The Chinese government continues to encourage western companies to come to China to have produced the increasing amount of animal proteins that are going to be necessary to support that growing middleclass.

Food safety concerns in China continue to be overwhelming even with tight controls that are put in place by the central government and China has prosecuted over 10,000 people in the last three years for the production and sales of substandard or poisonous food.

China has just published a new food safety standards regulation to once again try to set up system for strong implementation. A key in this decision has been to require that every processed food company to name to the central government the person to be responsible for food safety within that company.

More processed food will be a key to the China master economic plan as urbanization grows. This will be spurred by our plan it was in fact just approved this week to move $100 million to cities over the next few years. Food security to middleclass China is already becoming a serious issue. We think that this gives us a good opportunity going forward.

The other major world growth in middleclass is coming from India and of course this is also going to grow. I’m just back from a week where I led at Neogen delegation as we began to pursue establishing out own company operations there to work with both food and animal safety operations.

India is just beginning to embrace the new technologies for food safety. Until now their food safety issues have not been as pronounced as in some parts of the world since food is consumed within a short period of time from when it’s actually been produced.

However, as the middleclass there gross and as the urbanization becomes more prevalent, food safety or proceeded food is becoming a much bigger concern. This is particularly true of that middleclass that speak up.

I think it’s obvious that with 18 million people in Mumbai and maybe 17 million in New Delhi along with more than 50 other cities with populations in excess of million people, that better and faster methods of testing for food contaminant is going to offer some real opportunities.

I guess in conclusion I’d say that I feel pretty good about where we are at the end of our first nine months. I know that these top-line revenues are and will produce good bottom-line results though we don’t have any acquisitions to report to you this morning.

There continues to be some opportunities on the radar screen and we of course have, as Steve said, sufficient cash, I think, to take advantage of most anything that might come home.

But the challenge for Neogen management going forward is to balance that top-line growth with bottom-line earnings and to get that operating profit back to the 20% revenue position. I think I will stop at this point and clear my prepared comments and Sherrie open the line for any questions..

Thank you. We will now take questions. (Operator Instructions) Our first question comes from Paul Knight of Janney Capitals..

Congratulations. You I think touched on a little bit and that is this food safety market seems to be such a consistent grower, until my question is twofold.

One, more color on why you continue to see that double-digit growth? And two, I guess phase I of the food safety regs are having to be rewritten here this year, what’s your forecast on the food safety regulations? Is it another year before we see it or does it even matter?.

Paul, I am beginning to think may be it doesn’t even matter. I was continually with people in the food industry yesterday with; in fact have opportunity to read a couple of issues in with major, significant food production in this country.

We spent some time discussing yesterday afternoon, they are kind of to the point of saying, if the regulation was in effect, and we think we would be compliant but we don’t always going to be an effect. I think the first one, there was I believe seven major areas in which FDA wanted to establish stronger compliance and stronger regulations.

And the first one I think was fruits and vegetables. And it’s been - they’ve published that for comment well over a year ago and at the end of the comment period they decided they didn’t have enough comment, so they reopened it for additional comments and it was scheduled to be a regulation several months ago.

And FDA came back a couple of weeks ago and said, well, we are not sure we got enough comment yet, we are going to reopen it for comment. So, it’s hard to explain, I don’t know how much of that we lie at the doorstep of the administration or how much we lie at the doorstep of just general confusion.

But I think sooner or later, we are going to see these regs come in.

In the meantime it’s maybe good for us and good for the industry that they are leaking out slowly rather than having an abrupt impact and that people are beginning to - producers and maybe exporters or importers for us are beginning to look at those regs and see what they have to do in order to be compliant and they come, they are being compliant with less stress, when I guess I shouldn’t say yet because I think they will.

I mean they got to be implemented at some point but when they get implemented. So, that’s a long political answer to a rather short question but that’s what I see there.

So, I think the drivers are going to be there both for food and animal safety and Steve Snyder talked about we go by last names around here, so that’s wrong way but some people think that’s kind of irreverent to be referred to me always on last name. But Steve S.

talked about the Chem-Tech acquisition and the fact that we brought our product in there, some strong products that’s going to be help inside the farm gate, so it’s going to be important because insects are one of the vectors that carry disease and problems, especially flies.

