John Adent - Chief Executive Officer Jim Herbert - Executive Chairman Steve Quinlan - Vice President and Chief Financial Officer.

Kevin Ellich - Craig-Hallum Andrew Brackmann - William Blair Paul Knight - Janney Montgomery Scott David Westenberg - C.L. King David Stratton - Great Lakes Review Brian Gaines - Springhouse Capital Management.

Welcome to the Neogen Q2 FY '19 Earnings Release Call. My name is Christine and I'll 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 John Adent, CEO. You may begin..

Thank you, Christine. Good morning, and welcome to our regular quarterly conference call for investors and analysts. Today, we’ll be reporting on the second quarter of our 2019 fiscal year, which ended on November 30. As usual, some of the statements made here today could be termed as forward-looking statements.

These forward-looking statements, of course, are subject to risks and uncertainties. The actual results may differ from those that we discuss today. The risks associated with our business are covered in part in the company's Form 10-K as filed with the Securities and Exchange Commission.

In addition to those of you who are joining us by live telephone conference, I also welcome those of you who are joined by way of simulcast via the Internet. Following our prepared comments this morning, we'll entertain questions from participants who've joined this live conference.

I’m joined this morning by our Executive Chairman Jim Herbert, who will provide his perspective on our genomics in European operations and our Chief Financial Officer, Steve Quinlan, who will provide more detail on Neogen's our Chief Financial Officer.

Jim will provide his perspective on our genomics and international operations, and Steve will provide more detail on Neogen’s financial results for the quarter. Earlier today, Neogen issued a press release announcing the results of our second quarter. As stated in the release, our revenues for the quarter were up 6% to slightly over $107 million.

This increase included minor contributions from our recent acquisitions of Colitag in August and Livestock Genetic Services in September. As we stated in our release, our revenue results decreased approximately $2 million for the quarter after foreign currency sales were converted to U.S dollars.

Like most American companies with significant international sales, Neogen has been adversely affected by the recent strength of the dollar against most other currencies. I will let Steve fill in the details on our currency challenges.

But I will say that I firmly believe that we’re where we need to be to meet the challenges and needs of the global food industry despite some of these challenges. Our net income was just over $16 million or $0.31 per share compared to last year's quarterly net income of $17.1 million or $0.33 per share.

While I’m never pleased to report a decrease in net income we fully anticipated the possibility of this result. If you remember, last year at this time, we reported an atypical second quarter net income increase of 53% or $0.11 per share compared to our second quarter of two years ago.

Of that $0.11 increase, $0.07 was attributable to an accounting change relating to the tax benefit from the exercise of employee stock options. Again, I will let Steve fill in the details, but we knew going into the quarter that we faced a difficult net income comparison. In the quarter, we saw positive results on a number of our product lines.

A real highlight was a 24% increase in global sales were test kits to detect food borne pathogens such as Listeria and Salmonella. As anticipated, the independent AOAC approval in August of our Listeria Right Now test system spurred significant sales in the U.S., Europe and elsewhere.

Our new Listeria -- our new system for Listeria is so novel and groundbreaking that we first have to develop a new industry protocol for its use and validation and then work with AOAC to validate the accuracy of that testing protocol. Listeria Right Now can produce accurate results in under an hour, while most other test kits take at least 24 hours.

Global sales of our test to detect natural toxins increased 17% in the quarter as we did what we do best, rapidly respond to mycotoxin outbreaks and other market needs. Sales of our test to detect aflatoxin increased 17%, partially as a result of significant new business we won at Brazil.

Sales of our test kits to detect DON increased 25% as we responded to small pockets of outbreaks in Canada and the U.S. Sales of our natural toxin product line were also aided by the introduction of our new Raptor lateral flow test readers.

The new reader greatly simplifies the process of reading, storing and analyzing mycotoxin test results, enabling testers to process up to three test results at the same time.

When you consider just how quick and accurate test results are to the grain industry, especially during the height of the harvest season, you can understand how valuable our new raptor reader will be to grain testers.

Another highlight for the second quarter was our sales of products used for general microbiology, which increased 20% compared to the prior-year. While test to detect spoilage microorganisms such as yeast and mold don't seem as critical as test to detect pathogen. They represent a far larger share of the testing market.

Almost all producers of food and other consumer products are concerned about the adverse effects of spoilage organisms on the quality of their products. Our new 16s metagenomics products are changing the ways that food -- food producers and processors are thinking about food safety and spoilage.

These test not only identify the exact spoilage organism, but also the areas of contamination in the plant. This gives our customers a roadmap for remediation efforts. This product line was up 47% year-to-date and interestingly enough there was a Wall Street Journal article about this technology just yesterday.

On our animal side -- animal safety side of the business, a significant highlight for the quarter were sales increases on our global biosecurity products, including a 22% increase in sales of our Chem-Tech agricultural insecticides and a 15% increase in sales of our Preserve disinfectants.

