Ladies and gentlemen, welcome to the Neogen First Quarter FY2018 Earnings Announcement Conference. My name is Camie [ph] 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. [Operator Instructions] Please note, that this conference is being recorded. I will now like to turn the call over to Jim Herbert. The line is yours.

Good morning and as Camie [ph] announced, welcome to our regular quarterly conference call for investors and analysts. Today, we will be reporting to you the results of our first quarter of this 2018 fiscal year which ended on August 31st. To start with, of course I will remind you that some of the statements that are made here today could be termed us forward-looking statements. These forward-looking statements, of course, are subject to certain risks and uncertainties. And actual results may differ from those that we discussed today and that 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'd also welcome those who may be joined by way of simulcast on the worldwide web. Following comments this morning, we will entertain questions from participants who are joined by this live conference. And I am joined today by Steve Quinlan, Neogen's Chief Financial Officer; and John Adent, Neogen's new Chief Executive Officer who assumed duty responsibilities in mid-July. John and I by the way are sharing a number of responsibilities which is giving us the chance to pursue some great opportunities that have been difficult to pursue in the past. Other than that initiative Neogen issued a press release announcing the results of our first quarter of this 2018 year. Net income increased 21% to $11.9 million or $0.31 a share, this compares with the previous year's first quarter of $9.9 million or $0.26 per share. Revenues for the first quarter increased by 14% to $95.3 million compared with the previous years $83.6 million. Both these revenues and the net income represent first quarter records for our company that celebrated its…

Thank you, Jim. And welcome to everyone listening. Jim has already reported on the overall sales and profit performance for the first quarter of our 2016 fiscal year. I will provide more detail on that performance of our food safety segment, as well as offer some perspective. But before I do that I have a few observations on my first two months at Neogen. First and foremost, Neogen is in the right markets helping our customers improve the safety of the worldwide food supplies, a dynamic and growing market; and with our products and services that reached from behind the farm gate to the dinner plate, we're uniquely positioned in the market. Secondarily, this is a team that does not rest on its laurels; our recently launched Listeria right now 16S genomic test for bacteria, water-based mycotoxin test and new DNA profiles for beef feedstock and commercial cattle are all exciting potential game changing technologies. And lastly, our employees are excited about the future. The transition plan that Jim and I had developed has been exceptionally smooth in my first 60 days. We are aligned on the short and long-term objectives of the company and are working our business plans. Jim has been a great leader for a long time and I look forward to his mentorship for years to come. It's an honor and a privilege for me to be here, I embrace the opportunities and challenges in being Neogen's new CEO. Now onto the first quarter performance of our food safety segment. As stated in the press release, revenues of our food safety segment increased 19% during the first quarter compared to the prior year's first three months, aided in part by the acquisitions of Quat-Chem and Rogama in the past year. Organic growth for the food safety…

Thanks, John. As both Jim and John have both indicated, we got off to a strong start for fiscal 2018 with the 14% increase in revenues in the first quarter. And I'm happy to report that for the first time in over a year, currency did not have a significant impact on compared to revenues for the quarter. There were some puts and takes with the pound slightly lower than last year's level and all other currencies we deal in such as the euro, peso, and real, higher relative to the dollar in this time last year. The total net negative impact from currency movements on comparing to revenues was only $150,000. John has already discussed some of the key highlights of our growth in the food safety business, I'm going to focus on the animal safety segment. Animal safety recorded an overall revenue increase of 9% which was all organic. This is the first quarter which has -- and we had a negative comparison against the prior year due to Thyrocare [ph] but replacement drug for dogs that we withdrew from the market a little more than a year ago. We are continuing to pursue regulatory approval of this product and hope to sell it again in fiscal 2019. Increases in our [indiscernible] based business came from sales of veterinary instruments which increased 11% with strong sales of needles, syringes, and animal marketing products. Life sciences revenues increased 8%, primarily due to forensic test kits which continue to be in demand at U.S. commercial labs due to regulations in Brazil requiring drug testing of commercial drivers. Our genomic service [ph] business increased by 3% as increased sales in the retail agricultural market were offset by a decline in toll manufacturing revenues due to lower demand at one of our…

