Jim Herbert - CEO Steve Quinlan - CFO Rick Calk - President and COO.

Brian Kipp - Janney Capital Markets Tony Brenner - ROTH Capital Partners Charles Huff - Craig Hallum Ryan Blicker - Cowen and Company.

Welcome to the Second Quarter Fiscal Year 2015 Earnings Results Conference Call. My name is Jeanette and I will be your operator for 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 will now turn the call over to Jim Herbert.

Mr. Herbert, you may begin..

Thank you and good morning and welcome to our regular quarterly conference call for investors and analysts. And today, we'll be reporting to you the results of our second quarter that ended on November 30th.

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

And these risks that are associated with our business are covered at least impart in the Company's Form 10-K that is filed with the Securities and Exchange Commission. In addition, to those of you who are joining us today by live telephone conference, I would also welcome those who may be joined by the way of simulcast on the World Wide Web.

Following comments this morning, we'll entertain questions from participants who you are joined on this live conference. And I'm joined today by Steve Quinlan, our Chief Financial Officer and Rick Calk, Neogen’s new President and Chief Operating Officer.

Rick has been with us now for a little less than two weeks, but I can tell you he is already starting to simulate our products and markets as he focuses on future growth. Rick has a good background in a number of food ingredient markets.

Earlier today, we issued a press release announcing the results of our second quarter that ended on November the 30th. Net income for that second quarter increased 26% to 7.8 million compared to the prior year’s 6.2 million. Earnings per share in the current quarter were $0.21 as compared to $0.17 a year ago.

Year-to-date net income for the first two quarters was approximately 16.7 million or $0.45 a share compared to $0.38 a share for the same period last year.

Revenues for the second quarter of this fiscal 2015 year increased by 15% to approximately 68.5 million, on a year-to-date comparison revenues for the first two quarters were 136 million again up at 15% compared to the year earlier.

This second quarter marked the 91st quarter in the past 96 that Neogen has reported revenue and increases as compared with the same quarter in the previous year. This record now spans 24 years.

While we successfully increased revenue by 15% we were able to increase net earnings by 26% and some of you remember a few quarters ago top-line revenues had actually grown faster than the bottom-line net income as we were rebalancing some expenses that went there.

I guess in many ways the second quarter for Neogen were just kind of a steady issue this quarter all of our divisions were holding their profitable position if the markets grew.

We continue to build our staff with additional talent to take advantage of this market growth and in fact total employee count increased to 1,000 people as we closed the second quarter.

And then in October we made a nice synergistic acquisition as we acquired the stock of BioLumix an Ann Arbor Michigan-based manufacturer and marketer of automated systems for the detection of microbial contaminants. However, in the next several months we expect to consolidate that business with Neogen’s closely related Soleris technology.

Both of these are one used for the detection of spoilage organisms in a number of food and industries as well as in the expanding nutraceutical markets.

So combining of the BioLumix and the Soleris technologies the market basis and the outstanding technical staffs I think will greatly enhance this business and it’s also important to note that this combination settled seven years of litigation between the two companies. Our Food Safety segment was up 16% in revenue as compared to the prior year.

This was aided by the BioLumix acquisition that we brought on-board in mid quarter that I just mentioned and at the same time our Scotland-based Neogen Europe operations once again had strong performance both at revenue line as well as earnings even with some currency conversion adjustments their revenues were up 20%.

On the Animal Safety side, we had revenue increases of 14%. These revenues were aided impart by the Prima Tech veterinary instrument business that we acquired back in November of 2013 and Chem-Tech business that we acquired in January of this year almost 12 months ago.

In fact, the growth of the Prima Tech business was greater than we had expected at the time we made the purchase and the earn out payment to the former owners at the end of that first year was greater than what we’d accrued and I think Steve Quinlan will give you a little bit more color behind that in just a few minutes but again another great acquisition.

GeneSeek portion of our Animal Safety group once again made a strong contribution. This increase was due impart to increased operational capacity of that business that was gained when we completed our new laboratory facilities in Lincoln, Nebraska.