We added these biosecurity companies in the past five years, each with the goal of expanding our global footprint and a critical step in food and animal safety, stopping the spread of dangerous diseases and conditions before they can start.

We believed in the synergy of combining these companies and others under one umbrella and we’re seeing that being played out.

For the quarter, we also saw a 13% increase in sales of our animal care line of products and a 7% increase in sales of veterinary instruments, which include a significant increase in sales of our veterinary needles and syringes. At this point, I would like to turn it over to Jim for his perspective..

Thanks, John. I think you can delve from the [ph] from the depth of John's comments in his opening statement here that he has appealed the direction of a rather complex business that we developed for more than three decades.

In fact, John has been responsible for our two big operating divisions and has reported direct to the Board of Directors for over a year now. I’ve kept some of the support in unique product areas to give John a chance to catch up on the big portions of business, but we’re now beginning to complete that transition.

In the past quarter, John assume responsibilities for our genomics business as well as our R&D activities. Going forward, I will continue to keep focus on Neogen Europe operations, which encompasses 28 European Union countries and over 70 other countries that are managed by Neogen Europe organization.

This group is really beginning to complete the full Neogen structure with Food Safety, Animal Safety and genomics division. And there were some great opportunities to continue expansion there and to help our overall strategic plan and expanding our international revenues.

Looking at the current situation there, our Neogen Europe operations and its two subsidiary organizations had good revenues this quarter, up about 10% in local currency compared to the prior-year. And we did have ended our phase on -- [indiscernible] on currency conversions lost about -- I think about $300,000.

Looking at the history of what's happened there, we've enjoyed consistent growth in those European Union countries up 15% in FY '17 and 17% in FY '18 and the current year is also showing some growth. Looking now to shift a bit and talk about the quarter just behind us and our worldwide genomics business.

This also showed some -- show growth in the last quarter. When we talk about the worldwide genomics business we're talking about genomic laboratory operations in Lincoln, Nebraska where we started along with those in Scotland, Brazil, Australia.

And now some activity in China because of the difficulty of getting actual tissue samples from China and to bring them over here, we’ve established the lab and are doing some DNA extraction there and forwarding these further samples to samples to Nebraska. Even at that, we can get answers back to the largest of the Chinese there in about two weeks.

You might remember, made bragging about a year-ago about us having the largest animal genomics lab in the world. Well, we are now running about 350,000 samples a month in the worldwide system. And this will likely push us from last year's 3 million probably to over 4 million samples this year.

Also looking at the side of the business, I will continue to be working direct with Dr. Jason Lilly in Corporate Development, which is principally our acquisition activity. On that acquisition front as John mentioned in his opening comments, we did make small acquisition in September of Livestock Genetic Services.

This acquisition is enhancing our in-house genetic capabilities and is complementing what's now become pretty much unparalleled global network in animal genomics. The acquisition pipeline continues to look good and represents our strategy to add companies that are synergistic to both our products and to our markets.

Looking back, I had an opportunity to put together some step with the Board recently, and looking back I'm rather proud of the 51 acquisitions that we've made over time. And in fact that most of them are still having an impact on earnings.

As we go forward, John has full responsibility as the company CEO and them continue to service Chairman and the Board of Directors and look for ways to continue to have John in the months ahead. I think with that, Steve, maybe you could give us a bit more color on the financials for the quarter..

All right. Thanks, Jim. As Jim and John have each indicated, we’ve solid performance in the quarter, despite the currency wins that continue to be in our face, as the devaluation of the Brazilian reis and the Mexican peso, which have declined 19% and 5%, respectively compared to the same period a year-ago.

And the 2% decline in the value of the pound sterling resulted in comparative revenues $2 million lower than the second quarter a year-ago. Now before we get in the financials, I want to quickly remind you about the reclassification of our prior year revenue numbers.

Prior to this fiscal year, we accounted for variable considerations such as rebates, marketing support and incentives in contracts with certain customers as components of cost of sales and sales and marketing expense.

As part of our work in adopting the new revenue recognition standard on June 1, we reclassified those prior-year expenses as contra revenues to make the numbers for last year directly comparable to this year.

The result of these reclassifications is that our reported revenues from last year's second quarter declined by $1.1 million with corresponding decreases in cost of sales and sales and marketing expenses totaling $1.1 million as well.

There was no change in our previously reported operating or net income from these reclassifications just in certain line items on the income statement. And our 10-Q will have all the details on the adoption of the new revenue recognition standards and the reclassifications by quarter for the prior fiscal year.

Corporate-wide, our gross margins were 46.7% for the quarter compared to last year's recast second-quarter gross margins of 47.9%. Margins were impacted by mix changes within the animal safety segment resulting from strong sales growth in our insecticide and cleaners and disinfectant businesses and new revenues from our Australian genomics operation.