But it’s also impacting what’s happening in food safety, we got large warehouses that are storing things like ready-to-eat cereals that now to be concerned about, keeping the insects out otherwise you get the cereal box that’s got little holes in the side and you wonder where it came from.

But that’s a big issue and we have got called green product that is being used in those warehouses for insect control, so it’s going to be interesting to watch that growth too..

And then last the growth point you brought up 11% food safety, about 8% animal I think that translates what into a roughly 9% to 10% total organic growth rate in the quarter..

I refer to Mr. Quinlan on that one..

Those numbers given were year-to-date numbers, so that would be 9 or 10 year-to-date, yes..

And how about year-over-year organic?.

Quarter. Food safety was about 10.7, all of their growth was organic and animal safety was about 1%, 1.1% so blend it around 5%..

Thank you. Our next question comes from Tony Brenner of Roth Capital Partners..

Steve Q I guess, mentioned that natural toxin revenues were down I think $500,000 in the quarter.

What percentage decline is that for these products?.

Give me a second Tony. Yeah if we’re talking specifically we just have so many natural toxins Tony but we’re trying to do - the aflatoxin one, that’s probably about somewhere in the 30% range..

Decline Tony quarter-over-quarter..

And then that comparison should begin to improve significantly this quarter, is that correct?.

I should know the answer because I knew you’d ask a question like that. I think the comparables are going to be less tough. Remember, though, that a crop that was harvested in October, November is to be tested for a better part of the year, because it goes into storage and is tested as it comes out of the storage.

But I was taking my neck out and say it’s going to be less this quarter this fourth quarter than they were last year. I think that’s right, Steve..

I think so, yes..

Fair enough. And I believe you also said that GeneSeek sales were up 6% in the quarter year over year. Last quarter, the increase was 56%, I believe. And you attributed that to some new tests and products resulting in incremental market share.

So I'm wondering, if that's the case, why so much volatility?.

Its quarter-to-quarter variation is hard to predict, we’ve got some of that as we’re working with some of the major animal breeders in the world and they’ll pull animal samples for grandparent, great grandparent use and breeding and those samples will build up, and we’ll get them a slug at a time.

We’ve got our GeneSeek people in here, we spent some time yesterday trying to figure out to better predict where that’s coming from. That was a strong third quarter this past year so it was one of those divine intervention quarters in Q3 of ‘13.

So we were up against the tough comparables, so I don’t think that 5% probably may not be indicative of anything going forward..

How large a customer base is there for GeneSeek? Is it still very small, or is it a broad sampling?.

Yeah I am looking, it so happens that controller of our GeneSeek group is in the room this morning, and I turned to him and he said if we look at all the individual writers out there probably up to 4,000 to 5,000. If we look how many customers we know that make up the top 50%, 100 customers make up the top 50% Tony..

Thank you. And our next question comes from Charles Haff of Craig-Hallum..

Thanks for taking my questions this morning. I had a question for you on the acquisition environment. In terms of available targets out there, do you see more targets on the animal safety side or the food safety side right now? Thank you..

Well we’ve seen more targets on the animal safety side, we made three. The food safety side it’s kind of I think the difference premature and immature business is food safety is still pretty immature so consolidation hasn’t began, we’ve picked up a few along the way but there is not real consolidation that’s began yet, so the offerings in that.

Animal safety if you look a back there is part of the animal health business is much more maturing, so consolidation is easier to do and continuing. I think we might have a couple of three food safety candidates on our radar screen but nothing eminent..

So on the animal safety side, you probably have a few more than the food side on your target list right now?.

I’m just turn think I don’t know I don’t think there is probably much difference in it..

Okay. And then my second question is on the international side, you did a really good job of kind of breaking out your growth rates by your divisions there.

Just wondering in terms of kind of where the most materiality is - I realize they're all kind of in different stages with India being real early, and obviously EU, you've been there for quite a while with your Scottish efforts there.

In terms of kind of where the biggest bang for your buck is right now, is it Neogen LA, or is it Neogen Brazil, or Neogen China? How should we kind of think about where the biggest return on invested capital may come from over the next couple of years? Thanks..