John and Steve, thanks for adding that important color. Let me bring you upto speed on our international businesses and take a look at that from a broader perspective. First of all, our revenues from international sources for the first quarter were 19% ahead of that same quarter last year and we accounted for 36.2% for total revenues, last year that percentage was 34.7%, so it's up a bit there. Looking first at our largest company owned international operations headquarter there at Ayr, Scotland, we now have about 200 employees as a part of that need in Europe operations. They are responsible for all of our food safety sales, either directly with our own sales force or with distributors in all of Europe and part of Africa. The UK portion of that business was up about 7% for the quarter but revenues for both, France and Germany were down because those countries had high mycotoxin levels last year in their grain crops but not this year. However, when we look across the risk of that whole market area, it was up a total of about 13%, so continued the strong growth in that part of the world. Our lab dehydrated culture media business, that's part of that management group had an increase in revenues for the quarter of 34%. The Quat-Chem operations that recently came onboard and also reported to our Scotland management team and continued to do well, their revenues were in keeping with our integration plan for that business. As some of you are familiar with the story now, we are positioning our international strength where the middle class population is expected to grow most rapidly in the next decade, that of course clearly centered on China and India. We've been in China for a while now and…

[Operator Instructions] And our first question comes from Jason Rogers from Great Lakes. Your line is open.

Just wanted to look more of the genomics area, very strong growth, even with the -- I believe tough comps from a year ago. I wonder if you could talk more about what's driving that and if there is -- was any onetime type of business in the quarter that drove that strong number and how sustainable it would be going forward?

I'll be happy to entertain that. I'm not quite sure what the reference to prior year is but that business has continued to do well. Take a quick look for those people who might not have seen it. We've started with a business that we acquired, we wanted to be in the genomics business, we acquired a nice little company in Lincoln, Nebraska. We added to that over the course of the first year, couple of other acquisitions of people that were players in that business and we've grew the business -- we -- and we're growing it to the point that we needed to be able to increase our international presence so we set up a little sister lab just like Lincoln in Ayr, Scotland as part of that group. Then we later just last year moved and acquired the largest genomic, animal genomics lab in Brazil, actually which is operating well there. And then just the 1st of this month, we kind of finished out that referral over with the genomics lab in Australia. The growth margins there and the net -- the product offerings, operations from project operations are both very much in keeping with where we wanted to be. I don't think we do a lot of talking about it but our growth are -- our operations -- part of our operations is going to be somewhere above the 20% level which is of course the bogey that we looked on. We see that business just continuing to grow, I was on the phone with them yesterday all day at our monthly management meeting and meet people from our -- wrap some around the world and everybody had exciting new things to talk about. And that genomics business has expanded beyond just selecting the right animals for animal agriculture and animal breeding but also over in our food safety area; we've got good growth as companies are sending samples of organisms that might be causing spoilage, they don't know what they are, we're able to do the genomics on, predict what's tell them what's going on given the right place to look, during the same thing with the open people track pathogen bacteria in their operations by using full-fledged genomic applications there. So we're really excited about where that is going, there were no one-time opportunities; it was just I think overall general growth and it was growth from the cattle business, the beef business, the diary business had a nice growth, the hog [ph] business on genomics was strong, we'll continue to do well with the poultry side of that business and it's -- it fits well with what we wanted to do. It's been keeping with what we thought we could do too by the way.

All right. And John, you mentioned some positives that you know this with Neogen over the past two months; any areas that you look at that might have room for improvement?

Yes, I think there is always room for improvement in general organizations. I mean, some of the things that we look at is; just trying for me in the last two months is really listening, trying to understand -- taking what Jim has done and building upon his vision of the company and really getting another leadership group. I think that's really the key for me right now is spending time with that team and really building a relationship with that group to make sure that we're operating as a high functioning group and continue to get the double-digit growth that we've done consistently for the last 12 years. So we'll look at more opportunities and as we go forward in the next couple of quarters and build those into our business plans.