Now each of these have gross margins which are lower than the segments historical average. Our diverse lineup of products has a wide range of gross margins which will cost some fluctuations from quarter-to-quarter depending on mix. Margins were also impacted to a lesser extent by the strength of the dollar.

For the year-to-date, our gross margins were 46.8% versus 47.8% last year for the same reasons I just mentioned. Our operating expenses overall increased 5% for the quarter and 6% for the year-to-date period.

Sales and marketing expenses rose 10% in the second quarter and 9% for the six-month period, primarily due to increases in salaries and other personnel related expenses, shipping expense and higher bad debt expense caused by the reversal of reserves from the collection of receivables in the prior-year.

General and administrative expenses decreased 4% for the quarter, but were up 3% for the year-to-date. The decrease in the quarter is due to recognition of $240,000 of state economic incentive credits in the current year. None of these credits were recognized in the second quarter of the prior-year.

Additional decreases result from lower amortization expense due to adjustment from acquisition valuation of intangible assets recorded in the second quarter of the prior-year and outside contracted services related to IT products -- projects.

Partially offsetting these decreased expenses were increases for salaries, stock option expense and recruiting fees. Our R&D expenses increased 7% in the second quarter led by increase in salaries and other personnel related costs.

Year-to-date, R&D expense is down 1% primarily due to the timing of outside services expenses related to research projects in the prior-year.

As you can tell we've controlled our expense growth in the first half of the year and have a number of ongoing initiatives to eliminate redundancies, improve efficiencies and focus resources on growth, we should see their impact felt in the second half of the year.

Operating income for the quarter was $18.2 million, up just slightly compared to last year's second-quarter operating income of $18 million. Expressed as a percent of sales, operating income was 17% compared to 17.9% in the second quarter of last year.

The decline in gross margin percentage explains the decrease in operating income as a percent of revenues. Year-to-date operating income was $34.7 million, or 16.8% of sales compared to $34.4 million or 17.7% of sales in the prior-year. Other income for the quarter was $1.5 million compared to income of $1.1 million in the prior-year.

Interest income of $1 million compares to $429,000 in the second quarter of last year as interest rates have risen and our cash and marketable securities balances are $65 million higher than a year-ago. We recorded currency losses of $72,000 in other income in the second quarter compared to currency gains of $497,000 in the prior-year quarter.

As we’ve mentioned on prior conference calls, we have an ongoing hedging program to mitigate the adverse impact of currency fluctuations. Additionally, we recognize a $422,000 gain this quarter related to an adjustment of the contingent consideration payment to the former owners of Quat-Chem.

Our effective tax rate was 18.5% in the second quarter compared to 10% in the second quarter last year. Corporate tax reform enacted last December dropped the statutory rate from the 35% in effect in last year's second-quarter, down to 21% this quarter.

However, the tax benefit related to exercise of stock options was $3.3 million higher in the prior-year. The $3.3 million differential represents about $0.06 in earnings per share. If you remember on past calls I've indicated that this tax benefit will result in fluctuations of our effective tax rate and our overall net income each quarter.

Depending on the price of the company stock and option activity in that particular quarter, earnings could be impacted by between $0.01 to $0.04 per share. This year a tranche to stock options expired in the first quarter, resulting in significant exercise activity, but in the prior-year, a different tranche expired in October in our second-quarter.

Our year-to-date effective tax rate is 15.1% compared to an effective tax rate of 19.8% in the prior-year due to the reduction in the U.S statutory corporate tax rate and the net income of the benefit from stock option exercises.

The company generated $16.5 million in cash from operations in the second quarter, which compares favorably to our $16.1 million in net income. We invested almost $5 million in property equipment and intangible assets this quarter. Our inventory balances rose 5% since our prior-year end with an increase of $2 million in finished goods levels.

We continue to work on improvements in inventory turns with active programs in place at each of our operations. Accounts receivable balances have increased 4% compared to year-end balances less than the rate of increase in revenues. And our average days sales outstanding were 63 at November 30, a slight improvement compared to 64 days at August 31.

I'm excited about the traction we're gaining on some of our new products and looking forward to the second half of the year. I will now turn it back to John for some additional comments..

Thanks, Steve. Jim provided some detail about our Neogen Europe and worldwide genomics operations, and I just wanted to reinforce how committed we are at growing Neogen internationally, despite some of the inherent challenges of currency.

We stated -- as we have stated repeatedly, we believe that about two thirds of Neogen's growth potential exists outside the United States. Brazil is a great example. That country is a food production powerhouse. It's a major producer of beef, pork, chicken, soybeans, wheat and a number of other food products.

Brazil is where we need to be and that was born out in the second quarter. We grew our Neogen build reserve Brazil business 54% in local currency in the quarter and we gained significant market share in sales of our mycotoxin and dairy antibiotic test kits.

When you take that 54% increase and convert it back to dollars, it was -- it shrunk to 26%, which is still great growth. Of course when you look at the long-term growth potential for Neogen, the two major countries at the top of the list are China and India.

Projections of the tremendous growth of both the country's middle class points to significant increase in the demand for higher-quality foods, including animal protein and dairy products. This demand for higher-quality foods that Neogen was built to deliver.

India had a great quarter with a 104% growth in local currency which translates to 83% growth in U.S dollars. We are focusing on long-term growth of both countries and we're encouraged by the foundations we are building. Internationally and within the United States, we feel really good about where we stand at the end of 2018.

We continue to be well-positioned in our growing markets with the right people and products and with the organizational strength to reach anywhere in the world where need exists. It's this confidence I think that led our Board of Directors to authorize a stock buyback program at its meeting in October and we begun implementing this program.

We believe our continued worldwide dedication of food and animal safety will allow us to provide the results that our customers, our shareholders, and our employees have come to rely upon. I'm excited about our future and I really look forward to a strong finish to our fiscal year.

Let me stop at this point, entertain any questions from those who have joined the call..

Thank you. [Operator Instructions] Our first question is from Kevin Ellich of Craig-Hallum. Please go ahead..

Good morning. Thanks for taking my questions. John, I guess, I just wanted to start off with a question for Steve.

Can you give us the organic growth rate this quarter, Steve? And also what are your expectations for tax rate for the full-year given some of the fluctuations we’ve seen?.

The organic rate, Kevin, was 6%. And then as far as an effective tax rate going forward, as I’ve indicated in my comments, it -- that will depend on the option exercises. I think you almost have to take just an average view there. I think maybe 18% to 19% effective rate is probably -- going to be a good rate for the rest of the year..

Okay. That's helpful. Thanks, Steve. And then -- okay, John, going back to some of your prepared remarks and clearly there's some question about the gross margins and the mix shift that you’re seeing, I think part of that has to do with the -- I guess, underlying markets in the past you’ve talked about those sluggish animal protein market.

What are you guys seeing out there and how long do you think that'll last?.

It's a good question, Kevin. I'm not sure. I think the market is going to start firming up. I mean, when you look at across the space it's still a tough -- it's still tough for producers. I think you see mixed results on processors. Today you’ve got some good, some not so good, but you know as we know in this business, it never stays bad forever.

And so I think you’re going to see is coming in for U.S at least for us in the back half of the year..

Okay. And then, I mean are you adjusting shift from some of the producers and buyers of your products to just lower cost products, given we’re seeing dairies closing in Wisconsin.

I mean, is that affecting the business? And then did you see any impact from the storms in North Carolina on your swine business?.

No, I don't think the mix shift is within segments. When Steve was talking about mix shift, he is talking about it on a macro scale within the whole company..

Okay..

So when you see different mix shifts within what the company look like previously and how those sales are being put together. So I'm not -- I don't see that -- we’re seeing mixes within a space or channel..

Okay. Okay. That's helpful. And then, you talked about China and India, obviously given the populations sizes being huge opportunities globally, which makes a lot of sense and significant growth out of India.

But how long before that materializes? Will it just be a continued slow build or do think we could see material growth for the next several years out of both market?.

Well, I think you’re going to see some growth. I mean, we saw that with India this quarter, and again that’s on a small number. But it's nice and Steve you can tell me if I’m right or not, but I think in local currency India made money this quarter..

You were right there, which is something that we had talked about for long time. So that’s really nice to see that group kind of turn the corner. And then we do expect longer-term.

When that happens, Kevin, I'm not sure some of that will be depending on food regulations, what the people require or people are asking, but we just know with those populations we need to be there.

It's like when we looked at Brazil years and years ago, we knew we needed to be there and now it's playing out, I think, I think you’re going to see the exact same thing with these two countries..

Got you. And then last one for Steve, you talked about the $240,000 state incentive that was a driver for your G&A, I believe.

Could you give us a little bit more detail what that was for and is it safe to assume that for one-time item?.

No, those are actually recurring, Kevin, and they’re economic incentives that we received in the State of Nebraska for our genomics operation. And it's -- I think it's a 5-year grant agreement with the state. And so we will -- we do record those every year. Some of it is the timing of the recording of the incentive..

Okay. Sounds good. Thanks, guys..

Thanks, Kevin..

Our next question is from Brian Weinstein of William Blair. Please go ahead..

Hi. Good morning. This is actually Andrew Brackmann on for Brian. I wanted to piggyback off of Kevin's questions on the animal side, and John your commentary on -- your expectation that it's going to firm up.