The third quarter that is now almost a month old is starting out strong and is presenting with some new opportunities.

But let me stop at this point and turn the call over to Steve Quinlan to give you a bit more of a color and his general comments and then I’ll come back and talk about how the third quarter is shaping up and what we see in the business going forward.

Steve?.

Thanks Jim. Jim has already reported on the overall sales and profit performance for the second quarter of our fiscal year and I’d like to echo his comments that we were pleased with the results and feel like momentum is beginning to build toward our goal of double-digit organic growth.

In the next few minutes I will address some of the significant highlights for the quarter and we’ll begin by discussing our Food Safety group. Food safety, as Jim mentioned achieved revenues of 33 million for the quarter, an increase of 16% over last year.

Sales of mycotoxin test kits were up 10% in the quarter, the result of DON outbreaks in Canada and Eastern Europe. And there were isolated outbreaks in the U.S. as well.

We’re just coming out of a year long period of difficult comparisons caused by the significant aflatoxin outbreak from the 2013 corn crops and this is the first quarter of growth in this product line since then so we’re pleased to be able to report this.

Revenues for our industry leading product line to detect inadvertent allergen contamination which includes diagnostic test for milk, peanuts, gluten and processed soy among others continue to be very strong and were up 11% in the quarter as we continue our leading position in this rapidly growing market.

Now this increase was achieved in spite of a 40% fall off in speciation testing as the significant uptick in sales from the 2013 horse meat scandal did not continue into the second half of calendar '14. Gluten test kit sales were particularly strong up 23% in the quarter as gluten-free food production continues to expand significantly.

Our line of the general microbe products rose by 36% for the quarter helped by the BioLumix acquisition which closed at the beginning of October and provided $850,000 in revenues.

This acquisition brings similar and complementary technology to our Soleris line of optical microbial test systems, which are used to detect spoilage organisms like yeast and mold in foods. We will spend the next few months integrating the platforms, incorporating the best features of each into a next-generation of product lines.

Disposable vial sales rose 12% in the existing Soleris product line while instrument sales which we know to be lumpy were down compared to last year’s strong comparative quarters.

Revenues from other micro products such as ampouled media and filters which are used to test and monitor water quality at beverage manufacturers rose 17% in the quarter as we continue our penetration in this important market.

Revenues for our test to detect the presence of antibiotics in raw fluid milk declined by 2% in the quarter primarily due to delays in the launch of a new product offering for the European market and currency issues caused by the strengthening of the dollar.

On the international front, Neogen Europe as Jim mentioned continued its run of impressive growth up 20% for the quarter on the strength of DON outbreak in Eastern Europe and strong sales in our genomic testing to our European customer base.

Neogen Latinoamérica our subsidiary based in Mexico has taken over account responsibility for a number of customers in Mexico and Central America formally served by the Lexington group in order to more directly and effectively serve those customers.

After adjusting for the revenues transferred into Neogen LA overall Food Safety organic growth was 7% for the quarter. The Animal Safety segment recorded revenues of 35.5 million for the quarter 14% over last year’s second quarter, aided impart by revenues from last year’s acquisitions. Apples-to-apples organic growth for the segment was 8%.

Animal Safety in the Lexington division recorded revenue increases of 16% for the quarter with revenues from the Prima Tech line of veterinary instruments and marketing products particularly strong. Our diagnostics line which includes our horse racing and forensic kits rose a strong 20% on strength of sales to international testing labs.

We also had a number of other product lines which performed very well in the quarter, including our market-leading line of detectible needles with revenue increases of 11% and disposable supplies also of 11%.

GeneSeek our genomics-based testing and bio-informatics business located in Lincoln, Nebraska had a nice quarter with sample volume up 25% and a worldwide revenue increase of 20%. As the number of custom chip and service offerings primarily developed to aid beef and dairy cattle producers continue to perform well in the market.

The move to the larger labs which we completed in May came at a perfect time allowing us to absorb the increased volume while at the same time improving our efficiencies.

Our bio-security product offerings of cleansers, disinfectants and insecticides which are produced by the companies Hacco and Chem-Tech operations recorded an overall sales increase of 13% for the quarter helped by revenue from Chem-Tech the insecticide manufacturer acquired in January.