Yes, couple of years I guess I could look at where are we with currently and as we look out over the next few quarters we’re in budget and under year begins in June so we’re beginning to start formulating our plans for next year and I don’t see any slowdown in the growth of Neogen LA it’s working in material markets where food safety gets to be a bigger and bigger issue as we look at the European Union, Europe Union is putting out more regulations than any place else in the world today and forcing compliance.

And I think the economy is going to be okay over there we suffered a little bit with Italy and Spain but not now it looks like we’re okay and we’ve got independent distributors in those markets.

So I think we’re going to continue to see probably some more investment we’re looking at some additional investments perhaps in Europe and we’ll see that piece continue, that company group continue to be the center piece. As you look at dollars, percents are great but it’s - a friend of mine once said did you ever write a check for a percent.

And so some of these big percent gross are nice but if you know what the base you’re working from Neogen LA the Mexico side it was the reach they potentially have into Central America and what we’re doing in Mexico I feel real good about that organization has grown and we’ve come off age.

The China operations could be big in a hurry like it’d be just lackadaisical just depends on how fast we can get some things done we’re going through some reorganization and building of a new group there and I think we’re welcomed by the China government and welcomed by the producers particularly the western companies that are producing protein in China.

It could be big right now it’s not but it’s pretty respectable on both the food safety and the animal safety side we’re going in there with some cleaners and disinfectants particularly disinfectants into that China market where that it was already we already had kind of a base with difficultly and getting product in there to reasonable price sets opening up for us.

India is clearly the last place, it’s going to develop slowly I think we’ve probably be able to make an acquisition or two that will serve as the base for us to move out there. But it’s not going to develop real rapidly I think however is the right this now is the time to be there so we can be a part of that growth as it starts to mature.

That’s kind of where we’re looking and world every place else in those 100 plus countries we’ve got pretty good distributors. There is a spot or two where we might the year out look at foot now boots on the ground but not in the next 12 months..

Yes, I like the way that you're looking at it in terms of dollars instead of the percentages.

So if you had to kind of rank-order those opportunities in terms of dollars of incremental growth or profit over the next couple of years, could you kind of rank-order those for me?.

Yes, I think it’s, Europe is first -- Neogen Europe is first and then may be a horse race between Neogen LA and Neogen Brazil, Brazil might be running faster than the Mexican operations but those will be good and I guess I have to put China in reluctantly in next slot because it could be bigger and then of course is it’s yet unknown..

Sure. Okay, great. Thanks for taking my questions..

I’d like to get a $1 million out of India in the next 12 months, if that helps you at all..

Thank you. Our next question comes from Steve O'Neil of Hilliard Lyons..

Just wondered if you could provide us some information on how much food allergen testing increased in the quarter and how much dairy testing increased?.

I think that’s a Steven Quinlan question..

Yes, dairy was up about 5% in the quarter..

Okay..

Allergens were up about -- we got one piece, you know that’s, we’re kind of split our products up just to keep our safety piece.

One piece which is strictly focused on diary antibiotics sales, antibiotic residues, and then another piece that is our more full aligned area products like those both the Steves were talking about, where we’re going with allergens and pathogens and spoilage organisms.

So you kind of have to add the two together (multiple speakers) talked to you long enough for you to come up with the answer. Steve.

The dairy antibiotics one Steve I think is the one you normally are looking for and the other one is kind of its varied inside of our Lansing diagnostics group. That dairy market is up 9%. Our overall dairy in antibiotic line is up about 5%, 5.5%..

Okay..

Than the allergens line for the quarter was up about 17% and that’s pretty much in line with I think it’s year-to-date around 24%, so, consisting growth..

And then said that $7.8 million from acquisitions was that year-to-date figure or quarterly figure..

That was for the quarter..

Right, that’s what I need. Thank you..

Welcome..

Thank you. (Operator Instructions) Our next question is from Jason Rogers of Great Lakes Review..

Looking at the animal safety segment, the organic growth of 1%, how much of the impact did weather have on that figure?.

It heads some, stops moving off the shells per slow, you know you think of tractor supplies one of our big customers that fit there on the retail side with some over 1,000 stores out there now. Those things probably didn’t - bad weather being such there is lot of that stuff didn’t move up, it’s kind of hard question to answer.

You know we’re early for the last season yet so there is nothing really developing there, it’s hard to clean and disinfect when you use in water base to production increases before you can get it out of the end sprayer.