Maybe in the past when you've seen market swings like this, could you maybe point to some leading indicators that you have that make you confident to saying that you think it's going to firm up? Thanks..

I mean, what we try to look at is producer profitability. So you got to look at your customer base. And what’s nice is we’ve broad customer base, because when you look at processors they’re generally doing a little bit better, we sell our food safety products to them.

When I was talking about animal safety, I was specifically talking about producers, dairy producers, swine producers, beef and poultry. And generally those markets are not all poor at the same time.

We had some -- this year has been a little bit challenging for them, but really we’re starting to see some of the -- turn the corner and Jim you can help me here, because I know you know those a lot better on eggs, but maybe egg guys are actually doing a little bit better than last year..

Yes, that -- yes -- it's the broiler guys are probably -- so when you look at producers and processors, they’re almost one in the same with the big integrated companies.

A producer of eggs is also a processor of eggs where a few independent egg producers anymore, so we're talking about integrators there, their numbers are up probably percentage dozen, I don’t remember exactly what the real report was this month, but Steve's report was out yesterday I think, but their numbers were up and putting it healthy.

On the pork side, interestingly enough the pork processors are -- their revenues on a per animal basis were up some. So -- whereas they might be hurting a bit in the feedlot on pigs that all ends up in one pocket before it's over with. And the guys that owns the pigs, own the feed and owns the meat that coming up. So I think, John, is right.

I think it's -- there's a lot of noise out there. It's kind of hard to decipher some of that noise. You heard noise by what’s going at and soybean farmers and though we feel for soybean farmers, it then really impact us very much. We got our test go over to the soybean side, but nothing is going to impact us very much.

I think, stability, I don’t see any real hurdles in a road going forward..

Great. Thanks. And then maybe we could talk about food for a minute. In the past I think you’ve had some commentary on some, maybe increased competition from 3M there. Maybe you could talk about what you're seeing in with respect to competition on that side of the business? Thanks..

Sure, Andrew. We’ve got good competitors in that segment, but we think that we have the product portfolio and the team members that allow us to continue to grow share. And so, while we respect our competitors and we know that they’re going to be out challenging, we're ready and willing to face some.

And I think you’re going to see that we will continue to win on that segment..

Great. Thank you..

Thank you. Our next question is from Paul Knight of Janney Capital Markets. Please go ahead. If you’re mute, can you unmute your phone? We will open up the -- Paul Knight, if you’re on the line, your line is open. You can ask the question..

Yes, can you hear me now?.

Yes, we can hear you, Paul..

Okay. Sorry, we’ve had some phone issues in Midtown, Manhattan.

The question I -- commentary around your -- the management transitioned Jim as Chairman and you as the CEO, could you repeat what you had said about that transition occurring, John?.

Sure. So when I joined, we had a -- laid out a very well thought out transition plan. As to the businesses that were going to report to me and the ones that Jim was going to continue to lead as I learned about the business and came on board. And we are following that plan.

So just this last quarter, I've taken over responsibilities for the genomics side of the business and R&D. Jim is going to continue to lead Neogen Europe. Knows and does this as a great job. He is also getting continue to be working with Jason on all the acquisition pieces.

And it's interesting because it's not like Jim does one thing and I do the other. We were laughing about the other day. We probably agree since I've gotten here thousand times and we disagreed probably four. But the four disagreements, I think we’ve come to a better solution business because we sat and we talked about them. So -- [indiscernible].

All right now it's five. [Multiple speakers] five disagreements, I will mark that down. But that’s going to how we’re doing it going forward and Jim is going to continuous Chairman of the Board, and continue to help me run the company going forward..

Okay. Thank you for that. And on the genomics side, it looks like the U.S had great growth -- good growth again in the quarter, a slower growth in Europe or was that vice versa? And then, generally could you talk the genomics? It's been a great driver for Neogen.

What are -- what’s your current expansion situation in the New Zealand, Australian markets, so could we get an update on the genomics businesses, both U.S and non-U.S..

Yes, I may have to watch myself because I can talk rest of the day on the exciting stuff that’s happening on genomics, but we are -- we’re moving a lot of things around which is helpful. We -- this has really truly become a worldwide business.

Our Neogen Europe revenues for the quarter were probably the lead of the -- of all the labs because of the different things that were bringing in there. We are -- when you look at the animal side, we are the -- we do the genomics for the leading broiler breeder in the world, which is a significant piece of business.

We do the work for -- exclusively for I think 13 of the beef breed associations. We have one -- where we’re not exclusive and that’s Angus business in this time a year-ago. We had probably 30% of that business and now we probably got close to 70% to 80% of that business.

I'm just tipped off my competition, but nevertheless that that business continues to grow strong. John mentioned what we're doing was 16 years and we’ve been a player there. There's that we got a lot of confidentiality with people talking -- really talk about who the customers were. But some of the trace backs that you’ve heard on Salmonella and E.

coli, we played a role in those we played a role in helping these people -- you say this is a regulatory got you, but it's really its everybody working together trying to trace back where these problems are occurring.

And in two, three these outbreaks we were able to take the organism to our labs actually do the genomics on it, figure out not what there was a Salmonella or not where there was 1 of 300 salmonella, but was exactly what the -- what that organism look like, maybe we’ve to trace that back and say okay this production came out of central California is an example.

So that was a huge opportunities going forward. And we are expanding, that piece of the business is picking up along with animal genomics. Australian business is going good. Dr. Lilly is -- has been his pet project for -- I think he speaks aussie some days. It's been his pied project now for the price several months.

That’s probably the world's center and world. Pine head marine wall is coming from there. That’s the wall that you can wear next to your skin. And that business is growing good, but at the same time we are expanding our dairy business there. So anywhere you look that genomics is good.

I think we’ve covered the world as far as where we need to be for space, for geography. The channel thing is going to be helpful. We can now get refined DNA coming out of China coming directly and not try to worry about whether we can get regulations to bring in tissue cultures of different kinds. So I’m extremely excited about where we’re going there.

And just like if there's all kinds of opportunities..

Thank you..

Thank you. Our next question is from Gary Sweeney of Roth Capital. Please go ahead..

Hi, good morning, gentlemen. Thanks for taking my call..

Good morning..

Actually I could -- I want to follow-up on the comments about the China genomics with Mr. Herbert. I just want to see how much of an opportunity they sort of pre-work within China is in terms of the market opportunity and growth in China.

Is this more of a -- just a debottlenecking process or is this something more substantial and open up the market to a greater degree?.

Well, it's kind of hard to say. I think first of all, any time you talk about technology in China, you say how much longer before they own it and we give it away and that’s probably I’m being not politically correct and you were.

But at what point do the Chinese take over and do it themselves? They can do all the extraction, they can do all the work, but what the secret there is, and I mentioned there, I mean, I think in my comments, the secret there is that we got the bioinformatics, it says which cow is your key.

We’ve got this sniff content and all that’s not in common usage. So they can get the genetic code unlocked and laid out, but at this point they don't know which is the right genetic code. So, for instance, we can tell you whether ours is going to be get a half breed or what kind of milk production we’re going to see, or what kind of feed conversion.

And they’re not -- they don’t yet have all that. Now going forward, we will be partners with them and we will operate our lab over there. So we won't have to compete. But right now we’re bringing those samples back here because we’ve got the genomics to buy the bioinformatics to back up those genomics.

But we’re in China, we are in Shanghai, we are in Beijing, and we’re doing work near Mongolia where all those big diaries are. We are doing some work in down south in San Jose, and when we are in China, we are Chinese. So I think we will be partners with them there..

Okay. And then I just want to -- we talked quite a bit actually about the animal protein market, but just for my own ratification I’m just curious how much of weakness is tariff related versus maybe just some oversupply in the market and do we need tariffs to go away or do -- does that market sort of naturally redistribute itself.

Any thoughts on that front?.

Well, I think the answer is yes, Gary. You’ve got I think uncertainty around tariffs that that are causing groups to delay decisions or make decisions. We do have some oversupply in the market, especially on pork. And if you can export then it really hurts because where you’re going to put all that meat. So I think it is a combination of both.

But like I said before, these markets have always been cyclical. They -- the groups know what to do. They've done it before, they watch where they’re and they adjust accordingly. So that's we’re confident and we’re going to see some firming because we always have..

Got it. Okay..

And you check on John's comment too. Don’t wrap us in stars and stripes. We’ve got some other flags around us too. We’re a major player in Brazil, Brazil is going -- we lose a little market, Brazil picks it up. So that’s certainly what’s happening in the dairy business. So we've got Brazilian market to fall back on.

Brazil is going to be a big supplier and I think we participate from that.

So it's important that when was our 38% revenue came from outside the U.S this quarter, I think Steve?.

Sure..

39%, so that’s up a little bit from last quarter I think so. Those are -- all those bode well for us and we’re not just -- we are in both northern and Southern hemispheres, and that helps too..

Yes, that’s what I thought -- I mean at some point some of this market starts to redistribute itself and [multiple speakers] ….

Yes, that’s right, Gary..

… should kind of benefit from the eventual ones at even south. And then just finally acquisitions. Always part of the story is I think Mr.

Herbert mentioned 51 acquisitions to Neogen's history, but markets are little bit rougher, things -- at least the public markets are -- I think looking more opportunistic cheaper or maybe with some of the drivers on maybe taking a pipeline from the potential acquisition pipeline to execution..

I think we’ve got a self circle around, I guess probably four right now that fit and synergistic is to markets and synergistic to our product. We don’t have a deal on any one of them. None of them are going to be huge, but all of them are going to be very additive to what we’re doing. The big competition has been outside capital.

And we bid on a couple, we lost them. We didn’t really get to excited about losing them. In my opinion, kind of marginal and we got that bid. I think -- I don’t know where that money goes. I think that money is probably still out there. So as that money is buying up stuff to put things together, so we will continue to be on look out.

Maybe these guys will scale up two or three put them together and we will have an opportunity to make a bigger acquisition, but I think we’re pretty well tuned and we got plenty of capital to work with.

In fact, I will pass it myself on having a lazy balance sheet I never thought I would have a balance sheet that looks like this anything I or have responsibility for, but -- so we got opportunities -- certainly opportunities to grow and I think the organization to bring it well..

Yes, got it. Okay. I appreciate it. Thank you very much..

Thank you..

Thank you. Our next question is from David Westenberg of CLK. Please go ahead..

Hi. Thanks for taking the question.

So do you have any thoughts on Merck's recent acquisition? I think it's -- the name is Antelliq or Antelliq this time that’s typically, just in terms of product overlap and where they kind of -- where Merck might see the market going and how you might see the market going and just broadly speaking what you kind of think of that acquisition?.

So there's really not hardly any overlap. That’s the renamed Allflex business, which is a tag business. A large part of that business is visual electronic ID. They’re trying to build out that electronic ID platform a little bit, but it's mainly around companion.

So I understand how that can fit with animal health company with Merck, but it really doesn't impact us much at all..

We buy product from them. It's ….

Yes..

… and we got a good relationship with Allflex through the years. We looked at tag business 2 or 3 times in -- just in particular could fit us because of the manufacturing side of the process.

But they make probably the leading tissue culture sample, so we use and resale a lot of tags to take your samples out of cow's ear or wherever that might tissue sample may come from..

Right. Then just on the genomic side, you’re continuing to get really good volume.

Can you talk about maybe what the pricing is on there and kind of what the pricing versus volume dynamics you see over the next couple of years, and in terms of pressure and opportunities?.

Yes there is -- easily there's a lot of pressure being put on prices. And we’ve got a lot of competition in various places, probably nobody quite -- we’ve got maybe one competitor, two competitors that of similar size. But nobody with quite the breadth we’ve got. We are on a companion animal side.

We are strong there, we are strong on the identification of -- with Mars [ph], that’s not a secret I don't think with the wisdom panel and identifying breeds. We are strong with American kennel.

But then you turnaround the same time and I talked about how we were strong with Angus association with the leading Angus with the leading beef breed, interestingly that’s a certified Angus beef, advertising for them 17% of the beef that we eat in this country is certified Angus beef, and we're right in the middle of that process of helping them determine tenderness in marbling and taste.

And so, all of those things are I think really important going forward and put us in good shape compared to last. Now at the same time when you got competitors that don't have quite that background that they’re leading sales pitch as we can do a cheaper. We like to make and say [indiscernible] and better but there is pressure at their own pricing.

We've been able to reduce our costs a good bid. Really a lot since we first started with that first operation in Nebraska. We got robots in now that I'm amazed at. We can load some of these tissue samples up that I talked about coming from Allflex and it will go through and it will extract and then we put them in tubes.

So we’ve got a lot of things where we did have a hand labor that now we have automated and what we're doing -- what we’re able to do with IT wise, we can pull a lot of this stuff together to do trace back with better computer science is a big help.

So, yes, I think and I should be able to give you the answer on some of these, but I think there's some cases where we can see that where the business was up only X dollars in revenue, the sample size was up double at amount as we faced the pressures of prices out there. But we knew that, starting with, no incident.

We knew is the technology got better, competition got stronger, we got better at the same time now..

Yes, and I think David at Jim's point, some of things we’ve done that continue to look at mitigating that as the things we're doing around services for our customers, I mean, that’s one of the reasons why we bought Live Stock genetic services is taking -- someone wants to say, well I will just do it cheaper and make it commoditize, that doesn't work.

You have to be able to interpret the results and then implement. Then those are the type of things that we have a data management with our dairy dashboards, with the new things that we are adding, well, I think are really going to differentiate us and it won't be a pure price play..

Got it. That’s very helpful.

And then, just thank you for the color in terms of the four acquisitions and this kind of a follow-up to the last few questions around and that on acquisition, so you said you talked about your four acquisitions, but we've also kind of been looking at currency and just kind of how much do you think the strength of the U.S dollar might play a role as you’ve cheap acquisitions available to you overseas..

I'm not sure. It's got certain, it won't be helpful. We've got some that are focused on the euro and I’m sure you ought to know that, we're looking at that part of the world.