And just finally a numbers question; what's the best estimate for the tax rate for the remainder of fiscal '18?

Jason, that's going to be tough just because this new wrinkle with the new accounting guidance on stock option expense. It could range depending on the number of options exercise, it could be 2% -- at $0.01 impact could be 2% on the effective rate; $0.03 impact would be a 6% effective rate. So I'm not smart enough to predict what's going to happen each quarter but that's kind of the range it could be.

Thank you.

And our next question comes from Brian Weinstein from William Blair. Your line is open.

This is Andrew [ph] in for Brian today. I'd like to go back to operating expenses there from -- and just to make sure I understand this; I sounds like a significant amount of these increases are due to acquisition related costs. Can you quantify the total amount that was related to these acquisition costs and am I right in thinking that these are more one-time in nature? Thanks.

Yes, let me interrupt before Steve gives you the real number and give you bit of philosophy. You know, we play whatever hand is delta, but the hands in delta's own acquisitions today are quite different. We have to expense all the costs involved and the due diligence of our company, anything that we spend on it, it's legal expenses putting all the documents together. The day we close the acquisition we expense it. Now we could spend and we wouldn't but can spend a quarter million of an acquisition cost during due diligence and acquired the company before we were ever got the first dollar worth of revenue, we hit the operating statement with the cost of doing the acquisition. So that was the fact that once you brought assets onboard at whatever the book value was, the company that you brought; now in its wisdom can [indiscernible] say, you bring them on at whatever the fair market value is. So if I had products in my inventory that were worth -- that cost $0.50 to make them, I'm used to bring them on at $0.50 but if the fair market value is a $1, I'll bring them on at $1, then I've got to turnaround and sell them, and if I sell them for $1, I hadn't made any money. So you look at some of the interesting things that occur, especially at companies this -- you know, we've done 37 acquisitions I guess since the year 2000 and we'll continue to do them; you just need to do what hand has dealt us but that hand begins to look a little different from time to time. Steve, with that preclude [ph], do you have a $1.

The total dollar amount for acquisitions -- directly on acquisitions was about $1.2 million. And then I think did you have a follow-up question as to…

I mean that was $1 [indiscernible]?

Yes, a lot of that will be ongoing because those are the people that came with the acquisitions but there the a number of expenses in there. Of the $1.2 million I would say, you could probably say there is a couple of $100,000 of legal expense and amortization of intangibles would be another -- probably $100,000 or so. And then as we integrate these businesses, those expenses could change going forward.

I appreciate it, thanks. And then one follow-up I have here is on the M&A front. The Queensland AGL seems in-line with your strategy, what should we think about the next move for you guys in M&A, is it still in genomics? Thanks.

Well, I don't know that we want to pinpoint it. I think we're probably okay on genomics right now, we're moving strongly with the new operations in Brazil. By the way our Lincoln, Nebraska laboratory has now moved into a second additional building, we're expanding there. We'll do over 3 million samples in that one lab this year which will easily make it the world's largest animal genomic laboratory. We've gotten all of the things coming on there on the food safety side work in particular with probably some processors including meat processors that we're trying to figure out what they need to do to improve the shelf-life of fresh product and we can do some things genomically that are helping them, we've got guys on the lab side of production and are saying, I've got a problem, in the chicken -- with the chicken farm somewhere and our group of complex is not needed to know what that is, we're able to help better. So there is a number of opportunities that we already have. So I don't see right now snowing any acquisitions over the additional front on genomics. I think there are opportunities as we look at; what we've done with BioSecurity, whether our cleaner, disinfectants [ph] and there is always opportunities that we look around with we're doing with our food safety group. We're acquiring license, we're doing a lot of things, it's probably while little under the radar but a lot of things in strengthening that part of our business. But nothing that -- no one others have intent, nothing and that can really be a pain point but wouldn't be appropriate for me to pinpoint today.

Thanks.

And our next question comes from Charles Haff from Craig-Hallum. Your line is open.

Hi, thanks for taking my questions. Steve, I had trouble keeping up a little bit on those prepared remarks but the worldwide genomics; you gave a 48% number and a 28% number, what segments of that were those?

So worldwide Charles was 29% overall. And the pieces insider there were the once we were talking about the poultry market. Those were have all been U.S. based increases. Okay. And let's see, was I comparing an animal market, it was the one that I was talking about that was 48% that poll three revenues up 38%.

And you said something about sheep too, right, did you give a number for that?

Yes, I didn't give. The number for sheep is a big number out of small base, so I didn't give.

And so I was wondering, poor thing, sheep is -- obviously you don't have to do a lot of gets to understand why we're in Australia [ph]. The largest marine population of sheep in the world is there, it's defined here as sheep is the wool that you can wear nexus body, they've got a tremendous program running sheep genomics. We've been a supplier there as we've been getting a lot of the samples from Australia going direct to Lincoln and we did the works in it back which blocked -- which side of the block to say what we've going on, a lot of going -- in addition to not just wool but also with meat there. So this is part of what we're going to be doing in Australia, we'll shorten the pipeline of stuff that was going, to linking at one point but there is also a big opportunity to grow very nice spot sheep, you know they've got a big population and five different breeds and couple of different important breeds. And that also in addition to Australia, we'll pick up New Zealand as the adjacent island and a couple of -- I'll let this business together which -- we needed that and I have ruined that business.

Yes, that makes a lot of sense and it seems consistent with what you did in Scotland too where you were shipping things out of Lincoln and then once it got big enough, then you put in domestic facility there and I guess Brazil came through acquisition but kind of similar. Do you see a lot of other opportunities to kind of grow organically or inorganically in some of these other markets in the genomics segment where you can -- stuff that you know, send out volume that's going to Lincoln is getting large enough that it justifies kind of building a domestic market?

Yes. And we're looking at those, it would be inappropriate to pinpoint where we're looking but some of that is certainly true in Europe as we see -- we're picking up a lot of product coming to Ayr, Scotland but it's a big populations that deal with genomics as you look all over Europe, France in particular, and some things are happening in Germany. It might mean that we need to do something to expand our efforts there, we don't have anything on the radar for this year but it could be some opportunity.

Okay. And then, you know, this growth here in genomics is really starting to accelerate; and you know, I've always kind of thought about pricing has always kind of come down like most areas of technology comes down and then you make that up significantly with increased utilization as the price per test comes down, you can pull more lower volume producers in and so on and so forth, it's more economical for your customers. Can you just kind of talk about the competitive landscape and the pricing environment; have we finally got it based out on pricing or you know, just kind of help me understand the long-term drivers here on the organic genomic side?

Well, I think we've been and continue to be in Ayr, there is some compression of industry. The guy with one or two instruments in his backroom can't compete anymore, can't compete price-wise, he can't compete technology-wise. [Indiscernible] and we believe it isn't continues to be -- from the very beginning we said we don't want to just be a genomics lab, this is going to bring in samples, spit that roll of data and let somebody else do their own genomic work. We need to own the bioinformatics, and we do; we've got five big models of bioinformatics that we developed, that we own; and if you want to use that model then you use -- we get to do the testing and we give you the predictions. We said, if we don't do that then that will go to the cheapest provider and as it gets to be more [indiscernible] all those guys that are making instruments out here today are willing to sell them cheaper tomorrow and we'll have to compete with India and China who will be lined up around the clock running your samples and that's not where we want to be. I think we've quite got there but I think we're achieving that in a lot of direction, and if you want to use -- if you want good genomics, it could be able to tell you 14 traits that you like to know about saving the dairy effort or that you want to know for cattle going to the beat-line [ph], you've got to go to [indiscernible] because they've got the bioinformatics. So we'll continue to build that, we just finished the bioinformatics model for the Norrie [ph] cattle, that's a special breed in Brazil, it's a little different genetically than other breeds that we might have and this one is specifically provide predictions, projections on Norrie [ph] cattle; nobody else has got that product. So that's working well and will continue to work well for us. I'm not sure whether that answers your question or not but that's…

And in terms of the competitive environment, you know, these micro-breeds or whatever you want to call them; is that something that's [indiscernible] as your large competitor in the marketplace doesn't have the specificity going after these individual breeds that you do?

Well, they are strong. I've got no -- no never play that in my competition. I watch them every day, they are an ally on some days and then enemy on others; but they do a good job, they're not nearly as widespread as we are and I don't think that's in there, that's not their strategy. Number one, they are a pharmaceutical company and they'd like to sell more pharmaceutical products, more vaccines, more antibiotics, that's the thing that drives that company. The animal genomics business is just sort of an add-on piece; I think they've got into it looking at the fact that -- if you don't buy the antibiotics to cure metastitis in dairy cow, we will make you a special deal so that you can run some dairy genomics and figure out which effort to take. As we said that, I'm certain that [indiscernible] would do a good job. I like -- I think any market ought to have good competitors; they are good competitor, they've put out good product, and that helps the overall market. I don't think that they have any intention to want to run us out of business, we're in broad businesses; I don't think they want to be in my trip [ph], we've been looking at things like -- yesterday you went back to -- we're looking at anything that fits in the animal protein area and in particular. And I don't think they have any ambition of using their genomic platform to do things on predicting what it is that's causing foliage in both shops or products like that. So they are a formidable competitor.

Okay. And one last one on genomics and then I missed the cash flow from operations number Steve. On Illumina, on genomics the partnership you've signed a couple of years ago, is there any impact -- material impact now from the Illumina distribution agreement or is that still dominimus right now for your genomics business?

No, just to bring it in I don't know exactly -- I probably wouldn't tell you if I didn't know but remember it's an increasing number, they sell our GDP product in a couple of places, that's where we developed the bioinformatics, they've put it in Illumina chips and we have an agreement that they can sell those chips to certain customers around the world and we get paid sort of an accelerated royalty payment on those -- our product that they sell to others. It's the same time that in bear to us with -- to those guys because it's our system; so they are using the Neogen GeneSeq GGP Model to do that development and to continue doing that going forward, they will have to continue to use that model as they continue to do breed development overtime. So I think it's working well, you know, they've got putting your folks to sell their products through other than just us and we know that and we respect that but our relationship I think is pretty good.

Okay. And Steve, that cash flow numbers, sorry, I missed that.

That's okay. $19.2 million from operations.

Great. Thanks for taking my questions.

[Operator Instructions] And our next question comes from David Westenberg from C.L. King. Your line is open.

Thanks for taking the question. So this question is for John, I just want to talk about having an outsider's perspective in what you're seeing there but also balancing that with the fact that you are stepping into a company that's already pretty well run. So how do you balance the offering that fresh perspective but not reinventing the wheel here?

So what's interesting is I'm -- this is the second time that I've followed a founder that has been the CEO for 35 years; so I have a bit of a perspective on how to do it. The key David for me is to just ask a lot of questions because you're right, as an outsider you view things and I ask why do we view that and sometimes the answer is, well, we've always done it that way and the question is, okay, well, why again do we do it and is that the right way to do it going forward. And so asking questions really helps me do that. To keep aligned with the organization Jim and I communicate all the time, we talk three or four times a day, we have very clear responsibilities on what I'm doing right now and what he is doing right now. We make sure that we're aligned as we move forward on different things because that's important for the employees to understand that what John is doing this side of business, Jim is going to continue to work on others. And for me it's important to continue to talk to him because he has got such as breadth of knowledge in the industry. And so even though he tells me he is getting ready to go to the ranch, he is not going anywhere. He thinks he is going to have more time off but I'm changing the HR policy, that he is given two weeks and that's it. So he may think that he is getting more time off but that's not going to happen; so that's kind of the way I approach it David.

All right, thank you very much.

He doesn't know David, but I've got a communications set up at the ranch so on a good day he won't know where I answer the phone from. Maybe -- tell me to work, so -- and I thank you is a little bit too much; sometimes emphasis given to the old guy. The big thing that John’s got going for him, he is got to help the management team, he has got people that are running in pieces, this company has been doing it for -- I'll look at Ed Bradley, Terry Marcos [ph] that have been doing it for 25 years, Terry and I celebrated the 25th Anniversary of bringing on our businesses now for our Animal Safety group. And the Bradleys and the Morricals and I'm leaving out 50 other people, are all strong, they are all there and that's good. I think the strength that the company brings.

All right, thank you very much, that's very helpful. And you've talked about the good reception with theory right now; can you talk about maybe building around that franchise and what the opportunities are to develop around the right now kind of products?

Yes, it's different and we think there is some opportunity; again, I don't want to go too deep because I've mentioned there is a competitor too that's listening to this call so no need to put our hand but what we've been able to do in giving an answer to Listeria right now is it allows the company to quick do a test, before that we started to find out if they got a problem. It's particularly important in some of the dairy businesses, as an example, we all know the story of Blue Bell Ice Cream; they had a machine that they weren't able to clean good, they didn't know where the problem was, they didn't find it, couldn't find it and they had a huge listeria outbreak in ice cream that damn near put the company out of business and made a lot of people sick. With our product if they'd tested in right area on that line before they cranked it up, they would have been able to find listeria, go in and clean it up before they ever started freezing the ice cream. So that's the opportunity that we have there. If listeria is a bit of a different -- you know, everybody around the table knows where I got my PhD in Microbiology which I don't have so, I don't want to go too deep in the science but listeria organism is a bit different in the genetic makeup than some of the other or major pathogens. So we think there is some opportunity for similar approach to other pathogens but we're not quite there yet and we probably don't want to talk to you more about it anyway.

Fair enough. And then just one last question for Steve, gross margins did creep out a little bit despite food safety being my estimate anyway. You did call out Quat-Chem and Rogama but is there anything else there that we might need to think about?

There is nothing unusual in there David, there is -- we basically have 10 different products lines throughout the company, so there is a lot of mix type of issues that flow through gross margin but there is nothing other than really the absorption of the acquisitions to really talk about except I did mention on the call that GeneSeq's gross margins improved on having in the last -- half of last year and the beginning of this year, other than that it's really a mix issue. We talked a little bit about the [indiscernible] in Europe last year, it's really just mix within the products lines.

Great. Thank you.

And our next question comes from [indiscernible]. Your line is open.

I just wanted to go back to the -- I missed a couple of things. Well, what was the gain from currency?

It was -- currency gains were actually positive in other income. It was $465,000 overall.

I have mentioned the head was on the tax rate, just clarifying. So were you indicating that the normal tax rate being around 34%, 35% and from the exercise of stock options; if I'm interpreting your comments that every quarter it could offset the tax by a couple of $100,000, may $200,000 to $500,000; if I'm interpreting what you were saying correctly, is that a correct interpretation?

It was $400,000 this first quarter and we estimated that could range and that was about $0.01 per share. It could range between, we estimated this is brand new for us, it could be $0.01 to $0.03 a share which could be $400,000 to little bit over $1 million and that could have 2% to 6% impact on our effective tax rate depending on the quarter.

And that would be from the baseline tax rate of 34.5% roughly?

Correct. And obviously there is other noise that goes through that tax rate in any given quarter but that's -- what you heard was correct.

Excellent, thanks very much.

At this time I have no other questions in the question queue.

Okay, thank you folks for being onboard. Thank you, Camie. Let me again, make sure to remind you that the annual meeting of the company will be at 10 o'clock Eastern Time here in Lansing on Thursday, October 5th, that is not far away. If you've got a proxy ahead, return it, please do so. I'm up for election this year and I'd like to get back on the board, so I hope you proxy if you've already got, and if you haven't voted in, them anybody that send we'd sure love to see you at the annual meeting. Thanks for your support and thanks for your interest this morning.

Ladies and gentlemen, this concludes today's conference. We thank you for participating and you may now disconnect.