So, I’m sure it had some impact it is pretty hard for me to have other than this kind of imagine, I know exactly what it did, I know that slowed us up it at our eco group which is cleaners and disinfects and rodenticides this kind of - its kind of between quarter in a way and we’re getting ready for start to filling this fourth quarter where we’re shifting from - as the rats and mice start to leave their winter quarters and head for the vacation camp branch where we don’t have probably put out list rodenticides but we don’t put lot more insecticides as we get insects build up and cleaners and disinfectants I think we’ll see probably a kick here in this quarter as people start trying to catch up..

And you talked about Europe strength you mentioned genomics testing.

What were some of the other areas that drove results in Europe for the quarter?.

Well, they were up all over. We got a good bit of speciation testing over there more there than as percentage of sales and other places, you know there are horse what they refer to; there is horsemeat, when they found the horsemeat like early in the year.

You know that drove a lot of interest in testing particularly meats for contamination, for economic adulteration or somebody slip in 10% pork into a beef product and getting beef prices for it or chicken or lamb or whatever, and there is - that continues to be strong. So I guess speciation is certainly part of it, allergens is a big part of it.

We do pretty good internal efforts lab business to help our customers in addition - and over there in addition to the test kit that we sell. So, both from the standpoint of the reference lab business and test kit sales are allergen sales are particularly strong over there. So that’s - we’re seeing them be the leader on the allergen side.

The allergen sales in the U.S. have been awfully good too; they’re not quite there yet in Mexico and Brazil and of course non-existing right now in India maybe China too..

And then finally, could you give an update on the answer products and traction you’re getting there?.

Not enough. We’re still -- we've got such a good full land of products out there for solutions to microbiological contamination and pathogens all the way from the new products that Steve Snyder talked about, our NeoFilm, which is a quick way to be able to get a quick test for Salmonella or E.

coli not quite as precise as some of the other methods but that went all away through our lateral flow devices are what we call our Reveal product lines it also quick - they’re lateral flow device that can be used on the land and can be read visually, you don’t have to have a machine.

Those all kind of compete with what we’re doing with that ANSR product line and we probably aren’t given as much attention as we need to. We are reupping our emphasis both from the standpoint of additional development. We don’t have their complete product line developed there yet.

For instance, we shot Listeria monocytogenes which is one of the products that like of people like to have. And so they’re going to us out test for Salmonella that also like to have the same format for another one. So we’re working on that but it’s a coming it’s not what I’d hope it would be this time a year ago..

Thank you. And then our next question comes from Bryan Kipp..

Just a follow-up for Paul and I. You highlighted two-thirds of the market ex-US; there's a two-thirds of the market kind of existing ex-US opportunity going forward. Just want to get an idea, just future margins kind of story.

Is that more food safety - levered to food safety, or is it more animal safety side, those opportunities?.

For more food safety simply because the animal safety markets are going to be bigger but there is more competition. And we do awfully well for instance in veterinary instruments which are important, because that is what you’ve got to have to have delivery devices for anything is going to make animal product safer when they leave the farm gate.

And we do much better in more developed markets that we will - we won’t ever sell many veterinary instruments as an example in China though they use a lot, but they’re going to buy some cheapest China made and we get some of the same issues as we deal with South America where we’ve got cheaper competitors down there.

They’re putting products out there. They’re not what the rest of the world look for, so those are that’s just an example. I think we will by the same - on the other hand we’re clearly a leader in with much less competition as we look at the full line of food safety products.

Again emphasizing the fact that we’re the only one out there with that full line going all the way from pathogens to natural toxins to allergens to speciation to unique protein, right now we’re the only one that can offer a full line of potential solutions. And I think that’s continuing to work more and more for us..

Okay, so it's safe to assume as well that Latin America, Brazil, China and India, those kind of more emerging-market stories you're going to see even more weighted toward food safety because of those dynamics?.

Yes, that’s right. But it’s hard to say cleaner and disinfectants and rodenticides are going to be a big player, we think in Brazil. And those numbers pile up pretty quick when you start talking about instead of test kits you start talking about trailer loads of 50 gallon drums. So I think Brazil is going to be and Mexico just some degree.

We are going to rodenticides and disinfectants business in those markets and insecticide business is there. So they’re going to be okay..

Appreciate it. And just, I guess, a follow-up on the acquisition revenues that you guys had.