Gross margin were 50% for the quarter compared to 49.5% in last year’s second quarter. The increase was largely the result of product mix shifts within Animal Safety product lines and improved deficiencies at GeneSeek. Overall our gross margins rose by 4.7 million for the quarter.

Our operating expenses were up 8% compared to last year’s second quarter. Sales and marketing expenses increased 14% due to increases in personnel, marketing and advertising activity and shipping expense directly related to our volume increases.

Our general and administrative expenses declined 3% for the quarter due impart to settlement of litigation and the elimination of one-time cost related to last year’s acquisitions. Increases in amortization of certain intangible assets from the recent acquisitions and entire stock-based compensation expense partially offset these lower expenses.

Our R&D expenses increased 7% over the prior year and reflecting in a continued elevated level of new product development and product improvement activity for this group.

Our operating earnings improved to 12.9 million for the quarter, a 33% improvement from last year’s 9.7 million second quarter and improved as a percentage of sales from 16.3% to 18.8%. Now this improvement comes as we were able to leverage the increase in sales and higher gross margin percentage with moderate growth in operating expenses.

We did recognize a charge of 450,000 in other income expense during the quarter as higher than budgeted sales of Prima Tech products resulted in an increase in the earn out due to the sellers of this business. Now this reduced our earnings per share by about a penny for the quarter.

Obviously we were happy to pay it as it confirms our initial assessment of the potential of this business. We continue to generate cash nicely with cash provided by operations of $23 million during the quarter for the year to-date compared to our net income of 16.7 million.

Our receivable balance is flat compared to the beginning of the year in spite of our increased revenues and our credit and collection group is doing a nice job of setting and monitoring credit levels and collecting balances.

Inventory levels have declined by more than 1.6 million from our August 31st balances indicating that programs put in place to right size inventories and improve our churns are beginning to have a positive impact. During the quarter, we did face some currency headwinds as the dollar strengthened against the currencies we operate in.

Revenues were about $360,000, less than we would have been using last year’s currency rate, primarily due to the euro devaluing compared to last year. These headwinds have accelerated into the beginning of December as currencies and oil dependent economies, such as Brazil and Mexico, have valued as the price of oil has continued its decline.

And there has been a flight to quality in the form of the U.S. dollar. In the first half of this month, the real and peso have each declined by about 5%. This obviously makes our products less competitive internationally and hurts us when convert our foreign operations into our consolidated statements.

And we’re obviously aware of these issues and we’ll be managing through them. That wraps up my prepared comments for the quarter and thank you for your attention. And at this point I’ll give the call back to Jim..

Thanks Steve for that update. Let me take the next few minutes to talk about what kind of future opportunities we see on the horizon with our products and what we see that’s happening in the market areas in which we work.

Taking a look first at the I think the world grain crop, the size of the corn and soybean crop in the United States continued to surprise everyone as estimates grew all the way up until last month. We now estimate that U.S.

corn crop to be about 14.4 billion that’s our number it probably doesn’t mean a lot to you but it’s about 4% increase over last year and an all time record harvest for this country.

This crop size pushed down the on farm prices to about $3.5 a bushel still profitable for the corn farmer, but that compares with last year’s $4.5, so we’re seeing cheaper corn, which we’ll talk about where that leads to. So there are plenty there were a few small pockets of mycotoxins as Steve mentioned the crop was really pretty clean.

And the next concern came when we started trying to put that crop away and there was inadequate on farm or elevator storage to put it all in them. So some of that corn crops has ended up on the tarpodiums on concrete beds this portion of the crop is problematic since there is no real way to getting any air through it to prevent over growth.

So some quality issues will certainly likely come up and we will have a little bit of opportunity with some of our mycotoxin tests then as they try to dispose and move that crop into farmers. At this point, it’s kind of premature to try to look then what’s happening in the southern hemisphere as far as grains production is concerned.

Ed Bradley was just back from Brazil but not sure that they are making any estimates down there yet. From the Animal side the immediate future looks good for animal producers both beef and pork are at all time higher price levels at the retail because of a shortage of breeding stock that occurred. And in the U.S.

the baby pig buyers was in a far reaching problem to this nation’s hog producers but it now seems that we generally have it under control and cold weather will be on our side for down side of these producers because it multiplies, the buyers won’t multiply as fast as the weather gets colder.

Feeder calves are bound for the feed lot are short and meat to selling at historically high levels if you have bought much steak in a grocery store lately. Feeder calves are likely probably 300% than what the 10 year average would be so huge prices going through the guys that are raising feeder calves to go to the feed lots.

As a result, this calving season, which begins in the southern U.S. starting probably next month and our ideal instrument obstetrical products are likely to see some boost on a season nice boost I think and as those baby calves are more valuable than they’ve ever been before.

Pork producers are already beginning to recover from their disease problems and spending in that area you could just see a boost with our hog prices and cheaper corn. So forecast covering the whole ground forecast for the dairy business over the next year is also going to be profitable.

All this positive meat production forecast are also positive for our GeneSeek animal genomics business.

We’re likely the largest animal genomic laboratory in the world and we do business with the major suppliers of breeding stock of almost all species and we also have a genomic program in place to help beef producers that pick their best replacement efforts to go back into their herd.

Even though these rules are -- let's see I have last page and so I never be there. So the product line is full in our R&D labs that are in place in much of the activity and then Steve talked about additional allergy test kits and the speciation identification.

Regulatory concerns are also aimed in that same direction and then since the 1st June and beginning of our fiscal year there has been 102 food recalls in U.S. of those 58 were because of allergenic food products. And this would meant that there was allergenic food in the products that were probably labeled.

Someone asked me earlier this morning that make -- a comment about the adoption of the Food Safety Modernization Act and frankly there is very little to report to you, it’s hard to believe that the President signed this act almost four years ago.

Once the act was passed and regulations had to be written, and now these regulations have been and proposed rules have been written and rewritten and it finally got to the point that when Federal Courts got involved as a result of consumer concerns and issued a rule that FDA must comply with the act within certain periods of time.

There are seven initiatives in the act. The first two are now expected to be published at the end of August of 2015, after that there will be a grace period before compliance will actually be mandatory.

So then the next three will probably be finally published sometime about October of next year, and the sixth and seventh regulations are not scheduled to be published for implementation until the spring of 2016.

Now although these rules are not currently enforceable I think the smarter companies are already implementing what they believe may become the power regulation stuff. We are seeing retailers and restaurant companies require that their suppliers provide the pathogen free certificates more than we have ever seen before.

And I am sure we probably are already gaining some business among our various markets as a result of these anticipated FDA file regulations. And I expect it will continue to see this slow unofficial adoption by the food industry as the mandatory regulations come into play. As we see our market is developing outside the U.S.

we continue to put resources in place to take advantage of these opportunities for the quarter just finished approximately 40% of our revenues came from customers outside the U.S. and we are continuing to invest more heavily in this international business.

Only this month we acquired the food and safety and veterinary genomics assets of our Chinese distributer, Beijing Anapure BioScientific. Anapure has been a distributor of Neogen Food Safety products for now more than 10 years.

We will be combining these assets with Neogen’s already fully-owned company in China, and this will give us some additional strength. The large of member of the Western and multinational food companies have expanding their food production operations into China. Many of these are already Neogen customers elsewhere in the world.

So this acquisition will allow us to build on our existing Neogen China infrastructure and tie of course with this growing middle class and rapidly growing demand for higher quality meat and dairy products makes this country to be a substantial growth opportunity for Neogen going forward.

So I think in conclusion I would say that our growth strategy is well positioned as we look out over the next quarters. We'll grow our business as a one-stop-shop in food and animal safety. This is allowing us to gain more market share in those markets where we already are positioned.

We will continue to grow the company through the development of new products for both food and animal safety. And we've got a research team now counting up over 61 scientists and engineers that are working in this area on some promising new products as well as enhanced current products that are pretty exciting.

And as with China we will continue to make greater investments in the worldwide investment markets growth and working through out independent distributors as well as expanding our company owned distribution groups. The fourth leg will continue to look for those synergistic acquisitions.

We have several good potential acquisitions on the radar at present we will continue to accrue some of them and we will integrate the good ones as we have done so successfully in the past. The last acquisition of Anapure in China marked the 28th acquisition that the company has done since the year 2000.

All of these were and continue to be accretive at both the top-line and the bottom-line. So I think I have talked as much as my voice is going to hold out for now so let me stop for now and say thanks for spending the time for us this morning. This does conclude our prepared comments and we are now open for questions from those who are on the line..

Question-and:.

Thank you. We will begin the question-and-answer session. [Operator Instructions] And our first question comes from Paul Knight of Janney Capital Markets. Please go ahead..

Hi guys this is actually Brian Kipp on behalf of Paul. Thanks for taking the questions. I guess I’ll just start-off on the organic number. Steve, you guys said I think 7 and 8 food safety and animal safety. I am just teasing it out, that would suggest and I think acquisition contribution is around 4 million. I know you’re basically lapping Chem-Tech.

But just wanted to see if you can give additional color -- Prima Tech, you’re lapping, it just seems like Chem Tech might have slowed down significantly Q-o-Q.

Is that attributed to seasonality or am I wrong?.

Well, it hadn’t slowed down I think it is very seasonal business. It’s been kind of nice in our seasonal businesses in there. There is rodenticides there is a big market for rodenticides is when the weathers gets cold and rodents are placed inside the chicken house or wherever and the same thing. The reverse thing happens on insecticide.

We’ve cold weather kills the flies and warm weather brings them on. And so this is sort of a period for the insecticide business we all obviously got to make enough products fill up pipeline.

So we’re starting pretty quick now to increase productions there and to fill our pipelines further as people are ready to take on product or were asking for the spring coming on..

Okay, so bookings are strong, if nothing going to be ordinary with this Chem Tech and [hit goal] consolidation you’re guys are seeing on the rodenticides.

Is it correct?.

No, the first time you’ve seen both in tandem, so..

And I guess on China, still early the distribution. Acquisition is intriguing.

Just wanted to get your color on I guess, one, your view on consumption at dairy versus rice and soy milk on the potential conversions there? Do you guys have any exposure to soy and rice? And two, what cities, tier cities, do they penetrate is it primarily Tier 1 and the customer that are looking around Tier 1 or is it go to your Tier 3? Thanks again.

.

I am not sure how far will that penetrate I think it’s beyond Tier 1. As they get with middle class grows they’ve got more income and they want our quality food and the group has been -- they’ve been able to get enough rice not starve within one our quality foods.

And we see all lot of U.S companies have been particularly moving into China to produce food for the Chinese people. Tyson Foods is an example is there was I think they are probably killing now about [3] million chickens a week. Cargill is there and the broader business killing something over 1 million birds a week.

And you know that kind of list goes on with the both meal production and end with animal proteins, whether it’s milk and eggs or whether it’s beef and pork. And these are the places that have to have good quality programs they’ve got to be doing lot of testing because the Chinese government wants them to be there.

The Chinese government is the first to attack if they start presenting food safety products issue more so than their own domestic companies. And we’re seeing a lot of those Tier 1 consumers that are buying they’ll pay price as much to buy a U.S. product from the U.S. company today.

So things are in play in China it is the leaders in that country try to continue to be able to hold things together..

Thanks again happy holidays..

And our next question comes from Tony Brenner of ROTH Capital Partners. Please go ahead..

Thank you. Good morning. I think Steve mentioned that organic sales from Latin America were ahead by 7% and I presume that with regards the revenues were up at a lesser rate than that. But in either case that appears to be much slower growth rate than you’ve been reporting for Latin America.

So, I am curious what is going on in that market and what you expect to drive revenues there going forward?.

I don’t think there is anything permanent about that. I think it’s probably a lot of things Tony that have gone into it. The Mexico is really -- I think we’re okay there. There is some really good things that are onboard. You’re right Brazil in particular has not grown like I’d like to see it grow.

And Bradley is sitting with this table with me here today he just came back last night from being down there and working with our guys so I don’t have a full update. I mean we continue to be optimistic with other problems in Brazil is that Brazil is -- now they are going to huge grower and are right now as far as supplying foods to the world.

They are doing everything they can to protect their own homegrown industries. So we’ve been trying to carry in the big stuff like disinfectants or rodenticides made somewhere else.

It became obvious to us and we’re going to have to make those in country and I’d say probably near the completion of full manufacturing down there to participate more in the growth of what’s happening there. Just kind of -- I am not concerned about it. But I think it’s just a slow down right now for as we try to move up on the next plateau..

Jim, I know you took a vacation in India a short time ago and I think you've been looking to make an acquisition there that you’ve talked about for at least six months. I wonder what kind of progress you’ve made on that score..

Well, for one thing, I got a new lesson in patience. But nothing ever happens very fast. And I have been answering well that’s not be this that hard, their democracy and they speak the same language and so we’ll be able to work right there and realized that it was a democracy as built by the English. And so they don't always move at American speeds.

We do not have a letter of intent on the table today. I think we’re very close to the letter of intent to go forward with the philosophy that we wanted to.

India is beginning to offer markets, offer products -- offer markets for products for the terms stated in, for some of the same things to be so they can do food safety testing at that point of production. There is a lot that’s going through outside labs, food safety labs now will not be a play to there.

And there is still some lot of exports coming out of there. There is some place where there is lot of spices a lot of tea is coming out of India going elsewhere. And we think that there is going to bigger markets for us there. So I would say that it’d maybe earlier to you even that we thought we would have a flag planted by Christmas.

That's not going to happen. But I think we ought to be there for big day because your memory is good. But I think we ought to be there within the next two to three months..

And last question, between India and China as you plant flags as you put it.

How much infrastructure spending you’re still going to have to be in those markets and will that be large enough for a period of time just obscure any income reflected forthcoming from those markets?.

I think it certainly will be in India. I'm hoping that we can get off -- and within a quarter of planting the flag there we can be earnings neutral. China, we’re already making money in China. So, we’re going to -- obviously we’re adding to infrastructure, we’re adding people. We don’t need to add any facilities. But we’re adding people.

So it’s going to be a contributor to the bottom line as, not third quarter fourth quarter unless you better guess. But India, I’d hope we would break you in there this fiscal year..

And our next question comes from Brian Weinstein of William Blair. Please go ahead..

Yes, thanks for taking the question. This is Matt in for Brian today. Jim, I was just hoping if maybe you could give us little more color on your thoughts on acquisition landscape really 2015 if there’re any particular geographies or product groups that are interesting? Thanks..

Unfortunately, we don’t find any big ones. We got adequate resources to do a big one but not any big one that did our synergy that are synergistic to what we’re doing. I apologize for that. But then I look back at what we’ve done.

We’ve been able to bring in these $10 million, $12 million, and $15 million acquisitions and bring them in properly and integrate them. So, as long as they’re still around and we continue to do what we’ve already developed, I think we’re okay.

I guess geographically, we’d got management team in Neogen Europe sitting there in Scotland that has plenty adequate to take on some new responsibilities.

We are and will be looking for some things that we can add to that management team going forward that will open up more of the Europe Union for us in some places where we don’t have good access to markets today.

That’s one of the ones it’s clearly on drawing boards and we're spending some time and getting more conscious time looking there over the next three to six months as to what’s available that we can bring in. We’ve got some stuff on the radar. But it’s kind of too early to make any real movement or predictions.

So, we will be looking for what we can do to bulk up both Mexico and Brazil. Unless he brought some back with him. There is nothing in Brazil that’s readily in hand to put. But that’s going to be a good place to put some additional resources. .

Okay, thanks for that Jim. And then, Steve just one on the gross margin improvement, I was hoping if you could help us with the components of that. The improvement between product mix and underlying efficiencies I hope you guys were working on.

And then how that would trend moving forward? But looking just sustainable perhaps investment impacts the mix shift in the quarter? Thanks..

I mean the product mix on the animal safety side, there was some nice growth on our forensic kits, which are higher margin products for us there. And efficiencies at GeneSeek, those are just -- I mean we have budgeted for those with the new facility in terms of splitting the margin gain efficiencies are mix is probably about half and half.

And food safety was pretty consistent. So, I think going forward, we hit 50.4 in Q1, which was a big step up from the prior three quarters of last year, kind of surprised us a little bit that we got to 50.4%. But 50% is kind of our target for the next couple of quarters, I would say. .

Yes, and of course we are still working hard for that 20% operating profit, which we spent a little bit this quarter compared to last quarter there. But there it's just pretty difficult to manipulate all those things every three months..

And our next question comes from Charles Huff of Craig Hallum. Please go ahead..

So, Steve you had impressive sales and marketing leverage this quarter. I am wondering if you could kind of spike out anything going on there.

How you are thinking about sales and marketing expenses for the remaining quarters of the fiscal year?.

I think that the growth there -- Charles we've got about 14% a quarter. I think that's probably going to be a run-rate in that 14% to 16%, depending on volume. And we continue to add people. And not all just bag carriers. But we are adding to our marketing, our tax service group, some of that infrastructure that’s so important for this Company.

But I think that growth will be in that range going forward..

Okay. And the additional 1,000 FTE that Jim referenced earlier.

Was that up year-over-year? And I don't know how many employees do you have right now?.

That was -- as communicated that there are 1,000 employees that we’re focused on..

Got you..

Yes, about 1,320 now somewhere in there..

Okay, my mistake. Sorry about that..

It’s about 40 year-to-date..

Okay, great. Thank you. And then, let's see here. Any updates on ContraPest? I know that you guys were seeking or hoping for EPA approval by the end of the year when you did the original press release.

Any updates you can give us there and have your timing estimates changed at all?.

No unfortunately, that's not our product it's our product to manufacture in market once we get an approval. But the current term owners and vendors are the once who have to do the EPA license request and there I was with them last week I guess.

And nothing affect, might be they’d be just a little optimistic perhaps in this year but there is nothing wrong going on there. I would say that it’s going to be another probably through March before they finish their application with EPA. And it's hard to say how long EPA will hold on to this.

So, it's about likely we are going to see any impact of that this fiscal year. But our regular rodenticide sales are good..

Okay. And I think you mentioned previously Jim that you think they have the fast track status.

Is that still the case or has that changed at all?.

No, it would appear to be the case. Yes..

Okay. And then Steve last one from me on foreign exchange. You mentioned that you expect some continued pressure there for the remaining of fiscal year.

Do you guys do any hedging or are you expecting to do hedging for that or is that just going to flow through?.

No we do-do some hedging Charles and are looking to possibly expand our hedging program.

But some of it will certainly flow through, yes?.

Okay. Would you say that you are going to be 50% hedged or 80%? Or do you have kind of any estimate on that or is it too early to say..

No, it’s probably too early. I'd say somewhere around 50% where we have to update. Since we are not big enough to be buying futures contracts, we have to play it a little differently. And if you’re thinking about futures contracts, it would be more profitable. We have to go to the banks to get that done and they take a little bit off the top.

So we have to look at how we’re doing there. And this whole currency thing is -- I think the dollar will continue to get stronger and we’re going to look at that. And I think we hedge our average receivables out there. But it really affects us probably more on in terms of being competitive on a worldwide basis other than just adjustment for currency.

We’ve got to adjust the currency but at same time we have to in those places where we’re selling on the dollar and then we still sell on the basis of dollar main places in the world today then our price gets to be -- if we don’t make some adjustments our price pushes us out into the non-competitive against the local industry.

So it’s got sort of double-edge..

So in that case Jim, do you usually have to make some adjustments to your prices on a short-term basis or do you not usually get involved with that?.

No, we’ve got distributors, we’ve got sort of I think I start say underwritten but I guess it’s kind of written now as to -- at what point when the currency moves to a certain level. At what point we can make, we will make some price adjustments going within and that’s primarily with distributors.

It’s kind of difficult to get into reciprocate when it goes the other way. But we’ve been here before. So this is not a new -- it’s not our first radio. We’ve been up and down with peso in Mexico for 20 years plus -- and seen some of the same things in -- Venezuela is still a problem because of the being able to just get product in.

So I don’t know that we’ve got all the answers. But it’s not our first trip..

Okay. And just one because it seems like an important point are you in that environment now with your distributors where you’ve had to work out arrangements with them to make them whole.

Or are you just anticipating that you might be in that environment in the next remaining quarters of the fiscal year or you’re already there now?.

No we’re not already there. And you know if it doesn’t get worse, we don’t need to go there probably but we know how to and that would be mostly the South American countries where we have a bigger concern I think today. We go into Russia through a distributor and God knows what’s going to happen over there but that currency is devaluing.

But I think we’re going to okay there. We don’t have enough going in there to make a big difference anyway..

[Operator Instructions] And our next question comes from Shaun Rodriguez from Cowen and Company. Please go ahead..

This is Ryan Blicker filling in for Shaun. Thanks for taking my questions. So, I was wondering if you could provide any update on progress regarding the Merck Animal Health partnership from last quarter. Obviously, a large opportunity, but currently dominated by pretty major player.

How are you guys thinking about that and how is that -- has it impacted sales so far in fiscal ‘15?.

What you’re talking about is our program for our genomics program at GeneSeek for the dairy side. And this is a genomics program that’s been somewhere between $20 and $40 per animal and what kind of results they want.

We were able to take samples into our labs and go back with the prediction of what that animal, or in this case the dairy animal, what kind of milk productions she might provide a year from now when she’s mature and then what kind of feed conversion even down in some cases to butter fat levels, how long we expect her to stay in the herd beyond two years.

And lots of those are pretty good predictions are pretty realistic. So we’ve started that program. We’re working now. Merck came to us and said we like the program we’d like to be able to sell it to some of our big dairy producers.

And because it kind of enhances our reputation as a supplier to the dairy farmers and so we struck a deal with them and they are providing -- they’re working with our filed people but they also working on their own. And essentially we pay them a commission because of what they bring in.

So in this case really getting legs it’s I think we announced it probably 60 days ago or so ago but this is really getting legs at this point. So we’re pretty optimistic..

We’re already doing a good bit of business and this would be a good addition to it..

Okay, thanks for the color there, one more follow-up on margins. So it’s pretty impressive bottom line growth so far this year but obviously on track 30% gross margin maybe close to 19% operating margin for the year. Just given the acquisition so far -- and it sounds like you are going to continue to be acquiring companies.

Should we expect any headwinds to margins in the back half of the year from the M&A or FX like you mentioned earlier?.

No, I don’t think so. I mean we just underestimated what Prima Tech was going to do. And I mean we are going to agree to -- at the time if we’d assumed another 450,000 and then put it in our numbers back then, we wouldn’t be taking in like we are doing now that Steve talked about. And the accounting rules are accounting rules.

But they get to be for sometimes little bit difficult to determine when you are making an acquisition, how much of it is going to go to goodwill, how much of it is going to be a customer base intangible, what they are going to do with existing inventories, or you can -- or they have to discount existing inventories for whatever rule.

It all works in the end. But it could have an impact on what we’re we doing from time-to-time. But I don’t think Steve there is anything I see -- that 450,000 Prima Tech was the biggest trip block we had in putting these things away..

And I think BioLumix and anything in China, we have so many products that the impacts of those on our gross margins aren't going to be significant in and of themselves.

So, I don't see any huge headwinds to our gross margins for any acquisitions or once that I have been thinking, I shouldn’t say that, for any of the acquisitions that we have done so far..

We have no further questions at this time. I will now turn the call back to Mr. Herbert for closing remarks..

Well, thank you very much for your attention this morning and your continued interest in our Company. We feel proud of what we are getting done and we certainly are proud to be associated with folks like who have been on the line this morning. So at the conclusion, I just wish everyone happy holidays for the weeks ahead.

And we will be talking to you in the new calendar year..

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