And then you got to look at pound sterling going to the euro, and then that's about the time I need to get the crystal ball out, but the -- we certainly should be advantaged as far as being able to buy international businesses with U.S dollars. I’m not sure it's going be a big game changer though..

I agree with you. It doesn’t change our perspective, we are moving them up. We appreciate that there's an advantage, but we've got as Jim said we got softer on -- soft minder on around [indiscernible]. We've got six others that we're looking at, we've got others in the pipeline.

So while we think -- we’ve recognized that maybe it's on sale compared to the U.S currency, we just keep putting through the process..

Got it. Thank you guys very much..

Yes..

Thank you. [Operator Instructions] Our next question is from David Stratton of Great Lakes Review. Please go ahead..

Good morning and thank you for taking the questions. Real quick I would like to touch on the, let us recall that was in late November and get a sense of if that -- in November or in this quarter and if you would remind us on kind of the cadence of the products that you benefit from when recalls like that occur..

So we can speak in general, because as Jim talked about earlier, we’ve CDAs with a lot of companies regarding, you can imagine these are sensitive topics for then. But in general we have a number of platforms regarding pathogens whether it's our answer platform or review of platform or 16s platform.

So we’ve a lot of different ways in which we can help customers identify specific pathogens, pinpoint where in their facilities they’re to help them develop a remediation program. So there's -- Jim will look at the other day, double amount of recalls that they were last year.

They continue to be up, I think this was in a Wall Street journal a recall, it's not that the food is on safe, it's a organic better detection.

So the probably will continue to be more recalls because people are now able to detect actually what’s going on, faster, and we are able to link -- the CDA is able to link a specific illness to a specific strain where they couldn’t in the past. So we think we are well positioned to continue to have customers.

We have a program that we’ve developed which is a recall program that helps customers that have -- they have never been through this before, we can help them on -- these are the steps you need to take to help manage a recall process, manager recall process..

Thanks. And then, do you have a residual benefits on the back end with your cleaners and disinfectants. And then, can you help me understand when a recall or the initial detection is made. Is there a ramp up in test to kind of flush out the scope of it, or is it testing as usual and really there's not that blips then after the fact.

Definitely we are ramp up to start to find out where it is, where the contamination is, where in the supply chain is located,3 we are in the facility it's located and in general after that they will modify their protocols to make sure that the testing procedures just from a maintenance standpoint are robust, right because no one likes to go through something like this.

And from a cleaner and disinfectant, that’s more on their animal safety side of the business and not in our food safety. I don’t think Jimmy can help me here. We don’t really have anything. Nothing it fits specifically there. But we are very strong overall on the [indiscernible] security side with our cleaners and disinfectants there.

And what’s going to middle is a lot of stuff going on. Now we’ve got an outbreak first time in a long time. We found a flock, commercial flock, chickens in, I think, California with avian influenza. And you know that’s one of those things that we want to watch.

That means it hopefully, all these guys that are running poultry complexes already had put [indiscernible] and they are washing truck tires and -- but if they want, they stepped up that procedure. So anytime you see some of those things come along, it increases -- make sure -- remind you what it was you knew you are supposed to be doing anyway.

So -- but that probably doesn’t move a needle lot anymore. I think we are about actually make a customer see..

Got it. That’s helpful. And then, I guess, one follow-up, you mentioned that the second half should be -- should benefit more from your cost initiatives. And I was wondering if you could or view we would like to quantify that at all as far as you’re already said that.

The second half should benefit on the more robust sales side and how should we think of that, then with all sort of cost benefits taken hold..

Yes, I don’t know Dave we are going to quantify what -- what we we're doing though is we look at the business and to Steve's point, we said okay, and this is something we’re always do is work we become more efficient, one of the things we are going to do to expand operating margin percentages or what are the things we’re going to do to drive the business.

So we’ve taken specific action to try to do that and make sure that we continue to drive the business forward for the second half of the year..

All right. Thank you..

Thank you..

Thank you. Our next question is from Brian Gaines of Springhouse Capital. Please go ahead..

Hey, because the 6% organic growth, does that back out currency or would it be fine?.

Yes, that’s net of currency. So if you add back the comparative of the $2 million comparative revenue, that would have been more like an 8% organic growth..

Okay, thanks.

And can you say -- how many shares did you buyback in the quarter?.

We are not disclosing that at this point..

Okay.

And then what is the absolute level of revenues from India and revenues from China?.

Yes, we historically have not disclosed. I would tell you that they’re each below $10 million. But we don’t give specific country revenue figures for those..

Okay, great. That’s it. Thank you very much..

Thank you, Brian..

Thank you..

Thank you. I will now turn the call back over to John Adent, closing remarks..

Thank you, Christine. We appreciate all of your support. We know that the things that we’re doing are going to continue to drive the business form looking forward to a really good second half of the year. We hope that all of you have a happy holidays and a great new year going forward. So thank you very much..

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