Are those companies tracking towards profitability for you, or is it still kind of dilutive? And what's your expectations for those going forward?.

No, no, I don’t know. Every acquisition that we’ve done is accretive at both the top line and bottom line. So no every one of those, those three that we’ve brought in this year the first month they’re on Board, I think at least the first quarter they were on Board. They were putting profit to the bottom line..

Is that in regards to the animal safety business or overall corporate averages?.

I am not sure I understood the question..

The profitability that you're citing, I was just thinking is it, because it's in animal safety, are you using that as the metric? Or is it overall business, which is a little bit higher?.

Okay, I can’t tell you. I can’t from memory tell you exactly what the operating profit was for which is close where we look. What the operating profit was for each of those. I would say they’re profitable.

I want to make sure that you knew that there was not - they were unprofitable at all because they’ve all been profitable first month that we brought them on Broad. Are they less or more profitable than the overall that’s they start with, they’re less profitable because we’ve still got integration cost involved there. We work to achieve.

We are on some budget yesterday and we’re looking at it about 19% operating profit. And we were saying, let’s work on those budgets and see if we can get that one to 20%. So that 20% operating profit total corporate as well as within group is part of our objective..

Okay, yes, I guess I was just referring more to dilution. Appreciate the color.

And I guess finally, cash flow from operations; can we get a number there, just so we can work through? What was your number (Ph) in the quarter?.

Sure. So the quarter was $6.5 million..

$6.5 million. Thank you..

Thank you. And then our final question comes from Steve O’Neil from Hilliard Lyons..

Sorry, I had a couple of follow-ups. Can you discuss the performances of the rodenticides and the disinfectants separately? You talked about some weather impact. I was just kind of wanting a little additional detail..

I can’t but maybe Steve you can..

Yes, rodenticides were down about 12.5% and that was more driven by weather particularly one of our bigger market is Puerto Rico and that really they had some real wet weather that didn’t lend itself to rodenticide sales for the quarter. Cleaners and disinfectants were down about 7%. And that’s more international.

No significant weakness there except that one of our larger countries is Venezuela and that market has been down all year because of currency, getting cash out of the country to pay for the product..

I don’t know that we had any - we suspended sales into Venezuela, reluctantly. We’ve got good distributor, good customer base down there. He’s got money into bank, he could pay us. Government just won’t let him ship it out. Now that did get corrected. I think, Steve, within the last two to three weeks and we’re getting some money to flow to come out.

The government is releasing some cash. So with that we should be able, in this fourth quarter, to resume, I hope, down there..

And just finally, I had a note I meant to ask you about ractopamine, about a test you had developed for that. And that's something that's cropped up with some of the animal health companies.

Can you talk about that product a little bit?.

Yes, it’s actually the diagnostic test for the detection of ractopamine. They’re two beta agonistics that are being used to - ractopamine was used mostly in the hog business, some in the beef cattle business. Merck had a product that was used mostly in the feedlot business. Both of them have come under fire.

Merck pulled their product or I think they pulled it from the market everyplace. Eli Lilly is still selling ractopamine. It’s an approved product in the U.S. but in big part of the rest of the world it’s unapproved..

I think (multiple speakers) sells it, too..

Yes, they’ve got a similar product to the Merck product, I think. But at any I don’t have the numbers right on the tip of my tongue, but they haven’t been anything overwhelming this quarter.

We know two or three of the major swine producers or pork producers that have said we’re just going to take this group of farm and we’re going to take them all for not go let them have that go let any ractopamine get there. So therefore we don’t have to worry. That’s the product that we’re going to kill and ship to Russia or whatever.

So, there’s probably less testing as they begin to get more that in hand. This is still there and I guess the next time somebody finds something and turns down shipload of pork, it will pick up heavy again, but nothing to write home about this quarter..

Thank you. And then at this time I would like to turn the call back to Jim Herbert for follow-up or closing remark..

Well, thank you. And thank you all. We appreciate your continued support and it continues to be fun. We’re off to a good start in the fourth quarter and we’re looking forward to it. I guess we don’t get to talk you officially until, gosh now.

We have to wait after we get the all of the filings done, so it’s all going to be July before we get to officially talk again. So in the meantime, thank you for your support..

Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect..